United Community Banks
Annual Report 2022

Plain-text annual report

2 0 2 2 U N I T E D C O M M U N I T Y B A N K A N N U A L R E P O R T Blairsville, Georgia T A B L E O F C O N T E N T S Letter to Shareholders ............................. 3 Executive Officers .................................. 10 Financial Statements .............................. 12 Financial Highlights ....................................... 12 Consolidated Balance Sheets ......................... 13 Consolidated Statements of Income ............ 14 Selected Data—Quarterly Summary ............. 15 Corporate Information ........................... 16 T O O U R G R O W I N G U N I T E D C O M M U N I T Y : At United Community Bank, we are focused on building what we call a LEGENDARY bank—a bank that not only has strong financial performance, but also one that employees believe in, customers love, and communities value. We focus on these goals to avoid being distracted by the often volatile environment we are faced with. Consider the changes in the economic environment we observe today. Interest rates are dramatically higher than a year ago, as the Federal Reserve has increased the federal funds rate at an unprecedented pace and engaged in quantitative tightening at the same time. Some consequences of higher rates are easy to see: for example, sharply higher rates drove both a drop in mortgage loan demand and higher unrealized bond losses, which impacted bank capital ratios. Some consequences are not yet clear—we’ll have to wait and see how Fed tightening will work through the economy in the coming months. Interest rates are not the only environmental changes we are adapting to. Deposit growth, which has been strong over the past two years as the US Government flooded the economy with stimulus and dramatically grew the monetary base, has now turned in reverse. Looking forward, funding for loan growth will be more difficult to obtain for all banks and will come at a higher cost. Other costs are also increasing as inflation and a labor shortage are driving up employee costs and the costs of our outside services. These same issues affect our customer base. Our commercial clients tell us that they have strong demand for their products but find it difficult to hire enough people to meet that demand. United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 3 Regulatory changes are also significant, with new and more assertive heads of the regulatory agencies, new CRA regulations, new SEC regulations, and likely longer approval times for mergers. We have experienced these challenges before and know that we can thrive in this—and any—environment as long as we continue to focus on the basics of what makes us United. That starts with our people. Our first measure of success as a company is to be a great place to work for great people. We just completed our regular all- employee engagement survey in the fourth quarter of 2022. Receiving and acting on this feedback is critical to remaining a great workplace. Already, we have made significant improvements to our benefits programs due to the direction provided by the survey. We also increased our minimum wage during 2022 and implemented unscheduled mid-year pay increases for more than half of our employees. The overall message from the survey was very positive, giving me confidence that our teams continue to believe in and be excited by our purpose. Our new Chief Human Resources Officer, Holly Berry, has brought fresh energy and excitement to our plans as we continue to improve the environment for our teams. Holly Berry, Chief Human Resources Officer, joined United in January . 4 | United Communit y Banks, I nc. 202 2 Annual R epor t Abraham Cox, Chief Marketing Officer, joined United in November. Our second measure of success is to have the best customer service in our markets. To that end, we continue to perform thousands of surveys every year to understand what actions our customers value when they have an interaction with United. Each branch receives a customer satisfaction score, which is both a qualifier and a multiplier for our team-based branch incentive system. Our training systems and produc t initiatives are also informed by these surveys. I am proud that once again: J.D. Power ranked United Highest in Customer Satisfaction for Consumer Banking in the Southeast, marking eight out of the last nine years our teams were recognized with this award. Additionally, as we continue to adapt to changing customer desires, we are excited to have added Abraham Cox to our team in 2022 as our new Chief Marketing Officer. He brings a great depth of experience and strategic thinking that will help us to continue delivering legendary service as we move forward. United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 5 United team members volunteering with the local Habit for Humanity in Orlando. 