United Community Banks: Organic Loan Growth And M&A Catalysts Counterbalance Q2 Miss, Says Analyst

Stephens analyst Russell Gunther reiterated the Overweight rating on United Community Banks, Inc. UCBI, raising the price target to $33 from $31.

UCBI recently reported its second-quarter results, where adjusted earnings of $0.55 missed the analyst consensus of $0.61.

The analyst notes that a better-than-expected non-interest expense run-rate, mid-single-digit organic loan growth, and a reiterated related guidance were bright spots on the print.

The company derives incremental organic strength from Residential RE, C&I Navitas, and non-owner-occupied CRE. 

Further, the M&A integration of two digestible deals in 2H23 provides funding and economies of scale catalysts in the future, Gunther added.

The analyst raised FY23 organic loan growth expectation to 7.0% from 6.5%.

Quarterly margins shed 24 bp Q/Q to 3.37%, below the analyst's 3.50% estimate and consensus of 3.48%. The analyst cautions that this is likely to weigh on forward consensus estimates as well. 

Following the lackluster performance, Gunther lowered FY23 Op. EPS estimate to $2.26 from $2.48, reducing FY24E Op. EPS to $2.40 from $2.60.

The lowered EPS estimates are owing to the 2Q23 operating EPS miss and lower NII outlook due to more pronounced deposit remix-related NIM pressure.

The analyst revised FY23 and FY24E NIM to 3.38% and 3.35% from 3.48% and 3.44%, respectively.

UCBI guides to mid-single-digit organic growth in the near term with a bias higher than commercial lender lift-out opportunities that bear fruit and mature.

The analyst lowered FY23 and FY24 fee income by 3% and 5%, respectively, largely due to a more conservative mortgage banking outlook.

Price Action: UCBI shares are trading lower by 2.50% to $27.50 on the last check Thursday.