UNITED COMMUNITY BANKS INC (UCB) FY 2023 MD&A

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.

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. Historical results of operations are not necessarily predictive of future results.

GAAP Reconciliation and Explanation

This Report contains financial information determined by methods other than in accordance with GAAP. Such non-GAAP financial information includes the following measures: “tangible book value per common share” and “tangible common equity to tangible assets.” In addition, management presents non-GAAP operating performance measures, which exclude merger-related and other items that are not part of our core business operations. 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. Management uses these non-GAAP measures because it believes they may provide useful supplemental information for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP measures may also provide users of our financial information with a meaningful measure for assessing our financial results and credit trends, as well as a comparison to financial results for prior periods. These non-GAAP measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP and are not necessarily comparable to other similarly titled measures used by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable measures as reported in accordance with GAAP are included in Table 1 of MD&A.

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. At December 31, 2023, we had consolidated total assets of $27.3 billion and 3,121 full-time equivalent employees.

Recent Developments

Mergers and Acquisitions

In the past two years, we have continued to expand through acquisitions as follows:

•On July 1, 2023, we completed the acquisition of First Miami, which operated three offices in the Miami metropolitan area. We acquired $1.02 billion of assets and assumed $931 million of liabilities in the acquisition, which included $577 million in loans and $865 million in deposits. In addition to traditional banking products, First Miami offered private banking, trust and wealth management services.

•On January 3, 2023, we completed the acquisition of Progress, which operated 13 offices primarily located in Alabama and the Florida Panhandle. We acquired $1.90 billion of assets and assumed $1.60 billion of liabilities in the acquisition, which included 1.44 billion in loans and $1.33 billion in deposits.

•On January 1, 2022, we acquired Reliant, a bank which operated a 25-branch network primarily located in Middle Tennessee. In this acquisition, we acquired $3.25 billion of assets and assumed $2.66 billion of liabilities, which included $2.32 billion in loans and $2.50 billion in deposits.

The acquired entities’ results are included in our consolidated results beginning on the respective acquisition dates. We continue to evaluate potential transactions as opportunities arise.

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Discontinuance of Affected Benchmarks and BSBY

As a result of the cessation of publication of all tenors of LIBOR on a representative basis, we no longer make loans referencing Affected Benchmarks. Legacy contracts referencing Affected Benchmarks have transitioned to ARRs. Additionally, publication of BSBY, one of the ARRs we utilized as part of the transition away from Affected Benchmarks, will cease effective on November 15, 2024. We no longer make loans referencing BSBY and are in the process of transitioning BSBY-indexed contracts to other ARRs, principally Term SOFR.

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. 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 increase in provision expense correlated with the increase in net charge-offs of $42.6 million, which was primarily driven by one commercial loan relationship charge-off of $19.0 million and an increase in equipment financing net charge-offs. 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. See section titled Provision for Credit Losses of MD&A for further detail.

•Net interest revenue increased $65.4 million, which reflects the impact of rising interest rates, organic loan growth and the acquisitions of First Miami and Progress. During 2023, our net interest margin decreased three basis points to 3.35%, which reflects steeper increases in deposit rates compared to that of loans as the Federal Reserve increased the target federal funds rate by 525 basis points starting in March 2022 through the third quarter of 2023. See section titled Net Interest Revenue and Tables 2 and 3 of MD&A for further detail on net interest revenue.

•Noninterest income for 2023 was down $62.2 million, or 45%, compared to 2022, which was mostly attributable to an AFS bond portfolio restructuring loss of $51.7 million. In addition, mortgage loan gains and related fees decreased $13.3 million as mortgage origination demand remained low in 2023 as mortgage rates increased. See Tables 4 through 6 of MD&A for further detail on noninterest income.

