United Community Banks, Inc. announces third quarter earnings

Diluted earnings per share up 33 percent to 36 cents from third quarter 2015

Excluding merger-related charges, diluted operating EPS up 18 percent to 39 cents

• Return on assets of 1.00 percent; 1.08 percent, excluding merger-related charges
• Loan growth of $133 million from second quarter, or 8 percent annualized
• Core transaction deposits up $254 million from second quarter, or 19 percent annualized
• Fee revenue of $26.4 million, up $2.9 million from the second quarter
• Efficiency ratio of 60.8 percent; 57.8 percent, excluding merger-related charges

United Community Banks, Inc. (NASDAQ:UCBI) (“United”) announced continued momentum in the third quarter with strong fee revenue and loan growth, as well as sound credit quality and capital management.  Net income grew to $25.9 million, or 36 cents per diluted share, compared with $17.9 million, or 27 cents per diluted share, for the third quarter of 2015.  Net income for the first nine months of 2016 was $73.4 million, or $1.02 per diluted share.  This compares with net income of $53.4 million, or 84 cents per diluted share, for the first nine months of 2015.

On an operating basis, net income rose to $27.8 million for the third quarter of 2016 compared with $21.7 million for the third quarter of 2015. Operating net income excludes pre-tax merger-related charges of $3.15 million in the third quarter of 2016 and $5.74 million in the third quarter of 2015. On a per diluted share basis, operating net income was 39 cents for the third quarter of 2016 compared with 33 cents for the third quarter of 2015.  For the first nine months of 2016, operating net income was $77.8 million, or $1.08 per diluted share, compared with $59.3 million, or 94 cents per diluted share, for the first nine months of 2015.

At September 30, 2016, preliminary regulatory capital ratios were as follows: Tier 1 Risk-Based of 11.1 percent; Total Risk-Based of 11.9 percent; Common Equity Tier 1 Risk-Based of 11.1 percent; and, Tier 1 Leverage of 8.4 percent.

“Our third quarter results underscore the positive momentum from our investments in new businesses and markets,” said Jimmy Tallent, chairman and chief executive officer.  “Our mortgage banking business continued to produce record quarterly results which, combined with strong performance from our SBA business and solid customer derivative sales, led to a 44 percent increase in fee revenue from a year ago.”

The third quarter’s return on assets was 1.00 percent including the effect of merger-related charges of $3.15 million.  Exclusive of these charges, the operating return on assets for the third quarter was 1.08 percent.

Tallent noted the positive impact of the Tidelands Bancshares acquisition, which was completed on July 1, 2016.  “As expected, the acquisition was immediately accretive to earnings per share,” he said.  “Systems conversions are scheduled to take place in November, after which we expect to achieve the remaining targeted cost savings. The Tidelands acquisition is meeting or exceeding objectives consistent with our coastal South Carolina expansion strategy and I could not be more pleased with the results.

“Third quarter loan production was $641 million,” Tallent added.  “Excluding acquired loans from Tidelands, linked-quarter growth of $133 million, or 8 percent annualized, was within our 2016 loan growth target of mid-to-upper single-digit.  Our community banks originated $436 million in loans while specialized lending produced $166 million.  United’s specialized lending area encompasses commercial real estate, middle market, SBA, builder finance and asset-based lending.  Funding these loans was strong linked-quarter core transaction deposit growth of $254 million, or 19 percent annualized, excluding Tidelands.  Core deposits comprise 90 percent of total deposits, which is one of the best ratios in the country.”

Third quarter net interest revenue totaled $79.0 million, up $4.1 million from the second quarter and up $13.6 million from the third quarter of 2015.  The increase from both periods reflects growth in the loan portfolio as well as net interest revenue from recent acquisitions.

The taxable-equivalent net interest margin of 3.34 percent, while one basis point lower than the second quarter, was up eight basis points from the third quarter of 2015. The decrease from second quarter was expected and resulted mostly from loan pricing competition.

The third quarter provision for credit losses was a recovery of $300,000, equal to the second quarter of 2016.  It was down from a provision charge of $700,000 in the third quarter of 2015.  Strong recoveries of previously charged-off loans continued to contribute to the low level of net charge-offs.  Third quarter net charge-offs totaled $1.4 million, compared with $1.7 million in the second quarter and $1.4 million in the third quarter of 2015.  Nonperforming assets were .30 percent of total assets at September 30, 2016, compared with .28 percent at June 30, 2016 and .29 percent at September 30, 2015.

