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EX-31.1 - EXHIBIT 31.1 - UNITED COMMUNITY BANKS INCt83454_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - UNITED COMMUNITY BANKS INCt83454_ex31-2.htm
EX-32 - EXHIBIT 32 - UNITED COMMUNITY BANKS INCt83454_ex32.htm
10-Q - PDF OF 10-Q - UNITED COMMUNITY BANKS INCq3201510qfinal.pdf

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2015

 

OR

 

¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to ___________

 

Commission file number 001-35095

 

UNITED COMMUNITY BANKS, INC.
(Exact name of registrant as specified in its charter)

 

Georgia   58-1807304
(State of Incorporation)   (I.R.S. Employer Identification No.)
     
125 Highway 515 East    
Blairsville, Georgia   30512
Address of Principal
Executive Offices
  (Zip Code)

 

(706) 781-2265

(Telephone Number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES x  NO ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YES x  NO ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x Accelerated filer ¨
   
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

YES ¨  NO x

 

Common stock, par value $1 per share 63,193,854 shares voting and 8,285,516 shares non-voting outstanding as of October 31, 2015.

 

 

 

 

 

 

INDEX

 

PART I - Financial Information  
       
  Item 1. Financial Statements.  
       
    Consolidated Statement of Income (unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014 3
       
    Consolidated Statement of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014 4
       
    Consolidated Balance Sheet (unaudited) at September 30, 2015, December 31, 2014 and September 30, 2014 5
       
    Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Nine Months Ended September 30, 2015 and 2014 6
       
    Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, 2015 and 2014 7
       
    Notes to Consolidated Financial Statements 8
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 43
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk. 67
       
  Item 4. Controls and Procedures. 67
       
PART II - Other Information  
       
  Item 1. Legal Proceedings. 67
  Item 1A. Risk Factors. 67
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 68
  Item 3. Defaults Upon Senior Securities. 68
  Item 4. Mine Safety Disclosures. 68
  Item 5. Other Information. 68
  Item 6. Exhibits. 69

 

 2 
 

 

Part I – Financial Information

 

UNITED COMMUNITY BANKS, INC.         
Consolidated Statement of Income (Unaudited)         
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(in thousands, except per share data)  2015   2014   2015   2014 
Interest revenue:                    
Loans, including fees  $57,174   $49,653   $159,814   $145,602 
Investment securities, including tax exempt of $177, $177, $516 and $558   12,801    12,346    36,896    36,118 
Deposits in banks and short-term investments   853    934    2,460    2,757 
Total interest revenue   70,828    62,933    199,170    184,477 
                     
Interest expense:                    
Deposits:                    
NOW   337    365    1,079    1,216 
Money market   981    872    2,460    2,192 
Savings   25    20    71    61 
Time   830    1,721    2,834    5,510 
Total deposit interest expense   2,173    2,978    6,444    8,979 
Short-term borrowings   99    316    279    2,064 
Federal Home Loan Bank advances   461    435    1,307    573 
Long-term debt   2,669    2,642    7,481    7,914 
Total interest expense   5,402    6,371    15,511    19,530 
Net interest revenue   65,426    56,562    183,659    164,947 
Provision for credit losses   700    2,000    3,400    6,700 
Net interest revenue after provision for credit losses   64,726    54,562    180,259    158,247 
                     
Fee revenue:                    
Service charges and fees   9,335    8,202    25,325    24,627 
Mortgage loan and other related fees   3,840    2,178    10,302    5,409 
Brokerage fees   1,200    1,209    3,983    3,631 
Gains from sales of SBA loans   1,646    945    4,281    1,689 
Securities gains, net   325    11    1,877    4,663 
Loss from prepayment of debt   (256)   -    (1,294)   (4,446)
Other   2,207    1,867    6,771    5,158 
Total fee revenue   18,297    14,412    51,245    40,731 
Total revenue   83,023    68,974    231,504    198,978 
                     
Operating expenses:                    
Salaries and employee benefits   29,342    25,666    83,749    74,349 
Communications and equipment   3,963    3,094    10,538    9,370 
Occupancy   4,013    3,425    10,706    10,065 
Advertising and public relations   812    894    2,689    2,659 
Postage, printing and supplies   1,049    876    2,980    2,456 
Professional fees   2,668    2,274    6,844    5,873 
FDIC assessments and other regulatory charges   1,136    1,131    3,643    3,909 
Merger-related charges   5,744    -    8,917    - 
Other   5,542    4,004    15,684    12,265 
Total operating expenses   54,269    41,364    145,750    120,946 
Net income before income taxes   28,754    27,610    85,754    78,032 
Income tax expense   10,867    9,994    32,384    28,659 
Net income   17,887    17,616    53,370    49,373 
Preferred stock dividends and discount accretion   25    -    42    439 
Net income available to common shareholders  $17,862   $17,616   $53,328   $48,934 
                     
Earnings per common share:                    
Basic  $.27   $.29   $.84   $.81 
Diluted   .27    .29    .84    .81 
Weighted average common shares outstanding:                    
Basic   66,294    60,776    63,297    60,511 
Diluted   66,300    60,779    63,302    60,513 

 

See accompanying notes to consolidated financial statements.

