United Community Banks Stock

Good morning, and welcome to United Community Bank's 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 5 and 6 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've 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. And as a result, our returns moved from top quartile to average. We were clear then, and we're clear now. Average performance is not where we intend to stay. Over the past several quarters, we've 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 in 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 pretax 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 1, is a good example. It moved us to the #1 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. But we also concluded that getting the balance sheet where we wanted it would require additional action. So 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. And 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 4. 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 4, in the first column, we highlight 2 major derisking actions, the 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 3, 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 5, I will talk on some of the specifics of the Navitas transaction, which closed on September 1, derisking 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 6, 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. And 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 pretax loss, inclusive of the Navitas gain that is also happening this quarter. The securities sold had a yield of 2.2% and a 5.5-year duration and a weighted average life of about 6.5 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 and 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 2 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 2 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 pretax spread income and will increase as the securities fund a portion of our expected loan growth in the future.

Moving to Page 7. 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 1. 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 intra-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 (sic) [ $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 1 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. And finally, we overlaid the expected profitability range of the quarter to get to our 3Q '26 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 the Navitas gain could change slightly, and there could be some changes in unrealized losses with interest rate movements from June 30.

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% to 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 8, 9 and 10 tell the story of how we are deploying capital in several ways. On Page 8, 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. And we are announcing today that the Board just approved to increase the repurchase authorization by $100 million through the end of 2027.

On Page 9, 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 #1 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 3 quick items. First, Jefferson, thank you for your 9 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 2 decades of experience with Wachovia and Regions and deep expertise in balance sheet management, treasury, strategic planning and Investor Relations. And finally, to reiterate the main message, we're simplifying United, growing our core business and strengthening returns so that we can deliver the performance our shareholders expect and deserve. I'll now open the floor for questions.

[Operator Instructions]

The first question today comes from Michael Rose with Raymond James.

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 kind of a 30 basis point headwind, and we're going to get that back to kind of 20 to 25 basis points, I think, by the fourth quarter. What are some of the updates there? And just with the paydown of debt, how should we kind of think about the margin trajectory over the next few quarters?

Yes. Thanks, Michael. The bond transaction replaces most of that margin dilution that we talked about that's coming from Navitas. And what we have underlying is an increasing margin. We have -- we've seen a little bit of margin increase quarter-to-date. But with the bond transaction coming in, Navitas going out, we end up with a margin that's maybe down 5 basis points from last quarter, call it, low 3.60s. And then I would expect it to stay in that range in the fourth quarter. And 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. I was obviously happy to see it. Just wanted to get a better understanding of kind of what drove the decision to do more?

Yes, sure. Thanks, Michael. This is Lynn. I'll take that. So 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 trying to put them through the lens of, number one, risk reduction.

So I think I'm not trying to bet anything, but I think if anything, we're in a drift upward in rates. And so how do we protect against that risk? -- flexibility and liquidity. We need to be able to fund this loan growth. We got 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. And so 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. So it was primarily a risk transfer, gave us the most flexibility, most liquidity. The dilution, yes, is painful. But in economic terms, it was there anyway. And of course, from an earnings perspective, it's got a good earnings pickup. 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?

Yes, 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 than the -- what we have held in the past. And when I say that, there have been 2 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. But regardless, we felt like we needed to carry a buffer because of Navitas, that's obviously gone.

So 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. So the bias is down on capital. The Board has 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. And so we want to be on that path and above. And so that's more of the target we're focused on right now.

The next question comes from Russell Gunther with Stephens.

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 '27?

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.

So 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. So I think you'll see it drift somewhat higher, but I also think we traditionally have been a strong deposit grower at the same time. So 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. And then 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?

Yes. So I mean, 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. And there's nothing, I would say, imminent, but there's conversations going on all the time. So us seeing another Peach State or State-slightly-plus in-market deal, we've got, in our mind, plenty of capital to be able to do that.

The next question comes from David Bishop with Hovde Group.

A 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?

Yes. Great question. It's up about 50%. So it goes from about $240 a quarter to $360 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. And then Jefferson, real quick. I think you went over some of the quarter-to-date trends in terms of loan and deposit growth. Do you mind just hitting on those again real quick?

Yes. Great. Quarter-to-date, we're at about $150 million of loan growth. So that averages out to kind of 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. So, having $150 million 2 months in kind of gives us some confidence that the loan growth this quarter could be in the 7% annualized range.

We've also had 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're feeling good about that, but we've also had a very strong average deposit growth this quarter. So feeling good about where we are in deposit growth this quarter as well with the $500 million quarter-to-date growth.

The next question comes from Christopher Marinac with Brean Capital, LLC.

Jefferson, you just talked about loan growth. And so just to finalize that point, would loan growth necessarily accelerate into Q4 and Q1 as a result of both the timing as well as kind of the cumulative momentum of the new hires?

Yes. And this is Lynn. I'm going to turn that over to Abraham Cox. I don't know if you have met Abraham yet. Rich is on vacation, and Abraham runs our retail, mortgage, business banking, wealth and marketing areas. And so Abraham, why don't you kind of bring us up on a little bit of the momentum we're seeing and the new hires, et cetera?

All right. I will do that. Thank you, Lynn. Good morning, everybody. It's great to be here with you. I would say, overall, we're really pleased with our accelerated hiring initiatives. Internally, we refer to that as Project Catalyst. And we're optimistic because we're seeing a lot of momentum, and we're starting to see the impact now, and we're very optimistic about the future. That optimism comes from, I think, three, kind of, key areas.

First, as we've talked about, we're seeing a lot of success in hiring. We've added 42 revenue producers, and we're starting to see the impact of those new hires on our performance. We do anticipate kind of 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's the largest we've seen year-to-date as we sit here in September. I'd mentioned it's the largest I've seen in my 4 years -- almost 4 years. And if Rich was here, he would say it's the largest it's been in his time with United.

Kind of lastly, from a production and a growth perspective, in the second quarter, about 10% of our growth in lending came from our new hires. And 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're 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. That's very helpful. And then just a quick credit check, the kind of adjusted charge-off outlook, is it still kind of roughly in that mid-teens level now that is out...

Yes. I mean 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-off is about kind of what we see.

The next question comes from Stephen Scouten with Piper Sandler.

Just wanted to confirm a couple of things. One, Jefferson, on that securities yield that you gave, that's the 4Q '26 securities yield effectively once it's all kind of working the average?

That's correct.

Okay. And then 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 here near term, plus $360 million a quarter from cash flow. So I guess I'm curious why it feels like a lot to leave maybe undeployed even with accelerating loan growth. So any kind of commentary there about the strategy or mindset?

Yes. So 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 billion, $3.1 billion of that now or very soon and then $1.1 billion of debt paydown. So there's not significant undeployed cash sitting around by the time we get to quarter end.

This concludes our question-and-answer session. I would like to turn the conference back over to Lynn Harton for any closing remarks.

Great. Well, once again, thank you all for joining our call. Great questions, and we're 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.

Good morning, and welcome to United Community Bank's Second Quarter 2026 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings, pretax, free 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 the investor presentation. Both are included on the website at ucbi.com.

Copies of the second quarter's earnings release and investor presentation 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 5 and 6 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 our call today. This was a great quarter with solid results and progress on our strategic goals. We had a large nonoperating item from the Navitas reserve release this quarter, which Jefferson will cover in more detail later. For now, leaving that aside, I will focus on our operating results.

On that basis, EPS of $0.71 per share was up 8% over last year. Total revenue was up 7% over last year. Our net interest margin reached 3.68%, up 18 basis points over last year and up 3 basis points from last quarter. Credit results were solid with bank-only net charge-offs of 9 basis points and total net charge-offs of only 16 basis points. Past dues were very low at only 11 basis points and special mention and substandard accruing loans were at the lowest level in several quarters at only 2.5%.

Loan growth reached 6.8% annualized for the quarter, -- more importantly, organic loan growth, excluding Navitas, was the strongest it has been in some time, reaching 6.4% annualized for the quarter. For comparison, it was 4.3% for the year of 2025 and 3.9% annualized for the first quarter of this year. This is due to our investment in hiring new producers. When we decided early last year, there was time to sell Navitas and refocus on our core franchise, we spent time developing a playbook and strategy -- to put the same effort and attention we have paid to integrate merged teammates into hiring new revenue producers.

We began executing that plan in the third quarter of last year. and have seen net expansion of 17% in producers since that time. We're pleased with this execution and look forward to continuing strong growth as a result. Our operating return on assets was 122 basis points and our operating return on tangible common equity was 13%, both essentially equal to last quarter, even with elevated hiring cost and a notable onetime expense item.

We continue to be excited about bringing Peach State into the United family. When we put the 2 teams together, we will have the best bankers in the top deposit market share in 1 of the fastest-growing counties in the Southeast. Everything is on track for a close early in the third quarter as planned. Capital levels remain high. And even though we had extended blackout periods resulting from the Navitas and Peach State announcements, we continue to have repurchase authorization remaining that is sufficient to retire the shares to be issued for the acquisition of Peach State, which is our intention.

I'll now turn it to Jefferson to cover our second quarter performance in more detail.

Thank you, Lynn, and good morning to everyone. I will start on Page 4 and talk about some of the details of the quarter. We recorded GAAP results of $0.95 per share that benefited from a large nonoperating item. Specifically, we released our Navitas loan loss reserve as we reclassified those loans to held for sale. This added $0.25 to our GAAP earnings in the quarter.

On Page 4, we also highlight a $4.5 million notable operating expense that we do not expect to recur. In the second quarter, we settled with the state of California to obtain a lender's license for Navitas. Navitas had previously held a California license but let it expire after we bought them in 2018 because we believe it was no longer required to have 1 under United ownership as a bank subsidiary.

That said, we settled with the California Department of Financial Protection and Innovation, the DFPI and the $4.5 million represents our cost. About 75% of the $4.5 million notable item was not tax deductible. Including the associated legal fees and adjusting for the tax impact, we estimate that notable items negatively impacted Q2 by $0.035.

I will move on to Page 6 to talk about the deposit results. On an end-of-period basis, our customer deposits declined by $295 million, with 2/3 of the decline coming from expected seasonal public fund outflows. On an average basis, excluding public funds, our customer deposits grew $169 million or 3.3% annualized. We were also very pleased that our cost of deposits remained relatively flat improving by 1 basis point in the second quarter.

On Page 7, we turn to the loan portfolio, where our loan growth accelerated to a 6.8% annualized pace. Excluding Navitas, we grew at a 6.4% annualized pace. Similar to past quarters, we saw strong growth in the Heloc and C&I categories, which continue to be our focus for growth. We have included a new section at the bottom of the page, showing what our new loan mix is ex-Navitas, which is still diversified and C&I heavy.

Turning to Page 8, where we highlight some of the strengths of our balance sheet. We believe that our balance sheet is in good position from a liquidity and capital standpoint to be ready for any economic volatility. We show that our loan-to-deposit ratio, excluding Navitas came in at 76%, up from 74%.

Our CET1 ratio was relatively flat at 13.5% and remains a source of strength for the bank. On Page 9, when we look at capital in more detail. As I mentioned, our CET1 ratio was 13.5% and our TCE was also flat at just under 10%. Moving on to spread income on Page 10. Spread income grew 14% annualized due to the combination of 6.8% loan growth, 6% average earning asset growth and the benefit of the extra day.

Spread income grew 7% on a year-over-year basis. Our net interest margin increased 3 basis points to 3.68% compared to last quarter and was up 18 basis points compared to last year. And the second quarter is the sixth quarter in a row of margin expansion.

Moving to Page 11. Noninterest income was $38.4 million in the quarter, which was relatively flat as compared to last quarter when Q1 is adjusted for the $5.2 million gain on an interest rate cap that we sold last quarter. Our operating expenses were $159.9 million in the second quarter. Excluding the California lender license issue that I described earlier, noninterest expenses grew by $2.9 million as compared to the first quarter, of which our annual merit increase contributed $1.8 million.

The cost of new revenue producer hiring comprised the remaining $1 million of expense growth. Excluding the license issue, our efficiency ratio improved slightly to around 55%. We added a new page on Page 13, where we talk about our significant hiring since September 30, 2025. Since then, we have added 37 net new producers of which about half are commercial lenders.

This increases our overall sales force by about 17%. We are encouraged that we are starting to see the balance sheet growth from this initiative and this was a factor in our increased loan growth this quarter. Moving to credit quality on Page 14. Net charge-offs were only 16 basis points in the quarter and only 9 basis points on a bank-only basis. Credit was stable with essentially flat NPAs and nice improvements in past dues, special mention and substandard accruing loans.

On Page 15, we show the allowance for credit losses our $29.8 million net reserve release included a $38.5 million Navitas reserve release as we reclassified those loans to held for sale as a result of the pending sale of Navitas. On a bank-only basis, we had an $8.7 million provision, which more than covered our $4.2 million in bank net charge-offs. With the Navitas release, our allowance for credit losses moved down to 1.04% of loans. This decrease reflects the lower potential loss content and variability of losses with the sale of the Navitas portfolio.

With that, I'll pass it back to Lynn.

Thank you, Jefferson. Given that this will be the last quarterly call before the sale is completed, I'd like to take this opportunity to thank the Navitas team for being a valuable part of United for the past 8 years. It has been a pleasure working with all of you, and you have made a great contribution to our growth and success. I wish you continued success in your next chapter and I look forward to remaining in touch. I'd like to now open the call to questions.

[Operator Instructions] Our first question today comes from Stephen Scouten from Piper Sandler.

