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 11-Aug-2014All Recent SEC Filings

Show all filings for UNITED COMMUNITY BANKS INC

Form 10-Q for UNITED COMMUNITY BANKS INC


11-Aug-2014

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, 2013 as well as the following factors:

? the condition of the general business and economic environment;

? the results of our most recent internal credit stress test may not accurately predict the impact on our financial condition if the economy were to deteriorate;

? our ability to maintain profitability;

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

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

? 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 lack of geographic diversification;

? 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;

? our accounting and reporting policies;

? 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;

? our reliance on third parties to provide key components of our business infrastructure;

? 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 Wall Street Reform and Consumer Protection Act of 2010 and related regulations;

? changes in laws and regulations or failures to comply with such laws and regulations;

? changes in regulatory capital requirements;

? 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; and

? 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 June 30, 2014, United had total consolidated assets of $7.35 billion, total loans of $4.41 billion, total deposits of $6.16 billion, and shareholders' equity of $722 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 28 "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 40.

United reported net income of $16.4 million for the second quarter of 2014. This compared to net income of $230 million for the second quarter of 2013. Diluted earnings per common share were $.27 for the second quarter of 2014, compared to diluted earnings per common share of $3.90 for the second quarter of 2013.

For the six months ended June 30, 2014, United reported net income of $31.8 million. This compared to net income of $242 million for the first six months of 2013. Diluted earnings per common share were $.52 for the six months ended June 30, 2014, compared to diluted earnings per common share of $4.05 for the six months ended June 30, 2013.

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 second quarter of 2013 which was more than offset by a $272 million credit to income tax expense resulting from the removal of most of the valuation allowance on United's deferred tax assets.

Taxable equivalent net interest revenue was $55.0 million for the second quarter of 2014, compared to $54.9 million for the same period of 2013. Net interest margin decreased from 3.33% for the three months ended June 30, 2013 to 3.21% for the same period in 2014. For the six months ended June 30, 2014, taxable equivalent net interest revenue was $109 million compared to $110 million for the same period of 2013. Net interest margin decreased from 3.35% for the six months ended June 30, 2013 to 3.21% for the same period in 2014. The margin decreases for the second quarter and year-to-date were driven by pricing pressures on new and renewed loans and resulting lower yields on loans.

United's provision for loan losses was $2.20 million for the three months ended June 30, 2014, compared to $48.5 million for the same period in 2013. Net charge-offs for the second quarter of 2014 were $4.18 million, compared to $72.4 million for the second quarter of 2013. For the six months ended June 30, 2014, United's provision for loan losses was $4.70 million, compared to $59.5 million for the same period of 2013. The sales of approximately $151 million in classified loans in the second quarter of 2013 resulted in a high level of charge-offs and provision for loan losses in the prior year. Following this accelerated disposition of classified assets in the second quarter of 2013, as well as generally improving credit conditions, United has experienced a lower level of net charge-offs and provision for loan losses beginning with the third quarter of 2013 through the second quarter of 2014.

As of June 30, 2014, United's allowance for loan losses was $73.2 million, or 1.66% of loans, compared to $81.8 million, or 1.95% of loans, at June 30, 2013. Nonperforming assets of $23.7 million decreased to .32% of total assets at June 30, 2014 from .44% as of June 30, 2013, due to ongoing improving credit conditions. During the second quarter of 2014, $9.53 million in loans were placed on nonaccrual compared with $13.2 million in the second quarter of 2013.

Fee revenue of $14.1 million decreased $1.80 million, or 11%, from the second quarter of 2013. The decrease was due primarily to a $1.13 million, or 37%, decrease in mortgage loan and related fees, a $1.33 million decrease in other fee revenue resulting from a non-recurring gain on a bank-owned life insurance policy in the second quarter of 2013 and a $74,000 decrease in customer derivative fees. Mortgage refinancing activity continued to decline with rising long-term interest rates. These revenue decreases were offset by a $182,000, or 17%, increase in brokerage fees and a $555,000, or 7%, increase in service charges and fees. For the first six months of 2014, fee revenue of $26.3 million was down $2.54 million, or 9%, from the same period in 2013, primarily due to the same factors resulting in the quarterly decrease.

