United Community Banks, Inc. — 2022 Form 10-K Summary
Business context and period. This annual report covers the year ended December 31, 2022; it does not provide a separate fourth-quarter-only financial summary. United is a southeastern U.S. bank holding company with commercial and consumer banking, mortgage, equipment finance, SBA/USDA lending, wealth management and related services. At year-end, it reported $24.0 billion in assets, $15.3 billion in loans and 192 branches. Results include Reliant from its January 1, 2022 acquisition date.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest revenue | $752.4 million | $549.0 million |
| Net interest margin, FTE | 3.38% | 3.07% |
| Total revenue, as presented in the filing | $826.2 million | $744.4 million |
| Provision for credit losses | $63.9 million expense | $37.6 million release |
| Noninterest income | $137.7 million | $157.8 million |
| Noninterest expenses | $470.1 million | $396.6 million |
| Net income, GAAP | $277.5 million | $269.8 million |
| Diluted EPS, GAAP | $2.52 | $2.97 |
| Net income, operating (non-GAAP) | $292.6 million | $280.6 million |
| Operating efficiency ratio (non-GAAP) | 50.16% | 53.83% |
Net interest revenue rose 37%, supported by higher rates, loan growth and acquisitions. The Federal Reserve raised its target rate by 425 basis points during 2022; United said asset yields repriced faster initially than deposit costs. Its GAAP return on assets was 1.13% (1.37% in 2021), and GAAP return on common equity was 9.54% (13.14%). Operating measures exclude merger-related and other charges and are non-GAAP.
Cash flow and balance sheet: Operating activities provided $607 million; investing activities used $2.02 billion; financing activities used $259 million. Cash and cash equivalents declined to $646.9 million from $2.32 billion. Total deposits were $19.88 billion, up from $18.24 billion at year-end 2021, though the company reported deposit attrition in the second half. Uninsured deposits were $8.31 billion.
Loans grew 30% to $15.33 billion, primarily through organic growth and Reliant. The loan allowance was $159.4 million, or 1.04% of loans, versus $102.5 million, or 0.87%, a year earlier; allowance including unfunded commitments totaled $180.5 million. Nonperforming assets were $44.3 million, 0.18% of assets, compared with $32.9 million, 0.16%. Net charge-offs were $9.7 million, or 0.07% of average loans.
Year-end funding included $158.9 million of short-term borrowings, $550 million of FHLB advances and $324.7 million of long-term debt. The company reported $999 million of additional FHLB advance capacity and $2.46 billion of Federal Reserve discount-window capacity, subject to collateral and availability. Management stated liquidity was sufficient for expected cash requirements. The company and Bank were categorized as well-capitalized; consolidated CET1 was 12.26% and total capital was 14.79%.
Material changes versus the prior period
- Net interest revenue increased by $203.3 million, and FTE net interest margin expanded 31 basis points.
- Provision expense swung from a $37.6 million release in 2021 to $63.9 million of expense in 2022, reflecting a less favorable economic forecast, higher charge-offs and the acquired Reliant portfolio.
- Noninterest income declined 13%, principally because higher mortgage rates reduced mortgage origination activity. Mortgage originations fell to $1.53 billion from $2.43 billion; mortgage fees declined $25.9 million.
- Noninterest expenses increased 19%, mainly from acquired-business costs, higher salaries and benefits, occupancy and technology-related expenses. Merger-related and other charges were $19.4 million versus $14.0 million.
- GAAP net income increased modestly, but diluted GAAP EPS fell to $2.52 from $2.97, with the weighted-average diluted share count rising to 106.8 million from 88.1 million, largely reflecting acquisition-related share issuance.
- Shareholders’ equity rose to $2.70 billion, including $596 million of common stock issued for Reliant, but other comprehensive loss was $303 million, primarily due to unrealized AFS securities losses as interest rates rose. AFS securities had $358.1 million of gross unrealized losses at year-end; HTM securities had $422.7 million. The filing states these losses were primarily rate-driven and no securities ACL was recorded.
Outlook, commentary, risks and unusual items
Management described continued investment in banking operations, integration of recent acquisitions and pursuit of organic growth and suitable transactions. Progress was acquired on January 3, 2023, after year-end. United announced an agreement to acquire First Miami, expected to close in the third quarter of 2023 subject to approvals and other conditions. The filing provides no specific earnings, revenue or margin guidance.
Management said deposit attrition emerged as customers sought higher returns elsewhere; United raised deposit pricing, increased wholesale funding and paused securities purchases to help meet funding needs. It expected FDIC assessment expense to rise in 2023 following the FDIC’s announced 2-basis-point assessment increase. Reliant added $299.2 million of goodwill; the company reported no goodwill impairment in 2022. The 2022 transfer of $1.29 billion of securities from AFS to HTM included $87.4 million of unrealized losses in AOCI.
Principal disclosed risks include deposit and wholesale funding costs and availability; interest-rate and yield-curve movements; credit deterioration, particularly in commercial lending and real-estate-secured exposures; geographic concentration in the Southeast; acquisition integration and execution; cybersecurity, fraud and third-party service disruptions; regulatory and compliance costs; and transition from LIBOR. Approximately 73% of loans were commercial and approximately 73% of the portfolio was secured by real estate. The company reported no material pending legal proceedings. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; two critical audit matters concerned loan-loss allowance assumptions and the initial fair-value valuation of Reliant’s acquired loans.
Important facts for investors to verify
- Whether deposit outflows continue, how deposit pricing affects funding costs, and how reliance on FHLB advances and other borrowings evolves.
- Whether net interest margin holds up as deposit costs reprice and market rates or the yield curve change.
- Whether credit quality and allowance coverage remain adequate as economic forecasts change, especially in commercial real estate, construction, C&I and acquired portfolios.
- How AFS securities losses, HTM fair-value marks and liquidity needs affect capital flexibility and potential securities sales.
- Integration, purchase accounting, dilution and realization of expected benefits from Reliant and Progress; status and terms of the proposed First Miami acquisition.
- Actual performance against the filing’s non-GAAP operating measures, including reconciliation to GAAP results, and the sustainability of dividends and any share repurchases.