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What changed in UNITED COMMUNITY BANKS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of UNITED COMMUNITY BANKS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+354 added−345 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in UNITED COMMUNITY BANKS INC's 2023 10-K

354 paragraphs added · 345 removed · 245 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

39 edited+6 added−12 removed172 unchanged
Biggest changeIn addition, federal law contains a number of other provisions that may affect the Bank’s operations, including limitations on the use and disclosure to third parties of client information. As of December 31, 2022, we are a financial holding company and we have a number of financial subsidiaries, as discussed in Subsidiaries in this Item.
Biggest changeCertain restrictions apply if the bank holding company or the bank fails to continue to meet one or more of the requirements listed above. In addition, federal law contains a number of other provisions that may affect the Bank’s operations, including limitations on the use and disclosure to third parties of client information.
For example, as discussed under Capital Adequacy discussed below, our ability to pay dividends would be restricted if our capital ratios fell below minimum regulatory requirements plus a capital conservation buffer. The Federal Reserve generally requires bank holding companies to pay dividends only out of current operating earnings.
For example, as discussed under Capital Adequacy below, our ability to pay dividends would be restricted if our capital ratios fell below minimum regulatory requirements plus a capital conservation buffer. The Federal Reserve generally requires bank holding companies to pay dividends only out of current operating earnings.
The Bank was founded in 1950 as a Georgia state-chartered bank and converted to a South Carolina state-chartered bank effective on July 1, 2021. We have grown through a combination of acquisitions and strategic growth throughout Georgia, South Carolina, North Carolina, Tennessee, and Florida, as well as nationally through our SBA/USDA lending and equipment finance businesses.
The Bank was founded in 1950 as a Georgia state-chartered bank and converted to a South Carolina state-chartered bank effective on July 1, 2021. We have grown through a combination of acquisitions and strategic growth throughout Georgia, South Carolina, North Carolina, Tennessee, Florida and Alabama as well as nationally through our SBA/USDA lending and equipment finance businesses.
Community Reinvestment Act The CRA requires each U.S. bank, consistent with safe and sound operation, to help meet the credit needs of each community where the bank accepts deposits, including low- and moderate-income communities. Federal banking regulators periodically assess the Bank 18 for CRA compliance and that assessment is made public.
Community Reinvestment Act The CRA requires each U.S. bank, consistent with safe and sound operation, to help meet the credit needs of each community where the bank accepts deposits, including low- and moderate-income communities. Federal banking regulators periodically assess the Bank for CRA compliance and that assessment is made public.
We exist to serve our customers, and we are committed to making lives better through outstanding products, dedication to our customers, and serving the communities in which we operate. 7 We operate as a locally-focused community bank, supplemented by experienced, centralized support to deliver products and services to our larger, more sophisticated, customers.
We exist to serve our customers, and we are committed to making lives better through outstanding products, dedication to our customers, and serving the communities in which we operate. We operate as a locally-focused community bank, supplemented by experienced, centralized support to deliver products and services to our larger, more sophisticated, customers.
Also, the Bank and certain of its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases or sales of property, or furnishing products or services. Payment of Dividends The Holding Company is a legal entity separate and distinct from the Bank and other subsidiaries.
Also, the Bank and certain of its affiliates are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases or sales of property, or furnishing products or services. Payment of Dividends The Holding Company is a legal entity separate and distinct from the Bank and other subsidiaries.
The payment of dividends by the Holding Company and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines imposed by debt covenants.
The payment of dividends by the Holding Company and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines imposed by regulators or debt covenants.
The majority of our loans are to customers located in the immediate market areas of our banking locations in Georgia, South Carolina, North Carolina, Tennessee, and Florida, including customers who have a seasonal residence in our market areas.
The majority of our loans are to customers located in the immediate market areas of our banking locations in Georgia, South Carolina, North Carolina, Tennessee, Florida and Alabama, including customers who have a seasonal residence in our market areas.
Risk-Based Ratios Category Total Capital Tier 1 Capital CET1 Capital Leverage Ratio Tangible Equity to Total Assets Well-capitalized at least 10% at least 8% at least 6.5% at least 5% Adequately capitalized at least 8% at least 6% at least 4.5% at least 4% Undercapitalized under 8% under 6% under 4.5% under 4% Significantly undercapitalized under 6% under 4% under 3% under 3% Critically undercapitalized 2% or less As of December 31, 2022, the Bank qualified as “well-capitalized” under the regulatory capital requirements discussed above.
Risk-Based Ratios Category Total Capital Tier 1 Capital CET1 Capital Leverage Ratio Tangible Equity to Total Assets Well-capitalized at least 10% at least 8% at least 6.5% at least 5% Adequately capitalized at least 8% at least 6% at least 4.5% at least 4% Undercapitalized under 8% under 6% under 4.5% under 4% Significantly undercapitalized under 6% under 4% under 3% under 3% Critically undercapitalized 2% or less As of December 31, 2023, the Bank qualified as “well-capitalized” under the regulatory capital requirements discussed above.
We provide payment processing services for our commercial and small business customers through UCPS. UCPS is a joint venture between the Bank and Clover, a merchant services provider and subsidiary of Fiserv, Inc. Other General Information Subsidiaries Our consolidated operating subsidiaries at December 31, 2022 are listed in Exhibit 21 of this Report.
We provide payment processing services for our commercial and small business customers through UCPS. UCPS is a joint venture between the Bank and Clover, a merchant services provider and subsidiary of Fiserv, Inc. Other General Information Subsidiaries Our consolidated operating subsidiaries at December 31, 2023 are listed in Exhibit 21 of this Report.
Further, our references to website URLs are intended to be inactive textual references only. 21
Further, our references to website URLs are intended to be inactive textual references only.
We cannot predict what final rules may be adopted, nor how they may be implemented and, therefore, it cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate our key employees.
We cannot predict what future policies may be adopted, nor how they may be implemented and, therefore, it cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate our key employees.
Employee Engagement Surveys The Best Banks to Work For program, initiated in 2013 by American Banker and Best Companies Group, identifies and recognizes U.S. banks for outstanding employee satisfaction. We are honored to have been named one of American Banker’s 2022 Best Banks to Work For, an award we’ve received for six consecutive years.
Employee Engagement Surveys The Best Banks to Work For program, initiated in 2013 by American Banker and Best Companies Group, identifies and recognizes U.S. banks for outstanding employee satisfaction. We are honored to have been named one of American Banker’s 2023 Best Banks to Work For, an award we’ve received for seven consecutive years.
ITEM 1. BUSINESS Overview United Community Banks, Inc. is a Georgia corporation incorporated in 1987 and headquartered in Blairsville, Georgia. We are a bank holding company under the BHC Act and, as of July 1, 2021, a financial holding company under the GLB Act. We provide diversified financial services primarily through our principal subsidiary, United Community Bank.
ITEM 1. BUSINESS Overview United Community Banks, Inc. is a Georgia corporation incorporated in 1987 and headquartered in Blairsville, Georgia. We are a bank holding company under the BHC Act and a financial holding company under the GLB Act. We provide diversified financial services primarily through our principal subsidiary, United Community Bank.
There are statutory and regulatory requirements applicable to the payment of dividends and other distributions by the Bank, as well as by the Holding Company to its shareholders. 13 During 2022, 2021 and 2020, the Bank paid dividends to the Holding Company of $133 million, $217 million and $150 million, respectively.
There are statutory and regulatory requirements applicable to the payment of dividends and other distributions by the Bank, as well as by the Holding Company to its shareholders. 13 During 2023, 2022 and 2021, the Bank paid dividends to the Holding Company of $198 million, $133 million and $217 million, respectively.
Human Resources Management As of January 31, 2023, we had 3,046 full-time equivalent employees, compared to 2,921 at January 31, 2022. None of our employees are represented by a union, collective bargaining agreement or similar arrangement, and we have not experienced any labor disputes or strikes arising from any organized labor groups.
Human Resources Management As of December 31, 2023 we had 3,121 full-time equivalent employees compared to 2,843 at December 31, 2022. None of our employees are represented by a union, collective bargaining agreement or similar arrangement, and we have not experienced any labor disputes or strikes arising from any organized labor groups.
The Holding Company declared quarterly cash dividends on its common stock in 2022, 2021 and 2020 totaling $0.86, $0.78 and $0.72 per share, respectively.
The Holding Company declared quarterly cash dividends on its common stock in 2023, 2022 and 2021 totaling $0.92, $0.86 and $0.78 per share, respectively.
Talent Development Through our talent development initiatives, such as Boundary Spanning Leadership and Leadership Academy, our internal team and subject matter experts provide our employees with quality continuing education on a variety of topics. Participation in continuing education is expected and supported so our employees stay informed and up to date on information, skills and systems.
Talent Development Through our talent development initiatives, such as the Manager Development Program, our internal team and subject matter experts provide our employees with quality continuing education on a variety of topics. Participation in continuing education is expected and supported so our employees stay informed and up to date on information, skills and systems.
The Federal Reserve reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, including us, that are not “large, complex banking organizations.” These reviews are tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation 17 arrangements.
W e operate a risk management process for assessing risk in incentive compensation plans. 17 The Federal Reserve reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, including us, that are not “large, complex banking organizations.” These reviews are tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements.
That rule requires the maintenance of minimum net capital and limits the ability of the broker-dealer to transfer large amounts of capital to a parent company or affiliate. Compliance with the rule could limit operations that require intensive use of capital, such as underwriting and trading.
Our registered broker-dealer subsidiary is subject to the SEC’s net capital rule, Rule 15c3-1. That rule requires the maintenance of minimum net capital and limits the ability of the broker-dealer to transfer large amounts of capital to a parent company or affiliate. Compliance with the rule could limit operations that require intensive use of capital, such as underwriting and trading.
There have been a number of significant enforcement actions by regulators, as well as state attorneys general and the Department of Justice, against banks, broker-dealers and non-bank financial institutions with respect to these laws and some have resulted in substantial penalties, including criminal pleas.
There have been a number of significant enforcement actions by regulators, as well as state attorneys general and the Department of Justice, against banks, broker-dealers and non-bank financial institutions with respect to these laws and some have resulted in substantial penalties, including criminal pleas. Our Board has approved policies and procedures that it believes comply with these laws.
During 2022, the Bank originated $1.53 billion in residential mortgage loans for the purchase of homes and to refinance existing mortgage debt. The majority of these mortgages were sold into the secondary market without recourse to us, other than for breaches of warranties. We have retained the servicing on most of our mortgage loans sold.
During 2023, the Bank originated $903 million in residential mortgage loans for the purchase of homes and to refinance existing mortgage debt. Approximately 50% of these mortgages were sold into the secondary market without recourse to us, other than for breaches of warranties. We have retained the servicing on most of our mortgage loans sold.
Our Human Resources, Legal and Compliance departments develop policies associated with our labor and human capital practices, identify risks, and implement practices to mitigate those risks, under the oversight of the Board and its committees. At the management level, our Employee Benefits Committee is responsible for reviewing and approving our employee benefits programs, including healthcare and other benefits.
Our Human Resources, Legal and Compliance departments develop policies associated with our labor and human capital practices, identify risks, and implement practices to mitigate those risks, under the oversight of the Board and its committees. At the management level, our Employee Retirement Plan Committee is responsible for reviewing and approving our 401(k) retirement program.
In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control money supply and credit availability in order to influence the economy.
Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control money supply and credit availability in order to influence the economy.
As a financial holding company, we coordinate the financial resources of the consolidated enterprise and maintain systems of financial, operational, and administrative control intended to coordinate selected policies and activities, including as described in Item 9A of Part II.
As of December 31, 2023 we had consolidated total assets of $27.3 billion. As a financial holding company, we coordinate the financial resources of the consolidated enterprise and maintain systems of financial, operational, and administrative control intended to coordinate selected policies and activities, including as described in Item 9A of Part II.
For purposes of CRA examinations, federal banking regulators rate each institution’s compliance with the CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” A CRA rating below “Satisfactory” can slow or halt a bank’s plans to expand by branching, acquisition, or merger, and can prevent a bank holding company from becoming a financial holding company.
The Bank’s low- and moderate-income community operations and activities traditionally are critical focal points in those assessments. 18 For purposes of CRA examinations, federal banking regulators rate each institution’s compliance with the CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” A CRA rating below “Satisfactory” can slow or halt a bank’s plans to expand by branching, acquisition, or merger, and can prevent a bank holding company from becoming a financial holding company.
Further information on these topics is presented: within Item 1A, Risk Factors under the headings: Risks from Changes in Economic Conditions , Risks Associated with Monetary Events , Liquidity and Funding Risk , and Interest Rate and Yield Curve Risks.
Economic weakness tends to diminish client borrowing and other activities that otherwise benefit our performance. Further information on these topics is presented: within Item 1A, Risk Factors under the headings: Risks from Changes in Economic Conditions , Risks Associated with Monetary Events , Liquidity and Funding Risk , and Interest Rate and Yield Curve Risks.
Our consolidated loans at December 31, 2022 were $15.3 billion, or 64% of total consolidated assets. The interest rates that we charge on loans vary with the degree of risk, maturity and amount of the loan, and are further subject to competitive pressures, deposit costs, availability of funds and government regulations.
The interest rates that we charge on loans vary with the degree of risk, maturity and amount of the loan, and are further subject to competitive pressures, deposit costs, availability of funds and government regulations.
Our Board has approved policies and procedures that it believes comply with these laws. 20 Depositor Preference Federal law provides that deposits and certain claims for administrative expenses and associate compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the “liquidation or other resolution” of such an institution by any receiver.
Depositor Preference Federal law provides that deposits and certain claims for administrative expenses and associate compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the “liquidation or other resolution” of such an institution by any receiver. 20 Securities Regulation Certain of our subsidiaries are subject to various securities laws and regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the jurisdictions in which they operate.
Our organizational structure reflects these strengths, with local leaders for each market and market advisory boards operating in partnership with the product experts of our Commercial Banking Solutions unit. We believe that this combination of service and expertise sets us apart and is instrumental in our strategy to build long-term relationships.
Our organizational structure reflects these strengths, with local leaders for each market and market advisory boards operating in partnership with the product experts of our Commercial Banking Solutions unit.
Secretary of the Treasury from time to time. If this fifth requirement ceases to be met after a 19 bank controls or holds an interest in a financial subsidiary, the bank cannot invest additional capital in that subsidiary until the requirement again is met.
If this fifth requirement ceases to be met after a bank controls or holds an interest in a financial subsidiary, the bank cannot invest additional capital in that subsidiary until the requirement again is met. 19 No new activity may be commenced unless the bank and all of its depository institution affiliates have at least “Satisfactory” CRA ratings.
We believe that encouraging input from all perspectives allows us to provide our customers with creative ideas and solutions for operating effectively in a complex, ever-changing marketplace. 10 In 2020, to strengthen a sense of belonging for all employees, we formed our Diversity and Inclusion Council, called the “Power of U.” In addition to leadership provided by our Board and executive management, our Diversity and Inclusion Council is designed to recommend strategies, programs, and opportunities to foster diversity and inclusion.
We believe that encouraging input from all perspectives allows us to provide our customers with creative ideas and solutions for operating effectively in a complex, ever-changing marketplace. 10 In 2020, we formed the “Power of U,” an advisory group comprised of a cross functional representation of non-management employees.
The Power of U is comprised of 14 members from across our geographical footprint and focuses on enhancing the Bank’s culture of teamwork, communication and connection. Oversight and Management Our Board and its Talent and Compensation Committee provide oversight on human capital matters, including overall compensation philosophy, equity award programs, diversity and inclusion and succession planning.
Oversight and Management Our Board and its Talent and Compensation Committee provide oversight on human capital matters, including overall compensation philosophy, equity award programs, diversity and inclusion and succession planning.
Privacy and Data Security The Federal Reserve, FDIC and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal customer information.
As of December 31, 2023, we are a financial holding company and we have a number of financial subsidiaries, as discussed in Subsidiaries in this Item. Privacy and Data Security The Federal Reserve, FDIC and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal customer information.
In this acquisition, we acquired $2.96 billion of assets and assumed $2.66 billion of liabilities. Acquisition of Progress Subsequent to year-end, on January 3, 2023, United completed the acquisition of Progress, a bank headquartered in Huntsville, Alabama. Progress operates 13 branches in Alabama and the Florida Panhandle.
Recent Developments Acquisition of Progress On January 3, 2023, we completed the acquisition of Progress, a bank headquartered in Huntsville, Alabama. Progress operated 13 branches in Alabama and the Florida Panhandle. In this acquisition, we acquired total assets of $1.90 billion, including total loans of $1.44 billion, and total liabilities of $1.60 billion, including deposits of $1.33 billion.
The merger, which is subject to regulatory approval, the approval of First Miami shareholders, and other customary conditions, is expected to close in the third quarter of 2023. Principal Businesses and Services We Provide We provide a wide range of financial products and services to the commercial, retail, governmental, educational, energy, health care and real estate sectors.
