Executive Summary / Key Takeaways

• Robust Margin Expansion & Deposit Control: United Community Banks (UCB) is demonstrating strong profitability, with a Q2 2025 net interest margin (NIM) of 3.50% driven by aggressive deposit cost management, targeting a high 30% total deposit beta and projecting a further 5 basis points of NIM expansion in Q3 2025.
• Strategic Growth & Portfolio Optimization: UCB is achieving solid loan growth, with a 4.2% annualized pace in Q2 2025 (excluding acquisitions), fueled by strong pipelines in commercial and specialized lending, alongside strategic acquisitions like American National Bank to expand its high-growth South Florida footprint.
• Exceptional Asset Quality & Capital Strength: The bank maintains robust credit quality, evidenced by an improved net charge-off ratio of 18 basis points and a significant reduction in nonperforming assets in Q2 2025, complemented by a strong CET1 ratio of 13.34% that provides substantial financial flexibility.
• Customer-Centric Technology & Competitive Moat: UCB leverages digital banking enhancements and operational software to deliver superior customer satisfaction, earning its 11th J.D. Power award for retail banking in the Southeast, a key differentiator against larger and smaller rivals.
• Disciplined Capital Management & Outlook: With a clear focus on organic growth, opportunistic share repurchases, and strategic debt redemptions, UCB is well-positioned for continued earnings growth and shareholder value creation, projecting low single-digit expense growth and a stable credit outlook for 2025.

The Southeast's Steadfast Performer: A Story of Growth and Prudence

United Community Banks, Inc. (UCB) has cultivated a compelling investment narrative over its 75-year history since its founding in 1950 in Greenville, South Carolina. As a leading regional bank in the dynamic southeastern U.S., UCB operates a network of 200 banking offices across Georgia, South Carolina, North Carolina, Tennessee, Florida, and Alabama. Its business model is diversified, encompassing commercial and consumer banking, specialized lending through its national equipment finance (Navitas) and SBA/USDA lending franchises, and wealth management services. This broad reach and service offering position UCB as a formidable player in a competitive banking landscape.

UCB's strategic positioning emphasizes a community-oriented approach, fostering deep local relationships that translate into strong customer loyalty. This is a significant differentiator against larger, more generalized regional banks such as Truist Financial Corporation (TFC) and Regions Financial Corporation (RF), which often prioritize scale and broader market reach. While these larger competitors may boast greater digital investment capacity, UCB's focus on personalized service and specialized lending allows it to carve out valuable niches. For instance, UCB's expertise in SBA and USDA-guaranteed loans, as well as its tailored solutions for government, education, energy, and real estate sectors, provides a distinct competitive edge.

The company's commitment to customer satisfaction is not merely anecdotal; it is a recognized hallmark of its operations. In 2025, UCB earned its 11th J.D. Power award for Retail Banking Satisfaction in the Southeast, also ranking #1 in Trust and #1 in People. This consistent recognition underscores the effectiveness of its customer-centric model and its operational technology. UCB continuously invests in digital banking solutions and new software contracts, evidenced by rising communications and equipment expenses due to "new software contracts and incremental software contract costs on existing contracts, including volume based increases," and "enhancements to our digital banking solutions." These technological investments are not about proprietary hardware, but rather about streamlining processes, enhancing digital accessibility, and improving the overall customer experience. The tangible benefits include increased operational efficiency, which supports its ability to maintain competitive pricing and service delivery, and ultimately drives the high customer satisfaction scores that form a crucial part of its competitive moat. This digital acuity allows UCB to compete effectively with rivals who might have larger, but less integrated, technology stacks, ensuring that its community focus is backed by modern, efficient banking capabilities.

Strategic Evolution and Operational Acuity

UCB's history is marked by a blend of strategic expansion and disciplined portfolio optimization. The company has consistently pursued accretive acquisitions to bolster its footprint, exemplified by the recent merger with ANB Holdings, Inc. (ANB) (American National Bank) on May 1, 2025. This acquisition, which added $301 million in loans and $374 million in deposits, strategically expanded UCB's presence in the high-growth South Florida market. This follows earlier successful integrations like Progress Bank and First Miami Bancorp, Inc., which have collectively diversified and strengthened its regional presence.

Concurrently, UCB has demonstrated a willingness to divest non-core assets to enhance its risk profile and reallocate capital. The sale of its manufactured housing loan portfolio on August 30, 2024, was a strategic decision to exit a "long-dated and heavily subprime" business inherited from a prior acquisition. This move, while resulting in a one-time loss of $0.18 per share and $11 million in transaction-related net charge-offs, was deemed "neutral to earnings on a go-forward basis" and freed up capital for more strategic investments. Similarly, the divestiture of its RIA FinTrust in October 2024 streamlined its wealth management offerings, allowing for a more focused approach.

Operational efficiency is a continuous focus, with noninterest expenses remaining well-controlled. For the second quarter of 2025, noninterest expense was $147.92 million, a modest 1% increase year-over-year, despite merger-related costs from the ANB acquisition. This control was achieved through a reduction in FDIC assessments (Q2 2024 included a $1.74 million special assessment) and the natural decline in core deposit intangible amortization, partially offset by new software contracts and digital banking enhancements. This disciplined expense management, combined with strategic growth, contributed to an improved operating efficiency ratio of 54.84% in Q2 2025, a 222 basis point improvement from the prior year.

Financial Strength and Growth Trajectory

UCB's financial performance in Q2 2025 underscores its ability to generate profitable growth. The company reported net income of $78.73 million, an 18% increase year-over-year, translating to diluted earnings per common share of $0.63, up 17% from Q2 2024. On an operating basis, diluted EPS reached $0.66, a 14% increase. This strong performance was largely driven by robust net interest revenue and disciplined expense control.

