United Community Banks
Annual Report 2018

Plain-text annual report

2018 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 . 2018 A N N UA L R E P O R T | 1 FINANCIAL HIGHLIGHTS (dollars in millions, except per share data, employees and banking offices) CORE EARNINGS SUMMARY Net interest revenue Noninterest income Operating expenses (excluding merger-related and other non-operating charges) Pre-tax, pre-credit operating earnings Provision for credit losses Merger-related and other non-operating charges, net of taxes Operating income tax expense (excl. benefit on merger and other non-operating charges) Net income 2018 2017 $ 438.7 $ 355.9 93.0 298.9 232.8 (9.5) (5.9) (51.3) 166.1 88.3 252.9 191.3 (3.8) (52.5) (67.2) 67.8 PER COMMON SHARE Diluted earnings—GAAP Diluted earnings—operating (1) Cash dividends declared Book value Tangible book value PERFORMANCE MEASURES Net interest margin Allowance for loan losses to loans Return on assets—GAAP Return on assets—operating (1) Return on common equity—GAAP Return on tangible common equity—operating (1) Average equity to average assets Average tangible common equity to average assets Tier 1 risk-based capital ratio AS OF YEAR-END Loans Investment securities Total assets Deposits Shareholders’ equity Common shares outstanding (thousands) Employees Banking offices $ 2.07 2.14 $ 0.92 1.63 0.58 18.24 14.24 0.38 16.67 13.65 3.91 % 3.52 % 0.73 1.35 1.40 11.60 15.69 11.24 8.92 12.42 0.76 0.62 1.09 5.67 12.02 10.71 9.29 12.24 $ 8,383 $ 7,736 2,903 12,573 10,535 1,458 2,937 11,915 9,808 1,303 79,234 77,580 2,344 149 2,175 156 (1) Excludes the effect of merger-related and other non-operating charges, net of taxes, of $5.9 million and $10.9 million, respectively, in 2018 and 2017; impact of remeasurement of deferred tax asset resulting from 2017 Tax Cuts and Jobs Act of $38.2 million; and release of disproportionate tax effects lodged in accumulated other comprehensive income (loss) of $3.4 million in 2017. 2 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 A N N UA L R E P O R T FINANCIAL HIGHLIGHTS LET TER TO SHAREHOLDERS OUR PURPOSE We help our customers live better lives by delivering high-quality financial products and services. We live by the “Golden Rule of Banking”— we treat our customers the way we want to be treated. ANNUAL LETTER – LYNN HARTON , CEO I could not be more proud of the United team’s 2018 accomplishments and I am very optimistic about the future for our company. Despite ongoing industry challenges such as rapid technology change, intense competition and increasing interest rates, we had an outstanding year by nearly every measure. We set new records for net income, earnings per share, return on assets and return on equity. We were able to increase our dividend to $0.58, an increase of $0.20 (or 53%) over last year. Even at that level, we are paying out only 28% of our earnings and continue to increase our capital levels and related capital ratios at a rapid pace. We also met our stated 2018 full-year goal of a 1.40% Operating Return on Average Assets (ROAA) and posted a fourth quarter ROAA of 1.45% on an operating basis. In addition to the financial accomplishments for the year, we continued to improve the long-term prospects of the company—consistent with our desire to build one of the best financial institutions in the South. To do that, our strategies are focused on five key areas: 1. Talent Recruitment and Development – our goal is to be the best place for the best bankers to work Banking is a service business, which means it is a people business. Sixty percent of our costs are direct employee costs. Without great people, we would be just an average bank. We focus on culture in order to create an environment to attract great people. During 2018, we completed our third comprehensive employee survey since 2013. We ask for honest feedback and share the results with the entire company. The results continue to be strong, with our teams showing great confidence in our strategies and our future. We have areas to work on as well, and we are addressing those directly. We believe that creating an environment where team members feel free to give honest and direct feedback makes us a better company; one better able to harness the creative capacity of our teams. U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 A N N