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 7-Nov-2013All Recent SEC Filings

Show all filings for UNITED COMMUNITY BANKS INC

Form 10-Q for UNITED COMMUNITY BANKS INC


7-Nov-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, 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 and in our Quarterly Report on Form 10-Q for the period ended June 30, 2013, 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;

? 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;

? 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; and

? the risk that we could be subject to changes in tax laws, regulations and interpretations or challenges to our income tax provision.

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 September 30, 2013, United had total consolidated assets of $7.24 billion and total loans of $4.27 billion (excluding the loans acquired from Southern Community Bank ("SCB") that are covered by loss sharing agreements). United also had total deposits of $6.11 billion and shareholders' equity of $852 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 42.

United reported net income of $15.5 million for the third quarter of 2013. This compared to net income of $10.6 million for the third quarter of 2012. Diluted earnings per common share was $.21 for the third quarter of 2013, compared to diluted earnings per common share of $.13 for the third quarter of 2012.

For the nine months ended September 30, 2013, United reported net income of $257 million. This compared to net income of $28.6 million for the first nine months of 2012. Diluted earnings per common share was $4.24 for the nine months ended September 30, 2013, compared to diluted earnings per common share of $.34 for the nine months ended September 30, 2012.

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 that took place in the second quarter. The effects of these two events on the income statement were significant increases 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 $54.3 million for the third quarter of 2013, compared to $57.4 million for the same period of 2012. The decrease in net interest revenue was primarily the result of continued 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 as well as United's efforts to purchase floating rate securities to minimize exposure to rising interest rates. In addition, lower loan yields reflected low introductory rates on new retail loan offerings. Net interest margin decreased from 3.60% for the three months ended September 30, 2012 to 3.26% for the same period in 2013. For the nine months ended September 30, 2013, taxable equivalent net interest revenue was $164 million, compared to $173 million for the same period of 2012. Net interest margin decreased from 3.52% for the nine months ended September 30, 2012, to 3.32% for the same period in 2013.

United's provision for loan losses was $3.00 million for the three months ended September 30, 2013, compared to $15.5 million for the same period in 2012. Net charge-offs for the third quarter of 2013 were $4.47 million, compared to $20.6 million for the third quarter of 2012. For the nine months ended September 30, 2013, United's provision for loan losses was $62.5 million, compared to $48.5 million for the same period of 2012. The sales of approximately $151 million in classified loans in the second quarter of 2013 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 during the second quarter of 2013.

As of September 30, 2013, United's allowance for loan losses was $80.4 million, or 1.88% of loans, compared to $108 million, or 2.60% of loans, at September 30, 2012. Nonperforming assets of $30.6 million, which excludes assets that are covered by loss sharing agreements with the FDIC, decreased to .42% of total assets at September 30, 2013 from 2.12% as of September 30, 2012, mostly due to the second quarter 2013 classified asset sales. During the third quarter of 2013, $9.96 million in loans were placed on nonaccrual compared with $30.5 million in the third quarter of 2012.

Fee revenue of $14.1 million increased $380,000, or 3%, from the third quarter of 2012, and for the first nine months of 2013, totaled $43.3 million, an increase of $1.27 million, or 3%, from the first nine months of 2012. The quarterly increase was due primarily to an increase in debit card and interchange fees and an increase in brokerage fees. In addition, other fee revenue included an increase of $164,000 related to customer derivative fees from our commercial loan swap program. These increases were offset by a $689,000 decrease in hedge ineffectiveness gains. The year-to-date increase in fee revenue resulted primarily from mortgage loan and related fees and brokerage fees.