In addition, the First Miami acquisition enhanced our offerings of non-traditional bank products - private banking, trust and wealth management. Principal Businesses and Services We Provide We provide a wide range of financial products and services to the commercial, retail, governmental, educational, energy, health care and real estate sectors.
The scope and content of federal bank regulatory agencies’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. In 2016, federal agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions. The proposal would create four tiers of institutions based on asset size.
The scope and content of federal bank regulatory agencies’ policies on executive compensation are continuing to develop and are likely to continue evolving in the future.
Lending Activities We offer a full range of lending services, including real estate, consumer and commercial loans, to individuals, small businesses, mid-sized commercial businesses and non-profit organizations. We also originate loans partially guaranteed by the SBA and to a lesser extent by the USDA loan programs.
We believe that this combination of service and expertise sets us apart and is instrumental in our strategy to build long-term relationships. 7 Lending Activities We offer a full range of lending services, including real estate, consumer and commercial loans, to individuals, small businesses, mid-sized commercial businesses and non-profit organizations.
But if rates fall low enough (as they did prior to 2022), the yield curve can flatten, causing our margins to suffer. Moreover, the Federal Reserve tends to lower rates in response to, or to avoid, a weakening economy. Economic weakness tends to diminish client borrowing and other activities that otherwise benefit our performance.
But if short-term rates are expected to fall, that expectation may be reflected in the longer-term rates resulting in a flattened or inverted yield curve, causing our margins to suffer. Moreover, the Federal Reserve tends to lower rates in response to, or to avoid, a weakening economy.
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As of December 31, 2022 we had consolidated total assets of $24.0 billion. On January 3, 2023, we entered the Alabama market with the acquisition of Progress.
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Acquisition of First Miami On July 1, 2023, we completed the acquisition of First Miami, a bank headquartered in South Miami, Florida. First Miami operated 3 offices in the Miami metropolitan area. In this acquisition, we acquired total assets of $1.02 billion, including total loans of $577 million, and total liabilities of $931 million, including total deposits of $865 million.
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Recent Developments Acquisition of Reliant On January 1, 2022, we acquired Reliant, a bank headquartered in Brentwood, Tennessee, a suburb of Nashville. Reliant operates a 25 branch network in Tennessee, located primarily in the Nashville, Clarksville and Chattanooga metropolitan areas. It also has a manufactured housing finance group based in Knoxville.
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We also originate loans partially guaranteed by the SBA and to a lesser extent by the USDA loan programs. Our consolidated loans at December 31, 2023 were $18.3 billion, or 67% of total consolidated assets.
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As of December 31, 2022, Progress reported total assets of $1.76 billion, total loans of $1.48 billion and total deposits of $1.34 billion. Acquisition of First Miami Subsequent to year-end, on February 13, 2023, United announced an agreement to acquire First Miami, a bank headquartered in South Miami, Florida.
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The Power of U offers two-way communication between employees from across the organization and between employees and management, adding social factors contributing to a culture of belonging, reward, recognition and engagement. It provides alternative channels of communication for team members to ensure that ideas, suggestions, and issues that come from the ground floor are shared with senior leadership.
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First Miami operates 3 offices in the Miami metropolitan area and, as of December 31, 2022, had total assets of $1.0 billion, total loans of $594 million, and total deposits of $867 million. In addition to traditional banking products, First Miami offers private banking, trust and wealth management with approximately $312 million in assets under administration.
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During the fourth quarter of 2023, the FDIC implemented a special assessment to recover the loss to the Deposit Insurance Fund arising from the protection of uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
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Various consumer laws and regulations also affect the operations of the Bank. In addition, several of the Bank’s subsidiaries are regulated separately, as discussed in Subsidiaries in this Item.
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In accordance with the special assessment, United will pay $10.0 million over eight quarters beginning with the first quarterly assessment period of 2024.
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W e operate a risk management process for assessing risk in incentive compensation plans.
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Secretary of the Treasury from time to time.
Removed
Institutions in the top two tiers would be subject to rules much more detailed and proscriptive than are currently in effect. If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission and bonus pool arrangements are the norm.
Removed
In the 2016 proposal, the top two tiers included institutions with more than $50 billion of assets, which would not currently apply to us.
Removed
Additionally, prompted by post-2016 legislation which significantly raised several statutory asset-size tiers, if this proposal were finalized today, the $50 billion floor might be raised significantly, allowing us to remain in the third tier for the foreseeable future.
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The Bank’s low- and moderate-income community operations and activities traditionally are critical focal points in those assessments.
Removed
No new activity may be commenced unless the bank and all of its depository institution affiliates have at least “Satisfactory” CRA ratings. Certain restrictions apply if the bank holding company or the bank fails to continue to meet one or more of the requirements listed above.
Removed
Securities Regulation Certain of our subsidiaries are subject to various securities laws and regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the jurisdictions in which they operate. Our registered broker-dealer subsidiary is subject to the SEC’s net capital rule, Rule 15c3-1.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas, particularly as we integrate our recent acquisitions, including FinTrust, Aquesta, Reliant and Progress; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality in the context of significant loan growth; • our inability to attract sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change.
Biggest changeThese risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas, particularly as we integrate our recent acquisitions, including Progress and First Miami; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality while, at the same time, creating loan growth; • our inability to attract sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment.
Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets, or cause us to sell investment securities and incur losses from those sales, any and all of which could have a material adverse effect on our results of operations or financial condition.
Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets, or cause us to sell investment securities and incur losses from those sales, any or all of which could have a material adverse effect on our results of operations or financial condition.
These provisions include: • a provision allowing the Board to consider the interests of our employees, customers, suppliers and creditors when considering an acquisition proposal; • a provision that all amendments to the articles and bylaws must be approved by a majority of the outstanding shares of our capital stock entitled to vote; • a provision requiring that any business combination involving United be approved by 75% of the outstanding shares of United’s common stock excluding shares held by stockholders who are deemed to have an interest in the transaction unless the business combination is approved by 75% of United’s directors; • a provision restricting removal of directors except for cause and upon the approval of two-thirds of the outstanding shares of our capital stock entitled to vote; • a provision that any special meeting of shareholders may be called only by the chairman, chief executive officer, president, chief financial officer, board of directors or the holders of 25% of the outstanding shares of United’s capital stock entitled to vote; and • a provision establishing certain advance notice procedures for matters to be considered at an annual meeting of shareholders.
These provisions include: • a provision allowing the Board to consider the interests of our employees, customers, suppliers and creditors when considering an acquisition proposal; • a provision that all amendments to the articles and bylaws must be approved by a majority of the outstanding shares of our capital stock entitled to vote; 34 • a provision requiring that any business combination involving United be approved by 75% of the outstanding shares of United’s common stock excluding shares held by stockholders who are deemed to have an interest in the transaction unless the business combination is approved by 75% of United’s directors; • a provision restricting removal of directors except for cause and upon the approval of two-thirds of the outstanding shares of our capital stock entitled to vote; • a provision that any special meeting of shareholders may be called only by the chairman, chief executive officer, president, chief financial officer, board of directors or the holders of 25% of the outstanding shares of United’s capital stock entitled to vote; and • a provision establishing certain advance notice procedures for matters to be considered at an annual meeting of shareholders.
Our stock price can fluctuate significantly in response to a variety of factors, some of which are unrelated to our financial performance, including, among other things: • actual or anticipated variations in quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us and/or our competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; or • geopolitical conditions such as acts or threats of terrorism, military conflicts, the effects (or perceived effects) of pandemics and trade relations.
Our stock price can fluctuate significantly in response to a variety of factors, some of which are unrelated to our financial performance, including, among other things: • actual or anticipated variations in quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us and/or our competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; or • geopolitical conditions such as acts or threats of war, terrorism, military conflicts, the effects (or perceived effects) of pandemics and trade relations.
Loan repayments are a relatively stable source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors.
Loan repayments are a relatively stable 29 source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors.
Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of assets, or we may make some other adjustment that will differ materially from the 32 estimates that we make today.
Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of assets, or we may make some other adjustment that will differ materially from the estimates that we make today.
Our network, and the systems of parties with whom we contract, could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks.
Our network, and the systems of parties with whom we contract, could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. 24 Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks.
In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our results of operations and financial condition may be negatively affected. We have historically entered into certain hedging transactions including interest rate swaps, which are designed to lessen elements of our interest rate exposure.
In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our results of operations and financial condition may be negatively affected. We have entered into certain hedging transactions, including interest rate swaps, which are designed to lessen elements of our interest rate exposure.
In addition, because the techniques used to cause such security breaches change frequently, often are not recognized until launched against a target and may originate from less regulated and 24 remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.
In addition, because the techniques used to cause such security breaches change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.
We are less able than larger institutions to spread the risks of unfavorable local economic conditions across a larger number of more diverse economies. Natural disasters and weather-related events exacerbated by climate change could have a negative impact on our results of operations and financial condition.
We are less able than larger institutions to spread the risks of unfavorable local economic conditions across a larger number of more diverse economies. 32 Natural disasters and weather-related events exacerbated by climate change could have a negative impact on our results of operations and financial condition.
This framework is comprised of various processes, systems and strategies, and is designed to identify, measure, monitor, report and manage the types of risk to which we are subject, including, among others, credit risk, interest rate risk, liquidity risk, legal and regulatory risk, compliance risk, strategic risk, reputational risk and operational risk related to its employees, systems and vendors, among others .
This framework is comprised of various processes, systems and strategies, and is designed to identify, measure, monitor, report and manage the types of risk to which we are subject, including, among others, credit risk, interest rate risk, liquidity risk, legal and regulatory risk, cybersecurity risk, compliance risk, strategic risk, reputational risk and operational risk related to its employees, systems and vendors, among others .
Unlike banks that are more geographically diversified, we are a regional bank that provides services to customers primarily in Georgia, South Carolina, North Carolina, Tennessee and Florida. The market conditions in these markets may be different from, and could be worse than, the economic conditions in the United States as a whole.
Unlike banks that are more geographically diversified, we are a regional bank that provides services to customers primarily in Georgia, South Carolina, North Carolina, Tennessee, Florida and Alabama. The market conditions in these markets may be different from, and could be worse than, the economic conditions in the United States as a whole.
Rising interest rates and a weakening economy adversely affect the ability of some borrowers to repay outstanding loans as well as the value of the collateral securing some of these loans. If loan customers with significant loan balances fail to repay their loans, our results of operations, financial condition and capital levels will suffer.
Rising interest rates, inflation and a weakening economy adversely affect the ability of some borrowers to repay outstanding loans as well as the value of the collateral securing some of these loans. If loan customers with significant loan balances fail to repay their loans, our results of operations, financial condition and capital levels will suffer.
These markets may 27 have different or weaker performance than other areas of the country and our portfolio may be more negatively impacted than a financial services company with wider geographic diversity. See the section captioned “Loans” in the “Balance Sheet Review” section of Part II, Item 7.
These markets may have different or weaker performance than other areas of the country and our portfolio may be more negatively impacted than a financial services company with wider geographic diversity. See the section captioned “Loans” in the “Balance Sheet Review” section of Part II, Item 7.
In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and capabilities of the U.S. 30 government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control.
In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and capabilities of the U.S. government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control.
These risks include, without limitation, the following: • our inability to identify and expand into suitable markets; • our inability to identify and acquire suitable sites for new branches and service locations; • our inability to identify and execute potential acquisition targets; • our inability to develop accurate estimates and judgments to evaluate asset values and credit, operations, management and market risks with respect to an acquired branch or institution, a new branch office or a new market; • our inability to realize certain assumptions and estimates to preserve the expected financial benefits of the transaction; 22 • our inability to avoid the diversion of our management’s attention from existing operations during the negotiation of a transaction; • our inability to manage successful entry into new markets where we have limited or no direct prior experience; • our inability to obtain regulatory and other approvals, or obtain such approvals without restrictive conditions; • our inability to integrate the acquired business’ operations, clients, and properties quickly and cost-effectively; • our inability to manage cultural assimilation risks associated with growth through acquisitions, which can be an often-overlooked and often-critical failure point in mergers; • our inability to combine the franchise values of businesses that we acquire with those of ours without significant loss from re-branding and other similar changes; or • our inability to retain core clients and key associates.
These risks include, without limitation, the following: • our inability to identify and expand into suitable markets; • our inability to identify and acquire suitable sites for new branches and service locations; • our inability to identify and execute potential acquisition targets; • our inability to develop accurate estimates and judgments to evaluate asset values and credit, operations, management and market risks with respect to an acquired branch or institution, a new branch office or a new market; • our inability to realize certain assumptions and estimates to preserve the expected financial benefits of the transaction; • our inability to avoid the diversion of our management’s attention from existing operations during the negotiation of a transaction; • our inability to manage successful entry into new markets where we have limited or no direct prior experience; • our inability to obtain regulatory and other approvals, or obtain such approvals without restrictive conditions; 22 • our inability to integrate the acquired business’ operations, clients, and properties quickly and cost-effectively; • our inability to manage cultural assimilation risks associated with growth through acquisitions, which can be an often-overlooked and often-critical failure point in mergers; • our inability to combine the franchise values of businesses that we acquire with those of ours without significant loss of employees or customers from re-branding and other similar changes; or • our inability to retain core clients and key employees.
Inability to retain these key personnel (including key personnel of the businesses we have acquired) or to continue to attract experienced lenders with established books of business could negatively affect our growth because of the loss of these individuals’ skills and customer relationships and/or the potential difficulty of promptly replacing them.
Inability to retain these key 25 personnel (including key personnel of the businesses we have acquired) or to continue to attract experienced lenders with established books of business could negatively affect our growth because of the loss of these individuals’ skills and customer relationships and/or the potential difficulty of promptly replacing them.
Deterioration in economic conditions, housing conditions and commodity and real estate values and an increase in unemployment in certain states or locations could result in materially higher credit losses if loans are concentrated in those locations. Our loans are heavily concentrated in our primary markets of Georgia, South Carolina, North Carolina, Tennessee and Florida.
Deterioration in economic conditions, housing conditions and commodity and real estate values and an increase in unemployment in certain states or locations could result in materially higher credit losses if loans are concentrated in those locations. Our loans are heavily concentrated in our primary markets of Georgia, South Carolina, North Carolina, Tennessee, Florida and Alabama.
Moreover, much of our organic loan growth in recent years was the result of our ability to attract experienced financial services professionals who have been able to attract customers from other financial institutions. We anticipate deploying a similar 25 hiring strategy in the future.
Moreover, much of our organic loan growth in recent years was the result of our ability to attract experienced financial services professionals who have been able to attract customers from other financial institutions. We anticipate deploying a similar hiring strategy in the future.
This Item highlights risks that could affect us in material ways by causing future results to differ materially from past results, by causing future results to differ materially from current expectations, or by causing material changes in our financial condition.
This Item highlights risks that could 21 affect us in material ways by causing future results to differ materially from past results, by causing future results to differ materially from current expectations, or by causing material changes in our financial condition.
If the Bank is not permitted to pay cash dividends to the Holding Company, it is unlikely that we would be able to continue to pay dividends on our common stock or to pay interest on our indebtedness.
If the Bank 33 is not permitted to pay cash dividends to the Holding Company, it is unlikely that we would be able to continue to pay dividends on our common stock or to pay interest on our indebtedness.
Because of significant competitive pressures in our markets and the negative impact of these pressures on our deposit and loan pricing, coupled with the fact that a significant portion of our loan portfolio has variable rate pricing that moves in concert with changes to benchmark rates, our net interest margin may be negatively impacted if these short-term rates begin to decrease and we are unable to lower deposit pricing accordingly.
Because of significant competitive pressures in our markets and the negative impact of these pressures on our deposit and loan pricing, coupled with the fact that a significant portion of our loan portfolio has variable rate pricing that moves in concert with changes to benchmark rates, our net interest margin may be negatively impacted if these short-term rates begin to decrease and we are unable to lower deposit pricing commensurately.
Moreover, revenue growth in some business lines increasingly depends upon top talent . In recent years, the cost to us of hiring and retaining top revenue-producing talent has increased, and that trend is likely to continue. We have assembled a management team which has substantial background and experience in banking and financial services in our markets.
Moreover, revenue growth in some business lines increasingly depends upon top talent . In recent years, our cost of hiring and retaining top revenue-producing talent has increased, and that trend is likely to continue. We have assembled a management team which has substantial background and experience in banking and financial services in our markets.
As of December 31, 2022, approximately 73% of our loan portfolio consisted of commercial loans, including commercial and industrial, equipment financing, commercial construction and commercial real estate mortgage loans. Our borrowers under these loans tend to be small to medium-sized businesses. These types of loans are typically larger than residential real estate loans or consumer loans.
As of December 31, 2023, approximately 73% of our loan portfolio consisted of commercial loans, including commercial and industrial, equipment 27 financing, commercial construction and commercial real estate mortgage loans. Our borrowers under these loans tend to be small to medium-sized businesses. These types of loans are typically larger than residential real estate loans or consumer loans.
Our primary areas of competition include: consumer and commercial deposits, commercial loans, consumer loans including home mortgages and lines of credit, financial planning and wealth management, fixed income products and services, and other consumer and commercial financial products and services.
