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t76429_10q.htm

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, 2013

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 Executive Offices		(Zip Code)

(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, or 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 o	Accelerated filer x
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 43,071,080 shares voting and 14,703,636 shares non-voting outstanding as of April 30, 2013.

INDEX


PART I - Financial Information

	Item 1.	Financial Statements.

		Consolidated Statement of Income (unaudited) for the Three Months Ended March 31, 2013 and 2012	3

		Consolidated Statement of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2013 and 2012	4

		Consolidated Balance Sheet at March 31, 2013 (unaudited), December 31, 2012 (audited) and March 31, 2012 (unaudited)	5

		Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2013 and 2012	6

		Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 2013 and 2012	7

		Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	33

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	54

	Item 4.	Controls and Procedures.	54

PART II - Other Information

	Item 1.	Legal Proceedings.	55
	Item 1A.	Risk Factors.	55
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	55
	Item 3.	Defaults Upon Senior Securities.	55
	Item 4.	Mine Safety Disclosures.	55
	Item 5.	Other Information.	55
	Item 6.	Exhibits.	56

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)	2013		2012
Interest revenue:
Loans, including fees	$	50,934	$	55,759
Investment securities, including tax exempt of $212 and $250		9,965		13,004
Deposits in banks and short-term investments		870		1,012
Total interest revenue		61,769		69,775
Interest expense:
Deposits:
NOW		454		637
Money market		562		641
Savings		36		37
Time		3,226		6,159
Total deposit interest expense		4,278		7,474
Short-term borrowings		516		1,045
Federal Home Loan Bank advances		19		466
Long-term debt		2,662		2,372
Total interest expense		7,475		11,357
Net interest revenue		54,294		58,418
Provision for loan losses		11,000		15,000
Net interest revenue after provision for loan losses		43,294		43,418
Fee revenue:
Service charges and fees		7,403		7,783
Mortgage loan and other related fees		2,655		2,099
Brokerage fees		767		813
Securities gains, net		116		557
Loss from prepayment of debt		-		(482	)
Other		1,885		4,609
Total fee revenue		12,826		15,379
Total revenue		56,120		58,797
Operating expenses:
Salaries and employee benefits		23,592		25,225
Communications and equipment		3,046		3,155
Occupancy		3,367		3,771
Advertising and public relations		938		846
Postage, printing and supplies		863		979
Professional fees		2,366		1,975
Foreclosed property		2,333		3,825
FDIC assessments and other regulatory charges		2,505		2,510
Amortization of intangibles		705		732
Other		4,055		3,937
Total operating expenses		43,770		46,955
Net income before income taxes		12,350		11,842
Income tax expense		585		314
Net income		11,765		11,528
Preferred stock dividends and discount accretion		3,052		3,030
Net income available to common shareholders	$	8,713	$	8,498
Earnings per common share - basic / diluted	$	.15	$	.15
Weighted average common shares outstanding - basic / diluted		58,081		57,764

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Comprehensive Income (Unaudited)


	Three Months Ended
	March 31,
(in thousands)	2013									2012
				Tax									Tax
	Before-tax			(Expense)			Net of Tax			Before-tax			(Expense)			Net of Tax
	Amount			Benefit			Amount			Amount			Benefit			Amount

