Good morning and welcome to United Community Bank's conference call discussing today's announcement of a definitive agreement to sell its equipment finance business, Navitas, to funds managed by Wafra, Inc. Hosting the call today, our Chairman and Chief Executive Officer, Lynn Harton, and Chief Financial Officer, United's presentation today includes references to non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure at the end of the investor presentation. Copies of the press release and investor presentation discussing the transaction were filed this morning on Form 8-K with the SEC, and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representative of United. Any forward-looking statement should be considered in the light of risks and uncertainties described on pages 5 and 6 of the company's 2025 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.
To announce today that we have entered into a definitive event with Novitas. For me, this is a story of our southeastern footprint. Navitas, in early 2018, $7.9 billion in total assets. We had not yet entered Florida, Alabama, or Nashville, commercial bankers than we would have liked. We needed a growth of $1.9 billion today. And delivering strong, importantly, we placed an internal limit on Navitas' size at 10% of total UCB loans. And as many of you know, we've been near that limit for execute against that limit we began selling Nevitas loans and slowed internal with acquisitions in Florida, Alabama, Tennessee, and North Carolina and developing our capabilities for now with our relationship banking momentum building and the outlines of our footprint established the time is right to sell Nevitas and refocus the core bank. As you look to slide two we believe this sale on a solid but non-core asset reduces the risk in our loan portfolio as Navitas is naturally a higher loss content business. We'll have even more flexibility from both the liquidity and account relationship bank and Navitas will be with an owner to turn it to you for additional details on the transaction. Thank you Lynn. Navitas has
been over these past eight years and I'm excited now about the ability to get a good price for the business and then to inform our banking businesses. I'll start with the financial aspects of the transaction on page four. We are selling the origination business and the loan book of Navitas for approximately $1.9 billion in cash. This represents a 7.1% premium over the receivable. These numbers will change slightly based on the loan growth between March 31st and close, which is expected. We are keeping about 2% of the loans on our balance sheet that do not meet the financing requirements of the buyer. Gain to UCB is then reduced by the capitalized origination costs that were being amortized over the life of the loans and by transactional earnings impact also benefits $42 million of Navitas's loan loan. $2 million reserve dollar gain from the signed impact to be additive to about 3% on the next page. Bottom left of the slide, we show our 13.4% CET1 ratio, and we adjust this day-to-day deal that will close either mid-Q3 or early Q4, bringing us to a 13% CET1 ratio. Again, CET1 ratio will move up by 145 basis points, driven by the gain on sale from the transaction, taking our CET1 ratio to 14.5%. From a near-term earnings perspective, we estimate that selling the Navitas loans and reinvesting the $1.9 billion in cash, 4 to 4.5% range, will initially reduce earnings by about 9% from redeploying the proceeds of capital use activity. We will replace this earnings gap in a relatively high reinvesting the proceeds into loans via the organic growth of our franchise and by various capital deployment. Beginning in the fourth quarter of 2025, we have been materially increasing our revenue producer hiring efforts by 38 people, or 18%, we believe puts us in a good spot for increasing our loan growth in the second half of 2026 and beyond, and will be useful in using the liquidity and capital created by the transaction. Our significant hiring that has continued into the second quarter, we are planning on upper single-digit loan growth in 2027. If the economy remains construction to the elevated hiring, also note that the recently completed peach state or recently announced peach state transaction with Navitas in mind and replaces about 25% of the loans being sold to the increased organic activity and CET1 ratio in the 14.5% range, we will also explore employment opportunities that are available to us, such as buybacks, balance sheet optimization, and perhaps M&A should the opportunity present itself. Please note, though, that our M&A strategy is unchanged and would focus on relatively small in-market transactions with minimal integration risk where we can be most additive. to the upper chart on page 5 and walk through the earnings progression a little bit. We adjust this to include the expected EPS accretion once the cost savings are in that we talked about in the P-State transaction, which brings us to the Navita sale and the 9% impact I've mentioned before. This takes us to the $0.65 range of adjusted Q1 EPS. Then we do the math on reinvesting the excess capital created, either fully into buybacks with a $300 million buyback and reinvestment ranges of 10% to 12% returns on invested capital. And these calculations get us back to $0.69, $300 million in shares at current prices, and to the upper end of the $0.69 to $0.73 range, earnings protracted business mix with roughly half the net charge-offs and one that will get back to earnings accretion relatively near term.