Our primary areas of competition include: consumer and commercial deposits, commercial loans, consumer loans including home mortgages and lines of credit, financial planning and wealth management and other consumer and commercial financial products and services.
Our ability to conduct and grow our businesses is dependent in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business.
Our ability to conduct and grow our businesses depends in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business.
We maintain an ACL, which is a reserve established through a provision for credit losses charged to expense. After adopting ASC 326, the ACL reflects our assessment of the current expected losses over the life of the loan using historical experience, current conditions and reasonable and supportable forecasts.
We maintain an ACL, which is a reserve established through a provision for credit losses charged to expense. The ACL reflects our assessment of the current expected losses over the life of the loan using historical experience, current conditions and reasonable and supportable forecasts.
Holders of our indebtedness and of depositary shares related to our Series I preferred stock have rights that are senior to those of our common shareholders. At December 31, 2022, we had outstanding senior debentures, subordinated debentures, trust preferred securities and accompanying subordinated debentures and preferred stock totaling $421 million.
Holders of our indebtedness and of depositary shares related to our Series I preferred stock have rights that are senior to those of our common shareholders. At December 31, 2023, we had outstanding senior debentures, subordinated debentures, trust preferred securities and accompanying subordinated debentures and preferred stock totaling $413 million.
Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally or that relates to parties with whom we have important relationships. Because we conduct most of our business under the “United” brand, negative public opinion about one business could affect our other businesses.
Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally, such as recent bank failures, or that relates to parties with whom we have important relationships. Because we conduct most of our business under the “United” brand, negative public opinion about one business could affect our other businesses.
Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices (including lending to certain customers that transact business in unpopular industries), corporate governance, regulatory compliance, securities compliance, mergers and acquisitions, from sharing or inadequate protection of customer information and from actions taken by government regulators and community organizations in response to that conduct.
Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, securities compliance, mergers and acquisitions, from sharing or inadequate protection of customer information and from actions taken by government regulators and community organizations in response to that conduct.
Our stock price can be volatile. Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.
Although our current strategy is expected to evolve as business conditions change, in 2023 our strategy is to continue to invest resources in our banking businesses and operations as we integrate the businesses and operations of our recent acquisitions, including FinTrust, Aquesta, Reliant and Progress and seek to exploit opportunities for cost and revenue synergies.
Although our current strategy is expected to evolve as business conditions change, in 2024 our strategy is to continue to invest resources in our banking businesses and operations as we integrate the businesses and operations of our recent acquisitions, including Progress and First Miami, and seek to exploit opportunities for cost and revenue synergies.
As discussed elsewhere in this Item 1A, inflationary pressures have caused the Federal Reserve to recently increase interest rates and indicate its intention to continue to do so. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
As discussed elsewhere in this Item 1A, inflationary pressures have caused the Federal Reserve to increase interest rates. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
We could also issue additional equity securities directly as consideration in acquisitions of other financial institutions or other investments that we may make that would be dilutive to stockholders in terms of voting power and share-of-ownership, and could be dilutive financially or economically. 36 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We could also issue additional equity securities directly as consideration in acquisitions of other financial institutions or other investments that we may make that would be dilutive to stockholders in terms of voting power and share-of-ownership, and could be dilutive financially or economically.
In 2022, the Federal Reserve increased rates in response to inflation and, at times, the yield curve was inverted. We cannot predict how long those conditions will exist. See Risks Associated with Monetary Events within this section of the Report for additional information.
In 2022 and through most of 2023, the Federal Reserve increased rates in response to inflation and, during much of this time, the yield curve was inverted. We cannot predict how long those conditions will exist. See Risks Associated with Monetary Events within this section of the Report for additional information.
Efforts to make systems more robust may make them less adaptable, and vice-versa . Also, our efforts to control expenses, which is a significant priority for us, increases our operational challenges as we strive to maintain client service and compliance at high quality and low cost.
Efforts to make systems more robust may make them less adaptable, and vice-versa . Also, our effort to maximize operating leverage, which is a significant priority for us, increases our operational challenges as we strive to maintain high quality client service and compliance.
In response to the COVID-19 pandemic, the governments of the states in which we have branches, and most other states, periodically have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.
Governments of the states in which we have operations may take preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.
INDUSTRY DISRUPTION Failure to keep pace with technological changes could adversely affect our business. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: • a decrease in the demand for loans and other products and services offered by us; • a decrease in the value of the collateral securing our residential or commercial real estate loans; • a permanent impairment of our assets; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for loan losses.
Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: • a decrease in the demand for loans and other products and services offered by us; • a decrease in the value of the collateral securing our residential or commercial real estate loans; • a permanent impairment of our assets; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for loan losses. 26 RISKS ASSOCIATED WITH MONETARY EVENTS The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve.
Two traditional areas, deposit fraud (check kiting, wire fraud, etc.) and loan fraud, continue to be major sources of fraud attempts and loss. The sophistication and methods used to perpetrate fraud continue to evolve as technology changes.
Deposit and loan fraud continue to be major sources of fraud attempts and loss. The sophistication and methods used to perpetrate fraud continue to evolve as technology changes.
For example, adverse weather events could damage or destroy our properties or our counterparties’ properties and other assets and disrupt operations, making it more difficult for counterparties to repay their obligations, whether due to reduced profitability, asset devaluations or otherwise.
The physical risk from climate change could result from increased frequency and/or severity of adverse weather events. For example, adverse weather events could damage or destroy our properties or our counterparties’ properties and other assets and disrupt operations, making it more difficult for counterparties to repay their obligations, whether due to reduced profitability, asset devaluations or otherwise.
These restrictions and other consequences of public health issues have resulted in significant adverse effects for many different types of businesses, including, among others, those in the hospitality (including hotels and lodging) and restaurant industries, and resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
These restrictions and other consequences of public health issues may result in significant adverse effects for many different types of businesses, including, among others, those in the hospitality (including hotels and lodging) and restaurant industries, and result in layoffs and furloughs of employees nationwide, including the regions in which we operate. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 35
Failure to achieve one or more key elements needed for successful business acquisitions and integrations could adversely affect our business and earnings.
Failure to achieve one or more key elements needed for successful business acquisitions (including the integration of those businesses) could adversely affect our business and earnings.
The following paragraphs highlight certain specific important risk areas related to regulatory matters currently. These paragraphs do not describe these risks exhaustively, and they do not describe all such risks that we face currently. Moreover, the importance of specific risks will grow or diminish as circumstances change.
The following paragraphs highlight certain specific important risk areas related to regulatory matters currently. These paragraphs do not describe these risks exhaustively, and they do not describe all such risks that we face currently.
Two prominent responses are the European Union General Data Protection Regulation and the California Consumer Privacy Act. Neither is a banking industry regulation, but both apply to banks in relation to certain clients. Further general regulation to protect data privacy appears likely, and banking industry regulations might be enlarged as well.
Neither is a banking industry regulation, but both apply to banks in relation to certain clients. Further general regulation to protect data privacy appears likely, and banking industry regulations might be enlarged as well.
Technology has helped us reduce costs and improve service, but also has weakened traditional geographic and relationship ties, and has allowed disruptors to enter traditional banking areas. Through digital marketing and service platforms, many banks are making client inroads unrelated to physical presence.
Technology has helped us reduce costs and improve service, but also has weakened traditional geographic and relationship ties, and has allowed disruptors to enter traditional banking areas by providing payment and exchange services that compete directly with banks in ways not previously possible. Through digital marketing and service platforms, many banks are making client inroads unrelated to physical presence.
The spread of these diseases, including COVID variants, has caused illness and death resulting in quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions, and overall economic and financial market instability.
The spread of these diseases may result in quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions, and overall economic and financial market instability.
Our anti-fraud measures are both preventive and, when necessary, responsive; however, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated.
Additionally, the use of artificial intelligence and quantum computing could exacerbate many of these risks. Our anti-fraud measures are both preventive and, when necessary, responsive; however, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated.
We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
Additionally, the use of artificial intelligence and quantum computing could exacerbate many of these risks. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
REGULATORY, LEGISLATIVE AND LEGAL RISKS We are subject to a challenging regulatory environment that restricts our activities. We operate in heavily regulated industries. Our regulatory burdens, including both operating restrictions and ongoing compliance costs, are substantial.
MD&A of this Report for further discussion related to our process for determining the appropriate level of the ACL. REGULATORY, LEGISLATIVE AND LEGAL RISKS We are subject to a challenging regulatory environment that restricts our activities. We operate in heavily regulated industries. Our regulatory burdens, including both operating restrictions and ongoing compliance costs, are substantial.
The laws governing it are new, and are likely to evolve and expand. Many non-regulated, non-banking companies have gathered large amounts of personal details about millions of people, and have the ability to analyze that data and act on that analysis very quickly. This situation has prompted governmental responses.
Many non-regulated, non-banking companies have gathered large amounts of personal details about millions of people, and have the ability to analyze that data and act on that analysis very quickly. This situation has prompted governmental responses. Two prominent responses are the European Union General Data Protection Regulation and the California Consumer Privacy Act.
These events could also increase the volatility in financial markets and increase our counterparty exposures and other financial risks, which may result in lower revenues and higher cost of credit.
These events could also increase the volatility in financial markets and increase our counterparty exposures and other financial risks, which may result in lower revenues and higher cost of credit. For example, the cost of property and flood insurance in Florida has increased significantly in recent years, which has increased the cost of doing business.
If funding for these lending programs or federal spending generally is reduced as part of the appropriations process or by administrative decision, demand for our services may be reduced.
If funding for these lending programs or federal spending generally is reduced as part of the appropriations process or by administrative decision, demand for our services may be reduced. Any of these developments could have a material adverse effect on our financial condition, results of operations or liquidity.
If our financial condition deteriorates or if we do not receive required regulatory approvals, we may be required to defer distributions on the subordinated debentures related to the trust preferred securities (and the related guarantee of payments on the trust preferred securities). 34 We may from time to time issue additional senior or subordinated indebtedness or preferred stock that would have to be repaid before our shareholders would be entitled to receive any of our assets.
If our financial condition deteriorates or if we do not receive required regulatory approvals, we may be required to defer distributions on the subordinated debentures related to the trust preferred securities (and the related guarantee of payments on the trust preferred securities).
However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with any certainty. Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. Data privacy is becoming a major political concern.
Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. Data privacy is becoming a major political concern. The laws governing it are new, and are likely to evolve and expand.
Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks.
Federal Reserve strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve. Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks.
RISKS RELATED TO PUBLIC HEALTH ISSUES, INCLUDING COVID-19 Outbreaks of communicable diseases, including COVID-19 and its variants, have led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, adversely affected our ability to conduct normal business, adversely affected our clients, and are likely to harm our businesses, financial condition and results of operations.
RISKS RELATED TO PUBLIC HEALTH ISSUES Pandemics and outbreaks of communicable diseases may lead to periods of significant volatility in financial and other markets, and could adversely affect our ability to conduct normal business, our clients, and could harm our businesses, financial condition and results of operations.
In addition, certain provisions of Georgia law, including a provision which restricts certain business combinations between a Georgia corporation and certain affiliated shareholders, may delay, discourage or prevent an attempted acquisition or change in control of United. 35 Our stockholders may suffer dilution if we raise capital through public or private equity financings to fund our operations, to increase our capital, or to expand.
In addition, certain provisions of Georgia law, including a provision which restricts certain business combinations between a Georgia corporation and certain affiliated shareholders, may delay, discourage or prevent an attempted acquisition or change in control of United.
This competitive risk is especially pronounced from the largest U.S. banks, and from online-only banks, due in part to the investments they are able to sustain in their digital platforms. 23 Companies as disparate as PayPal and Starbucks provide payment and exchange services which compete directly with banks in ways not possible traditionally.
This competitive risk is especially pronounced from the largest U.S. banks, and from online-only banks, due in part to the investments they are able to sustain in their digital platforms.
Deposit levels may be affected by several factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors.
Deposit levels may be affected by several factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions, customer concerns about the safety and soundness of our bank, whether real or perceived, or the U.S. banking system in general and other factors.
The markets in which we operate also are exposed to the adverse impacts of climate change, as well as uncertainties related to the transition to a low-carbon economy.
The markets in which we operate also are exposed to the adverse impacts of climate change, as well as uncertainties related to the transition to a low-carbon economy. Climate change presents both immediate and long-term risks to us and our customers and clients, with the risks expected to increase over time.
Failure to maintain certain regulatory capital levels and ratios could result in regulatory actions that would be materially adverse to our shareholders. U.S. capital standards are discussed under the captions Capital Adequacy and Prompt Corrective Action in Item 1 of this Report and the caption “Capital Resources and Dividends” in Item 7 of this report.
U.S. capital standards are discussed under the captions Capital Adequacy and Prompt Corrective Action in Item 1 of this Report and the caption “Capital Resources and Dividends” in Item 7 of this report.
Through technological innovations and changes in client habits, the manner in which clients use financial services continues to change at a rapid pace. We provide a large number of services remotely (online and mobile), and physical branch utilization has been in long-term decline throughout the industry for many years.
Failure to keep pace with changing customer habits regarding the manner in which customers use financial services could hinder ongoing customer acquisition and retention efforts. We provide a large number of services remotely (online and mobile), and physical branch utilization has been in long-term decline throughout the industry for many years.
See also the “Recent Developments” section in Part II, Item 7. MD&A. ACCOUNTING AND TAX RISKS The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make significant assumptions, estimates and judgments that affect the financial statements.
Uncertainties associated with ARRs also may affect our ability to effectively manage interest rate risk. 31 ACCOUNTING AND TAX RISKS The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make significant assumptions, estimates and judgments that affect the financial statements.
Climate change presents both immediate and long-term risks to us and our customers and clients, with the risks expected to increase over time. 33 Climate risks can arise from both physical risks (those risks related to the physical effects of climate change) and transition risks (risks related to regulatory, compliance, technological, stakeholder and legal changes from a transition to a low-carbon economy).
Climate risks can arise from both physical risks (those risks related to the physical effects of climate change) and transition risks (risks related to regulatory, compliance, technological, stakeholder and legal changes from a transition to a low-carbon economy). The physical and transition risks can manifest themselves differently across our risk categories in the short, medium and long terms.
However, in the current environment, the secondary sources of borrowed funds described above will be used to augment our primary funding sources. An inability to maintain or raise funds (including the inability to access secondary funding sources) in amounts necessary to meet our liquidity needs would have a substantial negative effect, individually or collectively, on our liquidity.
Additionally, if we fail to remain “well-capitalized” our ability to utilize brokered deposits may be restricted. An inability to maintain or raise funds (including the inability to access secondary funding sources) in amounts necessary to meet our liquidity needs would have a substantial negative effect, individually or collectively, on our liquidity.
Moreover, the higher costs we must pay to hire and retain these experienced individuals could cause our noninterest expense levels to rise and negatively impact our results of operations. RISKS FROM CHANGES IN ECONOMIC CONDITIONS Inflationary pressures present a potential threat to our results of operation and financial condition.
Moreover, the higher costs we must pay to hire and retain these experienced individuals could cause our noninterest expense levels to rise and negatively impact our results of operations. Our accounting estimates and risk management processes rely on analytical and forecasting models.
A number of recent technologies have worked with the existing financial system and traditional banks, such as the evolution of ATM cards into debit/credit cards and the evolution of debit/credit cards into smart phones.
The nature of technology-driven disruption to our industry is changing, in some cases seeking to displace traditional financial service providers rather than merely enhance traditional services or their delivery. 23 A number of recent technologies have worked with the existing financial system and traditional banks, such as the evolution of ATM cards into debit/credit cards and the evolution of debit/credit cards into smart phones.
RISKS ASSOCIATED WITH MONETARY EVENTS The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve. These strategies have had, and will continue to have, a significant impact on our business and on many of our clients.
These strategies have had, and will continue to have, a significant impact on our business and on many of our clients. In 2022 and much of 2023, in response to inflationary pressures, the Federal Reserve increased interest rates substantially.
Additionally, operating our technology systems requires employees with specialized skills that are not readily available in the general employee candidate pool.
It is also not uncommon for other financial institutions to deploy this strategy as well and there is a risk that teams of our employees may be recruited by other financial institutions. Additionally, operating our technology systems requires employees with specialized skills that are not readily available in the general employee candidate pool.
Changes associated with LIBOR and other interest rate benchmarks also may impact our funding ability; see Interest Rate and Yield Curve Risks below. INTEREST RATE AND YIELD CURVE RISKS We are subject to interest rate risk because a significant portion of our business involves borrowing and lending money, and investing in financial instruments.
Under such circumstances, we may be required to access funding from sources such as the Federal Reserve’s discount window or the Bank Term Funding Program in order to manage our liquidity risk. 30 INTEREST RATE AND YIELD CURVE RISKS We are subject to interest rate risk because a significant portion of our business involves borrowing and lending money, and investing in financial instruments.
Discontinuance of, and transition away from, LIBOR (and any other reference rates) may adversely affect our reputation, business, financial condition and results of operations. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of one-week and two-month LIBOR on a representative basis on December 31, 2021.