Net income		12,350			(585	)		11,765		$	11,842		$	(314	)	$	11,528
Other comprehensive income (loss):
Unrealized (losses) gains on available-for-sale securities:
Unrealized holding gains (losses) arising during period		1,641			(621	)		1,020			(3,340	)		1,299			(2,041	)
Reclassification adjustment for gains included in net income		(116	)		45			(71	)		(557	)		217			(340	)
Valuation allowance for the change in deferred taxes arising from unrealized gains and losses on available-for-sale securities		—			576			576			—			(1,516	)		(1,516	)
Net unrealized gains (losses)		1,525			—			1,525			(3,897	)		—			(3,897	)
Amortization of gains included in net income (loss) on available-for-sale securities transferred to held-to-maturity		(319	)		124			(195	)		(413	)		160			(253	)
Valuation allowance for the change in deferred taxes arising from the amortization of gains included in net income (loss) on available-for-sale securities transferred to held-to-maturity		—			(124	)		(124	)		—			(160	)		(160	)
Net unrealized losses		(319	)		—			(319	)		(413	)		—			(413	)
Amortization of gains included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges		(538	)		209			(329	)		(1,600	)		622			(978	)
Unrealized losses on derivative financial instruments accounted for as cash flow hedges		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	)		—			(622	)		(622	)
Net unrealized losses		(108	)		—			(108	)		(1,600	)		—			(1,600	)
Net actuarial loss on defined benefit pension plan		(415	)		161			(254	)		—			—			—
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan		132			(51	)		81			154			(60	)		94
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	)					60			60
Net defined benefit pension plan activity		(283	)		—			(283	)		154			—			154
Total other comprehensive income (loss)		815			—			815			(5,756	)		—			(5,756	)
Comprehensive income		13,165			(585	)		12,580		$	6,086		$	(314	)	$	5,772

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.

Consolidated Balance Sheet (Unaudited)


	March 31,			December 31,			March 31,
(in thousands, except share and per share data)	2013			2012			2012
ASSETS
Cash and due from banks	$	57,638		$	66,536		$	53,147
Interest-bearing deposits in banks		107,390			124,613			139,439
Short-term investments		82,000			60,000			235,000
Cash and cash equivalents		247,028			251,149			427,586
Securities available-for-sale		1,909,426			1,834,593			1,898,815
Securities held-to-maturity (fair value $247,087, $261,131 and $318,490)		231,087			244,184			303,636
Mortgage loans held for sale		18,290			28,821			24,809
Loans, net of unearned income		4,193,560			4,175,008			4,127,566
Less allowance for loan losses		(105,753	)		(107,137	)		(113,601	)
Loans, net		4,087,807			4,067,871			4,013,965
Assets covered by loss sharing agreements with the FDIC		42,096			47,467			72,854
Premises and equipment, net		168,036			168,920			174,419
Bank owned life insurance		82,114			81,867			80,956
Accrued interest receivable		18,302			18,659			20,292
Goodwill and other intangible assets		4,805			5,510			7,695
Foreclosed property		16,734			18,264			31,887
Unsettled securities sales		—			5,763			43,527
Other assets		23,643			29,191			73,252
Total assets	$	6,849,368		$	6,802,259		$	7,173,693
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand	$	1,298,425		$	1,252,605		$	1,101,757
NOW		1,281,454			1,316,453			1,389,016
Money market		1,165,836			1,149,912			1,123,734
Savings		243,347			227,308			214,150
Time:
Less than $100,000		1,019,396			1,055,271			1,207,479
Greater than $100,000		685,174			705,558			796,882
Brokered		332,220			245,033			167,521
Total deposits		6,025,852			5,952,140			6,000,539
Short-term borrowings		51,999			52,574			101,925
Federal Home Loan Bank advances		125			40,125			215,125
Long-term debt		124,825			124,805			120,245
Unsettled securities purchases		—			—			119,565
Accrued expenses and other liabilities		54,349			51,210			36,755
Total liabilities		6,257,150			6,220,854			6,594,154
Commitments and contingencies

Shareholders’ equity:
Preferred stock, $1 par value; 10,000,000 shares authorized;
Series A; $10 stated value; 21,700 shares issued and outstanding		217			217			217
Series B; $1,000 stated value; 180,000 shares issued and outstanding		178,937			178,557			177,451
Series D; $1,000 stated value; 16,613 shares issued and outstanding		16,613			16,613			16,613
Common stock, $1 par value; 100,000,000 shares authorized;
43,063,761, 42,423,870 and 41,688,647 shares issued and outstanding		43,064			42,424			41,689
Common stock, non-voting, $1 par value; 30,000,000 shares authorized;
14,703,636, 15,316,794 and 15,914,209 shares issued and outstanding		14,704			15,317			15,914
Common stock issuable; 133,469, 133,238 and 90,126 shares		2,726			3,119			2,948
Capital surplus		1,059,222			1,057,951			1,056,135
Accumulated deficit		(700,440	)		(709,153	)		(722,363	)
Accumulated other comprehensive loss		(22,825	)		(23,640	)		(9,065	)
Total shareholders’ equity		592,218			581,405			579,539
Total liabilities and shareholders’ equity	$	6,849,368		$	6,802,259		$	7,173,693