Net interest revenue for Q2 2025 stood at $225.53 million, contributing to a net interest margin (NIM) of 3.50%, a notable 14 basis point expansion from the previous quarter. This margin improvement was primarily a result of UCB's proactive management of its funding costs. The cost of total deposits was successfully lowered to 2.01% in Q2 2025, with management targeting a "high 30% range total deposit beta through the cycle." This strategy is expected to continue yielding benefits, as approximately $1.4 billion of CDs are set to mature in Q3 2025 at an average rate of 3.72%, with an anticipated repricing down by 10 to 20 basis points.

Loan growth remains a key driver, with a 4.2% annualized pace in Q2 2025, excluding the ANB acquisition. The loan portfolio is well-diversified, with commercial loans constituting 75% of the total at $14.16 billion as of June 30, 2025. Targeted segments like C&I (including owner-occupied CRE), Navitas equipment financing, and HELOCs have shown strong annualized growth rates of 7%, 15%, and 13% respectively in Q1 2025. New markets, particularly Tennessee and Florida, have been instrumental in leading loan production, reflecting the success of strategic hiring initiatives and market expansion.

Deposit growth, excluding the ANB acquisition and seasonal public fund outflows, grew by 1.2% annualized in Q2 2025, demonstrating stable customer deposit acquisition. Total deposits reached $23.96 billion by June 30, 2025. The company's liquidity position is robust, with no wholesale borrowings and very limited brokered deposits. This strong core deposit base, combined with available liquid funds and unused borrowing capacity (e.g., $1.92 billion from FHLB and $2.40 billion from Federal Reserve Discount Window), ensures ample liquidity to fund future growth.

Asset quality remains a core strength. The Allowance for Credit Losses (ACL) for loans remained stable at 1.14% of total loans, with a provision for credit losses of $11.82 million in Q2 2025, comfortably covering net charge-offs of $8.23 million (18 basis points annualized). Nonperforming assets (NPAs) saw a significant reduction, decreasing by $31.68 million to $83.96 million from December 31, 2024, primarily due to $49.60 million in payoffs and paydowns of nonaccrual loans. Even the Hurricane Helene related reserve was reduced to $4.42 million by Q2 2025, down from $9.80 million in Q4 2024, as management gained comfort with potential loss content.

Capital levels are exceptionally strong, with a Common Equity Tier 1 (CET1) ratio of 13.34% and a Tangible Common Equity (TCE) ratio up 27 basis points in Q2 2025. These ratios consistently place UCB above its peers, categorizing it as "well-capitalized" under regulatory requirements. This capital strength affords UCB significant flexibility for strategic initiatives, including opportunistic share repurchases, with $14 million of common stock repurchased in Q2 2025. The company has also actively managed its debt, redeeming $100 million in senior notes in June 2025 (which were set to reprice from 5% to 9%) and $60 million in subordinated debt in Q4 2024, optimizing its interest expense.

Outlook and Risks

Management expresses optimism for continued strong performance, projecting a further 5 basis points of NIM expansion in Q3 2025, driven by ongoing deposit cost reductions and a favorable asset mix shift towards loans. Loan growth is expected to maintain a robust pace, similar to Q1 2025's 6% annualized rate, supported by strong pipelines and positive client sentiment regarding economic conditions and recent tax legislation. Expenses are forecasted for low single-digit growth, with a 3-4% long-term trajectory, absorbing merit increases and ANB integration costs. The effective tax rate is expected to be around 22%.

The credit outlook remains stable, with projected net charge-offs for 2025 around $44 million (excluding the manufactured housing portfolio). Losses in the Navitas over-the-road trucking portfolio are expected to moderate by mid-2025 as the portfolio shrinks. While the company remains open to strategic M&A for small, high-performing institutions, current market pricing and economic uncertainties suggest that significant activity is unlikely in the next 12-18 months. Instead, share repurchases are currently viewed as a more attractive, lower-risk capital deployment option at prevailing stock prices.

However, UCB is not without risks. The slight asset sensitivity of its balance sheet means that initial margin compression could occur with future Federal Reserve rate cuts, although management anticipates recovering most of this impact over subsequent quarters through deposit repricing. Economic uncertainties, particularly related to tariff impacts on forecasted unemployment and GDP, remain a factor, though clients have shown resilience in adapting. Competition from larger regional banks, with their scale and potentially faster digital innovation cycles, and from agile fintech companies offering digital-first solutions, poses a continuous challenge to UCB's market share and profitability. UCB's focus on the small commercial segment, including Navitas, also carries inherent risks, requiring vigilant credit monitoring.

Conclusion

United Community Banks presents a compelling investment thesis grounded in its consistent ability to deliver profitable growth through strategic execution, disciplined financial management, and a deeply ingrained customer-centric culture. The bank's recent performance, marked by robust NIM expansion, strong loan and deposit growth, and exceptional asset quality, demonstrates its resilience and adaptability in a dynamic economic environment. By prudently expanding its footprint through targeted acquisitions, optimizing its portfolio through strategic divestitures, and leveraging operational technology to enhance customer satisfaction and efficiency, UCB is effectively carving out a defensible position in the competitive Southeast banking market.

With strong capital ratios providing ample flexibility and a clear strategic roadmap for continued growth and expense control, UCB is well-positioned to navigate future market conditions. The company's commitment to shareholder value, evidenced by its attractive dividend yield of 3.24% and opportunistic capital deployment strategies, further strengthens its appeal. For discerning investors, UCB offers a story of a regional bank that combines the trusted values of community banking with the strategic foresight and operational acumen required for sustained success in the modern financial landscape.