And I'd like to thank the Navitas team for being a part of United these past eight years. as well as a strong performer, and I'm grateful for the time we have had together and the relationship. Congratulations on a great purchase. I wish you both tremendous success in the future. And now I'd like to open the floor for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we'll pause momentarily to assemble the roster. The first question will come from Russell Gunther with Stevens. Please go ahead.
Hey, good morning, guys. You know, I thought the deck was super helpful in terms of the moving pieces. I did want to follow up, though, in terms of your sense of the pro forma margin going forward, both near-term, but then as you think about putting this excess liquidity to work on the asset side, maybe help us with how you're thinking about deposit cost expectations going forward and how that has changed with this excess liquidity, given an increasingly competitive environment for growth.
I'm going to start with that one. Initially, if you just do the pro forma based on Q3, it takes the margin down by about 30 basis points. But I say initially because we believe we're going to be relatively quickly moving these securities back into loans and growing the bank and getting that margin back over time. Was the cost of this quarter? We're still on pace with that. I do think you're going to see the loan growth pick up a little bit. You're seeing the competition. We do have the benefit of CD's cost coming down. But I think you could see it in maybe half of the year. But having all this excess liquidity will help us relative to peers, I think, be able to manage our deposit. Great.
Thanks, Jefferson. And then you guys mentioned one of the avenues for excess capital deployment being in footprint M&A and kind of small in nature. Maybe just remind us kind of priority markets within footprint, what small an asset size means to you. and then as we think about CET1 levels, just level set us where you measure that and what we can think about as excess from here.
Yeah, sure. Russell, I'll take that. So in terms of target areas, you know, our footprint, as I mentioned, the outlines of our footprint are pretty well settled, and so we'd just be looking at tuck-in fill-ins in what we think are attractive markets. I think the peach state transaction is a great example of that. But in terms of what small looks like, you know, our average deal is about, you know, between a billion and a billion and a half. You know, we've done smaller like Peach State. So those are the kinds of deals we're looking at, small, well-run, in-market deals where, you know, it's just easier from an integration perspective. We can be more additive from a product and balance sheet perspective, and it doesn't distract on hiring and growth.
Okay, great. And then I guess just to follow up to that, guys, would be as you think about where you want to run CET1 relative to the pro forma 14.5%.
Yeah, that's a great question. So, you know, if you think about it philosophically to start with, I've always felt like we should hold a little more capital than peers for two reasons. One is percentage of assets, you know, as we were building out the franchise, we were, just for acquisition purposes alone and, you know, the integration risk and all that, I said, well, let's, while we're in that, let's hold a little more capital for that reason. And then, you know, I always felt like the market viewed Navita's asset, frankly, than I did. I think, you know, yes, they have a higher loss content, but their volatility is not that significant. They're really well run. So, you know, we held a little more capital perspective for Navitas. So as you think about now, our acquisition activity will be less. We won't have Navitas on the books, so we target more core peer levels versus being above peer levels. We haven't set on a specific number, But philosophically, there's certainly no reason for us to be above peer.
Okay, Lynn, super helpful. Thank you, guys. I'll step back.
The next question will come from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions. Obviously, a very good return from when you bought this in 2018, so congrats to you guys. But obviously, these are higher-yielding loans. You know, Lynn, as you just mentioned, you know, the perception around credit quality may have been an issue. I know you've had some long-haul trucking, you know, type of issues, but certainly very manageable given the portfolio size. I guess the question is, you know, I guess why now exactly, particularly given the spread pressure that we're seeing, given that these loan yields have been, you know, very consistent for a very long period of time. Clearly the business is growing. You know, I know you've limited it to 10% that you've been operating at that level for a period of time, but why not, you know, wait for, you know, sometime in the future once we get through maybe some of the spread compression issues?
