United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 05/09/2014 17:10:25)




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2014
 
OR
 
o      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from ___________ to ___________
 
Commission file number 001-35095
 
 
UNITED COMMUNITY BANKS, INC.
 
 
(Exact name of registrant as specified in its charter)
 
 
Georgia
 
58-1807304
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
125 Highway 515 East
     
Blairsville, Georgia
 
30512
 
Address of Principal  
(Zip Code)
 
Executive Offices
     
 
 
(706) 781-2265
 
(Telephone Number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES  x   NO  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES  x   NO  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  x   Accelerated filer  o
     
Non-accelerated filer  o (Do not check if a smaller reporting company)  
Smaller Reporting Company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
YES  o   NO x
 
Common stock, par value $1 per share 50,012,974 shares voting and 10,080,787 shares non-voting outstanding as of April 30, 2014.
 
 
 

 

 
INDEX    
           
     
   
 
   
    Item 1. Financial Statements.    
           
        3
           
        4
           
        5
           
        6
           
        7
           
        8
           
    Item 2.     36
           
    Item 3.     58
           
    Item 4.     58
           
  PART II - Other Information    
           
    Item 1.     59
    Item 1A.     59
    Item 2.   59
    Item 3.   59
    Item 4.   59
    Item 5.   59
    Item 6.   60
 
2
 

 

 
Part I – Financial Information
Item 1 – Financial Statements

UNITED COMMUNITY BANKS, INC.
           
Consolidated Statement of Income (Unaudited)
 
   


Three Months Ended
 
   
March 31,
 
(in thousands, except per share data)
 
2014
   
2013
 
Interest revenue:
           
Loans, including fees
  $ 47,688     $ 50,935  
Investment securities, including tax exempt of $188 and $212
    11,607       9,944  
Deposits in banks and short-term investments
    843       870  
Total interest revenue
    60,138       61,749  
Interest expense:
               
Deposits:
               
NOW
    440       454  
Money market
    563       562  
Savings
    20       36  
Time
    1,771       3,291  
Total deposit interest expense
    2,794       4,343  
Short-term borrowings
    840       516  
Federal Home Loan Bank advances
    58       19  
Long-term debt
    2,634       2,662  
Total interest expense
    6,326       7,540  
Net interest revenue
    53,812       54,209  
Provision for credit losses
    2,500       11,000  
Net interest revenue after provision for credit losses
    51,312       43,209  
Fee revenue:
               
Service charges and fees
    7,898       7,403  
Mortgage loan and other related fees
    1,354       2,655  
Brokerage fees
    1,177       767  
Securities gains, net
    217       116  
Other
    1,530       1,970  
Total fee revenue
    12,176       12,911  
Total revenue
    63,488       56,120  
Operating expenses:
               
Salaries and employee benefits
    24,396       23,592  
Communications and equipment
    3,239       3,046  
Occupancy
    3,378       3,367  
Advertising and public relations
    626       938  
Postage, printing and supplies
    776       863  
Professional fees
    1,427       2,366  
Foreclosed property
    116       2,333  
FDIC assessments and other regulatory charges
    1,353       2,505  
Amortization of intangibles
    387       705  
Other
    3,352       4,055  
Total operating expenses
    39,050       43,770  
    Net income before income taxes
    24,438       12,350  
Income tax expense
    9,038       585  
Net income
    15,400       11,765  
Preferred stock dividends and discount accretion
    439       3,052  
Net income available to common shareholders
  $ 14,961     $ 8,713  
Earnings per common share
               
     Basic
  $ .25     $ .15  
     Diluted
    .25       .15  
Weighted average common shares outstanding
               
     Basic
    60,059       58,081  
     Diluted
    60,061       58,081  
 
See accompanying notes to consolidated financial statements.
 
3
 

 

 
UNITED COMMUNITY BANKS, INC.
                                   