Discontinuance of, and transition away from, certain reference rates may adversely affect our reputation, business, financial condition and results of operations. As a result of the cessation of publication of LIBOR on a representative basis, we no longer make loans referencing Affected Benchmarks. New floating rate contracts reference ARRs.
We face the risk of litigation from clients, associates, vendors, contractual parties, and other persons, either singly or in class actions, and from federal or state regulators. We manage those risks through internal controls, personnel training, insurance, litigation management, our compliance and ethics processes, and other means.
We manage those risks through internal controls, personnel training, insurance, litigation management, our compliance and ethics processes, and other means. However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with any certainty.
The ongoing COVID-19 pandemic has caused and may continue to cause significant disruption in the international and United States economies and financial markets and has had an adverse effect on our business and results of operations. This has recently been accompanied by a surge in flu and other respiratory illnesses of varying seriousness and magnitude.
Pandemics and widespread outbreaks of communicable diseases may cause significant disruption in the international and United States economies and financial markets and could have an adverse effect on our business and results of operations.
These increases in interest rates can have significant and adverse effects upon our business as well as the business of many of our customers. 26 Federal Reserve strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve.
Fluctuations in interest rates have had and can continue to have significant and sometimes adverse effects upon our business as well as the business of many of our customers. See Risks Associated With Monetary Events and Interest Rate and Yield Curve Risks in this Item 1A of this Report.
Any of these developments could have a material adverse effect on our financial condition, results of operations or liquidity. 29 Legal disputes are an unavoidable part of business, and the outcome of pending or threatened litigation cannot be predicted with any certainty.
Legal disputes are an unavoidable part of business, and the outcome of pending or threatened litigation cannot be predicted with any certainty. We face the risk of litigation from clients, associates, vendors, contractual parties, and other persons, either singly or in class actions, and from federal or state regulators.
Removed
Recently, some government leaders have discussed having the U.S. Post Office offer banking services. The nature of technology-driven disruption to our industry is changing, in some cases seeking to displace traditional financial service providers rather than merely enhance traditional services or their delivery.
Added
In addition, larger institutions may have the advantage of being perceived by the public as more secure in times of financial uncertainty as evidenced by the migration of deposits to large banks in response to recent bank failures.
Removed
In response to the recession in 2008 and the following uneven recovery, the Federal Reserve implemented a series of domestic monetary initiatives designed to lower interest rates and make credit easier to obtain. The Federal Reserve changed course in 2015, raising interest rates several times through 2018.
Added
Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change. INDUSTRY DISRUPTION Failure to keep pace with technological changes could adversely affect our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe own or lease no single physical property that we consider to be materially important to our financial condition or results from operations. Our retail branches, loan and mortgage production offices and wealth management offices remain important to our ability to deliver financial services to a large portion of our clients.
Biggest changeOur retail branches, ATMs, loan and mortgage production offices, wealth management and administrative offices remain important to our ability to deliver financial services to a large portion of our clients. For many years, branch usage by clients has slowly declined, and for many years we have slowly consolidated branch locations in response to changing utilization patterns.
Notes 7 and 14 to our consolidated financial statements include additional information regarding investments in premises and equipment and leased properties.
We expect that long-term trend to continue. We consider our properties to be suitable and adequate for operating our banking business. Notes 7 and 14 to our consolidated financial statements include additional information regarding investments in premises and equipment and leased properties.
ITEM 2. PROPERTIES Our executive offices are located at 125 Highway 515 East, Blairsville, Georgia and 2 West Washington Street, Suite 700, Greenville, South Carolina. We own our executive office in Blairsville, Georgia and lease our executive office in Greenville, South Carolina. As of December 31, 2022, we provided services or performed operational functions at 228 locations.
ITEM 2. PROPERTIES The Holding Company’s principal offices, which we own, are located at 125 Highway 515 East, Blairsville, Georgia. The Bank’s headquarters, which is a leased premises, is located at 2 West Washington Street, Suite 700, Greenville, South Carolina.
Removed
For many years, branch usage by clients has slowly declined, and for many years we have slowly consolidated branch locations in response to changing utilization patterns. We expect that long-term trend to continue. We consider our properties to be suitable and adequate for operating our banking business.
Added
As of December 31, 2023, we had a 207 branch network located throughout Georgia, South Carolina, North Carolina, Tennessee, Florida and Alabama. We do not own or lease any single physical property that we consider to be materially important to our financial condition or results from operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS In the ordinary course of operations, we are parties to various legal proceedings and periodic regulatory examinations and investigations. There are no material pending legal proceedings to which we or any of our properties are subject. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 37 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS In the ordinary course of operations, we are parties to various legal proceedings and periodic regulatory examinations and investigations. There are no material pending legal proceedings to which we or any of our properties are subject. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 38 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe made no common stock repurchases during the fourth quarter of 2022. In November 2022, our Board re-authorized the existing common stock repurchase plan to allow the repurchase of up to $50 million of our common stock.
Biggest changeIn November 2023, our Board approved an extension of this program, authorizing the repurchase of up to $18.4 million of shares. The extended repurchase authorization will expire on December 31, 2024. In November 2023, our Board re-authorized the existing common stock repurchase plan to allow the repurchase of up to $50 million of our common stock.
Repurchased shares will become treasury shares and may be utilized for general corporate purposes. 38 Performance Graph. Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on our common stock against the cumulative total return on the Nasdaq Stock Market (U.S.
Repurchased shares will become treasury shares and may be utilized for general corporate purposes. 39 Performance Graph. Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on our common stock against the cumulative total return on the Nasdaq Stock Market (U.S.
Under the program, shares may be repurchased in open market transactions at prevailing market prices or in privately negotiated transactions, from time to time, or by other means in accordance with federal securities laws, and the program may be suspended or discontinued at any time without notice.
Under both programs, shares may be repurchased in open market transactions at prevailing market prices or in privately negotiated transactions, from time to time, or by other means in accordance with federal securities laws, and the program may be suspended or discontinued at any time without notice.
The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors, including the market price of our stock, general market and economic conditions, and applicable legal requirements.
The actual timing, number and value of shares repurchased under the programs will be determined by management at its discretion and will depend on a number of factors, including the market price of our stock, general market and economic conditions, and applicable legal requirements.
Total return includes reinvestment of dividends at the closing stock price of the common stock on the dividend payment date and the closing values of stock and indexes as of December 31 of each year. ITEM 6. RESERVED 39
Total return includes reinvestment of dividends at the closing stock price of the common stock on the dividend payment date and the closing values of stock and indexes as of December 31 of each year. ITEM 6. RESERVED 40
The program is scheduled to expire on the earlier of the repurchase of our common stock having an aggregate purchase price of $50 million or December 31, 2023.
The program is scheduled to expire on the earlier of the repurchase of our common stock having an aggregate purchase price of $50 million or December 31, 2024.
Our Board declared quarterly cash dividends totaling $0.86 and $0.78 per share on our common stock in 2022 and 2021, respectively. We currently intend to continue to pay comparable quarterly cash dividends on our common stock, subject to approval by our Board, although we may elect not to pay dividends or to change the amount of such dividends.
Our Board declared cash dividends totaling $0.92 and $0.86 per share on our common stock in 2023 and 2022, respectively. We currently intend to continue to pay comparable quarterly cash dividends on our common stock, subject to approval by our Board, although we may elect not to pay dividends or to change the amount of such dividends.
ITEM 5. MARKET FOR UNITED’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock. United’s common stock trades on the Nasdaq Global Select Market under the symbol “UCBI”. At January 31, 2023, there were 8,993 record shareholders of United’s common stock. Dividends.
ITEM 5. MARKET FOR UNITED’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock. United’s common stock trades on the Nasdaq Global Select Market under the symbol “UCBI”. At January 31, 2024, there were 8,497 record shareholders of United’s common stock. Dividends.
Companies) Index and the Nasdaq Bank Stocks Index for the five-year period commencing December 31, 2017 and ending on December 31, 2022.
Companies) Index, the Nasdaq Bank Index and the KBW Nasdaq Regional Banking Index for the five-year period commencing December 31, 2018 and ending on December 31, 2023.
Cumulative Total Return* 2017 2018 2019 2020 2021 2022 United Community Banks, Inc. $ 100 $ 78 $ 115 $ 109 $ 142 $ 137 Nasdaq Stock Market (U.S.) Index 100 96 130 187 227 152 Nasdaq Bank Index 100 82 100 89 124 101 * Assumes $100 invested on December 31, 2017 in our common stock and above noted indexes.
Cumulative Total Return* 2018 2019 2020 2021 2022 2023 United Community Banks, Inc. $ 100 $ 147 $ 141 $ 182 $ 176 $ 157 Nasdaq Stock Market (U.S.) Index 100 135 194 236 158 226 Nasdaq Bank Index 100 121 108 151 124 115 KBW Nasdaq Regional Banking Index 100 120 106 141 128 123 * Assumes $100 invested on December 31, 2018 in our common stock and above noted indexes.
Added
The following table contains information regarding purchases of our preferred stock made during the quarter ended December 31, 2023 by or on behalf of United or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act. We made no common stock repurchases during the fourth quarter of 2023.
Added
Preferred Stock Depositary Share Repurchases (Dollars in thousands, except for per share amounts) Total Number of Depositary Shares Purchased Average Price Paid per Depositary Share Total Number of Depositary Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 - October 31, 2023 83,670 $ 21.97 83,670 $ 17,850 November 1, 2023 - November 30, 2023 — — — 18,400 December 1, 2023 - December 31, 2023 — — — 18,400 Total 83,670 $ 21.97 83,670 In May 2023, our Board approved a preferred stock repurchase program, authorizing the repurchase up to $25.0 million of our outstanding Series I Non-Cumulative Preferred Stock directly or through the repurchase of depositary shares representing 1/1000th of a share of Series I Non-Cumulative Preferred Stock through December 31, 2023.
Added
In 2023, we added the KBW Nasdaq Regional Banking Index to the performance graph below as it is comprised of banks more representative of our size and business composition compared to those in the Nasdaq Bank Index.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data 64 Management’s Report on Internal Control Over Financial Reporting 65 Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 66 Consolidated Financial Statements and Accompanying Notes 67
Biggest changeFinancial Statements and Supplementary Data 65 Management’s Report on Internal Control Over Financial Reporting 66 Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 67 Consolidated Financial Statements and Accompanying Notes 68
Item 6. Reserved 39 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63 Item 8.
Item 6. Reserved 40 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 41 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTable 1 (Continued) - Non-GAAP Performance Measures Reconciliation Selected Financial Information For the Years Ended December 31, (in thousands, except per share data) 2022 2021 2020 Noninterest expense reconciliation Noninterest expenses (GAAP) $ 470,149 $ 396,639 $ 367,989 Merger-related and other charges (19,375) (13,970) (7,018) Noninterest expenses - operating $ 450,774 $ 382,669 $ 360,971 Net income reconciliation Net income (GAAP) $ 277,472 $ 269,801 $ 164,089 Merger-related and other charges 19,375 13,970 7,018 Income tax benefit of merger-related and other charges (4,246) (3,174) (1,340) Net income - operating $ 292,601 $ 280,597 $ 169,767 Diluted income per common share reconciliation Diluted income per common share (GAAP) $ 2.52 $ 2.97 $ 1.91 Merger-related and other charges 0.14 0.12 0.07 Diluted income per common share - operating $ 2.66 $ 3.09 $ 1.98 Book value per common share reconciliation Book value per common share (GAAP) $ 24.38 $ 23.63 $ 21.90 Effect of goodwill and other intangibles (7.25) (5.21) (4.34) Tangible book value per common share $ 17.13 $ 18.42 $ 17.56 Return on tangible common equity reconciliation Return on common equity (GAAP) 9.54 % 13.14 % 9.25 % Merger-related and other charges 0.53 0.54 0.33 Return on common equity - operating 10.07 13.68 9.58 Effect of goodwill and other intangibles 3.97 3.65 2.66 Return on tangible common equity - operating 14.04 % 17.33 % 12.24 % Return on assets reconciliation Return on assets (GAAP) 1.13 % 1.37 % 1.04 % Merger-related and other charges 0.06 0.05 0.03 Return on assets - operating 1.19 % 1.42 % 1.07 % Efficiency ratio reconciliation Efficiency ratio (GAAP) 52.31 % 55.80 % 55.71 % Merger-related and other charges (2.15) (1.97) (1.07) Efficiency ratio - operating 50.16 % 53.83 % 54.64 % Tangible common equity to tangible assets reconciliation Equity to assets (GAAP) 11.25 % 10.61 % 11.29 % Effect of goodwill and other intangibles (2.97) (2.06) (1.94) Effect of preferred equity (0.40) (0.46) (0.54) Tangible common equity to tangible assets 7.88 % 8.09 % 8.81 % 45 Net Interest Revenue Net interest revenue, which is the difference between the interest earned on assets and the interest paid on deposits and borrowed funds, is the single largest component of revenue.
Biggest changeTable 1 (Continued) - Non-GAAP Performance Measures Reconciliation Selected Financial Information For the Years Ended December 31, (in thousands, except per share data) 2023 2022 2021 Net income reconciliation Net income (GAAP) $ 187,544 $ 277,472 $ 269,801 Bond portfolio restructuring loss 51,689 — — FDIC special assessment 9,995 — — Merger-related and other charges 27,210 19,375 13,970 Income tax benefit of non-operating items (21,489) (4,246) (3,174) Net income - operating $ 254,949 $ 292,601 $ 280,597 Diluted income per common share reconciliation Diluted income per common share (GAAP) $ 1.54 $ 2.52 $ 2.97 Bond portfolio restructuring loss 0.33 — — FDIC special assessment 0.06 — — Merger-related and other charges 0.18 0.14 0.12 Diluted income per common share - operating $ 2.11 $ 2.66 $ 3.09 Book value per common share reconciliation Book value per common share (GAAP) $ 26.52 $ 24.38 $ 23.63 Effect of goodwill and other intangibles (8.13) (7.25) (5.21) Tangible book value per common share $ 18.39 $ 17.13 $ 18.42 Return on tangible common equity reconciliation Return on common equity (GAAP) 5.34 % 9.54 % 13.14 % Bond portfolio restructuring loss 1.15 — — FDIC special assessment 0.22 — — Merger-related and other charges 0.62 0.53 0.54 Return on common equity - operating 7.33 10.07 13.68 Effect of goodwill and other intangibles 3.30 3.97 3.65 Return on tangible common equity - operating 10.63 % 14.04 % 17.33 % Return on assets reconciliation Return on assets (GAAP) 0.68 % 1.13 % 1.37 % Bond portfolio restructuring loss 0.15 — — FDIC special assessment 0.03 — — Merger-related and other charges 0.08 0.06 0.05 Return on assets - operating 0.94 % 1.19 % 1.42 % Efficiency ratio reconciliation Efficiency ratio (GAAP) 60.09 % 52.31 % 55.80 % FDIC special assessment (1.05) — — Merger-related and other charges (2.87) (2.15) (1.97) Efficiency ratio - operating 56.17 % 50.16 % 53.83 % Tangible common equity to tangible assets reconciliation Equity to assets (GAAP) 11.95 % 11.25 % 10.61 % Effect of goodwill and other intangibles (3.27) (2.97) (2.06) Effect of preferred equity (0.32) (0.40) (0.46) Tangible common equity to tangible assets 8.36 % 7.88 % 8.09 % 46 Net Interest Revenue Net interest revenue, which is the difference between the interest earned on assets and the interest paid on deposits and borrowed funds, is the single largest component of revenue.
See Table 7 of MD&A for further detail on noninterest expense. Critical Accounting Estimates Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Application of these principles requires management to make estimates, assumptions or judgments that affect the amounts reported in 41 the financial statements and the accompanying notes.
See Table 7 of MD&A for further detail on noninterest expense. Critical Accounting Estimates Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Application of these principles requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and the accompanying notes.
We have identified the determination of our ACL and fair value measurements to be the accounting areas that require the most subjective or complex judgments, estimates and assumptions, and where changes in those judgments, estimates and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.
We have identified the determination of our 42 ACL and fair value measurements to be the accounting areas that require the most subjective or complex judgments, estimates and assumptions, and where changes in those judgments, estimates and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.
The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are primarily sensitive to market observable data. However, we do evaluate the level of these observable inputs and there are some instances where we have determined that the inputs are not directly observable.
The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are 43 primarily sensitive to market observable data. However, we do evaluate the level of these observable inputs and there are some instances where we have determined that the inputs are not directly observable.
Our management believes the effect of inflation on financial results depends on our ability to react to changes in interest rates and, by such reaction, reduce the inflationary effect on performance. We have an asset/liability management program to monitor and manage our interest rate sensitivity position.
Our management believes the effect of inflation on financial results depends on our ability to react to changes in interest rates and, by such reaction, reduce the inflationary effect on performance. We have an asset/liability management program to monitor and manage 63 our interest rate sensitivity position.
