United Community Widens Margin as Deposit Costs Recede
Net interest revenue reached $240.9 million as the margin expanded for a sixth consecutive quarter.
United Community Banks (UCB), the Southeast-focused regional bank, expanded its net interest margin 3 bps QoQ and 18 bps YoY to 3.68%, extending its run of quarterly increases to six. Net interest revenue rose 3.5% QoQ and 6.8% YoY to $240.9 million.
Lower deposit costs drove the improvement even as asset yields softened. The cost of interest-bearing deposits fell to 2.27% from 2.73% a year earlier, cutting quarterly deposit interest expense by $21.0 million YoY to $98.1 million, while the yield on earning assets declined 13 bps to 5.25%.
The lending franchise supplied additional balance-sheet growth. Loans increased $332 million during the quarter, a 6.8% annualized pace, while production exceeded $1 billion excluding the pending sale of Navitas Credit Corp. Average loans rose 5.6% YoY to $19.72 billion despite a 16-bps decline in average loan yield to 6.03%.
Growth spread across commercial and consumer categories, led by increases of $88 million in commercial-and-industrial loans and $76 million in owner-occupied commercial real estate. Reported held-for-investment loans fell $1.58 billion after United moved substantially all Navitas equipment-finance loans to held for sale. Customer deposits declined $295 million QoQ to $23.72 billion, largely because of seasonal public-funds outflows, following first-quarter deposit growth that allowed the bank to repay all wholesale funding.
Credit costs eased for a second consecutive quarter. Net charge-offs fell to $7.9 million, or 0.16% of average loans, from 0.22% in the first quarter and 0.34% in the fourth quarter. The provision swung to a $29.8 million benefit because United released $38.5 million of Navitas-related reserves; excluding that release, provision expense declined to $8.7 million. Nonperforming assets increased to $103.4 million, including $9.4 million of Navitas nonaccrual loans held for sale.
Operating fee income was nearly unchanged QoQ at $38.4 million after excluding a first-quarter terminated-hedge gain. Mortgage banking gains rose 26% YoY to $6.8 million, and wealth-management fees increased 12% to $4.9 million. Operating expenses climbed $7.4 million QoQ, including a $4.5 million Navitas licensing settlement, pushing the operating efficiency ratio slightly higher to 56.7%.
United’s preliminary CET1 ratio stood at 13.5%, and the bank declared a $0.25 quarterly dividend, 4% above a year earlier. It had repurchased 1.09 million shares during the first quarter at an average price of $33.97.
The pending $1.9 billion Navitas sale is expected to add 145 bps to CET1 and reduce the pro forma loan-to-deposit ratio to 74%. Management identified share repurchases alongside organic growth, balance-sheet optimization and acquisitions as potential uses for the excess capital, giving the transaction’s capital release a central role in the bank’s next allocation decision.