Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
UCBI > SEC Filings for UCBI > Form 10-Q on 2-Aug-2013All Recent SEC Filings

Show all filings for UNITED COMMUNITY BANKS INC

Form 10-Q for UNITED COMMUNITY BANKS INC


2-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about United and its subsidiaries. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, and can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "projects", "plans", "goal", "targets", "potential", "estimates", "pro forma", "seeks", "intends", or "anticipates", the negative thereof or comparable terminology. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions or events, and statements about the future performance, operations, products and services of United and its subsidiaries. We caution our shareholders and other readers not to place undue reliance on such statements.

Our businesses and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experiences may differ materially from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experiences to differ from those projected include, but are not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2012, as well as the following factors:

? our ability to maintain profitability;

? our ability to fully realize our deferred tax asset balances, including net operating loss carry-forwards;

? the condition of the banking system and financial markets;

? our ability to raise capital as may be necessary;

? our ability to maintain liquidity or access other sources of funding;

? changes in the cost and availability of funding;

? the success of the local economies in which we operate;

? our concentrations of residential and commercial construction and development loans and commercial real estate loans are subject to unique risks that could adversely affect our earnings;

? changes in prevailing interest rates may negatively affect our net income and the value of our assets;

? the accounting and reporting policies of United;

? if our allowance for loan losses is not sufficient to cover actual loan losses;

? losses due to fraudulent and negligent conduct of our loan customers, third party service providers or employees;

? competition from financial institutions and other financial service providers;

? risks with respect to future expansion and acquisitions;

? if the conditions in the stock market, the public debt market and other capital markets deteriorate;

? the impact of the Dodd-Frank Act and related regulations and other changes in financial services laws and regulations;

? the failure of other financial institutions;

? a special assessment that may be imposed by the FDIC on all FDIC-insured institutions in the future, similar to the assessment in 2009 that decreased our earnings;

? the costs and effects of litigation, examinations, investigations, or similar matters, or adverse facts and developments related thereto, including possible dilution;

? regulatory or judicial proceedings, board resolutions, informal memorandums of understanding or formal enforcement actions imposed by regulators that may occur, or any such proceedings or enforcement actions that is more severe than we anticipate;

? the risk that we may be required to increase the valuation allowance on our deferred tax asset in future periods; and

? the risk that we could have an "ownership change" under Section 382 of the Internal Revenue Code, which could impair our ability to timely and fully realize our deferred tax asset balance.

Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements may also be included in other reports that United files with the Securities and Exchange Commission (the "SEC"). United cautions that the foregoing list of factors is not exclusive and not to place undue reliance on forward-looking statements. United does not intend to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Form 10-Q. Overview

The following discussion is intended to provide insight into the results of operations and financial condition of United Community Banks, Inc. ("United") and its subsidiaries and should be read in conjunction with the consolidated financial statements and accompanying notes.

United is a bank holding company registered with the Board of Governors of the Federal Reserve under the Bank Holding Company Act of 1956 that was incorporated under the laws of the state of Georgia in 1987 and commenced operations in 1988. At June 30, 2013, United had total consolidated assets of $7.16 billion and total loans of $4.19 billion (excluding the loans acquired from Southern Community Bank ("SCB") that are covered by loss sharing agreements). United also had total deposits of $6.01 billion and shareholders' equity of $829 million.

United's activities are primarily conducted by its wholly-owned Georgia banking subsidiary, United Community Bank (the "Bank"). The Bank's operations are conducted under a community bank model that operates 27 "community banks" with local bank presidents and boards in north Georgia, the Atlanta-Sandy Springs-Roswell, Georgia metropolitan statistical area, the Gainesville, Georgia metropolitan statistical area, coastal Georgia, western North Carolina, east Tennessee and the Greenville-Anderson-Mauldin, South Carolina metropolitan statistical area.

Included in management's discussion and analysis are certain non-GAAP (accounting principles generally accepted in the United States of America ("GAAP")) performance measures. United's management believes that non-GAAP performance measures are useful in analyzing United's financial performance trends and therefore this section will refer to non-GAAP performance measures. A reconciliation of these non-GAAP performance measures to GAAP performance measures is included in the table on page 41.