6 | United Communit y Banks, I nc. 202 2 Annual R epor t Having great people, focused on our customers, makes it easier to make the decisions that drive our third measure of success—outstanding financial performance. People, united by purpose, drive performance. We experienced that in 2022, with strong financial results for the year. Our teams delivered solid loan growth across all categories. Our net interest margin expanded, benefiting from increasing interest rates and the strength of our deposit franchise. The resulting revenue increases, combined with continuing expense control, led to a new record low efficiency ratio for us and a record high pre-tax, pre-provision ROA. Our fourth and final measure of success is to make a difference in our communities. One of the ways we do that is by organizing our banking operations geographically and focusing on being a leader in the communities we operate in. We use the United Community Bank Foundation to amplify the efforts of our employees by making donations to community nonprofit organizations they are involved with. Caring about our communities is not just important to us personally. We also believe it’s good for our business—fundamentally, over time, banks reflect the economic vitality of the communities they operate in. This year, we continued to expand our franchise into high- growth markets, building a foundation for continued success. We completed the acquisition of Reliant Bancorp, with a strong presence in Nashville and other growth markets in Tennessee. In May, we announced the acquisition of Progress Financial Corporation, headquartered in Huntsville, Alabama, with offices in several high-growth Alabama and Florida Panhandle markets. In addition, in February of 2023, we announced a significant increase in our Miami market presence, bringing First National Bank of South Miami into the United family. United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 7 We find that our culture of customer service, financial performance, and community building attracts great people to United who want to contribute and win. I think that is what author Jim Collins would call “the Flywheel Effect.” This is the idea that companies don’t become exceptional— or in our case, LEGENDARY—because of one single initiative, but instead from the accumulation of little wins that stack up over years of hard work. In closing, I would like to recognize and thank one of our directors, Bob Blalock. Bob is retiring from our board after 23 years of service to United. Bob exemplifies someone who puts the team first, wants to win for the right reasons, and speaks the truth faithfully. He has helped guide the bank during difficult times, such as the Great Recession, and has been a supporter as we have changed and grown over the past ten years. We are grateful for all the years of service he gave us, and we will continue to carry out his mission for United. Thanks to our team and board, United had a great 2022. We are well-positioned to do the same for 2023. We have strong markets, a strong credit culture, strong capital and earnings, and—what matters most—a strong team. I believe we will see an even better 2023 because I believe in the people of United. Lynn Harton Chairman, CEO, and President United Community Banks, Inc. 8 | United Communit y Banks, I nc. 202 2 Annual R epor t Robert (Bob) H. Blalock is retiring from our board after 23 years. Groundbreaking of the future United Headquarters in Greenville, SC. United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 9 E X E C U T I V E O F F I C E R S H. Lynn Harton Chairman, CEO, and President, UCBI Richard W. Bradshaw Chief Banking Officer Jefferson Harralson Chief Financial Officer Robert A. Edwards Chief Risk Officer Melinda Davis Lux General Counsel and Corporate Secretary Holly Berry Chief Human Resources Officer Mark Terry Chief Information Officer 10 | United Communit y Banks, I nc. 2 0 22 Annual R e por t Melinda Davis Lux and Lynn Harton lead discussion at our annual Senior Leadership Conference. The board visits the construction site of United’s new headquarters in Greenville, SC. United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 1 1 F I N A N C I A L H I G H L I G H T S ($ in millions, except per share data) Earnings Summary Net interest revenue Provision for credit losses Noninterest income Noninterest expense Income tax expense Net income—GAAP Merger-related and non-operating charges, net of tax benefit Net income—operating1 Pre-tax pre-provision income2 Per Common Share Diluted earnings—GAAP Diluted earnings—operating1 Cash dividends declared Book value Tangible book value3 Performance Measures Net interest margin Allowance for loan losses to loans Return on assets—GAAP Return on assets—operating1 Return