KBRA Affirms Ratings for United Community Banks, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, the preferred shares rating of BBB-, and the short-term debt rating of K2 for Greenville, South Carolina-based United Community Banks, Inc. (NYSE: UCB) ("the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for the bank subsidiary, United Community Bank ("the bank"). The Outlook for the long-term ratings is Stable.

Key Credit Considerations

UCB’s core capital profile continues to be a key supporter of its ratings. Though UCB has historically almost always managed core capital at levels higher than peer, the delta between the company’s CET1 ratio and peer medians has widened further in recent periods, with the metric rising ~110 bps from 4Q23 to 13.3% in 1Q25. Contributing to the strong risk-weighted core capital ratios is a low RWA density that we view positively – itself a function of UCB’s conservative balance sheet composition that features loan-to-deposit and loan-to-earning asset ratios that are distinctly below peer. UCB’s track record of solid asset quality is also supportive of the ratings. In this sense, certain specialized loan segments, specifically UCB’s Navitas and manufactured housing portfolios (the latter of which was sold in 3Q24), have been the principle drivers of the company’s NCOs in 2023 and 2024, while asset quality performance in the bank’s “core” loan book has been comparatively stronger (notwithstanding a degree of normalization from historically and unsustainably strong levels during the COVID-era). After some increased NPA formation in late 2023 – early 2024, NPAs have been largely steady in the latter half of 2024 and declined in 1Q25, with broad based improvement seen across essentially all of UCB’s lending verticals due to a variety of successful resolutions.

UCB’s earnings have been, at times, significantly impacted by numerous one-time or non-core items. Some of these items are idiosyncratic and the result of strategic initiatives undertaken by UCB, while others were industry-wide related items or accounting nuances that are largely outside of the company’s control. These items and related “noise” make evaluating UCB’s core earnings in recent times somewhat difficult to judge; however, on a fundamental basis, we believe that the company’s core earnings have been gradually improving in recent quarters after declining in 2023 and 2024. That said, UCB’s comparatively large securities portfolio, specifically its $2.3 billion fixed-rate, low yielding held-to-maturity securities book, continues to act as an earnings constraint to a degree.

Rating Sensitivities

A return to peer-like level of risk-adjusted earnings, if achieved in conjunction with still strong core capital ratios and asset quality metrics, could result in positive rating momentum. Alternatively, greater than peer deterioration in asset quality that materially impacts earnings power or capital levels could pressure the ratings. Additionally, challenges related to the execution of the company’s historically active M&A strategy or failure to effectively integrate acquired banks would be viewed negatively.

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Methodologies