“The recoveries of our provisions reflect continued strong credit quality and a low overall level of net charge-offs,” Tallent commented.  “Our credit quality indicators are very favorable and our outlook is for positive credit quality in the fourth quarter and into 2017.  This will result in low provision levels that we expect will gradually increase with loan growth through 2017, while slightly decreasing our allowance and the related ratio to total loans.”

Third quarter fee revenue totaled $26.4 million, an increase of $2.86 million from the second quarter and up $8.06 million from a year ago.  Mortgage fees were up $1.59 million from the second quarter and $2.20 million from a year ago. Customer derivative fees also contributed to the increase in fee revenue from both prior periods.  Gains from sales of SBA loans were up $833,000 from a year ago, but down $322,000 from the second quarter due to slightly lower premiums and loans sold.

“The increase in mortgage fees correlates to our strategic investment in additional mortgage lenders where we see opportunities to gain market share and higher spreads on loan sales,” Tallent said.  “Although production of SBA loans remained high, $32 million of loans were sold in the third quarter compared to $33 million during the second quarter, but up from $17.8 million during the third quarter of 2015.”

Operating expenses were $64.0 million for the third quarter, compared with $58.1 million for the second quarter and $54.3 million for the third quarter of 2015.  Included in operating expenses were merger-related charges of $3.15 million for the third quarter, $1.18 million for the second quarter and $5.74 million for the third quarter of 2015.  Excluding these charges, third quarter operating expenses were $60.9 million compared with $56.9 million for the second quarter and $48.5 million a year ago.  The increases from the second quarter and a year ago reflect additional operating expenses following the acquisitions of Tidelands Bank on July 1, 2016 and The Palmetto Bank on September 1, 2015.  The operating expenses of the acquired companies are included in United’s financial results beginning on their respective acquisition dates.

Excluding merger-related charges of $3.15 million in the third quarter, operating expenses were $60.9 million and up $3.99 million from the second quarter. The inclusion of Tidelands’ $2.76 million of operating expense accounted for 70 percent of the linked-quarter increase in operating expenses. The balance of the increase was primarily due to higher salary costs for commissions and incentives related to truing-up the quarter and year-to-date for performance targets.

“Our bankers continue to perform exceptionally well as we build on the successes of investing to grow our franchise and earnings,” Tallent said. “We take tremendous pride that our bankers provide the best in customer service by treating customers the way we would want to be treated.  This is at the foundation of our success and the core of everything we do.  With strong earnings momentum and a high-quality balance sheet, I am optimistic about our future,” Tallent concluded.

Conference Call

United will hold a conference call today, Wednesday, October 26, 2016, at 11 a.m. ET to discuss the contents of this earnings release and to share business highlights for the quarter.  To access the call, dial (877) 380-5665 and use the conference number 86742023.  The conference call also will be webcast and available for replay for 30 days by selecting “Events & Presentations” within the Investor Relations section of United’s website at www.ucbi.com.

About United Community Banks, Inc.

United Community Banks, Inc. (NASDAQ:UCBI) is a registered bank holding company based in Blairsville, Georgia, with $10.3 billion in assets.  The company’s banking subsidiary, United Community Bank, is one of the Southeast region’s largest full-service banks, operating 140 offices in Georgia, North Carolina, South Carolina and Tennessee.  The bank specializes in providing personalized community banking services to individuals, small businesses and corporations.  Services include a full range of consumer and commercial banking products, including mortgage, advisory, and treasury management.  United Community Bank is consistently recognized for its outstanding customer service by respected national research firms.  In 2014 and 2015, United Community Bank was ranked first in customer satisfaction in the southeast by J.D. Power and again in 2016 was ranked among the top 100 on the Forbes list of America’s Best Banks.  Additional information about the company and the bank’s full range of products and services can be found at www.ucbi.com. 

Non-GAAP Financial Measures

This News Release contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP.  This financial information includes certain operating performance measures, which exclude merger-related and other charges that are not considered part of recurring operations, such as “operating net income,” “operating net income per diluted share,” “tangible book value,” “operating return on common equity,” “operating return on tangible common equity,” “operating return on assets,” “operating dividend payout ratio,” “operating efficiency ratio,” “average tangible equity to average assets,” “average tangible common equity to average assets” and “tangible common equity to risk-weighted assets.”  These non-GAAP measures are included because United believes they may provide useful supplemental information for evaluating United’s underlying performance trends.  These measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non-GAAP measures that may be presented by other companies.  To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable measures as reported in accordance with GAAP are included with the accompanying financial statement tables.