Yeah, sure. Great question, Michael. So, you know, we started looking at this 12 to 18 months ago. So one issue is, as you think about a company like Navitas, you can only hold back, or I won't use, maybe I'll use the word strangle. You can't hold back a growth company too much, or you just start losing momentum, start losing people, and those kinds of things. So one reason, one thing is we were at kind of our limit. We needed to figure out some way to continue to invest in the business and grow the business without it overwhelming us. So we looked at various alternatives, whether, you know, selling more loans, securitizing it, whatever. But we felt like given the attractiveness of the company, rise of private, all those things together said, hey, you know, let's explore a sale. Well, yes, it's going to have the short-term impacts that you mentioned, but long-term, we get them in a better home, and we're better able to focus on our core bank. It just felt like the right time for those reasons.
Appreciate the caller. Maybe just as a follow-up, I know you guys had planned to offset some of the dilution from the acquisition, the Peachtree acquisition, with buybacks. That was one thing that I don't think was listed in the slide deck from this morning, but could increased buybacks be part of the equation for some of this liquidity and capital?
Oh, yeah, absolutely, and if we didn't have that in the deck, we should have. I think absolutely that is part of it. You know, so, again, going back 18 months ago, we, 12, 18 months ago, we said, look, all right, if we're going to do this, we need to, a couple of things we thought about. Number one, we need to accelerate hiring. So we actually put together a project, just as we do with acquisitions, we have a very detailed process of how do we bring people in, how do we integrate them in the culture, how do we get them to understand the credit world that United operates in. But, you know, we had not done that for organic hires. It had been more one-off. So we said, all right, we're going to take Navitas out, get them to a better home. We're going to have this capital and liquidity. Let's accelerate hiring. So Rich and his team put that together. It had been very successful. We haven't talked a lot about it. But the pace of new hires is coming on very well. So we feel really good about the organic growth coming on. And at the same time, you know, we've got this excess capital, and we knew we would have even more excess capital than you thought we had. So let's look at buybacks. So you saw us lean into buybacks the last six months, far more than we have been doing. And as I look at small tuck-in acquisitions, you know, we had actually initially proposed the Peach State deal to Peach State as an all-cash transaction, looking at that as a deployment of capital. But some of them wanted to hold the stock, and so we did a 50-50 deal. So I would say absolutely buybacks are on that menu, and we've done a lot of work looking at different alternatives, and we're going to take the next 60 days between now and close to kind of refine those things, think about what's in the best long-term shareholder interest, and then begin executing on that after.
Very, very fair. And sorry, I missed the repurchase thing. It was in there, so that's my fault. Maybe just one final question. You know, for me, you know, I know you guys have talked about kind of mid-single-digit growth this year. It sounds like you're going to see or expecting some acceleration as we think about next year. Maybe it's a little bit early to discuss it, but I know you have been, you know, hiring folks. I guess what gives you the confidence that you can see accelerating loan growth as we move into next year?
Good morning. This is Rich Bradshaw, the President and Chief Banking Officer. I think I'm a special guest on today's call. So, yes, the hiring very well. Lender-producer experience is in the 20-year range, and the people we're hiring, they're from traditionally larger banks than us. So we do anticipate increasing in 2027.
Appreciate that, Rich. Thanks, everyone, for the caller.
Thanks, Blackwell. The next question will come from Catherine Mueller with KBW. Please go ahead.
Thanks.
Good morning, Catherine.
A couple of just small follow-ups. First, as we play with the margin impact, what cost of funds should we be using to offset their kind of loan? What do you all typically use as a funding cost for this portfolio?
Their funding cost is kind of baked into the whole bank. So as a modeler of the company, I don't think I would change the funding cost. When we were funding it internally, we had an FTP and a spread. our funding really is unchanged, except for that we have a significant future loan growth and to help us potentially widen this margin, the new margin, in an environment where deposit funding is a little tougher. I don't think the funding cost and the near-term modeling changes a lot.