 

 3 
 

 

UNITED COMMUNITY BANKS, INC.             
Consolidated Statement of Comprehensive Income (Unaudited)             
(in thousands)  Three Months Ended September 30,   Nine Months Ended September 30, 
2015 

Before-tax

Amount

  

Tax
(Expense)

Benefit

  

Net of Tax

Amount

  

Before-tax

Amount

  

Tax
(Expense)

Benefit

  

Net of Tax

Amount

 
                         
Net income  $28,754   $(10,867)  $17,887   $85,754   $(32,384)  $53,370 
Other comprehensive income:                              
Unrealized gains on available-for-sale securities:                              
Unrealized holding gains arising during period   2,313    (870)   1,443    5,426    (2,143)   3,283 
Reclassification adjustment for gains included in net income   (325)   121    (204)   (1,877)   724    (1,153)
Net unrealized gains   1,988    (749)   1,239    3,549    (1,419)   2,130 
Amortization of losses included in net income on available- for-sale securities transferred to held-to-maturity   269    (99)   170    1,041    (387)   654 
Net amortization   269    (99)   170    1,041    (387)   654 
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges   550    (214)   336    1,430    (556)   874 
Unrealized losses on derivative financial instruments accounted for as cash flow hedges   -    -    -    (471)   183    (288)
Net cash flow hedge activity   550    (214)   336    959    (373)   586 
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan   159    (62)   97    478    (186)   292 
Net defined benefit pension plan activity   159    (62)   97    478    (186)   292 
Total other comprehensive income   2,966    (1,124)   1,842    6,027    (2,365)   3,662 
Comprehensive income  $31,720   $(11,991)  $19,729   $91,781   $(34,749)  $57,032 
                               
2014                              
                               
Net income  $27,610   $(9,994)  $17,616   $78,032   $(28,659)  $49,373 
Other comprehensive income:                              
Unrealized gains on available-for-sale securities:                              
Unrealized holding gains (losses) arising during period   (4,357)   1,626    (2,731)   10,696    (4,031)   6,665 
Reclassification adjustment for gains included in net income   (11)   4    (7)   (4,663)   1,821    (2,842)
Net unrealized gains (losses)   (4,368)   1,630    (2,738)   6,033    (2,210)   3,823 
Amortization of losses included in net income on available- for-sale securities transferred to held-to-maturity   468    (176)   292    1,207    (453)   754 
Net amortization   468    (176)   292    1,207    (453)   754 
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges   711    (277)   434    1,381    (538)   843 
Unrealized gains (losses) on derivative financial instruments accounted for as cash flow hedges   412    (160)   252    (5,967)   2,322    (3,645)
Net cash flow hedge activity   1,123    (437)   686    (4,586)   1,784    (2,802)
Net actuarial gain on defined benefit pension plan   -    -    -    296    (115)   181 
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan   91    (36)   55    274    (107)   167 
Net defined benefit pension plan activity   91    (36)   55    570    (222)   348 
Total other comprehensive income (loss)   (2,686)   981    (1,705)   3,224    (1,101)   2,123 
Comprehensive income  $24,924   $(9,013)  $15,911   $81,256   $(29,760)  $51,496 

 

See accompanying notes to consolidated financial statements.

 

 4 
 

 

UNITED COMMUNITY BANKS, INC.     
Consolidated Balance Sheet (Unaudited)     
   September 30,   December 31,   September 30, 
(in thousands, except share and per share data)  2015   2014   2014 
             
ASSETS               
Cash and due from banks  $93,975   $77,180   $75,268 
Interest-bearing deposits in banks   112,964    89,074    117,399 
Short-term investments   -    26,401    23,397 
Cash and cash equivalents   206,939    192,655    216,064 
Securities available for sale   2,099,868    1,782,734    1,789,667 
Securities held to maturity (fair value $368,096, $425,233 and $440,311)   357,549    415,267    432,418 
Mortgage loans held for sale   23,088    13,737    20,004 
Loans, net of unearned income   6,023,585    4,672,119    4,568,886 
Less allowance for loan losses   (69,062)   (71,619)   (71,928)
Loans, net   5,954,523    4,600,500    4,496,958 
Premises and equipment, net   192,992    159,390    160,454 
Bank owned life insurance   105,368    81,294    81,101 
Accrued interest receivable   24,563    20,103    19,908 
Net deferred tax asset   197,116    215,503    224,734 
Derivative financial instruments   19,906    20,599    22,221 
Goodwill and other intangible assets   141,415    3,641    3,910 
Other assets   90,669    61,563    58,450 
Total assets  $9,413,996   $7,566,986   $7,525,889 
LIABILITIES AND SHAREHOLDERS' EQUITY               
Liabilities:               
Deposits:               
Demand  $2,174,799   $1,574,317   $1,561,020 
NOW   1,754,614    1,504,887    1,399,449 
Money market   1,651,592    1,273,283    1,281,526 
Savings   459,323    292,308    287,797 
Time:               
Less than $100,000   865,369    748,478    774,201 
Greater than $100,000   482,567    508,228    531,428 
Brokered   516,748    425,011    405,308 
Total deposits   7,905,012    6,326,512    6,240,729 
Short-term borrowings   18,839    6,000    6,001 
Federal Home Loan Bank advances   200,125    270,125    330,125 
Long-term debt   165,620    129,865    129,865 
Derivative financial instruments   27,401    31,997    36,171 
Unsettled securities purchases   -    5,425    - 
Accrued expenses and other liabilities   83,862    57,485    46,573 
Total liabilities   8,400,859    6,827,409    6,789,464 
Shareholders' equity:               
Preferred stock, $1 par value; 10,000,000 shares authorized;
Series H; $1,000 stated value; 9,992, 0, and 0 shares issued and outstanding
   9,992    -    - 
Common stock, $1 par value; 100,000,000 shares authorized;
63,186,437, 50,178,605 and 50,167,191 shares issued and outstanding
   63,186    50,178    50,167 
Common stock, non-voting, $1 par value; 26,000,000 shares authorized;
8,285,516, 10,080,787 and 10,080,787 shares issued and outstanding
   8,286    10,081    10,081 
Common stock issuable; 454,870, 357,983 and 354,961 shares   6,670    5,168    5,116 
Capital surplus   1,284,877    1,080,508    1,091,555 
Accumulated deficit   (344,746)   (387,568)   (402,773)
Accumulated other comprehensive loss   (15,128)   (18,790)   (17,721)
Total shareholders' equity   1,013,137    739,577    736,425 
Total liabilities and shareholders' equity  $9,413,996   $7,566,986   $7,525,889 

 

See accompanying notes to consolidated financial statements.

