UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
Fiscal Year Ended December 31, 2007
Commission
File Number 0-21656
UNITED
COMMUNITY BANKS, INC.
(Exact
name of registrant as specified in its charter)
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Georgia
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58-1807304
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(State
or other jurisdiction of incorporation)
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(I.R.S.
Employer Identification No.)
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63
Highway 515, Blairsville, Georgia
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30512
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (706) 781-2265
Securities
registered pursuant to Section 12(b) of the Act: None
Name of
exchange on which registered: Nasdaq Global Select
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $1.00 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Sections 13 or 15(d) of the Act.
Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Sections 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (check one):
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Large
accelerated filer x
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Accelerated
filer o
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Non-accelerated
filer o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).Yes o No x
State the
aggregate market value of the voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, as of the last business
day of the registrant’s most recently completed second fiscal quarter:
$1,088,226,189 based on shares held by non-affiliates at $25.89 per share, the
closing stock price on the Nasdaq stock market on June 29, 2007).
As of
January 31, 2008, 49,965,766 shares of common stock were issued and outstanding,
including presently exercisable options to acquire 1,694,064 shares and 84,627
shares issuable under United Community Banks, Inc.’s deferred compensation
plan.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be
held on April 30, 2008 are incorporated herein into Part III by
reference.
INDEX
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PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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12
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Item
1B.
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Unresolved
Staff Comments
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13
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Item
2.
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Properties
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13
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Item
3.
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Legal
Proceedings
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13
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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14
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PART
II
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|||
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Item
5.
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Market
for United’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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14
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Item
6.
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Selected
Financial Data
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17
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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37
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Item
8.
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Financial
Statements and Supplementary Data
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41
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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72
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Item
9A.
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Controls
and Procedures
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72
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Item
9B.
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Other
Information
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72
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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73
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Item
11.
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Executive
Compensation
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73
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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73
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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73
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Item
14.
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Principal
Accounting Fees and Services
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73
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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73
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Signatures
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77
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2
PART
I
ITEM
1. BUSINESS.
United
Community Banks, Inc. (“United”), a bank holding company registered under the
Bank Holding Company Act of 1956, was incorporated under the laws of Georgia in
1987 and commenced operations in 1988 by acquiring 100% of the outstanding
shares of Union County Bank, Blairsville, Georgia, now known as United Community
Bank, Blairsville, Georgia
United
acquired United Community Bank, Brevard, North Carolina in 1990 and merged the
bank into United Community Bank, Blairsville, Georgia effective February 1,
2008. Although United operated both the Georgia bank and north
Carolina bank for the past five years, we will refer to the consolidated Georgia
bank (“the Bank”) only through this report. Substantially all of
United’s activities were conducted by the Bank.
Since the
early 1990’s, United has actively expanded its market coverage through organic
growth complemented by selective acquisitions, primarily of banks whose
managements share United’s community banking and customer service
philosophies. Although those acquisitions have directly contributed
to United’s growth over the last ten years, their contribution has primarily
been to provide United access to new markets with attractive growth
potential. Organic growth in assets includes growth through existing
offices as well as growth at de novo locations and post-acquisition growth at
acquired banking offices. Organic growth will continue to be the
principal focus of United’s balanced growth strategy to extend its reach in both
new and existing markets.
To
emphasize its commitment to community banking, United conducts substantially all
of its operations through a community-focused operating model of 27 separate
“community banks”, which as of December 31, 2007, operated at 111 locations in
north Georgia, metro Atlanta and Gainesville (“Atlanta Region”), coastal
Georgia, western North Carolina and east Tennessee. The community
banks offer a full range of retail and corporate banking services, including
checking, savings, and time deposit accounts, secured and unsecured loans, wire
transfers, brokerage services, and other financial services, and are led by
local bank presidents (referred to herein as the “Presidents”) and management
with significant experience in, and ties to, their communities. Each
of the community bank Presidents has authority, alone or with other local
officers, to make most credit decisions.
In June 2007, United completed the
acquisition of Gwinnett Commercial Group, Inc. and its wholly-owned subsidiary
First Bank of the South. The acquisition of Gwinnett Commercial Group
added assets and deposits of $809 million and $568 million, respectively, and
five banking offices in Atlanta Region.
In December 2006, United completed the
acquisition of Southern Bancorp, Inc. a Georgia bank holding company and its
wholly-owned subsidiary Southern National Bank. Southern National
Bank has two banking offices in Atlanta Region. United also acquired
two branch locations in western North Carolina. Both transactions
collectively added $430 million in assets and $360 million in
deposits. In addition, United opened five de novo locations in 2007
and eight in 2006.
The Bank,
through its full-service retail mortgage lending division, United Community
Mortgage Services (“UCMS”), is approved as a seller/servicer for Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation and
provides fixed and adjustable-rate home mortgages. During 2007, the
Bank originated $410 million of residential mortgage loans throughout Georgia,
North Carolina and Tennessee for the purchase of homes and to refinance existing
mortgage debt. Substantially all of these mortgages were sold into
the secondary market with no recourse to the Bank other than for breach of
warranties.
Acquired in 2000, Brintech, Inc.
(“Brintech”), a subsidiary of the Bank, is a consulting firm for the financial
services industry. Brintech provides consulting, advisory, and
implementation services in the areas of strategic planning, profitability
improvement, technology, efficiency, security, risk management, network,
Internet banking, marketing, core processing, and
telecommunications.
United
owns an insurance agency, United Community Insurance Services, Inc. (“UCIS”),
known as United Community Advisory Services, that is a subsidiary of the
Bank.
United provides retail brokerage
services through an affiliation with a third party broker/dealer.
3
Forward-Looking
Statements
This Form 10-K contains forward-looking
statements regarding United, including, without limitation, statements relating
to United’s expectations with respect to revenue, credit losses, levels of
nonperforming assets, expenses, earnings and other measures of financial
performance. Words such as “may”, “could”, “would”, “should”,
“believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “targets”
or similar expressions are intended to identify forward-looking
statements. These forward-looking statements are not guarantees of
future performance and involve certain risks and uncertainties that are subject
to change based on various factors (many of which are beyond United’s
control). The following factors, among others, could cause United’s
financial performance to differ materially from the expectations expressed in
such forward-looking statements:
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●
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our
past operating results may not be indicative of future operating
results;
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our
business is subject to the success of the local economies in which we
operate;
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our
concentration of construction and land development loans is subject to
unique risks that could adversely affect our earnings;
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we
may face risks with respect to future expansion and acquisitions or
mergers;
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changes
in prevailing interest rates may negatively affect our net income and the
value of our assets;
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●
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if
our allowance for loan losses is not sufficient to cover actual loan
losses, earnings would decrease;
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competition
from financial institutions and other financial service providers may
adversely affect our profitability;
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●
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business
increases, productivity gains and other investments are lower than
expected or do not occur as quickly as anticipated;
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competitive
pressures among financial services companies increase
significantly;
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the
success of our business strategy;
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the
strength of the United States economy in general
changes;
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trade,
monetary and fiscal policies and laws, including interest rate policies of
the Board of Governors of the Federal Reserve System,
change;
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inflation
or market conditions fluctuate;
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conditions
in the stock market, the public debt market and other capital markets
deteriorate;
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financial
services laws and regulations change;
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technology
changes and United fails to adapt to those changes;
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consumer
spending and saving habits change;
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unanticipated
regulatory or judicial proceedings occur; and
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United
is unsuccessful at managing the risks involved in the
foregoing.
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Additional information with respect to
factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements may also be included in other
reports that United files with the Securities and Exchange
Commission. United cautions that the foregoing list of factors is not
exclusive and not to place undue reliance on forward-looking
statements. United does not intend to update any forward-looking
statement, whether written or oral, relating to the matters discussed in this
Form 10-K.
Monetary
Policy And Economic Conditions
United’s
profitability depends to a substantial extent on the difference between interest
revenue received from loans, investments, and other earning assets, and the
interest paid on deposits and other liabilities. These rates are
highly sensitive to many factors that are beyond the control of United,
including national and international economic conditions and the monetary
policies of various governmental and regulatory authorities, particularly the
Federal Reserve. The instruments of monetary policy employed by the
Federal Reserve include open market operations in U.S. government securities,
changes in the discount rate on bank borrowings and changes in reserve
requirements against bank deposits.