United reported net income of $230 million for the second quarter of 2013. This compared to net income of $6.50 million for the second quarter of 2012. Diluted earnings per common share was $3.90 for the second quarter of 2013, compared to diluted earnings per common share of $.06 for the second quarter of 2012.

For the six months ended June 30, 2013, United reported net income of $242 million. This compared to net income of $18.0 million for the first six months of 2012. Diluted earnings per common share was $4.05 for the six months ended June 30, 2013, compared to diluted earnings per common share of $.21 for the six months ended June 30, 2012.

Second quarter and year-to-date 2013 earnings were significantly impacted by the reversal of the valuation allowance on United's net deferred tax asset and the sales of classified assets including a large bulk sale transaction. The classified asset sales resulted in a pre-tax loss of $26.8 million for the quarter which was more than offset by a significant credit to income tax expense resulting from the removal of most of the valuation allowance on United's deferred tax assets. The income statement lines affected by these two significant events was a significant increase in the provision for loan losses and foreclosed property expense from the classified asset sales and the recognition of a tax benefit in the income tax line from the valuation allowance reversal.

Taxable equivalent net interest revenue was $54.6 million for the second quarter of 2013, compared to $56.8 million for the same period of 2012. The decrease in net interest revenue was primarily the result of the lower yields on the loan and securities portfolios, which were due to loan pricing competition and reinvestment of maturing securities proceeds at record low rates. The impact of the decrease in average earning asset yield was mostly offset by lower deposit rates. Net interest margin decreased from 3.43% for the three months ended June 30, 2012 to 3.31% for the same period in 2013. For the six months ended June 30, 2013, taxable equivalent revenue was $109 million, compared to $116 million for the same period of 2012. Net interest margin decreased from 3.48% for the six months ended June 30, 2012, to 3.34% for the same period in 2013.

United's provision for loan losses was $48.5 million for the three months ended June 30, 2013, compared to $18.0 million for the same period in 2012. Net charge-offs for the second quarter of 2013 were $72.4 million, compared to $18.9 million for the second quarter of 2012. For the six months ended June 30, 2013, United's provision for loan losses was $59.5 million, compared to $33.0 million for the same period of 2012. The sales of approximately $151 million in classified loans in the second quarter resulted in a $53.5 million increase in net charge-offs as well as the $30.5 million increase in the provision for loan losses from the second quarter of 2012.

As of June 30, 2013, United's allowance for loan losses was $81.8 million, or 1.95% of loans, compared to $113 million, or 2.74% of loans, at June 30, 2012. Nonperforming assets of $31.8 million, which excludes assets of SCB that are covered by loss sharing agreements with the FDIC, decreased to .44% of total assets at June 30, 2013 from 2.16% as of June 30, 2012, due to the second quarter 2013 classified asset sales. During the second quarter of 2013, $13.2 million in loans were placed on nonaccrual compared with $29.4 million in the second quarter of 2012.

Fee revenue of $163 million increased $3.45 million, or 27%, from the second quarter of 2012, and for the first six months of 2013, totaled $29.1 million, an increase of $892,000, or 3%, from the first six months of 2012. The quarterly increase was due primarily to an increase in mortgage loan and related fees and gains from hedge ineffectiveness. Also contributing to the increase was a $1.37 million death benefit on a bank-owned life insurance policy as well as $468,000 in gains from the sale of low income housing credits. In addition, other fee revenue included an increase of $489,000 related to customer derivative fees from our commercial loan swap program. The year-to-date increase in fee revenue resulted primarily from mortgage loan and related fees. For the second quarter of 2013, operating expenses of $48.8 million were up $4.51 million from the second quarter of 2012. The increase was primarily related to $3.30 million more in foreclosed property expense, driven by higher losses in conjunction with the classified asset sales. Higher salary and employee benefits accounted for $437,000 of the increase, and included severance costs of $1.56 million compared with $1.16 million a year ago. Professional fees increased $547,000 from the second quarter of 2012, due to legal costs and consulting services. For the six months ended June 30, 2013, operating expenses of $92.6 million were up $1.33 million from the same period of 2012, mainly due to the same factors that contributed to the quarterly increase. Management continues its efforts to reduce costs and improve operating efficiency.

