United munity Banks(US:UCBI)2022-11-04 18:51PART I - Financial Information Financial Statements Presents the unaudited consolidated financial statements for United Community Banks, Inc. as of September 30, 2022, and for the three and nine-month periods then ended Consolidated Balance Sheets Total assets and deposits grew significantly, driven by loan growth, while shareholders' equity increased despite rising AOCI losses from interest rate impacts Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $23,687,855 | $20,946,771 | | Loans and leases, net | $14,733,982 | $11,657,814 | | Goodwill and other intangible assets, net | $780,868 | $472,407 | | Total Deposits | $20,321,142 | $18,241,179 | | Total Liabilities | $21,053,145 | $18,724,526 | | Total Shareholders' Equity | $2,634,710 | $2,222,245 | Consolidated Statements of Income Q3 2022 net income increased due to higher net interest revenue, while nine-month net income decreased primarily from a significant swing in credit loss provisions Q3 and Nine Months Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Revenue | $199,774 | $141,039 | $542,469 | $411,479 | | Provision for (release of) credit losses | $15,392 | $(11,034) | $44,082 | $(36,903) | | Noninterest Income | $31,922 | $40,095 | $104,353 | $120,641 | | Noninterest Expenses | $112,755 | $96,749 | $352,820 | $287,483 | | Net Income | $81,161 | $73,816 | $196,022 | $217,782 | | Diluted EPS | $0.74 | $0.82 | $1.78 | $2.42 | Notes to Consolidated Financial Statements Detailed notes cover accounting policies, significant acquisitions like Reliant and Progress, AFS to HTM transfers impacting AOCI, increased ACL, and maintained well-capitalized status - On January 1, 2022, United acquired Reliant Bancorp, Inc. in a stock transaction, recording $299.2 million in goodwill, adding assets with a fair value of $2.96 billion and liabilities of $2.66 billion3638 - United announced an agreement to acquire Progress Financial Corporation, expected to close in Q1 2023, with Progress having $1.74 billion in total assets as of September 30, 202244 - During the first nine months of 2022, United transferred $1.29 billion in AFS debt securities to HTM, resulting in $87.4 million of unrealized losses recorded in AOCI46 - The Allowance for Credit Losses (ACL) for loans increased from $102.5 million at year-end 2021 to $148.5 million at September 30, 2022, including a $12.7 million initial ACL from the Reliant acquisition6598 - As of September 30, 2022, United and its bank subsidiary were categorized as well-capitalized, with a consolidated CET1 capital ratio of 12.13%168169 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting significant net interest revenue growth from acquisitions and rising rates, offset by declining noninterest income and increased expenses, while maintaining strong asset quality and capital Results of Operations Q3 2022 net income increased due to higher net interest revenue, while nine-month net income decreased primarily from a significant swing in credit loss provisions Q3 2022 vs Q3 2021 Performance (in millions, except per share data) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Net Income | $81.2M | $73.8M | | Diluted EPS | $0.74 | $0.82 | | Net Interest Revenue | $200M | $141M | | Provision for Credit Losses | $15.4M | $(11.0)M | - Merger and acquisition activity, including Reliant (Jan 1, 2022) and Aquesta (Oct 1, 2021) acquisitions, was a key driver of results, with Progress acquisition planned for Q1 2023180183 Net Interest Revenue Net interest revenue for Q3 2022 increased significantly due to loan growth and rising rates, expanding the net interest margin to 3.57% Net Interest Margin and Spread (Q3) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Net Interest Margin (FTE) | 3.57% | 3.12% | | Net Interest Spread (FTE) | 3.39% | 3.02% | - The increase in net interest revenue was primarily driven by $40.9 million from loan volume and $18.4 million from higher rates on earning assets, significantly outpacing interest expense increases195202 Noninterest Income Noninterest income for Q3 2022 decreased 20% due to a significant drop in mortgage loan gains and fees, partially offset by higher BOLI and wealth management fees Noninterest Income Components (Q3, in thousands) | Component | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Mortgage loan gains & fees | $6,297 | $13,828 | (54)% | | Wealth management fees | $5,879 | $5,554 | 6% | | BOLI (within Other) | $2,020 | $832 | 143% | | Total Noninterest Income | $31,922 | $40,095 | (20)% | - Mortgage rate locks decreased 38% to $456.2 million in Q3 2022 from $730.6 million in Q3 2021, reflecting lower demand in the residential real estate market209210 Noninterest Expenses Noninterest expenses for Q3 2022 increased 17%, primarily due to higher salaries and employee benefits driven by acquisitions and merit increases, alongside expanded occupancy and equipment costs Noninterest Expense Components (Q3, in thousands) | Component | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $67,823 | $60,458 | 12% | | Communications and equipment | $8,795 | $7,368 | 19% | | Occupancy | $9,138 | $7,096 | 29% | | Total Noninterest Expenses | $112,755 | $96,749 | 17% | - Full-time equivalent headcount increased by 14% to 2,826 at September 30, 2022, from 2,480 a year prior, primarily due to acquisitions216 Asset Quality and Risk Elements Asset quality remains strong with low NPAs, while the ACL on loans increased to 1.00% due to the Reliant acquisition and a more negative economic forecast Key Asset Quality Metrics | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total NPAs | $35.5M | $32.9M | | NPAs as a % of total assets | 0.15% | 0.16% | | ACL - loans as a % of total loans | 1.00% | 0.87% | - The increase in the ACL since year-end 2021 was primarily driven by the Reliant acquisition and a more negative economic forecast223 Interest Rate Sensitivity Management The company maintains an asset-sensitive balance sheet, with a 100 basis point rate increase projected to boost net interest revenue by 4.45% over 12 months Interest Rate Sensitivity Analysis (at Sep 30, 2022) | Rate Scenario (Immediate Shock) | % Change in Net Interest Revenue (12-month) | | :--- | :--- | | +200 bps | +8.65% | | +100 bps | +4.45% | | -100 bps | -5.21% | | -200 bps | -12.45% | - The company's policy limits the projected change in net interest revenue to an 8% decrease for each 100 basis point change in rates over 12 months248 Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk have occurred since the 2021 Form 10-K, with interest rate sensitivity detailed in MD&A - There have been no material changes in market risk from the 2021 10-K268 Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and chief financial officer concluded that disclosure controls and procedures were effective as of September 30, 2022269 - No material changes to internal control over financial reporting occurred during the third quarter of 2022270 PART II - Other Information Legal Proceedings Management does not anticipate any pending or threatened legal matters will materially adversely affect the company's financial condition or results - Management does not anticipate that any pending or threatened legal matters will have a material adverse effect on the company's financial position or results273 Risk Factors No material changes to risk factors have occurred since the 2021 Form 10-K, except for those related to the proposed Progress acquisition - No material changes to risk factors have occurred since the 2021 10-K, except for those related to the proposed Progress acquisition274 Other Information The Talent and Compensation Committee terminated outdated change in control severance agreements with executive officers on November 1, 2022 - On November 1, 2022, the company terminated the change in control severance agreements with its executive officers, including the CEO and CFO, as they were considered outdated275 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, termination letters, officer certifications, and interactive data files - Key exhibits filed include the Form of Change in Control Agreement Termination Letter (Exhibit 10.1), CEO and CFO certifications (Exhibits 31.1, 31.2, 32), and Interactive Data Files (Exhibit 101)280