Good morning, and welcome to United Community Banks Conference Call discussing the completion of a number of strategic initiatives. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton, and Chief Financial Officer, Jefferson Harralson. United's presentation today includes references to non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure at the end of the investor presentation. Copies of the press release and investor presentation discussing the transaction were filed this morning on Form 8-K with the SEC, and a replay of this call will be available in the investor relations section of the company's website at ucbi.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 Page five and six of the company's 2025 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.
Good morning, and thank you for joining us today. Our message today is straightforward. We have completed several important initiatives that put United in a stronger financial position and make the franchise more resilient. As I said in my annual letter, coming out of COVID, we had more fixed rate exposure on the balance sheet than we would have liked. As a result, our returns moved from top quartile to average. We were clear then, and we are clear now. Average performance is not where we intend to stay. Over the past several quarters, we have been taking action to close that gap, and today we want to walk through a few key milestones. First, Navitas. Navitas has been a solid success for us. It helped support loan growth as we integrated multiple bank acquisitions and built out our footprint.
Over time, though, Navitas became more complex with multiple product lines across all 50 states, growth that reached our concentration limit, and it required a growing amount of management time and attention. With strong market interest and high-quality platforms, and with our focus on core banking, we decided this was the right time to sell Navitas. That transaction closed last week. We received $2 billion of cash proceeds at a 7% premium with a $68 million pre-tax gain to be recognized this quarter. As previously announced, we also recognized a $38 million benefit from the Navitas reserve release last quarter. That leads to the second part of the story, which is investing in and growing our core franchise. We were comfortable making this move with Navitas because we now have the scale and platform to attract strong commercial bankers and other revenue producers to the company.
Late last year, we rolled out a more consistent program to recruit and onboard high-quality revenue producers into our processes and culture. That effort has produced 42 net new additions through the end of August, and we're starting to see that momentum contribute to growth. We're also continuing to build density in our existing footprint through small tuck-in acquisitions. Peach State, which closed on August 1st, is a good example. It moved us to the number one deposit share in a high growth market, and the integration is going very well. We've remained active on stock repurchases. Quarter -to -date, we've completed $50 million of open market repurchases, and our board has approved an additional $100 million authorization through 2027. Finally, we've made some significant changes to how we manage the balance sheet.
We strengthened our balance sheet management team and processes, including bringing in Kevin Brown as Treasurer about 18 months ago and adding additional talent across treasury and asset liability management. These teams have materially reduced our interest rate risk, especially our exposure to a higher rate environment. We also concluded that getting the balance sheet where we wanted it would require additional action. Last week, we moved all securities to available for sale, recognized the embedded HTM losses through AOCI, and then realized a large portion of those losses by selling many of the low-yielding, long-duration securities, creating the most pressure. We'll use these proceeds to reinvest in shorter duration, higher yielding securities, and over time, loans. This restructure will improve our returns and initially will replace much of the earnings lost from the Navitas sale, but with significantly lower volatility and credit risk.
Our capital ratios post-restructure remain strong, allowing us to continue to support growth as well as continuing stock repurchases. Stepping back, these actions tell a clear story. We've simplified the business by exiting Navitas. We're investing in the core franchise, strengthening organic growth and staying disciplined around tuck-in acquisitions and capital deployment. We've repositioned the balance sheet to create a more resilient capital and earnings profile. With these actions, we believe United is positioned for strong and sustainable earnings and high-quality growth with strong capital and ample liquidity. With that, I'll turn it over to Jefferson to walk through the details.
Thank you, Lynn. I will start my comments on Page four. As Lynn mentioned, our strategy with the Navitas sale and the portfolio restructure is to reduce risk and volatility, and then reinvest the funds into our more valuable core business and to set our core business up for growth, as well as set the stage in the form of balance sheet capacity for profitability improvement. Starting on Page four, in the first column, we highlight two major de-risking actions.
Sale of the Navitas portfolio and the portfolio restructure that collectively generated about $4.2 billion in cash. In the second column, we highlight that we are deploying this capital and liquidity primarily into securities with shorter duration and higher yields, while also paying down debt and continuing to repurchase our own shares. Most importantly, in column three, we highlight that these actions in total, including the significant hiring of producers over the last 12 months, translate into a higher organic growth rate moving forward with a high single-digit loan growth in 2027. These strategies in total set us up to support this growth with a balance sheet that has great capital and liquidity with over a 13% CET1 ratio and approximately 75% loan-to-deposit ratio, and essentially no short-term borrowings.