Recent Developments

In June of 2013, United reversed $272 million of its deferred tax asset valuation allowance. The DTA valuation allowance recovery was the result of United's sustained profitability and improving credit quality that has led to significantly lower credit costs which provided positive objective evidence that outweighed the prior negative evidence and allowed United to reverse its valuation allowance. Also in June 2013, United sold classified assets which included performing classified loans, non-performing loans and foreclosed properties, and helped lower United's non-performing assets to $31.8 million as of June 30, 2013, or .44% of total assets.

Critical Accounting Policies

The accounting and reporting policies of United are in accordance with GAAP and conform to general practices within the banking industry. The more critical accounting and reporting policies include United's accounting for the allowance for loan losses, fair value measurements, and income taxes which involve the use of estimates and require significant judgments to be made by management. Different assumptions in the application of these policies could result in material changes in United's consolidated financial position or consolidated results of operations. See "Asset Quality and Risk Elements" herein for additional discussion of United's accounting methodologies related to the allowance for loan losses.

GAAP Reconciliation and Explanation

This Form 10-Q contains non-GAAP financial measures, which are performance measures determined by methods other than in accordance with GAAP. Such non-GAAP financial measures include, among others the following: taxable equivalent interest revenue, taxable equivalent net interest revenue, tangible book value per share, tangible equity to assets, tangible common equity to assets and tangible common equity to risk-weighted assets. Management uses these non-GAAP financial measures because it believes they are useful for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial results and credit trends, as well as comparison to financial results for prior periods. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled financial measures used by other companies. A reconciliation of these operating performance measures to GAAP performance measures is included in on the table on page 41.

Table 1 - Financial Highlights
Selected Financial Information
                                                                                                                          Second                For the Six
                                                        2013                                 2012                        Quarter                Months Ended                YTD
(in thousands, except per share                Second            First        Fourth         Third        Second        2013-2012                 June 30,               2013-2012
data; taxable equivalent)                     Quarter           Quarter       Quarter       Quarter       Quarter         Change                2013          2012        Change
INCOME SUMMARY
Interest revenue                             $   61,693        $  62,134     $  64,450     $  65,978     $  66,780                        $  123,827     $ 137,001
Interest expense                                  7,131            7,475         8,422         8,607         9,944                            14,606        21,301
  Net interest revenue                           54,562           54,659        56,028        57,371        56,836               (4 ) %      109,221       115,700          (6 ) %
Provision for loan losses                        48,500           11,000        14,000        15,500        18,000                            59,500        33,000
Fee revenue                                      16,312           12,826        14,761        13,764        12,867               27           29,138        28,246           3
  Total revenue                                  22,374           56,485        56,789        55,635        51,703                            78,859       110,946
Operating expenses                               48,823           43,770        50,726        44,783        44,310               10           92,593        91,265           1
(Loss) income before income taxes               (26,449 )         12,715         6,063        10,852         7,393                           (13,734 )      19,681
Income tax (benefit) expense                   (256,413 )            950           802           284           894                          (255,463 )       1,654
Net income                                      229,964           11,765         5,261        10,568         6,499                           241,729        18,027
Preferred dividends and discount accretion        3,055            3,052         3,045         3,041         3,032                             6,107         6,062
Net income available to common
  shareholders                               $  226,909        $   8,713     $   2,216     $   7,527     $   3,467                        $  235,622     $  11,965

PERFORMANCE MEASURES
 Per common share:
  Diluted income                             $     3.90        $     .15     $     .04     $     .13     $     .06                        $     4.05     $     .21
  Book value                                      10.90             6.85          6.67          6.75          6.61               65            10.90          6.61          65
  Tangible book value (2)                         10.82             6.76          6.57          6.64          6.48               67            10.82          6.48          67