For the second quarter of 2014, operating expenses of $40.5 million were down $8.29 million from the second quarter of 2013. The decrease was primarily related to a decrease of $5.05 million in foreclosed property expense, driven by a lower amount of foreclosed properties following the classified asset sales in the second quarter of 2013. FDIC assessments and regulatory charges decreased $1.08 million from the second quarter of 2013 to the second quarter of 2014. For the six months ended June 30, 2014, operating expenses of $79.6 million were down $13.0 million from the same period, mainly due to the same factors that caused the quarterly decrease. Management continues its efforts to reduce costs and improve operating efficiency.

Recent Developments

On June 26, 2014, United completed the purchase of Business Carolina, Inc., an SBA/USDA lending operation in Columbia, South Carolina. The purchase resulted in the addition of approximately $26 million in SBA/USDA loans to United's portfolio.

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 40.

Results of Operations

United reported net income of $16.4 million for the second quarter of 2014. This compared to net income of $230 million for the same period in 2013. For the second quarter of 2014, diluted earnings per common share were $.27 compared to $3.90 for the second quarter of 2013. For the six months ended June 30, 2014, United reported net income of $31.8 million compared to net income of $242 million for the same period in 2013. Net income and earnings per share for the three and six months ended June 30, 2013 were elevated by the recognition of United's substantial tax benefits with the reversal of the deferred tax asset valuation allowance. The effect of the tax benefit on net income was partially offset by higher net charge-offs and a pre-tax loss resulting from the accelerated disposition of classified assets in the second quarter of 2013.

Table 1 - Financial Highlights
Selected Financial Information
                                                                                                            Second              For the Six
                                           2014                              2013                          Quarter              Months Ended               YTD
(in thousands, except per share     Second       First        Fourth       Third         Second           2014-2013               June 30,              2014-2013
data; taxable equivalent)          Quarter      Quarter      Quarter      Quarter       Quarter             Change          2014           2013           Change
INCOME SUMMARY
Interest revenue                   $ 61,783     $ 60,495     $ 61,695     $ 61,426     $   62,088                         $ 122,278     $  124,202
Interest expense                      6,833        6,326        5,816        7,169          7,157                            13,159         14,697
Net interest revenue                 54,950       54,169       55,879       54,257         54,931                   - %     109,119        109,505                - %
Provision for credit losses           2,200        2,500        3,000        3,000         48,500                             4,700         59,500
Fee revenue                          14,143       12,176       13,519       14,225         15,943                 (11 )      26,319         28,854               (9 )
Total revenue                        66,893       63,845       66,398       65,482         22,374                           130,738         78,859
Operating expenses                   40,532       39,050       41,614       40,097         48,823                 (17 )      79,582         92,593              (14 )
Income (loss) before income
taxes                                26,361       24,795       24,784       25,385        (26,449 )                          51,156        (13,734 )
Income tax expense (benefit)         10,004        9,395        8,873        9,885       (256,413 )                          19,399       (255,463 )
Net income                           16,357       15,400       15,911       15,500        229,964                            31,757        241,729
Preferred dividends and discount
accretion                                 -          439        2,912        3,059          3,055                               439          6,107
Net income available to
common shareholders                $ 16,357     $ 14,961     $ 12,999     $ 12,441     $  226,909                         $  31,318     $  235,622

PERFORMANCE MEASURES
 Per common share:
  Diluted income                   $    .27     $    .25     $    .22     $    .21     $     3.90                         $     .52     $     4.05
  Book value                          11.94        11.66        11.30        10.99          10.90                  10         11.94          10.90               10
  Tangible book value (2)             11.91        11.63        11.26        10.95          10.82                  10         11.91          10.82               10