Moving to Page five, I will talk on some of the specifics of the Navitas transaction, which closed on September 1st, de-risking our balance sheet and providing $2 billion of cash and 145 basis points of CET1. Selling Navitas is one part of our strategy to reallocate our capital to focus on our most valuable asset, the core banking franchise. Selling Navitas creates capacity in our funding and liquidity, which can then be invested in people and markets to drive a higher growth rate and a more valuable bank. Next, on Page six, I will go into some of the details of the bond transaction. The bond transaction is designed primarily to reduce risk, as our portfolio had a larger portion of long-dated securities than we would like. The transaction is designed to shorten duration to provide more balanced exposure to movements in interest rates.
The first step of this process was to reclassify our held-to-maturity portfolio to the available for sale designation. These losses were being realized economically and moving them to AFS gives us the ability to hedge and otherwise reduce risk in the event of higher rates. As I mentioned earlier, a good portion of our portfolio had longer durations than we would like. Because of this, next, we decided to further reduce our risk by selling $2.6 billion in book value of securities. This is creating a $300 million pre-tax loss inclusive of the Navitas gain that is also happening this quarter. The securities sold had a yield of 2.2% and a five-and-a-half year duration, and a weighted average life of about six-and-a-half years.
Moving on to the topic of reinvestment, we had $2 billion of cash that came in from the Navitas sale and another $2.2 billion of cash created from the security sale I just described. This adds to an inflow of $4.2 billion in total cash to the bank. Of the $4.2 billion in cash coming in, we already have or expect to shortly put about $3 billion of that cash to work in the securities portfolio. These securities will be invested in the 4.5% range at a duration of around two years or less. We expect that our overall securities portfolio will end up in the $7 billion range at quarter end. The total securities portfolio yield will increase around 90 basis points to approximately 4%, and the duration will move from 3.2 years in Q2 to about two at the end of Q3.
With the remaining $1 billion of cash inflow, we paid off short-term borrowings at a cost of about 3.8%. While done mostly for risk reduction purposes, the bond trade in itself adds about $40 million in annualized pre-tax spread income and will increase as the securities fund a portion of our expected loan growth in the future. Moving to Page seven, we bring the elements of the whole strategy together and give you a picture of the changes. on the top of the page, we also give you some thoughts on the puts and takes of our earnings run rate. We are using a Q2 $0.74 number as a run rate proxy, which is our Q2 operating EPS, adjusted for notable items that we identified last quarter related to regulatory remediation.
On top of that, selling Navitas and reinvesting the proceeds we previously mentioned takes about $0.07 of quarterly earnings. Offsetting the impact of Navitas, the portfolio restructure of $2.6 billion of book value of bonds at 2.2% and reinvesting around 4.5% adds about $0.06 of earnings per quarter. Next, we highlight that Peach State closed on August 1st. Peach State's full cost savings aren't realized until after next year's Q1 planned conversion. That said, we do think we will get $0.02 of the total expected $0.03 of quarterly accretion in the near term. Finally, the core bank is growing at a healthy rate in both loans and deposits. As an inter-quarter update, we were up about $150 million of loans through the end of August, which gives us optimism for strong loan growth given that most of our loan growth generally comes in at quarter end.
Also, we were up $500 million of deposit growth through the end of August, of which 20% is in the form of DDA. This also gives us optimism on the core growth rates of the company. All said, the combination of a robust economic environment and our significant investment in talent gives us confidence that the core bank is growing at a healthy pace. In our view, the strategy comes together as we replace the Navitas earnings and set ourselves up for growth and future profitability increases with strong capital and a low loan-to-deposit ratio. Next, at the bottom of the page, we look at a walk forward in our tangible book value per share. We have $23.31 as our starting point, as was our second quarter result. We have an estimated gain of $0.42 in the third quarter coming from Navitas.
That could change slightly as we go through the full accounting process. Also recall in the second quarter that we had the benefit of a $0.25 reserve release that is already embedded in the $23.31 second quarter tangible book value figure. Next, we have the cost of the held-to-maturity reclassification and portfolio restructure we announced today. That takes $2.39 out of the TBV number. Again, these losses were already existing on an economic basis, and the reclassification now aligns the accounting with the economic reality. Finally, as I mentioned earlier, we also closed Peach State on August 1st with 50% cash as consideration. And quarter -to -date, we have repurchased 1.3 million shares we issued in the transaction. In combination, this investment takes $0.48 from tangible book value in the quarter.