I guess maybe first question. I hope I didn't miss it in your comments, Jefferson, but obviously, 6 consecutive quarters of NIM expansion. Do you feel like we can get to 7 here? Or is the deposit cost kind of stabilizing here does that negate that ability moving forward?

Stephen, it's a great question. Talk about the -- go forward with the margin, and I'll throw in there, what we might look like ex-Navitas -- so on a static basis, selling Navitas and reinvesting the proceeds at 4.25%, moves our margin down by about 30 basis points. But dynamically, and I think where your question was going, the underlying margin should be widening because we will be adding loans at an increasing pace in the 6% range. So our reinvestment will end up being higher than that 4.5%.

We still have the backlog of loans and securities that should provide some tailwind. And we also will be paying down with the proceeds of Navitas borrowings and that strengths the balance sheet a little bit and helps the margin. So Q3 is difficult because it hinges on the timing of the Navitas sale, but I believe the fourth quarter assuming the third quarter Navitas sales down maybe 20 to 25 basis points, if you assume 30 basis points down on a stacked basis and that underlying widening margin should offset that over 2 quarters. And the third quarter is somewhere in between that down 20% to 25% and where we are today.

Okay. Got it. Yes, that makes sense. And just around the time deposits specifically, I think in the deck, you noted 3-month pricing maybe coming off at 3.09%. And I think new CDs were coming out at 3.2%. So could we see CD costs going higher from here? Or is the liquidity from Navitas being paying down other higher cost funds does that allow you to kind of manage that a little bit more than just those numbers would suggest?

We have a few strategies in the CD book. One is that 30% is down from the 50% maturities that we've been having. So we've been extending this book a little bit, which has the effect of raising the CDs a little bit. We do think we will have stronger loan growth in the second half. The competition is a little stronger for deposits. Now we will have something that will help us, which is a lot of cash to a big securities portfolio to fund some of our loan growth. But if you add all that together, I think our cost of deposits will drift slightly higher in the back half?

Okay. Great. And maybe just last thing for me. Curious, we seem to be seeing an uptick in smaller bank M&A these days kind of sub-$5 billion in asset and banks. What's kind of the conversation dynamics like? Do you feel like some of these potential smaller bank sellers are more receptive? And just kind of any feel for what conversations are looking like in your appetite once you get beyond each day?

Stephen, this is Lynn. Yes, I would say they're very active conversations in that side, that smaller bank, call it, $1.5 billion and less side. So I would expect to see more activity once Peachtate is completed for the rest of the year.

Our next question comes from Jacob Morton from Stephens.

This is Jacob Morton on for Russell Gunther. I just want to start out with -- I hear you on the hiring. I'm wondering historically, how much incremental annual loan production does an experienced banker contribute once fully ramped up? And as a follow-up to that, what is your level of conviction on loan growth. I hear you're on the 6%, but I'm wondering what specific asset classes, are you expecting the growth to come from? And which geographies and your footprint you expect to produce the most?

Jacob, this is Rich. In terms of the experience that we're looking for in the hiring side, $30 million funded would be where I would say that person is -- we're going after the 20 years experience, where we want them to have a portfolio that they produce greater than $100 million. We know them in the marketplace.

Just to be clear, we're using no recruiters in our hiring and culture makes a big difference. In terms of the forecast, in terms of Q3, we're looking at the 7% range ex-Navitas and then in terms of next year, I'm even more confident in obtaining upper single digit next year, particularly based on the hiring that has occurred and those -- the pace is going to slow down in the second half of the year, but we still have ongoing discussions.

And in July, we've hired 5 more that are on payroll already. So we're feeling pretty good.

Got it. And then I guess on the expense side now, a bit of a bigger picture question trying to get the pro forma expense base, but given the recent commercial lender hirings and related aspirations. In addition to the impact of the sale of Navitas in 3Q closed the deal, when all is said and done and deal cost saves are achieved -- where do you see the expense base shaking out? And longer term, what is a good core expense growth rate to consider?

All right. I'll take that one. Thanks, Jacob. So we just did $154.5 million and expenses on what I would call a run rate basis. Overlay peach dated adds $4 million quarterly -- and then we'll have $2 million roughly of cost savings off of that $4 million next year. We expect that to close August 1. So think about that $2.5 million hitting this quarter.

Now offsetting that, you have Navitas has like a $9 million quarterly run rate that will go away when the deal closes. So think about $154 million expense base is growing at roughly a 3.5% pace -- then you have $9 million of expenses going away with Navitas and $4 million coming on turning into 2 with cost saves next year of peachdates. With an astric that we will be hiring lenders in an opportunistic way, just as Rich mentioned. So Q3 has timing issues of when Navitas goes away, so it's hard. But net-net, we should be looking at roughly $150 million base, maybe just a slight higher depending on the lender hires?

And Jacob to finish answering your question, you had several 1 there. I will just answer in terms of what type of -- where are we producing? It's going to probably look equal between C&I and CRE and it would be spread across all the geographies. We're seeing really good equal production and the geographies are kind of fighting it out each quarter on who's the top. So we're starting to see really equal, which is a good feeling.

Our next question comes from Katherine Mueller from KBW.

This is Hanan stepping in for Kathryn Miller. I wanted to start off on the reinvestment side as Navitas comes out next quarter and you redeploy the proceeds. How are you thinking about the timing and pace of the securities purchases throughout the rest of the year?

That's a great question and 1 that we are thinking about quite a bit because the 4.25%, I think, is a realistic number to think about. But I don't know if we invest that all right away because I think some of that will be in cash. So we're using that 4.25% as a proxy, I think that's a relatively easy number to get to. But for the first 1 to 3 months, I think you'll see a portion of that at $375 million in cash. Then again, that will be offset somewhat by using some of that cash for 6% plus loans.

So we settled on the 4.5% as a good proxy, but I think it could be -- or 4.25%. I think it could start slightly slower than that or slightly lower than that and then move up towards 4.25% and beyond over time.

Great. And then my other question is, I know you mentioned in your prepared remarks about repurchases. If you could just give a little more detail there on your mentality moving through the rest of the year? I know you were in the blackout period for this quarter, and so we didn't see any, but just curious where you expect to go for the rest of the year.

That's great -- we have said publicly that we intend to buy back the other $50 million -- of the $100 million in total consideration that we're paying for Peach State. We still expect to do that. We have $63 million in authorization as well. So think about that maybe for the rest of this year. However, in the bigger picture with Navitas and sold, it will be roughly a 14.5% CET1 ratio.

We haven't given capital targets, and we're not giving capital targets today, but if you think about just getting back to the 13% range, that's about $300 million of excess capital. So I think that is something that we will be talking about in Board meetings over the next year. So I think you could realistically see capital usage and perhaps and buybacks increase significantly next year.

Our next question comes from Gary Tenner from D.A. Davidson.

Just wanted to ask in terms of the gain on sale piece, the kind of the relative impact of the equipment financials versus SBA just to kind of drill down to more base gain on sale number going forward?

Yes. So I don't have the amount of Navitas gain on sale in front of me. I don't think -- let's talk after by I think about 75% of the gain on sale this quarter was SBA, but let's talk after this, and I'll get you the exact number.

Okay. I appreciate that. And then just a follow-up on the repurchases. My sense of things when you announced the sale of Navitas a couple of months ago was a little more definitive maybe around buyback and maybe sooner than just thinking about 2027. Did anything change? Is it timing of the deal closing or anything that pushes that out at all versus maybe front-loading it a bit more?

Yes. No, nothing's changed. We're just continuing to evaluate all the options. Our priorities still remain obviously continuing to fund loan growth, which is accelerating. Then opportunistic M&A. So think of things like Peach State. We're not looking at large deals. We're not looking at out-of-market deals.

But as we mentioned earlier in the call, there continue to be some nice little small -- nice small banks that very high quality that we're interested in. So in my mind, doing some of those for cash is a more effective buyback in a way, then we're looking at buybacks, we're looking at other balance sheet options as well. So nothing has changed. It's just we're continuing to evaluate all those options.

Okay. So maybe more of a sense of not wanting to just kind of slow pulling it a little bit to give you some more flexibility if other things arise. Is that the way to think about it?

That is a great way to think about it.

Our next question comes from Michael Rose from Raymond James.

Maybe for Rich, just wanted to go back to kind of the underlying strength in loan growth and the commentary about stronger growth in the back half of the year. Just as we think about the lending hires that you made, once you continue the addition of Peach State and probably pay downs waning, which I suspect has been a headwind for you like it has been for others.

I mean should we begin to think about UCB as a kind of a mid- to high single-digit grower versus a mid-single-digit grower, which you've laid out previously. It just seems like you guys have some real momentum here in building out some other verticals and markets.

Well, Michael, I think you're spot on. So I agree with you. That's where we're headed. I feel we've got a really good balance now with some strong C&I initiatives. I mean, for instance, the ABL groups really shown in the last 2 quarters and provides another alternative for our lenders out there. So very positive.

Okay. And maybe as a follow-up, how should we think about kind of loan yields as we move forward ex-Navitas? Just -- I know there's going to be a lot of moving parts in the third quarter for sure. But just on a go-forward basis, just given the competitive dynamics and it just seems like there's going to be an increasing amount of pressure as we move forward, but would love to hear any thoughts.

I can talk about it from a market perspective and competition perspective. Right now, we're seeing, for the first time in a while that pricing and structure have both kind of leveled off. So you did see, particularly CRE come down over the last year. That has stabilized and again, structure stabilized right now.

Real quick, this is Jefferson. So the loan yield does come down with Navitas going away by about 30 basis points. And so -- and we are putting on loans, new loans at a higher rate than that. So we do get the initial impact on Navitas going away, but we should have an increasing loan yield off of that lower base.

Perfect. I appreciate it, Jefferson. And maybe just 1 last follow-up. Just -- and congratulations on your upcoming retirement, Jefferson. But just trying to get a sense of when we could expect to see the announcement for a new CFO. Thanks.

Yes. So we're actively recruiting. We've got some great candidates in. My expectation would be probably sometime plus, call it, September, October, something like that would be a good time frame to expect that.

[Operator Instructions] Our next question comes from Christopher Marinac from Brean Capital.

I wanted to ask about the impact of the new hires on loans. And should we see that accelerate? I think Rich had touched on that earlier. I just wanted to quantify that.

The answer is yes, because we really started this Q4 saw their impact in Q2 in the, call it, the approximately $30 million funded, which for us is kind of like another state that is kind of how we think of the net fundings when we look at that. So going forward, we expect to see that continue to accelerate in the rest of the year and obviously feel very good and optimistic about next year.

Great. And then Jefferson, just a quick 1 on net charge-offs ex Navitas. Is the number you told us in June still a good number to use?

Chris, this is Rob Edwards. When I look back over the last 10 years, it's really been between 8 and 13 basis points net charge-offs for the bank excluding Navitas -- last 2 years have been 12 basis points. So I'm not remembering what we stated recently, but I would say those are good ranges to think about going forward.

That's perfect. I appreciate that. And then just a last 1 about M&A pricing. As you think about possibilities in the future, is the pricing kind of similar to what you did with Peach State a few months ago, -- is it any different as you've looked at the possibilities this year?

Yes. I would say each deal is a bit unique. We target a 3-year earn-back and on an all-stock basis. So it really depends on overlap, the underlying momentum of the bank itself Peach state was unusual. So I would say that was probably on the half side, but yes, each deal is priced individually, but just based on those attributes.

And with that, ladies and gentlemen, I'm showing no additional questions, I'd like to turn the floor back over to Lynn for any closing comments.

Great. Well, once again, thanks to everyone for joining our call for great questions. Have any additional questions, don't hesitate to reach out, and we look forward to talking to you again soon. Have a great day.

And with that, ladies and gentlemen, we'll conclude today's presentation. We do thank you for joining. You may now disconnect your lines.

Good morning, and welcome to United Community Banks' conference call discussing today's announcement of a definitive agreement to sell its equipment finance business, Navitas, to funds managed by Wafra, Inc. 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 representative of United. Any forward-looking statements should be considered in the light of risks and uncertainties described on Pages 5 and 6 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 welcome to our call. We're excited to announce today that we have entered into a definitive agreement to sell our equipment finance company, Navitas. For me, this is a story about the continuing build-out of our Southeastern footprint. When we purchased Navitas in early 2018, we were about 40% of our current size at $11.9 billion in total assets. We have not yet entered Florida, Alabama or Nashville. We had a loan-to-deposit ratio of 79% and far fewer commercial bankers than we would have liked. We needed a growth engine to support us as we continue to build out the footprint.

Navitas delivered on that objective, growing from $350 million in outstandings at the time of acquisition to $1.9 billion today and delivering strong risk-adjusted returns as they grew. But our focus was always the core bank. Accordingly, we placed an internal limit on Navitas' size at 10% of total UCB loans. And as many of you know, we've been near that limit for some time. And to execute against that limit, we began selling Navitas loans and slowed internal hiring at the company.

During the same time, we were building out our banking footprint with acquisitions in Florida, Alabama, Tennessee and North Carolina and developing our capabilities, particularly in commercial banking and wealth. And so now with our relationship banking momentum building and the outlines of our footprint established, the time is right to sell Navitas and refocus our management time and attention fully on the core bank.

As you look to Slide 2, we believe this sale provides an attractive return on a solid but noncore asset. It meaningfully reduces the risk in our loan portfolio as Navitas is naturally a higher loss content business. Post sale, we'll have even more flexibility from both a liquidity and a capital perspective to invest in our core strengths, relationship-based community and commercial banking in our footprint. And Navitas will be with an owner that can support and accelerate their growth.