Competition
The
market for banking and bank-related services is highly
competitive. United actively competes in their respective market
areas, which include north Georgia, the Atlanta Region, coastal Georgia, western
North Carolina and east Tennessee, with other providers of deposit and credit
services. These competitors include other commercial banks, savings
banks, savings and loan associations, credit unions, mortgage companies, and
brokerage firms.
The
following table displays the respective percentage of total bank and thrift
deposits in each county where the Bank has operations. The table also
indicates the ranking by deposit size in each county. All information
in the table was obtained from the Federal Deposit Insurance Corporation Summary
of Deposits as of June 30, 2007. The following information only shows
market share in deposit gathering, which may not be indicative of market
presence in other areas.
4
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Share
of Local Deposit Markets by County - Banks and Savings
Institutions
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||||||||||||||||||||||||
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Market
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Rank
in
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Market
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Rank
in
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Market
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Rank
in
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|||||||||||||||||||
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Share
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Market
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Share
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Market
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Share
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Market
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|||||||||||||||||||
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Atlanta
Region
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North
Georgia
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Coastal
Georgia
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Bartow
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7%
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6
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Chattooga
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42%
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1
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Chatham
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1%
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12
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Carroll
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3
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9
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Fannin
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50
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1
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Glynn
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18
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2
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Cherokee
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4
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9
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Floyd
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15
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3
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Ware
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7
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5
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Cobb
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4 |
8
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Gilmer
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15
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2
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Coweta
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1
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12
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Habersham
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14
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3
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North
Carolina
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Dawson
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36
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1
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Jackson
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2
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11
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Avery
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13
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4
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DeKalb
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1
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18
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Lumpkin
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27
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2
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Cherokee
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46
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1
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Douglas
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2
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11
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Rabun
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12
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5
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Clay
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53
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1
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||||||||||||||||
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Fayette
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1
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12
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Towns
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32
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2
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Graham
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75
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1
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Forsyth
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3
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11
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Union
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85
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1
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Haywood
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11
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5
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Fulton
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1
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17
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White
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40
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1
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Henderson
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3
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11
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Gwinnett
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4
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5
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Jackson
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23
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2
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|||||||||||||||||||
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Hall
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9
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5
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Tennessee
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Macon
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9
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4
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Henry
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3
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12
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Blount
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4
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8
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Mitchell
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29
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1
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Newton
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4
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6
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Bradley
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4
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7
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Swain
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31
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2
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Paulding
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2
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8
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Knox
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1
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13
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Transylvania
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12
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3
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Pickens
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2
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7
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Loudon
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19
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3
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Watauga
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1
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13
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Rockdale
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12
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4
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McMinn
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3
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8
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Yancey
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12
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5
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Walton
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1
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13
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Monroe
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2
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8
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Roane
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9
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4
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Loans
The Bank
makes both secured and unsecured loans to individuals, firms, and
corporations. Secured loans include first and second real estate
mortgage loans. The Bank also makes direct installment loans to
consumers on both a secured and unsecured basis. At December 31,
2007, commercial (commercial and industrial), commercial (secured by real
estate), construction (residential and commercial), residential mortgage and
consumer installment loans represented approximately 7%, 25%, 40%, 25% and 3%,
respectively, of United’s total loan portfolio.
Specific
risk elements associated with the Bank’s lending categories include, but are not
limited to:
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Loan
Type
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Risk
Elements
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Commercial
(commercial and industrial)
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Industry
concentrations; inability to monitor the condition of collateral
(inventory, accounts receivable and vehicles); increased competition; use
of specialized or obsolete equipment as collateral; insufficient cash flow
from operations to service debt payments.
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Commercial
(secured by real estate)
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Loan
portfolio concentrations; declines in general economic conditions and
occupancy rates; business failure and lack of a suitable alternative use
for property; environmental contamination.
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Construction
(residential and commercial)
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Loan
portfolio concentrations; inadequate long-term financing arrangements;
cost overruns, changes in market demand for property.
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Residential
mortgage
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Changes
in general economic conditions or in the local economy; loss of borrower’s
employment; insufficient collateral value due to decline in property
value.
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Consumer
installment
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Loss
of borrower’s employment; changes in local economy; the inability to
monitor collateral (vehicles and
boats).
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5
Lending
Policy
The Bank
makes loans primarily to persons or businesses that reside, work, own property,
or operate in its primary market areas. Unsecured loans are generally
made only to persons who qualify for such credit based on net worth and
liquidity. Secured loans are made to persons who are well established
and have net worth, collateral, and cash flow to support the
loan. Exceptions to the Bank’s policies are permitted on a
case-by-case basis and require the approving officer to document, in writing,
the reason for the exception. Loans exceeding the approving officer’s
credit limit must be approved through the credit approval process involving
Regional Credit Managers. All loans to borrowers whose aggregate
lending relationship exceeds $5 million must be reported to the Bank’s Board of
Directors for ratification.
United’s
Credit Administration department provides each lending officer with written
guidelines for lending activities as approved by the Bank’s Board of
Directors. Limited lending authority is delegated to lending officers
by United’s Management Credit and Policy Committee as authorized by the Bank’s
Board of Directors or the Committee’s designees in Credit
Administration. Loans in excess of individual officer credit
authority must be approved by a senior officer with sufficient approval
authority delegated by the Management Credit and Policy Committee as authorized
by the Bank’s Board of Directors. Loans to borrowers whose total
aggregate loans exceed $15.0 million require the additional approval of two Bank
directors.
Regional
Credit Managers
United utilizes its Regional Credit
Managers to provide credit administration support to the Bank as
needed. The Regional Credit Managers have joint lending approval
authority with the community bank Presidents within varying limits set by the
Management Credit and Policy Committee based on characteristics of each
market. The Regional Credit Managers also provide credit underwriting
support as needed by the community banks they serve.
Loan
Review and Non-performing Assets
The Loan
Review Department of United reviews, or engages an independent third party to
review, the Bank’s loan portfolio on an ongoing basis to identify any weaknesses
in the portfolio and to assess the general quality of credit underwriting. The
results of such reviews are presented to Executive Management, the community
bank Presidents, Credit Administration management and the Audit Committee of the
Board of Directors. If an individual loan or credit relationship has
a material weakness identified during the review process, the risk rating of the
loan, or all loans comprising that credit relationship, will be downgraded to
the classification that most closely matches the current risk
level. The review process also provides for the upgrade of loans that
show improvement since the last review. Since each loan in a credit
relationship may have a different credit structure, collateral, and other
secondary source of repayment, different loans in a relationship can be assigned
different risk ratings. Under United’s 10-tier loan grading system,
grades 1 through 6 are considered “pass” (acceptable) credit risk, grade 7 is a
“watch” rating, and grades 8 through 10 are “adversely classified” credits that
require management’s attention. Both the pass and adversely
classified ratings, and the entire 10-grade rating scale, provide for a higher
numeric rating for increased risk. For example, a risk rating of 1 is
the least risky of all credits and would be typical of a loan that is 100%
secured by a deposit at the Bank. Risk ratings of 2 through 6 in the
pass category each have incrementally more risk. The four watch list
credit ratings and rating definitions are:
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7
(Watch)
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Weaknesses
exist that could cause future impairment, including the deterioration of
financial ratios, past-due status and questionable management
capabilities. Collateral values generally afford adequate
coverage, but may not be immediately marketable.
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|
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8
(Substandard)
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Specific
and well-defined weaknesses that may include poor liquidity and
deterioration of financial ratios. Loan may be past-due and
related deposit accounts experiencing overdrafts. Immediate
corrective action is necessary.
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9
(Doubtful)
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Specific
weaknesses characterized as Substandard that are severe enough to make
collection in full unlikely. No reliable secondary source of
full repayment.