 

 5 
 

 

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders' Equity (Unaudited)

For the Nine Months Ended September 30,

 

                                   Accumulated     
           Non-Voting   Common           Other     
(in thousands, except share  Series   Series   Series   Common   Common   Stock   Capital   Accumulated   Comprehensive     
and per share data)  B   D   H   Stock   Stock   Issuable   Surplus   Deficit   Income (Loss)   Total 
                                         
Balance, December 31, 2013  $105,000   $16,613   $-   $46,243   $13,188   $3,930   $1,078,676   $(448,091)  $(19,844)  $795,715 
Net income                                      49,373         49,373 
Other comprehensive income                                           2,123    2,123 
Redemption of Series B preferred stock (105,000 shares)   (105,000)                                           (105,000)
Redemption of Series D preferred stock (16,613 shares)        (16,613)                                      (16,613)
Common stock issued at market (640,000 shares)                  640              11,566              12,206 
Common stock issued to dividend reinvestment plan and employee benefit plans (25,284 shares)                  25              399              424 
Conversion of non-voting common stock to voting (3,107,419 shares)                  3,107    (3,107)                       - 
Amortization of stock option and restricted stock awards                                 3,315              3,315 
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (137,920 shares issued, 115,609 shares deferred)                  138         1,275    (2,658)             (1,245)
Deferred compensation plan, net, including dividend equivalents                            182                   182 
Shares issued from deferred compensation plan (13,223 shares)                  14         (271)   257              - 
Common stock dividends ($.06 per share)                                      (3,616)        (3,616)
Preferred stock dividends:                                                  
Series B                                      (159)        (159)
Series D                                      (280)        (280)
Balance, September 30, 2014  $-   $-   $-   $50,167   $10,081   $5,116   $1,091,555   $(402,773)  $(17,721)  $736,425 
                                                   
Balance, December 31, 2014  $-   $-   $-   $50,178   $10,081   $5,168   $1,080,508   $(387,568)  $(18,790)  $739,577 
Net income                                      53,370         53,370 
Other comprehensive income                                           3,662    3,662 
Common stock issued to dividend reinvestment plan and to employee benefit plans (11,761 shares)                  12              192              204 
Conversion of non-voting common stock to voting common stock (1,795,271 shares)                  1,795    (1,795)                       - 
Common and preferred stock issued for acquisition (11,058,515 common shares and 9,992 preferred shares)             9,992    11,059              203,092              224,143 
Amortization of stock option and restricted stock awards                                 3,343              3,343 
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (118,672 shares issued, 106,935 shares deferred)                  119         1,444    (3,009)             (1,446)
Deferred compensation plan, net, including dividend equivalents                            274    (1)             273 
Shares issued from deferred compensation plan (23,613 shares)                  23         (216)   193              - 
Common stock dividends ($.16 per share)                                      (10,506)        (10,506)
Tax on option exercise and restricted stock vesting                                 559              559 
Preferred stock dividends:                                                  
Series H                                      (42)        (42)
Balance, September 30, 2015  $-   $-   $9,992   $63,186   $8,286   $6,670   $1,284,877   $(344,746)  $(15,128)  $1,013,137 

 

See accompanying notes to consolidated financial statements.

 

 6 
 

 

UNITED COMMUNITY BANKS, INC.        
Consolidated Statement of Cash Flows (Unaudited)    
   Nine Months Ended 
   September 30, 
(in thousands)  2015   2014 
Operating activities:          
Net income  $53,370   $49,373 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation, amortization and accretion   16,788    15,098 
Provision for credit losses   3,400    6,700 
Stock based compensation   3,343    3,315 
Deferred income tax benefit   28,495    28,112 
Securities gains, net   (1,877)   (4,663)
Gains from sales of government guaranteed loans   (4,281)   - 
Net gains on sale of other assets   (437)   - 
Net gains and write downs on sales of other real estate owned   (368)   (518)
Loss on prepayment of borrowings   1,294    4,446 
Changes in assets and liabilities:          
Other assets and accrued interest receivable   4,232    (12,334)
Accrued expenses and other liabilities   4,191    (16,813)
Mortgage loans held for sale   (5,562)   (9,685)
Net cash provided by operating activities   102,588    63,031 
           
Investing activities:          
Investment securities held to maturity:          
Proceeds from maturities and calls of securities held to maturity   57,721    47,567 
Purchases of securities held to maturity   -    (173)
Investment securities available for sale:          
Proceeds from sales of securities available for sale   274,519    403,517 
Proceeds from maturities and calls of securities available for sale   212,383    176,423 
Purchases of securities available for sale   (476,917)   (552,025)
Net increase in loans   (324,868)   (220,061)
Funds (paid to) collected from FDIC under loss sharing agreements   (1,198)   2,890 
Proceeds from sales of premises and equipment   2,127    2,488 
Purchases of premises and equipment   (7,191)   (3,260)
Net cash received (paid) for acquisition   35,497    (31,243)
Proceeds from sale of notes   -    4,561 
Proceeds from sale of other real estate   3,184    7,920 
Net cash used in investing activities   (224,743)   (161,396)
           