•Noninterest expenses increased $101 million, or 22%, compared to 2022. Most notably, salaries and employee benefits increased $42.3 million, primarily due to growth in our employee base from acquisitions and lower deferred loan origination costs, partially offset by lower commissions expense resulting from the decrease in mortgage originations. FDIC assessment and other regulatory charges increased $17.6 million as a result of a $10.0 million one-time special assessment implemented by the FDIC resulting from the bank failures that occurred during the year, a two basis point assessment rate increase that became effective on January 1, 2023 and an increased assessment base. Amortization of intangibles increased $8.35 million, which reflects additional core deposit intangible expense resulting from the core deposit intangibles recorded in connection with the Progress and First Miami acquisitions. Merger-related and other charges were up $7.84 million compared to 2022, which mostly reflects First Miami and Progress merger costs, including systems conversions. 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. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments.

Estimates, assumptions or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon future events. Carrying assets and liabilities at fair value results in more financial statement volatility. The fair values and the information used to record the valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

Certain policies inherently have a greater reliance on the use of estimates, assumptions or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of our

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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. Therefore, we consider these policies, discussed below, to be critical accounting estimates and discuss them directly with the Audit Committee of our Board.

Our most significant accounting policies are presented in Note 1 to the accompanying consolidated financial statements. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Allowance for Credit Losses

The ACL represents management’s current estimate of credit losses for the remaining estimated life of financial instruments, with particular applicability on our balance sheet to loans and unfunded loan commitments. Estimating the amount of the ACL requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Loan losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

There are many factors affecting the ACL; some are quantitative while others require qualitative judgment. 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. To the extent actual outcomes are worse than management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

Additional information on the loan portfolio and ACL can be found in the sections of MD&A titled “Asset Quality and Risk Elements” and “Nonperforming Assets.” Note 1 to the consolidated financial statements includes additional information on accounting policies related to the ACL.

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.

At December 31, 2023, the percentage of our total assets measured at fair value on a recurring basis was 13%, the majority of which are based on either quoted market prices or market prices for similar instruments. 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. Management utilizes a third-party pricing service to assist with determining the fair value of our securities portfolio. The pricing service uses observable inputs when available including benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers. 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.

We have elected the fair value option for the majority of our portfolio of mortgage loans held for sale in order to reduce certain timing differences and better match changes in fair values of the loans with changes in the value of derivative instruments used to economically hedge them. The fair value of mortgage loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan, and as such is categorized as level 2.

We use derivatives primarily to manage our interest rate risk or to help our customers manage their interest rate risk. The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are

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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.

We recognize a servicing rights asset upon the sale of residential mortgage loans and SBA/USDA loans sold with servicing retained. Servicing right assets are carried at fair value. Given the nature of these SBA/USDA and residential mortgage servicing assets, the key valuation inputs are unobservable and we disclose them as a level 3 item.

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. 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. 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.

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UNITED COMMUNITY BANKS, INC.

Table 1 Selected Financial Information

For the Years Ended December 31,

(in thousands, except per share data)

(1) Excludes non-operating items as detailed on Non-GAAP Performance Measures Reconciliation on next page.(2) Net income less preferred stock dividends, divided by average realized common equity, which excludes AOCI. (3) Excludes effect of acquisition related intangibles and associated amortization.

* Represents a non-GAAP measure. See reconciliation of non-GAAP measures to related GAAP financial measures on the following page. For more information, see “GAAP Reconciliation and Explanation” in the MD&A section of this Report.

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UNITED COMMUNITY BANKS, INC.

Table 1 (Continued) - Non-GAAP Performance Measures Reconciliation

Selected Financial Information

For the Years Ended December 31,

(in thousands, except per share data)

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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. Management seeks to optimize this revenue while balancing interest rate, credit, and liquidity risks. The banking industry uses two key ratios to measure relative profitability of net interest revenue, which are the net interest spread and the net interest margin. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest spread eliminates the effect of noninterest-earning assets as well as noninterest-bearing deposits and other noninterest-bearing funding sources and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company’s balance sheet and is defined as net interest revenue as a percentage of total average interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and shareholders’ equity.

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. 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.

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. 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. Loan interest revenue includes purchased loan accretion, which increased $9.82 million in 2023 compared to 2022 largely driven by the 2023 acquisitions. In addition, we also earned $36.9 million more in interest income on our investment portfolio, which also benefited from higher interest rates and included $8.02 million additional interest revenue from the fair value hedges on our AFS securities portfolio.