So Jefferson, let me turn it to you for additional details on the transaction.

Thank you, Lynn. Navitas has been a very successful investment for us over these past 8 years, and I'm excited now about the ability to get a good price for the business and then to invest and focus on our core banking businesses. I'll start with the financial aspects of the transaction on Page 4. We are selling the origination business and the loan book of Navitas for approximately $1.9 billion in cash. This represents a 7.1% premium over the receivables that we are selling. These numbers will change slightly based on the loan growth between March 31 and close, which is expected in about 60 days.

We are keeping about 2% of the loans on our balance sheet that do not meet the financing requirements of the buyer. The net gain to UCB has been reduced by the capitalized origination costs that were being amortized over the life of the loans and by transaction expenses. The overall earnings impact also benefits from the release of $42 million of Navitas' loan loss reserves.

From a timing perspective, the $42 million reserve release will occur in the second quarter as we move the loans to held for sale and the roughly $77 million gain from the sale should occur when the transaction closes. We expect the combined impact to be additive to tangible book value by $0.67 per share or about -- by about 3%. I will discuss impact to capital ratios on the next page.

Moving to Page 5. I will first talk about the capital impact of the transaction. At the bottom left of the slide, we show our 13.4% CET1 ratio that we had at March 31, and we adjust this down for the pro forma impact of the Peach State deal that will close either mid-Q3 or early Q4, bringing us to a 13% CET1 ratio, again pro forma for Peach State. In this transaction, our CET1 ratio will move up by 145 basis points, driven by the gain on sale from the transaction and with the reduction in risk-weighted assets, taking our CET1 ratio to 14.5% by our calculations.

From a near-term earnings perspective, we estimate that selling the Navitas loans and reinvesting the $1.9 billion in cash in the securities portfolio in the 4% to 4.5% range will initially reduce earnings by about 9% before taking into account any benefits from redeploying the proceeds back into loans or doing other capital use activities.

Specifically, we believe that we will replace this earnings gap in the relatively near term by reinvesting the proceeds into loans via the organic growth of our franchise and by various capital deployment alternatives. On the loan growth front, with this potential transaction in mind, beginning in the fourth quarter of 2025, we have been materially increasing our revenue producer hiring efforts as such, we have increased our revenue producers by 38 people or 18% since September 30, which we believe puts us in a good spot for increasing our loan growth in the second half of 2026 and beyond and will be useful in using the liquidity and capital created by the transaction.

With our significant hiring that has continued into the second quarter, we are planning on upper single-digit loan growth in 2027 if the economy remains constructive into next year. In addition to the elevated hiring that we have done in anticipation of the potential of the Navitas sale, I will also note that the recently completed Peach State or recently announced Peach State transaction was also contemplated with Navitas in mind and replaces about 25% of the loans being sold with Navitas.

Going further, in addition to the increased organic activity and with our projected CET1 ratio in the 14.5% range, we will also explore our various other capital deployment opportunities that are available to us, such as buybacks, balance sheet optimization and perhaps M&A should the opportunity present itself. Please note, though, that our M&A strategy is unchanged and would focus on relatively small, in-market transactions with minimal integration risk where we can be most additive.

With that said, I will direct you to the upper chart on Page 5 and walk through the earnings progression a little bit. Starting from our $0.70 operating earnings base that we reported in the first quarter. We adjust this to include the expected EPS accretion once the cost savings are in that we talked about in the Peach State transaction, which brings us to $0.72 in base earnings.

Then adjusting for the Navitas' sale and the 9% impact that I mentioned before, this takes us to the $0.65 range of adjusted Q1 EPS. Finally, then we do the math on reinvesting the excess capital created either fully into buybacks with a $300 million buyback or at reinvestment ranges of 10% to 12% return on invested capital and these calculations get us back to $0.69 if we were to simply buy back the $300 million in shares at current prices and to the upper end of the $0.69 to $0.73 range if we were to invest at a 10% to 12% return, which is together neutral to slightly accretive compared to our current earnings profile.

All said, once closed, we will be a company with a lower risk profile with a more attractive business mix with roughly half the net charge-offs and one that will get back to earnings accretion or at least neutral in the relatively near term.

With that, I'll pass it back to Lynn and open it up to questions.

Thank you, Jefferson. And I'd like to thank the Navitas' team for being a part of United these past 8 years. You've been a great cultural fit as well as a strong performer and I'm grateful for the time we have had together and the relationship that we have built. And to Wafra, congratulations on a great purchase. I've also been impressed with your culture and approach to the business as we have gone through this process together and I wish you both tremendous success in the future. And now I'd like to open the floor for questions.

[Operator Instructions]

The first question will come from Russell Gunther with Stephens.

I thought the deck was super helpful in terms of the moving pieces. I did want to follow up, though, in terms of your sense of the pro forma margin going forward, both near term, but then as you think about putting this excess liquidity to work on the asset side, maybe help us with how you're thinking about deposit cost expectations going forward and how that has changed with this excess liquidity given an increasingly competitive environment for growth?

All right. So I'll start with that one. Initially, if you just do the pro forma based on Q3, it takes the margin down by about 30 basis points. But I say initially because we believe we're going to be relatively quickly moving these securities back into loans and growing the bank and getting that margin back over time. And the second part of the question was about cost of deposits. We had guided to relatively flat for this quarter. We're still on pace with that. I do think you're going to see the loan growth pick up a little bit. You're seeing the competition pick up a little bit.

We do have the benefit of CDs costs coming down. But I think you could see it be within our expectations this quarter and maybe slightly higher in the second half of the year. But the -- having all this excess liquidity will help us relative to peers, I think, be able to manage our deposit expectations.

Okay. Great. And then you guys mentioned one of the avenues for excess capital deployment being in footprint M&A and kind of small in nature. Maybe just remind us kind of priority markets within footprint, what small in asset size means to you? And then as we think about CET1 levels, just level set us where you measure that and what we can think about as excess from here?

Yes, sure. Russell, I'll take that. So in terms of target areas, our footprint, as I mentioned, the outlines of our footprint are pretty well settled. And so we'd just be looking at tuck-in fill-ins in what we think are attractive markets. I think the Peach State transaction is a great example of that. In terms of what small looks like, our average deal is about between $1 billion and $1.5 billion. We've done smaller like Peach State, but -- so that's those are the kinds of deals we're looking at, small, well-run in-market deals where it's just easier from an integration perspective. It's more -- we can be more additive from a product and balance sheet perspective, and it doesn't distract us from the real work we're doing on hiring and growing our organic business.

Okay. Great. And then I guess just a follow-up to that, guys, would be as you think about where you want to run CET1 relative to the pro forma 14.5%?

Yes, that's a great question. So if you think about it philosophically to start with, I've always held felt like we should hold a little more capital than peers for 2 reasons. One is, historically, as a percentage of assets, as we were building out the franchise, we were -- just for acquisition purposes alone and integration risk and all that, well, let's -- while we're in that fast build-out pace, let's hold a little more capital for that reason.

And then I always felt like the market viewed Navitas as a higher risk asset, frankly, than I did. I think they're -- yes, they have a higher loss content, but their volatility is not that significant. They're really well run. So we held a little more capital from the market's perspective for Navitas. So as you think about now, as a percentage of assets, our acquisition activity will be less. We won't have Navitas on the books. So at a minimum, I would target more core peer levels versus being above peer levels. We haven't set on a specific number. But philosophically, there's certainly no reason for us to be above peer.

The next question will come from Michael Rose with Raymond James.

Obviously, a very good return from when you bought this in 2018. So congrats to you guys. But obviously, these are higher-yielding loans. Lynn, as you just mentioned, the perception around credit quality may have been an issue. I know you've had some long-haul trucking type of issues, but certainly very manageable given the portfolio size. I guess the question is, I guess, why now exactly, particularly given the spread pressure that we're seeing and given that these loan yields have been very consistent for a very long period of time.

Clearly, the business is growing. I know you've limited to 10%. That's -- you've been operating at that level for a period of time, but why not wait for sometime in the future once we get through maybe some of the spread compression issues?

Yes, sure. Great question, Michael. So we started looking at this really 12 to 18 months ago. Part -- one issue is, as you think about a company like Navitas, you can only hold back or I won't use -- maybe I'll use the word strangle. You can't hold back a growth company too much or you just start losing momentum, start losing people and those kinds of things. So one reason -- one thing is we were at kind of our limit. We needed to figure out some way to continue to invest in the business and grow the business without it overwhelming us.

So we looked at various alternatives, whether selling more loans, securitizing whatever. But we felt like given the attractiveness of the company, the rise of private credit, all those things together said, "Hey, let's explore a sale. Yes, it's going to have the short-term impacts that you mentioned. But long term, we get them in a better home, and we're better able to focus on our core bank. It just felt like the right time for those reasons.

Appreciate the color. Maybe just as a follow-up, I know you guys had planned to offset some of the dilution from the acquisition, the Peach State acquisition with buybacks. That was one thing that I don't think was listed in the slide deck from this morning. But could increased buybacks be part of the equation for some of this liquidity and capital?

Yes, absolutely. And if we didn't have that in the deck, we should have -- I think it's in there. But absolutely, that is part of it. So again, going back 18 months ago, we -- 12 -- 18 months ago, we said, look, all right, if we're going to do this, we need to -- a couple of things we thought about. Number one, we need to accelerate hiring. So we actually put together a project just as we do with acquisitions, we have a very detailed process of how do we bring people in, how do we integrate them into the culture, how do we get them to understand the credit world that United operates in. But we have not done that for organic hires. It had been more one-offs. So we said, let's -- all right, if we're going to take Navitas out, get them to a better home, we're going to have this capital and liquidity, let's accelerate hiring.

So Rich and his team put that together. They've been very successful. We haven't talked a lot about it, but the pace of new hires is coming on very well. So we feel really good about the organic growth coming on. And at the same time, you've got this excess capital, and we knew we would have even more excess capital than you thought we had. So let's look at buybacks. So you saw us lean into buybacks the last 6 months far more than we have been doing. And as I look at small tuck-in acquisitions, we had actually initially proposed the Peach State deal to Peach State as an all-cash transaction, looking at that as the deployment of capital in anticipation of this.

But some of them wanted to hold the stock, and so we did a 50-50 deal. So I would say, absolutely, buybacks are on that menu. And we've done a lot of work looking at different alternatives, and we're going to take the next 60 days between now and close to kind of refine those things, think about what's in the best long-term shareholder interest and then begin executing on that after close.

Very, very fair. And sorry, I missed the repurchase thing. It was in there, so that's my fault. Maybe just one final question for me. I know you guys have talked about kind of mid-single-digit growth this year. It sounds like you're going to see or expecting some acceleration as we think about next year. Maybe it's a little bit early to discuss it, but I know you have been hiring folks. I guess what gives you the confidence that you can see accelerating loan growth as we move into next year?

This is Rich Bradshaw, the President and Chief Banking Officer. I think I'm a special guest on today's call. But -- so yes, the hiring has gone ahead of plan. It's gone very well. We're -- our average lender producer experience is in the 20-year range in the people we're hiring. They're from traditionally larger banks than us. So they're in our growth markets. So we're very excited about this. So we do anticipate, obviously, core loan growth increasing in 2027.

The next question will come from Catherine Mealor with KBW.

A couple of just small follow-ups. First on -- as we play with the margin impact, what cost of funds should we be using to offset their kind of? What do you all typically use as a funding cost for this portfolio?

So their funding cost is kind of baked into the whole bank. So as a modeler of the company, I don't think I would change the funding cost. When we were funding it internally, we had an FTP and a spread and all that kind of thing. But our funding really is unchanged, except for that we have a significant amount of liquidity now to fund future loan growth and to help us kind of potentially widen this margin, the new margin in an environment where deposit funding is a little tougher. So I don't think the funding cost in the near-term modeling changes a lot.

Okay. Cool. So just use like a 170 cost of deposits.

That's right because they...

Compete kind of against it.

Right. They're just going to be funding securities for a while, and that's going to translate into loans over time.

Okay. Cool. Great. And then any timing on the investment of the proceeds for the bond purchases? I mean, do you plan to do just kind of one big transaction all at once? Or is there any kind of layering in that we should consider for those investments?

It's under -- I would say it's just -- it's under review. We're going to let this deal close. We're examining all options, and we'll make decisions later in the year.

Okay. And then lastly, at what point you had considered an HTM restructure. Is that at all back on the table just in light of this transaction and with higher for longer rate environment potentially on the horizon? Or just kind of curious your updated thoughts on that?

Yes. I would say that's one of the menu items that we're evaluating. We haven't made any decisions on any of these things. And so because what we want to do now that we've got this piece of the transaction announced, we want to just really sit back and say, all right, what's in the best long-term interest of the company in terms of risk, return, all those things. So no decisions, but it is one of the menu items we've looked at.

The next question will come from Stephen Scouten with Piper Sandler.

I guess I'm curious how you think about the time line of the deployment of the incremental liquidity. I mean you already had a relative strength from a liquidity standpoint, I guess, from a low loan-to-deposit ratio. So do you think about the risk profile of your kind of core loan book any differently or any new market expansions to kind of allow for maybe more rapid deployment of this liquidity? Because I think you probably already had like 2 or 3 years of ability to grow loans in excess of deposits. So I just want to think about that time line and that risk profile from here?

Yes. So in terms of the loan book, expanding the risk profile is not something we would do only because my background grew up in credit. It kind of goes exponential. You have a good loan and a bad loan, and it's really hard to make just something in the middle. So we don't plan on expanding the box. What we're really trying to do is expand our product set.

