United Community Banks
Annual Report 2014

Plain-text annual report

2014 ANNUAL REPORT FINANCIAL HIGHLIGHTS (in millions, except per share data) CORE EARNINGS SUMMARY Net interest revenue Core fee revenue Core operating expenses Core earnings (pre-tax, pre-credit) Provision for loan losses Foreclosed property costs Gain on bank owned life insurance Severance costs Securities gains, net Loss from prepayment of borrowings Partial reversal of provision for litigation settlement Gain on sale of low income housing tax credits Return of overclaimed interest on loss sharing agreement Income tax benefit (expense) Net income Preferred dividends and discount accretion 2014 2013 $ 224.4 $ 219.6 54.9 162.1 117.2 (8.5) (.6) - (.6) 4.8 (4.4) 1.2 - (.5) (41.0) 67.6 (.4) 53.9 163.5 110.0 (65.5) (7.9) 1.5 (2.3) .2 - - .5 - 236.7 273.2 (12.1) Net income available to common shareholders $ 67.2 $ 261.1 PER COMMON SHARE Diluted earnings Cash dividends declared Book value Tangible book value PERFORMANCE MEASURES Net interest margin Return on assets Return on common equity Allowance for loan losses to loans Tier I common risk-based capital ratio Tier I risk-based capital ratio AS OF YEAR-END Loans Investment securities Total assets Deposits Shareholders’ equity Common shares outstanding (thousands) Beneficial owners Employees Banking offices 2 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T $ 1.11 $ 4.44 .11 12.20 12.15 - 11.30 11.26 3.26 % 3.30 % .91 9.17 1.53 11.06 12.06 3.86 46.72 1.77 9.31 12.74 $ 4,672 $ 4,329 2,198 7,567 6,327 740 60,259 15,450 1,536 103 2,312 7,425 6,202 796 59,432 16,650 1,506 102 LETTER TO SHAREHOLDERS 2014: MOVING FORWARD TO BUILD UNITED’S VALUE In my last annual report letter to you, I described 2013 as a transformative year for United. We had restored credit quality and eliminated restrictions that were inhibiting both our growth and the value of your investment in United. The exceptional work of our bankers during that year set the stage for United to move forward. And move forward we did. In 2014, we invested strategically in markets, talent, and products that, combined with our existing strengths, drove meaningful improvement in United’s financial performance and in our strategic positioning of the franchise to grow its value. Net income for the year totaled $67.6 million. We improved operating efficiency to 57.5 percent, and we achieved positive operating leverage, meaning that we grew revenue at a faster pace than our expenses. United now moves forward with strong capital ratios; we improved all credit measures and concluded 2014 with a return on assets close to our 1 percent goal. The board of directors restored cash dividends to our shareholders in the second quarter and increased it in the fourth quarter. We grew total loans by 8 percent during 2014—a tribute to solid work across our community banks. Loan production reached $1.5 billion with net growth of $343 million. This essentially means that loan pay-offs and competitive pressures required that we lend more than four dollars to grow the portfolio by one dollar. United bankers achieved substantial growth in a still-challenging economy while simultaneously diversifying our portfolio. Long-standing relationships that our bankers have maintained and strengthened, and the new relationships that they add each day, continually reinforce our reputation for outstanding service. That is what sets us apart and drives the value of our franchise. In 2014, we invested strategically in talent, markets, and products that, combined with our existing strengths, drove meaningful improvement in revenues and profitability. U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T | 3 A notable contributor to loan growth has been specialty lending, an area in which we have strategically invested over the past two years. In 2013, we rolled out health care, corporate and commercial real estate specialties, and in 2014, we added small business administration (SBA) and asset-based lending. Last April, we welcomed Rich Bradshaw as President of Specialized Lending. Rich is a 20-year specialized lending veteran who, among his many accomplishments, has increased SBA origination volume substantially for a number of the country’s largest lenders. In May, we added three more proven SBA leaders with a combined 51 years of experience. And in June, we acquired Business Carolina, Inc., a specialist in small business lending in Georgia, North Carolina, South Carolina, and Tennessee. The acquisition included approximately $25 million in loans, $6 million in other assets and a highly skilled team in this area of expertise. SBA lending appeals to small businesses because it provides access to more affordable credit due to backing from the Small Business Administration. For