United Community Sells Navitas, Reshapes Loan Book
The $1.9 billion equipment-finance exit will cut net charge-offs in half and lift CET1 to 14.5%.
United Community Banks (UCBI) moved decisively to lower risk and boost capital, agreeing to sell its Navitas equipment-finance business for $1.9 billion in cash at a 7% premium to par. The transaction, expected to close in the third quarter, will remove 10% of total loans but roughly half of the bank’s net charge-offs over the past twelve months. Pro forma for the sale, the annualized net-charge-off rate falls to 0.12% from 0.22% in the first quarter, reflecting the elimination of Navitas’ 1.29% loss rate.
The deal is structured to deliver a one-time pre-tax earnings lift of $109 million, including a $42 million allowance-for-loan-loss release, and will add 3% to tangible book value per share while lifting the CET1 ratio 145 basis points to 14.5%. Liquidity improves in tandem: the loan-to-deposit ratio drops to 74% from 81%, and the $1.9 billion in proceeds is earmarked for short-duration securities yielding 4.0-4.5%.
Underlying operating trends remained constructive before the sale. Net interest margin expanded 3 basis points sequentially to 3.65% in the first quarter, extending a 29-basis-point year-over-year increase. Deposit costs continued to decline, falling 12 basis points quarter-over-quarter to 2.27%, while non-interest-bearing deposits (excluding public funds) grew at a 4.7% annualized rate. Loan growth, however, slowed to 4.5% annualized as Navitas originations were deliberately capped.
Credit quality showed sequential improvement even before the Navitas exit. Provision expense declined $2.8 million to $10.9 million, and net charge-offs fell 12 basis points to 0.22% annualized. The allowance coverage ratio edged down 1 basis point to 1.15%. Noninterest income slipped 6% quarter-over-quarter to $43.7 million, pressured by lower mortgage and wealth fees, while the efficiency ratio improved to 55.7% on positive operating leverage.
Capital return accelerated in anticipation of the Navitas proceeds. The bank repurchased 1.09 million shares at an average price of $33.97 in the first quarter, following 1.0 million shares in the prior quarter, and raised the common dividend 4% year-over-year to $0.25 a share.
Management signaled that the enhanced capital flexibility will support both shareholder returns and selective M&A. With the CET1 ratio now targeted at 14.5%, the bank is positioned to pursue bolt-on acquisitions in its core Southeast footprint while maintaining a dividend payout ratio in the mid-30% range.