United Community Banks, Inc. (NASDAQ: UCBI) (United) today reported third quarter financial results, including solid year-over-year loan and deposit growth and record operating efficiency. United delivered net income of $47.6 million and pre-tax pre-provision income of $81.2 million. Diluted earnings per share of $0.52 for the quarter represented a decrease of $0.08 or 13%, from a year ago. This decline is largely due to an increase in credit loss provisioning associated with loan growth and the acquisition of Seaside National Bank & Trust (Seaside) along with net interest margin declines largely driven by declines in market interest rates. Compared to the second quarter, diluted earnings per share were up by $0.20 or 63%. Excluding merger-related and other charges, diluted operating earnings per share were $0.55, also down 13% from last year, but up $0.23 per share or 72% compared to second quarter. United’s GAAP return on assets (ROA) was 1.07% and its return on common equity was 10.1% for the quarter. On an operating basis, United’s ROA was 1.14% and its return on tangible common equity was 13.5%. On a pre-tax, pre-provision basis, and excluding merger-related and other charges, ROA was 1.93%.
Chairman and CEO Lynn Harton stated, “While the future economic and operating environment remains uncertain, I am pleased with the financial strength and resilience of the company and the dedication of our employees who consistently provide outstanding customer service. Our markets continue to recover from the economic effects of the pandemic and I am pleased to report that loan payment deferrals have declined from a peak of $1.9 billion, or 15.9% of the total loan portfolio at June 30, 2020 to $365 million, or 3.1% of the total loan portfolio at September 30, 2020.”
Harton continued, “Our acquisition of Seaside, which closed on July 1st, positions us well in attractive Florida markets and we are pleased with the talent of the Seaside team and the deep relationships they have built with their clients. We plan to pilot Seaside’s high net worth offering of asset management and trust services in select markets of United’s footprint in the late fourth quarter. Additionally, we have made solid progress on the business integration and are already moving forward with additional products, including mortgage, middle market, commercial real estate, SBA, asset-based and non-profit lending, to compliment Seaside’s product offerings. We are proud to welcome Seaside to the United team.”
Total loans increased by $1.7 billion during the quarter—primarily driven by the acquisition of Seaside. Excluding the effects of the acquisition, core organic loan growth was 8% annualized. Core transaction deposits grew by $1.7 billion during the quarter, with $1.3 billion resulting from the Seaside acquisition, supplemented by approximately $400 million in organic growth. United’s cost of deposits decreased by 13 basis points to 0.25%. The net interest margin decreased 15 basis points from the second quarter due to a combination of factors, including lower overall market rates.
Mr. Harton concluded, “We are focused on our long-term goal of remaining a top performer in our peer group. While this is a difficult environment in which to forecast future economic conditions, we are encouraged by increasing business activity in our markets and stable credit performance in our portfolio to date. Our strong balance sheet position gives us the ability to continue to support our customers and communities, and we believe we will be well positioned to be able to take advantage of expansion opportunities in the future.”
Third Quarter 2020 Financial Highlights:
• EPS decreased by 13% compared to last year on both a GAAP and operating basis; compared to second quarter, EPS increased by 63% on a GAAP basis and 72% on an operating basis
• Return on assets of 1.07%, or 1.14% excluding merger-related and other charges
• Pre-tax, pre-provision return on assets of 1.86%, or 1.93% excluding merger-related and other charges
• Return on common equity of 10.1%
• Return on tangible common equity of 13.5%, excluding merger-related and other charges
• A provision for credit losses of $21.8 million of which $10.7 million is attributable to establishing an allowance for credit losses for Seaside’s acquired loans
• Loan production of $1.0 billion and loan growth of $1.7 billion with $1.4 billion attributable to loans acquired from Seaside and core loan growth at an annualized rate of 8% for the quarter
• Core transaction deposits were up $1.7 billion with $1.3 billion attributable to Seaside and approximately $400 million in organic growth, which represents a 15% annualized growth rate for the quarter
• Net interest margin of 3.27% was down 15 basis points from the second quarter, reflecting the low rate environment, the Seaside acquisition, and increasing balance sheet liquidity
• Record mortgage rate locks of $910 million, which is $108 million or 13% higher than the previous record set in the second quarter; this compares to $508 million a year ago
• Noninterest income was up $7.7 million on a linked quarter basis, excluding net securities gains; Seaside contributed nearly $2.5 million of the increase and mortgage loan and related fees were up $1.5 million, primarily driven by record mortgage rate locks and production
• Efficiency ratio of 54.1%, or a record low 52.2% excluding merger-related and other charges
• Net charge-offs of $2.5 million, or 9 basis points as a percent of average loans, down 16 basis points from in the second quarter
• Nonperforming assets of 0.29% of total assets, which is down 3 basis points compared to June 30, 2020
• Total deferrals of $365 million or 3% of the total loan portfolio compared to $1.9 billion or 16% in the second quarter
• $500,000 of funding for the United Community Bank Foundation, adding to the initial $1 million contribution in the second quarter for charities and causes throughout the footprint
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