Earnings call transcript: United Community Banks beats Q2 2025 EPS estimates

United Community Banks (UCB) reported its second-quarter earnings for 2025, surpassing analysts’ expectations with an earnings per share (EPS) of $0.63, compared to the forecasted $0.61. Revenue, however, slightly missed projections, coming in at $260 million against an expected $261.3 million. Following the announcement, UCB’s stock rose by 1.38% in pre-market trading, reflecting investor optimism. The company maintains a strong dividend track record, having raised dividends for 11 consecutive years, with a current yield of 3.07%. According to InvestingPro data, two analysts have recently revised their earnings estimates upward for the upcoming period.

Key Takeaways

• UCB’s Q2 EPS exceeded expectations by 3.28%.
• Revenue fell short of forecasts by $1.3 million.
• Stock price increased by 1.38% in pre-market trading.
• The company completed the acquisition of American National Bank.
• UCB plans to expand its loan growth and margin in Q3.

Company Performance

United Community Banks demonstrated robust performance in the second quarter, with a 14% year-over-year increase in operating earnings per share to $0.66. The company also reported a net interest margin expansion to 3.50%, up 14 basis points. Despite a slight revenue miss, UCB’s strategic acquisition of American National Bank and strong performance in its Navitas loan segment contributed to its overall positive outlook. InvestingPro analysis shows the company trading at an attractive P/E ratio of 14.75x relative to its near-term earnings growth, with a strong financial health score of 2.58 out of 3, indicating GOOD overall financial condition.

Financial Highlights

• Revenue: $260 million, slightly below forecast
• Earnings per share: $0.63, up 3.28% from forecast
• Net interest margin: 3.50%, up 14 basis points
• Efficiency ratio: 54.8%, improved by 222 basis points year-over-year

Earnings vs. Forecast

UCB’s EPS of $0.63 surpassed the forecast of $0.61, marking a 3.28% surprise. This beat highlights the company’s ability to manage costs effectively and expand its net interest margin. However, the revenue of $260 million fell short of the $261.3 million forecast, indicating challenges in meeting top-line expectations.

Market Reaction

Following the earnings announcement, UCB’s stock price rose by 1.38% to $31.70 in pre-market trading. This movement suggests investor confidence in the company’s strategic direction, despite the revenue miss. The stock remains within its 52-week range, with a high of $35.38 and a low of $22.93, indicating room for growth. Based on InvestingPro’s Fair Value analysis, the stock appears slightly overvalued at current levels. The company has shown strong momentum with a 7.92% total return over the past year, despite recent market volatility.

Outlook & Guidance

Looking ahead, UCB expects loan growth in Q3 to mirror Q1’s performance, around 6%. The company is targeting a 5-basis-point margin expansion and is exploring mergers and acquisitions with small, high-performing institutions. UCB’s future EPS forecasts for FY 2025 and FY 2026 are set at $2.5 and $2.68, respectively, with revenue projections of $1.051 billion and $1.114 billion. Analyst targets range from $32 to $36 per share, with revenue growth forecast at 17% for FY2025. For deeper insights into UCB’s growth potential and comprehensive analysis, access the full Pro Research Report available on InvestingPro.

Executive Commentary

CEO Lynn Harton expressed satisfaction with the company’s earnings growth, stating, "We continue to enjoy solid growth in earnings." CFO Jefferson Harrelson highlighted deposit performance, saying, "We were very pleased with our deposit performance this quarter." These comments underscore UCB’s confidence in its strategic initiatives and financial health.

Risks and Challenges

• Potential revenue shortfalls if market conditions worsen.
• Integration challenges following the acquisition of American National Bank.
• Competitive pressures in the banking sector.
• Macroeconomic factors affecting loan growth and interest margins.
• Regulatory changes impacting operational costs.

Q&A

During the earnings call, analysts inquired about UCB’s Navitas loan strategy, capital allocation priorities, and potential market expansion opportunities. The company emphasized its focus on maintaining a strong capital position and exploring strategic growth avenues, reflecting its proactive approach to navigating industry challenges.

