United Community Banks' 2025 Q4: Contradictions Emerge on Buybacks, Expenses, and M&A Strategy

Date of Call: Jan 14, 2026

Financials Results

• Revenue: 11% year-over-year revenue growth in Q4; $1B+ for the year with 12% YOY growth
• EPS: $0.71 operating earnings per share in Q4, a 13% YOY improvement; $2.71 for the year, up 18% from $2.30
• Gross Margin: Net interest margin increased 4 basis points to 3.62% in Q4; excluding loan accretion, up 6 basis points sequentially
• Operating Margin: Return on assets was 1.22% in Q4; return on tangible common equity was 13.3% for the year

Guidance:

• Expect balance sheet growth to be a couple hundred basis points below loan growth; loan-to-deposit ratio to increase further.
• NIM expected to be up 2-4 basis points in Q1 2026 driven by lower cost of funds and repricing of maturities.
• Targeting 3-3.5% expense growth for 2026.
• Loan growth expected to be solid, with Q1 similar to Q4 seasonally adjusted.
• Noninterest income to see upper single-digit growth in wealth and treasury management.
• Mortgage and SBA fees expected to grow, with Navitas selling more loans to keep portfolio under 10% of total loans.
• Credit losses expected to be stable, with bank-level charge-offs in the 20-25 bps range for 2026.

Business Commentary:

Revenue and Earnings Growth:

• United Community Banks reported 11% year-over-year revenue growth in Q4 2025, with operating earnings per share increasing by 13% to $0.71.
• The growth was driven by margin expansion and a 4.4% annualized increase in loans.

Loan Portfolio Expansion:

• The company's loan growth was primarily in the C&I and HELOC categories, achieving a 4.4% annualized pace.
• This was due to a focus on retail and small business lending, with both lines surpassing $1 billion in annual production for the first time.

Balance Sheet and Capital Management:

• United Community Banks maintained a strong balance sheet position, with a loan-to-deposit ratio of 82% and a CET1 ratio of 13.4%.
• The company executed a share repurchase of 1 million shares and increased its dividend, capitalizing on strong earnings and good capital position.

Interest Margin and Deposit Costs:

• The net interest margin increased by 4 basis points to 3.62%, with a 21 basis points improvement in the cost of deposits to 1.76%.
• This was mainly due to a lower cost of funds and a strategic shift in deposit beta to 40%.

Noninterest Income and Expense Management:

• Noninterest income was $40.5 million, with growth in wealth management and treasury management, despite a decline in mortgage income.
• Operating expenses increased by $4 million, primarily due to higher group health insurance costs. The company aims to maintain expense growth at 3% to 3.5%.

Sentiment Analysis:

Overall Tone: Positive

• "The fourth quarter was a solid end to a great year." "2025 was a great year, but we want to be better." "We're optimistic for continued growth and improvement. The economy in our markets remain strong and will support continued growth in our business." "We feel very positive, very optimistic because of all the momentum we have rolling into 2026."

Q&A:

• Question from Russell Elliott Gunther (Stephens Inc.): How should we think about overall balance sheet growth in '26? Should we expect the favorable remix from securities to loans to continue?
  Response: Balance sheet growth will depend on deposit growth, modeled to be a couple hundred basis points below loan growth, leading to a continued increase in the loan-to-deposit ratio.

• Question from Russell Elliott Gunther (Stephens Inc.): What are the anticipated asset class and geographic loan leaders for 2026, and how is Navitas expected to contribute?
  Response: Focus remains on C&I, owner-occupied CRE, and HELOCs; Florida led production in 2025. Navitas had strong production but selling more loans to keep portfolio under 10% of total loans.

• Question from Stephen Scouten (Piper Sandler & Co.): Is there a mindset change regarding the opportunistic share repurchase, and could buybacks become more aggressive?
  Response: Management intends to be more assertive on buybacks in 2026 due to strong capital build, good credit quality, and limited M&A opportunities.

• Question from Stephen Scouten (Piper Sandler & Co.): What is the retention rate on CDs and fixed-rate loans as they reprice/mature, and what is the NIM upside potential?
  Response: CD retention is around 90%. Fixed-rate loans are repricing at higher rates; NIM tailwinds expected from lower deposit costs and repricing of maturing assets.

• Question from Michael Rose (Raymond James & Associates, Inc.): How is the competitive landscape, and what is the expense outlook given hiring efforts?
  Response: Competitive but focused on client service and culture. Expense growth targeted at 3-3.5% for 2026, with minimal impact from hires.

• Question from Michael Rose (Raymond James & Associates, Inc.): What is the M&A outlook for 2026?
  Response: Focus remains on organic growth; only a few high-quality targets in current markets, but most are not for sale currently.

• Question from Gary Tenner (D.A. Davidson & Co.): Can you provide thoughts on Q1 expense levels as a jumping-off point?
  Response: Q1 expenses expected to be flat, with seasonality factors like FICA restart offsetting lower run-rate expenses.

• Question from Gary Tenner (D.A. Davidson & Co.): Can you provide color on the specific C&I credits charged off and the outlook for bank-level charge-offs in 2026?
  Response: Charge-offs were on a large franchise loan and an SBA loan with a documentation error. Outlook for 2026 is stable, with bank-level charge-offs expected in the 20-25 bps range.

• Question from Catherine Mealor (Keefe, Bruyette, & Woods, Inc.): What is the break between the $1.4 billion in assets maturing at 4.90% between securities and loans?
  Response: Management did not provide the exact breakdown but noted the HTM book has $190M, with about $150M expected to cash flow in 2026.