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

For the Three Months Ended March 31,

	Preferred Stock								Non-Voting			Common								Accumulated Other
(in thousands, except share	Series		Series		Series		Common		Common			Stock			Capital		Accumulated			Comprehensive
and per share data)		A		B		D	Stock		Stock			Issuable			Surplus		Deficit			Loss			Total
Balance, December 31, 2011	$	217	$	177,092	$	16,613	$	41,647	$	15,914		$	3,233		$	1,054,940	$	(730,861	)	$	(3,309	)	$	575,486
Net income																		11,528						11,528
Other comprehensive loss																					(5,756	)		(5,756	)
Common stock issued to
dividend reinvestment plan
and employee benefit plans
(35,648 shares)								36								242								278
Amortization of stock options
and restricted stock awards																585								585
Vesting of restricted stock
(4,397 shares issued,
8,399 shares deferred)								4					(151	)		187								40
Deferred compensation plan,
net, including dividend
equivalents													49											49
Shares issued from deferred
compensation plan
(1,502 shares)								2					(183	)		181								—
Preferred stock dividends:
Series A																		(3	)					(3	)
Series B				359														(2,608	)					(2,249	)
Series D																		(419	)					(419	)
Balance, March 31, 2012	$	217	$	177,451	$	16,613	$	41,689	$	15,914		$	2,948		$	1,056,135	$	(722,363	)	$	(9,065	)	$	579,539
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,
net of shares surrendered
to cover payroll taxes
(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

See accompanying notes to consolidated financial statements.

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows (Unaudited)

	Three Months Ended
	March 31,
(in thousands)	2013			2012
Operating activities:
Net income	$	11,765		$	11,528
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		7,505			6,803
Provision for loan losses		11,000			15,000
Stock based compensation		626			585
Securities gains, net		(116	)		(557	)
Losses and write downs on sales of other real estate owned		1,146			2,204
Loss on prepayment of borrowings		—			482
Changes in assets and liabilities:
Other assets and accrued interest receivable		7,915			(2,612	)
Accrued expenses and other liabilities		3,225			646
Mortgage loans held for sale		10,531			(928	)
Net cash provided by operating activities		53,597			33,151
Investing activities:
Investment securities held-to-maturity:
Proceeds from maturities and calls		17,501			25,653
Purchases		(4,993	)		—
Investment securities available-for-sale:
Proceeds from sales		15,751			61,585
Proceeds from maturities and calls		132,211			142,236
Purchases		(219,349	)		(253,229	)
Net increase in loans		(36,224	)		(41,418	)
Funds collected from FDIC under loss sharing agreements		2,452			2,568
Proceeds from sales of premises and equipment		550			14
Purchases of premises and equipment		(2,001	)		(1,614	)
Proceeds from sale of other real estate		5,726			6,696
Net cash used in investing activities		(88,376	)		(57,509	)
Financing activities:
Net change in deposits		73,712			(97,444	)
Net change in short-term borrowings		(575	)		(652	)
Proceeds from Federal Home Loan Bank advances		185,000			499,000
Settlement of Federal Home Loan Bank advances		(225,000	)		(324,982	)
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans		189			278
Cash dividends on preferred stock		(2,668	)		(2,672	)
Net cash provided by financing activities		30,658			73,528
Net change in cash and cash equivalents		(4,121	)		49,170
Cash and cash equivalents at beginning of period		251,149			378,416
Cash and cash equivalents at end of period	$	247,028		$	427,586
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	8,025		$	12,252
Income taxes		1,659			1,026
Unsettled securities sales		—			43,527
Unsettled securities purchases		—			119,565
Transfers of loans to foreclosed property		6,288			9,534

See accompanying notes to consolidated financial statements.

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, 2012.

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.