Interest expense increased $359 million in 2023 compared to 2022, as a result of several factors including the continued rising interest rate environment, deposit growth, strong deposit competition, a less favorable deposit mix composition and increased utilization of wholesale funding, including brokered deposits. The average balance of interest-bearing deposits increased $2.64 billion for the year ended December 31, 2023 compared to 2022, $1.15 billion of which was attributable to the acquisitions of Progress and First Miami. To address deposit balance attrition, we raised deposit pricing, which contributed to an increase in non-brokered deposit interest expense of $331 million in 2023 compared to 2022. Our average deposit composition shifted toward more costly customer time deposits, comprising 14% of total average deposits during 2023 compared to 8% in 2022.

As noted above, we continued to use wholesale funding sources in 2023 to meet our short-term liquidity needs. Average wholesale funding balances for 2023 increased $317 million compared to 2022, which contributed an additional $11.1 million in interest expense. However, at December 31, 2023, we had no FHLB advances or short-term borrowings outstanding.

Our net interest spread decreased 78 basis points while our net interest margin decreased three basis points. The decreases in the interest rate spread and margin reflect a steeper increase in rates paid on deposits compared to rates earned on loans, partially mitigated by higher purchased loan accretion and gains on fair value hedges of our AFS portfolio. In addition, our net interest margin benefited from a more favorable interest earning asset mix, with 72% being comprised of loans, which generally have higher yields than other earning assets, compared to 65% for 2022.

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Table 2 - Average Consolidated Balance Sheets and Net Interest Margin Analysis

For the Years Ended December 31,

(in thousands, FTE)

(1)Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans. The rate used for each year was 26% reflecting the statutory federal rate and the federal tax adjusted state tax rate.

(2)Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued.

(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.

(4)Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets.

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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.

Table 3 - Change in Interest Revenue and Interest Expense

(in thousands, FTE)

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.

Provision for Credit Losses

The ACL represents management’s estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments. Management’s estimate of credit losses under CECL is determined using a model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and resulting provision for credit 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 increase in provision expense during 2023 was primarily driven by the increase in net charge-offs of $42.6 million compared to 2022. The increase in net charge-offs 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. See Table 12 Net Charge-offs in MD&A for further detail.

Additionally, during 2023, we recorded the initial provisions for credit losses on Progress and First Miami non-PCD loans and unfunded commitments totaling $14.5 million compared to 2022, which included $18.3 million related to the acquisition of Reliant.

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.

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Noninterest Income

The following table presents the components of noninterest income for the periods indicated.

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. The change in mortgage income is strongly tied to the interest rate environment and industry conditions. We recognize the majority of income on mortgages when customers enter into mortgage rate lock commitments, making our mortgage rate lock volume a significant driver of mortgage gains in any given period.

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. The higher interest rate environment continued into 2023 which reduced mortgage origination and rate lock demand as reflected in the following table.

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Our SBA/USDA lending strategy includes selling a portion of the loan production each quarter. 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.

Lending and loan servicing fees for 2023 increased $3.97 million compared to 2022 mostly due to volume-driven fee income from our equipment finance business and more favorable negative fair value adjustments to our SBA/USDA servicing asset.

During the fourth quarter of 2023, we sold $316 million in AFS securities for a loss of $51.7 million with the strategic rationale of reducing long duration securities with lower yields and replacing them with higher yielding shorter duration securities to mitigate interest rate risk in the current rising rate environment.

The change in other noninterest income for 2023 compared to 2022 was primarily driven by the following factors:

•During 2023, we recorded unrealized gains on deferred compensation plan assets, CRA investments and limited partnership investments, which were offset by unrealized losses on our other equity investments. During 2022, we recorded unrealized gains on equity securities and limited partnership investments that were partially offset by unrealized losses in our deferred compensation plan assets.

•The increase in BOLI income is mostly due to the additional policies that were obtained in connection with the Progress acquisition as well as death benefits recognized.

•Treasury management income increased 35% compared to 2022, resulting from an increase in customers enrolled. This is reflective of our continued investment in this product, as we increased our Treasury Management headcount throughout our geographic footprint.