Finally, we overlay the expected profitability range of the quarter to get to our 3Q 2026 pro forma TBV. We give you this to help in the understanding of the puts and takes of the quarter, but I will also note that we haven't finalized our Peach State marks, that Navitas gain could change slightly, and there could be some changes in unrealized losses with interest rate movements from June 30th. Other comments I will add in speaking about this slide. First, in the third and fourth quarters, we expect the net interest margin to be in the low 3.60s as the benefit of the bond trade offsets a lot of the margin impact of losing Navitas. We also guide that we are expecting our operating ROA to be in the 1.25% - 1.30% range.
We also see room for both the margin and the ROA to increase as we reinvest the cash and securities back into loans. Finally, again, pro forma for everything, we will have very strong capital ratios as our CET1 will be above 13%, and our TCE ratio will be greater than 9%. Pages eight, nine, and 10 tell the story of how we are deploying capital in several ways. On Page eight, we talk about share repurchases as a deployment option, which we have been utilizing in 2026. We came into 2026 with a $100 million authorization. As an update so far this quarter, we have repurchased $50 million in shares in addition to the $37 million in shares we repurchased in the first quarter, totaling $87 million for the year -to -date. This equates to repurchasing 2% of the shares outstanding year -to -date.
With the elevated repurchases in the quarter, we had just $13 million left in our authorization. We are announcing today that the board just approved to increase the repurchase authorization by $100 million through the end of 2027. On Page nine, we are also making a significant investment in people that we believe will meaningfully increase our loan growth rate. Our accelerated hiring program has been in place for nearly a year and is starting to show meaningful benefits. We are excited to have added a net 42 producers to the bank since 9/30 of 2025, an 18% increase in revenue producers. With the hires and with the momentum we are seeing, we believe we will be growing loans at an upper single-digit pace in 2027. On Page 10, we have also talked about small bank M&A being a potential use of proceeds.
The Peach State deal that we closed this quarter is typical of the kind of M&A we target. We generally target banks with less than $2 billion in assets. Peach State was less than $1 billion. We target banks in growth markets within our existing footprint. In Peach State's case, the transaction brought us to number one deposit share in the fast-growing Gainesville, Georgia MSA. While relatively small, we find these types of acquisitions to be low risk and accretive to our earnings and our franchise over time. With that, I'll pass it back to Lynn for closing remarks.
Thank you, Jefferson. Before we open it up for questions, let me cover three quick items. First, Jefferson, thank you for your nine years on this great team. We appreciate your contributions greatly and wish you the very best in your next chapter. Second, welcome to Tom Speir, who is with us today on his first day as CFO. Tom brings two decades of experience with Wachovia and Regions and deep expertise in balance sheet management, treasury, strategic planning, and investor relations. Finally, to reiterate the main message, we are simplifying United, growing our core business, and strengthening returns so that we can deliver the performance our shareholders expect and deserve. I will now open the floor for questions.
We will now begin the question and answer session. To ask a question, you may press Star then One on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then Two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, everyone. Thanks for taking my questions, and congratulations, Jefferson, and welcome, Tom. Just wanted to maybe start on the NIM. I think when you guys announced this back in June, you were talking about a 30 basis point headwind, and we were going to get that back to 20 - 25 basis points, I think, by the fourth quarter. What are some of the updates there? Just with the pay-down of debt, how should we think about the margin trajectory over the next two quarters? Thanks.
Yeah. Thanks, Michael. The bond transaction replaces most of that margin dilution that we talked about that is coming from Navitas. What we have underlying is an increasing margin. We have seen a little bit of margin increase quarter -to -date. With the bond transaction coming in, Navitas going out, we end up with a margin that is maybe down five basis points from last quarter, call it low 360s. Then I would expect it to stay in that range in the fourth quarter. Then over time, I think that has a good base to move up with remixing towards loans.
Very helpful. And then, I guess what drove the decision to do, I think, a little bit more on the restructuring side than maybe what was implied back in June? Is it just the kind of, obviously, continued upward move in rates that we've seen at the time, so maybe it was a better opportunity? Was obviously happy to see it, just wanted to get a better understanding of what drove the decision to do more. Thanks.