Foreclosed property is initially recorded at fair value, less the estimated cost to sell. If the fair value less the estimated cost to sell at the time of foreclosure is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the fair value less the estimated cost to sell of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to operating expenses. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property. Financed sales of foreclosed property are accounted for in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 360-20, Real Estate Sales.

Certain 2012 amounts have been reclassified to conform to the 2013 presentation. The 2012 reclassifications were not material to the financial statement presentation.

Note 2 –Accounting Standards Updates and Recently Adopted Standards

In January 2013, the FASB issued Accounting Standards Update No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU limits the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting agreement. The disclosure requirements were effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. It did not have a material impact on United’s financial position or results of operations, and resulted in additional disclosures.

In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this update require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and by the respective line items of net income. The standard was effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. This guidance did not have a material impact on United’s financial position or results of operations, and resulted in additional disclosures.

There were no Accounting Standards Updates issued by the FASB since the filing of United’s 2012 Annual Report on Form 10-K that were applicable to United.

Note 3 – Offsetting Assets and Liabilities

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.

United also enters into derivative transactions that are subject to master netting arrangements; however there were no offsetting positions at March 31, 2013, December 31, 2012 or March 31, 2012.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table presents a summary of amounts outstanding under master netting agreements as of March 31, 2013 and December 31, 2012, and March 31, 2012 (in thousands).

				Gross
	Gross			Amounts					Gross Amounts not Offset
	Amounts of			Offset on the						in the Balance Sheet
	Recognized			Balance			Net Asset			Financial		Collateral
March 31, 2013	Assets			Sheet			Balance			Instruments		Received		Net Amount

Repurchase agreements / reverse repurchase agreements	$	332,000		$	(250,000	)	$	82,000		$	—	$	—	$	82,000
Derivatives		602			—			602			—		—		602
Total	$	332,602		$	(250,000	)	$	82,602		$	—	$	—	$	82,602
Weighted average interest rate of reverse repurchase agreements		1.28	%

				Gross
	Gross			Amounts						Gross Amounts not Offset
	Amounts of			Offset on the			Net			in the Balance Sheet
	Recognized			Balance			Liability			Financial		Collateral
	Liabilities			Sheet			Balance			Instruments		Pledged		Net Amount

Repurchase agreements / reverse repurchase agreements	$	250,000		$	(250,000	)	$	—		$	—	$	—	$	—
Derivatives		14,556			—			14,556			—		14,585		—
Total	$	264,556		$	(250,000	)	$	14,556		$	—	$	14,585	$	—
Weighted average interest rate of repurchase agreements		.37	%

				Gross
	Gross			Amounts						Gross Amounts not Offset
	Amounts of			Offset on the						in the Balance Sheet
	Recognized			Balance			Net Asset			Financial		Collateral
December 31, 2012	Assets			Sheet			Balance			Instruments		Received		Net Amount

Repurchase agreements / reverse repurchase agreements	$	325,000		$	(265,000	)	$	60,000		$	—	$	—	$	60,000
Securities lending transactions		50,000			(50,000	)		—			—		—		—
Derivatives		658			—			658			—		—		658
Total	$	375,658		$	(315,000	)	$	60,658		$	—	$	—	$	60,658
Weighted average interest rate of reverse repurchase agreements		1.18	%

				Gross
	Gross			Amounts						Gross Amounts not Offset
	Amounts of			Offset on the			Net			in the Balance Sheet
	Recognized			Balance			Liability			Financial		Collateral
	Liabilities			Sheet			Balance			Instruments		Pledged		Net Amount

Repurchase agreements / reverse repurchase agreements	$	265,000		$	(265,000	)	$	—		$	—	$	—	$	—
Securities lending transactions		50,000			(50,000	)		—			—		—		—
Derivatives		12,543			—			12,543			—		11,493		1,050
Total	$	327,543		$	(315,000	)	$	12,543		$	—	$	11,493	$	1,050
Weighted average interest rate of repurchase agreements		.43	%

				Gross
	Gross			Amounts						Gross Amounts not Offset
	Amounts of			Offset on the						in the Balance Sheet
	Recognized			Balance			Net Asset			Financial		Collateral
March 31, 2012	Assets			Sheet			Balance			Instruments		Received		Net Amount