•The decrease in other income was driven primarily by an increase in collateral charges related to our derivative positions, which totaled $4.97 million in 2023 compared to $866,000 in 2022. In addition, we recognized a $1.00 million loss on the disposal of two of our Tennessee branches. The loss mainly resulted from a $656,000 write down of our core deposit intangible associated with deposits sold in the transaction as well as losses on the buildings. These reductions of income were partially offset by a gain on sale of a commercial insurance book of business of $1.59 million.

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Noninterest Expenses

The following table presents the components of noninterest expenses for the periods indicated.

Noninterest expenses for 2023 totaled $571 million, up 22% from 2022. 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. Full time equivalent headcount totaled 3,121 at December 31, 2023, up 10% from 2,843 at December 31, 2022. In addition to the growth in our employee base from acquisitions, the increase in salaries was also attributable to merit increases awarded during the second quarter of 2023. Lower deferred loan origination costs, resulting from decreased loan production, and higher deferred compensation plan expense, driven by unrealized gains on the plan investments, also contributed to the increase in salaries and benefits expense. These increases were partially offset by decreases in commissions expense, primarily driven by the decrease in mortgage production, and a reduction in bonus expense.

Occupancy costs increased 18% in 2023 compared to 2022, primarily due to higher rent expense resulting from the addition of acquired leased premises. We operated 207 branches at December 31, 2023, compared to 192 branches at December 31, 2022.

Communications and equipment expense increased primarily due to incremental software contract costs and the growth in our network with the addition of recent acquisitions.

The increase in professional fees is most a result of increased legal and consulting fees. The increase also reflects pre-conversion systems expense from the Progress and First Miami acquisitions.

The increase in FDIC assessments and other regulatory charges was partly driven by the 2 basis point assessment rate increase that went into effect for all banks on January 1, 2023 and an increase in our assessment base, partly resulting from the Progress and First Miami acquisitions. In addition, 2023 expense includes $10.0 million related to the FDIC special assessment implemented in the fourth quarter of 2023 to recover losses resulting from the bank failures that occurred in 2023.

Amortization of intangibles increased with the additional customer deposit intangibles recorded as a result of the Progress and First Miami acquisitions.

The increase in other noninterest expense in 2023 was primarily due to an increase in travel and meals expense, as well as increases in fraud losses.

Merger-related and other charges for 2023 were primarily related to the acquisition of Progress and First Miami, including system conversions. 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.

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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. 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. 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. At December 31, 2023, total loans were $18.3 billion compared to $15.3 billion at December 31, 2022, an increase of 19%. The net increase in loans was primarily attributable to organic growth and loans acquired in the Progress and First Miami transactions of $1.44 billion and $577 million, respectively. The following presents the composition of our loan portfolio as of the dates indicated.

Table 8 - Loan Portfolio Composition

As of December 31, 2023

As of December 31, 2023, 23% of our loan portfolio was comprised of income producing commercial real estate loans, which is further disaggregated in the following chart. Common risks for this loan category are declines in general economic conditions, declines in real estate value, declines in occupancy rates, and lack of suitable alternative use for the property. In the current environment where inflation is high and interest rates have been rising over the past two years, the cost of renting commercial real estate has risen substantially. This can increase the risk of lower occupancy rates to our borrowers. In addition, in the post-COVID era, demand for office space has seen some decline as many companies have reduced the sizes of their offices to account for hybrid and remote work arrangements. We monitor our income producing commercial real estate portfolio through debt covenant monitoring and performing annual review procedures.

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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 10 - Loan Portfolio Maturity

As of December 31, 2023

(in thousands)

(1) The fixed versus variable determination does not reflect the portfolio layer fair value hedge on certain equipment financing loans.

As of December 31, 2023, our 25 largest credit relationships consisted of loans and loan commitments ranging from $38.9 million to $81.6 million, with an aggregate total credit exposure of $1.16 billion, including $332 million in unfunded commitments and $832 million in balances outstanding, excluding participations sold.