Yeah, sure. Thanks, Michael. This is Lynn. I'll take that. We've been thinking about this for about, honestly, 18 months. Have done dozens of simulations looking at share repurchases, loan sales, different security sales buckets, all those things, and tried to put them through the lens of, number one, risk reduction. I think I'm not trying to bet anything, but I think if anything, we're in a drift upward in rates. How do we protect against that risk? The flexibility and liquidity. We need to be able to fund this loan growth. We had a great deposit base, but also in terms of the securities roll-off and how do we fund that out of the securities book? Of course, we looked at book dilution, and we looked at earnings impact.
As we have gone through that process over the past 18 months, and we settled in on this was the best path to take. It got rid of most of the risk. It was primarily a risk transfer, gave us the most flexibility, the most liquidity. The dilution, yes is painful, but in economic terms, it was there anyway. Of course, from an earnings perspective, it's got a good earnings pick up. But literally, the risk and flexibility were the big drivers of that.
Perfect. I appreciate you answering the dilution. That was going to be my final question. But maybe just one more, just as it relates to the buyback. Obviously good to see. I think when you announced the transaction, you kind of illustrated a $300 million buyback increase in the authorization today. I guess the question is now that you guys have a lower risk balance sheet, meaningful liquidity, what should we think about in terms of a CET1 level for you guys potentially in the face of some tailoring by regulators? Thanks.
Yeah. That's a great question. We're debating that at the board level now, so I'm not ready to give a specific target, but it would be lower than the target and than what we have held in the past. When I say that, there's been two reasons in my mind that we've held higher capital levels maybe than peer averages. One is Navitas. I think the market viewed Navitas as being higher risk and maybe more volatile than I personally viewed it. Regardless, we felt like we needed to carry a buffer because of Navitas.
That's obviously gone. We don't need that Navitas buffer. The other reason is we've held a little extra so that we could do a Peach State-size acquisition. The bias is down on capital. The board's got to make that decision, and we are actively debating it. I will say that the board is very adamant that our return on tangible needs to be 15% at a minimum consistently. We want to be on that path and above. That's more the target we're focused on right now.
Very helpful. I appreciate it on the call, everyone. Thanks.
Michael.
The next question comes from Russell Gunther with Stephens. Please go ahead.
Hey, good morning, guys.
Morning.
Morning, Jefferson. I wanted to follow up on the margin discussion, if I could. Maybe just as we think about the magnitude of expansion kind of from the back half of this year into next, could you help us think about some of the drivers around overall balance sheet size? Where that trend and kind of timing of securities to average earning assets could go, where you might flex a 75% loan-to-deposit ratio? Just some of the bigger moving pieces to that kind of expansion into 2027.
Thanks, Russell. It's a great question. I'm not prepared to give guidance into 2027 just yet, but I'll tell you how we're thinking about it internally is that, one, we want to be a strong deposit grower that's going to determine the size of the balance sheet. But at the same time, this loan-to-deposit ratio gives us the flexibility to not have to price at the high end of the market. We think versus competition, it gives us a lot of flexibility to be able to go out and grow deposits, but again, not pay the top rate. I think you'll see it drift somewhat higher, but I also think Traditionally have been a strong deposit grower at the same time. I'm not giving guidance for next year on this, but I do think you should see that loan-to-deposit ratio drift higher over time, depending on deposit growth.
Okay, got it. Thank you. Maybe just a bigger picture question. Anything to read into the decision to pull the trigger here on the balance sheet restructuring and accelerate some buyback relative to your overall M&A appetite in the near term, or to the likelihood that a related actionable opportunity would be able to present itself in the near term?
Yeah. We sized and scoped all this to be able to continue to do the kind of M&A that we have done, in the event that it presents itself. There's nothing I would say imminent, but there's conversations going on all the time. So us seeing another Peach State or Peach State slightly plus in market deal, we've got, in our mind, plenty of capital to be able to do that.
Got it. Okay. Thanks, Lynn. Thanks, Jefferson. That's it for me.
Thanks, Russell.
The next question comes from David Bishop with Hovde Group. Please go ahead.
Hey, good morning, gentlemen. Hey, quick question, Lynn, Jefferson, on the repositioning of the portfolio. Just curious, you mentioned the flexibility and liquidity it gives you. Any sense of the securities cash flow per quarter you're projecting now versus coming into the transaction? Thanks.
Yep, great question. It's up about 50%, so it goes from about $240 million a quarter to $360 million a quarter. That was one of the main reasons that we made the portfolio shorter, is to increase the cash flow because of the higher loan growth that we are expecting.