Okay, cool. So just use like a 170 cost of deposits.
That's right.
Because they're going to be kind of against it.
They're just going to be funding securities for a while, and that's going to translate into loans over time.
Okay, cool. And then any timing on the investment of the proceeds for the bond purchases? I mean, do you plan to do just kind of one big transaction all at once, or is there any kind of layering in that we should consider for those investments?
I would say it's just under review. We're going to let this deal close. We're examining all options, and we'll make decisions.
And then lastly, at what point you had considered an HTM restructure? Is that at all back on the table just in light of this transaction and with a higher-for-longer rate environment potentially on the horizon, or just kind of curious your updated thoughts on that?
Yeah, I would say that's one of the menu items that we're evaluating. We haven't made any decisions on any of these things. And so because what we want to do now with a piece of the transaction announced, I want to just really sit back and say, all right, what's in the best long-term interest of the company in terms of risk, return, all those things? So no decisions, but it is one of the menu items we've looked at.
Great. Thank you. Appreciate it.
The next question will come from Stephen Skouten with Piper Sandler. Please go ahead.
Yeah, thanks, everyone. I guess I'm curious how you think about the timeline of the deployment of the incremental liquidity. I mean, you already had a relative strength from a liquidity standpoint, I guess, from a low loan-to-deposit ratio. So do you think about the risk profile of your kind of core loan book any differently or any new market expansions to kind of allow for maybe more rapid deployment of this liquidity? Because I think you probably already had like two or three years of ability to grow loans in excess of deposits. So I just want to think about that timeline and that risk profile from here.
Yeah, so in terms of the loan book, expanding the risk profile is not something we would do. It kind of goes exponential. You have a good loan and a bad loan, and it's really hard to make just something in the middle. So we don't plan on expanding the box. What we're really trying to do is expand our product set. So Rich talked about commercial bankers coming from larger banks. So our middle market area, for example, which would be larger kind of in-market commercial deals, we've not been as active in that market as we'd like to be. I don't view that as expanding the risk box because the underwriting of those are very consistent, very good, but it's a product we haven't done as much of as an example. And then just volume. If you look at, this makes sense, but if you look at historically, loan growth is really pretty closely tied to the net loan growth of your producers. I mean, that's a logical thing you don't really think about or talk about too much. And so we've, both of our producers, pretty substantially, Rich may have the exact numbers. This won't be for the full year, but I think we're up about 18% over the last few months. if you annualize it. Now, it won't annualize at that level. It's probably more like the 15%, 12% to 15% range, but that's significantly higher than what we've been doing. And so just from a pure volume perspective of doing the kind of deals we want to do, we would look for that. It takes a while to come in. So, you know, you bring a new banker in, and it's six to nine months before they start really producing at full level. So this is a longer-term play. So the immediate deployment will be in the securities book. It'll be short, simple, safe. We are not looking to take any risk there because we're funding with core deposits. We're not funding out in the wholesale market. We don't have to reach for yield or anything else. So you'll see short, simple, safe bond transactions in the near term. And then Rich has got kind of carte blanche to go get great bankers and bring them in the market and deliver on that.
And I agree with the numbers and comments, particularly about the middle market that Lynn said. And I will tell you it's very encouraging because it does take a while for a lender to get on board in terms of bringing on new business and closing new business. But what's been exciting is some of these new hires within 60 days, 90 days, we're already seeing deals at Senior Credit Committee, and those are all deals for us over $20 million. So it is happening.
Yeah, that's great, Cole. And I guess, you know, kind of tying on to that, you have been extremely successful with this kind of new hire progression over the last couple of quarters. Does this accelerate that even further? Like, do you get a little bit more aggressive, whether that be from a market perspective or, you know, just in terms of a willingness to spend near term to hire more people? Maybe even, I don't know, LPOs. I know, Lynn, you said it's going to be a long time horizon to deploy this, but I'm just kind of wondering if it changes the thought process around what's already been a positive trend to maybe magnify that further.