Consolidated Statement of Comprehensive Income (Unaudited)
 
 

Three Months Ended
 
    March 31,  
(in thousands)
  2014     2013  
         
Tax
               
Tax
       
   
Before-tax
   
(Expense)
   
Net of Tax
   
Before-tax
   
(Expense)
   
Net of Tax
 
   
Amount
   
Benefit
   
Amount
   
Amount
   
Benefit
   
Amount
 
                                     
Net income
    24,438       (9,038 )     15,400       12,350       (585 )     11,765  
Other comprehensive income:
                                               
Unrealized gains on available-for-sale securities:
                                               
Unrealized holding gains arising during
                                               
period
    3,869       (1,441 )     2,428       1,641       (621 )     1,020  
Reclassification adjustment for gains included in net income
    (217 )     92       (125 )     (116 )     45       (71 )
Valuation allowance for the change in deferred taxes arising from unrealized gains and losses on available-for-sale securities
                            576       576  
Net unrealized gains
    3,652       (1,349 )     2,303       1,525             1,525  
Amortization of losses (gains) included in net income
                                               
on available-for-sale securities transferred to held-to-
                                               
maturity
    330       (123 )     207       (319 )     124       (195 )
Valuation allowance for the change in deferred taxes
                                               
arising from the amortization of gains and losses
                                               
included in net income on available-for-sale
                                               
securities transferred to held-to-maturity
                            (124 )     (124 )
Net unrealized gains (losses)
    330       (123 )     207       (319 )           (319 )
Amortization of gains included in net income on
                                               
terminated derivative financial instruments that
                                               
were previously accounted for as cash flow hedges
    97       (38 )     59       (538 )     209       (329 )
Unrealized (losses) gains on derivative financial
                                               
instruments accounted for as cash flow hedges
    (2,832 )     1,102       (1,730 )     430       (167 )     263  
Valuation allowance for the change in deferred taxes
                                               
arising from unrealized gains and losses and
                                               
amortization of gains included in net income on cash
                                               
flow hedges
                            (42 )     (42 )
Net unrealized losses
    (2,735 )     1,064       (1,671 )     (108 )           (108 )
Net actuarial gain (loss) on defined benefit pension plan
    296       (115 )     181       (415 )     161       (254 )
Amortization of prior service cost and actuarial losses
                                               
included in net periodic pension cost for defined
                                               
benefit pension plan
    91       (35 )     56       132       (51 )     81  
Valuation allowance for the change in deferred taxes
                                               
arising from reclassification of unamortized prior
                                               
service cost and actuarial losses and amortization of
                                               
prior service cost and actuarial losses
                            (110 )     (110 )
Net defined benefit pension plan activity
    387       (150 )     237       (283 )           (283 )
Total other comprehensive income
    1,634       (558 )     1,076       815             815  
Comprehensive income
    26,072       (9,596 )     16,476       13,165       (585 )     12,580  
 
See accompanying notes to consolidated financial statements.
 
4
 

 

 
UNITED COMMUNITY BANKS, INC.
                 
Consolidated Balance Sheet (Unaudited)
 
                   
   
March 31,
   
December 31,
   
March 31,
 
(in thousands, except share and per share data)
 
2014
   
2013
   
2013
 
ASSETS
                 
Cash and due from banks
  $ 52,813     $ 71,230     $ 57,638  
Interest-bearing deposits in banks
    110,529       119,669       107,390  
Short-term investments
    49,999       37,999       82,000  
Cash and cash equivalents
    213,341       228,898       247,028  
Securities available for sale
    1,837,676       1,832,217       1,909,426  
Securities held to maturity (fair value $473,136, $485,585 and $247,087)
    464,697       479,742       231,087  
Mortgage loans held for sale
    10,933       10,319       18,290  
Loans, net of unearned income
    4,355,708       4,329,266       4,193,560  
Less allowance for loan losses
    (75,223 )     (76,762 )     (105,753 )
Loans, net
    4,280,485       4,252,504       4,087,807  
Assets covered by loss sharing agreements with the FDIC
    21,353       22,882       42,096  
Premises and equipment, net
    161,540       163,589       168,036  
Bank owned life insurance
    80,790       80,670       82,114  
Accrued interest receivable
    18,572       19,598       18,302  
Intangible assets
    3,093       3,480       4,805  
Foreclosed property
    5,594       4,221       16,734  
Net deferred tax asset
    243,683       258,518        
Derivative financial instruments
    21,563       23,833       601  
Other assets
    34,917       44,948       23,042  
Total assets
  $ 7,398,237     $ 7,425,419     $ 6,849,368  
LIABILITIES AND SHAREHOLDERS EQUITY
                       