UA L R E P O R T | 3 During 2018, we continued to invest in the development of our teams. We graduated our third Leadership Academy class—a group of eleven that joins the previous 30 graduates of this comprehensive program focused on strategy, culture and leadership. We began a new Operational Excellence program to give a broader segment of our leaders a deeper understanding of our strategies and goals. To share the benefits of tax reform with our teams, we gave unscheduled base pay increases or bonuses to 58% of our employees and we increased the company match on 401k contributions by 43%. Finally, we continued to add talent, not only to our company, but also to our board. We were very pleased to add Lance Drummond and Jenn Mann to our board this year. Lance is the former Executive Vice President of Operations and Technology for TD Canada Trust. Prior to that role, he led online bank and ATM operations at Bank of America and was responsible for the largest bank- owned network of ATMs in the country. Lance also brings extensive experience in bank operations such as mortgage processing, digitization and information technology. He currently serves as a board member of the Federal Home Loan Mortgage Corporation (Freddie Mac) and a Trustee for the University of Rochester. Jenn is the Executive Vice President and Chief Human Resources Officer for SAS Institute, Inc., a global leader in analytics, business intelligence and data management software in Cary, North Carolina with a worldwide workforce of more than 14,000. She is widely recognized for her initiatives in the areas of employee performance, workplace culture and organizational effectiveness at SAS, which has consistently been recognized as one of the Fortune 100 Best Companies to Work For® by Fortune magazine. Both Lance and Jenn bring a significant depth of experience and skilled oversight to our company’s operations and are valuable additions to our already outstanding board talent. 2. Customer Service – our goal is to have class-leading customer service across our delivery channels We not only survey our employees, but also our customers. In 2018, we received and analyzed 5,000 customer surveys and incorporated the feedback into our training and delivery strategies. We have statistically valid customer service scores for each of our branches and those scores are both a qualifier and a multiplier for our branch incentive programs. We were honored to be ranked “best in class” in overall satisfaction by our outside survey company, with the majority of our retail metrics in the top 25% of peer rankings. We are also pleased that our culture and employees continue to be recognized by several meaningful industry publications. We were included on Forbes’ list of America’s Best 100 Banks for the sixth year in a row. Also, for the fifth year in a row, we earned the top ranking for overall retail customer satisfaction in the Southeast by J.D. Power. American Banker recognized United as one of the top 75 “Best Banks to Work For” nationally for the second year in a row. 3. Top Quartile Financial Performance Through Cycles – our goal is to deliver consistent and predictable high levels of financial performance relative to our peers 4 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 A N N UA L R E P O R T With our 140 basis points Operating ROAA in 2018, we have achieved profitability greater than peer averages. This has not always been the case, and we have worked hard and with a sense of urgency to improve our returns—and we will continue to do so. Our goal is to be a top performer in our group not just in good times, but also through the cycle. To do that, we continue to expand our footprint into high growth markets, add complementary products and lines of business to diversify our revenue sources and enhance our strong risk culture. We are vigilant in managing our concentrations and diversifying our funding sources. In 2018, we continued to invest in risk management talent and processes and believe we are well positioned to face any potential recessionary economic pressures, if they arise. During the year, we strengthened our operational risk management by adding leadership oversight to the area and investing in fraud mitigation and analytics. We significantly improved our disaster recovery systems. We prepared for the implementation