For the third quarter of 2013, operating expenses of $40.1 million were down $4.69 million from the third quarter of 2012. The decrease was primarily related to a decrease of $3.51 million in foreclosed property expense, driven by decreased volume due to the classified asset sales in the second quarter of 2013. In addition, lower workout and collection costs resulted in lower other expense for the third quarter of 2013 compared to the same period in 2012. Professional fees increased $470,000 from the third quarter of 2012, due to consulting services related to corporate initiatives to increase revenue and improve operating efficiency. For the nine months ended September 30, 2013, operating expenses of $133 million were down $3.36 million from the same period of 2012, mainly due to the same factors that contributed to the quarterly decrease. Salaries and employee benefits decreased $1.02 million, or 1%, compared to the nine months ended September 30, 2012, primarily due to lower headcount. Management continues its efforts to reduce costs and improve operating efficiency.

Recent Developments

On August 12, 2013, Elm Ridge Offshore Master Fund, Ltd. and Elm Ridge Value Partners, L.P. (collectively, the "Elm Ridge Parties") elected to exercise warrants to purchase an aggregate 1,551,126 shares of United's common stock at the exercise price of $12.50 per share. United recognized net proceeds of approximately $19.4 million as a result of the exercise.

On August 12, 2013, upon completion of a public offering, United issued $34.6 million aggregate principal amount of its 6.00% Senior Notes due August 13, 2018 (the "Senior Notes"). On August 16, 2013, United completed an add-on public offering and issued an additional $5.42 million aggregate principal amount of the Senior Notes. As a result of these issuances, $40 million aggregate principal amount of the Senior Notes is issued and outstanding. Interest on the Senior Notes is payable semi-annually on February 13 and August 13, with the first such payment due on February 13, 2014. The 6.00% interest rate on the Senior Notes was determined by an auction process held before the original issuance. United may elect to redeem the Senior Notes, in whole or in part, on any interest payment date on or after August 13, 2015 at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest. The proceeds from the Senior Note issuances were used to redeem $35 million aggregate principal amount of United's Subordinated Step-Up Notes due September 30, 2015 (the "Subordinated Notes") at a price equal to 100% of the principal amount plus accrued and unpaid interest. As of the redemption date, the interest rate on the Subordinated Notes was 7.50%.

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 42.

                         Table 1 - Financial Highlights
                         Selected Financial Information


                                                                                                    Third                For the Nine
                                           2013                                2012                Quarter               Months Ended               YTD
(in thousands, except
per share                   Third        Second           First         Fourth        Third       2013-2012             September 30,            2013-2012
data; taxable
equivalent)               Quarter       Quarter          Quarter       Quarter       Quarter        Change            2013          2012           Change
INCOME SUMMARY
Interest revenue          $ 61,363     $   61,693       $  62,134     $  64,450     $  65,978                      $  185,190     $ 202,979
Interest expense             7,025          7,131           7,475         8,422         8,607                          21,631        29,908
Net interest revenue        54,338         54,562          54,659        56,028        57,371             (5 ) %      163,559       173,071              (5 ) %
Provision for loan
losses                       3,000         48,500          11,000        14,000        15,500                          62,500        48,500
Fee revenue                 14,144         16,312          12,826        14,761        13,764              3           43,282        42,010               3
Total revenue               65,482         22,374          56,485        56,789        55,635                         144,341       166,581
Operating expenses          40,097         48,823          43,770        50,726        44,783            (10 )        132,690       136,048              (2 )
Income (loss) before
income taxes                25,385        (26,449 )        12,715         6,063        10,852            134           11,651        30,533             (62 )
Income tax expense
(benefit)                    9,885       (256,413 )           950           802           284                        (245,578 )       1,938
Net income                  15,500        229,964          11,765         5,261        10,568             47          257,229        28,595             800
Preferred dividends and
discount accretion           3,059          3,055           3,052         3,045         3,041                           9,166         9,103
Net income available to
common shareholders       $ 12,441     $  226,909       $   8,713     $   2,216     $   7,527             65       $  248,063     $  19,492           1,173

PERFORMANCE MEASURES
 Per common share:
  Diluted income          $    .21     $     3.90       $     .15     $     .04     $     .13             62       $     4.24     $     .34           1,147
  Book value                 10.99          10.90            6.85          6.67          6.75             63            10.99          6.75              63
  Tangible book value
(2)                          10.95          10.82            6.76          6.57          6.64             65            10.95          6.64              65