We believe that we have adequate sources of liquidity to fund commitments that are drawn upon by borrowers. 60 In addition, we hold investments in certain limited partnerships for tax credit and CRA purposes.
We believe that we have adequate sources of liquidity to fund commitments that are drawn upon by borrowers. In addition, we hold investments in certain limited partnerships for tax credit and CRA purposes.
Operating performance measures include “noninterest expenses – operating,” “net income – operating,” “diluted net income per common share – operating,” “return on common equity – operating,” “return on tangible common equity – operating,” “return on assets – operating” and “efficiency ratio – operating.” Management has developed internal processes and procedures to accurately capture and account for merger-related and other charges and those charges are reviewed with the audit committee of our Board each quarter.
Operating performance measures include “net income – operating,” “diluted net income per common share – operating,” “return on common equity – operating,” “return on tangible common equity – operating,” “return on assets – operating” and “efficiency ratio – operating.” Management has developed internal processes and procedures to accurately capture and account for merger-related and other charges and those charges are reviewed with the Audit Committee of our Board each quarter.
We conduct reviews of classified performing and non-performing loans, TDRs, past due loans and portfolio concentrations on a regular basis to identify risk migration and potential charges to the ACL. These items are discussed in a series of meetings attended by Credit Risk Management leadership and leadership from various lending groups.
We conduct reviews of classified performing and non-performing loans, FDMs, past due loans and portfolio concentrations on a regular basis to identify risk migration and potential charges to the ACL. These items are discussed in a series of meetings attended by Credit Risk Management leadership and leadership from various lending groups.
We have outstanding junior subordinated debentures related to trust preferred securities totaling $34.3 million at December 31, 2022, of which $33.0 million (excluding common securities) qualified as Tier 2 capital. Further information on trust preferred securities is provided in Note 13 to the consolidated financial statements.
We have outstanding junior subordinated debentures related to trust preferred securities totaling $34.3 million at December 31, 2023, of which $33.0 million (excluding common securities) qualified as Tier 2 capital. Further information on trust preferred securities is provided in Note 13 to the consolidated financial statements.
Additional discussion on credit quality and the ACL is included in the “Asset Quality and Risk Elements” and “Critical Accounting Estimates” sections of this Report, as well as Note 1 to the consolidated financial statements. 48 Noninterest Income The following table presents the components of noninterest income for the periods indicated.
Additional discussion on credit quality and the ACL is included in the “Asset Quality and Risk Elements” and “Critical Accounting Estimates” sections of this Report, as well as Note 1 to the consolidated financial statements. 49 Noninterest Income The following table presents the components of noninterest income for the periods indicated.
The following tables indicate the relationship between interest revenue and expense and the average amounts of assets and liabilities, which provide further insight into net interest spread and net interest margin for the periods indicated. The following discussion provides additional detail on the average balances and net interest revenue for the years ended December 31, 2022 and 2021.
The following tables indicate the relationship between interest revenue and expense and the average amounts of assets and liabilities, which provide further insight into net interest spread and net interest margin for the periods indicated. The following discussion provides additional detail on the average balances and net interest revenue for the years ended December 31, 2023 and 2022.
(4) Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets. 47 The following table shows the relative effect on net interest revenue resulting from changes in the average outstanding balances (volume) of interest-earning assets and interest-bearing liabilities and the rates we earned and paid on such assets and liabilities.
(4) Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets. 48 The following table shows the relative effect on net interest revenue resulting from changes in the average outstanding balances (volume) of interest-earning assets and interest-bearing liabilities and the rates we earned and paid on such assets and liabilities.
In addition, periodic reviews of banking services and products are conducted to adjust pricing in view of current and expected costs. 62
In addition, periodic reviews of banking services and products are conducted to adjust pricing in view of current and expected costs.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes. The discussion of the components of our results of operations focuses on financial trends and events occurring between 2021 and 2022.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes. The discussion of the components of our results of operations focuses on financial trends and events occurring between 2022 and 2023.
As of December 31, 2022 and 2021, both United and the Bank were characterized as “well-capitalized”. 61 Effect of Inflation and Changing Prices A bank’s asset and liability structure is substantially different from that of an industrial firm, because primarily all assets and liabilities of a bank are monetary in nature, with relatively little investment in fixed assets or inventories.
As of December 31, 2023 and 2022, both United and the Bank were characterized as “well-capitalized”. Effect of Inflation and Changing Prices A bank’s asset and liability structure is substantially different from that of an industrial firm, because primarily all assets and liabilities of a bank are monetary in nature, with relatively little investment in fixed assets or inventories.
The Bank’s main source of liquidity is customer interest-bearing and noninterest-bearing deposit accounts, which we are able to attract at any time by competing more aggressively on pricing. Liquidity is also available from wholesale funding sources consisting primarily of Federal funds purchased, securities sold under agreements to repurchase, FHLB advances and brokered deposits.
The Bank’s main source of liquidity is customer interest-bearing and noninterest-bearing deposit accounts, which we are able to attract by competing more aggressively on pricing. Liquidity is also available from wholesale funding sources consisting primarily of Federal funds purchased, securities sold under agreements to repurchase, FHLB advances and brokered deposits.
The following table outlines the minimum ratios required for capital adequacy purposes, as well as the thresholds for a categorization of “well-capitalized”. Table 19 - Capital Ratios As of December 31, United Community Banks, Inc.
The following table outlines the minimum ratios required for capital adequacy purposes, as well as the thresholds for a categorization of “well-capitalized”. Table 21 - Capital Ratios As of December 31, United Community Banks, Inc.
For additional information related to financial trends between 2021 and 2020 please see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022, which information under that caption is incorporated herein by this reference.
For additional information related to financial trends between 2022 and 2021 please see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 24, 2023, which information under that caption is incorporated herein by this reference.
We also had level 3 derivative liabilities totaling $12.8 million. From time to time, we may record assets at fair value on a nonrecurring basis, usually as a result of the write-downs of individual assets due to impairment. In particular, nonaccrual loans may be carried at the fair value of collateral if repayment is expected solely from the collateral.
We also had level 3 derivative liabilities totaling $11.2 million. From time to time, we may record assets at fair value on a nonrecurring basis, usually as a result of the write-downs of individual assets due to impairment. In particular, nonaccrual loans may be carried at the fair value of collateral if repayment is expected solely from the collateral.
In 2022 and 2021, the Bank paid dividends of $133 million and $217 million, respectively, to the Holding Company. Holding Company liquidity is managed to a minimum of 15-months of positive cash flow after considering all of its liquidity needs over this period. Significant uses and sources of cash during the year ended December 31, 2022 are summarized below.
In 2023 and 2022, the Bank paid dividends of $198 million and $133 million, respectively, to the Holding Company. Holding Company liquidity is managed to a minimum of 15-months of positive cash flow after considering all of its liquidity needs over this period. Significant uses and sources of cash during the year ended December 31, 2023 are summarized below.
The following discussion of the major components of our balance sheet highlights significant activity resulting in the change in our financial condition between December 31, 2021 and December 31, 2022. 51 Loans Our loan portfolio is our largest category of interest-earning assets.
The following discussion of the major components of our balance sheet highlights significant activity resulting in the change in our financial condition between December 31, 2022 and December 31, 2023. Loans Our loan portfolio is our largest category of interest-earning assets.
For more information, see “GAAP Reconciliation and Explanation” in the MD&A section of this Report. 44 UNITED COMMUNITY BANKS, INC .
For more information, see “GAAP Reconciliation and Explanation” in the MD&A section of this Report. 45 UNITED COMMUNITY BANKS, INC .
Off-Balance Sheet Arrangements We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments included commitments to extend credit and letters of credit, which totaled $4.73 billion at December 31, 2022.
Off-Balance Sheet Arrangements We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments included commitments to extend credit and letters of credit, which totaled $4.37 billion at December 31, 2023.
Overview We offer a wide array of commercial and consumer banking services and investment advisory services, which as of December 31, 2022, was comprised of a 192 branch network located throughout Georgia, South Carolina, North Carolina, Tennessee and Florida. Our equipment finance and SBA/USDA lending businesses operate throughout the United States.
Overview We offer a wide array of commercial and consumer banking services and investment advisory services, which as of December 31, 2023, was comprised of a 207 branch network located throughout Georgia, South Carolina, North Carolina, Tennessee, Florida and Alabama. Our equipment finance and SBA/USDA lending businesses operate throughout the United States.
Although management believes its processes for determining the fair value of collateral-dependent loans are appropriate, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management’s determination of fair value.
Although management believes its processes for determining the fair value of collateral-dependent loans are appropriate, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management’s determination of fair value. 44 UNITED COMMUNITY BANKS, INC.
See the consolidated statement of cash flows in this Report for further detail. • Net cash provided by operating activities of $607 million reflects net income of $277 million adjusted for non-cash transactions, gains on sales of securities and other loans and changes in other assets and liabilities.
See the consolidated statement of cash flows in this Report for further detail. • Net cash provided by operating activities of $294 million reflects net income of $188 million adjusted for non-cash transactions, gains and losses on sales of other loans and securities and changes in other assets and liabilities.
For business combinations, we measure and record assets acquired and liabilities assumed at fair value at the date of acquisition, including identifiable intangible assets. Note 1 to the consolidated financial statements includes additional information on accounting policies and estimates related to acquisition activities. 43 UNITED COMMUNITY BANKS, INC.
Fair Value Measurements For business combinations, we measure and record assets acquired and liabilities assumed at fair value at the date of acquisition, including identifiable intangible assets. Note 1 to the consolidated financial statements includes additional information on accounting policies and estimates related to acquisition activities.
Certain of our leases contain options to renew the lease at the end of the current term. Unless we have determined we are reasonably likely to renew the lease, these options have been excluded from the calculation of our lease liability and ROU asset. Additional information regarding operating leases is provided in Note 14 to the consolidated financial statements.
Unless we have determined we are reasonably likely to renew the lease, these options have been excluded from the calculation of our lease liability and ROU asset. Additional information regarding operating leases is provided in Note 14 to the consolidated financial statements.
(3) Unrealized gains and losses, including those related to the transfer from AFS to HTM, have been reclassified to other assets. Pretax unrealized losses of $277 million in 2022 and pretax unrealized gains of $28.7 million and $67.3 million in 2021 and 2020, respectively, are included in other assets for purposes of this presentation.
(3) Unrealized gains and losses on AFS securities, including those related to the transfer from AFS to HTM, have been reclassified to other assets. Pretax unrealized losses of $424 million and $277 million in 2023 and 2022, respectively, and pretax unrealized gains of $28.7 million in 2021 are included in other assets for purposes of this presentation.
For qualifying leases with a term exceeding one year we record a lease liability and ROU asset on our balance sheet. As of December 31, 2022, the lease liability and ROU asset totaled $41.7 million and $40.0 million, respectively, compared to $31.1 million and $29.4 million, respectively, at December 31, 2021.
For qualifying leases with a term exceeding one year, we record a lease liability and ROU asset on our balance sheet. As of December 31, 2023, the lease liability and ROU asset totaled $44.1 million and $42.8 million, respectively, compared to $41.7 million and $40.0 million, respectively, at December 31, 2022.
As of December 31, 2022, for certain of these investments, we had committed to fund an additional $6.29 million related to future capital calls that has not been reflected in the consolidated balance sheet.
As of December 31, 2023, for certain of these investments, we had committed to fund an additional $11.3 million related to future capital calls that has not been reflected in the consolidated balance sheet.
The investment securities portfolio also provides a balance to interest rate risk in other categories of the balance sheet, while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits and borrowings.
The investment securities portfolio also provides a balance to interest rate risk in other categories of the balance sheet, while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits and borrowings. The following table presents a summary of our investment securities portfolio as of the dates indicated.
(consolidated) United Community Bank Minimum Capital Well-Capitalized Minimum Capital Plus Capital Conservation Buffer 2022 2021 2022 2021 Risk-based ratios: CET1 capital 4.5 % 6.5 % 7.0 % 12.26 % 12.46 % 12.83 % 12.87 % Tier 1 capital 6.0 8.0 8.5 12.81 13.17 12.83 12.87 Total capital 8.0 10.0 10.5 14.79 14.65 13.70 13.46 Leverage ratio 4.0 5.0 N/A 9.69 8.75 9.69 8.53 Additional information related to capital ratios, as calculated under regulatory guidelines, is provided in Note 22 to the consolidated financial statements.
(consolidated) United Community Bank Minimum Capital Well-Capitalized Minimum Capital Plus Capital Conservation Buffer 2023 2022 2023 2022 Risk-based ratios: CET1 capital 4.5 % 6.5 % 7.0 % 12.16 % 12.26 % 12.22 % 12.83 % Tier 1 capital 6.0 8.0 8.5 12.60 12.81 12.22 12.83 Total capital 8.0 10.0 10.5 14.49 14.79 13.23 13.70 Leverage ratio 4.0 5.0 N/A 9.47 9.69 9.17 9.69 Additional information related to capital ratios, as calculated under regulatory guidelines, is provided in Note 22 to the consolidated financial statements.
We recorded a provision for credit losses of $63.9 million in 2022, compared to a release of provision expense of $37.6 million in 2021. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined by management reflecting expected life of loan losses.
We recorded a provision for credit losses of $89.4 million in 2023, compared to $63.9 million in 2022. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined by management reflecting expected life of loan losses.
The Holding Company currently has internal capital resources to meet these obligations. While the Holding Company has access to the capital markets and maintains a line of credit as a contingent funding source, the ultimate sources of its liquidity are subsidiary service fees and dividends from the Bank, which are limited by applicable law and regulations.
The Holding Company currently has internal capital resources to meet these obligations. While the Holding Company has access to the capital markets, the ultimate sources of its liquidity are subsidiary service fees and dividends from the Bank, which are limited by applicable law and regulations.
Provision expense for 2022 included $18.3 million related to the establishment of the ACL for the acquired Reliant non-PCD loans and unfunded commitments.
Provision expense for 2023 included $14.5 million related to the establishment of the ACL for the acquired First Miami and Progress non-PCD loans and unfunded commitments. Provision expense for 2022 included $18.3 million related to the establishment of the ACL for the acquired Reliant non-PCD loans and unfunded commitments.
As of December 31, 2022, we had level 3 assets, those valued using unobservable inputs, of $55.5 million. The total level 3 assets consisted of $36.6 million in residential mortgage servicing rights, $11.5 million in derivative assets, $5.19 million in servicing rights for SBA/USDA loans and $2.21 million of AFS debt securities.
As of December 31, 2023, we had level 3 assets, those valued using unobservable inputs, of $54.2 million. The total level 3 assets consisted of $35.9 million in residential mortgage servicing rights, $10.6 million in derivative assets, $5.44 million in servicing rights for SBA/USDA loans and $2.21 million of AFS debt securities.
Table 17 - Contractual Maturity of AFS and HTM Debt Securities As of December 31, 2022 (in thousands) Maturity By Years 1 or Less 1 to 5 6 to 10 Over 10 Total Balance WA Yield Balance WA Yield Balance WA Yield Balance WA Yield Balance WA Yield AFS U.S.
Table 16 - Contractual Maturity and Weighted-Average Yield of AFS and HTM Debt Securities As of December 31, 2023 (in thousands) Maturity By Years 1 or Less 1 to 5 6 to 10 Over 10 Total Amortized Cost WA Yield Amortized Cost WA Yield Amortized Cost WA Yield Amortized Cost WA Yield Amortized Cost WA Yield AFS U.S.
The ACL, which includes a portion related to unfunded commitments, totaled $181 million at December 31, 2022 compared with $114 million at December 31, 2021. At December 31, 2022, the ACL for loans was $159 million, or 1.04% of total loans, compared with $103 million, or 0.87%, of loans at December 31, 2021.
The ACL, which includes a portion related to unfunded commitments, totaled $224 million at December 31, 2023 compared with $181 million at December 31, 2022. At December 31, 2023, the ACL for loans was $208 million, or 1.14% of total loans, compared with $159 million, or 1.04%, of loans at December 31, 2022.
Asset Quality and Risk Elements We manage asset quality and control credit risk through review and oversight of the loan portfolio as well as adherence to policies designed to promote sound underwriting and loan monitoring practices.
During the fourth quarter of 2023, we ceased originating new manufactured housing loans. Asset Quality and Risk Elements We manage asset quality and control credit risk through review and oversight of the loan portfolio as well as adherence to policies designed to promote sound underwriting and loan monitoring practices.
Under the risk-based capital guidelines of Basel III, assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of the collateral.
These increases were partially offset by dividends on common and preferred stock of $116 million. Under the risk-based capital guidelines of Basel III, assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of the collateral.
Net interest revenue for 2022 was $752 million, compared to $549 million for 2021. The net interest spread was 3.18% and 2.96% for 2022 and 2021, respectively, while the net interest margin was 3.38% and 3.07%, respectively.
Net interest revenue for 2023 was $818 million, compared to $752 million for 2022. The net interest spread was 2.40% and 3.18% for 2023 and 2022, respectively, while the net interest margin was 3.35% and 3.38%, respectively.
