8-K: United Community Banks Reports Mixed Fourth Quarter Results Amid Restructuring

United Community Banks, Inc. announced a decrease in net income for the fourth quarter of 2023, impacted by a bond portfolio restructuring and an FDIC special assessment, while operating earnings showed improvement.

Summary

• United Community Banks reported a net income of $14.1 million for the fourth quarter of 2023, with pre-tax, pre-provision income at $25.8 million.
• Diluted earnings per share (EPS) were $0.11, a decrease of 72% from the third quarter and 85% from the fourth quarter of 2022.
• Operating EPS, which excludes non-operating items, was $0.53, an increase of 18% compared to the previous quarter.
• The bank's performance was significantly affected by a $52 million pre-tax loss from a bond portfolio restructuring and a $10 million FDIC special assessment.
• Deposits grew at an annualized rate of 8%, while loans grew at 2.5% annualized during the quarter.
• Net interest margin decreased by 5 basis points to 3.19% compared to the third quarter.
• Net charge-offs were $10.1 million, or 0.22% of average loans, down from 0.59% in the previous quarter.
• For the full year 2023, EPS was $1.54, a 39% decrease from 2022, while operating EPS was $2.11, a 21% decrease from 2022.
• The company's return on assets was 0.18% on a GAAP basis and 0.92% on an operating basis for the quarter.

Sentiment

Score: 4

Explanation: The sentiment is mixed, with positive aspects like deposit and loan growth offset by significant negative impacts from restructuring and special assessments. The outlook is cautiously optimistic, but the current results are weak.

Positives

• Operating earnings per share increased by 18% compared to the previous quarter.
• Deposit growth was strong at an annualized rate of 8%.
• Loan growth was positive at an annualized rate of 2.5%.
• Net charge-offs decreased significantly compared to the previous quarter.
• The company's tangible common equity to tangible assets ratio increased by 18 basis points from the third quarter.
• The company reduced high cost brokered deposits.
• The company was recognized as a great place to work for the seventh consecutive year.
• The company completed acquisitions in high-growth markets.

Negatives

• Net income decreased significantly compared to both the previous quarter and the same quarter last year.
• Diluted EPS decreased by 72% compared to the third quarter and 85% compared to the fourth quarter of 2022 on a GAAP basis.
• The bond portfolio restructuring resulted in a substantial pre-tax loss of $52 million.
• The FDIC special assessment cost the company $10 million.
• Net interest margin decreased by 5 basis points compared to the third quarter.
• Full-year EPS decreased by 39% compared to 2022.
• Noninterest income was down $62.2 million primarily due to the bond portfolio restructuring transaction.

Risks

• The company is closely monitoring for potential changes in the economic environment and in their markets.
• There is inherent uncertainty in the economic environment.
• The company is exposed to interest rate volatility.
• The company experienced a decrease in mortgage fees due to higher rates.
• The company's efficiency ratio increased due to higher deposit rates and a compressing net interest margin.

Future Outlook

The company is optimistic about 2024 and expects broader credit performance to remain strong, but is closely monitoring for potential changes in the economic environment.

Management Comments

• Our focus continues to be on both maintaining a strong balance sheet and investing in growth as we continue to build the company.
• This quarter, we entered into a bond portfolio restructuring transaction to reduce our exposure to interest rate volatility in this uncertain environment.
• This will have the additional advantage of increasing our earnings in 2024.
• In our core banking operations, we continue to be pleased with the ability of our teams to grow our book of business.
• We are excited and optimistic about 2024.
• Our teams continue to be focused on leading our markets in customer service, knowing that it is our connections with our customers and communities that drive our success.

Industry Context

The results reflect a challenging environment for banks, with rising deposit costs and interest rate volatility impacting profitability. The bond portfolio restructuring is a strategic move to mitigate future risks, which is a common strategy in the current economic climate.

Comparison to Industry Standards

• The company's net interest margin of 3.19% is below the industry average, which has been around 3.3% to 3.5% for regional banks.
• The company's return on assets of 0.18% on a GAAP basis is significantly lower than the industry average, which is typically around 1%.
• The company's operating return on assets of 0.92% is closer to the industry average, but still indicates some underperformance.
• Compared to peers like Truist Financial (TFC) and Regions Financial (RF), United Community Banks' GAAP EPS is lower, while operating EPS is more in line with peers.
• The bond portfolio restructuring is similar to actions taken by other banks to manage interest rate risk, such as KeyCorp (KEY) and Comerica (CMA).
• The company's loan growth of 2.5% annualized is moderate compared to some peers that have seen higher growth rates, but is in line with a more conservative approach to lending in the current environment.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings and EPS.
• Employees may be impacted by the company's focus on efficiency and cost management.
• Customers may benefit from the company's focus on customer service and community engagement.
• Creditors may be impacted by the company's bond portfolio restructuring.

Next Steps

• The company will continue to focus on maintaining a strong balance sheet and investing in growth.
• The company will monitor the economic environment and credit performance closely.
• The company will continue to invest in its people, technology, and customers.

Key Dates

Keywords

financial results, net income, earnings per share, operating income, bond portfolio restructuring, FDIC assessment, deposit growth, loan growth, net interest margin, asset quality, charge-offs, banking, financial services