 Key performance ratios:
  Return on common equity (1)(3)       8.99 %       8.64 %       7.52 %       7.38 %       197.22 %                            8.82 %       108.34 %
  Return on assets (3)                  .88          .85          .86          .86          13.34                               .87           7.09
  Net interest margin (3)              3.21         3.21         3.26         3.26           3.33                              3.21           3.35
  Efficiency ratio                    58.65        59.05        60.02        58.55          68.89                             58.85          66.98
  Equity to assets                     9.61         9.52        11.62        11.80          11.57  (4)                         9.56           8.90
  Tangible equity to assets (2)        9.58         9.50        11.59        11.76          11.53  (4)                         9.54           8.83
  Tangible common equity to
assets (2)                             9.58         9.22         8.99         9.02           8.79  (4)                         9.40           5.99
  Tangible common equity to
risk-weighted assets (2)              13.92        13.63        13.18        13.34          13.16                             13.92          13.16

ASSET QUALITY *
 Non-performing loans              $ 20,724     $ 25,250     $ 26,819     $ 26,088     $   27,864                         $  20,724     $   27,864
 Foreclosed properties                2,969        5,594        4,221        4,467          3,936                             2,969          3,936
  Total non-performing assets
(NPAs)                               23,693       30,844       31,040       30,555         31,800                            23,693         31,800
 Allowance for loan losses           73,248       75,223       76,762       80,372         81,845                            73,248         81,845
 Net charge-offs                      4,175        4,039        4,445        4,473         72,408                             8,214         84,792
 Allowance for loan losses to
loans                                  1.66 %       1.73 %       1.77 %       1.88 %         1.95 %                            1.66 %         1.95 %
 Net charge-offs to average
loans (3)                               .38          .38          .41          .42           6.87                               .38           4.07
 NPAs to loans and foreclosed
properties                              .54          .71          .72          .72            .76                               .54            .76
 NPAs to total assets                   .32          .42          .42          .42            .44                               .32            .44

AVERAGE BALANCES ($ in millions)
 Loans                             $  4,376     $  4,356     $  4,315     $  4,250     $    4,253                   3     $   4,366     $    4,225                3
 Investment securities                2,326        2,320        2,280        2,178          2,161                   8         2,323          2,151                8
 Earning assets                       6,861        6,827        6,823        6,615          6,608                   4         6,844          6,578                4
 Total assets                         7,418        7,384        7,370        7,170          6,915                   7         7,401          6,875                8
 Deposits                             6,187        6,197        6,190        5,987          5,983                   3         6,192          5,964                4
 Shareholders' equity                   713          703          856          846            636                  12           708            612               16
 Common shares - basic
(thousands)                          60,712       60,059       59,923       59,100         58,141                            60,386         58,111
 Common shares - diluted
(thousands)                          60,714       60,061       59,925       59,202         58,141                            60,388         58,111

AT PERIOD END ($ in millions)
 Loans *                           $  4,410     $  4,356     $  4,329     $  4,267     $    4,189                   5     $   4,410     $    4,189                5
 Investment securities                2,190        2,302        2,312        2,169          2,152                   2         2,190          2,152                2
 Total assets                         7,352        7,398        7,425        7,243          7,163                   3         7,352          7,163                3
 Deposits                             6,164        6,248        6,202        6,113          6,012                   3         6,164          6,012                3
 Shareholders' equity                   722          704          796          852            829                 (13 )         722            829              (13 )
 Common shares outstanding
(thousands)                          60,139       60,092       59,432       59,412         57,831                            60,139         57,831

(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

                                   2014                              2013                        For the Six Months
(in thousands, except
per share                   Second       First        Fourth       Third         Second            Ended June 30,
data; taxable
equivalent)                Quarter      Quarter      Quarter      Quarter       Quarter         2014           2013
Interest revenue
reconciliation
Interest revenue -
taxable equivalent         $ 61,783     $ 60,495     $ 61,695     $ 61,426     $   62,088     $ 122,278     $  124,202
Taxable equivalent
adjustment                     (377 )       (357 )       (380 )       (370 )         (368 )        (734 )         (733 )
  Interest revenue
(GAAP)                     $ 61,406     $ 60,138     $ 61,315     $ 61,056     $   61,720     $ 121,544     $  123,469