So Rich talked about commercial bankers coming from larger banks. So our middle market area, for example, which will be larger kind of end market commercial deals, we've not been as active in that market as we'd like to be. I don't view that as expanding the risk box because the underwriting of those are very consistent, very good, but it's a product we haven't done as much of as an example. And then just volume, if you look at -- this makes sense, but if you look at historically, loan growth is really pretty closely tied to the net loan growth of your producers. I mean that's a logical thing you don't really think about or talk about too much. And so we've expanded the net growth of our producers pretty substantially.

Rich may have the exact numbers. This won't be for the full year, but I think we're up about 18% over year -- over the last few months. If you annualize it, now it won't annualize at that level. It's probably more like the 12% to 15% range, but that's significantly higher than what we've been doing. And so just from a pure volume perspective of doing the kind of deals we want to do, we would look for that to happen. But that takes a while to come in. So you bring a new banker in 6 to 9 months before they start really producing at full level. So this is a longer-term play.

So the immediate deployment will be in the securities book. It will be short, simple, safe. We are not looking to take any risk there because we're not -- we're funding with core deposits. We're not funding out in the wholesale market. We don't have to reach for yield or anything else. So you'll see a short simple safe bond transactions in the near term. And then Rich has got kind of carte blanche to go get great bankers and bring them in the market and deliver on that.

And I agree with the numbers and comments, particularly about middle market that Lynn said. And I will tell you, it's very encouraging because it does take a while for a lender to get on board in terms of bringing on new business and closing new business. But what's been exciting is some of these new hires within 60 days, 90 days, we're already seeing deals at senior credit committee, and those are all deals for us over $20 million. So it is happening, and we are excited.

Yes, that's great color. And I guess kind of tying on to that, you have been extremely successful with this kind of new hire progression over the last couple of quarters. Does this accelerate that even further? Like do you get a little bit more aggressive, whether that be from a market perspective or just in terms of a willingness to spend near term to hire more people, maybe even, I don't know, LPOs. I know, Lynn, you said it's going to be a long time horizon to deploy this, but I'm just kind of wondering if it changes the thought process around what's already been a positive trend to maybe magnify that further.

No, it doesn't accelerate only because, as I mentioned, we've been executing on this for the last 12 months. We just -- I don't like to tell people what we're going to do. I'd like to tell people what we are doing. And so we are already, in our mind, at that accelerated pace in anticipation of this. But it's -- if you're a banker considering coming over to us, I will say that this is an attractive thing to help Rich bring people on because now his pitch has already been great. You've got a bank with a great culture and a great footprint.

And by the way, now we've got a mid-70s loan-to-deposit ratio, all core funded. So yes, we want you to go get deposits, bring deposits in, but you don't have to be -- you're not going to be super focused on that. Let's go bring in the loan transactions. We've got tons of capital. It's -- so it's a really good story that we think continues the momentum that Rich has already built.

And I would add, we're not trying to -- we do have some goals that we're trying to hit, but we're past this year. We're really being opportunistic. If it's the right people, we will bring them on. And we'd rather have the right people than a specific number. And all of a sudden, when I came here 12 years ago, we never talked about culture and the hiring. Now it's always the first question that they bring up. So that's playing a really important role. And so we're going to continue trying to do what we're doing, and we think we're doing it well.

Yes. Fantastic. No, it is a differentiated recruiting position to have all that liquidity. So congrats on the transaction and all the progress.

[Operator Instructions]

The next question will come from Christopher Marinac with Brean Capital LLC.

Just a quick question on the interest rate environment. The fact that rates have moved since the end of March, does this make this decision easier for you to execute?

Good question. I'll start with that. The rate changes aren't super meaningful in some ways. They are creating more unrealized losses and a higher reinvestment rate if we were to go down that path. So I don't think the rate changes are affecting our menu of things to do. Now if you're talking about -- maybe have a slightly different question, Chris, which was the executing of the Navitas transaction, higher rates probably -- all things equal, it maybe hurts the transaction or makes it a little more -- makes the loans on the balance sheet a little less valuable, which maybe feel like we had a good valuation for what we sold. So rate volatility does play in the valuation, obviously, but that 10-year stayed in a range where it made the transaction doable.

Great. And then just for Rich, real quick. I mean, since rates are up a little bit, does that give you any more room to perhaps price just a little bit better? I know it's competitive, and I know it's not an easy time, but just curious if you can get more yield from customers?

Yes, it's a great question. I will say over the last 12 months, we've seen pricing compress, particularly in CRE. And I'll say today is the first time I've seen that really stabilize and actually maybe increase a little bit, particularly on the investment CRE construction, which we do a lot of. So the answer is yes. We've seen a little impact on the positive side.

The next question will come from David Bishop with Hovde Group.

A quick question circling back to the share buyback. I appreciate the footnote, I think it shows about $300 million potentially contemplated. Remind us how much is remaining under I think there's a current $100 million authorization. I guess, does that imply you'll have to go back and seek Board approval to increase it?

That's right. So our current remaining authorization is $63 million. Keep in mind that with the Peach State deal, we talked about buying the $50 million back already, so that's contemplated. I will say that we are between the S-4 and the shareholder vote at Peach State. So we're currently blacked out. But I think a strong buyback is definitely a stronger buyback than what the $63 million authorization would put out there is definitely on the table as an option for us as we go through the year.

Got it. And then in terms of the hiring you guys have made have been aggressive over the past year and into this year, curious, Jefferson if that has any impact in terms of your maybe organic stand-alone expense growth expectations this year into next?

So most of the hiring that we've done so far incorporated into our expense guidance for the rest of the year when I mentioned it would be up $1 million in the second and third, fourth quarter, not cumulatively, but $1 million to the run rate. I can see that moving a little higher, but I think that we've incorporated that into our prior guidance mostly.

Got it. And one final housekeeping question. I appreciate the -- I think it's about $9 million that comes out of the expense run rate from Navitas. Can we assume from a breakdown in terms of comp, salaries versus occupancy, maybe 2/3, 1/3, just sort of any guidance you can give there in terms of [indiscernible]?

We have -- let me get back to you on that. Half and half is the number coming to me, but it could be -- let me get back to you on the specifics of that, but half and half is the number I'm remembering.

This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Lynn Harton for any closing remarks.

Great. Well, once again, thank you all for joining the call for great questions. And any further follow-up, feel free to reach out to any of us here, and I hope you have a great rest of your day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to United Community Bank's First Quarter 2026 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings; pretax, 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 the 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 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 5 and 6 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 our call today. We've got a lot to cover. I'm going to start with our quarterly earnings update, and then we will close with the details of our acquisition of Peach State Bank headquartered in Gainesville, Georgia.

We had a great start to 2026. For the first quarter, we realized net income of a little over $84 million, translating into EPS of $0.69. On an operating basis, our EPS was $0.70, representing a 19% increase from the first quarter of 2025. Annualized loan growth of 4.5% for the quarter and an expansion of our net interest margin of 3 basis points helped to drive these results. Credit also performed very well this quarter with total charge-offs of 22 basis points, only 10 basis points, excluding Navitas.

Nonperforming assets as a percentage of loans were 50 basis points, down 1 basis point from Q1 2025, and special mention in substandard loans totaled only 2.9% of total loans, down 2 basis points from Q1 of 2025. Our operating return on assets was 122 basis points, an 18 basis point improvement year-over-year, and our operating return on tangible common equity was 13.1%.

Given our high capital levels, we continued to return capital to shareholders, both via a $0.25 quarterly dividend and the repurchase of $37 million of our common stock. We also announced the intention to redeem our remaining $100 million in sub debt in the second quarter, only 20% of which qualified as Tier 2 capital. Even with the dilution from our repurchase activity, tangible book value per share grew at an annualized rate of nearly 6% for the quarter and by 10% year-over-year. We were also excited to have been recognized by J.D. Power as the top-ranked bank for retail client satisfaction in the Southeast during the quarter. This is the 12th time the United team has received this recognition. I'm very proud of the dedication and genuine care that our teams across the footprint demonstrate every day. It's because of them that we are the most recognized bank for customer satisfaction in the Southeast.

I'll now turn it over to Jefferson to cover our first quarter's performance in more detail.

Thank you, Lynn, and good morning to everyone. I will start on Page 5 and talk about our deposit results. On an end-of-period basis, our customer deposits grew by $237 million or 4% annualized, mostly driven by DDA growth in the quarter. We were also very pleased that our cost of deposits moved down 9 basis points to 1.67% and that our cumulative total deposit beta stands at 39% in this down cycle, which exceeded our goal.

On Page 6, we turn to the loan portfolio, where our growth continued at a 4.5% annualized pace. Our growth came primarily in the HELOC and C&I categories, which are 2 of our current areas of focus for growth.

Turning to Page 7, where we highlight some of the strengths of our balance sheet. We believe that our balance sheet is in good position from a liquidity and capital standpoint to be ready for any economic volatility. We have very limited broker deposits and very limited wholesale borrowings of any kind. Our loan-to-deposit ratio remained low and was unchanged at 82% this quarter with a solid end-of-period deposit growth. Our CET1 ratio was flat at 13.4% and remains a source of strength for the bank.

On Page 8, we look at capital in more detail. As I mentioned, our CET1 ratio was 13.4% and our TCE was also flat at 9.92%. We were active in our buyback again in the first quarter, buying back $37 million in shares, which equated to 1.1 million shares in the quarter or just under 1% of our shares outstanding.

Moving on to spread income on Page 9. Spread income was down in Q1, mainly due to having 2 less days in the quarter. On a year-over-year basis, our spread income was up 10%. Our net interest margin increased 3 basis points in the quarter to 3.65% and up 29 basis points compared to last year, and the first quarter is the fifth quarter in a row of margin expansion. We continue to experience a margin tailwind from our back book repricing and from the mix change towards loans away from securities. In the next year, using just maturities, we have about $1.4 billion of assets, paying down in the 4.63% range. And because of this continued impact, I would expect the margin to be up between 3 and 5 basis points in the second quarter.

Moving to Page 10. Noninterest income was $43.7 million in the quarter. This included a $5.2 million gain on an interest rate cap that was hedging a sub debt issuance that we intend to redeem on April 30. Excluding the cap gain, noninterest income benefited from a strong mortgage quarter and was offset by seasonally lower service charges. And we opted to sell less Navitas loans than usual. Last quarter, we sold $41.6 million in Navitas loans compared to $8.3 million this quarter.

Our GAAP expenses were $157.3 million in the first quarter, and our operating expenses were $151.6 million. We had a small amount of our normal merger charges, but we had 2 more unusual and offsetting nonoperating expenses. First, we had fully accrued for the FDIC special assessment that came after the Silicon Valley failures. That said, the FDIC refilled this bond faster than expected and is not asking for the full assessment. We had taken the original assessment as a nonoperating loss, and so the release of the assessment of $1.9 million comes through nonoperating as well.

We also had another nonoperating charge in the first quarter related to a change in our payroll process necessitated by changes in legislation. We had paid our employees on a current basis, and we changed this to paying our employees in arrears. As a result of the transition in payroll timing, some of our employees would have gone nearly a month without a paycheck, so we paid an additional check to bridge the gap. Aside the one-timers, expenses were $151.6 million, relatively flat compared to the fourth quarter.

Moving to credit quality on Page 12. Net charge-offs were 22 basis points in the quarter, improved from last quarter and flat to last year. We also saw relatively flat NPAs and a nice improvement in past dues as credit quality remains strong.

I will finish on the quarterly results on Page 13 with the allowance for credit losses. Our loan loss provision was $10.9 million in the quarter, which was in line with our net charge-offs. With the loan growth, our allowance coverage of credit losses moved down slightly to 1.15%.

With that, I'll pass it back to Lynn.

Thank you, Jefferson. Now let's move into a discussion of our Peach State Bank announcement, and I'll start with a bit of history. United began de novo in Gainesville, part of Hall County in 2005. Over the past 20 years, we've enjoyed strong organic growth there with now $827 million of deposits in the county. Peach State was founded that same year, 2005, and has also enjoyed strong organic growth. Total assets for the company are $788 million as of the end of the first quarter with $713 million in deposits. Hall County is a rapidly growing part of the overall Atlanta MSA. And after this transaction, the combined bank will have the #1 deposit share in the county.

Culturally, we fit well together. We know each other personally. We work in the community together. We go to school together. We go to church together. Peach State shares the same passion for customer service as United. There's a tremendous amount of mutual respect between the 2 teams, and I'm very excited to see them come together and continue to win in this market.

Jefferson, let me turn it back over to you now to cover the financial aspects of the transaction.

Okay. Well, first, Peach State has approximately $800 million in assets or about 3% of our assets. The deal value is about $100 million and will be a 50-50 cash stock mix. We are paying 1.9x tangible book value and 6x cost saved earnings. Given our overlap, we are estimating 40% cost savings. While the deal is 50-50 stock and cash, we plan on repurchasing the $50 million in shares issued by year-end. As structured, we estimate the deal to be $0.09 accretive in 2027. And with the planned buybacks, we estimate the deal to be $0.12 accretive.

With that, I'll pass it back to Lynn to conclude.

Thank you, Jefferson. This is a great example of what we want to do in the M&A space. It is in market, manageable size, a history of strong performance, great upside potential and an attractive way to leverage capital and continue to grow our business and our brand. I'd like to now open the call to questions.

[Operator Instructions] Our first question today comes from Russell Gunther from Stephens.

This is Jake Morton on for Russell Gunther. My first question is on deposit costs. How would you expect them to trend from here in an interest rate scenario where the Fed remains on pause on a stand-alone basis and including Peach State? Is there room for you to bring these down further? Or should we expect some pressure going forward?

