United Community Banks, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 23, 2024. United is a regional bank holding company operating primarily in the southeastern U.S., with 207 branches and national SBA/USDA and equipment-finance businesses. Total assets were $27.3 billion.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $803.8 million | $826.2 million |
| Net interest revenue | $817.8 million | $752.4 million |
| Net interest margin (FTE) | 3.35% | 3.38% |
| Provision for credit losses | $89.4 million | $63.9 million |
| Noninterest income | $75.5 million | $137.7 million |
| Noninterest expenses | $571.3 million | $470.1 million |
| Net income (GAAP) | $187.5 million | $277.5 million |
| Diluted EPS (GAAP) | $1.54 | $2.52 |
| Operating net income (non-GAAP) | $254.9 million | $292.6 million |
| Operating diluted EPS (non-GAAP) | $2.11 | $2.66 |
Net interest revenue increased 9%, reflecting higher rates, loan growth and acquisitions, but higher deposit costs compressed the net interest spread to 2.40% from 3.18%; margin slipped three basis points. Total revenue and GAAP earnings declined, primarily due to a $51.7 million loss on an AFS securities portfolio restructuring, lower mortgage-related income and higher expenses. Non-GAAP operating results exclude specified items and are not a substitute for GAAP measures.
- Balance sheet: Loans were $18.3 billion, up 19%; deposits were $23.3 billion, up 17%; assets were $27.3 billion, up 14%. Acquisitions contributed materially to growth.
- Credit: Loan ACL was $208.1 million, or 1.14% of loans, versus $159.4 million, or 1.04%, a year earlier. Net charge-offs rose to $52.2 million (0.30% of average loans) from $9.7 million (0.07%). Nonperforming assets increased to $92.9 million, or 0.34% of assets, from $44.3 million, or 0.18%.
- Cash flow: Operating activities provided $294.0 million; investing activities used $163.3 million; financing activities provided $226.3 million. Cash and cash equivalents ended the year at $1.00 billion, up from $646.9 million.
- Liquidity and funding: Uninsured deposits were approximately $9.24 billion, of which $3.10 billion was collateralized. The company reported $5.81 billion of borrowing capacity, including the Bank Term Funding Program, which was scheduled to expire March 11, 2024. There were no short-term borrowings or FHLB advances outstanding at year-end.
- Debt and capital: Long-term debt was $324.8 million. Total shareholders’ equity was $3.26 billion. The bank’s CET1 ratio was 12.22%, total capital ratio 13.23% and leverage ratio 9.17%; United and the bank were reported as well-capitalized.
- Shareholder returns: Common dividends declared were $0.92 per share, versus $0.86 in 2022. No common shares were repurchased in 2023. The common-stock repurchase program authorizes up to $50 million through December 31, 2024.
Material changes and unusual items
- Completed the acquisitions of Progress on January 3, 2023 and First Miami on July 1, 2023. Their acquired assets were reported as $1.90 billion and $1.02 billion, respectively. United issued approximately $394 million of common stock in connection with the acquisitions.
- Sold $316 million of AFS securities in the fourth quarter, recording a $51.7 million loss. Management said the strategy reduced longer-duration, lower-yield securities and reinvested proceeds in shorter-duration securities with higher yields to mitigate interest-rate risk.
- Noninterest expenses rose 22%. The increase included acquisition-related operating costs, higher employee expenses and amortization, and a $10.0 million FDIC special assessment. The assessment is payable over eight quarters beginning in the first quarter of 2024.
- Charge-offs increased, driven principally by a $19.0 million commercial relationship charge-off and higher equipment-finance losses, particularly in long-haul trucking loans.
- HTM securities had a $395 million net unrealized loss at year-end, primarily attributable to interest-rate changes; their fair value was $2.10 billion against a $2.49 billion carrying value. These losses were not recorded through current earnings. AOCI was a negative $239.2 million.
Outlook, risks and contingencies
Management’s stated 2024 strategy is to continue integrating Progress and First Miami, pursue cost and revenue synergies, seek profitable organic growth, and consider acquisitions or other strategic transactions when appropriate. The filing provides no numerical earnings, revenue or margin guidance.
Key risks include deposit pricing competition and possible uninsured-deposit outflows; interest-rate and yield-curve changes; concentrated commercial lending and real-estate exposure; deterioration in credit quality; acquisition integration and execution; regional economic conditions; fraud, cybersecurity and third-party service interruptions; and regulatory or capital requirements. Commercial loans were approximately 73% of the portfolio, and approximately 76% of loans were secured by real estate. United noted office-market and commercial real-estate occupancy risks, and ceased originating new manufactured-housing loans in the fourth quarter.
Off-balance-sheet commitments to extend credit and letters of credit totaled approximately $4.37 billion. The company also disclosed future funding commitments for tax-credit, renewable-energy and fintech investments. It reported no material pending legal proceedings and management did not expect the aggregate liability from pending or threatened lawsuits to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the audit identified credit-loss estimation and acquired-loan valuations as critical audit matters.
Important facts for investors to verify
- Whether deposit costs stabilize and the 2023 decline in net interest spread and margin reverses or persists.
- Trends in charge-offs, nonaccrual loans, criticized commercial real-estate credits and equipment-finance performance, including trucking exposure.
- Progress and First Miami integration, realized synergies, acquisition-related expenses and returns on acquired goodwill.
- Deposit composition and uninsured-deposit levels, available collateral and funding capacity, including the status of the Bank Term Funding Program after its stated expiration date.
- The effect of the securities restructuring, remaining unrealized securities losses and interest-rate hedges on future earnings, liquidity and tangible capital.
- Ability to sustain dividends and repurchases while meeting regulatory capital, liquidity and acquisition needs.