Financing activities:          
Net change in deposits   219,454    39,224 
Net change in short-term borrowings   (16,238)   (51,686)
Repayments of trust preferred securities   (48,521)   - 
Proceeds from FHLB advances   1,495,000    930,000 
Repayments of FHLB advances   (1,587,070)   (720,000)
Proceeds from issuance of senior debt, net of issuance costs   84,141    - 
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans   204    424 
Proceeds from issuance of common stock, net of issuance costs   -    12,206 
Retirement of preferred stock   -    (121,613)
Cash dividends on common stock   (10,506)   (1,810)
Cash dividends on preferred stock   (25)   (1,214)
Net cash provided by financing activities   136,439    85,531 
           
Net change in cash and cash equivalents   14,284    (12,834)
           
Cash and cash equivalents at beginning of period   192,655    228,898 
Cash and cash equivalents at end of period  $206,939   $216,064 
           
Supplemental disclosures of cash flow information:          
Interest paid  $16,567   $20,598 
Income taxes paid   3,453    2,497 
Significant non-cash investing and financing transactions:          
Unsettled government guaranteed loan sales   11,020    - 
Transfers of loans to foreclosed properties   3,428    8,216 
Acquisitions:          
Assets acquired   1,736,203    31,243 
Liabilities assumed   1,427,358    - 
Net assets acquired   308,845    31,243 
Common stock issued in acquisitions   214,151    - 
Preferred stock issued in acquisitions   9,992    - 

 

See accompanying notes to consolidated financial statements.

 

 7 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 1 – Accounting Policies

 

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in its Annual Report on Form 10-K for the year ended December 31, 2014.

 

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.

 

Certain 2014 amounts have been reclassified to conform to the 2015 presentation.

 

Note 2 –Accounting Standards Updates and Recently Adopted Standards

 

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, effective for fiscal years beginning after December 15, 2015 and interim periods within those years with early adoption permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. United is currently evaluating the impact of this guidance on its consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability consistent with debt discounts.  The standard will be effective for the United’s fiscal year beginning after December 15, 2015 and subsequent interim periods. The adoption of ASU 2015-03 is not expected to have a material effect on United’s consolidated financial statements.

 

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by ASC 820. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value practical expedient. ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, with retrospective application to all periods presented. Early application is permitted. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

In June 2015, the FASB issued ASU 2015-10: Technical Corrections and Improvements. The amendments in this Update cover a wide range of topics in the Codification including guidance clarification and reference corrections, simplification and minor improvements. Transition guidance varies based on the amendments. The amendments that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon issuance. United retrospectively applied the provisions of ASU 2015-10 during the second quarter of 2015, with no material impact on United’s financial position or results of operations. The adoption of ASU 2015-10 did affect certain disclosures related to nonrecurring fair value measurements as presented in Note 14.

 

In July 2015, the FASB issued ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965). The guidance in the update designates contract value as the only required measure for fully benefit-responsive investment contracts and simplifies the disclosure of investments by requiring that investments be grouped only by general type rather than disaggregated in multiple ways. The amendments are effective for fiscal years beginning after December 15, 2015, with earlier application permitted. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

 8 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The guidance in this update delays the effective date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, ASU 2014-09 was originally effective for interim and annual periods beginning after December 15, 2016. ASU 2015-14 delays the effective date for public companies to interim and annual reporting periods beginning after December 15, 2017. United is currently assessing the impact that this guidance will have on its consolidated financial statements.

 

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The guidance in this update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. In addition, the acquirer will record, in the same period financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The update requires disclosure of amounts recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public entities, this update is effective for fiscal years beginning after December 15, 2015 with early application permitted. United applied the provisions of ASU 2015-16 during the third quarter of 2015, with no material impact on United’s financial position or results of operations.

 

Note 3 – Acquisitions

 

Acquisition of Palmetto Bancshares, Inc.

 

On September 1, 2015, United completed the acquisition of Palmetto Bancshares, Inc. (“Palmetto”) and its wholly-owned bank subsidiary The Palmetto Bank. Palmetto operated 25 branches in South Carolina. In connection with the acquisition, United acquired $1.15 billion of assets and assumed $1.02 billion of liabilities. Total consideration transferred was $244 million of common equity and cash. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of $108 million, which consisted largely of the intangible value of Palmetto’s business and reputation within the market it serves. None of the goodwill recognized is expected to be deductible for income tax purposes. United will amortize the related core deposit intangible of $12.9 million using the sum-of-the-years-digits method over 12 years, which represents the expected useful life of the asset.

 

The fair value of the 8.7 million common shares issued as part of the consideration paid for Palmetto was determined on the basis of the closing market price of United’s common shares on the acquisition date.

 

 9 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below (in thousands).