Full transcript - United Community Banks Inc (UCB) Q2 2025:

Earnings Call Moderator, United Community Bank: Good morning and welcome to United Community Bank’s Second Quarter twenty twenty five Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton Chief Financial Officer, Jefferson Harrelson President and Chief Banking Officer, Rich Bradshaw and Chief Risk Officer, Rob Edwards. United’s presentation today includes references to operating earnings, pre tax, pre credit earnings and other non GAAP financial information. For these non GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of investor presentation. Both are included on the website at ucbi.com.

Copies of the first quarter’s earnings release and investor presentation were filed this morning on Form eight ks with the SEC and a replay of this call will be available in the Investor Relations section of the company’s website at ucbi dot com. Please be aware that during this call, forward looking statements may be made by representatives of United. Any forward looking statements should be considered in light of risks and uncertainties described on Pages five and six of the company’s 2024 Form 10 ks as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I’ll turn the call over to Lynn Harton.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: Good morning and thank you all for joining our call today. We continue to enjoy solid growth in earnings. Operating earnings per share for the quarter was $0.66 an increase of 14% year over year. One cause of that growth was an expansion of our net interest margin to three fifty basis points, an improvement of 14 basis points over last quarter. Jefferson will give more details, but the quarter saw continued stabilization of our non interest bearing balances as well as success in lowering interest bearing deposit rates.

Seasonal outflows of public funds were within our expected ranges and our customer deposits excluding merger activity grew 1.3% annualized. Loan growth was 4.2 annualized and pipelines remain strong as we head into the third quarter. Credit continues to perform well. Net charge offs were 18 basis points for the quarter including Navitas. Ex Navitas net charge offs were eight basis points annualized.

Both non accruals and past dues already at low levels improved during the quarter. Expense growth was well controlled and helped us reach an efficiency ratio of 54.8%, an improvement of two twenty two basis points compared to last year. I’d like to congratulate and thank our teams throughout the bank for these great results. I’m also grateful for all the work that our existing teams and our new teammates from American National Bank did this quarter to close the acquisition and convert systems and branding. American National is a forty year old institution in Fort Lauderdale that fits perfectly with our South Florida footprint.

I’m very excited to welcome their talented and passionate team to United. Jefferson, why don’t you cover the quarter in more

Jefferson Harrelson, Chief Financial Officer, United Community Bank: detail now? Thank you, Lynn and good morning to everyone. I’ll start on page five. We were very pleased with our deposit performance this quarter. Our $2.00 $5,000,000 increase in deposits had the benefit of the American National deal that closed on May 1.

In the second quarter, we also saw our usual public funds deposits outflows of $233,000,000 Excluding the deal and the public fund seasonality, our deposits grew by 64,000,000 or by 1.2% annualized. We were also able to push down the cost of our deposits in the quarter to 2.01% to achieve a 34% total deposit beta so far. We continue to believe that we are on pace for a high 30% deposit beta range through the cycle. We also continue to have some opportunity to reprice our CD book lower. In the third quarter, we have about $1,400,000,000 of CDs or 38% of our CD book maturing at 3.72 that should be able to move down by 10 to 20 basis points.

On page six, we turn to the loan portfolio where our growth continued at a 4.2% annualized pace excluding American National. Turning to page seven where we highlight some of the strengths of our balance sheet. We have no wholesale borrowings and very limited brokered deposits. Using some of our balance sheet flexibility, we redeemed $100,000,000 in senior notes in June, where the cost was about to adjust to the 9% range from its existing 5% rate. Our loan to deposit ratio remained low, but increased slightly to 79% with the acquisition and solid loan growth.

In addition, our CET1 ratio remained at 13.3% and remains a source of strength for the bank. On page eight, we look at capital in more detail. Our TCE ratio was up 27 basis points and our regulatory capital ratios were stable at high levels. Our TCE and all of our capital ratios remain above peers, which we believe will allow us to continue to be opportunistic. We were able to be opportunistic this quarter and repurchased 507,000 shares or about $14,000,000 of UCB stock.