No, it doesn't accelerate, only because, as I mentioned, we've been executing on this for the last 12 months. I don't like to tell people what we're going to do. I like to tell people what we are doing. And so we are already, in our mind, at that accelerated pace in anticipation of this. But it's, you know, if you're a banker, I will say that Rich bring people on because now his pitch has already been great. You've got a bank with a great culture and a great footprint. And, by the way, you know, now we've got a mid-'70s loan-to-deposit ratio, all core funded. So, yes, we want you to go get deposits, bring deposits in, but you don't have to be, you're not going to be, you know, super focused on that. Let's go bring in the loan transactions. We've got tons of capital that we think continues the momentum that riches.
Well, we do have some goals that we're trying to hit, but we're past this year. We're really being opportunistic. If it's the right people, we will bring them on, and we'd rather have the right people than a specific number. And all of a sudden, you know, when I came here 12 years ago, we never talked about culture and the hiring. Now it's always the first question that they bring up, so our role. And so we're going to continue trying to do what we're doing, and I think we're doing it well.
Yeah, fantastic. You know, it is a differentiated recruiting position to have all that liquidity. So congrats on the transaction and all the progress. Appreciate the time.
Thank you.
Again, if you have a question, please press star and then one. The next question will come from Christopher Marionek with Breen Capital, LLC. Please go ahead.
Hey, good morning. Thanks for hosting us all. Just a quick question on the interest rate environment. The fact that rates have moved since the end of March, does this make this decision easier for you to execute?
Good question. I'll start with that. The rate changes aren't meaningful in some ways. They have a higher reinvestment rate if we were to go down that path. So I don't think the rate changes are a menu of things to do. Now, if it was the executing of a Navitas transaction, probably, you know, all things equal, it maybe hurts the transaction and makes it a little more loans on the balance sheet, a little less valuable, which maybe feel like we had a good, you know, rate volatility does play in the valuation, obviously, but that 10-year stayed in a range where it made the transaction doable.
Great. And then just for Rich, real quick, I mean, since rates are up a little bit, does that give you any more room to perhaps price just a little bit better? I know it's competitive, and I know it's not an easy time, but just curious if you can get more yield from customers.
Yeah, it's a great question. I will say over the last 12 months, we've seen pricing compress, particularly in Cree. And I'll say today is the first time I've seen that really stabilize and actually maybe increase a little bit, particularly on the investment reconstruction, which we do a lot of. So the answer is yes. We've seen a little impact on the positive side.
Great. Thank you all again.
Appreciate it. The next question will come from David Bishop with Hobb Group. Please go ahead.
Yeah, good morning, gentlemen. Hey, quick question circling back to the share buyback. I appreciate the footnote. I think it shows about $300 million potentially contemplated. Remind us how much is remaining under, I think, there's the current $100 million authorization, I guess. Does that imply you'll have to go back and seek board approval to increase it?
That's right. So our current remaining authorization is $63 million. Keep in mind that with the P-State deal, we talked about buying the $50 million back already, so that's contemplative vote at P-State. So I think, you know, a strong buyback is definitely a stronger buyback than, what, the $63 million authorization.
Got it. And then in terms of the hirings you guys have made, you know, been aggressive over the past year and into this year, I'm curious, Jefferson, if that has any impact in terms of your maybe organic standalone expense growth expectations this year into next?
Most of the hiring that we've done so far, the rest of the year, when I mentioned it would be up a million dollars, in the second and third, not cumulatively, but a million dollars to the run rate a little higher. But I think that we've incorporated –
And one final housekeeping question. I appreciate the – I think it's about $9 million that comes out of the expense run rate from Navitas. We assume, you know, from a breakdown in terms of comp, salaries versus occupancy, maybe two-thirds, a third, just sort of any gotcha you can give there in terms of, you know.
We have, let me get back to you on that, half and half as the number is coming to me, but it could be, I appreciate the color.
This will conclude our question and answer session. I would like to turn the conference back over to Mr. Lynn Harden for any closing remarks.
Okay, well, once again, thank you all for joining the call, for great questions, and any further follow-up, feel free to reach out to any of us here, and I hope you have a great rest of your day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.