I'll take that one. Thanks for the question. I would expect our deposit cost to be relatively flat. We have some tailwind from CD maturities, but we are seeing competition out there, and we do want to grow our deposits this year. So I think if you layer in relatively flat deposit costs, that's a good place to start. And the deal being only 3% of our assets, doesn't change those numbers meaningfully.

Got it. I appreciate the color there. And my second question is for -- so do you have the spot cost of deposits at the end of the quarter? And also, can you talk to the competition that you were seeing in your market? And like where is it most aggressive, which specific product and also competitor-wise, if you could talk to that.

Yes. Thanks. Great question. The spot cost is relatively close to the quarterly average, so not a major difference in spot versus quarterly average. I may pass to Rich to talk about deposit competition of what we're seeing.

In terms of competition, in terms of past quarters, I would say, it's slowed down a little bit. We're not getting a lot of special request on pricing from the market. So I'd say it's kind of normalized. And we really don't have it. We're in 6 states. So we have a lot of different competitors, no single one.

Our next question comes from Michael Rose from Raymond James.

Just wanted to start on loan growth. Obviously, really strong results in both C&I and commercial real estate. You did have some continued paydown on the construction side. I guess my question is, are we getting towards the end of the kind of more accelerated paydowns here? Because it seems to me, just given the growth that you've had and the momentum you've had in both C&I and CRE, that loan growth could actually accelerate from here. So I just wanted to just better understand that? And then if you can talk to some of the competition just given all the dislocation in and around your markets from the deal activity that we're seeing.

Sure. I'm writing these down. Let's start with -- yes, so we are pleased with Q1 loan growth. It's usually a seasonally low quarter for us. So we're very pleased. And in terms of the geography, South Florida led with Matt Bruno and South Carolina and Coastal Georgia were second with North Florida in third. And in terms of the commercial lines of business that led the way, it was middle market, ABL and Navitas. And then lastly, on the retail side was HELOCs.

In terms of paydowns, we actually saw the biggest amount of paydowns in hospitality, which we think is a good thing. So don't see a big pickup. Normally, we do a lot of construction CRE lending. So it's just kind of the normal flow. So I don't see a material change there. And in terms of loan growth going forward, we remain optimistic. We think it will be in the 5% to 6% range, providing nothing else goes on unusual in Iran.

And then lastly, on hiring, we've talked about that because that's influencing things. In Q1, we saw a net increase of 10 revenue producers, and we're aiming for 10% annual growth on that in 2026. And we have 9 more to hit the goal, and we think we'll get there or get close by the end of Q2.

All right. Really, really helpful. Maybe just as a follow-up, just on expenses. If I exclude kind of all the moving parts, it looks like you guys had really good kind of expense control. Maybe you can just talk about some of the hiring efforts that you guys might have in place as we contemplate the next couple of quarters. And then if you could just touch on maybe some early investments on AI and what you guys are doing and what we could expect there from an expense build.

All right. All right. Great. Rich just spoke about the kind of the numbers of the new hires that we're very excited about. I think if you think about our expense growth, we're targeting this 3.5% range, but now we have these hires that you might add on to that. I think the hires could add about $1 million to $1.2 million a quarter. We're not factoring in the better growth that could happen later in the year, but that should happen sometime late '26 or early '27. So we're excited about our ability to grow our producers and it could have some effect on expenses in the near term.

Yes, I would agree with that in terms of -- you got to -- you see a little bit of a lag with the new hires. You kind of expect it to start kicking in, in 5 months to 6 months reasonably when you hire them. And so we're expecting to see late in Q2, some help from Q4, which is also a good hiring quarter.

And Michael, you mentioned AI. So far, I would say our AI investments have been very good and have a strong payback. For example, most of our AI at this time is coming in through vendors. We've -- on the fraud side, all of our vendors are heavy users of AI and our fraud losses have actually dropped by 50% over the last 2 years partially because of that. And that's not even counting the benefits to our clients, which would be on top of that.

Our contact center, where we have chatbots and other AI-enabled tools, we're seeing the ability to take more calls with the same number of agents. The same in our programming. We're doing more programming work today without adding programmers as they're using AI. So as we think about the next steps, an Agentic AI -- I think there are clearly possibilities for some of our kind of more mundane processes, for example, flood and other things where we could get some benefit from AI. That's at just the conversational stage now. But so far, I would say I wouldn't -- any expense build -- our history is any expense build we come out of that, we more than have realized savings on.

Our next question comes from Gary Tenner from D.A. Davidson.

I just wanted to touch on M&A for a second. You guys have talked about being pretty focused in-market, small banks. Obviously, Peach State fits the bill there. Given the environment we're in, do you see a pipeline of activity where you could potentially sort of announce another deal in lockstep with this one? Any reason to think that this would take you out of the market for any period of time?

Great. Thank you. Great question. No, I mean, if -- we would not have any issue. I don't believe in doing another deal while Peach State is active. Certainly, given the size, given the regulatory environment, given our history, if we saw the right deal, which would have similar metrics and conditions to Peach State, I'd be more than happy to move forward with that.

And then just the comment around the accretion in 2027 kind of adjusted for share repurchase. I guess it's sort of semantics, but I mean, the repurchase shares, presumably, that would be over and above what you would plan to do anyway, right? So how do you kind of balance that if that question is fine.

Well, and I guess I'll start with that. And the reason we presented it that way with showing the effect of the repurchase. Our original intent was to do the entire deal all cash. In our view, and I understand it's different than a share repurchase. But at the same time, if I'm evaluating a share repurchase at 11, 12x earnings versus buying a bank at 6, hey, why not buy the bank at 6x earnings. So I guess that was in our mind, and that's kind of the way we presented it.

I think that's well said. I don't have a lot to add to that, but I will say we have $63 million left on our authorization. We have been active in the buyback already with $67 million over the last 2 quarters. So it's a great question. But I think Lynn hit it on how we're thinking about the deal as a use of capital.

And our next question comes from Catherine Mealor from KBW.

This is [indiscernible] stepping in for Catherine Mealor. And congratulations on the acquisition. So my first question is kind of a follow-up on the buyback activity. You bought back around 30 million shares in the past 2 quarters. And with the merger announcement, you mentioned that repurchasing shares could offset the dilution. I was just wondering if you could talk a little bit about the timing and the amount of buybacks we can expect moving forward from here.

That's a great question. And I do think we will buy back the $50 million by year-end. We are somewhat price sensitive. So I cannot -- I don't want to guarantee that we're buying back shares in any given quarter. So I don't know if I would put that in the model for Q2. But I do think we are creating about $30 million of excess capital every quarter. That is the amount that we will be contemplating purchasing on a given quarter. But it depends on the price and some other things we might have going on, it might not be an every quarter thing. So I can't help you so much on the modeling there. But I think by year-end, we will get the $50 million in.

That's great. And then my other question is about your fee outlook. Your fees came in strong this quarter, and I was kind of wondering where you expect fees to go from here.

Right. I expect a modest growth rate in our fee income. We have some nice growth businesses within here. Our treasury services has been growing well. We've made relatively significant investments in our wealth area that we're very excited about. Our mortgage business has been going really strongly. We also have seasonal strength coming in mortgage and Navitas as we go into the second quarter and SBA. So I think you will see a nice growth rate off of this seasonally low first quarter.

Our next question comes from Stephen Scouten from Piper Sandler.

A couple of follow-ups maybe to some conversations that have already been covered to some degree. But Lynn, you said this was kind of like the exact type of deal you guys would look for given culture and deposits and so forth. How about like from a size perspective, I mean, would you guys lean towards these smaller types of deals moving forward still? Or would you like to do something a little more sizable if that were available? What would be your preference there?

Yes. We have typically done deals 10%, probably at the most, 15% or less of our size. We just find that the institutions of that size, they tend to align with us better on employee experience, client experience, community involvement, and we can be more additive. So yes, if Peach State had been twice as large, would we be excited about it? Absolutely. There's just a limited number of those larger, call them, $2.5 billion to $3.5 billion banks. But certainly, we would be interested in those as well.

This one is, I think, really unique, again, given the history of the 2 companies together, the growth in Hall County and this really rapidly growing county, #1 job-creating county, I believe, in Georgia. And so to be able to have that kind of team together and to share together made it really attractive.

Makes sense. I appreciate that. And then on the hiring target, I think if I heard Rich correctly, you guys might actually kind of hit your stated target for the year by the end of 2Q. So would you anticipate ramping up that plan further? Or would it more be, hey, let's let these people ramp up over that 5- to 6-month time line before we add incremental expenses on continual hiring?

Steve, that's a great question. I mean, certainly, we want to hit goal, but we would be opportunistic. If we saw the right people out there with the right experience and the right sized portfolio, we would certainly look to do that.

Yes. And I would just say, too, the seasonality as you get in the year, just with bonuses, those kinds of things, first quarter, second quarter are strong, starts to slow down in the third and fourth quarter, it's more difficult. So I think Rich getting out to an early start has been a great thing.

Yes. That cadence makes a lot of sense. Okay. And then maybe just last thing for me would be kind of overall NIM trajectory from here, maybe for Jefferson. I know you said spot cost deposits were kind of the same as the quarterly average and maybe expect them to stay flat from here. So would you expect a little bit of incremental upside on the loan repricing? I think you called out $1.4 billion in fixed rate assets.

Yes, I do. I think we'll -- I had mentioned that I think we'll get 3 to 5 basis points of margin expansion in the second quarter. I think that we are slightly asset sensitive and the outlook for no rate cuts doesn't really hurt us. We're relatively flat, but slightly asset sensitive. But I think this back book repricing story continues. I think this mix change towards loans away from securities continues. So we do have a wider margin in our model throughout the year, but we do have a nice 3 to 5 expectation in the second quarter.

And our next question comes from Christopher Marinac from Brean Capital.

I want to go back to Peach State Bank for a second. Would you only buy banks that have excess deposits, and that seems like an attractive feature of this transaction? And is that something that will guide your M&A interest going forward?

I would say no to that question. We like to have a low loan-to-deposit ratio. We think we can put those deposits to work. But that's the -- one good thing of many of having an 82% loan-to-deposit ratio is that we can also buy banks, small banks that are loaned up as well and give them some more capacity for growth. So that was a nice to have in this acquisition. We also think we can help out high loan-to-deposit ratio banks as well if that type of bank came about.

Got it. And then for the new hires, is there a deposit mandate with these folks? And how will that play out as '27 comes into focus?

Certainly, on the loan side, we are requiring a depository relationship whenever we do a loan, so we'll start there. But these people all have existing clients. And so we're hoping that the first thing they can bring over is the deposits. It's easier than the loans. So we see that pretty fast, and that's all part of the package.

Our next question comes from Kyle Gierman from Hovde Group.

This is Kyle on for Dave Bishop. Just wanted to follow up back on fee income. I wanted to go into mortgage banking, saw some nice trends there. I was wondering how sustainable that might be going forward? And any initiatives in place to enhance that line item?

So I'll start maybe and then pass it to Rich on the initiatives. We have one thing working for us and one thing working against us as we go into the second quarter for mortgage. First, rates you had rates dipped to -- mortgage rates dipped to the 6% range at the end of February, which helped promote a little mini refi boom that helped out this quarter. But also, we're going into the second and third quarters, which are the strongest seasonal quarters for mortgage. So you get a little bit of an offset as you go into Q2. I'll pass it to Rich for initiatives.

I'd say the -- on the mortgage side, obviously, we're expecting, as Jefferson said, a stronger Q2. The challenge in mortgage is interest rates drive so much of it. And so that's a little bit -- it's a little bit hard to say. We do have a few more shorter on-balance sheet products that have driven some interest. So we'll continue looking at that.

And maybe a final question. Saw a slight uptick in NPAs this quarter. I was wondering if you could provide some color on what drove that? And then maybe just a broad view of the credit quality trends.

Yes. This is Rob. Thanks, Kyle, for the question. So I sort of anticipate asset quality to be stable. And I would expect NPAs to kind of fluctuate up and down. If you look back, maybe 10 basis points up or down over time. There wasn't any one credit that moved into NPA this quarter that's a highlight or anything. It's just a standard movement in and out of nonaccrual.

And ladies and gentlemen, with that, we'll be concluding our question-and-answer session. I would like to turn the floor back over to Lynn Harton for any closing remarks.

Great. Thank you, and I appreciate everybody joining the call. And again, any further questions, reach out to Jefferson or myself, and we look forward to talking to you again soon. Have a great day.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Good morning, and welcome to United Community Bank's Fourth Quarter 2025 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings, pretax, precredit 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 the investor presentation. Both are included on the website at ucbi.com. Copies of the fourth quarter's earnings release and investor presentation 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 Pages 5 and 6 of the company's 2024 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'll turn the call over to Lynn Harton.

Good morning, and thank you for joining our call today. The fourth quarter was a solid end to a great year. During the quarter, we had 11% year-over-year revenue growth, led by continued margin expansion and 4.4% annualized loan growth. Nonperforming assets, past dues and substandard loans remained stable at low levels. Our operating earnings per share for the quarter was $0.71, a 13% year-over-year improvement. Our fourth quarter return on assets was 1.22%, and our return on tangible common equity was 13.3%.

For the year, our operating earnings per share grew by 18% from $2.30 to $2.71. 2025 saw solid improvements in all of our key performance ratios. Margin was up 23 basis points. Efficiency ratio improved by 264 basis points. Credit losses declined and our return on assets improved by 18 basis points. We topped $1 billion in revenue for the year with 12% year-over-year growth. We put extra focus on our retail and small business lending efforts in both of those lines passed $1 billion in annual production for the first time. Our Navitas equipment finance team also crossed $1 billion in originations for the first time.