• Question from Catherine Mealor (Keefe, Bruyette, & Woods, Inc.): What is the fee outlook and seasonality for Navitas and SBA into 2026?
  Response: Wealth and treasury management expected to see upper single-digit growth. Mortgage has seasonal weakness in Q1, SBA and Navitas build through the year.

• Question from David Bishop (Hovde Group, LLC): Are you seeing any impact from tariffs on credit quality or borrower financial statements?
  Response: No impact from tariffs on credit quality; borrowers are finding ways to work through tariff-related challenges.

• Question from David Bishop (Hovde Group, LLC): Can we expect additional efficiency ratio improvements in 2026?
  Response: Yes, operating leverage improvement is budgeted for 2026 due to solid loan growth, margin expansion, and expense management.

• Question from Christopher Marinac (Janney Montgomery Scott LLC): Is the higher charge-off in Q4 related to year-end cleanup, and does the outlook change for the next few quarters?
  Response: Outlook for 2026 is stable and consistent with recent years; Q4 charge-offs were higher but nonaccruals decreased, indicating portfolio strength.

• Question from Christopher Marinac (Janney Montgomery Scott LLC): Is the volatility in criticized ratios normal, and does the overall level remain stable?
  Response: Yes, overall levels are stable, and the bank prefers special mention to substandard classifications.

• Question from Christopher Marinac (Janney Montgomery Scott LLC): Is UCB's focus shifting from M&A to organic growth, and is that likely to change?
  Response: Focus has shifted to organic growth due to scale achieved and fewer high-quality M&A targets; likely to remain focused on execution.

• Question from Gary Tenner (D.A. Davidson & Co.): What is the expected loan growth rate for 2026?
  Response: Solid loan growth expected; Q1 similar to Q4 seasonally adjusted, with optimism for momentum into 2026.

Contradiction Point 1

Capital Deployment Priority (Share Buybacks vs. Organic Growth)

The priority for capital deployment shifts from buybacks being a lower priority to being a top priority.

With the Q4 share repurchase, is there a shift to a more aggressive buyback strategy going forward, given strong capital position? - Stephen Scouten (Piper Sandler & Co.)

2025Q4: Yes, the company intends to be more assertive on buybacks in 2026... making buybacks a priority. - Herbert Harton(CEO)

After completing preferred redemption, how are you prioritizing capital deployment between buybacks and increasing Tier 1 capital? - Gary Tenner (D.A. Davidson & Co.)

2025Q3: The priority order is: 1) Organic growth, 2) Dividend... 4) Share buybacks. The company will be opportunistic with buybacks but they are not the top priority. - Jefferson Harralson(CFO)

Contradiction Point 2

Expense Growth Outlook

The target for expense growth becomes more specific and lower.

How are recent competitive deals and hiring efforts impacting the competitive landscape and expense outlook? - Michael Rose (Raymond James & Associates, Inc.)

2025Q4: On expenses, the target for 2026 is 3% to 3.5% growth... - Herbert Harton(CEO) & Richard Bradshaw(CBO)

What drove the sequential expense increase and its relation to hiring/M&A? Are more M&A opportunities emerging due to the regulatory environment? - Michael Rose (Raymond James & Associates, Inc.)

2025Q3: The medium-term expense run rate is expected to be 3-4%. - Jefferson Harralson(CFO) & Richard Bradshaw(CBO)

Contradiction Point 3

M&A Strategy & Opportunity Set

The company's stated interest and focus on M&A opportunities changes significantly.

Has the M&A opportunity set expanded with quicker deal approvals? - Michael Rose (Raymond James & Associates, Inc.)

2025Q4: The strategy is not to expand the footprint... There are literally less than 10 potential targets in their markets. Most are performing well and not looking to sell near-term, so the focus remains internal. - Herbert Harton(CEO)

What drove the sequential expense increase and its connection to hiring/M&A, and are there more M&A opportunities due to the regulatory environment? - Michael Rose (Raymond James & Associates, Inc.)

2025Q3: On M&A, while regulatory confidence remains, there is more seller interest now than 2-3 quarters ago, providing more optimism. - Richard Bradshaw(CBO)

Contradiction Point 4

Share Repurchase Strategy and Capital Allocation

Shift in aggressiveness and priority of share buybacks despite strong capital.

Does the Q4 share repurchase signal a shift to more aggressive buybacks given the strong capital position? - Stephen Scouten (Piper Sandler & Co.)

2025Q4: Yes, the company intends to be more assertive on buybacks in 2026. Capital build is strong... making buybacks a priority. - Herbert Harton(CEO)

Is the company currently open to continuing the buyback given the improved stock price? - Catherine Mealor (Keefe, Bruyette, & Woods, Inc.)

2025Q2: The current stock price results in an earn-back period longer than the target 7-8 year range, so the company is not actively buying back shares at this time. - Jefferson Harralson(CFO)

Contradiction Point 5

M&A Strategic Focus and Priority

Shift from cautious, low-likelihood outlook to active, specific target interest.

Has the M&A opportunity set changed, leading to more potential targets with quick deal approvals? - Michael Rose (Raymond James & Associates, Inc.)

2025Q4: The strategy is not to expand the footprint. ... There are 'literally less than 10' potential targets in their markets. - Herbert Harton(CEO)

How would you describe the current M&A environment? - Michael Rose (Raymond James)

2025Q1: The M&A environment remains cautious. ... few transactions are expected in the next 12-18 months due to: a) more attractive buybacks... - Lynn Harton(CEO)