Liabilities:
                       
Deposits:
                       
Demand
  $ 1,471,781     $ 1,388,512     $ 1,298,425  
NOW
    1,392,863       1,427,939       1,281,454  
Money market
    1,235,429       1,227,575       1,165,836  
Savings
    270,910       251,125       243,347  
Time:
                       
Less than $100,000
    833,188       892,961       1,019,396  
Greater than $100,000
    572,889       588,689       685,174  
Brokered
    470,481       424,704       332,220  
Total deposits
    6,247,541       6,201,505       6,025,852  
Short-term borrowings
    123,075       53,241       51,999  
Federal Home Loan Bank advances
    50,125       120,125       125  
Long-term debt
    129,865       129,865       124,825  
Derivative financial instruments
    42,309       46,232       14,556  
Unsettled securities purchases
    63,999       29,562        
Accrued expenses and other liabilities
    37,593       49,174       39,793  
Total liabilities
    6,694,507       6,629,704       6,257,150  
                         
Shareholders equity:
                       
Preferred stock, $1 par value; 10,000,000 shares authorized;
                       
Series A; $10 stated value; 0, 0 and 21,700 shares issued and outstanding
                217  
Series B; $1,000 stated value; 0, 105,000 and 180,000 shares issued and outstanding
          105,000       178,937  
Series D; $1,000 stated value; 0, 16,613 and 16,613 shares issued and outstanding
          16,613       16,613  
Common stock, $1 par value; 100,000,000 shares authorized;
                       
50,011,094, 46,243,345 and 43,063,761 shares issued and outstanding
    50,011       46,243       43,064  
Common stock, non-voting, $1 par value; 26,000,000 shares authorized;
                       
10,080,787, 13,188,206 and 14,703,636 shares issued and outstanding
    10,081       13,188       14,704  
Common stock issuable; 237,763, 241,832 and 133,469 shares
    3,840       3,930       2,726  
Capital surplus
    1,091,696       1,078,676       1,059,222  
Accumulated deficit
    (433,130 )     (448,091 )     (700,440 )
Accumulated other comprehensive loss
    (18,768 )     (19,844 )     (22,825 )
Total shareholders equity
    703,730       795,715       592,218  
Total liabilities and shareholders equity
  $ 7,398,237     $ 7,425,419     $ 6,849,368  
 
See accompanying notes to consolidated financial statements.
 
5
 

 

 
UNITED COMMUNITY BANKS, INC.
                                                 
Consolidated Statement of Changes in Shareholders Equity (Unaudited)
                               
For the Three Months Ended March 31,
 
                                                   


Accumulated
       
   
Preferred Stock
         
Non-Voting
   
Common
               
Other
       
(in thousands, except share and per share data)
 
Series
   
Series
   
Series
   
Common
   
Common
   
Stock
   
Capital
   
Accumulated
   
Comprehensive
       
    A       B       D    
Stock
   
Stock
   
Issuable
   
Surplus
   
Deficit
   
Loss
   
Total
 
Balance, December 31, 2012
  $ 217     $ 178,557     $ 16,613     $ 42,424     $ 15,317     $ 3,119     $ 1,057,951     $ (709,153 )   $ (23,640 )   $ 581,405  
Net income
                                                            11,765               11,765  
Other comprehensive income
                                                                    815       815  
Common stock issued to
                                                                               
dividend reinvestment
                                                                               
plan and to employee
                                                                               
benefit plans (18,170 shares)
                            18                       171                       189  
Conversion of non-voting
                                                                               
common stock to voting
                                                                               
(613,158 shares)
                            613       (613 )                                      
Amortization of stock options
                                                                               
and restricted stock awards
                                                    626                       626  
Vesting of restricted stock
                                                                               