Executing on our capital plan, we increased our dividend in the third quarter to an annualized rate of $1 per share. We took advantage of the opportunity to repurchase 1 million shares of our stock in the fourth quarter at an average price below $30 per share. During the year, we also redeemed our preferred stock, further increasing our returns to common shareholders. Our return on tangible common equity reached 13.3% for the year, and our tangible book value per share grew by 11% year-over-year.

Culture remained a focus during the year as well. As a result, we were recognized for being #1 in retail client satisfaction in the Southeast for the 11th time by J.D. Power. American Banker recognized us for the ninth time as being one of the top banks to work for in the country. And the American Bankers Association awarded us with a Community Commitment Award for our Financial Literacy month program. For Financial Literacy month in 2025, our team led 154 workshops reaching more than 13,400 students. That's just a small example of the tremendous energy the United team personally invest in our communities.

2025 was a great year, but we want to be better. To improve the durability of our earnings and multiple interest rate scenarios, we reduced our securities duration. We upgraded both our talent and our systems that manage interest rate risk and deposit pricing. We continue to invest in growth. 2025 saw the successful conversion of American National Bank in Fort Lauderdale to the United Systems and brand expanding our presence in this dynamic market.

We opened a new office in Cary, North Carolina and began work on new offices in South Miami and Winston-Salem, North Carolina. We committed to the expansion of our Florida private banking model to the rest of our footprint. We expanded our product set and treasury management to help us continue to grow our commercial line of business and we added talent and risk management to prepare us for continued success. It's been a great year.

Jefferson, why don't you cover our performance in more detail.

Thank you, Lynn, and good morning to everyone. I will start on Page 6 and talk about our deposit results. We experienced a positive seasonality we expected with regard to public funds in the fourth quarter with an increase of $293 million. We were also very pleased that our cost of deposits improved 21 basis points to 1.76% and that our cumulative total deposit beta moved to 40% from 37% as we discussed last quarter.

Excluding public funds, our average balances were down slightly for the quarter, but similar to last year, we did see a greater decline in end-of-period balances. This end-of-period decline was partially due to seasonality with customers moving cash in and out during the last 2 weeks of the year. And it was also the result of our strategy where we lowered rates on some of our highest cost single-service customers. For the year, our deposits grew by 1%, and we continue to grow customers and accounts.

On Page 7, we turn to the loan portfolio, where our growth continued at a 4.4% annualized pace. Our growth came primarily in the C&I and HELOC categories, which are 2 of our current areas of focus for growth.

Turning to Page 8, where we highlight some of the strengths of our balance sheet. We believe that our balance sheet is in good position from a liquidity and capital standpoint to be ready for any economic volatility. We have very limited broker deposits and very limited wholesale borrowings of any time. Our loan-to-deposit ratio remained low but increased for the third quarter in a row and is now at 82%. Our CET1 ratio was relatively flat at 13.4% and remains a source of strength for the bank.

On Page 9, we look at capital in more detail. As I mentioned, our CET1 ratio was 13.4% and our TCE increased by 21 basis points to 9.92%. As Lynn mentioned we were active in our buyback in the fourth quarter, buying back 1 million shares at just under $30 per share.

Moving on to spread income on Page 10. We grew spread income 7% annualized in the quarter. Our net interest margin increased 4 basis points to 3.62%. Excluding loan accretion, our net interest margin increased by 6 basis points as compared to the third quarter. The driver was mainly a lower cost of funds, but we also benefited from the loan-to-deposit ratio moving to 82% from 80% last quarter.

We continue to experience a NIM tailwind from our back book repricing and from the mix change towards loans and away from securities. In 2026, using just maturities, we have about $1.4 billion of assets paying down in the 4.90% range. And because of this continued impact, I would expect the NIM to be up between 2 and 4 basis points in the first quarter. A key will be how we are able to reprice the $1.4 billion of CDs we have maturing in the first quarter at 3.32%.

Moving to Page 11. In noninterest income was $40.5 million, down $2.8 million from the elevated result of the last quarter. We had good growth in our wealth business and continued strong growth in our treasury management and customer swaps businesses within the other category, while mortgage softened as expected due to seasonality.

Operating expenses on Page 12 were $151.4 million, an increase of $4 million on an operating basis. The main reason for the increase is $1.5 million in higher group health insurance cost.

Moving to credit quality on Page 13. Net charge-offs were 34 basis points in the quarter. an increase compared to last quarter. The primary reason for the $9 million increase was charge-offs on 2 C&I loans, of which $5 million was already specifically reserved for. NPAs improved and past dues were flat as credit quality remains strong.

I will finish on Page 14 with the allowance for credit losses. Our loan loss provision was $13.7 million in the quarter and included the release of the final $1.9 million of Hurricane Helene special reserve. Net-net, ROL coverage of credit losses moved down slightly to 1.16%.

With that, I will pass it back to Lynn.

Thank you, Jefferson. As we move into 2026, we're optimistic for continued growth and improvement. The economy in our markets remain strong and will support continued growth in our business.

Before we turn to questions, I'd like to recognize and congratulate our teams for a great performance this past year. I'm looking forward to another great year with them in '26. And with that, let's open the floor for questions.

[Operator Instructions] The first question today comes from Russell Gunther with Stephens.

Starting on the balance sheet, if I could. We got a favorable average earning asset remix this quarter out of securities and into loans. How should we think about the overall balance sheet growth in '26? Should we expect this dynamic to continue? Or just on the investment portfolio front, could that flatten out or grow going forward?

All right. Thanks, Russell. I'll take that one. The -- I would expect our balance sheet growth to be really dependent upon our deposit growth. Generally, we're modeling that it would be a couple of hundred basis points below our loan growth for both deposit growth and the balance sheet growth. So yes, I would expect this continuation towards a higher loan-to-deposit ratio throughout 2026.

Okay. Excellent. And then just maybe isolating for the loan growth piece, Jefferson, you guys talked about C&I and HELOC remaining a focus. But if you could just touch on sort of anticipated asset class and geographic loan leaders for the year ahead. And then lastly, just Navitas as well, strong production in '25. How are you thinking about that and as a contributor to the overall loan mix?

Russell, this is Rich. I'll take that one. So first of all, to address the production, this was the largest bank production quarter ever. So we felt great about that, did have some senior care headwinds and a couple of large loans that we chose not to defend. To your point, very pleased that Florida, which had our 2 newest acquisitions led in production for the bank. As you said, C&I grew. We grew that 12%. Owner-occupied CRE did well. Navitas had a strong quarter.

As I said earlier, retail crossed the $1 billion mark and had a great quarter. And SBA, even with the government shutdown had the largest quarter in commitments that they've ever had. So we feel very good about that. And we look forward to 2026. We've got a lot of good conversations going on the hiring side throughout the footprint. We continue to focus, as you said, an asset class, we continue to want to do more in C&I and owner-occupied CRE as well as the HELOCs have done well for us as well.

The next question comes from Stephen Scouten with Piper Sandler.

Yes. Obviously, really nice opportunistic trade on the share repurchase in the quarter. I'm wondering if there's any kind of mindset change at all around that opportunistic nature of the repurchase moving forward? Or if you could be a little more aggressive given capital looks like it will continue to build pretty aggressively based on the strong earnings.

Yes. I would say we would intend to be more assertive on buybacks as we look into '26. As you mentioned, capital build is there. Credit quality is great. So no really reason to hold anything there. M&A opportunities are light. We've kind of built the foundations of the footprint that we want. And so we're very satisfied with what we've got. So that really puts buybacks in the crosshairs. And frankly, we think there continue to be at a good value and a good earnback as we sit. So yes, I would expect to see more.

That's great. Okay. And then if I'm thinking about -- I think, Jefferson, you had said last quarter, I believe, like in the medium term, felt like you saw some upside to the NIM. And obviously, we saw that this quarter on that remix and it sounds like next quarter as well. Can you -- I don't know if you have any data like this, but give us a feel for as these loans reprice and mature and maybe as the CDs, in particular, renew, like what sort of retention rates you tend to get on those pools of assets and deposits just as we think about the upside potential there?

That's great. So I'll start on the CD side. I mentioned the amount of CDs that were repricing in Q1 at 3.32% maturing. They've been coming on around 3.13%. We've been seeing that trend continues. So we are still seeing more tailwind from the cost of funds or cost of deposits angle. We were at 1.69% at quarter end there. So we are set for some nice improvement if the current trends stay in place in the first quarter.

On the loan side, excluding Navitas, we have $6 billion of fixed rate loans at 5.19%. That fixed book was up 9 basis points in Q4, and it's been increasing about 6 to 8 basis points a quarter. In the fourth quarter, we were putting on new fixed rate loans at 6.45%, excluding Navitas. And with the long end of the curve staying relatively high that may be able to stay in that 6.45% range, but we're also seeing spread compression there. But either way, we're putting them on at a much higher rate than 5.19%. So we have this longer-term trend on the asset side. That's a tail end, and we have a shorter-term trend on the liability side that should help our margin too in the near term.

Got it. That's helpful. And kind of specifically around those fixed rate loans, like as they reprice, do you -- or mature, I mean, can you give us a feel for how much of that you retain? I mean is it -- I'd assume just given the continued loan growth, it's a pretty high percentage. But just kind of curious if you have a metric there and if there's any change in competitive factors with rate cuts that you think that 6.45% could get pushed lower. I know you spoke to the curve staying where it is, but just curious there.

So I'll go back and answer your question, too, because you had asked me about the retention of the CDs. That's been in the 90% range. We understand that's much generally higher than where the industry is. I don't have the data in front of me on the loan side. I can come back to you on that. I don't know if retention of loans is a number you guys have, but I'll come back with you on -- I don't have that at the table. So we'll come back to you on that one, Stephen.

The next question comes from Michael Rose with Raymond James.

Just wanted to get a sense from you guys. I think Rich mentioned just some of the efforts on the hiring front. Can you just talk about the competitive landscape? We've had some deals in and around your markets closed here recently. It feels like it's more competitive, both on the loan and deposit side. Can you just kind of walk us through that?

And I think last quarter, maybe you talked about kind of a 3% to 4% expense growth rate, but I've heard some other banks talk about maybe accelerating that just given some of the hiring opportunities. Can you just kind of walk us through the puts and takes to the hiring and the expense outlook and then just the competitive aspect, as I mentioned earlier.

Yes. Sure, Michael. This is Lynn. I'll start on the competitive side and then turn it over to Rich for further details. But I mean, look, we're in fantastic markets, as you know. And so it is a very competitive environment, and there's always deals going on. So I don't view the current deals as being anything unusual or change in the competitive dynamic. I just think we're in a great place to be. And so what matters is how our brand plays in the market. And that's why we're really focus on client service. We really focus on J.D. Power. We got an extra focus on Greenwich this year. We won 5 awards last year for commercial service. We'd like to win 10 this year and the employee culture.

So we're having opportunities to hire not from the deals that are coming up, but just from people who want to be with a bank that's focused on the community where they feel like they can make a difference and be in this environment with a balance sheet that's big enough to take care of their clients. So competition is going to always be there. We don't overly focus on it. We just focus on what we can do to be the kind of bank that attracts the right people here. And Rich, what would you add to that?

So yes, on the competitive front, I would say that in the last 2 quarters, it probably has gotten a little more competitive. The good news only on interest rate, not on structure. So that feels pretty good. And then along the lines of Lynn's comments on the industry and hiring, what I would say is more than ever, as I've been here almost 12 years, it's never -- culture has never mattered more. It comes up in every discussion. I'm talking with when you're hiring a senior lender. And so that's -- I think that plays in our favor, and that's what we're working towards.

Really helpful. Any commentary on kind of the expense outlook for the year, just maybe given some of those opportunities?

Yes. We don't budget significant hires or lift outs. We're really trying to stick to this 3% and 3.5% growth rate. It's a very difficult environment to maintain that, but that is what we are targeting and what we think we'll get in 2026.

Okay. Great. And then maybe just finally for me. Last quarter, you did talk about maybe some more opportunities here for M&A potential as we move forward. Has any of that changed? We've obviously seen some pretty quick deal approvals here. And it seems like if you want to do a deal, there's -- you can get it done. Can you just talk about the opportunity set? I know over the past year or 2, you've talked about maybe a relative dearth of opportunities. But last quarter, you talked about maybe seeing more banks raising their hands versus the prior couple of quarters. Just would love to, Lynn, just to hear your outlook and view on how the M&A landscape plays out this year?

Yes, sure, glad to, Michael. So I mean I would start with kind of what's our overall strategy, what has been -- like I said, we like our footprint. We're not looking to expand that. We like smaller deals where we can be more additive and the cultures are better fit. And really, the honest truth is, and we want quality organizations. We're not interested typically in fixers. And so there's literally -- I was counting them up yesterday when we were talking about this call, and there's literally less than 2 handfuls. I mean, less than 10 in our markets that we would be interested in.

So we have ongoing conversations with those. Right now, I would say most of them, like I said, they're quality banks, the whole industry, we believe, is set up for great performance in '26. And so most of them are saying, "You know what, I think I'm going to perform in '26, and I'll think about selling it sometime down the road." So it's really, at this point, our focus is more -- much more internal and building it out.

And these other -- these 8 companies that we really like, we just kind of wait for the popcorn to pop and grab them that because it is hard to predict. So that's probably why my conversation -- my comments, maybe the last 2 quarters haven't been as consistent as they should have been because it's just really hard to predict. It's just based on those -- that small number of quality companies and what they want to do.