We have been fairly active in managing our capital since the beginning of 2024. We have now paid down $100,000,000 in senior debt, dollars 68,000,000 in Tier two capital and now have repurchased $14,000,000 of common shares. Moving on to spread income on page nine, we grew spread income at a 21% annualized pace excluding American National compared to last quarter. Our net interest margin increased 14 basis points to 3.5 mainly driven by lower cost of funds and a mix change towards loans. Moving to page 10, on an operating basis non interest income was down $1,000,000 from last quarter.

This was mostly driven by a negative swing in the MSR mark, which was at a $300,000 gain in Q1 and a $400,000 loss in Q2. In addition, we had $700,000 in negative fees due to a write down of our remaining deferred costs that came when we redeemed the senior debt I mentioned earlier. Excluding the MSR swing and the cost to extinguish the senior debt, fee income was slightly higher than Q1. We resumed selling Navitas loans in the quarter, which drove the increase in loan sale gains as compared to last quarter. Operating expenses on page 11 were only up 2,100,000 in the quarter excluding American National.

This $2,100,000 increase was primarily driven by $1,800,000 in merit increases. The expense base was relatively flat excluding American National and the merit increase. Moving to credit quality on page 12, net charge offs were 18 basis points in the quarter, improved compared to last quarter and last year. We also saw nice improvements in NPAs and past dues as credit quality remained strong. I will finish on page 14 with the allowance for credit losses.

Our loan loss provision was 11,800,000 in the quarter and more than covered our $8,200,000 in net charge offs. The $11,800,000 provision also included a $2,500,000 provision or double dip to set aside a reserve for the American National non PCD book. This double dip was more than offset by a $2,800,000 release of our hurricane related special reserve. Specifically, we reduced our Hurricane Helene reserve by $2,800,000 and it now stands at 4,400,000.0 as we are feeling more comfortable with the potential loss content. Net net, our allowance coverage remained flat in the quarter at 1.21%.

With that, I’ll pass it back to Len.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: Thank you, Jefferson. While we acknowledge that there are uncertainties in the environment, particularly relative to tariff effects and the direction of the yield curve, we feel very optimistic about our outlook for the rest of the year. With that, I’d like to open the floor for questions.

Q&A Moderator, United Community Bank: Thank you. We will now begin the question and answer session. And today’s first question comes from Michael Rose with Raymond James. Please proceed.

Michael Rose, Analyst, Raymond James: Hey, good morning everyone. Thanks for taking my questions. Just wanted to delve into the loan growth 4.2% annualized this quarter. Was there any sort of pay downs? And then just more broadly, can you talk about some of your hiring initiatives?

I know M and A is kind of off the table right now. Would love some updates there just given the resurgence we’ve seen in some activity here recently. But I know you’d previously talked about not a ton of acquisition candidates at this point that would fit your thresholds and what you’re looking for. But just on the loan growth front, just some of the hiring efforts and then if there were impact of pay downs ex the A and B deal this quarter? Thanks.

Rich Bradshaw, President and Chief Banking Officer, United Community Bank: Good morning, Michael. This is Rich. Yes, there were some pay downs. We feel good about the growth in Q2. We expect Q3 to be more similar to Q1 which is around the 6% mark.

Q2 did have some slippage in closing. So that’s helping the pipeline going into Q3. So we feel really good about the activity. In terms of recruiting, we continue to focus on top talent and have conversations going on throughout the footprint. So we expect that we will be adding additional lenders during the year.

I do want to announce that David Nass, our Alabama Florida State President, has announced his retirement. We thank him for all his leadership pre and post acquisition on Progress Bank, which was about two point five years ago. We have hired Jason Phillippe. Jason joins us from twenty five years of C and I experience both as a lender and a leader in the Huntsville and Alabama markets. So we’re very excited about that.