Our manufactured housing loan portfolio, which we acquired in the Reliant acquisition, is comprised of loans mostly outside our footprint, predominantly in Louisiana, Mississippi and Texas. As of December 31, 2023, 87% of loans were collateralized by chattel

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and the remaining 13% were collateralized by real estate. 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. Our credit administration function is responsible for monitoring asset quality and Board approved portfolio concentration limits, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures.

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. In addition to the reviews mentioned above, an independent loan review team reviews the portfolio to ensure consistent application of risk rating policies and procedures.

The ACL reflects management’s assessment of the life of loan expected credit losses in the loan portfolio and unfunded loan commitments. This assessment involves uncertainty and judgment and is subject to change in future periods. The amount of any changes could be significant if the assessment of loan quality or collateral values changes substantially with respect to one or more loan relationships or portfolios or if there is a significant change in the reasonable and supportable forecast used to model our expected credit losses. The allocation of the ACL is based on reasonable and supportable forecasts, historical data, subjective judgment and estimates and therefore, may not be predictive of the specific amounts or loan categories in which charge-offs may ultimately occur. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for credit losses in future periods if, in their opinion, the results of their review warrant such additions. See the Critical Accounting Estimates section for additional information on the ACL.

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.

The increase in the ACL since December 31, 2022 reflects loan growth and a higher level of charge-offs, which raised the initial expected default rates in the model. In addition, the acquisitions of Progress and First Miami added $20.9 million to the ACL as of the acquisition date. Of this amount, $6.42 million was reclassified from the amortized cost basis of PCD loans with no impact to earnings.

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The following table summarizes the allocation of the ACL for each of the past three years.

Table 11 - Allocation of ACL

As of December 31,

(in thousands)

The following table summarizes net charge-offs to average loans for each of the past three years.

Table 12 - Net Charge-offs

Years Ended December 31,

(in thousands)

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. The commercial borrower, a wholesale oil distributor, was part of a $218 million nationally syndicated credit, in which United’s participation was 8.7%. The borrower filed for Chapter 11 bankruptcy in March of 2023, at which time we placed the credit on nonaccrual status and included it in

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NPAs. When the bankruptcy converted to a Chapter 7 liquidation in August of 2023, the loan was charged off in full with no significant recovery expected. In regards to the increase in equipment finance charge-offs, the long haul trucking equipment segment, which drove the increase, comprises a small portion of the equipment finance portfolio and is not deemed to be indicative of the current credit quality of the entire equipment financing portfolio.

Nonperforming Assets

The following table presents NPAs, which consist of nonaccrual loans and OREO and repossessed assets, for the periods indicated.

Table 13 - NPAs

As of December 31,

(in thousands)

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. Additionally, the balance at December 31, 2023 included $13.2 million and $8.08 million, respectively, of manufactured housing and equipment financing loans that moved to nonaccrual status during 2023. These additions were partially offset by reductions in nonaccrual loans resulting from repayments, payoffs, and charge-offs as well as loans returning to accrual status.

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. 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.

Table 14 - Investment Securities

As of December 31,

(in thousands)

(1) Effective duration is presented net of the AFS fair value hedge entered into during 2023. The effective duration excluding the AFS fair value hedge was 4.4% as of December 31, 2023.

During the fourth quarter of 2023, we sold $316 million in AFS securities for a loss of $51.7 million with the strategic rationale of reducing long duration securities with lower yields and replacing them with higher yielding shorter duration securities to mitigate interest rate risk in the current rising rate environment. Securities sold yielded 1.46% with a 5.1% effective duration. Proceeds from the sales were reinvested in AFS securities yielding 5.36% with a 1.5% effective duration.

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During the second quarter of 2023, we entered into a fair value hedge on a portion of our AFS securities portfolio in order to mitigate the impact of any potential future unrealized losses on our tangible common equity. The notional value of the securities hedged totaled $656 million as of December 31, 2023. Gains and losses related to the hedge and hedged item are reflected in investment securities interest income. During 2023, the change in the fair value of the hedge and the hedged item substantially offset each other. 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. 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. Amortization of transfer date unrealized losses and discount accretion are recognized over the remaining life of the securities.