United, given our markets, it is an attractive loan growth source that diversifies the portfolio, produces fee revenue, and increases our value to local businesses and economies. Our pipeline of opportunities in this area is strong; in fact, we expect to be among the top 10 SBA lenders in the country in the foreseeable future. Total loans grew by 8 percent during 2014—a tribute to solid work across our community banks. Loan production was $1.5 billion with net growth of $343 million. Solid production from our community banks and the successful roll-out of specialized lending underscored our loan growth for 2014. Moving forward, we are excited about the long-term prospects of this strategically powerful combination of legacy and new platforms. I also want to recognize our bankers for something they continue to do extremely well; growing core deposits. These core deposits—checking, savings, and money market accounts—increased 7 percent, or $252 million, during 2014. Represented in this total are thousands of new United depositors, as well as increased business with existing customers. These dollars provide the foundation to fund loan growth, and are further testimony to the real relationship banking that our bankers practice every day. MARKETS In January 2015, we announced a plan to enhance our presence in the growing east Tennessee market through the acquisition of MoneyTree Corp. and its wholly-owned bank subsidiary First National Bank (FNB). FNB is an attractive franchise with a high-quality balance sheet and a service-oriented culture, similar to United’s. Its $425 million in assets and 10 branches will boost our share and presence in Knoxville, Cleveland, and other attractive markets along the Interstate-75 corridor. The synergies 4 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T between our banks provide for loan growth opportunities, cost savings, and higher earnings as we offer our expanded product line to FNB customers. In February 2015, we opened our first banking office in Greenville, South Carolina; another attractive market where Lynn Harton, our president and chief operating officer, has longstanding ties. We also added a loan production office in Midtown Atlanta to capitalize on opportunities as growth returns and accelerates in the city and region. TALENT We invested in back office functions, an important area in today’s more complex regulatory environment. In this regard, and upon David Shearrow’s retirement as chief risk officer at the end of January 2015, we separated responsibilities for our risk and credit management disciplines into two positions: chief risk officer and chief credit officer. This structure is consistent with those of other growth-oriented banks. Brad Miller became our chief risk officer, reporting to me, in tandem with his ongoing role as general counsel. We hired veteran credit manager Rob Edwards as chief credit officer, who reports to Lynn Harton. Rob has 25 years of experience in credit management including commercial credit approval, credit risk analytics, and credit policy. 2014-2015 ACCOLADES J.D. Power ranked United Community Bank first in customer satisfaction in the southeastern United States. Overall customer satisfaction was ranked best in the country among banks with five billion dollars or more in assets, according to national research firm Customer Service Profiles. Forbes magazine ranked United Community Bank one of America’s best performing banks. I want to give special recognition to our colleague David Shearrow. David has been an outstanding member of our management team. He has decided to devote his full attention to the pastorate of a local church body and also participation in other mission activities. We admire his dedication to a calling that we know he will serve extremely well, just as he has served United. On the subject of talented bankers, I am so very proud of the outstanding team we have throughout our four-state footprint. In 2014, J.D. Power ranked United Community Bank first in customer satisfaction in the southeastern United States. And, for the eighth consecutive year, our overall customer satisfaction was ranked best in the country among banks with five billion dollars or more in assets, according to national research firm Customer Service Profiles. In January of 2015, U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T | 5 Forbes magazine ranked us one of America’s best performing banks—and we know that it is service that drives performance. United bankers have a passion to serve under our Golden Rule of Banking: Treat customers the way we want to be treated. I was reminded of our bankers when I heard a firm call itself “a customer service company that just happened to be in the travel industry.” That is a great line and I will