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10
(Loss)
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Same
characteristics as Doubtful, however, probability of loss is
certain. Loans classified as such are generally
charged-off.
|
In
addition, Credit Administration and Accounting jointly prepare a quarterly
analysis to determine the adequacy of the Allowance for Loan Losses (“ALL”) for
the Bank. The ALL analysis also provides the consolidated analysis
for United. The ALL analysis starts with total loans and subtracting
loans fully secured by deposit accounts at the Bank, which effectively have no
risk of loss. Next, all loans with an adversely classified rating are
subtracted, including loans considered impaired. The remaining loan
balance for each major loan category is then multiplied by its respective loss
factor that is derived from the average historical loss rate for the preceding
two year period,
adjusted to reflect current economic conditions, which provides a required
minimum ALL for pass credits. Loss factors for these loans are
determined based on historical loss experience by type of loan. Loans
that are considered impaired are evaluated separately and are assigned specific
reserves as necessary.
6
Asset/Liability
Committees
United’s
asset/liability committee (“ALCO”) is composed of executive officers and the
Treasurer of United. The ALCO is charged with managing the assets and
liabilities of United and the Bank. The ALCO attempts to manage asset
growth, liquidity, and capital to maximize income and reduce interest rate risk,
market risk and liquidity risk. The ALCO directs the Bank’s overall
acquisition and allocation of funds. At periodic meetings, the
committee reviews the monthly asset and liability funds budget in relation to
the actual flow of funds; the ratio of the amount of rate sensitive assets to
the amount of rate sensitive liabilities; the ratio of allowance for loan losses
to outstanding and non-performing loans; and other variables, such as stress
testing expected loan demand, investment opportunities, core deposit growth
within specified categories, regulatory changes, monetary policy adjustments and
the overall state of the economy. A more comprehensive discussion of
United’s Asset/Liability Management and interest rate risk is contained in Management’s Discussion and
Analysis (Part II, Item 7) and Quantitative and Qualitative
Disclosures About Market Risk (Part II, Item 7A) sections of this
report.
Investment
Policy
United’s
investment portfolio policy is to maximize income within liquidity, asset
quality and regulatory constraints. The policy is reviewed from time
to time by United’s ALCO and United’s Board of Directors. Individual
transactions, portfolio composition, and performance are reviewed and approved
periodically by United’s Board of Directors or a committee
thereof. The Chief Financial Officer and Treasurer of United
administer the policy and report information to the Board of Directors on a
quarterly basis concerning sales, purchases, maturities and calls, resultant
gains or losses, average maturity, federal taxable equivalent yields, and
appreciation or depreciation by investment categories.
Employees
As of
December 31, 2007, United and its subsidiaries had 1,944 full-time equivalent
employees. Neither United nor any of its subsidiaries is a party to
any collective bargaining agreement and management believes that employee
relations are good.
Available
Information
United’s
Internet website address is ucbi.com. United makes available free of
charge through its website Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as
soon as reasonably practicable after they are filed with, or furnished to, the
Securities & Exchange Commission.
Supervision
And Regulation
The following is an explanation of the
supervision and regulation of United and the Bank as financial
institutions. This explanation does not purport to describe state,
federal or Nasdaq Stock Market supervision and regulation of general business
corporations or Nasdaq listed companies.
General. United is
a registered bank holding company subject to regulation by the Board of
Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank
Holding Company Act of 1956, as amended (the “Act”). United is
required to file annual and quarterly financial information with the Federal
Reserve and is subject to periodic examination by the Federal
Reserve.
The Act
requires every bank holding company to obtain the Federal Reserve’s prior
approval before (1) it may acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank that it does not already control;
(2) it or any of its non-bank subsidiaries may acquire all or substantially all
of the assets of a bank; and (3) it may merge or consolidate with any other bank
holding company. In addition, a bank holding company is generally
prohibited from engaging in, or acquiring, direct or indirect control of the
voting shares of any company engaged in non-banking activities. This
prohibition does not apply to activities listed in the Act or found by the
Federal Reserve, by order or regulation, to be closely related to banking or
managing or controlling banks as to be a proper incident
thereto. Some of the activities that the Federal Reserve has
determined by regulation or order to be closely related to banking
are:
|
●
|
making
or servicing loans and certain types of leases;
|
|
|
●
|
performing
certain data processing services;
|
|
|
●
|
acting
as fiduciary or investment or financial advisor;
|
|
|
●
|
providing
brokerage services;
|
7
|
●
|
underwriting
bank eligible securities;
|
|
|
●
|
underwriting
debt and equity securities on a limited basis through separately
capitalized subsidiaries; and
|
|
|
●
|
making
investments in corporations or projects designed primarily to promote
community welfare.
|
Although
the activities of bank holding companies have traditionally been limited to the
business of banking and activities closely related or incidental to banking (as
discussed above), the Gramm-Leach-Bliley Act (the “GLB Act”) relaxed the
previous limitations and permitted bank holding companies to engage in a broader
range of financial activities. Specifically, bank holding companies
may elect to become financial holding companies which may affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. Among the activities that are deemed “financial
in nature” include:
|
●
|
lending,
exchanging, transferring, investing for others or safeguarding money or
securities;
|
|
|
●
|
insuring,
guaranteeing, or indemnifying against loss, harm, damage, illness,
disability, or death, or providing and issuing annuities, and acting as
principal, agent, or broker with respect thereto;
|
|
|
●
|
providing
financial, investment, or economic advisory services, including advising
an investment company;
|
|
|
●
|
issuing
or selling instruments representing interests in pools of assets
permissible for a bank to hold directly; and
|
|
|
●
|
underwriting,
dealing in or making a market in
securities
|
.
A bank
holding company may become a financial holding company under this statute only
if each of its subsidiary banks is well-capitalized, is well managed and has at
least a satisfactory rating under the Community Reinvestment Act. A
bank holding company that falls out of compliance with such requirement may be
required to cease engaging in certain activities. Any bank holding
company that does not elect to become a financial holding company remains
subject to the bank holding company restrictions of the Act.
Under
this legislation, the Federal Reserve Board serves as the primary “umbrella”
regulator of financial holding companies with supervisory authority over each
parent company and limited authority over its subsidiaries. The
primary regulator of each subsidiary of a financial holding company will depend
on the type of activity conducted by the subsidiary. For example,
broker-dealer subsidiaries will be regulated largely by securities regulators
and insurance subsidiaries will be regulated largely by insurance
authorities.
United
has no current plans to register as a financial holding company.
United
must also register with the Georgia Department of Banking and Finance (“DBF”)
and file periodic information with the DBF. As part of such
registration, the DBF requires information with respect to the financial
condition, operations, management and intercompany relationship of United and
the Bank and related matters. The DBF may also require such other
information as is necessary to keep itself informed concerning compliance with
Georgia law and the regulations and orders issued thereunder by the DBF, and the
DBF may examine United and the Bank. Although the Bank operates
branches in North Carolina and Tennessee, neither the North Carolina Banking
Commission (“NCBC”), nor the Tennessee Department of Financial Institutions
(“TDFI”) examines or directly regulates out-of-state holding
companies.
United is
an “affiliate” of the Bank under the Federal Reserve Act, which imposes certain
restrictions on (1) loans by the Bank to United, (2) investments in the stock or
securities of United by the Bank, (3) the Bank taking the stock or securities of
an “affiliate” as collateral for loans by the Bank to a borrower, and (4) the
purchase of assets from United by the Bank. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
The Bank
and each of its subsidiaries are regularly examined by the Federal Deposit
Insurance Corporation (the “FDIC”). The Bank, as a state banking
association organized under Georgia law, is subject to the supervision of, and
is regularly examined by, the DBF. The Bank’s North Carolina branches
are subject to examination by the NCBC. The Bank’s Tennessee branches
are subject to examination by the TDFI. Both the FDIC and the DBF
must grant prior approval of any merger, consolidation or other corporation
reorganization involving The Bank.
Payment of
Dividends. United is a legal entity separate and distinct from
the Bank. Most of the revenue of United results from dividends paid
to it by the Bank. There are statutory and regulatory requirements
applicable to the payment of dividends by the Bank, as well as by United to its
shareholders.