At December 31, 2023, HTM debt securities had a fair value of $2.10 billion, indicating net unrealized losses of $395 million. Additional unrealized losses on HTM debt securities of $68.2 million (pre-tax) were included in AOCI as a result of the transfer of AFS debt securities to HTM in 2022. Unrealized losses were primarily attributable to changes in interest rates.

Table 15 - Investment Securities Portfolio Composition

As of December 31, 2023

Mortgage-backed securities, which include both U.S. government sponsored agency and non-agency securities, make up the largest portion of our investment securities portfolio. These securities rely on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will differ from the contractual maturities because the loans underlying the securities can prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining or prolonged low interest rate environment, we may not be able to reinvest the proceeds from these prepayments in assets that have comparable yields. In a rising rate environment, the opposite may occur. Prepayments tend to slow and the weighted average life extends. This is referred to as extension risk, which can lead to lower levels of liquidity due to the delay of cash receipts, and can result in the holding of a below market yielding asset for a longer period of time.

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. 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. See Note 5 to the consolidated financial statements for further discussion of the investment portfolio and related fair value information.

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The following table presents the amortized cost of securities by contractual maturity of investment securities and weighted-average yields on a FTE basis. Weighted-average yield for each maturity range includes coupon interest, discount accretion and premium amortization and has been calculated using the amortized cost of each security in that range. 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.

Table 16 - Contractual Maturity and Weighted-Average Yield of AFS and HTM Debt Securities

As of December 31, 2023

(in thousands)

Goodwill and Other Intangible Assets

Goodwill represents the premium paid for acquired companies above the net fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. Management evaluates goodwill annually, or more frequently if necessary, to determine if any impairment exists. At December 31, 2023 and December 31, 2022, the net carrying amount of goodwill was $920 million and $751 million, respectively.

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.

In connection with the acquisition of Progress in the first quarter of 2023, we recorded goodwill and a core deposit intangible of $146 million and $40.0 million, respectively. In connection with the acquisition of First Miami in the third quarter of 2023, we recorded goodwill and a core deposit intangible of $23.2 million and $18.0 million, respectively. See Note 3 to the financial statements for further information about these acquisitions. Also during the third quarter of 2023, United reduced its core deposit intangible related to the Reliant acquisition by $656,000 as a result of the sale of two acquired branches and related deposits.

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.

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Deposits

Customer deposits are the primary source of funding for our earning assets. In addition to organic growth, the increase in deposits since December 31, 2022 was primarily driven by the deposits assumed in the Progress and First Miami transactions, which had a balance of $1.33 billion and $865 million, respectively, as of their respective acquisition dates. As of December 31, 2023 we had approximately $9.24 billion in uninsured deposits, of which $3.10 billion was collateralized by investment securities. The following table sets forth the deposit composition for the periods indicated.

Table 17 - Deposits

As of December 31,

(in thousands)

The following table sets forth the scheduled maturities of time deposits greater than $250,000.

Table 18 - Maturities of Time Deposits Greater than $250,000

As of December 31, 2023

(in thousands)

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. Liquidity management involves maintaining the ability to meet the daily cash flow requirements of customers, both depositors and borrowers. The primary objective is to ensure that sufficient funding is available, at a reasonable cost, to meet ongoing operational cash needs and to take advantage of revenue producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, our primary goal is to maintain a sufficient level of liquidity in all expected economic environments. To assist in determining the adequacy of our liquidity, we perform a variety of liquidity stress tests. We maintain an unencumbered liquid asset reserve to help ensure our ability to meet our obligations under normal conditions for at least a 12-month period and under severely adverse liquidity conditions for a minimum of 30 days.

An important part of the Bank’s liquidity resides in the asset portion of the balance sheet, which provides liquidity primarily through loan interest and principal repayments and the maturities and sales of securities, as well as the ability to use these assets as collateral for borrowings on a secured basis.

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. These sources of liquidity are generally short-term in nature and are used as necessary to fund asset growth and meet other short-term liquidity needs. In response to bank failures in early 2023, we have focused on maximizing the amount of securities and loans available as collateral for contingent liquidity sources as well as reevaluated the assumptions in our liquidity stress test. At December 31, 2023, we had sufficient qualifying collateral to support additional borrowings, which is detailed in the table below.