 

   As Recorded   Fair Value   As Recorded by 
   by Palmetto   Adjustments (1)   United 
Assets               
Cash and cash equivalents  $64,906   $-   $64,906 
Securities   208,407    (624)   207,783 
Loans held for sale   2,356    91    2,447 
Loans, net   802,111    (6,087)   796,024 
Premises and equipment, net   21,888    1,251    23,139 
Bank owned life insurance   12,133    -    12,133 
Accrued interest receivable   3,227    (346)   2,881 
Net deferred tax asset   14,798    (2,327)   12,471 
Core deposit intangible   -    12,900    12,900 
Other assets   18,439    1,080    19,519 
Total assets acquired  $1,148,265   $5,938   $1,154,203 
Liabilities               
Deposits  $989,296   $-   $989,296 
Short-term borrowings   13,537    -    13,537 
Other liabilities   11,994    3,037    15,031 
Total liabilities assumed   1,014,827    3,037    1,017,864 
Excess of assets acquired over liabilities assumed  $133,438           
Aggregate fair value adjustments       $2,901      
Consideration transferred               
Cash             74,003 
Common stock issued (8,700,012 shares)             170,259 
Total fair value of consideration transferred             244,262 
Goodwill            $107,923 

 

(1) Fair values are preliminary and are subject to refinement for a period not to exceed one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

 

Purchased loans that show evidence of credit deterioration since origination are accounted for pursuant to Accounting Standards Codification (“ASC”) Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The following table presents additional information related to the acquired loan portfolio at acquisition date (in thousands):

 

   September 1, 2015 
Accounted for pursuant to ASC 310-30:     
Contractually required principal and interest  $63,623 
Non-accretable difference   13,397 
Cash flows expected to be collected   50,226 
Accretable yield   4,834 
Fair value  $45,392 
      
Excluded from ASC 310-30:     
Fair value  $750,632 
Gross contractual amounts receivable   859,628 
Estimate of contractual cash flows not expected to be collected   7,733 

 

United’s operating results for the nine months ended September 30, 2015 include the operating results of the acquired assets and assumed liabilities for the days subsequent to the acquisition date of September 1, 2015.

 

 10 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Acquisition of MoneyTree Corporation

 

On May 1, 2015, United completed the acquisition of MoneyTree Corporation (“MoneyTree”) and its wholly-owned bank subsidiary, First National Bank (“FNB”). FNB operated ten branches in east Tennessee. In connection with the acquisition, United acquired $460 million of assets and assumed $409 million of liabilities and $9.99 million of preferred stock. Total consideration transferred was $54.6 million of common equity and cash. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of $14.1 million, which consisted largely of the intangible value of FNB’s business and reputation within the market it serves. None of the goodwill recognized is expected to be deductible for income tax purposes. United will amortize the related core deposit intangible of $4.22 million using the sum-of-the-years-digits method over 6.67 years, which represents the expected useful life of the asset. The deposit premium of $917,000 will be amortized using the effective yield method over 5 years, which represents the weighted average maturity of the underlying deposits.

 

The fair value of the 2.36 million common shares issued as part of the consideration paid for MoneyTree was determined on the basis of the closing market price of United’s common shares on the acquisition date.

 

Upon completion of the acquisition, each share of preferred stock issued by MoneyTree as part of the Small Business Lending Fund (“SBLF”) program of the United States Department of Treasury (9,992 shares in the aggregate with a liquidation preference amount of $1,000 per share) was converted automatically into one substantially identical share of preferred stock of the Company. See Note 12 for further detail.

 

The purchased assets and assumed liabilities were recorded at their acquisition date fair values, and are summarized in the table below (in thousands).

 

   As Recorded   Fair Value   As Recorded by 
   by MoneyTree   Adjustments (1)   United 
Assets               
Cash and cash equivalents  $55,293   $-   $55,293 
Securities   127,123    (52)   127,071 
Loans held for sale   1,342    -    1,342 
Loans, net   246,816    (2,464)   244,352 
Premises and equipment, net   9,497    2,228    11,725 
Bank owned life insurance   11,194    -    11,194 
Core deposit intangible   -    4,220    4,220 
Other assets   5,462    (716)   4,746 
Total assets acquired  $456,727   $3,216   $459,943 
Liabilities               
Deposits  $368,833   $917   $369,750 
Short-term borrowings   15,000    -    15,000 
Federal Home Loan Bank advances   22,000    70    22,070 
Other liabilities   864    1,810    2,674 
Total liabilities assumed   406,697    2,797    409,494 
SBLF preferred stock assumed   9,992    -    9,992 
Excess of assets acquired over liabilities and preferred stock assumed  $40,038           
Aggregate fair value adjustments       $419      
Consideration transferred               
Cash             10,699 
Common stock issued (2,358,503 shares)             43,892 
Total fair value of consideration transferred             54,591 
Goodwill            $14,134 

 

(1) Fair values are preliminary and are subject to refinement for a period not to exceed one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

 

 11 
 

 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Purchased loans that show evidence of credit deterioration since origination are accounted for pursuant to Accounting Standards Codification (“ASC”) Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The following table presents additional information related to the acquired loan portfolio at acquisition date (in thousands):

 

   May 1, 2015 
Accounted for pursuant to ASC 310-30:     
Contractually required principal and interest  $15,152 
Non-accretable difference   3,677 
Cash flows expected to be collected   11,475 
Accretable yield   1,029 
Fair value  $10,446 
      
Excluded from ASC 310-30:     
Fair value  $233,906 
Gross contractual amounts receivable   258,931 
Estimate of contractual cash flows not expected to be collected   1,231 

 

United’s operating results for the nine months ended September 30, 2015 include the operating results of the acquired assets and assumed liabilities for the days subsequent to the acquisition date of May 1, 2015.

 

Pro forma information

 

The following table discloses the impact of the merger with Palmetto and MoneyTree since the respective acquisition dates through September 30, 2015. The table also presents certain pro forma information as if Palmetto and MoneyTree had been acquired on January 1, 2014. These results combine the historical results of Palmetto and MoneyTree with United’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not necessarily indicative of what would have occurred had the acquisition taken place on January 1, 2014.

