United Community Banks
Annual Report 2016

Plain-text annual report

U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T | 1 FINANCIAL HIGHLIGHTS (in millions, except per share data) CORE EARNINGS SUMMARY Net interest revenue Fee revenue Operating expenses (excluding merger-related and impairment charges) Pre-tax, pre-credit earnings Provision for loan losses Merger-related and other non-operating charges, net of taxes1 Operating income tax expense (excl. benefit on merger, impairment and deferred tax charges) Net income Preferred dividends 2016 2015 $ 309.8 $ 257.4 93.7 233.2 170.3 .8 (6.0) (64.4) 100.7 (.1) 72.5 193.2 136.7 (3.7) (11.6) (49.8) 71.6 (.1) Net income available to common shareholders $ 100.6 $ 71.5 PER COMMON SHARE Diluted earnings—GAAP Diluted earnings—operating1 Book value Tangible book value PERFORMANCE MEASURES Net interest margin Allowance for loan losses to loans Return on assets—GAAP Return on assets—operating1 Return on common equity—GAAP Return on tangible common equity—operating1 Equity to assets (year-end) Tangible common equity to assets (year-end) Tier 1 risk-based capital ratio (year-end) AS OF YEAR-END Loans Investment securities Total assets Deposits Shareholders’ equity Common shares outstanding (thousands) Beneficial owners Employees Banking offices $ 1.40 1.48 15.06 12.95 $ 1.09 1.27 14.02 12.06 3.36 % 3.30 % 0.89 1.00 1.06 9.41 11.86 10.05 8.77 11.23 1.14 .85 .98 8.15 10.24 10.59 9.15 11.45 $ 6,921 $ 5,995 2,762 10,709 8,638 1,076 70,899 15,100 1,961 139 2,656 9,626 7,881 1,018 71,484 18,400 1,932 134 1 Excludes the effect of merger-related charges of $8.1 million and $12.0 million, net of taxes of $3.1 million and $4.0 million, respectively, in 2016 and 2015; a deferred tax asset impairment charge of $1.0 million in 2016 resulting from the cancellation of non-qualified stock options; and impairment charges of $6.0 million, net of taxes of $2.4 million, in 2015 on real estate purchased in prior years for use as future branch sites. 2 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T LET TER TO SHAREHOLDERS 2016 was an exceptional year for United, with strong financial performance and significant progress in our strategic focus on growth markets, products, talent and infrastructure. We earned $107 million in net operating income, or $1.48 per share which is an increase of 17 percent from 2015, excluding merger-related and other charges. Operating return on assets was 1.06 percent, up from .98 percent in 2015. Our 2016 planning included an ambitious goal of 1.10 percent in operating return on assets by the fourth quarter. Our bankers accepted the challenge and made it happen, increasing return on assets—and return on common equity—every successive quarter during the year. They did this by serving customer needs extremely well, as they always do. They grew loans by $619 million, or 10 percent over 2015, exceeding our growth target of high single digits. Bear in mind that this growth does not include the acquisition of Tidelands Bank that was completed on July 1, 2016. More about that later. Our bankers also increased core deposits by $489 million or 9 percent—again excluding Tidelands. Core deposits funded nearly 80 percent of loan growth, and by year-end represented 93 percent of total customer deposits, a very favorable mix that provides low-cost funding. Fee revenue increased by 29 percent to $94 million, following 31 percent growth in 2015. We improved our operating efficiency ratio from 58.5 percent to 57.8 percent, with disciplined expense controls and achievement of cost saving targets from acquisitions. The ratio was 56.6 percent in the fourth quarter, the lowest it has been in the past decade. This performance has not gone unnoticed. In February of 2017, Forbes magazine included United among the 100 best-performing banks in America—for the fourth consecutive year. STRATEGIC GROWTH M A R K E T S Our strategy for market expansion emphasizes high-growth areas within our four-state footprint. Georgia, North Carolina, South Carolina and Tennessee are home to some of the fastest-growing Metropolitan Statistical Areas (MSAs) in the country. Eighty-two percent of United banking offices are now in MSAs, up from 70 percent a year ago, putting us in solid position for long-term growth. U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T | 3 Nashville Knoxville Chattanooga Blairsville Gainesville Atlanta Asheville Charlotte Greenville Columbia Myrtle Beach Macon Charleston Hilton Head Island Savannah Brunswick Recent acquisitions have contributed to the 82 percent. You will recall that in September of 2015 we acquired $1.2 billion-asset Palmetto Bank, the largest community bank in South Carolina’s fastest-growing region, the Upstate area along the I-85 corridor. Two months later we completed step one of our coastal South Carolina strategy with the opening of a regional commercial loan office in Charleston. In July 2016 we completed step two with the acquisition of Tidelands Bank, which had $466 million in assets and locations in Charleston, Hilton Head and Myrtle Beach. Our in-place Charleston team and our new bankers from Tidelands are working together with good synergies, and we are excited about the prospects ahead. Charleston and Myrtle Beach are located in two of the 12 fastest-growing MSAs in the country. We surpassed $10 billion in assets during the year, a threshold that places banks at a higher level of regulatory scrutiny, and cost, under the Dodd-Frank Act and Durbin Amendment. We believe the costs of additional regulation will be overcome by our growth, especially given our expanding markets. P R O D U C T S Our specialty lending areas—commercial real estate, middle market, SBA, asset-based lending, senior living and builder finance—grew by $363 million during the year to $855 million, and accounted for more than half of our loan growth. 2016 was specialty lending’s third year in a hub-and-spoke model that allows us to provide large-bank products with community bank service. This is a competitive advantage that continues to grow, while diversifying our portfolio. 4 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T THE POWER OF THREE As I have said before, United is a three-legged stool supported by customers, bankers and shareholders. It can stand only with proper balance among the underpinnings, each of which has its own requirements. Customers want and need services of value, delivered professionally. Bankers prosper in a culture of respect, camaraderie and opportunity. Shareholders look for and deserve a compelling return on investment that rewards their trust and commitment. Each of these legs is strong, and all are interdependent. C U S T O M E R S We call ourselves “The Bank that Service Built,” and the building continues as we take care of existing customers and begin serving new ones. United bankers consistently achieve excellent customer satisfaction scores in monthly surveys by Customer Service Profiles, the banking industry leader in customer research and improvement. JD Power & Associates agrees with this assessment: During 2016, and for the third consecutive year, the global market research firm ranked United first in customer satisfaction in the southeastern United States. Investments in technology-based service are important as digital banking continues to grow at a rapid pace. Nearly 85 percent of our customer transactions are now conducted by debit card, telephone, online or by smartphone. To provide the convenient access that customers expect, we invested in state-of-the-art teller platforms and telecommunications during 2015, and in a new mobile banking platform in 2016. With privacy of customer information a top priority, we take care to ensure that electronic delivery channels are safe and secure. As customers migrate to technology we are seeing fewer day-to-day transactions at some branch offices. Branches continue to provide value, however, as centers for account openings, certain transactions, financial advice and personal interactions. The value to customers isn’t the building but the bankers inside, especially when they are national leaders in customer service. B A N K E R S Our simultaneous high ranking in customer satisfaction and financial performance is no coincidence: The two are inextricably linked. Banks are similar in the ways technology delivers their products; the difference is how their people deliver them. Customers want to do business with bankers who are knowledgeable, attentive, caring and genuine. They find them at United Community Bank, where people live by the Golden Rule of treating people the way they want to be treated. Honestly, they serve customers so well that sometimes I wonder how they can get better. They always do; they always find a way. U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T | 5 S H A R E H O L D E R S Our shareholders have many options for investing their money, and we are grateful that they have chosen United. Every day we commit ourselves to providing a solid return on their investment, while managing risk carefully. Our growth in loans, deposits and fee revenue, our focus on operating efficiency and our strategic expansion are testimony to that commitment. I have shared with you a number of performance metrics that drive earnings per share, which, at the end of the day, drives the value of our stock and our ability to pay dividends. Operating earnings per share grew 14 percent in 2015, and another 17 percent in 2016. Not coincidentally, our stock price increased 56 percent during those two years; and our dividend increased 72 percent. We weren’t done yet: In the first quarter of 2017 we increased the dividend again, this time by 13 percent—the fourth dividend increase in 18 months. NEW DIRECTORS JOIN US, AND A VALUED COLLEAGUE RETIRES We were delighted to welcome David Shaver and David Wilkins to our board of directors in 2016. Both are exceptional leaders. David Shaver has a distinguished financial, accounting and entrepreneurial