8-K: United Community Banks Sells Manufactured Housing Loan Portfolio to 21st Mortgage Corporation

United Community Banks, Inc. has finalized the sale of its $318.2 million manufactured housing loan portfolio to 21st Mortgage Corporation, a division of Clayton Homes.

Summary

• United Community Banks, Inc. has sold its manufactured housing loan portfolio, totaling $318.2 million, to 21st Mortgage Corporation on August 30, 2024.
• This portfolio was acquired as part of the Reliant Bancorp, Inc. acquisition in January 2022.
• The company had ceased originating these loans in the third quarter of 2023 and decided to accelerate the exit from this business.
• The sale is expected to result in a one-time loss of $0.18 per share in the third quarter of 2024, which includes an $11.5 million release of associated reserves.
• The transaction is slightly accretive to regulatory capital ratios and is expected to be approximately neutral to projected earnings per share after reinvestment of proceeds.
• The sale will reduce the company's risk profile, as the portfolio represented 11% of year-to-date net charge-offs and 18% of non-performing assets, despite being only 2% of total loans.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive as the company is strategically divesting a non-core asset to improve its risk profile and focus on core operations, despite a one-time loss. The transaction is expected to be neutral to earnings after reinvestment.

Positives

• The sale allows management to focus on core operations and allocate capital to other growth opportunities.
• The transaction reduces the company's risk profile by eliminating a portfolio that contributed significantly to net charge-offs and non-performing assets.
• The sale eliminates the need for dedicated manufactured housing overhead and a specialized servicing function.
• The transaction creates additional liquidity and balance sheet flexibility.
• The sale is slightly accretive to regulatory capital ratios.
• The company expects no ongoing effect on earnings after the one-time loss.

Negatives

• The sale will result in a one-time loss of $0.18 per share in the third quarter of 2024.
• The sale will result in an estimated 8 basis point reduction in TCE ratios.

Risks

• The company acknowledges that forward-looking statements are subject to numerous assumptions, risks, and uncertainties that could cause actual results to differ materially.
• General competitive, economic, political, regulatory, and market conditions could impact future performance.
• The company cannot predict the occurrence of new risks and uncertainties or how they will affect the company.

Future Outlook

The company expects the transaction to be approximately neutral to projected earnings per share after reinvestment of proceeds and does not expect any ongoing effect on earnings after the one-time loss. The FinTrust sale is expected to increase TCE ratios by 7 basis points, with 5 basis points expected in Q4 2024.

Management Comments

• Lynn Harton, Chairman and CEO, stated that the company took the opportunity to accelerate their exit from the manufactured housing loan business rather than slowly liquidate the portfolio.
• Lynn Harton also mentioned that the sale reduces the company's risk profile and removes a management distraction.
• Lynn Harton noted that 21st Mortgage Corporation is the premier lender in this area with great capability to service the customers.

Industry Context

This transaction reflects a strategic move by United Community Banks to streamline its operations and focus on core banking activities. The sale to 21st Mortgage Corporation, a major player in the manufactured housing lending sector, indicates a consolidation trend in this niche market.

Comparison to Industry Standards

• The sale of a non-core loan portfolio is a common strategy for banks looking to optimize their balance sheets and reduce risk.
• Other banks, such as Truist and Regions Financial, have also divested non-core assets to improve their financial metrics.
• The impact of the sale on capital ratios is in line with industry expectations for similar transactions.
• The one-time loss is typical for such sales, and the focus on reinvesting proceeds is a standard practice.

Stakeholder Impact

• Shareholders will experience a one-time loss of $0.18 per share in the third quarter of 2024.
• The sale is expected to be neutral to earnings per share after reinvestment of proceeds.
• The sale reduces the company's risk profile, which is beneficial for shareholders in the long term.
• Customers of the manufactured housing loan portfolio will now be serviced by 21st Mortgage Corporation.
• Employees previously dedicated to the manufactured housing loan portfolio will likely be reassigned or their roles eliminated.

Next Steps

• The company will recognize a one-time loss of $0.18 per share in the third quarter of 2024.
• The company will reinvest the proceeds from the sale.
• The company will continue to focus on its core banking operations.
• The company expects to receive the remaining 5 basis points from the FinTrust sale in Q4 2024.

Key Dates

Keywords

manufactured housing loans, loan portfolio sale, 21st Mortgage Corporation, United Community Banks, asset sale, financial results, risk management, capital ratios, net charge-offs, non-performing assets