United Community Banks (UCBI) to Incur Additional Charges in Q4
Shares of United Community Banks, Inc. UCBI lost 2.2% following the release of a Securities and Exchange Commission (“SEC”) filing, which provided updates related to certain charges that will be incurred in the fourth quarter of 2023.
UCBI expects to incur net pre-tax charges of nearly $62 million or 41 cents per share in the fourth quarter. This includes a pre-tax charge of roughly $10 million or 7 cents per share attributable to the FDIC special assessment and a securities loss of approximately $52 million or 34 cents per share related to balance sheet repositioning.
As part of the balance sheet repositioning, United Community Banks sold low yielding available for sale (AFS) bonds worth $316 million during the fourth quarter. These bonds yielded 1.46% and had a 5.1-year duration. The sale resulted in the above-mentioned securities loss.
Additionally, UCBI reinvested the proceeds from the sale of the bonds to purchase high-yielding AFS, which will yield 5.36% and has a duration of 1.5 years. As a result of these balance sheet actions, the company expects net interest margin (NIM) to improve 4 basis points (bps) and $9 million in addition to net interest income (NII) on an annualized basis.
United Community Banks anticipated balance sheet repositioning to contribute 6 cents per share to its earnings annually.
We believe that the restructuring will enhance UCBI’s earnings profile and offer significant financial flexibility.
Last year, shares of UCBI lost 13.4% against industry’s rally of 4.4%.
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Currently, United Community Banks carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Banks Taking Similar Actions
Of late, several banks are undertaking measures to strengthen the balance sheet amid a higher rate regime.
Horizon Bancorp, Inc. HBNC sold $382.7 million in AFS securities, consisting of treasury, agency, corporate and municipal securities, with a weighted average book yield of 2.01% and an average duration of 3.4 years. Further, the company surrendered $112.8 million in bank-owned life insurance.
HBNC expects these balance sheet repositioning efforts to immediately improve NII and offer flexibility to its “go-forward funding strategies.” The company anticipates re-deploying the proceeds in the first half of 2024 into higher-yielding loans and other liquid assets.
Driven by these efforts, Horizon Bancorp’s fourth-quarter 2023 net income is expected to reflect an after-tax impact of $32.7 million, which includes a $31.6 million pre-tax loss on the sale of securities.
Pacific Premier Bancorp, Inc. PPBI completed a repositioning of its investment securities portfolio by selling $1.27 billion of AFS securities. The company intends to invest the proceeds in higher-yielding earning assets.
Particularly, the sold securities indicate 35% of the total securities and 66% of AFS securities as of Sep 30, 2023. It consisted primarily of lower-yielding agency and mortgage-backed debt securities, with an average yield of 1.34%.
PPBI expects to record an after-tax loss of $182.3 million related to the sale. The company expects to deploy the net proceeds in fourth-quarter 2023 in a mix of cash and higher-yielding earning assets, with an expected average yield of 5%.
With this, PPBI expects the repositioning to be incremental to net interest income by $50.4 million. Management expects the repositioning to increase the net interest margin by 26 basis points and net income by $37.1 million in 2024.
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