Table 1 Selected Financial Information For the Years Ended December 31, (in thousands, except per share data) 2022 2021 2020 INCOME SUMMARY Interest revenue $ 813,155 $ 578,794 $ 557,996 Interest expense 60,798 29,760 56,237 Net interest revenue 752,357 549,034 501,759 Provision for credit losses 63,913 (37,550) 80,434 Noninterest income 137,707 157,818 156,109 Total revenue 826,151 744,402 577,434 Noninterest expenses 470,149 396,639 367,989 Income before income tax expense 356,002 347,763 209,445 Income tax expense 78,530 77,962 45,356 Net income 277,472 269,801 164,089 Merger-related and other charges 19,375 13,970 7,018 Income tax benefit of merger-related and other charges (4,246) (3,174) (1,340) Net income - operating (1)* $ 292,601 $ 280,597 $ 169,767 PERFORMANCE MEASURES Per common share: Diluted net income - GAAP $ 2.52 $ 2.97 $ 1.91 Diluted net income - operating (1)* 2.66 3.09 1.98 Common stock cash dividends declared 0.86 0.78 0.72 Book value 24.38 23.63 21.90 Tangible book value (3)* 17.13 18.42 17.56 Key Performance Ratios: Return on common equity - GAAP (2) 9.54 % 13.14 % 9.25 % Return on common equity - operating (1)(2)* 10.07 13.68 9.58 Return on tangible common equity - operating (1)(2)(3)* 14.04 17.33 12.24 Return on assets - GAAP 1.13 1.37 1.04 Return on assets - operating (1)* 1.19 1.42 1.07 Net interest margin (FTE) 3.38 3.07 3.55 Efficiency ratio - GAAP 52.31 55.80 55.71 Efficiency ratio - operating (1)* 50.16 53.83 54.64 Equity to total assets 11.25 10.61 11.29 Tangible common equity to tangible assets (3)* 7.88 8.09 8.81 ASSET QUALITY Total NPAs $ 44,281 $ 32,855 $ 62,246 ACL - loans 159,357 102,532 137,010 Net charge-offs 9,654 38 18,316 ACL - loans to loans 1.04 % 0.87 % 1.20 % Net charge-offs to average loans 0.07 — 0.17 NPAs to total assets 0.18 0.16 0.35 AT PERIOD END ($ in millions) Loans $ 15,335 $ 11,760 $ 11,371 Investment securities 6,228 5,653 3,645 Total assets 24,009 20,947 17,794 Deposits 19,877 18,241 15,232 Shareholders’ equity 2,701 2,222 2,008 Common shares outstanding (thousands) 106,223 89,350 86,675 (1) Excludes merger-related and other charges.
Table 1 Selected Financial Information For the Years Ended December 31, (in thousands, except per share data) 2023 2022 2021 INCOME SUMMARY Interest revenue $ 1,237,107 $ 813,155 $ 578,794 Interest expense 419,342 60,798 29,760 Net interest revenue 817,765 752,357 549,034 Provision for credit losses 89,430 63,913 (37,550) Noninterest income 75,483 137,707 157,818 Total revenue 803,818 826,151 744,402 Noninterest expenses 571,273 470,149 396,639 Income before income tax expense 232,545 356,002 347,763 Income tax expense 45,001 78,530 77,962 Net income 187,544 277,472 269,801 Non-operating items 88,894 19,375 13,970 Income tax benefit of non-operating items (21,489) (4,246) (3,174) Net income - operating (1)* $ 254,949 $ 292,601 $ 280,597 PERFORMANCE MEASURES Per common share: Diluted net income - GAAP $ 1.54 $ 2.52 $ 2.97 Diluted net income - operating (1)* 2.11 2.66 3.09 Common stock cash dividends declared 0.92 0.86 0.78 Book value 26.52 24.38 23.63 Tangible book value (3)* 18.39 17.13 18.42 Key Performance Ratios: Return on common equity - GAAP (2) 5.34 % 9.54 % 13.14 % Return on common equity - operating (1)(2)* 7.33 10.07 13.68 Return on tangible common equity - operating (1)(2)(3)* 10.63 14.04 17.33 Return on assets - GAAP 0.68 1.13 1.37 Return on assets - operating (1)* 0.94 1.19 1.42 Net interest margin (FTE) 3.35 3.38 3.07 Efficiency ratio - GAAP 60.09 52.31 55.80 Efficiency ratio - operating (1)* 56.17 50.16 53.83 Equity to total assets 11.95 11.25 10.61 Tangible common equity to tangible assets (3)* 8.36 7.88 8.09 ASSET QUALITY Total NPAs $ 92,877 $ 44,281 $ 32,855 ACL - loans 208,071 159,357 102,532 Net charge-offs 52,243 9,654 38 ACL - loans to loans 1.14 % 1.04 % 0.87 % Net charge-offs to average loans 0.30 0.07 — NPAs to total assets 0.34 0.18 0.16 AT PERIOD END ($ in millions) Loans $ 18,319 $ 15,335 $ 11,760 Investment securities 5,822 6,228 5,653 Total assets 27,297 24,009 20,947 Deposits 23,311 19,877 18,241 Shareholders’ equity 3,262 2,701 2,222 Common shares outstanding (thousands) 119,010 106,223 89,350 (1) Excludes non-operating items as detailed on Non-GAAP Performance Measures Reconciliation on next page .
Table 10 - Allocation of ACL As of December 31, (in thousands) 2022 2021 2020 ACL % of loans in each category to total loans ACL % of loans in each category to total loans ACL % of loans in each category to total loans Owner occupied commercial real estate $ 19,834 18 $ 14,282 20 $ 20,673 18 Income producing commercial real estate 32,082 21 24,156 22 41,737 22 Commercial & industrial 23,504 15 16,592 16 22,019 22 Commercial construction 20,120 10 9,956 9 10,952 9 Equipment financing 23,395 9 16,290 9 16,820 8 Total commercial 118,935 73 81,276 76 112,201 79 Residential mortgage 20,809 15 12,390 14 15,341 11 HELOC 8,707 6 6,568 6 8,417 6 Residential construction 2,049 3 1,847 3 764 3 Manufactured housing 8,098 2 — — — — Consumer 759 1 451 1 287 1 Total ACL - loans 159,357 100 102,532 100 137,010 100 ACL - unfunded commitments 21,163 10,992 10,558 Total ACL $ 180,520 $ 113,524 $ 147,568 ACL- loans as a percentage of total loans 1.04 % 0.87 % 1.20 % The following table summarizes net charge-offs to average loans for each of the past three years.
Table 11 - Allocation of ACL As of December 31, (in thousands) 2023 2022 2021 ACL % of loans in each category to total loans ACL % of loans in each category to total loans ACL % of loans in each category to total loans Owner occupied commercial real estate $ 23,542 18 $ 19,834 18 $ 14,282 20 Income producing commercial real estate 47,755 23 32,082 21 24,156 22 Commercial & industrial 30,890 13 23,504 15 16,592 16 Commercial construction 21,741 10 20,120 10 9,956 9 Equipment financing 33,383 9 23,395 9 16,290 9 Total commercial 157,311 73 118,935 73 81,276 76 Residential mortgage 28,219 17 20,809 15 12,390 14 Home equity 9,647 5 8,707 6 6,568 6 Residential construction 1,833 2 2,049 3 1,847 3 Manufactured housing 10,339 2 8,098 2 — — Consumer 722 1 759 1 451 1 Total ACL - loans 208,071 100 159,357 100 102,532 100 ACL - unfunded commitments 16,057 21,163 10,992 Total ACL $ 224,128 $ 180,520 $ 113,524 ACL- loans as a percentage of total loans 1.14 % 1.04 % 0.87 % The following table summarizes net charge-offs to average loans for each of the past three years.
Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change.
For example, our ACL model is particularly sensitive to our recent charge-off experience and changes in the forecasted unemployment rate. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change.
Table 7 - Noninterest Expenses For the Years Ended December 31, (in thousands) Change 2022 2021 2020 2022-2021 Salaries and employee benefits $ 276,205 $ 241,443 $ 224,060 14 % Occupancy 36,247 28,619 25,791 27 Communications and equipment 38,234 29,829 27,149 28 Professional fees 20,166 20,589 18,032 (2) Lending and loan servicing expense 9,350 10,859 10,993 (14) Outside services - electronic banking 12,583 9,481 7,513 33 Postage, printing and supplies 8,749 7,110 6,779 23 Advertising and public relations 8,384 5,910 15,203 42 FDIC assessments and other regulatory charges 9,894 7,398 5,982 34 Amortization of intangibles 6,826 4,045 4,168 69 Other 24,136 17,386 15,301 39 Total excluding merger-related and other charges 450,774 382,669 360,971 18 Merger-related and other charges 19,375 13,970 7,018 39 Total noninterest expenses $ 470,149 $ 396,639 $ 367,989 19 Noninterest expenses for 2022 totaled $470 million, up 19% from 2021.
Table 7 - Noninterest Expenses For the Years Ended December 31, (in thousands) Change 2023 2022 2021 2023-2022 Salaries and employee benefits $ 318,464 $ 276,205 $ 241,443 15 % Occupancy 42,640 36,247 28,619 18 Communications and equipment 43,264 38,234 29,829 13 Professional fees 26,732 20,166 20,589 33 Lending and loan servicing expense 9,722 9,350 10,859 4 Outside services - electronic banking 11,577 12,583 9,481 (8) Postage, printing and supplies 9,467 8,749 7,110 8 Advertising and public relations 9,473 8,384 5,910 13 FDIC assessments and other regulatory charges 27,449 9,894 7,398 177 Amortization of intangibles 15,175 6,826 4,045 122 Merger-related and other charges 27,210 19,375 13,970 40 Other 30,100 24,136 17,386 25 Total noninterest expenses $ 571,273 $ 470,149 $ 396,639 22 Noninterest expenses for 2023 totaled $571 million, up 22% from 2022.
For more information on the expected replacement of LIBOR and other benchmark rates, see Part I, Item 1A. Risk Factors – Interest Rate and Yield Curve Risks of this Report. Results of Operations We reported net income of $277 million and net income - operating (non-GAAP) of $293 million in 2022.
For more information on the replacement of Affected Benchmarks and BSBY, see Part I, Item 1A. Risk Factors – Interest Rate and Yield Curve Risks of this Report. Results of Operations We reported net income of $188 million in 2023 compared to $277 million in 2022.
As shown in the chart above, 77% of our investment securities portfolio is comprised of U.S. government or government sponsored agency securities. In addition, as of December 31, 2022, our state and political subdivision securities were all rated A or better.
As shown in the chart above, 79% of our investment securities portfolio is comprised of U.S. government, U.S. government agency and GSE securities. In addition, as of December 31, 2023, our state and political subdivision securities were all high quality investment grade.
Rate Assets: Interest-earning assets: Loans, net of unearned income (FTE) (1)(2) $ 14,571,746 $ 673,491 4.62 % $ 11,485,876 $ 504,015 4.39 % $ 10,466,653 $ 492,223 4.70 % Taxable securities (3) 6,284,603 121,501 1.93 4,446,712 61,994 1.39 2,532,750 55,031 2.17 Tax-exempt securities (FTE) (1)(3) 496,327 13,865 2.79 382,915 12,059 3.15 219,668 9,458 4.31 Federal funds sold and other interest-earning assets 1,065,057 9,104 0.85 1,680,151 4,784 0.28 1,007,059 4,753 0.47 Total interest-earning assets (FTE) 22,417,733 817,961 3.65 17,995,654 582,852 3.24 14,226,130 561,465 3.95 Noninterest-earning assets: Allowance for credit losses (135,144) (121,586) (106,812) Cash and due from banks 204,852 139,728 136,702 Premises and equipment 288,044 230,276 217,751 Other assets (3) 1,275,263 1,013,956 993,584 Total assets $ 24,050,748 $ 19,258,028 $ 15,467,355 Liabilities and Shareholders’ Equity: Interest-bearing liabilities: Interest-bearing deposits: NOW and interest-bearing demand $ 4,486,263 17,312 0.39 $ 3,610,601 5,468 0.15 $ 2,759,383 7,735 0.28 Money market 4,900,667 18,274 0.37 3,972,358 5,380 0.14 3,023,928 13,165 0.44 Savings deposits 1,482,599 693 0.05 1,095,071 217 0.02 821,344 169 0.02 Time deposits 1,693,307 5,152 0.30 1,529,072 3,663 0.24 1,832,319 20,146 1.10 Brokered deposits 61,636 668 1.08 67,230 117 0.17 97,788 557 0.57 Total interest-bearing deposits 12,624,472 42,099 0.33 10,274,332 14,845 0.14 8,534,762 41,772 0.49 Federal funds purchased and other borrowings 13,004 507 3.90 44 — — 1,220 3 0.25 FHLB advances 34,027 1,424 4.18 1,195 3 0.25 749 28 3.74 Long-term debt 323,102 16,768 5.19 276,492 14,912 5.39 274,069 14,434 5.27 Total borrowed funds 370,133 18,699 5.05 277,731 14,915 5.37 276,038 14,465 5.24 Total interest-bearing liabilities 12,994,605 60,798 0.47 10,552,063 29,760 0.28 8,810,800 56,237 0.64 Noninterest-bearing liabilities: Noninterest-bearing deposits 7,967,321 6,276,094 4,600,152 Other liabilities 377,221 322,566 235,120 Total liabilities 21,339,147 17,150,723 13,646,072 Shareholders’ equity 2,711,601 2,107,305 1,821,283 Total liabilities and shareholders’ equity $ 24,050,748 $ 19,258,028 $ 15,467,355 Net interest revenue (FTE) $ 757,163 $ 553,092 $ 505,228 Net interest-rate spread (FTE) 3.18 % 2.96 % 3.31 % Net interest margin (FTE) (4) 3.38 % 3.07 % 3.55 % (1) Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans.
Rate Assets: Interest-earning assets: Loans, net of unearned income (FTE) (1)(2) $ 17,576,424 $ 1,042,578 5.93 % $ 14,571,746 $ 673,491 4.62 % $ 11,485,876 $ 504,015 4.39 % Taxable securities (3) 5,929,687 162,505 2.74 6,284,603 121,501 1.93 4,446,712 61,994 1.39 Tax-exempt securities (FTE) (1)(3) 381,731 9,796 2.57 496,327 13,865 2.79 382,915 12,059 3.15 Federal funds sold and other interest-earning assets 642,499 26,397 4.11 1,065,057 9,104 0.85 1,680,151 4,784 0.28 Total interest-earning assets (FTE) 24,530,341 1,241,276 5.06 22,417,733 817,961 3.65 17,995,654 582,852 3.24 Noninterest-earning assets: Allowance for credit losses (191,016) (135,144) (121,586) Cash and due from banks 239,574 204,852 139,728 Premises and equipment 355,139 288,044 230,276 Other assets (3) 1,517,940 1,275,263 1,013,956 Total assets $ 26,451,978 $ 24,050,748 $ 19,258,028 Liabilities and Shareholders’ Equity: Interest-bearing liabilities: Interest-bearing deposits: NOW and interest-bearing demand $ 5,161,071 125,336 2.43 $ 4,486,263 17,312 0.39 $ 3,610,601 5,468 0.15 Money market 5,462,677 156,397 2.86 4,900,667 18,274 0.37 3,972,358 5,380 0.14 Savings deposits 1,312,469 2,866 0.22 1,482,599 693 0.05 1,095,071 217 0.02 Time deposits 3,106,989 100,973 3.25 1,693,307 5,152 0.30 1,529,072 3,663 0.24 Brokered time deposits 224,914 10,002 4.45 61,636 668 1.08 67,230 117 0.17 Total interest-bearing deposits 15,268,120 395,574 2.59 12,624,472 42,099 0.33 10,274,332 14,845 0.14 Federal funds purchased and other borrowings 75,965 3,195 4.21 13,004 507 3.90 44 — — FHLB advances 124,425 5,761 4.63 34,027 1,424 4.18 1,195 3 0.25 Long-term debt 324,753 14,812 4.56 323,102 16,768 5.19 276,492 14,912 5.39 Total borrowed funds 525,143 23,768 4.53 370,133 18,699 5.05 277,731 14,915 5.37 Total interest-bearing liabilities 15,793,263 419,342 2.66 12,994,605 60,798 0.47 10,552,063 29,760 0.28 Noninterest-bearing liabilities: Noninterest-bearing deposits 7,091,034 7,967,321 6,276,094 Other liabilities 397,337 377,221 322,566 Total liabilities 23,281,634 21,339,147 17,150,723 Shareholders’ equity 3,170,344 2,711,601 2,107,305 Total liabilities and shareholders’ equity $ 26,451,978 $ 24,050,748 $ 19,258,028 Net interest revenue (FTE) $ 821,934 $ 757,163 $ 553,092 Net interest-rate spread (FTE) 2.40 % 3.18 % 2.96 % Net interest margin (FTE) (4) 3.35 % 3.38 % 3.07 % (1) Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans.
Table 16 - Maturities of Time Deposits Greater than $250,000 As of December 31, 2022 (in thousands) Three months or less $ 73,349 Over three through six months 43,905 Over six months through twelve months 154,620 Over one year 161,507 Total $ 433,381 Liquidity Management Liquidity is defined as the ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities.