borrow it here to say that I am convinced that our bankers see United as a customer service company that just happens to be in banking. BUILDING VALUE AS UNITED MOVES FORWARD United has strategic, operating, and performance momentum. Our investments in our company are sound and beginning to pay attractive returns to our shareholders. We are well-positioned to continue to seek strategic opportunities to expand the balance sheet and produce diversified revenue streams. We are dedicated to further enhancing our service capabilities, including technologies that make banking with us easier. And we are focused on capitalizing on merger opportunities which provide United with further attractive ways to expand our footprint and customer base into diverse and growing markets. The industry at present is not without headwinds, including the regulatory environment and the associated rules and costs that particularly impact banks at the $10 billion asset threshold. Loan growth for the foreseeable future will continue to be challenging, with lower yields for higher quality loans and low interest rates negatively impacting our margins. The general view is that rates will increase in time. When they do, we will realize benefits from the strong, low-cost core deposit base that our bankers have diligently built. EXECUTIVE TEAM I am pleased that we have aligned and enhanced our executive management team by promoting Lynn Harton to president of United, in addition to his continuing as chief operating officer. Lynn also has joined our board of directors. He is a key leader and strategist for growing our business and franchise value. We are fortunate to have Lynn on our team. Also, W.C. Nelson, who has been a board member since 1988 and our chairman since 2012, has become our lead independent director. It is my sincere privilege to succeed W.C. as chair, as we continue to work together to govern, strengthen, and build this great company. 6 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T 2015 AND BEYOND I am very excited about how United Community Banks is moving forward and building value. We have exceptionally experienced and highly respected local leadership across the franchise, funding strength in our legacy markets, a strong culture committed to customer service, and unmatched customer satisfaction. We are moving forward with selected investments in people, products, services, technology, and markets that enhance our ability to earn and maintain the privilege of serving new and existing customers. We are well-positioned to be the community and regional bank of choice; the one where customers enjoy banking, We are well-positioned to be the regional bank of choice; the one where customers enjoy banking, where people enjoy working, and that communities know as a caring and dependable neighbor. where people enjoy working, and that communities know as a caring and dependable neighbor. We are committed to growing United’s shareholder value. You can be 100 percent assured that everything we do, and every decision we make, is designed to earn your confidence, loyalty, and support. Sincerely, Jimmy Tallent U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T | 7 CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) INTEREST REVENUE Loans, including fees Investment securities: Taxable Tax exempt Deposits in banks and short-term investments Total interest revenue INTEREST EXPENSE Deposits: NOW Money market Savings Time Total deposit interest expense Short-term borrowings Federal Home Loan Bank advances Long-term debt Total interest expense Net interest revenue Provision for credit losses Net interest revenue after provision for credit losses FEE REVENUE Service charges and fees Mortgage loan and other related fees Brokerage fees Securities gains, net Losses from prepayment of borrowings Other Total fee revenue Total revenue OPERATING EXPENSES Salaries and employee benefits Occupancy Communications and equipment FDIC assessments and other regulatory charges Professional fees Postage, printing, and supplies Advertising and public relations Amortization of intangibles Foreclosed property Other Total operating expenses Income before income taxes Income tax expense (benefit) Net income Preferred stock dividends 2014 2013 2012 $ 196,279 $ 200,893 $ 217,378 47,755 738 3,660 248,432 1,651 3,060 81 7,133 11,925 2,160 912 10,554 25,551 222,881 8,500 214,381 33,073 7,520 4,807 4,871 (4,446) 9,729 55,554 269,935 100,941 13,513 12,523 4,792 7,907 3,542 3,461 1,348 634 14,204 162,865 107,070 39,450 67,620 439 40,331 827 3,789 245,840 1,759 2,210 133 10,464 14,566 2,071 68 10,977 27,682 218,158 65,500 152,658 31,997 9,925 4,465 186 - 10,025 56,598 209,256 96,233 13,930 13,233 9,219 9,617 3,283 3,718 2,031 7,869 15,171 174,304 34,952 (238,188) 