(4,042 shares issued,
                                                                               
259 shares deferred)
                            4                       40                       44  
Deferred compensation plan,
                                                                               
net, including dividend
                                                                               
equivalents
                                            46                               46  
Shares issued from deferred
                                                                               
compensation plan
                                                                               
(4,521 shares)
                            5               (439 )     434                        
Preferred stock dividends:
                                                                               
Series A
                                                            (3 )             (3 )
Series B
            380                                               (2,630 )             (2,250 )
Series D
                                                            (419 )             (419 )
Balance, March 31, 2013
  $ 217     $ 178,937     $ 16,613     $ 43,064     $ 14,704     $ 2,726     $ 1,059,222     $ (700,440 )   $ (22,825 )   $ 592,218  
Balance, December 31, 2013
  $     $ 105,000     $ 16,613     $ 46,243     $ 13,188     $ 3,930     $ 1,078,676     $ (448,091 )   $ (19,844 )   $ 795,715  
Net income
                                                            15,400               15,400  
Other comprehensive income
                                                                    1,076       1,076  
Redemption of Series B
                                                                               
     preferred stock (105,000
                                                                               
     shares)
            (105,000 )                                                             (105,000 )
Redemption of Series D
                                                                               
     preferred stock (16,613
                                                                               
     shares)
                    (16,613 )                                                     (16,613 )
Common stock issued at
                                                                               
     market (640,000 shares)
                            640                       11,566                       12,206  
Common stock issued to
                                                                               
dividend reinvestment
                                                                               
plan and to employee
                                                                               
benefit plans (11,837
                                                                               
shares)
                            12                       197                       209  
Conversion of non-voting
                                                                               
common stock to voting
                                                                               
(3,107,419 shares)
                            3,107       (3,107 )                                      
Amortization of stock options
                                                                               
and restricted stock awards
                                                    1,120                       1,120  
Vesting of restricted stock,
                                                                               
net of shares surrendered
                                                                               
to cover payroll taxes
                                                                               
(1,096 shares issued,
                                                                               
0 shares deferred)
                            1                       (2 )                     (1 )
Deferred compensation plan,
                                                                               
net, including dividend
                                                                               
equivalents
                                            57                               57  
Shares issued from deferred
                                                                               
compensation plan
                                                                               
(7,397 shares)
                            8               (147 )     139                        
Preferred stock dividends:
                                                                               
Series B
                                                            (159 )             (159 )
Series D
                                                            (280 )             (280 )
Balance, March 31, 2014
  $     $     $     $ 50,011     $ 10,081     $ 3,840     $ 1,091,696     $ (433,130 )   $ (18,768 )   $ 703,730  
                                                                                 
 
See accompanying notes to consolidated financial statements.
 
6
 

 

 
UNITED COMMUNITY BANKS, INC.
           
Consolidated Statement of Cash Flows (Unaudited)
 
       
   
Three Months Ended
 
   
March 31,
 
(in thousands)
 
2014
   
2013
 
Operating activities:
           
Net income
  $ 15,400     $ 11,765  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation, amortization and accretion
    4,927       7,505  
Provision for credit losses
    2,500       11,000  
Stock based compensation
    1,120       626  
Deferred income tax expense
    9,776        
Securities gains, net
    (217 )     (116 )
Net (gains) losses on sales of foreclosed property
    (244 )     1,146  
Changes in assets and liabilities:
               