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(1) The Bank Term Funding Program expires March 11, 2024.

Since the second half of 2022 there has been strong competition for deposits in the banking industry as the rising interest rate environment has provided customers with alternatives for achieving higher returns on cash outside of the banking system. As a result, during the second half of 2022, we experienced some deposit attrition, which was not unique to us but was part of an industry-wide trend. In response to this deposit balance attrition, we suspended investment securities purchases and allowed cash flows from maturing securities to meet a portion of our funding needs. We also temporarily used short-term borrowings to supplement our near-term funding requirements. In 2023, we raised deposit pricing in an effort to stem deposit attrition and attract deposits back to the Bank. These efforts were successful and we were able to suspend our use of short-term borrowings. At the end of 2023, we had no outstanding short-term borrowings and the balance of cash and cash equivalents was $1.00 billion. In addition to on-balance sheet liquidity, we have significant sources of liquidity through secured borrowings and other unsecured funding sources as noted above.

In addition, because the Holding Company is a separate entity and apart from the Bank, it must provide for its own liquidity. The Holding Company is responsible for the payment of dividends declared for its common and preferred shareholders, and interest and principal on any outstanding debt or trust preferred securities. 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. 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. 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. 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.

In the opinion of management, our liquidity position at December 31, 2023 was sufficient to meet our expected cash requirements.

Contractual Obligations and Other Commitments

The following discussion provides an overview of our significant contractual obligations and other commitments.

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. During 2022, as part of the Reliant acquisition, we assumed subordinated debt and trust preferred securities with an acquisition date

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fair value totaling $76.7 million. Additional information regarding debt instruments is provided in Note 13 to the consolidated financial statements.

Table 20 - Long-term Debt by Maturity Category

As of December 31, 2023

(in thousands)

Operating Lease Obligations

We are party to operating lease agreements for many of our branch locations, ATMs, loan production offices and operation centers. 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. 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.

As of December 31, 2023, the remaining terms of our leases ranged from a few months to 10 years. 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.

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.

A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Letters of credit and financial guarantees are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as extending loan facilities to customers. Those commitments are primarily issued to local businesses.

The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, letters of credit and financial guarantees is represented by the contractual amount of these instruments. We use the same credit underwriting procedures for making commitments, letters of credit and financial guarantees as we use for underwriting on-balance sheet instruments. Management evaluates each customer’s creditworthiness on a case-by-case basis and the amount of the collateral, if deemed necessary, is based on the credit evaluation. Collateral held varies, but may include unimproved and improved real estate, certificates of deposit, personal property or other acceptable collateral.

All of these instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The total amount of these instruments does not necessarily represent future cash requirements because a significant portion of these instruments expire without being used. 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. 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. 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.

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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. 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. The increase was primarily a result of net income of $188 million, the issuance of $394 million of common stock in connection with the Progress and First Miami acquisitions and other comprehensive income of $90.3 million mostly driven by unrealized holding gains on AFS debt securities. 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. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with the category. The resulting weighted values from each of the risk categories are added together, and generally this sum is our total RWAs. RWAs for purposes of our capital ratios are calculated under these guidelines.

CET1 capital consists of common shareholders’ equity, excluding AOCI, intangible assets (goodwill, deposit-based intangibles and certain other intangibles, including certain servicing assets), net of associated deferred tax liabilities, and disallowed deferred tax assets. Tier 1 capital consists of CET1 plus non-cumulative perpetual preferred stock. Tier 2 capital includes the allowable portion of the ACL up to 1.25% of RWA as well as qualifying subordinated debt and trust preferred securities. Tier 1 capital plus Tier 2 capital is referred to as Total risk-based capital.

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.

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,

Additional information related to capital ratios, as calculated under regulatory guidelines, is provided in Note 22 to the consolidated financial statements. 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. Inflation has an important effect on the growth of total assets and the resulting need to increase equity capital at higher than nominal rates in order to maintain an appropriate equity to assets ratio.

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

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our interest rate sensitivity position. In addition, periodic reviews of banking services and products are conducted to adjust pricing in view of current and expected costs.