 Key performance
ratios:
  Return on equity
(1)(3)                        7.38 %       197.22 %          8.51 %        2.15 %        7.43 %                         64.29 %        6.57 %
  Return on assets (3)         .86          13.34             .70           .31           .63                            4.93           .53
  Net interest margin
(3)                           3.26           3.31            3.38          3.44          3.60                            3.32          3.52
  Efficiency ratio           58.55          68.89           64.97         71.69         62.95                           64.19         63.36
  Equity to assets           11.80          11.57 (4)        8.60          8.63          8.75                            9.91          8.42
  Tangible equity to
assets (2)                   11.76          11.53 (4)        8.53          8.55          8.66                            9.85          8.32
  Tangible common
equity to assets (2)          9.02           8.79 (4)        5.66          5.67          5.73                            7.04          5.50
  Tangible common
equity to risk-
    weighted assets (2)      13.34          13.16            8.45          8.26          8.44                           13.34          8.44

ASSET QUALITY *
 Non-performing loans     $ 26,088     $   27,864       $  96,006     $ 109,894     $ 115,001                      $   26,088     $ 115,001
 Foreclosed properties       4,467          3,936          16,734        18,264        26,958                           4,467        26,958
  Total non-performing
assets (NPAs)               30,555         31,800         112,740       128,158       141,959                          30,555       141,959
 Allowance for loan
losses                      80,372         81,845         105,753       107,137       107,642                          80,372       107,642
 Net charge-offs             4,473         72,408          12,384        14,505        20,563                          89,265        55,326
 Allowance for loan
losses to loans               1.88 %         1.95  %         2.52 %        2.57 %        2.60 %                          1.88 %        2.60 %
 Net charge-offs to
average loans (3)              .42           6.87            1.21          1.39          1.99                            2.84          1.80
 NPAs to loans and
foreclosed properties          .72            .76            2.68          3.06          3.41                             .72          3.41
 NPAs to total assets          .42            .44            1.65          1.88          2.12                             .42          2.12

AVERAGE BALANCES ($ in
millions)
 Loans                    $  4,250     $    4,253       $   4,197     $   4,191     $   4,147              2       $    4,234     $   4,157               2
 Investment securities       2,178          2,161           2,141         2,088         1,971             11            2,160         2,089               3
 Earning assets              6,615          6,608           6,547         6,482         6,346              4            6,590         6,569               -
 Total assets                7,170          6,915           6,834         6,778         6,648              8            6,974         6,894               1
 Deposits                    5,987          5,983           5,946         5,873         5,789              3            5,972         5,890               1
 Shareholders' equity          846            636             588           585           582             45              691           580              19
 Common shares - basic
(thousands)                 59,100         58,141          58,081        57,971        57,880                          58,443        57,826
 Common shares -
diluted (thousands)         59,202         58,141          58,081        57,971        57,880                          58,444        57,826

AT PERIOD END ($ in
millions)
 Loans *                  $  4,267     $    4,189       $   4,194     $   4,175     $   4,138              3       $    4,267     $   4,138               3
 Investment securities       2,169          2,152           2,141         2,079         2,025              7            2,169         2,025               7
 Total assets                7,243          7,163           6,849         6,802         6,699              8            7,243         6,699               8
 Deposits                    6,113          6,012           6,026         5,952         5,823              5            6,113         5,823               5
 Shareholders' equity          852            829             592           581           585             46              852           585              46
 Common shares
outstanding (thousands)     59,412         57,831          57,767        57,741        57,710                          59,412        57,710

(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.