background that is a tremendous asset for us. David Wilkins’s accomplished legal career and experience in government, education and business are valuable as we execute our growth strategies. In bittersweet news, Rex Schuette, our CFO for the past 16 years, will retire in 2017. I cannot overstate the value of Rex’s service, or my good fortune of having him as a colleague. I could not count the times when his deep financial expertise and sound judgment played a major role in our decision-making, serving United extremely well. To ensure an orderly transition, he has graciously agreed to stay on until his successor is on board. His successor will benefit from the strong financial team that Rex has built. All of us wish him the very best in his retirement. THE FUTURE 2017 brings challenges and opportunities, as every year does. Our job is to recognize and overcome the challenges, and identify and realize the opportunities. Change is in the wind for financial services, with possibilities for regulatory reform, higher interest rates and federal tax rate reductions, just to name a few. We will monitor these developments and any related impact for United. What we know will not change is our business model of large bank resources with small bank service, a combination that our established markets value and our new markets welcome. Our bankers, while achieving loan and deposit growth, diversifying income sources and participating in our strategic expansion, are providing world-class service that drives exceptional performance and makes United Community Bank the best it can be. 6 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T While taking nothing for granted, we are in a good place. Our markets are attractive, our deposit base cost is low, our products serve diverse customer needs and our delivery systems are state-of-the-art. These advantages and more, with their underlying foundation of satisfied customers, extraordinary bankers and loyal shareholders, are the three-legged stool that is United. Our charge and our commitment is to strengthen this foundation by earning customer loyalty and supporting the bankers who serve so uniquely well. For all that we do, the end goal is to increase value for the shareholders who make it all possible. We deeply appreciate the faith you have placed in us, and strive every day to earn your confidence and reward your trust. 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 . 2016 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 (Release of ) 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 Gains from sales of government guaranteed loans Securities gains, net Losses on 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 Merger-related and other charges Other Total operating expenses Income before income taxes Income tax expense Net income Preferred stock dividends Net income available to common shareholders Income per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted 8 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T 2016 2015 2014 $ 268,382 $ 223,256 $ 196,279 63,413 614 2,611 335,020 1,903 4,982 135 3,136 10,156 399 3,676 11,005 25,236 309,784 (800) 310,584 42,113 20,292 4,280 9,545 982 - 16,485 93,697 404,281 138,789 19,603 18,355 5,866 11,822 5,382 4,426 4,182 1,051 8,122 23,691 241,289 162,992 62,336 100,656 21 51,143 705 3,428 278,532 1,505 3,466 98 3,756 8,825 364 1,743 10,177 21,109 257,423 3,700 253,723 36,825 13,592 5,041 6,276 2,255 (1,294) 9,834 72,529 326,252 116,688 15,372 15,273 5,106 10,175 4,273 3,667 2,444 32 17,995 20,213 211,238 115,014 43,436 71,578 67 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 2,615 4,871 (4,446) 7,114 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 $ 100,635 $ 71,511 $ 67,181 $ 1.40 1.40 $ 1.09 1.09 $ 1.11 1.11 71,910 71,915 65,488 65,492 60,588 60,590 CONSOLIDATED BALANCE SHEET (in thousands, except share data) ASSETS Cash and due from banks Interest-bearing deposits in banks Cash and cash equivalents Securities available-for-sale Securities held-to-maturity (fair value $333,170 and $371,658) Mortgage loans held for sale (includes $27,891 and $0 at fair value) 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 Goodwill and other intangible assets Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits: Demand NOW Money market Savings Time Brokered Total deposits Short-term borrowings 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 H, $1,000 stated value; 0 and 9,992 shares issued and outstanding Common stock, $1 par value; 150,000,000 shares authorized; 70,899,114 and 66,198,477 shares issued and outstanding Common stock, non-voting, $1 par value; 26,000,000 shares authorized; 0 and 5,285,516 shares issued and outstanding Common stock issuable; 519,874 and 458,953 shares Capital surplus Accumulated deficit Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity 2016 2015 $ 99,489 117,859 217,348 2,432,438 329,843 29,878 6,920,636 (61,422) 6,859,214 189,938 143,543 28,018 154,336 23,688 156,222 144,189 $10,708,655 $ 2,637,004 1,989,763 1,846,440 549,713 1,287,142 327,496 8,637,558 5,000 709,209 175,078 27,648 78,427 9,632,920 $ 86,912 153,451 240,363 2,291,511 364,696 24,231 5,995,441 (68,448) 5,926,993 178,165 105,493 25,786 197,613 20,082 147,420 94,075 $ 9,616,428 $ 2,204,755 1,975,884 1,599,637 471,129 1,282,803 338,985 7,873,193 16,640 430,125 163,836 28,825 85,524 8,598,143 - 9,992 70,899 66,198 - 7,327 1,275,849 (251,857) (26,483) 1,075,735 $10,708,655 5,286 6,779 1,286,361 (330,879) (25,452) 1,018,285 $ 9,616,428 U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T | 9 SELECTED DATA—QUARTERLY SUMMARY (in millions, except per share data) EARNINGS SUMMARY Net interest revenue Fee revenue Total revenue Operating expenses (1) Pre-tax, pre-credit earnings (1) Provision for loan losses Merger-related and other non-operating charges, net of tax effect Operating income tax expense (2) Net income Preferred dividends Net income available to common shareholders 2016 Q4 Q3 Q2 Q1 $ 80.9 25.2 106.1 60.2 45.9 - (1.7) (17.0) 27.2 - $ 27.2 $ 79.0 26.4 105.4 60.9 44.5 .3 (1.9) (17.0) 25.9 - $ 25.9 $ 74.9 23.5 98.4 56.9 41.5 .3 (0.8) (15.8) 25.2 - $ 25.2 $ 75.0 18.6 93.6 55.2 38.4 .2 (1.7) (14.5) 22.4 (.1) $ 22.3 2015 Q4 $ 73.8 21.3 95.1 56.4 38.7 (.3) (5.6) (14.6) 18.2 - $ 18.2 PERFORMANCE MEASURES Per common share: Diluted earnings—GAAP Diluted earnings—operating (3) Book value Tangible book value (4) Key performance ratios: Net interest margin (5) Return on assets —GAAP (5) Return on assets—operating (3)(5) Return on common equity—GAAP (5)(6) Return on common equity—operating (3)(5)(6) Return on tangible common equity—operating (3)(5)(6) Equity to assets (period-end) Tangible equity to assets (period-end) (4) Tangible common equity to assets (period-end) (4) 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 (5) NPAs to loans and foreclosed properties NPAs to total assets AT PERIOD END Loans Investment securities Total assets Deposits Shareholders’ equity Common shares outstanding $ .38 .40 15.06 12.95 $ .36 .39 15.12 13.00 $ .35 .36 14.80 12.84 $ .31 .33 14.35 12.40 $ .25 .33 14.02 12.06 3.34 % 1.03 1.10 9.89 10.51 12.47 10.05 8.77 8.77 3.34 % 1.00 1.08 9.61 10.34 12.45 10.48 9.15 9.15 3.35 % 1.04 1.07 9.54 9.81 11.56 10.67 9.40 9.40 3.41 % .93 1.00 8.57 9.20 10.91 10.57 9.27 9.27 3.34 % .76 .99 7.02 9.18 10.87 10.59 9.26 9.15 $ 21.5 8.0 29.5 61.4 1.5 .89 % .09 .43 .28 $ 21.6 9.2 30.8 63.0 1.4 .94 % .08 .46 .30 $ 21.3 6.2 27.5 64.3 1.7 1.02 % .11 .44 .28 $ 22.4 5.2 27.6 66.3 2.1 1.09 % .14 .45 .28 $ 22.6 4.9 27.5 68.4 1.3 1.14 % .09 .46 .29 $ 6,921 2,762 10,709 8,638 1,076 70.9 $ 6,725 2,560 10,298 8,442 1,079 70.9 $ 6,287 2,677 9,928 7,857 1,060 71.1 $ 6,106 2,757 9,781 7,960 1,034 71.5 $ 5,995 2,656 9,616 7,873 1,018 71.5 (1) Excludes merger-related charges and impairment charges on real estate purchased in prior years for future branch sites. (2) Excludes the income tax benefit on merger-related charges and impairment charges on real estate purchased in prior years for future branch sites and excludes a charge for impairment of deferred tax assets related to cancelled non-qualified stock options. (3) Excludes the after-tax effect of merger-related charges and impairment charges on real estate purchased in prior years for future branch sites and a charge for impairment of deferred tax assets related to cancelled non-qualified stock options. (4) Excludes the effect of acquisition related intangible assets. (5) Annualized. (6) 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). 1 0 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 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 performance measures 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. STOCK PRICE Quarter High Low Close Average Daily Volume 2015 2016 4th 1st 2nd 3rd 4th $ 22.23 $ 18.61 $ 19.49 376,214 $ 19.27 $ 15.74 $ 18.47 20.60 21.13 30.22 17.07 17.42 20.26 18.29 21.02 29.62 440,759 771,334 379,492 532,944 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. ©2017 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. L. Cathy Cox President Young Harris College Kenneth L Daniels Retired Chief Credit Risk and Policy Officer BB&T Corporation H. Lynn Harton President, Chief Operating Officer Thomas A. Richlovsky Retired Chief Financial Officer and Treasurer National City Corporation David C. Shaver Chief Executive Officer Cost Segregation Advisors, LLC Tim R. Wallis Owner and President Wallis Printing Company David H. Wilkins Partner Nelson, Mullins, Riley & Scarborough, LLP 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 Bill M. Gilbert President, Community Banking Robert A. Edwards Executive Vice President, Chief Credit Officer Bradley J. Miller Executive Vice President, Chief Risk Officer, General Counsel 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 . 2016 A N N UA L R E P O R T | 11 1 2 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2016 A N N UA L R E P O R T ucbi.com 

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