Got it. Jefferson, real quick, I think you went over some of the quarter -to -date trends in terms of loan to deposit growth. Do you mind just hitting on those again real quick? Thanks.
Yeah, great. Quarter -to -date, we are at about $150 million of loan growth. That averages out to a mid-single digit or lower loan growth. But what makes that remarkable is that generally, all of our loan growth comes at the end of the quarter. Having $150 million two months in kind of gives us some confidence that the loan growth this quarter could be in the 7% annualized range. We have also had a strong deposit growth this quarter. I mentioned $500 million.
A lot of that is average balance growth that was a little bit of a rebound from some shrinking that we had last quarter. We are growing deposit accounts, and we are feeling good about that, but we have also had a very strong average deposit growth this quarter. Feeling good about where we are in deposit growth this quarter as well with the $500 million quarter- to -date growth.
Great. Appreciate that color.
The next question comes from Christopher Marinac with Brean Capital, LLC. Please go ahead.
Thanks. Good morning. Jefferson, you just talked about loan growth. Just to finalize that point, would loan growth necessarily accelerate into Q4 and Q1 as a result of both the timing as well as the cumulative momentum of the new hires?
Yeah. This is Lynn. I am going to turn that over to Abraham Cox. I do not know if you all have met Abraham yet. Rich is on vacation, and Abraham runs our retail mortgage, business banking, wealth, and marketing areas. Abraham, why do not you kind of bring us up on a little bit of the momentum we are seeing in the new hires, etc ?
All right, I will do that. Thank you, Lynn. Good morning, everybody. It is great to be here with you. I would say overall, we are really pleased with our accelerated hiring initiative. Internally, we refer to that as Project Catalyst. We are optimistic because we are seeing a lot of momentum, and we are starting to see the impact now, and we are very optimistic about the future. That optimism comes from, I think, three key areas. First, as we have talked about, we are seeing a lot of success in hiring. We have added 42 revenue producers, and we are starting to see the impact of those new hires on our performance. We do anticipate here at the end of the year to see that slow naturally through just normal end of year hiring and annual bonuses, but we feel really good about the project.
Specifically, our pipelines first have a lot of momentum from a lending perspective. It is the largest we have seen year -to -date as we sit here in September. I would mention it is the largest I have seen in my almost four years. If Rich was here, he would say it is the largest it has been in his time with United. Lastly, from a production and a growth perspective, in the second quarter, about 10% of our growth in lending came from our new hires. As Jefferson mentioned, sitting here quarter -to -date, $150 million of growth, about 50% of that growth has come from our new hires. So we are seeing significant ramp up. We are seeing significant impact and are very optimistic about finishing strong for the quarter, but also as we head into the end of the year in 2027.
Okay, great. Thank you for sharing all that. That's very helpful. Just a quick credit check, the kind of adjusted charge-off outlook, is it still kind of roughly that mid-teens level now that Navitas is out?
Yeah. Charge-offs in the bank ex Navitas have been running about 10 basis points, and we don't see anything that would move that any higher at this point. So I think 10 bps in charge-offs is about kind of what we see.
Great. Thank you, Lynn. Thank you, Jefferson, and good to meet you, Abraham, as well.
Thanks, Chris.
Thanks.
Thank you.
The next question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good morning, everyone. Just wanted to confirm a couple things. One, Jefferson, on that securities yield that you gave, that is the 4Q 2026 securities yield effectively once it is all kind of worked into the average?
That is correct.
Okay. Can you talk about the $4.2 billion in cash to the bank? I think you said about $3 billion in the securities book. So $1.2 billion presumably into cash near term plus $360 million a quarter from cash flow. It gets me curious why it feels like a lot to leave maybe undeployed even with accelerating loan growth. Any kind of commentary there about the strategy or mindset?
Yeah. There is a piece I want to make sure you heard on that is of the $4.2 billion cash that came in, we're reinvesting, call it $3.1 billion of that now or very soon. Then $1.1 billion of debt pay down. So there's not significant undeployed cash sitting around by the time we get to quarter end.
Got it. Thank you for the clarification there. Okay. I think that's all I had. Everything else was kind of asked and answered. Appreciate the time.
Thank you.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Lynn Harton for any closing remarks.
Oh, great. Well, once again, thank you all for joining our call. Great questions, and we are very open to any additional questions. Just reach out, and we look forward to seeing you all again soon. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.