on common equity—GAAP4 Return on tangible common equity—operating1, 3, 4 Equity to total assets Tangible common equity to tangible assets3 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 2022 2021 $ 752.4 $ 549.0 (63.9) 137.7 (470.2) (78.5) 277.5 15.1 37.6 157.8 (396.6) (78.0) 269.8 10.8 $ 292.6 $ 280.6 $ 419.9 $ 310.2 $ 2.52 2.66 $ 2.97 3.09 0.86 24.38 17.13 0.78 23.63 18.42 3.38 % 3.07 % 1.04 1.13 1.19 9.54 14.04 11.25 7.88 12.81 0.87 1.37 1.42 13.14 17.33 10.61 8.09 13.17 $ 15,335 $ 11,760 6,228 24,009 19,877 2,701 106,223 2,873 192 5,653 20,947 18,241 2,222 89,350 2,583 171 1 Excludes the effect of merger-related and other non-operating charges of $19.4 million and $14.0 million, respectively, in 2022 and 2021. 2 Excludes income taxes and provision for credit losses. 3 Excludes the effect of acquisition-related intangible assets. 4 Net income less preferred dividends divided by average realized common equity, which excludes accumulated other comprehensive income (loss). 12 | United Communit y Banks, I nc. 2 0 22 Annual R e por t C O N S O L I D A T E D B A L A N C E S H E E T S ($ in thousands, except per share data) Assets Cash and due from banks Interest-bearing deposits in banks Federal funds and other short-term investments Cash and cash equivalents Debt securities available-for-sale Debt securities held-to-maturity (fair value $2,191,073 and $1,148,804) Loans held for sale, 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, net Other assets Total assets Liabilities and Shareholders’ Equity Liabilities: Deposits: Noninterest-bearing demand Interest-bearing deposits 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 2022 2021 $ 195,771 $ 144,244 316,082 135,000 646,853 3,614,333 2,613,648 13,600 15,334,627 (159,357) 15,175,270 298,456 299,297 72,807 129,313 50,636 779,248 315,423 $ 24,008,884 2,147,266 27,000 2,318,510 4,496,824 1,156,098 44,109 11,760,346 (102,532) 11,657,814 245,296 217,713 42,999 41,322 42,480 472,407 211,199 $ 20,946,771 $ 7,643,081 12,233,426 19,876,507 $ 6,956,981 11,284,198 18,241,179 158,933 550,000 324,663 99,543 298,564 21,308,210 – – 247,360 25,145 210,842 18,724,526 Shareholders’ equity: Preferred stock, $1 par value; 10,000,000 shares authorized; Series I, $25,000 per share liquidation preference; 4,000 shares issued and outstanding, respectively Common stock, $1 par value; 200,000,000 shares authorized; 106,222,758 and 89,349,826 shares issued and outstanding, respectively Common stock issuable; 607,128 and 595,705 shares, respectively Capital surplus Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity $ 96,422 $ 96,422 106,223 12,307 2,306,366 508,844 (329,488) 2,700,674 $ 24,008,884 89,350 11,288 1,721,007 330,654 (26,476) 2,222,245 $ 20,946,771 United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 1 3 C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E ($ 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 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 Noninterest Income Service charges and fees Mortgage loan gains and other related fees Brokerage and wealth management fees Gains from other loan sales, net Other lending and loan servicing fees Securities (losses) gains, net Other Total noninterest income Total revenue Noninterest Expenses Salaries and employee benefits Occupancy Communications and equipment Professional fees Lending and loan servicing expense Outside services - electronic banking Postage, printing and supplies Advertising and public relations FDIC assessments and other regulatory charges Amortization of intangibles Merger-related and other charges Other Total noninterest expenses Income before income taxes Income tax expense Net income Preferred stock dividends Earnings allocated to participating securities Net income available to common shareholders Income per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted 2022 2021 2020 $ 673,402 $ 505,734 $ 494,212 121,501 10,323 7,929 813,155 42,099 507 1,424 16,768 60,798 752,357 63,913 688,444 38,163 32,524 23,594 10,730 10,005 (3,872) 26,563 137,707 826,151 276,205 36,247 38,234 20,166 9,350 12,583 8,749 8,384 9,894 6,826 19,375 24,136 470,149 356,002 78,530 $ 277,472 6,875 1,462 $ 269,135 61,994 8,978 2,088 578,794 14,845 - 3 14,912 29,760 549,034 (37,550) 586,584 33,868 58,446 18,998 11,267 9,427 83 25,729 157,818 744,402 241,443 28,619 29,829 20,589 10,859 9,481 7,110 5,910 7,398 4,045 13,970 17,386 396,639 347,763 77,962 $ 269,801 6,875 1,657 $ 261,269 55,031 7,043 1,710 557,996 41,772 3 28 14,434 56,237 501,759 80,434 421,325 32,401 76,087 9,240 5,420 8,028 748 24,185 156,109 577,434 224,060 25,791 27,149 18,032 10,993 7,513 6,779 15,203 5,982 4,168 7,018 15,301 367,989 209,445 45,356 $ 164,089 3,533 1,287 $ 159,269 $ 2.52 2.52 $ 2.97 2.97 $ 1.91 1.91 106,661 106,778 87,940 88,097 83,184 83,248 14 | United Communit y Banks, I nc. 2 0 22 Annual R e por t S E L E C T E D D A T A — Q U A R T E R L Y S U M M A R Y ($ in millions, except per share data) Earnings Summary Net interest revenue Provision for credit losses Noninterest income Noninterest expense Income tax expense Net income—GAAP Merger-related & non-operating charges, net of tax benefit Net income—operating1 Q4 Q3 Q2 Q1 2022 $ 209.9 (19.8) 33.3 (117.3) (24.6) 81. 