* 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
(in thousands,                                                                            For the Nine Months
except per share      Third         Second        First        Fourth       Third         Ended September 30,
data; taxable
equivalent)          Quarter       Quarter       Quarter      Quarter      Quarter         2013          2012

Interest revenue
reconciliation
Interest revenue -
taxable equivalent   $ 61,363     $   61,693     $ 62,134     $ 64,450     $ 65,978     $  185,190     $ 202,979
Taxable equivalent
adjustment               (370 )         (368 )       (365 )       (381 )       (419 )       (1,103 )      (1,309 )
  Interest revenue
(GAAP)               $ 60,993     $   61,325     $ 61,769     $ 64,069     $ 65,559     $  184,087     $ 201,670

Net interest
revenue
reconciliation
Net interest
revenue - taxable
equivalent           $ 54,338     $   54,562     $ 54,659     $ 56,028     $ 57,371     $  163,559     $ 173,071
Taxable equivalent
adjustment               (370 )         (368 )       (365 )       (381 )       (419 )       (1,103 )      (1,309 )
  Net interest
revenue (GAAP)       $ 53,968     $   54,194     $ 54,294     $ 55,647     $ 56,952     $  162,456     $ 171,762

Total revenue
reconciliation
Total operating
revenue              $ 65,482     $   22,374     $ 56,485     $ 56,789     $ 55,635     $  144,341     $ 166,581
Taxable equivalent
adjustment               (370 )         (368 )       (365 )       (381 )       (419 )       (1,103 )      (1,309 )
  Total revenue
(GAAP)               $ 65,112     $   22,006     $ 56,120     $ 56,408     $ 55,216     $  143,238     $ 165,272

Income (loss)
before taxes
reconciliation
Income (loss)
before taxes         $ 25,385     $  (26,449 )   $ 12,715     $  6,063     $ 10,852     $   11,651     $  30,533
Taxable equivalent
adjustment               (370 )         (368 )       (365 )       (381 )       (419 )       (1,103 )      (1,309 )
  Income (loss)
before taxes
(GAAP)               $ 25,015     $  (26,817 )   $ 12,350     $  5,682     $ 10,433     $   10,548     $  29,224

Income tax expense
(benefit)
reconciliation
Income tax expense
(benefit)            $  9,885     $ (256,413 )   $    950     $    802     $    284     $ (245,578 )   $   1,938
Taxable equivalent
adjustment               (370 )         (368 )       (365 )       (381 )       (419 )       (1,103 )      (1,309 )
  Income tax
expense (benefit)
(GAAP)               $  9,515     $ (256,781 )   $    585     $    421     $   (135 )   $ (246,681 )   $     629

Book value per
common share
reconciliation
Tangible book
value per common
share                $  10.95     $    10.82     $   6.76     $   6.57     $   6.64     $    10.95     $    6.64
Effect of goodwill
and other
intangibles               .04            .08          .09          .10          .11            .04           .11
  Book value per
common share
(GAAP)               $  10.99     $    10.90     $   6.85     $   6.67     $   6.75     $    10.99     $    6.75

Average equity to
assets
reconciliation
Tangible common
equity to assets         9.02 %         8.79 %       5.66 %       5.67 %       5.73 %         7.04 %        5.50 %
Effect of
preferred equity         2.74           2.74         2.87         2.88         2.93           2.81          2.82
  Tangible equity
to assets               11.76          11.53         8.53         8.55         8.66           9.85          8.32
Effect of goodwill
and other
intangibles               .04            .04          .07          .08          .09            .06           .10
  Equity to assets
(GAAP)                  11.80 %        11.57 %       8.60 %       8.63 %       8.75 %         9.91 %        8.42 %

Tangible common equity to risk-weighted
assets reconciliation
Tangible common
equity to
risk-weighted
assets                  13.34 %        13.16 %       8.45 %       8.26 %       8.44 %        13.34 %        8.44 %
Effect of other
comprehensive
income                    .49            .29          .49          .51          .36            .49           .36
Effect of deferred
tax limitation          (4.72 )        (4.99 )          -            -            -          (4.72 )           -
. . .
  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.