273,140 12,078 43,657 956 3,986 265,977 2,049 2,518 150 19,097 23,814 2,987 907 10,201 37,909 228,068 62,500 165,568 31,670 10,483 3,082 7,078 (6,681) 10,480 56,112 221,680 96,026 14,304 12,940 10,097 8,792 3,899 3,855 2,917 13,993 19,951 186,774 34,906 1,050 33,856 12,148 Net income available to common shareholders $ 67,181 $261,062 $ 21,708 Income per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted $ 1.11 1.11 $ 4.44 4.44 $ .38 .38 60,588 60,590 58,787 58,845 57,857 57,857 8 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T CONSOLIDATED BALANCE SHEET (in thousands, except per share data) ASSETS Cash and due from banks Interest-bearing deposits in banks Short-term investments Cash and cash equivalents Securities available-for-sale Securities held-to-maturity (fair value $425,233 and $485,585) Mortgage loans held for sale Loans, net of unearned income Less allowance for loan losses Loans, net Premises and equipment, net Bank owned life insurance Accrued interest receivable Net deferred tax asset Derivative financial instruments Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits: Demand NOW Money market Savings Time: Less than $100,000 Greater than $100,000 Brokered Total deposits Repurchase agreements Federal Home Loan Bank advances Long-term debt Derivative financial instruments Accrued expenses and other liabilities Total liabilities Commitments and contingencies Shareholders’ equity Preferred stock, $1 par value; 10,000,000 shares authorized; Series B, $1,000 stated value; 105,000 shares issued and outstanding Series D, $1,000 stated value; 16,613 shares issued and outstanding Common stock, $1 par value; 100,000,000 shares authorized; 50,178,605 and 46,243,345 shares issued and outstanding Common stock, non-voting, $1 par value; 26,000,000 shares authorized; 10,080,787 and 13,188,206 shares issued and outstanding Common stock issuable; 357,983 and 241,832 shares Capital surplus Accumulated deficit Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity 2014 2013 $ 77,180 89,074 26,401 192,655 1,782,734 415,267 13,737 4,672,119 (71,619) 4,600,500 159,390 81,294 20,103 215,503 20,599 65,204 $ 7,566,986 $ 71,230 119,669 37,999 228,898 1,832,217 479,742 10,319 4,329,266 (76,762) 4,252,504 163,589 80,670 19,598 258,518 23,833 75,531 $7,425,419 $ 1,574,317 1,504,887 1,273,283 292,308 $ 1,388,512 1,427,939 1,227,575 251,125 748,478 508,228 425,011 6,326,512 6,000 270,125 129,865 31,997 62,910 6,827,409 892,961 588,689 424,704 6,201,505 53,241 120,125 129,865 46,232 78,736 6,629,704 - - 105,000 16,613 50,178 46,243 10,081 5,168 1,080,508 (387,568) (18,790) 739,577 $7,566,986 13,188 3,930 1,078,676 (448,091) (19,844) 795,715 $7,425,419 U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T | 9 SELECTED DATA—QUARTERLY SUMMARY (in millions, except per share data; taxable equivalent) 2014 Q4 Q3 Q2 Q1 CORE EARNINGS SUMMARY Net interest revenue Core fee revenue (1) Core revenue (1) Core operating expenses (2) Core earnings (pre-tax, pre-credit) (1)(2) Provision for loan losses Foreclosed property costs Severance costs Securities gains, net Loss from prepayment of borrowings Partial reversal of provision for litigation settlement Return of overclaimed interest on loss sharing agreement Income tax expense Net income Preferred dividends and discount accretion Net income available to common shareholders $ 58.3 14.6 72.9 42.1 30.8 (1.8) (.1) (.3) .2 - 1.2 (.5) (11.3) 18.2 - $ 18.2 $ 57.0 14.4 71.4 41.1 30.3 (2.0) (.2) - - - - - (10.5) 17.6 - $ 17.6 $ 54.9 14.0 68.9 40.1 28.8 (2.2) (.1) (.1) 4.4 (4.4) - - (10.0) 16.4 - $ 16.4 $ 54.2 11.9 66.1 38.8 27.3 (2.5) (.2) (.2) .2 - - - (9.2) 15.4 (.4) $15.0 PERFORMANCE MEASURES Per common share: Diluted earnings Cash dividends declared Book value Tangible book value (3) Key performance ratios: Net interest margin (4) Return on assets (4) Return on common equity (4)(5) Tier 1 common risk-based capital ratio Tier I risk-based capital ratio ASSET QUALITY * Non-performing loans Foreclosed properties Total non-performing assets (NPAs) Allowance for loan losses Net charge-offs Allowance for loan losses to loans Net charge-offs to average loans (4) NPAs to loans and foreclosed properties NPAs to total assets AT PERIOD END Loans * Investment securities Total assets Deposits Shareholders’ equity $ .30 .05 12.20 12.15 $ .29 .03 12.15 12.10 $ .27 .03 11.94 11.91 $ .25 - 11.66 11.63 3.31 % .96 9.60 11.06 12.06 3.32 % .95 9.41 11.04 12.07 3.21 % .88 8.99 10.71 11.75 3.21 % .85 8.64 10.07 11.10 $ 17.9 1.7 19.6 71.6 2.5 1.53 % .22 .42 .26 $ 18.7 3.2 21.9 71.9 3.2 1.57 % .28 .48 .29 $ 20.7 3.0 23.7 73.2 4.2 1.66 % .38 .54 .32 $ 25.2 5.6 30.8 75.2 4.0 1.73 % .38 .71 .42 $ 4,672 2,198 7,567 6,327 740 $ 4,569 2,222 7,526 6,241 736 $ 4,410 2,190 7,352 6,164 722 $ 4,356 2,302 7,398 6,248 704 2013 Q4 $ 55.9 13.2 69.1 41.2 27.9 (3.0) (.2) - .1 - - - (8.9) 15.9 ( 2.9) $ 13.0 $ .22 - 11.30 11.26 3.26 % .86 7.52 9.31 12.74 $ 26.8 4.2 31.0 76.8 4.4 1.77 % .41 .72 .42 $ 4,329 2,312 7,425 6,202 796 Common shares outstanding 60.3 60.2 60.1 60.1 59.4 1 Excludes net securities gains and losses from the prepayment of borrowings. 