 Key performance ratios:
  Return on equity (1)(3)                        197.22 %           8.51 %        2.15 %        7.43 %        3.51 %                          108.34 %        6.12 %
  Return on assets (3)                            13.34              .70           .31           .63           .37                              7.09           .52
  Net interest margin (3)                          3.31             3.38          3.44          3.60          3.43                              3.34          3.48
  Efficiency ratio                                68.89            64.97         71.69         62.95         63.84                             66.98         63.56
  Equity to assets                                11.57  (4)        8.60          8.63          8.75          8.33                              8.90          8.26
  Tangible equity to assets (2)                   11.53  (4)        8.53          8.55          8.66          8.24                              8.83          8.16
  Tangible common equity to assets (2)             8.79  (4)        5.66          5.67          5.73          5.45                              5.99          5.39
  Tangible common equity to risk-
    weighted assets (2)                           13.16             8.45          8.26          8.44          8.37                             13.16          8.37

ASSET QUALITY *
 Non-performing loans                        $   27,864        $  96,006     $ 109,894     $ 115,001     $ 115,340                        $   27,864     $ 115,340
 Foreclosed properties                            3,936           16,734        18,264        26,958        30,421                             3,936        30,421
  Total non-performing assets (NPAs)             31,800          112,740       128,158       141,959       145,761                            31,800       145,761
 Allowance for loan losses                       81,845          105,753       107,137       107,642       112,705                            81,845       112,705
 Net charge-offs                                 72,408           12,384        14,505        20,563        18,896                            84,792        34,763
 Allowance for loan losses to loans                1.95  %          2.52 %        2.57 %        2.60 %        2.74 %                            1.95 %        2.74 %
 Net charge-offs to average loans (3)              6.87             1.21          1.39          1.99          1.85                              4.07          1.70
 NPAs to loans and foreclosed properties            .76             2.68          3.06          3.41          3.51                               .76          3.51
 NPAs to total assets                               .44             1.65          1.88          2.12          2.16                               .44          2.16

AVERAGE BALANCES ($ in millions)
 Loans                                       $    4,253        $   4,197     $   4,191     $   4,147     $   4,156                2       $    4,225     $   4,162           2
 Investment securities                            2,161            2,141         2,088         1,971         2,145                1            2,151         2,149           -
 Earning assets                                   6,608            6,547         6,482         6,346         6,665               (1 )          6,578         6,682          (2 )
 Total assets                                     6,915            6,834         6,778         6,648         6,993               (1 )          6,875         7,019          (2 )
 Deposits                                         5,983            5,946         5,873         5,789         5,853                2            5,964         5,940           -
 Shareholders' equity                               636              588           585           582           583                9              612           580           6
 Common shares - basic (thousands)               58,141           58,081        57,971        57,880        57,840                            58,111        57,803
 Common shares - diluted (thousands)             58,141           58,081        57,971        57,880        57,840                            58,111        57,803

AT PERIOD END ($ in millions)
 Loans *                                     $    4,189        $   4,194     $   4,175     $   4,138     $   4,119                2       $    4,189     $   4,119           2
 Investment securities                            2,152            2,141         2,079         2,025         1,984                8            2,152         1,984           8
 Total assets                                     7,163            6,849         6,802         6,699         6,737                6            7,163         6,737           6
 Deposits                                         6,012            6,026         5,952         5,823         5,822                3            6,012         5,822           3
 Shareholders' equity                               829              592           581           585           576               44              829           576          44
 Common shares outstanding (thousands)           57,831           57,767        57,741        57,710        57,641                            57,831        57,641

(1) Net income available to common shareholders, which is net of preferred stock dividends, divided by average realized common equity, which excludes accumulated other comprehensive income (loss). (2) Excludes effect of acquisition related intangibles and associated amortization. (3) Annualized. (4) Calculated as of period-end to reflect the full impact of the reversal of the valuation allowance on United's deferred tax asset.