Table 18 - Maturities of Time Deposits Greater than $250,000 As of December 31, 2023 (in thousands) Three months or less $ 382,802 Over three through six months 308,274 Over six months through twelve months 412,776 Over one year 47,886 Total $ 1,151,738 Liquidity Management Liquidity is defined as the ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities.
When market observable data is not available, which generally occurs due to the lack of liquidity for certain securities, the valuation of the security is subjective and may involve substantial judgment by management.
These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. When market observable data is not available, which generally occurs due to the lack of liquidity for certain securities, the valuation of the security is subjective and may involve substantial judgment by management.
Amortizing intangible assets are required to be tested for impairment only when events or circumstances indicate that impairment may exist. 56 In connection with the acquisition of Reliant, we recorded goodwill and a core deposit intangible of $299 million and $14.5 million, respectively. Deposits Customer deposits are the primary source of funding for our earning assets.
In 2022, in connection with the acquisition of Reliant, we recorded goodwill and a core deposit intangible of $299 million and $14.5 million, respectively. 59 Deposits Customer deposits are the primary source of funding for our earning assets.
Balance Sheet Review Total assets at December 31, 2022 were $24.0 billion, an increase of $3.06 billion, or 15%, from December 31, 2021. Total liabilities at December 31, 2022 were $21.3 billion, an increase of $2.58 billion, or 14% from December 31, 2021. Shareholders’ equity totaled $2.70 billion and $2.22 billion at December 31, 2022 and 2021, respectively.
Total liabilities at December 31, 2023 were $24.0 billion, an increase of $2.73 billion, or 13% from December 31, 2022. Shareholders’ equity totaled $3.26 billion and $2.70 billion at December 31, 2023 and 2022, respectively.
Table 15 - Deposits As of December 31, (in thousands) 2022 2021 Balance Customer Deposit Composition Balance Customer Deposit Composition Noninterest-bearing demand $ 7,643,081 39 % $ 6,956,981 38 % NOW and interest-bearing demand 4,350,878 22 4,252,209 24 Money market and savings 5,967,017 30 5,399,133 30 Time 1,781,482 9 1,442,498 8 Total customer deposits 19,742,458 100 % 18,050,821 100 % Brokered deposits 134,049 190,358 Total deposits $ 19,876,507 $ 18,241,179 The following table sets forth the scheduled maturities of time deposits greater than $250,000.
Table 17 - Deposits As of December 31, (in thousands) 2023 2022 Balance Customer Deposit Composition Balance Customer Deposit Composition Noninterest-bearing demand $ 6,534,307 28 % $ 7,643,081 39 % NOW and interest-bearing demand 6,155,193 27 4,350,878 22 Money market and savings 6,808,394 29 5,967,017 30 Time 3,649,498 16 1,781,482 9 Total customer deposits 23,147,392 100 % 19,742,458 100 % Brokered deposits 163,219 134,049 Total deposits $ 23,310,611 $ 19,876,507 The following table sets forth the scheduled maturities of time deposits greater than $250,000.
Significant non-cash transactions for the period included provision for credit losses of $63.9 million, depreciation, amortization and accretion of $46.7 million and deferred income tax expense of $10.9 million. • Net cash used in investing activities of $2.02 billion consisted primarily of $1.99 billion of purchases of AFS and HTM debt securities and a $1.23 billion net increase in loans, offset by $1.23 billion proceeds from securities sales, maturities and calls. • Net cash used in financing activities of $259 million consisted primarily of a net decrease in deposits of $867 million and $93.8 million in common and preferred stock dividends, partially offset by net proceeds from FHLB advances and other short-term borrowings of $709 million.
Significant non-cash transactions for the period included provision for credit losses of $89.4 million and depreciation, amortization and accretion of $45.0 million. • Net cash used in investing activities of $163 million consisted primarily of $857 million of purchases of AFS debt securities and a $997 million net increase in loans, offset by $1.66 billion proceeds from securities sales, maturities and calls and $208 million in net cash received from acquisitions. • Net cash provided by financing activities of $226 million consisted primarily of a net increase in deposits of $1.34 billion, partially offset by net repayments of FHLB advances and other short-term borrowings of $993 million and $112 million in common and preferred stock dividends.
As a reflection of the high credit quality of the portfolio, at December 31, 2022 and 2021, no ACL for HTM or AFS debt securities was recorded. See Note 5 to the consolidated financial statements for further discussion of the investment portfolio and related fair value and maturity information.
As a reflection of the high credit quality of the portfolio, at December 31, 2023 and 2022, no ACL for HTM or AFS debt securities was recorded.
We also have core deposit and customer relationship intangible assets, representing the value of acquired deposit and customer relationships, respectively, which are amortizing intangible assets.
We also have core deposit and customer relationship intangible assets, representing the value of acquired deposit and customer relationships, respectively, which are amortizing intangible assets. Amortizing intangible assets are required to be tested for impairment only when events or circumstances indicate that impairment may exist.
Table 3 - Change in Interest Revenue and Interest Expense (in thousands, FTE) 2022 Compared to 2021 2021 Compared to 2020 Increase (decrease) due to changes in Total Increase (decrease) due to changes in Total Volume Rate Change Volume Rate Change Interest-earning assets: Loans $ 141,433 $ 28,043 $ 169,476 $ 46,031 $ (34,239) $ 11,792 Taxable securities 30,742 28,765 59,507 31,477 (24,514) 6,963 Tax-exempt securities 3,280 (1,474) 1,806 5,642 (3,041) 2,601 Federal funds sold and other interest-earning assets (2,293) 6,613 4,320 2,386 (2,355) 31 Total interest-earning assets 173,162 61,947 235,109 85,536 (64,149) 21,387 Interest-bearing liabilities: Interest-bearing deposits: NOW and interest-bearing demand 1,604 10,240 11,844 1,946 (4,213) (2,267) Money market 1,517 11,377 12,894 3,239 (11,024) (7,785) Savings deposits 98 378 476 54 (6) 48 Time deposits 423 1,066 1,489 (2,879) (13,604) (16,483) Brokered deposits (11) 562 551 (137) (303) (440) Total interest-bearing deposits 3,631 23,623 27,254 2,223 (29,150) (26,927) Federal funds purchased and other short-term borrowings 507 — 507 (1) (2) (3) FHLB advances 905 516 1,421 11 (36) (25) Long-term debt 2,437 (581) 1,856 128 350 478 Total borrowed funds 3,849 (65) 3,784 138 312 450 Total interest-bearing liabilities 7,480 23,558 31,038 2,361 (28,838) (26,477) Increase in net interest revenue $ 165,682 $ 38,389 $ 204,071 $ 83,175 $ (35,311) $ 47,864 Any variance attributable jointly to volume and rate changes is allocated to the volume and rate variance in proportion to the relationship of the absolute dollar amount of the change in each.
Table 3 - Change in Interest Revenue and Interest Expense (in thousands, FTE) 2023 Compared to 2022 2022 Compared to 2021 Increase (decrease) due to changes in Total Increase (decrease) due to changes in Total Volume Rate Change Volume Rate Change Interest-earning assets: Loans $ 155,447 $ 213,640 $ 369,087 $ 141,433 $ 28,043 $ 169,476 Taxable securities (7,235) 48,239 41,004 30,742 28,765 59,507 Tax-exempt securities (3,009) (1,060) (4,069) 3,280 (1,474) 1,806 Federal funds sold and other interest-earning assets (4,910) 22,203 17,293 (2,293) 6,613 4,320 Total interest-earning assets 140,293 283,022 423,315 173,162 61,947 235,109 Interest-bearing liabilities: Interest-bearing deposits: NOW and interest-bearing demand 2,985 105,039 108,024 1,604 10,240 11,844 Money market 2,332 135,791 138,123 1,517 11,377 12,894 Savings deposits (88) 2,261 2,173 98 378 476 Time deposits 7,610 88,211 95,821 423 1,066 1,489 Brokered time deposits 4,299 5,035 9,334 (11) 562 551 Total interest-bearing deposits 17,138 336,337 353,475 3,631 23,623 27,254 Federal funds purchased and other short-term borrowings 2,645 43 2,688 507 — 507 FHLB advances 4,170 167 4,337 905 516 1,421 Long-term debt 84 (2,040) (1,956) 2,437 (581) 1,856 Total borrowed funds 6,899 (1,830) 5,069 3,849 (65) 3,784 Total interest-bearing liabilities 24,037 334,507 358,544 7,480 23,558 31,038 Increase in net interest revenue $ 116,256 $ (51,485) $ 64,771 $ 165,682 $ 38,389 $ 204,071 Any variance attributable jointly to volume and rate changes is allocated to the volume and rate variance in proportion to the relationship of the absolute dollar amount of the change in each.
During 2022, United transferred AFS debt securities to HTM with a fair value on the transfer date of $1.29 billion, which included unrealized losses recorded in AOCI totaling $87.4 million. Transfer date unrealized losses are amortized and reclassified out of AOCI as a yield adjustment, which is offset by discount accretion of the transferred HTM securities.
See Note 8 to the consolidated financial statements for further detail. During 2022, we transferred AFS debt securities to HTM with a fair value on the transfer date of $1.29 billion, which included unrealized losses recorded in AOCI totaling $87.4 million.
The amount of loans sold depends on several variables including the current lending environment and balance sheet management activities. From time to time, we also sell certain equipment financing receivables based on market conditions. During 2022, we sold a higher volume of SBA and equipment financing receivables, although the gain on sale spread was lower than the prior year.
The amount of loans sold depends on several variables including the current lending environment and balance sheet management activities. From time to time, we also sell certain equipment financing receivables based on market conditions. The following table presents loans sold and corresponding gains recognized on SBA/USDA loans and other loans sold for the periods indicated.
Growth in average loans for the year ended December 31, 2022 of $3.09 billion, or 27%, compared to 2021 also contributed to the increase in interest revenue. The acquisitions of Reliant and Aquesta contributed $2.25 billion and $320 million, respectively, to the increase in average loans.
Growth in average loans for the year ended December 31, 2023 of $3.00 billion, or 21%, compared to 2022 also contributed to the increase in interest revenue. The acquisitions of Progress and First Miami contributed $1.79 billion combined to the increase in average loans.
Treasuries $ — — % $ — — % $ 19,834 1.40 % $ — — % $ 19,834 1.40 % U.S.
Treasuries $ — — % $ 19,864 1.41 % $ — — % $ — — % $ 19,864 1.41 % U.S.
Contractual Obligations and Other Commitments The following discussion provides an overview of United’s significant contractual obligations and other commitments. Long-term Debt At December 31, 2022 and 2021, we had long-term debt outstanding of $325 million and $247 million, respectively, which included senior debentures, subordinated debentures, and trust preferred securities.
Long-term Debt At December 31, 2023 and 2022, we had long-term debt outstanding of $325 million, which included senior debentures, subordinated debentures, and trust preferred securities. The following table provides long-term debt outstanding by maturity in five year increments.
Table 11 - Net Charge-offs Years Ended December 31, (in thousands) 2022 2021 2020 Average Loans Net Charge-Offs (Recoveries) Net Charge-Offs to Average Loans Average Loans Net Charge-Offs (Recoveries) Net Charge-Offs to Average Loans Average Loans Net Charge-Offs (Recoveries) Net Charge-Offs to Average Loans Owner occupied commercial real estate $ 2,662,600 $ (1,761) (0.07) % $ 2,159,153 $ 316 0.01 % $ 1,867,935 $ (2,495) (0.13) % Income producing commercial real estate 3,283,107 (343) (0.01) 2,571,923 (229) (0.01) 2,283,157 4,884 0.21 Commercial & industrial 2,271,279 6,460 0.28 2,242,764 (2,499) (0.11) 2,297,522 9,336 0.41 Commercial construction 1,502,093 (584) (0.04) 958,791 (747) (0.08) 967,030 (319) (0.03) Equipment financing 1,217,993 3,953 0.32 971,355 3,105 0.32 794,042 6,760 0.85 Residential mortgage 2,007,843 (247) (0.01) 1,462,421 (220) (0.02) 1,197,511 (57) — HELOC 802,674 (618) (0.08) 675,873 (405) (0.06) 680,775 (456) (0.07) Residential construction 394,413 (231) (0.06) 301,591 (147) (0.05) 243,133 (63) (0.03) Manufactured housing 285,556 765 0.27 — — — — — — Consumer 144,188 2,260 1.57 142,005 864 0.61 135,548 726 0.54 $ 14,571,746 $ 9,654 0.07 $ 11,485,876 $ 38 — $ 10,466,653 $ 18,316 0.17 54 Nonperforming Assets The following table presents NPAs, which consist of nonaccrual loans and OREO and repossessed assets, for the periods indicated.
Table 12 - Net Charge-offs Years Ended December 31, (in thousands) 2023 2022 2021 Average Loans Net Charge-Offs (Recoveries) Net Charge-Offs to Average Loans Average Loans Net Charge-Offs (Recoveries) Net Charge-Offs to Average Loans Average Loans Net Charge-Offs (Recoveries) Net Charge-Offs to Average Loans Owner occupied commercial real estate $ 3,166,495 $ 503 0.02 % $ 2,662,600 $ (1,761) (0.07) % $ 2,159,153 $ 316 0.01 % Income producing commercial real estate 3,834,585 5,939 0.15 3,283,107 (343) (0.01) 2,571,923 (229) (0.01) Commercial & industrial 2,483,931 21,059 0.85 2,271,279 6,460 0.28 2,242,764 (2,499) (0.11) Commercial construction 1,800,307 (157) (0.01) 1,502,093 (584) (0.04) 958,791 (747) (0.08) Equipment financing 1,503,826 20,162 1.34 1,217,993 3,953 0.32 971,355 3,105 0.32 Residential mortgage 2,900,916 (246) (0.01) 2,007,843 (247) (0.01) 1,462,421 (220) (0.02) Home equity 935,596 (2,878) (0.31) 802,674 (618) (0.08) 675,873 (405) (0.06) Residential construction 436,513 936 0.21 394,413 (231) (0.06) 301,591 (147) (0.05) Manufactured housing 337,712 3,859 1.14 285,556 765 0.27 — — — Consumer 176,543 3,066 1.74 144,188 2,260 1.57 142,005 864 0.61 $ 17,576,424 $ 52,243 0.30 $ 14,571,746 $ 9,654 0.07 $ 11,485,876 $ 38 — The increase in net charge-offs in 2023 was mostly attributable to higher equipment financing net charge-offs, mostly related to long haul trucking equipment loans, and one commercial relationship charge-off totaling $19.0 million.
Table 4 - Noninterest Income For the Years Ended December 31, (in thousands) Change 2022 2021 2020 2022-2021 Service charge and fees: Overdraft fees $ 10,822 $ 10,137 $ 10,800 7 % ATM and debit card interchange fees 16,132 13,737 13,299 17 Other service charges and fees 11,209 9,994 8,302 12 Total service charges and fees 38,163 33,868 32,401 13 Mortgage loan gains and related fees 32,524 58,446 76,087 (44) Wealth management fees 23,594 18,998 9,240 24 Gains from sales of other loans, net 10,730 11,267 5,420 (5) Other lending and loan servicing fees 10,005 9,427 8,028 6 Securities (losses) gains, net (3,872) 83 748 Other noninterest income: Customer derivatives 2,180 3,198 6,392 (32) Other investment gains 2,023 4,886 735 (59) BOLI 6,603 3,552 5,080 86 Treasury management income 3,758 2,910 2,138 29 Other 11,999 11,183 9,840 7 Total other noninterest income 26,563 25,729 24,185 3 Total noninterest income $ 137,707 $ 157,818 $ 156,109 (13) During 2022, total service charges and fees increased compared to 2021 primarily due to the addition of Reliant and Aquesta customers for the full year of 2022 in addition to increases in organic transaction volume.
Table 4 - Noninterest Income For the Years Ended December 31, (in thousands) Change 2023 2022 2021 2023-2022 Service charge and fees: Overdraft fees $ 11,737 $ 10,822 $ 10,137 8 % ATM and debit card interchange fees 15,431 16,132 13,737 (4) Other service charges and fees 11,244 11,209 9,994 — Total service charges and fees 38,412 38,163 33,868 1 Mortgage loan gains and related fees 19,220 32,524 58,446 (41) Wealth management fees 23,740 23,594 18,998 1 Gains from sales of other loans, net 9,146 10,730 11,267 (15) Other lending and loan servicing fees 13,973 10,005 9,427 40 Securities (losses) gains, net (53,333) (3,872) 83 Other noninterest income: Customer derivatives 2,517 2,180 3,198 15 Other investment gains (7) 2,023 4,886 BOLI 8,030 6,603 3,552 22 Treasury management income 5,064 3,758 2,910 35 Other 8,721 11,999 11,183 (27) Total other noninterest income 24,325 26,563 25,729 (8) Total noninterest income $ 75,483 $ 137,707 $ 157,818 (45) Mortgage loan gains and related fees consist primarily of fees earned on mortgage originations, gains on the sale of mortgages in the secondary market, mortgage derivative hedging gains and losses, fair value adjustments to our mortgage loans held for sale and fees earned from servicing mortgages for others, including fair value adjustments on our mortgage servicing asset.