5 1.1 $ 82.6 $ 199.8 (15.4) 31.9 (112.8) (22.4) 81.1 1.4 $ 82.5 $ 178.9 (5.6) 33.5 (120.8) (19.1) 66.9 5.5 $ 72.4 $ 163.8 (23.1) 39.0 (119.3) (12.4) 48.0 7.1 $ 55.1 2021 Q4 $ 137.6 0.6 37.2 (109.2) (14.2) 52.0 7.7 $ 59.7 Pre-tax pre-provision income5 $ 125.9 $ 118.9 $ 91.6 $ 83.5 $ 65.6 Performance Measures Per common share: Diluted net income—GAAP Diluted net income—operating1 Cash dividends declared Book value Tangible book value2 Key performance ratios: Net interest margin3 Return on assets —GAAP3 Return on assets—operating1, 3 Return on common equity—GAAP3, 4 Return on common equity—operating1, 3, 4 Return on tangible common equity—operating1, 2, 3, 4 Equity to total assets Tangible common equity to tangible assets2 Asset Quality Non-performing assets (NPAs) Allowance for credit losses—loans and leases Allowance for credit losses—total Net charge-offs (recoveries) $ 0.74 0.75 0.22 24.38 17.13 $ 0.74 0.75 0.22 23.78 16.52 $ 0.61 0.66 0.21 23.96 16.68 $ 0.43 0.50 0.21 24.38 17.08 $ 0.55 0.64 0.20 23.63 18.42 3.76 % 1.33 1.35 10.86 11.01 15.20 11.25 7.88 3.57 % 1.32 1.34 11.02 11.21 15.60 11.12 7.70 3.19 % 1.08 1.17 9.31 10.10 14.20 10.95 7.59 2.97 % 0.78 0.89 6.80 7.83 11.00 11.06 7.72 2.81 % 0.96 1.10 9.32 10.74 13.93 10.61 8.09 $ 44.3 159.4 180.5 6.6 $ 35.5 148.5 167.3 1.1 $ 34.4 136.9 153.0 (1.1) $ 40.8 132.8 146.4 3.0 $ 32.8 102.5 113.5 0.2 Allowance for credit losses—loans and leases to loans Net charge-offs to average loans3 NPAs to total assets 1.04 % 0.17 0.18 1.00 % 0.03 0.15 0.94 % (0.03) 0.14 0.93 % 0.08 0.17 0.87 % 0.01 0.16 At Period End Loans Investment securities Total assets Deposits Shareholders’ equity Common shares outstanding (thousands) $ 15,335 6,228 24,009 19,877 2,701 106,223 $ 14,882 6,539 23,688 20,321 2,635 106,163 $ 14,541 6,683 24,213 20,873 2,651 106,034 $ 14,316 6,410 24,374 21,056 2,695 106,025 $ 11,760 5,653 20,947 18,241 2,222 89,350 1 Excludes merger-related and other non-operating charges. 2 Excludes the effect of acquisition related intangible assets. 3 Annualized. 4 Net income less preferred dividends divided by average realized common equity, which excludes accumulated other comprehensive loss. 5 Excludes income taxes and provision for credit losses. United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 1 5 C O R P O R A T E I N F O R M A T I O N Financial Information Stock Price Analysts and investors seeking financial information should contact: Jefferson L. Harralson, Chief Financial Officer 864-240-6208 | jefferson_harralson@ucbi.com 2021 2022 High Low Close Average Daily Volume $ 37.24 $ 31.85 $ 35.94 544,805 $ 39.32 $ 34.05 $ 34.80 35.47 36.79 39.50 27.85 29.62 32.09 30.19 33.10 33.80 839,481 574,079 511,111 566,908 4th 1st 2nd 3rd 4th 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. Investor Information Registrar Transfer Agent Investor information, including this report, Form 10-K, quarterly financial results, press releases, and various other reports, is 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. common stock (Ticker: UCBI) and preferred stock (Ticker: UCBIO) are listed for trading on the NASDAQ Global Select Market. Independent Registered Public Accountants PricewaterhouseCoopers LLP, Atlanta, GA 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. Disclaimer This statement has not been reviewed, or confirmed for accuracy or relevance, by the Federal Deposit Insurance Corporation. 16 | United Communit y Banks, I nc. 2 0 22 Annual R e por t Board of Directors Thomas A. Richlovsky Lead Director, Retired Chief Financial Officer and Treasurer National City Corporation Jennifer M. Bazante Chief Marketing Officer Humana George Bell Former Executive Vice President Truist Robert H. Blalock Former Chief Executive Officer Blalock Insurance Agency, Inc. James P. Clements, Ph.D. President Clemson 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 Chairman, Chief Executive Officer, and President 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 Chairman, Chief Executive Officer, and President Richard W. Bradshaw Chief Banking Officer Holly Berry Chief Human Resources Officer Robert A. Edwards Chief Risk Officer Jefferson L. Harralson Chief Financial Officer Melinda Davis Lux General Counsel and Corporate Secretary Mark Terry Chief Information Officer United Communit y Banks, I nc. 20 2 2 Annua l R epor t | 1 7 

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