United Community Banks, Inc. (NASDAQ:UCBI) is a diversified regional bank holding company headquartered in Blairsville, Georgia. The company operates a network of 205 branches across Georgia, South Carolina, North Carolina, Tennessee, Florida, and Alabama, providing a wide array of commercial and consumer banking services as well as investment advisory services.

For the fiscal year ended December 31, 2023, United Community Banks reported annual net income of $187,544,000, annual revenue of $1,312,590,000, annual operating cash flow of $293,971,000, and annual free cash flow of $221,486,000. In the latest quarter ended March 31, 2024, the company reported net income of $62,631,000 and revenue of $225,837,000.

Business Overview

United Community Banks has a long history dating back to 1950 when it was founded as a small community bank in Blairsville, Georgia. Over the decades, the company has grown both organically and through strategic acquisitions, expanding its footprint across the Southeast. Today, United Community Banks is a diversified regional bank with a focus on commercial and retail banking, wealth management, and mortgage lending.

The company's commercial banking segment provides a range of lending and deposit products to small and medium-sized businesses, as well as commercial real estate financing. United Community Banks has a diverse commercial loan portfolio, with exposure to sectors such as owner-occupied commercial real estate, income-producing commercial real estate, commercial and industrial, and construction lending. As of March 31, 2024, commercial loans made up 73% of the total loan portfolio.

On the retail banking side, United offers a full suite of deposit products and consumer lending solutions, including residential mortgages, home equity loans, and consumer installment loans. The company's wealth management division provides investment advisory, trust, and insurance services to individuals and families.

United Community Banks has a strong presence in its core Southeastern markets, with a focus on high-growth metropolitan areas. The company has been successful in attracting new customer relationships through its emphasis on personalized service and deep community involvement. United has also demonstrated an ability to identify and integrate strategic acquisitions that complement its existing footprint and capabilities.

Financial Performance and Position

United Community Banks has delivered consistent financial performance, with a track record of steady earnings growth and strong asset quality. In the first quarter of 2024, the company reported diluted earnings per share of $0.51, up from $0.52 in the prior-year period. On an operating basis, which excludes certain non-recurring items, earnings per share was $0.58, up 5% year-over-year and 11.5% sequentially.

The company's net interest margin expanded by 17 basis points in the first quarter to 3.40%, driven by disciplined deposit pricing and ongoing loan repricing. United's net interest revenue increased by $9.6 million, or 4.6%, compared to the prior-year quarter. Loan yields rose 19 basis points to 6.43%, with new and renewed loans yielding around 8.5%.

United Community Banks' balance sheet remains strong, with a loan-to-deposit ratio of 80% as of March 31, 2024. The company has no outstanding FHLB borrowings and a minimal reliance on brokered deposits, providing flexibility in the current competitive environment. United's capital ratios also remain well above regulatory minimums, with a CET1 ratio of 12.60% and a total risk-based capital ratio of 13.63% at the end of the first quarter.

Asset Quality and Risk Management

United Community Banks has maintained excellent asset quality, with net charge-offs declining to 26 basis points of average loans in the first quarter of 2024, down from 28 basis points in the prior quarter. The company's nonperforming asset ratio ticked up slightly to 0.64% as of March 31, 2024, from 0.58% at the end of 2023.

The bank's commercial real estate portfolio, which accounts for 46% of total loans, continues to perform well. United has been proactive in stress testing its CRE loans, adjusting risk ratings and increasing reserves as needed to account for rising interest rates and potential economic headwinds. The company's office and multifamily CRE exposures, in particular, have remained stable, with low levels of criticized loans.

In the equipment finance segment, which has been a source of elevated charge-offs, United is seeing improvements. Navitas equipment finance net charge-offs declined to 1.42% in the first quarter, down from 1.66% in the prior quarter. Excluding the long-haul trucking portfolio, which the company is actively managing, Navitas charge-offs were just 1.01%.

Looking ahead, United Community Banks remains cautious in its underwriting, particularly for new commercial real estate loans, as it navigates the uncertain economic environment. The company is also closely monitoring its loan portfolio for any signs of deterioration and is prepared to take proactive measures to maintain asset quality.

Outlook and Growth Initiatives

For the remainder of 2024, United Community Banks expects its net interest margin to be relatively stable, with the potential for modest expansion depending on the trajectory of deposit costs and the pace of loan growth. The company anticipates that net charge-offs will remain in the 25-30 basis point range, in line with its long-term historical average.

United is focused on driving organic growth through strategic hires and the expansion of its commercial and wealth management capabilities. The company has been successful in attracting new teams in its core Southeastern markets, and it sees opportunities to deepen relationships with existing customers and acquire new ones.

In the wealth management segment, United recently made the strategic decision to sell its registered investment adviser, FinTrust, in order to focus on its more integrated, bank-centric wealth offerings. This move is expected to be capital accretive and will allow the company to better align its wealth management services with its overall banking strategy.

While United Community Banks remains open to potential acquisitions, the company is taking a measured approach, prioritizing deals that can enhance its geographic footprint, product capabilities, and customer relationships. The bank's strong capital position and liquidity provide flexibility to pursue value-enhancing M&A opportunities when the right fit becomes available.

Risks and Challenges

As with any financial institution, United Community Banks faces a variety of risks and challenges that could impact its future performance. These include:

- Interest rate risk: The company's net interest margin and profitability are sensitive to changes in interest rates, which could compress if the Federal Reserve continues to raise rates aggressively.

- Credit risk: While United's asset quality remains strong, a deterioration in economic conditions could lead to increased loan losses, particularly in its commercial real estate and equipment finance portfolios.

- Competitive pressure: United operates in a highly competitive banking environment, which could put pressure on its ability to attract and retain customers, as well as maintain pricing discipline.

- Regulatory and compliance risk: As a regulated financial institution, United is subject to a complex and evolving regulatory landscape, which could result in increased compliance costs and operational complexity.

- Technological disruption: The banking industry is undergoing rapid technological change, requiring United to continually invest in its digital capabilities to meet customer expectations and fend off competition from fintech players.

United Community Banks has demonstrated the ability to navigate these challenges through prudent risk management, a diversified business model, and a focus on operational excellence. The company's strong capital position, liquidity, and experienced management team position it well to continue delivering consistent performance and shareholder value.

Conclusion

United Community Banks is a well-run regional bank with a diversified business model, strong asset quality, and a track record of consistent financial performance. The company's focus on commercial and retail banking, wealth management, and mortgage lending provides a balanced revenue stream and helps mitigate risk.

While United faces the same macroeconomic and industry-wide challenges as its peers, the bank's conservative underwriting, disciplined deposit pricing, and strategic growth initiatives position it well to navigate the current environment. With a strong balance sheet, ample liquidity, and a talented management team, United Community Banks is poised to continue delivering value to its shareholders.