8
Under the
regulations of the DBF, dividends may not be declared out of the retained
earnings of a state bank without first obtaining the written permission of the
DBF, unless such bank meets all the following requirements:
|
(a)
|
total
classified assets as of the most recent examination of the bank do not
exceed 80% of equity capital (as defined by
regulation);
|
|
|
(b)
|
the
aggregate amount of dividends declared or anticipated to be declared in
the calendar year does not exceed 50% of the net profits after taxes but
before dividends for the previous calendar year; and
|
|
|
(c)
|
the
ratio of equity capital to adjusted assets is not less than
6%.
|
The
payment of dividends by United and the Bank may also be affected or limited by
other factors, such as the requirement to maintain adequate capital above
regulatory guidelines. In addition, if, in the opinion of the
applicable regulatory authority, a bank under its jurisdiction is engaged in or
is about to engage in an unsafe or unsound practice (which, depending upon the
financial condition of the bank, could include the payment of dividends), such
authority may require, after notice and hearing, that such bank cease and desist
from such practice. The FDIC has issued a policy statement providing
that insured banks should generally only pay dividends out of current operating
earnings. In addition to the formal statutes and regulations,
regulatory authorities consider the adequacy of the Bank’s total capital in
relation to its assets, deposits and other such items. Capital
adequacy considerations could further limit the availability of dividends from
the Bank. At February 1, 2008, net assets available from the Bank to
pay dividends without prior approval from regulatory authorities totaled
approximately $28 million. For 2007, United’s declared cash dividend
payout to common stockholders was $16.8 million, or 28.57% of basic earnings per
common share.
Capital
Adequacy. The Federal Reserve and the FDIC have implemented
substantially identical risk-based rules for assessing bank and bank holding
company capital adequacy. These regulations establish minimum capital
standards in relation to assets and off-balance sheet exposures as adjusted for
credit risk. Banks and bank holding companies are required to have
(1) a minimum level of Total Capital (as defined) to risk-weighted assets of
eight percent (8%); and (2) a minimum Tier I Capital (as defined) to
risk-weighted assets of four percent (4%). In addition, the Federal
Reserve and the FDIC have established a minimum three percent (3%) leverage
ratio of Tier I Capital to quarterly average total assets for the most
highly-rated banks and bank holding companies. “Tier I Capital”
generally consists of common equity excluding unrecognized gains and losses on
available for sale securities, plus minority interests in equity accounts of
consolidated subsidiaries and certain perpetual preferred stock less certain
intangibles. The Federal Reserve and the FDIC will require a bank
holding company and a bank, respectively, to maintain a leverage ratio greater
than four percent (4%) if either is experiencing or anticipating significant
growth or is operating with less than well-diversified risks in the opinion of
the Federal Reserve. The Federal Reserve and the FDIC use the
leverage ratio in tandem with the risk-based ratio to assess the capital
adequacy of banks and bank holding companies. The FDIC, the Office of
the Comptroller of the Currency (the “OCC”) and the Federal Reserve consider
interest rate risk in the overall determination of a bank’s capital ratio,
requiring banks with greater interest rate risk to maintain adequate capital for
the risk.
In
addition, Section 38 of the Federal Deposit Insurance Act implemented the prompt
corrective action provisions that Congress enacted as a part of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (the “1991
Act”). The “prompt corrective action” provisions set forth five
regulatory zones in which all banks are placed largely based on their capital
positions. Regulators are permitted to take increasingly harsh action
as a bank’s financial condition declines. Regulators are also
empowered to place in receivership or require the sale of a bank to another
depository institution when a bank’s capital leverage ratio reaches
2%. Better capitalized institutions are generally subject to less
onerous regulation and supervision than banks with lesser amounts of
capital.
The FDIC
has adopted regulations implementing the prompt corrective action provisions of
the 1991 Act, which place financial institutions in the following five
categories based upon capitalization ratios: (1) a “well-capitalized”
institution has a Total risk-based capital ratio of at least 10%, a Tier I
risk-based ratio of at least 6% and a leverage ratio of at least 5%; (2) an
“adequately capitalized” institution has a Total risk-based capital ratio of at
least 8%, a Tier I risk-based ratio of at least 4% and a leverage ratio of at
least 4%; (3) an “undercapitalized” institution has a Total risk-based capital
ratio of under 8%, a Tier I risk-based ratio of under 4% or a leverage ratio of
under 4%; (4) a “significantly undercapitalized” institution has a Total
risk-based capital ratio of under 6%, a Tier I risk-based ratio of under 3% or a
leverage ratio of under 3%; and (5) a “critically undercapitalized” institution
has a leverage ratio of 2% or less. Institutions in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The FDIC regulations also establish
procedures for “downgrading” an institution to a lower capital category based on
supervisory factors other than capital.
To
continue to conduct its business as currently conducted, United and the Bank
will need to maintain capital well above the minimum levels. As of
December 31, 2007 and 2006, the most recent notifications from the FDIC
categorize the Bank as “well-capitalized” under current
regulations.
9
Commercial Real
Estate. In December, 2006 the federal banking agencies,
including the FDIC, issued a final guidance on concentrations in commercial real
estate lending, noting that recent increases in banks’ commercial real estate
concentrations could create safety and soundness concerns in the event of a
significant economic downturn. The guidance mandates certain minimal
risk management practices and categorizes banks with defined levels of such
concentrations as banks requiring elevated examiner scrutiny. The
Bank has concentrations in commercial real estate loans in excess of those
defined levels. Although management believes that United’s credit
processes and procedures meet the risk management standards dictated by this
guidance, regulatory outcomes could effectively limit increases in the real
estate concentrations in the Bank’s loan portfolio and require additional credit
administration and management costs associated with those
portfolios.
Loans. Inter-agency
guidelines adopted by federal bank regulators mandate that financial
institutions establish real estate lending policies with maximum allowable real
estate loan-to-value limits, subject to an allowable amount of non-conforming
loans as a percentage of capital. The Bank adopted the federal
guidelines in 2001.
Transactions with
Affiliates. Under federal law, all transactions between and
among a state nonmember bank and its affiliates, which include holding
companies, are subject to Sections 23A and 23B of the Federal Reserve Act and
Regulation W promulgated thereunder. Generally, these requirements
limit these transactions to a percentage of the bank’s capital and require all
of them to be on terms at least as favorable to the bank as transactions with
non-affiliates. In addition, a bank may not lend to any affiliate
engaged in non-banking activities not permissible for a bank holding company or
acquire shares of any affiliate that is not a subsidiary. The FDIC is
authorized to impose additional restrictions on transactions with affiliates if
necessary to protect the safety and soundness of a bank. The
regulations also set forth various reporting requirements relating to
transactions with affiliates.
Financial
Privacy. In accordance with the GLB Act, federal banking
regulators adopted rules that limit the ability of banks and other financial
institutions to disclose non-public information about consumers to nonaffiliated
third parties. These limitations require disclosure of privacy
policies to consumers and, in some circumstances, allow consumers to prevent
disclosure of certain personal information to a nonaffiliated third
party. The privacy provisions of the GLB Act affect how consumer
information is transmitted through diversified financial companies and conveyed
to outside vendors.
Anti-Money Laundering Initiatives and
the USA Patriot Act. A major focus of governmental policy on
financial institutions in recent years has been aimed at combating terrorist
financing. This has generally been accomplished by amending existing
anti-money laundering laws and regulations. The USA Patriot Act of
2001 (the “USA Patriot Act”) has imposed significant new compliance and due
diligence obligations, creating new crimes and penalties. The United
States Treasury Department has issued a number of implementing regulations which
apply to various requirements of the USA Patriot Act to United and the
Bank. These regulations impose obligations on financial institutions
to maintain appropriate policies, procedures and controls to detect, prevent and
report money laundering and terrorist financing and to verify the identity of
their customers. Failure of a financial institution to maintain and
implement adequate programs to combat terrorist financing, or to comply with all
of the relevant laws or regulations, could have serious legal and reputational
consequences for the institution.
10
Executive
Officers Of United
Senior
executives of United are elected by the Board of Directors annually and serve at
the pleasure of the Board of Directors.