* Excludes loans and foreclosed properties covered by loss sharing agreements with the FDIC. Table 1 Continued - Non-GAAP Performance Measures Reconciliation

Selected Financial Information
                                                          2013                              2012                          For the Six
(in thousands, except per share                    Second        First        Fourth       Third        Second            Months Ended
data; taxable equivalent)                         Quarter       Quarter      Quarter      Quarter      Quarter         2013          2012

Interest revenue reconciliation
Interest revenue - taxable equivalent            $   61,693     $ 62,134     $ 64,450     $ 65,978     $ 66,780     $  123,827     $ 137,001
Taxable equivalent adjustment                          (368 )       (365 )       (381 )       (419 )       (444 )         (733 )        (890 )
  Interest revenue (GAAP)                        $   61,325     $ 61,769     $ 64,069     $ 65,559     $ 66,336     $  123,094     $ 136,111

Net interest revenue reconciliation
Net interest revenue - taxable equivalent        $   54,562     $ 54,659     $ 56,028     $ 57,371     $ 56,836     $  109,221     $ 115,700
Taxable equivalent adjustment                          (368 )       (365 )       (381 )       (419 )       (444 )         (733 )        (890 )
  Net interest revenue (GAAP)                    $   54,194     $ 54,294     $ 55,647     $ 56,952     $ 56,392     $  108,488     $ 114,810

Total revenue reconciliation
Total operating revenue                          $   22,374     $ 56,485     $ 56,789     $ 55,635     $ 51,703     $   78,859     $ 110,946
Taxable equivalent adjustment                          (368 )       (365 )       (381 )       (419 )       (444 )         (733 )        (890 )
  Total revenue (GAAP)                           $   22,006     $ 56,120     $ 56,408     $ 55,216     $ 51,259     $   78,126     $ 110,056

(Loss) income before taxes reconciliation
(Loss) income before taxes                       $  (26,449 )   $ 12,715     $  6,063     $ 10,852     $  7,393     $  (13,734 )   $  19,681
Taxable equivalent adjustment                          (368 )       (365 )       (381 )       (419 )       (444 )         (733 )        (890 )
  (Loss) income before taxes (GAAP)              $  (26,817 )   $ 12,350     $  5,682     $ 10,433     $  6,949     $  (14,467 )   $  18,791

Income tax (benefit) expense reconciliation
Income tax (benefit) expense                     $ (256,413 )   $    950     $    802     $    284     $    894     $ (255,463 )   $   1,654
Taxable equivalent adjustment                          (368 )       (365 )       (381 )       (419 )       (444 )         (733 )        (890 )
  Income tax (benefit) expense (GAAP)            $ (256,781 )   $    585     $    421     $   (135 )   $    450     $ (256,196 )   $     764

Book value per common share reconciliation
Tangible book value per common share             $    10.82     $   6.76     $   6.57     $   6.64     $   6.48     $    10.82     $    6.48
Effect of goodwill and other intangibles                .08          .09          .10          .11          .13            .08           .13
  Book value per common share (GAAP)             $    10.90     $   6.85     $   6.67     $   6.75     $   6.61     $    10.90     $    6.61

Average equity to assets reconciliation
Tangible common equity to assets                       8.79 %       5.66 %       5.67 %       5.73 %       5.45 %         5.99 %        5.39 %
Effect of preferred equity                             2.74         2.87         2.88         2.93         2.79           2.84          2.77
  Tangible equity to assets                           11.53         8.53         8.55         8.66         8.24           8.83          8.16
Effect of goodwill and other intangibles                .04          .07          .08          .09          .09            .07           .10
  Equity to assets (GAAP)                             11.57 %       8.60 %       8.63 %       8.75 %       8.33 %         8.90 %        8.26 %

Tangible common equity to risk-weighted assets reconciliation
Tangible common equity to risk-weighted assets        13.16 %       8.45 %       8.26 %       8.44 %       8.37 %        13.16 %        8.37 %
Effect of other comprehensive income                    .29          .49          .51          .36          .28            .29           .28
Effect of deferred tax limitation                     (4.99 )          -            -            -            -          (4.99 )           -
Effect of trust preferred                              1.11         1.15         1.15         1.17         1.19           1.11          1.19
Effect of preferred equity                             4.11         4.22         4.24         4.29         4.35           4.11          4.35
  Tier I capital ratio (Regulatory)                   13.68 %      14.31 %      14.16 %      14.26 %      14.19 %        13.68 %       14.19 %

Results of Operations

. . .

  Add UCBI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for UCBI - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.