of CECL, the upcoming new standard for loan loss accounting and invested in improving our overall project management process. During 2018, we completed the conversion of Four Oaks Bank, adding a great team and a great market – Raleigh and the surrounding MSA. We added equipment finance to our product set through the acquisition of Navitas Credit Corporation. We continued to expand our mortgage operation, adding mortgage lenders in the newer parts of our footprint. Our deposit base remains one of the strongest in the Southeast, with a full year deposit cost of only 40 basis points. Our cost discipline continues to pay dividends, and our operating efficiency ratio dropped to 55.9% for the year. As a result, our operating earnings per share increased to $2.14—a 31% increase over the comparable figure for 2017 (approximately a 10% increase excluding the effects of a lower tax rate associated with tax reform). Finally, during 2018, our assets increased by 6% to $12.57 billion, our deposits grew by 7% and our loans increased by 8%. 4. Infrastructure Development – we are committed to having the support, governance and delivery systems that enable United to grow responsibly It is easy to see our growth in loans and deposits. It is harder to see the systems, processes and people that we must have to grow responsibly. We understand that technology is increasingly critical to the future of the banking business and we continue to invest in this aspect of our business. In particular, we are improving our customer experience by investing in new digital capabilities. With our successful mobile improvements, our mobile customers increased by 26% in 2018, and threefold since 2015. Our customer satisfaction scores for our digital channels are in the top quartile of our peers according to our outside survey company. Our technology investments are also improving our efficiency. As an example, our mortgage processing times were reduced by seven full days due to our new digital mortgage application and processing system. During the year, we also implemented online consumer deposit account opening services with plans to make this a bigger sales and marketing channel over time. In 2019, we will see continued development in the areas of digital delivery and digital marketing. We are excited about the opportunities that we see to grow our business with these new tools. U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 A N N UA L R E P O R T | 5 5. Balance Sheet and Capital Strength – our goal is to maintain a strong capital base relative to our peers and to be good stewards of that capital Our risk philosophy extends to our capital planning and we believe in maintaining a strong and secure balance sheet to help us meet our long-term goals. Our capital ratios compare well versus peers and we are committed to effectively and efficiently managing our capital. In 2018, we grew our capital ratios with strong internal capital generation and through a raise of $100 million in Tier 2 capital. We paid for a significant portion of our Navitas Credit Corporation acquisition in cash to lever our capital intelligently. During the year, we redeemed expensive Trust Preferred debt and also refreshed our $50 million share repurchase program for opportunistic use in 2019. Finally, we believe our 80% loan-to-deposit ratio and liquid balance sheet translates into manageable funding opportunities as we continue to grow. LOOKING FORWARD I was honored to take on the role of Chief Executive Officer at United Community Bank in 2018 after almost six years as Chief Operating Officer. Our culture is of tantamount importance to our company, and I fully understand the responsibility to maintain and reinforce what sets us apart. I want to thank Jimmy Tallent for his years of service to United and his role in building this great company. It would not be an overstatement to say that without Jimmy Tallent, there would be no United Community Bank. Jimmy’s love for people, passion for excellent customer service and strong leadership took United from its humble roots as a small, single-office bank headquartered in the mountains of North Georgia to the $12.6 billion regional bank it is today. And while Jimmy enjoys some well-deserved time with his family, our unique culture remains his legacy at United Community Bank. As we look