The
senior executives officers of United, and their ages, positions with United,
past five year employment history and terms of office as of February 1, 2008,
are as follows:
| Name (age) | Position with United |
Officer
of United Since
|
|
Jimmy
C. Tallent
(55)
|
President,
Chief Executive Officer and
Director
|
1988
|
|
Guy
W. Freeman
(71)
|
Executive
Vice President, Chief Operating Officer and Director
|
1995
|
|
Rex
S. Schuette
(58)
|
Executive
Vice President and Chief Financial Officer
|
2001
|
|
David
Shearrow
(48)
|
Executive
Vice President and Chief Risk Officer since April 2007; prior to joining
United, he served as Executive Vice President and Senior Credit Officer of
SunTrust Banks.
|
2007
|
|
Craig
Metz
(52)
|
Executive
Vice President of Marketing
|
2002
|
|
Bill
M. Gilbert
(55)
|
Senior
Vice President of Retail Banking since June 2003; previously, he was
President of United Community Bank - Summerville
|
2003
|
None of
the above officers are related and there are no arrangements or understandings
between them and any other person pursuant to which any of them was elected as
an officer, other than arrangements or understandings with directors or officers
of United acting solely in their capacities as such. Thomas C.
Gilliland, former Executive Vice President, Secretary, and General Counsel,
retired effective January 31, 2008.
11
ITEM
1A. RISK FACTORS.
An
investment in United’s common stock involves risk. Investors should carefully
consider the risks described below and all other information contained in this
Annual Report on Form 10-K and the documents incorporated by reference before
deciding to purchase common stock. It is possible that risks and uncertainties
not listed below may arise or become material in the future and affect United’s
business.
Past
operating results may not be indicative of future operating
results.
United
may not be able to sustain its growth. Various factors, such as increased size,
economic conditions, regulatory and legislative considerations, competition and
the ability to find and retain people that can make United’s community-focused
operating model successful, may impede its ability to expand its market
presence. If United experiences a significant decrease in its growth rate, its
results of operations and financial condition may be adversely
affected.
United’s
business is subject to the success of the local economies and real estate
markets in which it operates.
United’s
success significantly depends on the growth in population, income levels, loans
and deposits and on the continued stability in real estate values in its
markets. If the communities in which it operates do not grow or if prevailing
economic conditions locally or nationally are unfavorable, United’s business may
be adversely affected. Adverse economic conditions in United’s specific market
areas, specifically decreases in real estate property values due to the nature
of United’s loan portfolio, approximately 90% of which is secured by real
estate, could reduce United’s growth rate, affect the ability of customers to
repay their loans and generally affect United’s financial condition and results
of operations. United is less able than a larger institution to spread the risks
of unfavorable local economic conditions across a large number of more diverse
economies.
United’s
concentration of residential construction loans is subject to unique risks that
could adversely affect earnings.
United’s
residential construction loan portfolio was $1.8 billion at December 31, 2007,
comprising 31% of total loans. Residential construction loans are often riskier
than home equity loans or residential mortgage loans to individuals. In the
event of a general economic slowdown like the one we are currently experiencing,
these loans sometimes represent higher risk due to slower sales and reduced cash
flow that could affect the borrowers’ ability to repay on a timely
basis.
In
addition, although regulations and regulatory policies affecting banks and
financial services companies undergo continuous change and we cannot predict
when changes will occur or the ultimate effect of any changes, there has been
recent regulatory focus on construction, development and other commercial real
estate lending. Recent changes in the federal policies applicable to
construction, development or other commercial real estate loans make us subject
us to substantial limitations with respect to making such loans, increase the
costs of making such loans, and require us to have a greater amount of capital
to support this kind of lending, all of which could have a material adverse
effect on our profitability or financial condition.
United
may face risks with respect to future expansion and acquisitions.
United
regularly engages in de novo branch expansion. Also, when a business
opportunity becomes available in the right market with the right management
team, United may seek to acquire other financial institutions or parts of those
institutions. These involve a number of risks,
including:
|
·
|
the
potential inaccuracy of the estimates and judgments used to evaluate
credit, operations, management and market risks with respect to an
acquired branch or institution,a new branch office or a new
market;
|
|
|
·
|
the
time and costs of evaluating new markets, hiring or retaining experienced
local management and opening new offices and the time lags between these
activities and the generation of sufficient assets and deposits to support
the costs of the expansion;
|
|
|
·
|
the
incurrence and possible impairment of goodwill associated with an
acquisition and possible adverse effects on results of operations;
and
|
|
|
·
|
the
risk of loss of key employees and customers of an acquired branch or
institution.
|
Changes
in prevailing interest rates may negatively affect net income and the value of
United’s assets.
Changes
in prevailing interest rates may negatively affect the level of net interest
revenue, the primary component of net income. In a period of changing interest
rates, interest expense may increase at different rates than the interest earned
on assets. Accordingly, changes in interest rates could decrease net interest
revenue. At December 31, 2007, our simulation model indicated that a 200 basis
point increase in rates over the next twelve months would cause an approximate
1.3% increase in net interest revenue and a 200 basis point decrease in rates
over the next twelve months would cause an approximate 1.5% decrease in net
interest revenue.
12
Changes
in the level of interest rates may also negatively affect the value of United’s
assets and its ability to realize gains or avoid losses from the sale of those
assets, all of which ultimately affect earnings. In addition, an increase in
interest rates may decrease the demand for loans.
If
United’s allowance for loan losses is not sufficient to cover actual loan
losses, earnings would decrease.
United’s
loan customers may not repay their loans according to their terms and the
collateral securing the payment of these loans may be insufficient to assure
repayment. United may experience significant loan losses which would have a
material adverse effect on operating results. Management makes various
assumptions and judgments about the collectibility of the loan portfolio,
including the creditworthiness of borrowers and the value of the real estate and
other assets serving as collateral for the repayment of loans. United maintains
an allowance for loan losses in an attempt to cover any loan losses inherent in
the portfolio. In determining the size of the allowance, management relies on an
analysis of the loan portfolio based on historical loss experience, volume and
types of loans, trends in classification, volume and trends in delinquencies and
non-accruals, national and local economic conditions and other pertinent
information. If those assumptions are incorrect, the allowance may not be
sufficient to cover future loan losses and adjustments may be necessary to allow
for different economic conditions or adverse developments in the loan
portfolio.
United
may be subject to losses due to fraudulent and negligent conduct of our loan
customers, third party service providers and employees.
When we make loans to individuals or
entities, we rely upon information supplied by borrowers and other third
parties, including information contained in the applicant’s loan application,
property appraisal reports, title information and the borrower’s net worth,
liquidity and cash flow information. While we attempt to verify
information provided through available sources, we cannot be certain all such
information is correct or complete. Our reliance on incorrect or
incomplete information could have a material adverse effect on our profitability
or financial condition.
Competition
from financial institutions and other financial service providers may adversely
affect United’s profitability.
The
banking business is highly competitive, and United experiences competition in
each of its markets from many other financial institutions. United competes with
commercial banks, credit unions, savings and loan associations, mortgage banking
firms, securities brokerage firms, insurance companies, money market funds and
other mutual funds, as well as community, super-regional, national and
international financial institutions that operate offices in its market areas
and elsewhere. United competes with these institutions both in attracting
deposits and in making loans. Many of United’s competitors are well-established,
larger financial institutions that are able to operate profitably with a
narrower net interest margin and have a more diverse revenue base. United may
face a competitive disadvantage as a result of its smaller size, more limited
geographic diversification and inability to spread costs across broader markets.
Although United competes by concentrating marketing efforts in primary markets
with local advertisements, personal contacts and greater flexibility and
responsiveness in working with local customers, there can be no assurance that
this strategy will continue to be successful.
ITEM
1B. UNRESOLVED STAFF
COMMENTS.
There are no unresolved comments from
the Securities and Exchange Commission staff regarding United’s periodic or
current reports under the Exchange Act.
ITEM
2. PROPERTIES.
The
executive offices of United are located at 63 Highway 515, Blairsville,
Georgia.