Next question comes from Gary Tenner with D.A. Davidson.

I just wanted to ask a follow-up on the expense question. I know you mentioned Jefferson targeting 3% to 3.5% growth. Obviously, expenses were a bit higher this quarter, and I think with the kind of the bigger delta between expectations and where you came in. Can you give us some thoughts on the first quarter kind of as a jumping off point from the expense levels you might expect?

Yes. Great. Thanks for the question. Gary, number one, we put in the deck that the main driver was the -- a bit of a catch-up on the group health of $1.5 million. I don't expect that to be at that level next quarter. The other delta there was the impact of what Rich was talking about, the biggest record loan production in our history that moves our incentives up by about $1 million versus last quarter. We also had some assorted year-end things. In some cases, it was a little bit unusual with some small write-ups.

And I would say that our run rate of expenses is a little less than we printed in the fourth quarter. That said, Q1 has some seasonality in there, things hitting like the FICA restart at $1.5 million. And if you put all that together, I think that our expenses should be flat in Q1.

Okay. And then a quick question on credit. Excluding Navitas, your charge-offs were about 26 basis points, highest they've been in a couple of years, really, excluding the manufactured housing loss recognition in 2024. Could you provide any color just on those 2 specific C&I credits charged off during the quarter? I know there was some specific reserve associated with them already, but just curious about any thoughts around those 2 credits, particularly and kind of bank level charge-offs as you're looking into 2026?

Gary, this is Rob. I'd be glad to share with you about the credits. The first one was a $14 million franchise loan for one of the largest franchisees in a national well-known franchise system. Some of the units were struggling. And while normal resolution would be the sale of the stores, the franchisee and the franchisor could not find an agreeable path forward.

So the loss is really greater than what we think should have been appropriate because the stores ended up being closed, but that was a $6 million charge-off we took on a $14 million franchise loan. The second one was a $4 million owner-occupied SBA loan where we had a documentation error in the underwriting and decided to not pursue the guarantee.

In the last 12 years, that's really the first time we've originated a credit that we decided to not pursue the guarantee. We have done an after-action review and feel confident in some of the tweaks that we made to the program and confident in the ongoing performance of the SBA portfolio.

In terms of looking forward to 2026, when I look back, I think you mentioned sort of taking out the manufactured housing. So if I do that in 2024, the loss rate was 24 basis points. If I look at 2025, the loss rate was 22 basis points for the full year. And I expect 2026 to fall in that 20 to 25 basis point range again.

The next question comes from Catherine Mealor with KBW.

One follow-up just on the margin. Jefferson, you mentioned, I think you said $1.4 billion in assets are at 4.90% and so that's going to be repricing this year. Do you have the break between that 1.4 million in securities and loans?

Yes, I can get that for you. I could have a guess now, but let me get that -- let's talk offline and I'll get you the details on that. But it's a little bit of a guess to break that down with the information I have right now.

Cool. Okay. I think I was just trying to get a sense as to the upside, maybe in just the bond book repricing that we might see this year. So that's maybe another way to ask it.

So if you ask it like that, I can come back -- I can do it better. So if you look at just the HTM book, it's at $190 million, and I would expect about $150 million of that to cash flow in 2026. And on the AFS portfolio, that is going to be -- I want to come back to you on the repricing of what's coming -- what's maturing out of the AFS. So let's -- I can talk about that one offline too.

Okay. Cool. Yes, that's great. And then maybe just another question on fees, just the fee outlook, the back end of the year run rate on fees for third and fourth quarter were higher than the first 2. And so can you just kind of remind us of the seasonality to be aware of as we go into the first quarter of the year? And then maybe just your outlook, particularly for kind of Navitas and SBA fee growth into '26?

All right. So I think about the fee income items, the biggest items would be wealth where we expect nice growth in 2026. Within other, we also have our treasury management, which is growing well. So I think those are the 2 items where you're going to see nice kind of upper single-digit growth.

We also have, I think, with the volumes that we're expecting next year, you're going to see strong growth in our customer swap businesses. Service charges aren't really a growth business for us or banks these days. For mortgage, we're pretty optimistic, and I'll pass it over to Rich here. The Mortgage Bankers Association is expecting 6% to 6.5% growth. We're seeing a lot of optimism from our mortgage team. And I'll pass it over to Rich to talk about the seasonality and our outlook for mortgage.

Yes. And I'd just -- I'd echo what Jefferson said on the mortgage side, I feel good about where we're going on that. And with interest rates going down just a little bit, and we've seen a pickup in applications. So we hope that will continue. With regards to SBA, the one thing you didn't discuss pricing remains consistent on that. I do feel that we have some momentum going in SBA just with the large Q4 and some hiring going on there. So I think we'll do the same or better on the SBA fees for 2026?

On the seasonality, you get one more weak seasonal quarter from mortgage before they're stronger second and third quarters and SBA tends to build up throughout the year.

Great. And then on Navitas?

Navitas tends to also build up throughout the year. Now they've had a it had good momentum all year, but typically, their seasonality is a little bit weaker first and then stronger throughout the year.

I would say that they had a great Q4, and they're going to have a good Q1, but there is seasonality associated with it.

Yes. And then I mean typically, I mean, do you feel like you'll still be portfolioing as much on Navitas? Or just given that your balance sheet growth feels like it's getting things really strong, maybe you sell a little bit more of that? How do you think about the balance between those 2 things?

Yes. So as 2025 unfolded, we ended up selling more and more Navitas loans. I would expect that to continue. They're at 9.5% of our total loans. We want to keep that at 10% or under. They're going at a faster rate. They were 18% annualized growth this quarter before sale. So that translated into us selling more. So I think Navitas selling more loans is the most likely outcome for 2026.

The next question comes from David Bishop with Hovde Group.

Just curious, we got some calls inbound lately about catching up in terms of the impact of tariffs on credit quality. Are you starting to see any of that bleed into the borrower financial statements sort of impacting them negatively in terms of debt service coverage, et cetera? Any sort of problems you're seeing starting to emanate around the edges there on credit quality from tariffs?

Yes. David, this is Rob. Really, the short answer is that we're not seeing any impact from tariffs in terms of asset quality. We continue to have discussions with customers around the impact of tariffs and people seem to be finding a way to work through that, whether it's passing it on, reducing margins. But we're not -- there isn't anything we're looking at in the problem loan workout area or -- and through the annual review process that would indicate that there's something that's pushing back to singly this tariff concern.

The next question, I want to follow up on Catherine's, which was of the $1.4 billion fixed securities. Now this would be an AFS and HTM would be $285 million at [indiscernible].

Got it. I guess 1 follow-up question, Jefferson. I think you noted in the preamble, another, call it, 200 basis point improvement in the efficiency ratio this year. Do you think you can continue to lean on sort of that ratio as you look out and budget through 2026? Can we expect additional efficiency improvements?

Yes. Thanks, David. The -- I do think that we are budgeting for operating leverage improvement in 2026. We see that with our -- on the revenue side, with our expectation for solid loan growth, a little bit of margin expansion in combination with expenses being managed, I think that we should have some efficiency ratio improvement next year -- this year.

The next question comes from Christopher Marinac with Janney Montgomery Scott.

I wanted to ask Rob a few points on just charge-offs in general. We saw higher charge-offs in Q4, particularly on the commercial side. Is any of that just related to year-end cleanup? And does the outlook change at all for what you see in the next few quarters?

Yes. So the outlook really, I would just go back to the previous comment. The outlook for 2026 is stable and consistent with what we saw on the bank side for 2024 and 2025. So not really seeing any change there. We did have higher charge-offs in the fourth quarter and lower charge-offs in the third quarter. I think you got to look at the overall mix as sort of an annual thing versus a quarter-to-quarter thing. We did see nonaccruals come down $4.5 million in the quarter. We were able to exit 2 substandard credits during the quarter that were really we thought problematic, and so we were pleased with that. So overall, we continue to feel good about the shape of the portfolio and performance going forward.

That makes sense on looking broader on losses. So I appreciate that. It seems that the back and forth on the criticized ratio is more of a good thing for you than not. That, if you will, volatility is normal. And it doesn't seem like the overall level is changing a whole lot. Is that a correct read to kind of what to expect and just the criticized combat combined on the graphic we see every quarter?

Yes. Two points you made that I would just agree with. One is the overall levels aren't really changing. And the second point you made was we would prefer special mention to substandard. So yes to both.

Okay. And then a last question for Lynn, just on the big picture. I mean, it seems that UCB is really focused on the organic growth and much less on M&A. Does anything out there possibly change that for you? Or is simply the kind of buying business less attractive for you in general?

Yes, I don't think there's anything that changes that. We are -- it changes the fact that we are focused more on organic now. If you look back in history, to me, the only thing that scale really gets you, it's not technology. We can fund whatever technology we need. In fact, at our size, it's probably easier to implement than it is if you're larger. But what scale does get you is a bigger balance sheet, product set, particularly for your commercial clients and then the ability to attract better talent and better talent throughout the company.

So whether it's in risk, whether it's in treasury, whether it's on the lending side. So our focus going back 10 years, was let's build out, let's get the scale needed to be able to compete for these small business, small commercial, middle market clients in our markets. And look, would I like to be bigger? Absolutely, but are we big enough? Absolutely.

And combined with that, then is both fewer targets out there and honestly, fewer quality targets. And whereas in the past, we took a couple of fixers on. It's really hard with all the momentum we've got now, the number of technology projects we're able to do without having to worry about integrations and conversions. The bar on what kind of bank I would want to bring into this franchise has honestly gone up.

So that, to me, is more of a natural move, as we've built out and executed our strategy than any kind of change in the market or change in anything else. So as I've mentioned earlier, there's a very limited number of high-quality franchises in our current market that we'd be interested in. And as you would expect, those are the ones that are less needful or less interested in selling near term. And so it's more of a long-term calling game. And as they get ready, we'll do our best to be their preferred acquirer. But in the meantime, we've got great momentum and really focused on just executing what's in front of us.

The next question comes from Gary Tenner with D.A. Davidson.

I just had a quick follow-up. Just as it relates to loan growth, Jefferson, you kind of mentioned expecting solid loan growth in your answer to the question about the efficiency ratio and operating leverage. So you were right at 5% this year, excluding the Florida deal. Does that kind of translate to more -- kind of more of a 5% plus or 5% to 7% number, do you think in 2026? Or would you anchor expectations closer to that 5% mid-single-digit type of number?

Gary, this is Rich. I'll take that one. For Q1, we kind of expect similar result as to Q4, probably because of seasonality, there'll be a little less production, but there'll also be less payoff headwinds. So we figure that's about the same. And then I covered a lot of areas in terms of momentum going into 2026. I think it's still too early to call, but we feel very positive, very optimistic because of all the momentum we have rolling into 2026.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Great. Well, once again, thank you all for joining the call. I appreciate the comments, the conversation. I thought they were great today and look forward to any follow-up you might have, just reach out directly, and we look forward to talking again soon. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning and welcome to United Community Bank's Third Quarter 2025 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings, pretax, precredit 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 the 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 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 Pages 5 and 6 of the company's 2024 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 our call today. The third quarter was a strong one for United. Revenue grew more than $16 million compared to the second quarter, driven by an 8 basis point improvement in margin and 5.4% annualized loan growth. Our provision for credit losses declined by approximately $4 million compared to last quarter, supported by continued strong credit results and the release of $2.6 million from our Hurricane Helene special reserve. Expenses grew by only $2.9 million over last quarter or $4.3 million on an operating basis, largely due to increased incentive accruals. Taken together for the quarter, we recorded earnings per share on an operating basis of $0.75 per share, a 32% year-over-year improvement, a return on assets of 1.33% and and a return on tangible common equity of 13.6%. I was pleased to see great balance performance and teamwork across the company this quarter. All of our states delivered positive loan growth this quarter. .

Our treasury team and our frontline bankers have worked together with better analytics and improved communication to reduce deposit costs while continuing to grow customer deposits. As our capital continues to grow, we have taken the opportunity to both increase our dividend and redeem our costly preferred stock. Our tangible book value reached $21.59, a 10% year-over-year growth. Credit losses were only 16 basis points for the quarter and only 5 basis points in the core bank, excluding Navitas. Other credit risk metrics such as past dues, nonaccruals and special mention, all remained in very good ranges. Clearly, there have been announcements of a few cracks in the broader credit environment over the last several weeks. I believe these announcements are isolated events somewhat tied to private credit.

Given the very rapid growth in private credit and the number of new entrants, it would not be surprising to see additional defaults in that sector, but that should have limited impact on most banks. Our own strategy has been to be very cautious and selective in considering lending to any nondepository financial institution. And accordingly, we have very little exposure there. Jefferson, why don't you cover the quarter in more detail.

Thank you, Lynn and good morning to everyone. I will start on Page 5 of the deck. We were very pleased with our deposit performance in the third quarter. Excluding the seasonal public outflows, we grew deposits by $137 million or 2.6% annualized with DDA comprising a good portion of the growth. Looking ahead to the fourth quarter, we expect about $400 million of public funds deposit inflow that will serve to make our balance sheet larger as we plan to hold the funds in cash and short-term investments. We were also able to push down our cost of deposits in the quarter to 1.97%, to achieve a 37% total deposit beta so far. We have been saying we thought we could get to a high 30% range total deposit beta through the cycle. But on these first 5 cuts, I now believe we can get to the 40% range. In September, we averaged a 1.92% cost of deposits. So we are expecting more improvement in the fourth quarter.