Other assets and accrued interest receivable
    6,607       7,915  
Accrued expenses and other liabilities
    (12,230 )     3,225  
Mortgage loans held for sale
    (614 )     10,531  
Net cash provided by operating activities
    27,025       53,597  
Investing activities:
               
    Investment securities held-to-maturity:
               
    Proceeds from maturities and calls
    15,007       17,501  
    Purchases
          (4,993 )
    Investment securities available-for-sale:
               
Proceeds from sales
    153,316       15,751  
Proceeds from maturities and calls
    56,757       132,211  
Purchases
    (173,024 )     (219,349 )
    Net increase in loans
    (34,027 )     (36,224 )
    Funds collected from FDIC under loss sharing agreements
    1,623       2,452  
    Proceeds from sales of premises and equipment
    509       550  
    Purchases of premises and equipment
    (618 )     (2,001 )
    Proceeds from sale of other real estate
    2,417       5,726  
Net cash provided by (used in) investing activities
    21,960       (88,376 )
Financing activities:
               
    Net change in deposits
    46,036       73,712  
    Net change in short-term borrowings
    69,834       (575 )
    Proceeds from Federal Home Loan Bank advances
    355,000       185,000  
    Repayment of Federal Home Loan Bank advances
    (425,000 )     (225,000 )
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans
    209       189  
    Retirement of preferred stock
    (121,613 )      
    Issuance of common stock
    12,206        
    Cash dividends on preferred stock
    (1,214 )     (2,668 )
Net cash (used in) provided by financing activities
    (64,542 )     30,658  
Net change in cash and cash equivalents
    (15,557 )     (4,121 )
Cash and cash equivalents at beginning of period
    228,898       251,149  
Cash and cash equivalents at end of period
  $ 213,341     $ 247,028  
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 7,449     $ 8,025  
Income taxes
    1,321       1,659  
Unsettled securities purchases
    34,437        
Transfers of loans to foreclosed property
    4,367       6,288  
 
See accompanying notes to consolidated financial statements.
 
7
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 
Note 1 – Accounting Policies
 
The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices.  The accompanying interim consolidated financial statements have not been audited.  All material intercompany balances and transactions have been eliminated.  A more detailed description of United’s accounting policies is included in its Annual Report on Form 10-K for the year ended December 31, 2013.
 
In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.
 
Reclassifications
 
Certain 2013 amounts have been reclassified to conform to the 2014 presentation.  During the fourth quarter of 2013, United reclassified hedge ineffectiveness gains and losses from other fee revenue to net interest revenue.  The impact of the reclassification has been reflected in all periods and was not material to any period.
 
Note 2 –Accounting Standards Updates and Recently Adopted Standards
 
In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.   This ASU limits the definition of discontinued operations to disposals of components of an entity that represent strategic shifts that have a major effect on an entity’s operations and financial results.  It also requires expanded disclosures for discontinued operations.  The standard is effective for disposals that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. This guidance is not expected to have a material impact on United’s financial position or results of operations.
 
Note 3 – Balance Sheet Offsetting
 
United enters into reverse repurchase agreements in order to invest short-term funds.  In addition, United enters into repurchase agreements and reverse repurchase agreements with the same counterparty in transactions commonly referred to as collateral swaps that are subject to master netting agreements under which the balances are netted in the balance sheet in accordance with ASC 210-20, Offsetting.
 
The following table presents a summary of amounts outstanding under reverse repurchase agreements and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of March 31, 2014, December 31, 2013 and March 31, 2013 (in thousands) .
                                     
         
Gross
Amounts
Offset on the
Balance
Sheet
                         
   
Gross
Amounts of
Recognized
Assets
         
Gross Amounts not Offset
in the Balance Sheet
       
             
   
Net Asset
Balance
   
Financial
Instruments
   
Collateral
 Received
       
March 31, 2014
 
Net Amount
 
                                     
Repurchase agreements / reverse repurchase agreements
 
$
397,000
   
$
(350,000