United owns this property. The
Bank conducts business from facilities primarily owned by the Bank, all of which
are in a good state of repair and appropriately designed for use as banking
facilities. The Bank, Brintech and UCIS provide services or perform
operational functions at 130 locations, of which 99 are owned and 31 are
leased under operating leases. Note 7 to United’s Consolidated Financial
Statements includes additional information regarding amounts invested in
premises and equipment.
ITEM
3. LEGAL
PROCEEDINGS.
In the ordinary course of operations,
United and the Bank are defendants in various legal proceedings incidental to
its business. In the opinion of management, there is no pending or
threatened proceeding in which an adverse decision will result in a material
adverse change in the consolidated financial condition or results of operations
of United. No material proceedings terminated in the fourth quarter
of 2007.
13
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No
matters were submitted to a vote of the security holders of United during the
fourth quarter of 2007.
PART
II
ITEM
5.
MARKET
FOR UNITED’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Stock. United’s
common stock trades on the Nasdaq Global Select Market under the symbol
“UCBI”. The closing price for the period ended December 31, 2007 was
$15.80. Below is a schedule of high, low and closing stock prices and
average daily volume for all quarters in 2007 and 2006.
Stock Price
Information
|
2007
|
2006
|
|||||||||||||||||||||||||||||||
|
High
|
Low
|
Close
|
Avg
Daily
Volume
|
High
|
Low
|
Close
|
Avg
Daily
Volume
|
|||||||||||||||||||||||||
|
First
quarter
|
$ | 34.98 | $ | 30.81 | $ | 32.79 | 232,269 | $ | 29.64 | $ | 26.02 | $ | 28.15 | 59,252 | ||||||||||||||||||
|
Second
quarter
|
33.03 | 25.80 | 25.89 | 266,682 | 31.26 | 27.02 | 30.44 | 92,937 | ||||||||||||||||||||||||
|
Third
quarter
|
27.50 | 22.16 | 24.52 | 346,596 | 33.10 | 27.51 | 30.05 | 86,495 | ||||||||||||||||||||||||
|
Fourth
quarter
|
25.73 | 15.13 | 15.80 | 421,910 | 33.37 | 29.03 | 32.32 | 87,626 | ||||||||||||||||||||||||
At
January 31, 2008, there were approximately 6,435 record shareholders and 15,200
beneficial shareholders of United’s common stock.
Dividends. United
declared cash dividends of $.36, $.32 and $.28 per common share in 2007, 2006
and 2005, respectively. Federal and state laws and regulations impose
restrictions on the ability of United and the Bank to pay
dividends. Additional information regarding this item is included in
Note 16 to the Consolidated Financial Statements and under the heading of
“Supervision and Regulation” in Part I of this report.
Share
Repurchases. United has in place a board approved repurchase
authorization for up to 3,000,000 shares of United’s common stock. The
share repurchase program was initially authorized for 1,000,000 shares expiring
December 31, 2007 and was announced in our Form 10-Q for the period ended March
31, 2006, filed May 8, 2006. In July 2007, the authorization was increased
by the Board of Directors to 2,000,000 shares as announced in our Form 10-Q for
the period ended June 30, 2007, filed August 8, 2007. In October 2007, the
Board of Directors further increased the authorization to 3,000,000 shares and
extended the expiration date to December 31, 2008. This amendment was
announced in our third quarter 2007 earnings announcement dated October 23,
2007. At December 31, 2007, 2,000,000 shares had been purchased under the
authorization and 1,000,000 shares remain available under the
authorization. Stock repurchases may be made in the open market or in
private transactions at time and in amounts we deem
appropriate. However, there is no guarantee as to the exact number of
additional shares that may be repurchased and we may terminate or limit the
stock repurchase program at any time. We will hold the repurchased
shares as treasury shares.
Additionally,
United’s Amended and Restated 2000 Key Employee Stock Option Plan allows option
holders to exercise stock options by delivering previously acquired shares
having a fair market value equal to the exercise price provided that the shares
delivered must have been held by the option holder for at least six
months. During 2007 and 2006, optionees delivered 1,755 and 17,576
shares, respectively, to exercise stock options.
14
The
following table sets forth information regarding purchases of our common stock
by us or any affiliated purchaser, by quarter, during 2007. There
were no purchases of stock during the first and second quarters of 2007 and
there were no purchases, other than shares delivered by optionees, during
2006.
|
Period
|
Total
number
of
shares
purchased
|
Average
price
paid
per
share
|
Total
number of shares purchased as part of publicly announced
plans
or programs
|
Maximum
number of shares that may yet be purchased under the publicly
announced
plans
or programs
|
||||||||||||
|
July
2007
|
62,000 | $ | 23.91 | 62,000 | 2,938,000 | |||||||||||
|
August
2007
|
602,775 | 24.08 | 602,775 | 2,335,225 | ||||||||||||
|
September
2007
|
640,000 | 24.81 | 640,000 | 1,695,225 | ||||||||||||
|
Total
third quarter
|
1,304,775 | 24.43 | 1,304,775 | |||||||||||||
|
October
2007
|
94,600 | $ | 22.02 | 94,600 | 1,600,625 | |||||||||||
|
November
2007
|
495,000 | 20.42 | 495,000 | 1,105,625 | ||||||||||||
|
December
2007
|
105,625 | 18.85 | 105,625 | 1,000,000 | ||||||||||||
|
Total
fourth quarter
|
695,225 | 20.40 | 695,225 | |||||||||||||
Sales of Unregistered
Securities. United has not sold any unregistered securities in
the past three years other than 7,500 shares sold to one employee in one
transaction for $15.37 per share on August 4, 2005 and 189 shares sold to one
employee in one transaction for $7.55 on July 13, 2005. Both of these
transactions were pursuant to the exercise of options granted by companies that
were acquired by United, exempt under Section 4(2) of the Securities Act because
of the small number of purchasers and shares involved, the knowledge and
sophistication of the purchases and the nature of the transactions.
15
Performance
Graph. Set forth below is a line graph comparing the yearly
percentage change in the cumulative total shareholder return on United’s common
stock against the cumulative total return on the Nasdaq Stock Market (U.S.
Companies) Index and the Nasdaq Bank Stocks Index for the five-year period
commencing December 31, 2002 and ending on December 31, 2007.
|
Cumulative
Total Return
|
||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
|||||||||||||||||||
|
United
Community Banks, Inc.
|
$ | 100 | $ | 136 | $ | 169 | $ | 169 | $ | 207 | $ | 103 | ||||||||||||
|
Nasdaq
Stock Market (U.S.) Index
|
100 | 150 | 163 | 166 | 183 | 198 | ||||||||||||||||||
|
Nasdaq
Bank Index
|
100 | 129 | 147 | 144 | 161 | 128 | ||||||||||||||||||
16
|
ITEM
6. SELECTED FINANCIAL DATA.
|
|||||||||||||||||||||||||||
|
UNITED
COMMUNITY BANKS, INC.