And since we have hired him, we have brought on two additional CRMs in the Northern Alabama market. So we feel good about the trajectory there and feel really good about the second half of the year.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: Michael on the M and A side, our strategy remains the same. We continue to look for small high performing institutions that would be additive to our footprint and continue to have conversations. Certainly, I think the outlook is better now. If you look three, four months ago where prices were in the industry, it just wasn’t attractive for those banks to have conversations with anyone. It’s still frankly kind of difficult to make the numbers work, but I’m optimistic that as the rest of the industry and particularly us continue to perform well, get the stock prices where they ought to be and then there’ll be some more opportunities for us.

Michael Rose, Analyst, Raymond James: Perfect. I appreciate the color. And maybe one for Jefferson. It looks like the core margin was up about 12 basis points Q on Q. I think it was a little bit better than the five to 10 basis points you talked about last quarter.

Just heard Rich talk about a little bit better loan growth in the third quarter. I think you mentioned beta is kind of in the high 30% range. If I caught that, think that’s a little bit higher than what you’d expected previously. So as we put all that together, it seems like there should be continued core margin expansion as we think about the next quarter or two. Can you just walk us through some of the puts and takes, Jefferson?

Thanks.

Jefferson Harrelson, Chief Financial Officer, United Community Bank: Yes. Thanks. Thanks for the question, Michael. So we do think there is an opportunity for some more margin expansion for us in the third quarter specifically, targeting about five basis points of margin expansion. A big piece of it and the most important piece of it for us to execute on would be the cost of deposits.

We were just under 2% in the for an average in the month of June. That high 30% range deposit beta would take us relatively close to 195%. We think we can make some progress towards that in the third quarter. You’re also going to see a continuation of one of the drivers of this quarter, which would be mix change towards loans. We’re not buying a lot of securities right now.

You’re going to see this loan to deposit ratio and this kind of loan to average earning asset ratio move higher. And so that should help as well in addition to the strong loan growth that we’re expecting that Rich talked about. Even if we get a rate cut in September, we’re a little bit asset sensitive. I do think we’ll have about five basis points of margin expansion.

Michael Rose, Analyst, Raymond James: All right. And just remind us, Jefferson, is there any other debt maturities, we should be considering in coming quarters?

Jefferson Harrelson, Chief Financial Officer, United Community Bank: No significant ones that I’m thinking about.

Michael Rose, Analyst, Raymond James: Okay, great. I’ll step back. Thanks for taking my questions.

Q&A Moderator, United Community Bank: Our next question comes from Catherine Mealor with KBW. Please proceed.

Catherine Mealor, Analyst, KBW: Thanks. Good morning.

Jefferson Harrelson, Chief Financial Officer, United Community Bank: Good morning, Catherine.

Catherine Mealor, Analyst, KBW: We’re active in the buyback this quarter. Just curious your openness to continue even though the stock has kind of pulled has improved from levels where you were buying back?

Jefferson Harrelson, Chief Financial Officer, United Community Bank: Yes. That’s a great question. We in this price range the earn back is longer than what we are targeting in that seven to eight year range. So we’re not buying back shares currently, but we still have the authorization. We have $86,000,000 left and at lower prices we would be opportunistic and step in.

But at this point we are not active in the buyback.

Catherine Mealor, Analyst, KBW: And then, outlook on kind of Navitas growth and how you weigh kind of keeping that on balance sheet versus selling in the secondary market?

Rich Bradshaw, President and Chief Banking Officer, United Community Bank: I’ll talk about the growth part and then, you can talk about balance sheet Jefferson. But expect they had a great quarter and we expect a similar Q3 out of Navitas. Yes.

Jefferson Harrelson, Chief Financial Officer, United Community Bank: So we’re seeing some really strong activity out of Navitas. We did start selling loans again this quarter $14,000,000 We’re right at 9.4% of Navitas loans to total loans. We had talked about a limit of 10%. So we’re getting relatively close to this 10% limit. We like the asset class, but we also like diversification.

So I think you should expect us to keep the sale of at this level or higher for the rest of the year.

Catherine Mealor, Analyst, KBW: Okay, great. Thank you.

Q&A Moderator, United Community Bank: And the next question comes from Russell Gunther with Stephens. Please proceed.

Russell Gunther, Analyst, Stephens: Hey, good morning guys. I wanted to morning, Lynn and Jefferson. I wanted to follow-up on the loan growth conversation quickly.