 

Merger-related costs of $8.92 million from the acquisitions have been excluded from the 2015 pro forma information presented below and included in the 2014 pro forma information presented below. Furthermore, no adjustments have been made to the pro forma information to eliminate the pre-acquisition provision for loan losses for the nine months ended September 30, 2015 or 2014 of Palmetto or MoneyTree. No adjustments have been made to reduce the impact of any OREO write downs recognized by Palmetto or MoneyTree in either the nine months ended September 30, 2015 or 2014. In addition, expenses related to systems conversions and other costs of integration are expected to be recorded during the next several quarters. United expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts below. The actual results and pro forma information were as follows (in thousands):

 

   Revenue   Net Income 
         
Actual MoneyTree from May 1, 2015 - September 30, 2015  $5,365   $1,778 
Actual Palmetto from September 1, 2015 - September 30, 2015   4,382    1,659 
2015 supplemental consolidated pro forma from January 1, 2015 - September 30, 2015   273,129    65,229 
2014 supplemental consolidated pro forma from January 1, 2014 - September 30, 2014   251,936    51,913 

 

Acquisition of Business Carolina, Inc.

 

On June 26, 2014, United completed the acquisition of substantially all of the assets of Business Carolina, Inc., a specialty Small Business Administration (“SBA”) / United States Department of Agriculture (“USDA”) lender headquartered in Columbia, South Carolina. On the closing date, United paid $31.3 million in cash for loans having a fair value on the purchase date of $24.8 million, accrued interest of $83,000, servicing rights with a fair value on the purchase date of $2.13 million, premises and equipment with a fair value on the purchase date of $2.60 million and goodwill in the amount of $1.51 million representing the premium paid over the fair value of the separately identifiable assets and liabilities acquired. The gross contractual amount of loans receivable was $28.0 million as of the acquisition date. United has not identified any material separately identifiable intangible assets resulting from the acquisition.

 

The valuation of loans and servicing assets that were acquired in this transaction included unobservable inputs. Therefore, United considers those valuations to be level 3 in the ASC 820 hierarchy. For the loans, the valuations were derived by estimating the expected cash flows using a combination of prepayment speed and default estimates. The cash flows are then discounted using the rates implied by observed transactions in the market place.

 

 12 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 4 – Balance Sheet Offsetting

 

United enters into reverse repurchase agreements in order to invest short-term funds. In addition, United enters into repurchase agreements and reverse repurchase agreements with the same counterparty in transactions commonly referred to as collateral swaps that are subject to master netting agreements under which the balances are netted in the balance sheet in accordance with ASC 210-20, Offsetting.

 

The following table presents a summary of amounts outstanding under reverse repurchase agreements and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of September 30, 2015, December 31, 2014 and September 30, 2014 (in thousands).

 

  

Gross

Amounts of

  

Gross

Amounts

Offset on the

      

Gross Amounts not Offset

in the Balance Sheet

     
September 30, 2015 

Recognized

Assets

  

Balance

Sheet

  

Net Asset

Balance

  

Financial

Instruments

  

Collateral

Received

   Net Amount 
                         
Repurchase agreements / reverse repurchase agreements  $400,000   $(400,000)  $-   $-   $-   $- 
Derivatives   19,906    -    19,906    (831)   (5,529)   13,546 
Total  $419,906   $(400,000)  $19,906   $(831)  $(5,529)  $13,546 
                               
Weighted average interest rate of reverse repurchase agreements   1.25%                         

 

  

Gross

Amounts of

  

Gross

Amounts

Offset on the

   Net  

Gross Amounts not Offset

in the Balance Sheet

     
  

Recognized

Liabilities

  

Balance

Sheet

  

Liability

Balance

  

Financial

Instruments

  

Collateral

Pledged

   Net Amount 
                         
Repurchase agreements / reverse repurchase agreements  $400,000   $(400,000)  $-   $-   $-   $- 
Derivatives   27,401    -    27,401    (831)   (28,169)   - 
Total  $427,401   $(400,000)  $27,401   $(831)  $(28,169)  $- 
                               
Weighted average interest rate of repurchase agreements   .41%                         

 

  

Gross

Amounts of

  

Gross

Amounts

Offset on the

      

Gross Amounts not Offset

in the Balance Sheet

     
December 31, 2014 

Recognized

Assets

  

Balance

Sheet

  

Net Asset

Balance

  

Financial

Instruments

  

Collateral

Received

   Net Amount 
                         
Repurchase agreements / reverse repurchase agreements  $395,000   $(375,000)  $20,000   $-   $(20,302)  $- 
Derivatives   20,599    -    20,599    (869)   (3,716)   16,014 
Total  $415,599   $(375,000)  $40,599   $(869)  $(24,018)  $16,014 
                               
Weighted average interest rate of reverse repurchase agreements   1.16%                         

 

  

Gross

Amounts of

  

Gross

Amounts

Offset on the

   Net  

Gross Amounts not Offset

in the Balance Sheet

     
  

Recognized

Liabilities

  

Balance

Sheet

  

Liability

Balance

  

Financial

Instruments

  

Collateral

Pledged

   Net Amount 
                         
Repurchase agreements / reverse repurchase agreements  $375,000   $(375,000)  $-   $-   $-   $- 
Derivatives   31,997    -    31,997    (869)   (32,792)   - 
Total  $406,997   $(375,000)  $31,997   $(869)  $(32,792)  $- 
                               
Weighted average interest rate of repurchase agreements   .29%                         

 

 13 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  

Gross

Amounts of

  

Gross

Amounts

Offset on the

      

Gross Amounts not Offset

in the Balance Sheet

     
September 30, 2014 

Recognized

Assets

  

Balance

Sheet

  