|
|||||||||||||||||||||||||||
|
Selected
Financial Information
|
|||||||||||||||||||||||||||
|
For
the Years Ended December 31,
|
|||||||||||||||||||||||||||
|
(in
thousands, except per share data;
|
5
Year
|
||||||||||||||||||||||||||
|
taxable
equivalent)
|
2007
|
2006
|
2005
|
2004
|
2003
|
2002
|
CAGR
(4)
|
||||||||||||||||||||
|
INCOME
SUMMARY
|
|||||||||||||||||||||||||||
|
Interest
revenue
|
$ | 550,917 | $ | 446,695 | $ | 324,225 | $ | 227,792 | $ | 198,689 | $ | 185,498 | |||||||||||||||
|
Interest
expense
|
276,434 | 208,815 | 127,426 | 74,794 | 70,600 | 76,357 | |||||||||||||||||||||
|
Net
interest revenue
|
274,483 | 237,880 | 196,799 | 152,998 | 128,089 | 109,141 | 20% | ||||||||||||||||||||
|
Provision
for loan losses
(1)
|
37,600 | 14,600 | 12,100 | 7,600 | 6,300 | 6,900 | |||||||||||||||||||||
|
Fee
revenue
|
62,651 | 49,095 | 46,148 | 39,539 | 38,184 | 30,734 |
15
|
||||||||||||||||||||
|
Total
revenue
|
299,534 | 272,375 | 230,847 | 184,937 | 159,973 | 132,975 |
18
|
|
|||||||||||||||||||
|
Operating
expenses (1)
|
190,061 | 162,070 | 140,808 | 110,974 | 97,251 | 80,690 |
19
|
|
|||||||||||||||||||
|
Income
before taxes
|
109,473 | 110,305 | 90,039 | 73,963 | 62,722 | 52,285 |
16
|
|
|||||||||||||||||||
|
Income
taxes
|
40,482 | 41,490 | 33,297 | 26,807 | 23,247 | 19,505 | |||||||||||||||||||||
|
Net
operating income
|
68,991 | 68,815 | 56,742 | 47,156 | 39,475 | 32,780 |
16
|
||||||||||||||||||||
|
Fraud
loss provision, net of tax
|
10,998 | - | - | - | - | - | |||||||||||||||||||||
|
Merger-related
charges, net of tax
|
- | - | - | 565 | 1,357 | - | |||||||||||||||||||||
|
Net
income
|
$ | 57,993 | $ | 68,815 | $ | 56,742 | $ | 46,591 | $ | 38,118 | $ | 32,780 |
12
|
||||||||||||||
|
OPERATING
PERFORMANCE (1)
|
|||||||||||||||||||||||||||
|
Earnings
per common share:
|
|||||||||||||||||||||||||||
|
Basic
|
$ | 1.50 | $ | 1.70 | $ | 1.47 | $ | 1.31 | $ | 1.15 | $ | 1.02 |
8
|
||||||||||||||
|
Diluted
|
1.48 | 1.66 | 1.43 | 1.27 | 1.12 | .99 |
8
|
||||||||||||||||||||
|
Return
on tangible equity (2)(3)
|
14.23 | % | 17.52 | % | 18.99 | % | 19.74 | % | 19.24 | % | 17.88 | % | |||||||||||||||
|
Return
on assets
|
.89 | 1.09 | 1.04 | 1.07 | 1.06 | 1.11 | |||||||||||||||||||||
|
Efficiency
ratio
|
56.53 | 56.35 | 57.77 | 57.65 | 58.39 | 57.72 | |||||||||||||||||||||
|
Dividend
payout ratio
|
24.00 | 18.82 | 19.05 | 18.32 | 17.39 | 16.34 | |||||||||||||||||||||
|
GAAP
PERFORMANCE
|
|||||||||||||||||||||||||||
|
Per
common share:
|
|||||||||||||||||||||||||||
|
Basic
earnings
|
$ | 1.26 | $ | 1.70 | $ | 1.47 | $ | 1.29 | $ | 1.11 | $ | 1.02 |
4
|
||||||||||||||
|
Diluted
earnings
|
1.24 | 1.66 | 1.43 | 1.25 | 1.08 | .99 |
5
|
||||||||||||||||||||
|
Cash
dividends declared (rounded)
|
.36 | .32 | .28 | .24 | .20 | .17 |
17
|
||||||||||||||||||||
|
Book
value
|
17.73 | 14.37 | 11.80 | 10.39 | 8.47 | 6.89 |
21
|
||||||||||||||||||||
|
Tangible
book value
(3)
|
10.94 | 10.57 | 8.94 | 7.34 | 6.52 | 6.49 |
11
|
||||||||||||||||||||
|
Key
performance ratios:
|
|||||||||||||||||||||||||||
|
Return
on equity (2)
|
7.79 | % | 13.28 | % | 13.46 | % | 14.39 | % | 14.79 | % | 16.54 | % | |||||||||||||||
|
Return
on assets
|
.75 | 1.09 | 1.04 | 1.05 | 1.02 | 1.11 | |||||||||||||||||||||
|
Net
interest margin
|
3.88 | 4.05 | 3.85 | 3.71 | 3.68 | 3.95 | |||||||||||||||||||||
|
Dividend
payout ratio
|
28.57 | 18.82 | 19.05 | 18.60 | 18.02 | 16.34 | |||||||||||||||||||||
|
Equity
to assets
|
9.61 | 8.06 | 7.63 | 7.45 | 7.21 | 7.01 | |||||||||||||||||||||
|
Tangible
equity to assets (3)
|
6.63 | 6.32 | 5.64 | 5.78 | 6.02 | 6.60 | |||||||||||||||||||||
|
ASSET
QUALITY
|
|||||||||||||||||||||||||||
|
Allowance
for loan losses
|
$ | 89,423 | $ | 66,566 | $ | 53,595 | $ | 47,196 | $ | 38,655 | $ | 30,914 | |||||||||||||||
|
Non-performing
assets
|
46,258 | 13,654 | 12,995 | 8,725 | 7,589 | 8,019 | |||||||||||||||||||||
|
Net
charge-offs
|
39,834 | 5,524 | 5,701 | 3,617 | 4,097 | 3,111 | |||||||||||||||||||||
|
Allowance
for loan losses to loans
|
1.51 | % | 1.24 | % | 1.22 | % | 1.26 | % | 1.28 | % | 1.30 | % | |||||||||||||||
|
Non-performing
assets to total assets
|
.56 | .19 | .22 | .17 | .19 | .25 | |||||||||||||||||||||
|
Net
charge-offs to average loans
|
.69 | .12 | .14 | .11 | .15 | .14 | |||||||||||||||||||||
|
AVERAGE
BALANCES
|
|||||||||||||||||||||||||||
|
Loans
|
$ | 5,734,608 | $ | 4,800,981 | $ | 4,061,091 | $ | 3,322,916 | $ | 2,753,451 | $ | 2,239,875 |
21
|
||||||||||||||
|
Investment
securities
|
1,277,935 | 1,041,897 | 989,201 | 734,577 | 667,211 | 464,468 |
22
|
||||||||||||||||||||
|
Earning
assets
|
7,070,900 | 5,877,483 | 5,109,053 | 4,119,327 | 3,476,030 | 2,761,265 |
21
|
||||||||||||||||||||
|
Total
assets
|
7,730,530 | 6,287,148 | 5,472,200 | 4,416,835 | 3,721,284 | 2,959,295 |
21
|
||||||||||||||||||||
|
Deposits
|
6,028,625 | 5,017,435 | 4,003,084 | 3,247,612 | 2,743,087 | 2,311,717 |
21
|
||||||||||||||||||||
|
Shareholders’
equity
|
742,771 | 506,946 | 417,309 | 329,225 | 268,446 | 207,312 |
29
|
||||||||||||||||||||
|
Common
shares - Basic
|
45,893 | 40,393 | 38,477 | 36,071 | 34,132 | 32,062 | |||||||||||||||||||||
|
Common
shares - Diluted
|
46,593 | 41,575 | 39,721 | 37,273 | 35,252 | 33,241 | |||||||||||||||||||||
|
AT
YEAR END
|
|||||||||||||||||||||||||||
|
Loans
|
$ | 5,929,263 | $ | 5,376,538 | $ | 4,398,286 | $ | 3,734,905 | $ | 3,015,997 | $ | 2,381,798 |
20
|
||||||||||||||
|
Investment
securities
|
1,356,846 | 1,107,153 | 990,687 | 879,978 | 659,891 | 559,390 |
19
|
||||||||||||||||||||
|
Total
assets
|
8,207,302 | 7,101,249 | 5,865,756 | 5,087,702 | 4,068,834 | 3,211,344 |
21
|
||||||||||||||||||||
|
Deposits
|
6,075,951 | 5,772,886 | 4,477,600 | 3,680,516 | 2,857,449 | 2,385,239 |
21
|
||||||||||||||||||||
|
Shareholders’
equity
|
831,902 | 616,767 | 472,686 | 397,088 | 299,373 | 221,579 |
30
|
||||||||||||||||||||
|
Common
shares outstanding
|
46,903 | 42,891 | 40,020 | 38,168 | 35,289 | 31,895 |
8
|
||||||||||||||||||||
|
(1)
|
Excludes
pre-tax provision for fraud losses of $18 million, or $.24 per diluted
common share, recorded in 2007 and pre-tax merger-related charges totaling
$.9 million, or $.02 per diluted common share, recorded in 2004 and $2.1
million, or $.04 per diluted share, recorded in 2003.