forward into the remainder of 2019 and beyond, we are excited about our prospects. We believe we will continue to have opportunities to expand our commercial banking team with new hires. There continue to be attractive merger opportunities that will enable us to expand into new markets and deepen our penetration of existing markets. Disruption in our market from several announced large bank mergers will also provide opportunities for our team to grow market share. Our investments in digital delivery and marketing are promising for the long-term growth and success of the company. Most importantly, we believe our team-based culture—with open communication, a sense of connection and belonging, and a clear shared purpose—will continue to drive great performance for you, our shareholders. Many thanks for your support and belief in United! LYNN HARTON President, Chief Executive Officer 6 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 A N N UA L R E P O R T EXECUTIVE OFFICERS LYNN HARTON President Chief Executive Officer RICH BRADSHAW Chief Banking Officer ROB EDWARDS Chief Risk Officer JEFFERSON HARRALSON Chief Financial Officer BRAD MILLER General Counsel Corporate Secretary MARK TERRY Chief Information Officer U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 A N N UA L R E P O R T | 7 CONSOLIDATED STATEMENTS 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 and interest-bearing demand 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 (Release of ) credit losses Net interest revenue after provision for credit losses NONINTEREST INCOME Service charges and fees Mortgage loan and other related fees Brokerage fees Gains from sales SBA/USDA loans Securities (losses) gains, net Other Noninterest income Total revenue NONINTEREST 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 Merger-related and other charges Other Total noninterest expenses Income before income taxes Income tax expense Net income 2018 2017 2016 $ 420,383 $ 315,050 $ 268,382 73,496 4,189 2,012 500,080 7,390 12,097 150 19,906 39,543 1,112 6,345 14,330 61,330 438,750 9,500 429,250 35,997 19,010 5,191 9,277 (656) 24,142 92,961 522,211 181,015 22,781 21,277 8,491 15,540 6,416 5,991 6,846 5,414 32,514 306,285 215,926 49,815 $ 166,111 70,172 2,216 2,282 389,720 3,365 7,033 135 6,529 17,062 352 6,095 10,226 33,735 355,985 3,800 352,185 38,295 18,320 4,633 10,493 42 16,477 88,260 440,445 153,098 20,344 19,660 6,534 12,074 5,952 4,242 4,845 13,901 26,961 267,611 172,834 105,013 $ 67,821 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 8,122 24,742 241,289 162,992 62,336 $ 100,656 Net income available to common shareholders $ 164,927 $ 67,250 $ 100,635 Income per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted $ 2.07 2.07 $ 0.92 0.92 $ 1.40 1.40 79,662 79,671 73,247 73,259 71,910 71,915 8 | U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 A N N UA L R E P O R T CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS Cash and due from banks Interest-bearing deposits in banks Cash and cash equivalents Debt securities available-for-sale Debt securities held-to-maturity (fair value $268,803 and $321,276) Loans held for sale (includes $18,935 and $26,252 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: Noninterest-bearing demand NOW and interest-bearing demand 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: Common stock, $1 par value; 150,000,000 shares authorized; 79,234,077 and 77,579,561 shares issued and outstanding Common stock issuable; 674,499 and 607,869 shares Capital surplus Accumulated deficit Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity 2018 2017 $ 126,083 201,182 $ 129,108 185,167 327,265 314,275 2,628,467 274,407 18,935 8,383,401 (61,203) 8,322,198 206,140 192,616 35,413 64,224 24,705 324,072 154,750 $12,573,192 $ 3,210,220 2,274,775 2,097,526 669,886 1,598,391 683,715 10,534,513 - 160,000 267,189 26,433 127,503 11,115,638 2,615,850 321,094 32,734 7,735,572 (58,914) 7,676,658 208,852 188,970 32,459 88,049 22,721 244,397 169,401 $11,915,460 $ 3,087,797 2,131,939 2,016,748 651,742 1,548,460 371,011 9,807,697 50,000 504,651 120,545 25,376 103,857 10,612,126 79,234 10,744 1,499,584 (90,419) (41,589) 1,457,554 $12,573,192 77,580 9,083 1,451,814 (209,902) (25,241) 1,303,334 $11,915,460 U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 