Catherine Mealor, Analyst, KBW: Just if we could put

Russell Gunther, Analyst, Stephens: a finer point on sort of where commercial pipeline stand today versus linked quarter and bigger picture any sentiment shift, you’re getting from your commercial borrowing?

Rich Bradshaw, President and Chief Banking Officer, United Community Bank: Russell, hi, this is Rich. I’d say as I mentioned earlier that the pipeline is bigger than last quarter. It’s similar to Q1 maybe even perhaps a little bit better. So I’d say our customers feel optimistic and, we feel optimistic with them. And again, we’ll continue those hiring discussions throughout the footprint and we feel good about those as well.

So when you put all that together, we’re pretty optimistic.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: Yes. I would agree. We had several meetings with clients over the last weeks and months. And while they were originally, everybody was worried about tariffs, everybody’s gotten more comfortable with that and comfortable with the negotiating strategy that appears to be developing. So that has fallen off and frankly they’re all very excited about things like bonus depreciation, extension of current tax rates, etcetera in the bill that was just passed.

So I would say mood is pretty positive with all the clients I’m talking to.

Russell Gunther, Analyst, Stephens: Great. And then, maybe just you touched on it broadly, but in terms of where the recruitment pipeline stands and then within your footprint, are there any markets in particular you’d like to get a little denser?

Rich Bradshaw, President and Chief Banking Officer, United Community Bank: The hiring pipeline, I would say looks good. It differs a little bit by markets and states and what our needs are and, we’re continually, analyzing where our next needs are and where the talent is. So it’s got to those two things got to come together for it to work and we’re continually doing that and putting through continuing analysis. So again, we feel good about where we’re at. Staying within the footprint is a priority for us.

Russell Gunther, Analyst, Stephens: Very helpful. Thank you. And then just switching gears for me on the capital discussion. Obviously, well above peers, we touched on buyback appetite, M and A appetite, but where does your appetite stand for securities restructurings? In particular, saw an HTM trade this week.

Is that kind of on your guys’ radar in terms of use of excess capital?

Jefferson Harrelson, Chief Financial Officer, United Community Bank: So I would say and let me hop in here, but we have significant excess capital. We do have an HTM book that is under earning. That is coming back to us over time as we have a little creates a little tailwind to the margin, but it also generates a current ROA that’s lower than we know that is possible. So it’s something that we look at. We did see the transaction, but we’re we like running with these high capital ratios.

We haven’t made a decision on this, but it is something that we look at from time to time.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: Yes. Would just say, our priorities continue to be, organic growth, M and A, dividends, buybacks. But we do look at all options and we are aware that, particularly with the environment, I think getting more stable, we’ve got more capital than we need to have. And so we’re evaluating all those options.

Russell Gunther, Analyst, Stephens: Understood. Okay, guys. Great. That’s it for me. Thanks for taking my questions.

Jefferson Harrelson, Chief Financial Officer, United Community Bank: Thanks, Ross.

Q&A Moderator, United Community Bank: The next question comes from Christopher Marinac with Janney Montgomery Scott. Please proceed.

Christopher Marinac, Analyst, Janney Montgomery Scott: Hey, thanks. Good morning. Jefferson, just wanted to circle back on Navitas from a standpoint of kind of the gain on sale there. Is there a scenario that margin would get better or worse as interest rates play out?

Jefferson Harrelson, Chief Financial Officer, United Community Bank: Yes. So great question, Chris. Thank you. So the margin is mostly dependent upon the treasury yield in that three, four year range. So if generally if rates go up, you see that margin tighten a little bit and if rates go down you’ll see it widen out.

And we’ve had we have had some time since rates have risen to increase rates at Navitas and we’re seeing that translate into higher gain on sale margins. But from here you will see that same thing play out. If you get a little higher, it really depends on that treasury yield. But lower treasuries would definitely translate into higher yields for higher gain on sale for Navitas loans.