Net Asset

Balance

  

Financial

Instruments

  

Collateral

Received

   Net Amount 
                         
Repurchase agreements / reverse repurchase agreements  $392,000   $(375,000)  $17,000   $-   $(17,985)  $- 
Derivatives   22,221    -    22,221    (2,093)   (3,427)   16,701 
Total  $414,221   $(375,000)  $39,221   $(2,093)  $(21,412)  $16,701 
                               
Weighted average interest rate of reverse repurchase agreements   1.16%                         

 

  

Gross

Amounts of

  

Gross

Amounts

Offset on the

   Net  

Gross Amounts not Offset

in the Balance Sheet

     
  

Recognized

Liabilities

  

Balance

Sheet

  

Liability

Balance

  

Financial

Instruments

  

Collateral

Pledged

   Net Amount 
                         
Repurchase agreements / reverse repurchase agreements  $375,000   $(375,000)  $-   $-   $-   $- 
Derivatives   36,171    -    36,171    (2,093)   (38,195)   - 
Total  $411,171   $(375,000)  $36,171   $(2,093)  $(38,195)  $- 
                               
Weighted average interest rate of repurchase agreements   .31%                         

 

Note 5 – Securities

 

The amortized cost basis, gross unrealized gains and losses and fair value of securities held-to-maturity at September 30, 2015, December 31, 2014 and September 30, 2014 are as follows (in thousands).

 

                 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
As of September 30, 2015  Cost   Gains   Losses   Value 
State and political subdivisions  $42,094   $3,394   $-   $45,488 
Mortgage-backed securities (1)   315,455    7,676    523    322,608 
                     
Total   357,549    11,070    523    368,096 
                     
As of December 31, 2014                    
State and political subdivisions  $48,157   $3,504   $-   $51,661 
Mortgage-backed securities (1)   367,110    7,716    1,254    373,572 
                     
Total  $415,267   $11,220   $1,254   $425,233 
                     
As of September 30, 2014                    
State and political subdivisions  $50,248   $3,849   $-   $54,097 
Mortgage-backed securities (1)   382,170    7,299    3,255    386,214 
                     
Total  $432,418   $11,148   $3,255   $440,311 

 

(1)All are residential type mortgage-backed securities or U.S. government agency commercial mortgage backed securities.

 

 14 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table summarizes held-to-maturity securities in an unrealized loss position as of September 30, 2015, December 31, 2014 and September 30, 2014 (in thousands)

 

   Less than 12 Months   12 Months or More   Total 
As of September 30, 2015  Fair Value   Unrealized
Loss
   Fair Value   Unrealized
Loss
   Fair Value   Unrealized
Loss
 
Mortgage-backed securities  $80,174   $355   $11,981   $168   $92,155   $523 
Total unrealized loss position  $80,174   $355   $11,981   $168   $92,155   $523 
                               
As of December 31, 2014                              
Mortgage-backed securities  $126,514   $917   $17,053   $337   $143,567   $1,254 
Total unrealized loss position  $126,514   $917   $17,053   $337   $143,567   $1,254 
                               
As of September 30, 2014                              
Mortgage-backed securities  $189,223   $3,147   $2,798   $108   $192,021   $3,255 
Total unrealized loss position  $189,223   $3,147   $2,798   $108   $192,021   $3,255 

 

Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. No impairment charges were recognized during the three or nine months ended September 30, 2015 or 2014.

 

 15 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The cost basis, unrealized gains and losses, and fair value of securities available-for-sale at September 30, 2015, December 31, 2014 and September 30, 2014 are presented below (in thousands).

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
As of September 30, 2015  Cost   Gains   Losses   Value 
U.S. Treasuries  $162,791   $1,436   $-   $164,227 
U.S. Government agencies   100,947    858    35    101,770 
State and political subdivisions    36,017    413    52    36,378 
Mortgage-backed securities (1)   1,106,835    17,090    4,244    1,119,681 
Corporate bonds   207,559    1,904    1,773    207,690 
Asset-backed securities   469,736    1,842    3,322    468,256 
Other   1,866    -    -    1,866 
                     
Total  $2,085,751   $23,543   $9,426   $2,099,868 
As of December 31, 2014                    
U.S. Treasuries  $105,540   $235   $66   $105,709 
U.S. Government agencies   36,474    -    175    36,299 
State and political subdivisions    19,748    504    19    20,233 
Mortgage-backed securities (1)   988,012    16,273    7,465    996,820 
Corporate bonds   165,018    1,686    1,076    165,628 
Asset-backed securities   455,626    2,257    1,955    455,928 
Other   2,117    -    -    2,117 
                     
Total  $1,772,535   $20,955   $10,756   $1,782,734 
As of September 30, 2014                    
U.S. Treasuries  $105,385   $245   $608   $105,022 
State and political subdivisions    19,686    666    31    20,321 
Mortgage-backed securities (1)   1,029,881    15,010    9,899    1,034,992 
Corporate bonds   165,558    1,427    1,733    165,252 
Asset-backed securities   458,569    3,629    154    462,044 
Other   2,036    -    -    2,036 
                     
Total  $1,781,115   $20,977   $12,425   $1,789,667 

 

(1) All are residential type mortgage-backed securities or U.S. government agency commercial mortgage backed securities.

 

 16 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table summarizes available-for-sale securities in an unrealized loss position as of September 30, 2015, December 31, 2014 and September 30, 2014 (in thousands).