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 Noninterest income Total revenue Operating expenses (1) Pre-tax, pre-credit operating earnings (1) Provision for credit losses Merger-related and other non-operating charges, net of taxes Operating income tax expense (2) Net income PERFORMANCE MEASURES Per common share: Diluted net income—GAAP Diluted net income—operating (3) Cash dividends declared 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)(4)(5)(6) Average equity to average assets Average tangible equity to average assets (4) Average tangible common equity to average assets (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 2018 Q4 Q3 Q2 Q1 $ 114.8 23.1 137.9 77.0 60.9 (1.2) (2.1) (0.6) (13.1) (12.0) $ 45.1 $ 112.1 24.2 136.3 77.1 59.2 (1.0) (1.8) (0.5) (13.2) $ 43.7 $ 108.5 23.3 131.8 74.0 57.8 (.8) (1.8) (2.8) (13.6) $ 39.6 $ 103.3 22.4 125.7 70.8 54.9 (.8) (3.8) (2.0) (11.4) $ 37.7 2017 Q4 $ 97.5 21.9 119.4 68.5 50.9 (1.2) (44.4) (17.3) $ (12.0) $ 016) 0.56 0.57 0.16 18.24 14.24 $ 0.54 0.55 0.15 17.56 13.54 $ 0.49 0.53 0.15 17.29 13.25 $ 0.47 0.50 0.12 17.02 12.96 $ (0.16) 0.42 0.10 16.67 13.65 3.97 % (.40) 1.43 1.45 (3.57) 12.08 12.25 15.88 11.35 9.04 9.04 3.95 % 1.41 1.42 11.96 12.09 15.81 11.33 8.97 8.97 3.90 % 1.30 1.39 11.20 11.97 15.79 11.21 8.83 8.83 3.80 % 1.26 1.33 11.11 11.71 15.26 11.03 8.82 8.82 3.63 % (0.40) 1.10 (3.57) 9.73 11.93 11.21 9.52 9.52 $ 23.8 1.3 25.1 61.2 1.8 0.73 % 0.09 0.30 0.20 $ 22.5 1.4 23.9 60.9 1.5 0.74 % 0.07 0.29 0.19 $ 21.8 2.6 24.4 61.1 1.4 0.74 % 0.07 0.30 0.20 $ 26.3 2.7 29.0 61.1 1.5 0.75 % 0.08 0.35 0.24 $ 23.7 3.2 26.9 58.9 1.1 0.76 % 0.06 0.35 0.23 $ 8,383 2,903 12,573 10,535 1,458 79.2 $ 8,226 2,873 12,405 10,229 1,402 79.2 $ 8,220 2,834 12,386 9,966 1,379 79.1 $ 8,184 2,731 12,264 9,993 1,357 79.1 $ 7,736 2,937 11,915 9,808 1,303 77.6 (1) Excludes merger-related and other non-operating charges. (2) Excludes the tax effect of merger-related and other non-operating expenses and the 4th quarter 2017 impact of remeasurement of United’s deferred tax assets following the passage of tax reform legislation. (3) Excludes the impact of remeasurement of United’s deferred tax asset following the passage of tax reform legislation and the after-tax effect of merger-related and other charges. (4) Excluded the effect of acquisition related intangible assets. (5) Annualized. (6) Net income divided by average realized common equity, which excludes accumulated other comprehensive 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 . 2018 A N N UA L R E P O R T CORPORATE INFORMATION FINANCIAL INFORMATION Analysts and investors seeking financial information should contact: Jefferson L. Harralson Executive Vice President and CFO 864-240-6208 jefferson_harralson@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 2017 2018 4th 1st 2nd 3rd 4th $ 29.60 $ 25.76 $ 28.14 365,725 $ 33.60 $ 27.73 $ 31.65 34.18 31.93 28.88 30.52 27.82 20.23 30.67 27.89 21.46 529,613 402,230 414,541 509,152 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 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, Inc. 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. BOARD OF DIRECTORS Thomas A. Richlovsky Lead Director Retired Chief Financial Officer and Treasurer National City Corporation Jimmy C. Tallent Executive Chairman Robert H. Blalock Chief Executive Officer Blalock Insurance Agency, Inc. L. Cathy Cox Dean School of Law, Mercer University Kenneth L. Daniels Retired Chief Credit Risk and Policy Officer BB&T Corporation Lance F. Drummond Retired Executive Vice President, Operations and Technology TD Canada Trust H. Lynn Harton President, Chief Executive Officer Jennifer Mann Executive Vice President, Chief Human Resources Officer SAS Institute, Inc. 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 H. Lynn Harton President, Chief Executive Officer Jefferson L. Harralson Executive Vice President, Chief Financial Officer Robert A. Edwards Executive Vice President, Chief Risk Officer Bradley J. Miller Executive Vice President, General Counsel and Corporate Secretary Richard W. Bradshaw Executive Vice President, Chief Banking Officer Mark Terry Chief Information Officer U N I T E D C O M M U N I T Y B A N K S , I N C . 2018 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 . 2018 A N N UA L R E P O R T 

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