BLAIRSVILLE, GA — (Marketwired) — 10/24/13 — United Community Banks, Inc. (NASDAQ: UCBI)
Net income of $15.5 million, or 21 cents per share
Operating efficiency ratio improves to 58.6 percent reflecting lower expenses
Loans up $78 million, or 7 percent annualized
Core transaction deposits up $94 million, or 11 percent annualized
All capital ratios strengthened
United Community Banks, Inc. (NASDAQ: UCBI) today reported it continued to achieve substantial momentum in positioning itself to build the long-term value of its franchise. For the third quarter and nine months ended September 30, 2013 net income was $15.5 million, or 21 cents per share, and $257.2 million, or $4.24 per share, respectively. The year-to-date results include the impact of two significant events during the second quarter — the reversal of the valuation allowance on United-s net deferred tax asset and the higher provision for loan losses and foreclosed property costs from the accelerated sales of classified assets.
“I am very pleased with the important progress we are making in growing our business and improving operating efficiency,” said Jimmy Tallent, president and chief executive officer. “We achieved good loan and deposit growth while at the same time lowering operating expenses. This is particularly demonstrated by the improvement in our efficiency ratio to 58.6 percent, the lowest level since 2007. This is a tribute to the great effort of our dedicated team of bankers.”
The third quarter provision for loan losses was $3.0 million compared with $48.5 million in the second quarter and $15.5 million in the third quarter of 2012. The second quarter provision was elevated by higher charge-offs associated with the accelerated classified loan sales. The resulting reduction in classified loans led to lower net charge-offs in the third quarter and a lower provision. Third quarter net charge-offs were $4.47 million compared with $72.4 million in the second quarter and $20.6 million a year ago.
Nonperforming assets at quarter-end were $30.6 million, representing .42 percent of total assets, down from $31.8 million or .44 percent of assets at June 30, 2013, and from $142 million or 2.12 percent of assets a year ago. The classified asset ratio, which is the ratio of classified assets to Tier 1 regulatory capital plus the allowance for loan losses, declined to 26 percent from 27 percent at the end of second quarter and 55 percent a year ago.
Third quarter taxable equivalent net interest revenue totaled $54.3 million, down $224,000 from the second quarter and down $3.03 million from the third quarter of 2012. “The decrease generally reflects the ongoing lower yields on our loan and investment securities portfolios,” said Tallent. “The lower loan portfolio yield reflects competitive pricing pressure on new and renewed commercial loans and on new retail loan offerings with low introductory rates. Introductory rates on $45 million of these retail loans rolled over to a market rate of prime-plus in the third quarter with another $40 million due to reset to market rates in the fourth quarter. The lower investment securities yield compared to a year ago is due to reinvestment of cash flows at record low rates. We continue to look for reinvestment opportunities to alleviate market and duration risk. Our focus has been on floating-rate securities, which at quarter-end accounted for 39 percent of the total investment securities portfolio, up one percent from last quarter.”
The third quarter taxable equivalent net interest margin was 3.26 percent, down five basis points from the second quarter and 34 basis points from a year ago. “Our margin continues to reflect the unprecedented low interest rate environment,” stated Tallent. “We could see further compression in the near term, though we believe at a slower pace. To offset the impact of a lower margin on net interest revenue, we are concentrating on growing the loan portfolio in the mid-single digit range by focusing on retail loans and continuing to add commercial lenders in key markets.”
“Third quarter fee revenue of $14.1 million was down slightly compared to second quarter and up approximately $1.0 million from a year ago when certain non-core items are excluded,” commented Tallent. Second quarter fee revenue of $16.3 million was elevated due to non-core items, which included a $1.37 million recovery on a bank-owned life insurance policy, a $468,000 gain from the sale of low-income housing tax credits, and $369,000 in hedge ineffectiveness gains. Similarly, year ago fee revenue of $13.8 million included hedge ineffectiveness gains of $608,000.
Service charges and fees on deposit accounts were up $484,000 from the second quarter and up $760,000 from a year ago reflecting strong growth in debit card interchange fees. Brokerage fees were up $211,000 from the second quarter and up $565,000 from a year ago, which shows a renewed focus on this line of business. Mortgage fees were down $449,000 from the second quarter and down $246,000 from a year ago reflecting slower mortgage refinancing activity resulting from rising long-term interest rates. Closed mortgage loans totaled $76.6 million in the third quarter compared with $95.2 million in the second quarter and $107.9 million in the third quarter of 2012.
Operating expenses, excluding foreclosed property costs, were $39.9 million for the third quarter compared to $43.7 million in the second quarter of 2013 and $41.1 million a year ago. The decrease from both periods reflects a reduction in loan workouts and collections costs as well as lower severance costs. Third quarter severance costs were $405,000 compared with $1.56 million and $401,000 for the second quarter of 2013 and the third quarter of 2012, respectively.
Foreclosed property costs were $194,000 in the third quarter compared to $5.15 million in the second quarter and $3.71 million a year ago. The higher second quarter costs reflect $4.31 million in net losses and write-downs related to the accelerated foreclosed property sales and $837,000 for maintenance. The third quarter 2012 foreclosed property costs included $2.74 million in net losses and write-downs and $962,000 for maintenance.
“The effective tax rate for the third quarter was elevated from 35 percent to 38 percent by a $.6 million net charge to tax expense,” stated Tallent. “The net charge reflects a state income tax rate reduction in North Carolina that lowered the rate at which a portion of our net deferred tax asset will be recovered. The resulting charge was partially offset by the release of tax reserves for tax returns that had expired.”
As of September 30, 2013, capital ratios were as follows: Tier 1 Risk-Based of 14.2 percent; Total Risk-Based of 15.5 percent; Tier 1 Common Risk-Based of 9.1 percent; and Tangible Equity-to-Assets of 9.0 percent. The Tier 1 Leverage ratio was 10.0 percent.
Tallent concluded, “Going forward, we are focused strategically on loan and fee-based service growth in existing and newer markets to provide United with further momentum in building its value to our shareholders. We are looking ahead with confidence driven by our progress, our business opportunities and the best customer satisfaction in our industry.”
Conference Call
United will hold a conference call today, Thursday, October 24, 2013, at 11 a.m. ET to discuss the contents of this news release and to share business highlights for the quarter. To access the call, dial (877) 380-5665 and use the conference number 76304427. The conference call also will be webcast and can be accessed by selecting -Calendar of Events- within the Investor Relations section of United-s website at .
About United Community Banks, Inc.
Headquartered in Blairsville, United Community Banks, Inc. is the third-largest bank holding company in Georgia. United has assets of $7.2 billion and operates 103 banking offices throughout north Georgia, the Atlanta region, coastal Georgia, western North Carolina, east Tennessee and western South Carolina. United specializes in providing personalized community banking services to individuals and small to mid-size businesses and also offers the convenience of 24-hour access through a network of ATMs, telephone and on-line banking. United-s common stock is listed on the Nasdaq Global Select Market under the symbol UCBI. Additional information may be found at United-s website at .
Safe Harbor
This news release contains forward-looking statements, as defined by federal securities laws, including statements about United-s financial outlook and business environment. These statements are based on current expectations and are provided to assist in the understanding of future financial performance. Such performance involves risks and uncertainties that may cause actual results to differ materially from those expressed or implied in any such statements. For a discussion of some of the risks and other factors that may cause such forward-looking statements to differ materially from actual results, please refer to United-s filings with the Securities and Exchange Commission including its 2012 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the second quarter of 2013 under the sections entitled “Forward-Looking Statements” and “Risk Factors.” Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements.
Rex S. Schuette
Chief Financial Officer
(706) 781-2266