|
|||||||||||||||
|
(2)
|
Net
income available to common shareholders, which excludes preferred stock
dividends, divided by average realized common equity which excludes
accumulated other comprehensive income (loss).
|
|||||||||||||||
|
(3)
|
Excludes
effect of acquisition related intangibles and associated
amortization.
|
|||||||||||||||
|
(4)
|
Compound
annual growth rate.
|
|||||||||||||||
17
|
UNITED
COMMUNITY BANKS, INC.
|
||||||||||||||||||||||||||||||||
|
Selected
Financial Information (continued)
|
||||||||||||||||||||||||||||||||
|
2007
|
2006
|
|||||||||||||||||||||||||||||||
|
(in
thousands, except per share
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
||||||||||||||||||||||||
|
data;
taxable equivalent)
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
||||||||||||||||||||||||
|
INCOME
SUMMARY
|
||||||||||||||||||||||||||||||||
|
Interest
revenue
|
$ | 140,768 | $ | 144,884 | $ | 136,237 | $ | 129,028 | $ | 123,463 | $ | 116,304 | $ | 107,890 | $ | 99,038 | ||||||||||||||||
|
Interest
expense
|
71,038 | 73,203 | 68,270 | 63,923 | 60,912 | 55,431 | 49,407 | 43,065 | ||||||||||||||||||||||||
|
Net
interest revenue
|
69,730 | 71,681 | 67,967 | 65,105 | 62,551 | 60,873 | 58,483 | 55,973 | ||||||||||||||||||||||||
|
Provision
for loan losses (1)
|
26,500 | 3,700 | 3,700 | 3,700 | 3,700 | 3,700 | 3,700 | 3,500 | ||||||||||||||||||||||||
|
Fee
revenue
|
16,100 | 15,615 | 16,554 | 14,382 | 13,215 | 12,146 | 11,976 | 11,758 | ||||||||||||||||||||||||
|
Total
revenue
|
59,330 | 83,596 | 80,821 | 75,787 | 72,066 | 69,319 | 66,759 | 64,231 | ||||||||||||||||||||||||
|
Operating
expenses
|
49,336 | 48,182 | 47,702 | 44,841 | 42,521 | 41,441 | 39,645 | 38,463 | ||||||||||||||||||||||||
|
Income
before taxes
|
9,994 | 35,414 | 33,119 | 30,946 | 29,545 | 27,878 | 27,114 | 25,768 | ||||||||||||||||||||||||
|
Income
taxes
|
3,960 | 12,878 | 12,043 | 11,601 | 11,111 | 10,465 | 10,185 | 9,729 | ||||||||||||||||||||||||
|
Net
operating income
|
6,034 | 22,536 | 21,076 | 19,345 | 18,434 | 17,413 | 16,929 | 16,039 | ||||||||||||||||||||||||
|
Fraud
loss provision, net of tax
|
1,833 | - | 9,165 | - | - | - | - | - | ||||||||||||||||||||||||
|
Net
income
|
$ | 4,201 | $ | 22,536 | $ | 11,911 | $ | 19,345 | $ | 18,434 | $ | 17,413 | $ | 16,929 | $ | 16,039 | ||||||||||||||||
|
OPERATING
PERFORMANCE (1)
|
||||||||||||||||||||||||||||||||
|
Per
common share:
|
||||||||||||||||||||||||||||||||
|
Basic
earnings
|
$ | .13 | $ | .47 | $ | .47 | $ | .45 | $ | .45 | $ | .43 | $ | .42 | $ | .40 | ||||||||||||||||
|
Diluted
earnings
|
.13 | .46 | .46 | .44 | .44 | .42 | .41 | .39 | ||||||||||||||||||||||||
|
Return
on tangible equity (2)(3)(4)
|
5.06 | % | 17.54 | % | 17.52 | % | 17.18 | % | 17.49 | % | 17.29 | % | 17.68 | % | 17.66 | % | ||||||||||||||||
|
Return
on assets (4)
|
.29 | 1.11 | 1.12 | 1.11 | 1.10 | 1.09 | 1.10 | 1.09 | ||||||||||||||||||||||||
|
Dividend
payout ratio
|
69.23 | 19.15 | 19.15 | 20.00 | 17.78 | 18.60 | 19.05 | 20.00 | ||||||||||||||||||||||||
|
GAAP
PERFORMANCE MEASURES
|
||||||||||||||||||||||||||||||||
|
Per
common share:
|
||||||||||||||||||||||||||||||||
|
Basic
earnings
|
$ | .09 | $ | .47 | $ | .26 | $ | .45 | $ | .45 | $ | .43 | $ | .42 | $ | .40 | ||||||||||||||||
|
Diluted
earnings
|
.09 | .46 | .26 | .44 | .44 | .42 | .41 | .39 | ||||||||||||||||||||||||
|
Cash
dividends declared
|
.09 | .09 | .09 | .09 | .08 | .08 | .08 | .08 | ||||||||||||||||||||||||
|
Book
value
|
17.73 | 17.53 | 16.98 | 14.83 | 14.37 | 13.07 | 12.34 | 12.09 | ||||||||||||||||||||||||
|
Tangible
book value (3)
|
10.94 | 10.82 | 10.44 | 11.06 | 10.57 | 10.16 | 9.50 | 9.25 | ||||||||||||||||||||||||
|
Key
performance ratios:
|
||||||||||||||||||||||||||||||||
|
Return
on equity (2)(4)
|
2.01 | % | 10.66 | % | 7.05 | % | 12.47 | % | 13.26 | % | 13.22 | % | 13.41 | % | 13.25 | % | ||||||||||||||||
|
Return
on assets (4)
|
.20 | 1.11 | .64 | 1.11 | 1.10 | 1.09 | 1.10 | 1.09 | ||||||||||||||||||||||||
|
Net
interest margin (4)
|
3.73 | 3.89 | 3.94 | 3.99 | 3.99 | 4.07 | 4.07 | 4.06 | ||||||||||||||||||||||||
|
Efficiency
ratio
|
57.67 | 55.34 | 56.59 | 56.56 | 55.93 | 56.46 | 56.27 | 56.79 | ||||||||||||||||||||||||
|
Dividend
payout ratio
|
100.00 | 19.15 | 34.62 | 20.00 | 17.78 | 18.60 | 19.05 | 20.00 | ||||||||||||||||||||||||
|
Equity
to assets
|
10.20 | 10.32 | 8.94 | 8.80 | 8.21 | 8.04 | 7.95 | 8.04 | ||||||||||||||||||||||||
|
Tangible
equity to assets (3)
|
6.58 | 6.65 | 6.65 | 6.66 | 6.46 | 6.35 | 6.22 | 6.24 | ||||||||||||||||||||||||
|
ASSET
QUALITY
|
||||||||||||||||||||||||||||||||
|
Allowance
for loan losses
|
$ | 89,423 | $ | 90,935 | $ | 92,471 | $ | 68,804 | $ | 66,566 | $ | 60,901 | $ | 58,508 | $ | 55,850 | ||||||||||||||||
|
Non-performing
assets
|
46,258 | 63,337 | 43,601 | 14,290 | 13,654 | 9,347 | 8,805 | 8,367 | ||||||||||||||||||||||||
|
Net
charge-offs
|
31,012 | 5,236 | 2,124 | 1,462 | 1,930 | 1,307 | 1,042 | 1,245 | ||||||||||||||||||||||||
|
Allowance
for loan losses to loans
|
1.51 | % | 1.53 | % | 1.54 | % | 1.27 | % | 1.24 | % | 1.23 | % | 1.22 | % | 1.22 | % | ||||||||||||||||
|
Non-performing
assets to total assets
|
.56 | .77 | .54 | .20 | .19 | .14 | .14 | .14 | ||||||||||||||||||||||||
|
Net
charge-offs to average loans (4)
|
2.07 | .35 | .15 | .11 | .15 | .11 | .09 | .11 | ||||||||||||||||||||||||
|
AVERAGE
BALANCES
|
||||||||||||||||||||||||||||||||