Christopher Marinac, Analyst, Janney Montgomery Scott: Got it. Great. And a follow-up question just for Rob. I’m just curious at how you look at the CECL modeling and how things may shape up in the future. Is there any possibility for the model to give you some relief incrementally?

Rob Edwards, Chief Risk Officer, United Community Bank: So, a lot of things go into that. But it is possible that the model gives relief, and that the required allowance comes down that is certainly a possibility. But loan growth plays a role in that, obviously as well as economic predictions and forecasts and some of the indexes that are part of that modeling also play a role.

Christopher Marinac, Analyst, Janney Montgomery Scott: Got it. And Rob just a quick one on, just sort of puts and takes on the criticized moves this quarter. I know neither were substantial. Just curious kind of what you’re seeing in the pipeline there?

Rob Edwards, Chief Risk Officer, United Community Bank: The pipeline for, you’re saying special mention and classified assets. Is that the question?

Christopher Marinac, Analyst, Janney Montgomery Scott: Correct. Yes, correct.

Rob Edwards, Chief Risk Officer, United Community Bank: So things feel stable. We continue to run stress test exercises around changing interest rates and certainly as it relates to the CRE book, we continue to run stress tests and get results from that and close to our customers. But I don’t see anything on the horizon that would be different than, where we’ve been recently.

Christopher Marinac, Analyst, Janney Montgomery Scott: Sounds good, Rob. Thank you and thank you, Jefferson. Appreciate it.

Jefferson Harrelson, Chief Financial Officer, United Community Bank: Thanks, Chris.

Q&A Moderator, United Community Bank: And the next question is from Stephen Scouten with Piper Sandler. Please proceed.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank0: Hey, guys. Good morning. I just wanted to follow back around on kind of some of the thoughts around hiring. You put that slide, Slide 19, I think it is, where you show kind of your deposit market share and some of the fastest growing MSAs in the Southeast. So is it fair to think about the names, those cities that are higher ranked on that list and maybe where you guys have a lower deposit share currently as being areas of greater focus for you guys?

Or is it more about, hey, continuing to get density where we already are, to leverage the franchise you have in those markets?

Rich Bradshaw, President and Chief Banking Officer, United Community Bank: I would say the answer is yes and yes, because we’re looking there are markets that we don’t have as many commercial lenders in that we see that we have further opportunity to grow. And then we’re really looking at the major metro markets in the area that we’re not in that have the greatest opportunity for us for growth. And also, but part of that has to be the talent has to be there. And so to be clear, we’re really hiring really wanting to hire top talent. And so that’s really the focus.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank0: That’s helpful. I appreciate that, Rich. And then maybe just kind of follow-up to that would be there’s a lot more M and A chatter in and around the markets. And to the degree dislocation provides maybe a greater opportunity set than perceived, how aggressive would you guys think about being in terms of the balance of near term expense build and recruiting that high end talent?

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: Yes. Well, I think we would have room to be very assertive if who knows what happens. There’s always, disruption. And to Rich’s point, we really want to, just take advantage of what’s there in the market, relationships we have with lenders. So we don’t ever target any specific bank.

We really go to our bankers in the market, the relationships they have and if those people get unhappy for whatever reason then that’s the opportunity to bring them over. But, we’re constantly running numbers and, Rich has got a free hand to spend as much as he wants to bringing in the right kind of talent.

Russell Gunther, Analyst, Stephens: Perfect. Very helpful and thank

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: you guys so much.

Jefferson Harrelson, Chief Financial Officer, United Community Bank: Appreciate it. Thanks, Steve.

Q&A Moderator, United Community Bank: And this concludes today’s question and answer session. At this time, I would like to turn the conference back over to Lynn Harton for any closing remarks.

Lynn Harton, Chairman and Chief Executive Officer, United Community Bank: Well, great. Once again, thank you all for joining. It’s great speaking with you Look forward to seeing you soon hopefully at a conference. In the meantime, if you have any follow-up questions, don’t hesitate to reach out.

And I hope you have

Jefferson Harrelson, Chief Financial Officer, United Community Bank: a great day. Thank you.

Q&A Moderator, United Community Bank: The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.

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