2 Excludes foreclosed property costs, severance costs, the partial reversal of an earlier provision for litigation settlement and the return of overclaimed interest on United’s loss sharing agreement. 3 Excluded the effect of acquisition related intangible assets. 4 Annualized. 5 Net income available to common shareholders, which is net of preferred dividends, divided by average realized common equity, which excludes accumulated other comprehensive income (loss). * Excludes loans and foreclosed properties covered by loss sharing agreements with the FDIC. 10 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T CORPORATE INFORMATION FINANCIAL INFORMATION Analysts and investors seeking financial information should contact: Rex S. Schuette Executive Vice President and CFO 706-781-2265 rex_schuette@ucbi.com This Annual Report contains forward looking statements that involve risk and uncertainty and actual results could differ materially from the anticipated results or other expectations expressed in the forward-looking statements. A discussion of factors that could cause actual results to differ materially from those expressed in the forward-looking statements is included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission. This Annual Report also contains financial measures that were prepared on a basis different from accounting principles generally accepted in the United States (“GAAP”). References to operating earnings, pre-tax, pre-credit earnings and core earnings are non- GAAP financial measures. Management has included such non-GAAP financial measures because such non-GAAP measures exclude certain non- recurring revenue and expense items and therefore provide a meaningful basis for analyzing financial trends. A reconciliation of these measures to financial measures determined using GAAP is included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission. BOARD OF DIRECTORS W.C. Nelson, Jr. Lead Director Co-Owner and Operator Nelson Tractor Co. Jimmy C. Tallent Chairman Chief Executive Officer Robert H. Blalock Chief Executive Officer Blalock Insurance Agency, Inc. Clifford V. Brokaw Managing Director Corsair Capital L. Cathy Cox President Young Harris College STOCK PRICE Quarter High Low Close Average Daily Volume 2013 4th $ 18.56 $ 14.82 $ 17.75 421,948 2014 1st 2nd 3rd 4th $ 20.28 $ 15.74 $ 19.41 19.87 18.42 19.50 14.86 15.42 15.16 16.37 16.46 18.94 494,205 308,486 331,109 262,598 INVESTOR INFORMATION Investor information including this report, Form 10-K, quarterly financial results, press releases and various other reports are available at ir.ucbi.com. Alternatively, shareholders may contact Investor Relations at 866-270-5900 or investor_relations@ucbi.com. STOCK EXCHANGE United Community Banks, Inc. (Ticker: UCBI) common stock is listed for trading on the NASDAQ Global Select Market. INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS PricewaterhouseCoopers LLP, Atlanta, GA LEGAL COUNSEL Troutman Sanders LLP, Atlanta, GA REGISTRAR TRANSFER AGENT Continental Stock Transfer & Trust Co. 17 Battery Park, 8th Floor New York, NY 10004 212-509-4000 | continentalstock.com EQUAL OPPORTUNITY EMPLOYER United Community Banks is an equal opportunity employer. All matters regarding recruiting, hiring, training, compensation, benefits, promotions, transfers and other personnel policies will remain free from discriminatory practices. United Community Banks, Inc. ©2015 Steven J. Goldstein Retired Chief Financial Officer Federal Home Loan Bank of Atlanta H. Lynn Harton President Chief Operating Officer Thomas A. Richlovsky Retired Chief Financial Officer and Treasurer National City Corporation Tim R. Wallis Owner and President Wallis Printing Company Robert L. Head, Jr. Director Emeritus Owner Head Westgate EXECUTIVE OFFICERS Jimmy C. Tallent Chairman, Chief Executive Officer H. Lynn Harton President, Chief Operating Officer Rex S. Schuette Executive Vice President, Chief Financial Officer Bradley J. Miller Executive Vice President, Chief Risk Officer and General Counsel Bill M. Gilbert President, Community Banking Robert A. Edwards Executive Vice President, Chief Credit Officer Richard W. Bradshaw President, Specialized Lending U N I T E D C O M M U N I T Y B A N K S , I N C . 2014 A N N UA L R E P O R T | 11 United Community Banks, Inc. 125 Highway 515 East | Blairsville, Georgia 30512 706-781-2265 | 866-270-7200 ucbi.com 

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