United Community Banks, Inc. — 2021 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2021. United is a southeastern U.S. bank holding company with commercial and consumer banking, mortgage, equipment finance, and wealth management businesses. It reported $20.9 billion in assets and operated 171 branches across Georgia, South Carolina, North Carolina, Tennessee, and Florida at year-end.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest revenue | $549.0 million | $501.8 million |
| Noninterest income | $157.8 million | $156.1 million |
| Provision for credit losses | $37.6 million release | $80.4 million expense |
| Net income | $269.8 million | $164.1 million |
| Operating net income (non-GAAP) | $280.6 million | $169.8 million |
| Diluted EPS | $2.97 | $1.91 |
| Net interest margin (FTE) | 3.07% | 3.55% |
| Operating efficiency ratio (non-GAAP) | 53.83% | 54.64% |
- Balance sheet: Total assets were $20.95 billion, up 18%; loans were $11.76 billion, up 3%; deposits were $18.24 billion, up 20%; and shareholders’ equity was $2.22 billion, up from $2.01 billion.
- Credit: The loan allowance was $102.5 million, or 0.87% of loans, versus $137.0 million, or 1.20%, a year earlier. Nonperforming assets declined to $32.9 million (0.16% of assets) from $62.2 million (0.35%). Net charge-offs were $38,000, compared with $18.3 million in 2020.
- Cash flow: Operating activities provided $359.3 million; investing activities used $1.81 billion, mainly reflecting securities purchases; financing activities provided $2.16 billion, primarily from deposit growth. Year-end cash and cash equivalents were $2.32 billion.
- Debt and liquidity: Long-term debt was $247.4 million, down from $327.0 million after $80.6 million of repayments. Management said liquidity was sufficient; the Bank had $1.19 billion of additional FHLB borrowing capacity and $4.19 billion of unpledged securities.
- Capital: The Bank’s CET1, Tier 1, total capital, and leverage ratios were 12.87%, 12.87%, 13.46%, and 8.53%, respectively; the Bank was categorized as well-capitalized.
Material changes versus 2020
- Net income increased 64%, driven substantially by the swing from an $80.4 million credit-loss provision expense to a $37.6 million release as forecasts improved and charge-offs remained low. The release is a significant contributor to year-over-year earnings growth and is not necessarily recurring.
- Net interest revenue rose $47.3 million, supported by loan growth and lower deposit costs, but margin compressed 48 basis points to 3.07% as low rates and increased cash and securities balances weighed on yields.
- Noninterest income was broadly stable: wealth management fees more than doubled to $19.0 million, while mortgage gains and related fees fell 23% to $58.4 million as refinance and purchase activity normalized.
- Noninterest expenses rose 8% to $396.6 million, reflecting acquisitions, staffing and compensation costs, and higher merger-related charges. 2020 advertising expense included a $10 million contribution to the company’s foundation.
- Deposits and investment securities expanded materially, with securities rising to $5.65 billion from $3.65 billion. Unrealized losses on available-for-sale securities contributed to a $64.2 million other comprehensive loss for 2021.
Outlook, commentary, risks, and unusual items
- United completed the acquisitions of FinTrust in July and Aquesta in October 2021. Reliant Bancorp was acquired on January 1, 2022, after year-end; Reliant had reported $3.00 billion of assets, $2.38 billion of loans, and $2.50 billion of deposits. Purchase accounting and pro forma details were not yet available in this filing.
- Management’s stated 2022 priorities include integrating FinTrust, Aquesta, and Reliant and pursuing cost and revenue synergies alongside organic growth. The filing provides no specific earnings or revenue guidance.
- Management expected Federal Reserve rate increases during 2022 in response to inflation, but noted uncertainty around timing and magnitude. It also expected revised overdraft policies to reduce overdraft fee income in 2022.
- COVID-related active payment deferrals fell 96% year over year to $2.55 million. The company continued to identify pandemic effects, inflation, interest-rate changes, and regional economic conditions as risks.
- Credit exposure is concentrated in commercial lending: approximately 76% of loans were commercial, and approximately 73% of the portfolio was secured by real estate. Management cited elevated criticized loans in some portfolios and inflation-related concerns for commercial real estate values.
- Other key risks include deposit competition and funding costs, interest-rate and securities valuation sensitivity, acquisition integration, cybersecurity and third-party service disruptions, and the LIBOR transition. Uninsured deposits totaled $7.97 billion.
- Off-balance-sheet commitments to extend credit and letters of credit totaled $3.62 billion. The company also disclosed $23.7 million of unfunded investment capital-call commitments. It reported no material pending legal proceedings and did not expect ordinary-course litigation to have a material adverse effect.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective. The allowance for credit losses was identified as a critical audit matter.
Important facts for investors to verify
- How much of 2021’s earnings improvement came from the credit-loss release, and what provision levels may be needed as forecasts and loan growth change.
- Whether net interest margin stabilizes or declines further as rates rise and deposit pricing responds to competition.
- Credit quality trends in commercial real estate, equipment finance, and other commercial portfolios, including criticized loans and allowance adequacy.
- Integration costs, realized synergies, and dilution from the FinTrust, Aquesta, and Reliant transactions; Reliant’s full purchase-accounting details were not included.
- Changes in uninsured deposits, liquidity sources, securities unrealized losses, and regulatory capital following the acquisitions and interest-rate movements.