Of this amount, $12.7 million was reclassified from the amortized cost basis of PCD loans with no impact to earnings, $15.2 million was recorded as provision for credit losses on acquired non-PCD loan balances and $3.12 million was recorded as provision for unfunded commitments on the acquired balance of unfunded commitments. 53 The following table summarizes the allocation of the ACL for each of the past three years.
Of this amount, $6.42 million was reclassified from the amortized cost basis of PCD loans with no impact to earnings. 55 The following table summarizes the allocation of the ACL for each of the past three years.
During 2022, we recorded $6.35 million in positive fair value adjustments, including decay, to the mortgage servicing rights asset, which partially offset the decrease in mortgage loan gains.
The decrease in mortgage loan gains and related fees was mostly driven by fluctuations in the fair value of our mortgage servicing rights asset between 2022 and 2023. During 2023, we recorded negative fair value adjustments, including decay, totaling $3.87 million compared to $6.35 million in positive fair value adjustments, including decay, in 2022.
During 2022, as part of the Reliant acquisition, we assumed subordinated debt and trust preferred securities with an acquisition date fair value totaling $76.7 million Additional information regarding these debt instruments is provided in Note 13 to the consolidated financial statements. 59 Table 18 - Long-term Debt by Maturity Category As of December 31, 2022 (in thousands) Next 5 years $ 35,000 6 - 10 years 263,093 11 - 15 years 31,239 329,332 Less discount (4,669) Total long-term debt $ 324,663 Operating Lease Obligations We are party to operating lease agreements for many of our branch locations, ATMs, loan production offices and operation centers.
Table 20 - Long-term Debt by Maturity Category As of December 31, 2023 (in thousands) Next 5 years $ 135,000 6 - 10 years 163,093 11 - 15 years 31,239 329,332 Less discount (4,509) Total long-term debt $ 324,823 Operating Lease Obligations We are party to operating lease agreements for many of our branch locations, ATMs, loan production offices and operation centers.
Capital Resources and Dividends The maintenance and management of capital levels is one of management’s significant priorities. Shareholders’ equity at December 31, 2022 was $2.70 billion, an increase of $478 million from December 31, 2021.
See Note 23 to the consolidated financial statements for additional information on off-balance sheet arrangements. Capital Resources and Dividends The maintenance and management of capital levels is one of management’s significant priorities. Shareholders’ equity at December 31, 2023 was $3.26 billion, an increase of $561 million from December 31, 2022.
As of December 31, 2022, we also had $17.4 million in commitments for future capital calls to fintech fund limited partnerships that have not been reflected in the consolidated balance sheet.
As of December 31, 2023, we also had $13.7 million in commitments for future capital calls to fintech fund limited partnerships that have not been reflected in the consolidated balance sheet. 62 We are not involved in off-balance sheet contractual relationships, other than those disclosed in this Report, that could result in liquidity needs or other commitments, or that could significantly affect earnings.
The composition and maturity / repricing distribution of the securities portfolio is subject to change depending on rate sensitivity, capital and liquidity needs. Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations.
Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations.
Merger-related and other charges for 2022 were primarily related to the acquisition of Reliant, including its system conversion during the second quarter of 2022. Merger-related and other charges for 2021 primarily consisted of merger costs related to the acquisitions of FinTrust and Aquesta.
Merger-related and other charges for 2022 primarily consisted of merger costs related to the acquisitions of Reliant, including its system conversion during the second quarter of 2022. 52 Balance Sheet Review Total assets at December 31, 2023 were $27.3 billion, an increase of $3.29 billion, or 14%, from December 31, 2022.
Table 8 - Loan Portfolio Composition As of December 31, 2022 The following table sets forth the maturity distribution of our loan portfolio, including the interest rate sensitivity for loans maturing after one year. Approximately 73% of all loans were secured by real estate at year-end 2022.
We monitor our income producing commercial real estate portfolio through debt covenant monitoring and performing annual review procedures. 53 Table 9 - Commercial Real Estate - Income Producing Portfolio Composition As of December 31, 2023 The following table sets forth the maturity distribution of our loan portfolio, including the interest rate sensitivity for loans maturing after one year.
Table 12 - NPAs As of December 31, (in thousands) 2022 2021 2020 Nonaccrual loans held for investment $ 44,232 $ 32,812 $ 61,599 OREO and repossessed assets 49 43 647 Total NPAs $ 44,281 $ 32,855 $ 62,246 Nonaccrual loans to total loans 0.29 % 0.28 % 0.54 % NPAs to total assets 0.18 0.16 0.35 ACL - loans to nonaccrual loans coverage ratio 3.60 3.12 2.22 The increase in NPAs since December 31, 2021 was primarily due to the addition of the manufactured housing portfolio from Reliant, an overall increase in equipment financing nonaccrual loans and the migration of two large commercial and industrial relationships to nonaccrual status.
Table 13 - NPAs As of December 31, (in thousands) 2023 2022 2021 Nonaccrual loans held for investment $ 91,687 $ 44,232 $ 32,812 OREO and repossessed assets 1,190 49 43 Total NPAs $ 92,877 $ 44,281 $ 32,855 Nonaccrual loans to total loans 0.50 % 0.29 % 0.28 % NPAs to total assets 0.34 0.18 0.16 ACL - loans to nonaccrual loans coverage ratio 2.27 3.60 3.12 The increase in nonaccrual loans since December 31, 2022 is primarily driven by a small population of large commercial loans that moved to nonaccrual status, which contributed $45.8 million of the increase.
The addition of Reliant, FinTrust and Aquesta’s operating expenses for the full year of 2022 contributed to the increase, particularly in salaries and benefits and occupancy costs. Salaries and employee benefits for 2022 increased $34.8 million compared to 2021.
The addition of Progress and First Miami’s operating expenses since their respective acquisition dates of January 3, 2023 and July 1, 2023 contributed to the increase, particularly in salaries and benefits and occupancy costs. Salaries and employee benefits for 2023 increased $42.3 million compared to 2022.
During 2022, we obtained $23.9 million in ROU assets in exchange for operating lease liabilities of approximately the same amount, $14.3 million of which were acquired in the Reliant transaction. Leases assumed were for retail branch locations and office spaces. As of December 31, 2022, the remaining terms of our leases ranged from a few months to 11 years.
During 2023, we obtained $18.0 million in ROU assets in exchange for operating lease liabilities of approximately the same amount, $10.4 million of which were acquired in the First Miami and Progress transactions. Leases assumed were for retail branch locations and office spaces.
Fair Value Measurements At December 31, 2022, the percentage of our total assets measured at fair value on a recurring basis was 16%. See Note 15 “Fair Value Measurements” in the consolidated financial statements herein for additional disclosures regarding the fair value of our assets and liabilities, including a description of the fair value hierarchy.
See Note 15 “Fair Value Measurements” in the consolidated financial statements herein for additional disclosures regarding the fair value of our assets and liabilities, including a description of the fair value hierarchy. The fair values for AFS and HTM securities are generally based upon quoted market prices or observable market prices for similar instruments.
Net income - operating excludes merger related and other charges, which consists mostly of acquisition and branch closure costs. The following provides highlights of our financial results for 2022: • We recorded a provision for credit losses of $63.9 million compared to a release of provision expense of $37.6 million for 2021.
The following provides highlights of our financial results for 2023: • We recorded a provision for credit losses of $89.4 million compared to $63.9 million for 2022.
The remaining TDRs with aggregate balances of $26.7 million and $40.9 million, respectively, were performing according to their modified terms and were therefore not considered to be NPAs. Investment Securities The composition of our investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue.
Investment Securities The composition of our investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue.
For 2022, we reported a $235 million, or 40%, increase in FTE interest revenue compared to 2021. The main driver of the increase was the impact of rising interest rates on our asset sensitive balance sheet resulting from the Federal Reserve’s 425 basis point increase in the target federal funds rate.
For 2023, we reported a $423 million, or 52%, increase in FTE interest revenue compared to 2022. The main driver of the increase was the impact of rising interest rates as the Federal Reserve raised the targeted federal funds rate a total of 525 basis points beginning in March 2022 through the third quarter of 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThese repricing characteristics are the time frames within which the interest-earning assets and interest-bearing liabilities are subject to change in interest rates either at replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity Management Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-earning assets and interest-bearing liabilities are subject to change in interest rates either at replacement, repricing or maturity.
In the ramp scenarios, rates change by 25 basis points per month. Our policy limits the projected change in net interest revenue over the first 12 months to an 8% decrease for each 100 basis point change in the increasing and decreasing rate ramp and shock scenarios. The following table presents our interest sensitivity position at the dates indicated.
Our policy limits the projected change in net interest revenue over the first 12 months to an 8% decrease for each 100 basis point change in the increasing and decreasing rate ramp and shock scenarios. The following table presents our interest sensitivity position at the dates indicated.
Effective interest rate sensitivity management seeks to ensure that both assets and liabilities respond to changes in interest rates on a net basis within an acceptable timeframe, thereby minimizing the potentially adverse effect of interest rate changes on net interest revenue.
Effective interest rate sensitivity management seeks to ensure that both assets and liabilities respond to changes in interest rates on a net basis within an acceptable timeframe, thereby minimizing the potentially adverse effect of interest rate changes on net interest revenue. The absolute level and volatility of interest rates can have a significant effect on profitability.
Our policy is based on the 12-month impact on net interest revenue of interest rate shocks and ramps that increase from 100 to 400 basis points or decrease 100 to 200 basis points from the base scenario. In the shock scenarios, rates immediately change the full amount at the scenario onset.
While the primary policy scenarios focus on a 12-month time frame, longer time horizons are also modeled. Our policy is based on the 12-month impact on net interest revenue of interest rate shocks and ramps that increase from 100 to 400 basis points or decrease 100 to 200 basis points from the base scenario.
We limit our exposure to fluctuations in interest rates through policies established by our ALCO and approved by the Board. ALCO meets periodically and has responsibility for formulating and recommending asset/liability management policies to the Board, formulating and implementing strategies to improve balance sheet positioning and/or earnings, and reviewing interest rate sensitivity.
ALCO meets periodically and has responsibility for formulating and recommending asset/liability management policies to the Board, formulating and implementing strategies to improve balance sheet positioning and/or earnings, and reviewing interest rate sensitivity. One of the tools management uses to estimate and manage the sensitivity of net interest revenue to changes in interest rates is an asset/liability simulation model.
Based on economic conditions, asset quality and various other considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges. Net interest revenue and the fair value of financial instruments are influenced by changes in the level of interest rates.
The objective of interest rate risk management is to identify and manage the sensitivity of net interest revenue to changing interest rates, consistent with our overall financial goals. Based on economic conditions, asset quality and various other considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges.
The base scenario assumes rates remain flat and is the scenario to which all others are compared in order to measure the change in net interest revenue. Policy limits are based on immediate rate shock scenarios, as well as gradually rising and falling rate scenarios, which are all compared to the base scenario.
The primary objective of the simulation model is to measure the potential change in net interest revenue over time using multiple interest rate scenarios. The base scenario assumes rates remain flat and is the scenario to which all others are compared in order to measure the change in net interest revenue.
ALCO periodically reviews the assumptions for reasonableness based on historical data and future expectations; however, actual net interest revenue may differ from model results. The primary objective of the simulation model is to measure the potential change in net interest revenue over time using multiple interest rate scenarios.
Resulting estimates are based upon several assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments. ALCO periodically reviews the assumptions for reasonableness based on historical data and future expectations; however, actual net interest revenue may differ from model results.
Table 20 - Interest Sensitivity Increase (Decrease) in Net Interest Revenue from Base Scenario at December 31, 2022 2021 Change in Rates Shock Ramp Shock Ramp 200 basis point increase 6.97 % 4.33 % 8.02 % 4.76 % 100 basis point increase 3.53 2.85 3.87 3.07 100 basis point decrease (3.78) (3.12) (4.45) (3.80) 200 basis point decrease (8.39) (5.07) (5.54) (4.51) Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities.
Table 22 - Interest Sensitivity Increase (Decrease) in Net Interest Revenue from Base Scenario at December 31, 2023 2022 Change in Rates Shock Ramp Shock Ramp 200 basis point increase (0.88) % (1.70) % 6.97 % 4.33 % 100 basis point increase (0.38) (0.88) 3.53 2.85 100 basis point decrease (0.60) 0.14 (3.78) (3.12) 200 basis point decrease (2.89) 0.10 (8.39) (5.07) The current environment is marked by the most rapid rate increases in decades, which, in part, has made non-bank products, such as U.S.
Other scenarios analyzed may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements. While the primary policy scenarios focus on a 12-month time frame, longer time horizons are also modeled.
Policy limits are based on immediate rate shock scenarios, as well as gradually rising and falling rate scenarios, which are all compared to the base scenario. Other scenarios analyzed may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity Management The absolute level and volatility of interest rates can have a significant effect on profitability. The objective of interest rate risk management is to identify and manage the sensitivity of net interest revenue to changing interest rates, consistent with our overall financial goals.
Added
Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates.
Removed
One of the tools management uses to estimate and manage the sensitivity of net interest revenue to changes in interest rates is an asset/liability simulation model. Resulting estimates are based upon several assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments.
Added
Net interest revenue and the fair value of financial instruments are influenced by changes in the level of interest rates. We limit our exposure to fluctuations in interest rates through policies established by our ALCO and approved by the Board.
Removed
We have discretion in the extent and timing of deposit repricing depending upon the competitive pressures in the markets in which we operate. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity.
Added
In the shock scenarios, rates immediately change the full amount at the scenario onset. In the ramp scenarios, rates change by 25 basis points per month.
Removed
The interest rate spread between an asset and its supporting liability can vary significantly even when the timing of repricing for both the asset and the liability remains the same, due to the two instruments repricing according to different indices. This is commonly referred to as basis risk. 63 Derivative financial instruments are used to manage interest rate sensitivity.
Added
Treasuries and money market funds, more attractive to our deposit customers. For this and other reasons such as the Federal Reserve’s quantitative tightening and the aftermath of COVID stimulus, the banking industry’s deposit base has been shrinking since the first half of 2022. This industry-wide outflow of deposits has increased price competition for bank deposits.
Removed
These contracts generally consist of interest rate swaps under which we pay a variable rate (or fixed rate, as the case may be) and receive a fixed rate (or variable rate, as the case may be). In addition, investment securities and wholesale funding strategies are used to manage interest rate risk.
Added
As such, industry deposit betas, including ours, have been increasing at a faster pace relative to the last rising rate cycle. Deposit beta is a measure of 64 the change in a bank’s average rate paid on deposits to the change in the federal funds rate.
Removed
Derivative financial instruments that are designated as accounting hedges are classified as either cash flow or fair value hedges. The change in fair value of cash flow hedges is recognized in other comprehensive income.
Added
Our cumulative total deposit beta for the current rising rate cycle increased to 42% in the fourth quarter of 2023. Our cumulative total deposit beta in the last upward rate cycle from November 2015 to July 2019 was 22%. Our interest sensitivity model includes significant key assumptions which may change over time.
Removed
Fair value hedges recognize in earnings both the effect of the change in the fair value of the derivative financial instrument and the offsetting effect of the change in fair value of the hedged asset or liability associated with the particular risk of that asset or liability being hedged.
Added
Although our model generally assumes no change in deposit portfolio size or composition, we have included an assumption for the runoff of surge deposits since 2021. In the second quarter of 2023, in response to the rapid rate increases mentioned above, we increased the beta assumption in our model.
Removed
We have other derivative financial instruments that are not designated as accounting hedges, but are used for interest rate risk management purposes and as effective economic hedges. Derivative financial instruments that are not accounted for as accounting hedges are marked to market through earnings.
Added
As of December 31, 2023, the modeled total deposit beta, which is measured as the change in our overall deposit rate as a percentage of the change in the targeted Federal Funds rate in a rising rate environment, was 43%.
Removed
Our policy requires all non-customer derivative financial instruments be used only for asset/liability management through the hedging of specific transactions, positions or risks, and not for trading or speculative purposes.
Added
A higher total deposit beta assumption generally indicates a less asset sensitive balance sheet and lowers the expected increase in net interest revenue in the increasing rate scenarios.
Removed
Management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is appropriately monitored and controlled and will not have any material adverse effect on financial condition or results of operations.
Added
At December 31, 2023, compared to December 31, 2022, our deposit composition was more heavily comprised of time deposits and other rate sensitive non-maturity deposits and we had less noninterest-bearing demand deposits, which reduced our asset sensitivity to a more neutral position.
Removed
In order to mitigate potential credit risk, from time to time we may require the counterparties to derivative contracts to pledge cash and/or securities as collateral to cover the net exposure.
Added
As a result, the impacts of optionality, such as prepayments and loan caps, were more visible in the rate increase scenarios.

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