Net interest revenue
reconciliation
Net interest revenue -
taxable equivalent         $ 54,950     $ 54,169     $ 55,879     $ 54,257     $   54,931     $ 109,119     $  109,505
Taxable equivalent
adjustment                     (377 )       (357 )       (380 )       (370 )         (368 )        (734 )         (733 )
  Net interest revenue
(GAAP)                     $ 54,573     $ 53,812     $ 55,499     $ 53,887     $   54,563     $ 108,385     $  108,772

Total revenue
reconciliation
Total operating revenue    $ 66,893     $ 63,845     $ 66,398     $ 65,482     $   22,374     $ 130,738     $   78,859
Taxable equivalent
adjustment                     (377 )       (357 )       (380 )       (370 )         (368 )        (734 )         (733 )
  Total revenue (GAAP)     $ 66,516     $ 63,488     $ 66,018     $ 65,112     $   22,006     $ 130,004     $   78,126

Income (loss) before
taxes reconciliation
Income (loss) before
taxes                      $ 26,361     $ 24,795     $ 24,784     $ 25,385     $  (26,449 )   $  51,156     $  (13,734 )
Taxable equivalent
adjustment                     (377 )       (357 )       (380 )       (370 )         (368 )        (734 )         (733 )
  Income (loss) before
taxes (GAAP)               $ 25,984     $ 24,438     $ 24,404     $ 25,015     $  (26,817 )   $  50,422     $  (14,467 )

Income tax expense
(benefit) reconciliation
Income tax expense
(benefit)                  $ 10,004     $  9,395     $  8,873     $  9,885     $ (256,413 )   $  19,399     $ (255,463 )
Taxable equivalent
adjustment                     (377 )       (357 )       (380 )       (370 )         (368 )        (734 )         (733 )
  Income tax expense
(benefit) (GAAP)           $  9,627     $  9,038     $  8,493     $  9,515     $ (256,781 )   $  18,665     $ (256,196 )

Book value per common
share reconciliation
Tangible book value per
common share               $  11.91     $  11.63     $  11.26     $  10.95     $    10.82     $   11.91     $    10.82
Effect of goodwill and
other intangibles               .03          .03          .04          .04            .08           .03            .08
  Book value per common
share (GAAP)               $  11.94     $  11.66     $  11.30     $  10.99     $    10.90     $   11.94     $    10.90

Average equity to assets
reconciliation
Tangible common equity
to assets                      9.58 %       9.22 %       8.99 %       9.02 %         8.79 %        9.40 %         5.99 %
Effect of preferred
equity                            -          .28         2.60         2.74           2.74           .14           2.84
  Tangible equity to
assets                         9.58         9.50        11.59        11.76          11.53          9.54           8.83
Effect of goodwill and
other intangibles               .03          .02          .03          .04            .04           .02            .07
  Equity to assets
(GAAP)                         9.61 %       9.52 %      11.62 %      11.80 %        11.57 %        9.56 %         8.90 %

Tangible common equity to risk-weighted assets
reconciliation
Tangible common equity
to risk-weighted assets       13.92 %      13.63 %      13.18 %      13.34 %        13.16 %       13.92 %        13.16 %
Effect of other
comprehensive income            .53          .36          .39          .49            .29           .53            .29
Effect of deferred tax
limitation                    (3.74 )      (3.92 )      (4.26 )      (4.72 )        (4.99 )       (3.74 )        (4.99 )
Effect of trust
preferred                      1.04         1.03         1.04         1.09           1.11          1.04           1.11
Effect of preferred
equity                            -            -         2.39         4.01           4.11             -           4.11
  Tier I capital ratio
(Regulatory)                  11.75 %      11.10 %      12.74 %      14.21 %        13.68 %       11.75 %        13.68 %

Net Interest Revenue (Taxable Equivalent)

Net interest revenue (the difference between the interest earned on assets and the interest paid on deposits and borrowed funds) is the single largest component of total revenue. United actively manages this revenue source to provide optimal levels of revenue while balancing interest rate, credit and liquidity risks. Taxable equivalent net interest revenue for the three months ended June 30, 2014 was $55.0 million, equal to the second quarter of 2013. Lower revenue on the loan portfolio and higher costs on borrowed funds . . .

  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.