On Page 6, returned to the loan portfolio, where our growth continued at a 5.4% annualized pace. Excluding the impact of senior care runoff, we grew loans at a 6.2% annualized pace. Our growth came primarily in the C&I, Equipment Finance and eblock categories. Turning to Page 7, where we highlight some of the strengths of our balance sheet. We believe that our balance sheet is in good position from a liquidity and capital standpoint to be ready for any economic volatility. We have no wholesale borrowings and very limited brokered deposits. Our loan-to-deposit ratio remained low but increased for the second quarter in a row and is now at 80%. Our CET1 ratio was relatively flat at 13.4% and remains a source of strength for the bank. On Page 8, we look at capital in more detail. As I mentioned, our CET1 ratio was 13.4%, but you'll notice the impact at the end of the quarter we redeemed the remaining $88 million of our preferred issue, all things equal, dislowered our Tier 1 total capital and leverage ratio towards peer levels.

Our TCE ratio was up 26 basis points in the third quarter as the balance sheet stayed relatively flat. We have been fairly active in managing our capital since the beginning of 2024 we have now paid down $100 million of senior debt, $68 million in Tier 2 capital, repurchased $14 million of common shares. Now we have redeemed the $88 million of preferred. Moving on to spread income on Page 9. We grew spread income 14% annualized in the quarter. Our net interest margin increased 8 basis points to 3.58% mainly driven by lower cost of funds and a mix change towards loans. We remain slightly asset sensitive. And because of this, in the fourth quarter, I would expect our net interest margin to be flat to down 2 basis points. A key will be how we are able to reprice the $1.8 billion of CDs we have maturing in the fourth quarter at 3.60%. We also have the medium-term benefit of our back book of loans and securities that will mature at low. In the next year, using just maturities we have about $1.4 billion of assets paying down in the 4.93% range.

Moving to Page 10. On an operating basis, noninterest income was $43.2 million, up $8.5 million from last quarter, Of the $43.2 million, we had a $1.5 million gain that we don't expect to repeat and an MSR write-up of $800,000. On the slide, we mentioned that unrealized gains on equity investments swung up $2.1 million. This moved from a $0.5 million loss last quarter to a $1.6 million gain as this category will bounce up and down. Besides these items, we had strong across-the-board increases in most of our fee categories, and we feel good about our progress in the quarter. Operating expenses on Page 11 were up $4.3 million in the quarter. This $4.3 million increase was primarily driven by higher variable compensation. With strong revenue growth in the quarter, our efficiency ratio improved to 53.1%. Moving to credit quality on Page 12. Net charge-offs were 16 basis points in the quarter, improved compared to last quarter and last year. NPAs and past dues, moved a little higher off a low base as credit quality remains strong. I will finish on Page 13 with the allowance for credit losses. Our loan loss provision was $7.9 million in the quarter as compared to our $7.7 million in net charge-offs. The $7.9 million provision included a $2.6 million release of our Hurricane Helene reserve, which now stands at just $1.9 million remaining. Net-net, our allowance coverage of credit losses moved down slightly to 1.19%.

With that, I'll pass it back to Lynn.

Thank you, Jefferson. As we move into Q4, the optimism we mentioned last quarter for the remainder of the year seems well founded. And as we close, I'd like to recognize our leaders throughout the footprint. We recently completed our regular employee survey and the overall results reflected very well on your care for your teams, your communication of our strategies and the exhibition of our values. We ranked in the 92nd percentile for employee engagement compared to over 2,000 companies that did the same survey. Becoming a legendary bank begins with being a great place to work for great people. I want to thank you for what you're doing to make that a reality. And now I'd like to open the floor to questions. .

[Operator Instructions]

And today's first question comes from Stephen Scouten with Piper Sandler.

I guess maybe if we could start on loan growth trends. seemed like a really nice quarter here from a loan growth perspective. I'm wondering kind of what you're seeing within your pipelines? And then also, if you could talk about maybe what kind of inning we're in, in terms of the senior care runoff? And lastly, that HELOC product in growth, if there's anything unique to that product or just something you guys have been marketing a little bit more or customers unlocking existing equity, that sort of thing. Appreciate it.

Steve, this is Rich. I'll address the loan growth. We feel -- we do feel very good about the loan growth. Florida led with South Carolina, North Carolina, as the geographies right behind that. As Lynn mentioned earlier, this is our most balanced quarter since I've been here with all the geographies contributing. So that felt really good. I also like the heavy emphasis on C&I. We worked really hard on hiring people, strategy, pricing to really drive C&I. So that feels key. So we're very -- in terms of the pipelines and how that looks for Q4, we feel very -- it would be a very similar type quarter, maybe slightly better. The activity is strong, the pipelines are strong, and that's all been confirmed with my credit partners. So the credit teams are validating that they're seeing a lot of activity. In terms of the HELOC, we -- that's not by accident. We've spent a lot of time and effort. We did a reorg in January with the -- one of the purposes of that reorg was a bigger emphasis on retail. And we're proud to tell you that 100% of our branch managers are now lending. That wasn't the case before and we're really good about that. And we also ran a campaign throughout the year on HELOC. I'm trying to think that I answered all the questions.

Senior care. Yes. Senior Care. Great point. We have about $230 million left. We had $35 million runoff roughly this quarter, expect something similar feel next quarter. And then next year, we do not plan on running off the whole portfolio because some of that are long-term customers that we've been in business with a long time, but the non part of that, we do. Expect most of that to go away next year.

Perfect. And then Jefferson, on the deposit beta guide, I think you said you think that could get into the 40% range now. what leads you to believe that could get better? I tend to think about deposit betas waning as we get incremental cuts and rates get lower. So is it just the cliff of the short duration CDs that you have that gives you more confidence there? Or any color there would be great.

Yes. A lot of it has, Steve. A lot of it is really already been done some rate cuts that we've made later in the quarter. We were unsure what we're going to see with competition, and we've been able to cut rates by a little more than we thought. We've seen CD growth even though we've customer rates. So it's not really so much. I think this will come to an end if we don't get any more rate cuts, but I just believe that the success that we've had through the last 2 quarters you'll see that kind of flow through in the full quarter and the fourth. .

Okay. Perfect. And then just lastly for me. I think you said, let's see fixed rate loans 4.93 repricing over 12 months and the CD book, I think was [ 360 ]. Can you give me a feel for where you think, at least as of today, new CD yields and loan yields would be coming on that relative to those numbers?

Yes. So new loan yields would be in the 7% range, new CDs, 3%. That's a little -- some variable to it, so maybe [ 320, 330 ]. .

And the next question comes from Gary Tenner with D.A. Davidson.

I wanted just to ask about capital. Jefferson, you kind of how active you all have been since early 2024. And with some of the stuff behind you, including the preferred redemption, how are you thinking about capital deployment a buyback here? Or are you wanting to push Tier 1 a little higher just through earnings for a quarter before you consider that?

Thanks, Gary. So just to list out our capital priorities. Number 1 is organic growth. We are, as Rich mentioned, feeling better about where our loan growth is going. Number two, in priority is the dividend, which raised that by 4%. M&A, there are some possible opportunities out there and maybe even 1 you could put some cash into and use capital that way. Buyback is on the list. We have authorization. We'll be opportunistic, but we have the other 3 priorities or above it. We have used buybacks in the past. We may do it in the future. but I'd put it in the order of organic growth, dividend, M&A and then buyback.

Got it. And then just on the fee side, 1 of the line items that I think, had a notable jump with service charge income this quarter went from 10.1 to 11.4%, if I recall correctly. Anything unusual there? Any change in the fee structure or anything you could point out to?

Nothing unusual, just some better volume there. So I can't point to anything specifically there.

And the next question comes from Michael Rose with Raymond James.

Just wanted to ask on expenses. I know you guys have talked about some hiring efforts in the back half of the year. I know some of it was incentive comp related, but just wanted to see how much of the sequential increase was related to those efforts and then what that could look like, particularly in light of some of the M&A discretion that we have going on, how opportunistic you plan to be as we move forward.

Yes. I'll start maybe with the expense piece and maybe talk to Rich on the hiring for the kind of medium to longer-term expense run rate, think of us being in the 3% to 4% range. We did mention the higher variable comp this quarter. So I think that that would not necessarily repeat next quarter. So I think flat is a good guide for the fourth quarter. And then in general, 3% to 4% growth is how you should think about where we are. Now I pass to Rich on how we think about hiring or...

Sure. We continue to be opportunistic about hiring throughout the footprint. So we're always after top talent that's going on. I'd say the other just kind of an interesting note is in the recruiting compensation incentive program usually is first on the conversations. And now it's kind of turned to culture, Culture times to be first and I truthfully think that gives us an advantage.

Perfect. Maybe just a follow-up Gary's question. Just as it relates to M&A, I think you guys have been pretty sour on M&A prospects, just given, I think, some pricing concerns. I don't want to put words in your mouth, but it does seem like you're a little bit more open than you've been kind of in the past 2 or 3 quarters at least. I assume some of that has to do with the regulatory backdrop. But are you seeing more opportunities, meaning are more people raising their hands at this point? And is there a better opportunity set than, say, 2 or 3 years ago? Just want to make sure I understand what you guys are trying to communicate.

Yes. Thank you, Michael. This is Lynn. So yes, from a regulatory perspective, we've always been really confident with the size deals that we do. So I haven't really -- wouldn't put the change into that category. But I would say that we are seeing more people raise their hands today than 2 to 3 quarters ago. So that gives us a little more optimism. I mean still early. You still got to see what develops out of that. But I think there is -- we are seeing more interest on the part of sellers than we have seen. .

And the next question comes from Russell Gunther of Stephens.

From a balance sheet growth perspective, how should we think about average earning assets going forward? Would you guys expect securities, the investment portfolio to continue to decline from here or kind of trend water as a percentage of average earning assets?

That's a great question. I mentioned we have a seasonal piece to our balance sheet, which in the fourth quarter will be seasonally strong. I mentioned $400 million likely of public funds coming in on an average basis, that's probably $300 million for the fourth quarter. I would expect to see the securities portfolio is going to be more of a derivative of how strong the deposit growth. But I could see it being flat to slightly down in the near term. But over -- if you think about 2026, I would expect deposit growth there and then the securities book to flatten out. .

Okay. Excellent. And then just last 1 for me with regard to your capital deployment priority list and sort of adjacent to the securities portfolio, how are you guys thinking, if at all, in terms of any action from a restructuring perspective with regard to the investment portfolio?

It's a great question, and that is something that we have talked about at the Board level. I don't see anything imminent there, but it is a conversation that we've had over the last 6 months and probably continue to.

And the next question comes from Catherine Mealor with KBW.

Question on credit. Maybe first, kind of your level of NPEs are still low. But just any kind of color on to the increase in C&I NPLs. And then secondly, just any kind of update or color you can give us on the Navitas book. It feels like the losses have normalized from the long-haul trucking piece and how the exposure is really low. But just curious, any trends that you're seeing within that book as well.

Yes. Thanks, Catherine. This is Rob. So on the NPA side, on the commercial side, we exited 3 of our top nonperforming C&I credits One was in the service business. One was in the light manufacturing business. One was in the distribution business. So we added 1 that was in the service business and added 1 -- 2 in the service business, I guess, and 1 in the light manufacturing business. So kind of just feels like the normal cycle of movement of in and out, we are able to exit credits successfully, and we'll continue to do that. So we had some come in and some go out. during the quarter, not feeling like there's any trend to be noticed there. And like you said, still from year-end, we've come down from 64 basis points to 51 basis points if you look at year-end till now. So we feel like it's just kind of the normal ebb and flow on the commercial NPA side.

On Navitas, they've been pretty stable. I've been impressed from -- we acquired them 7 years ago, and I've been impressed at their forecasting the complexity of how they forecast losses. And they're really right on track for how their forecast looked at the beginning of the year and expect it -- we've always said we expect losses in a normal environment to be around 1%. Of course, the long haul has taken them over that a little bit. But if you take that out, you can see that it's it really is just staying pretty close. We're at 92 basis points this quarter and feel like that's kind of a normal range for them longer term.

Great. Very helpful. And then maybe just a bigger picture question. It feels like the NIM has seen some nice recovery over the past year and growth is improving. As we look to '26, is this a year that you think will still have perhaps profitability improvement and positive operating leverage, are there any kind of investments within expenses or your staff that you think that we should expect to see before we get to that really big ramp of profitability.

I would think, yes, for 2026 and operating leverage, we're in the budget season now. I can't imagine coming out of a budget season without strategizing operating leverage in there. And the powerful driver is going to be the margin. If you think about our loan yield at [ 621 ], if you think about putting on new loans at 7 and back book coming off, you can see nice medium-term opportunity in the margin. So I think the combination of those things is, yes, we think we will continue to have operating leverage in 2026. .

And the next question comes from [ Kyle German ] with Group.

Shifting to the revenue side. I was wondering if I can get a bit more color on the core fee income and what are your expectations for the next quarter?

Yes. I'll give that a shot. And I would say we laid a lot of that out on that fee page. If you look at the $43 million we laid out the MSR, we don't think the BOLI that we don't think will repeat. We also have the unrealized equity gains that, again, bounces around. It's been a little bit negative, a little bit positive, so hard to know. I think if you take those 3 items out, you're at a pretty good fee income run rate.

And that concludes our question-and-answer session. So I'd like to turn the floor to Lynn Harton for any closing comments.

Well, great. Well, once again, thank you all for joining the call. And as always, if you have any additional questions, please feel free to reach out to Jefferson or myself. And we look forward to seeing you soon and talking to you soon. Thank you so much.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.