 

   Less than 12 Months   12 Months or More   Total 
As of September 30, 2015  Fair Value  

Unrealized

Loss

   Fair Value  

Unrealized

Loss

   Fair Value  

Unrealized

Loss

 
U.S. Government agencies  $10,605   $35   $-   $-   $10,605   $35 
State and political subdivisions   10,276    52    -    -    10,276    52 
Mortgage-backed securities   65,692    288    205,021    3,956    270,713    4,244 
Corporate bonds   58,476    1,180    10,407    593    68,883    1,773 
Asset-backed securities   265,064    3,024    14,665    298    279,729    3,322 
Total unrealized loss position  $410,113   $4,579   $230,093   $4,847   $640,206   $9,426 
                               
As of December 31, 2014                              
U.S. Treasuries  $34,180   $66   $-   $-   $34,180   $66 
U.S. Government agencies   36,299    175    -    -    36,299    175 
State and political subdivisions   2,481    19    -    -    2,481    19 
Mortgage-backed securities   88,741    446    251,977    7,019    340,718    7,465 
Corporate bonds   37,891    371    20,275    705    58,166    1,076 
Asset-backed securities   221,359    1,592    40,952    363    262,311    1,955 
Total unrealized loss position  $420,951   $2,669   $313,204   $8,087   $734,155   $10,756 
                               
As of September 30, 2014                              
U.S. Treasuries  $104,777   $608   $-   $-   $104,777   $608 
State and political subdivisions   -    -    3,638    31    3,638    31 
Mortgage-backed securities   126,445    844    265,426    9,055    391,871    9,899 
Corporate bonds   49,547    414    34,657    1,319    84,204    1,733 
Asset-backed securities   57,716    137    9,952    17    67,668    154 
Total unrealized loss position  $338,485   $2,003   $313,673   $10,422   $652,158   $12,425 

 

At September 30, 2015, there were 137 available-for-sale securities and 15 held-to-maturity securities that were in an unrealized loss position. United does not intend to sell nor believes it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at September 30, 2015, December 31, 2014 and September 30, 2014 were primarily attributable to changes in interest rates and therefore, United does not consider them to be impaired.

 

Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes available-for-sale securities sales activity for the three and nine months ended September 30, 2015 and 2014 (in thousands).

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2015   2014   2015   2014 
                 
Proceeds from sales  $137,702   $13,290   $274,519   $403,517 
                     
Gross gains on sales  $328   $11   $1,880   $5,795 
Gross losses on sales   (3)   -    (3)   (1,132)
                     
Net gains on sales of securities  $325   $11   $1,877   $4,663 
                     
Income tax expense attributable to sales  $121   $4   $724   $1,821 

 

Securities with a carrying value of $1.45 billion, $1.51 billion and $1.38 billion were pledged to secure public deposits and other secured borrowings at September 30, 2015, December 31, 2014 and September 30, 2014, respectively.

 

 17 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The amortized cost and fair value of held-to-maturity and available-for-sale securities at September 30, 2015, by contractual maturity, are presented in the following table (in thousands).

 

   Available-for-Sale   Held-to-Maturity 
   Amortized Cost   Fair Value   Amortized Cost   Fair Value 
                 
US Treasuries:                    
1 to 5 years  $87,168   $87,925   $-   $- 
5 to 10 years   75,623    76,302    -    - 
    162,791    164,227    -    - 
                     
US Government agencies:                    
1 to 5 years   23,027    23,018    -    - 
5 to 10 years   77,920    78,752    -    - 
    100,947    101,770    -    - 
                     
State and political subdivisions:                    
Within 1 year   4,013    4,065    3,510    3,600 
1 to 5 years   10,657    10,926    15,509    16,635 
5 to 10 years   12,093    12,075    19,245    21,071 
More than 10 years   9,254    9,312    3,830    4,182 
    36,017    36,378    42,094    45,488 
                     
Corporate bonds:                    
1 to 5 years   141,657    142,523    -    - 
5 to 10 years   33,451    34,062    -    - 
More than 10 years   32,451    31,105    -    - 
    207,559    207,690    -    - 
                     
Asset-backed securities:                    
1 to 5 years   2,837    2,868    -    - 
5 to 10 years   241,369    240,672    -    - 
More than 10 years   225,530    224,716    -    - 
    469,736    468,256    -    - 
                     
Other:                    
More than 10 years   1,866    1,866    -    - 
    1,866    1,866    -    - 
                     
Total securities other than mortgage-backed securities:                    
Within 1 year   4,013    4,065    3,510    3,600 
1 to 5 years   265,346    267,260    15,509    16,635 
5 to 10 years   440,456    441,863    19,245    21,071 
More than 10 years   269,101    266,999    3,830    4,182 
                     
Mortgage-backed securities   1,106,835    1,119,681    315,455    322,608 
                     
   $2,085,751   $2,099,868   $357,549   $368,096 

 

Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 18 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 6 – Loans and Allowance for Credit Losses

 

Major classifications of loans as of September 30, 2015, December 31, 2014 and September 30, 2014, are summarized as follows (in thousands).

 

   September 30,   December 31,   September 30, 
   2015   2014   2014 
             
Owner occupied commercial real estate  $1,479,246   $1,163,480   $1,153,933 
Income producing commercial real estate   817,833    598,537    604,727 
Commercial & industrial   890,233    710,256    649,853 
Commercial construction   318,345    196,030    180,794 
Total commercial   3,505,657    2,668,303    2,589,307 
Residential mortgage   1,061,610    865,789    865,568 
Home equity lines of credit   584,934    465,872    458,819 
Residential construction   334,084    298,627    307,178 
Consumer installment   116,603    104,899    105,345 
Indirect auto   420,697    268,629    242,669 
Total loans   6,023,585    4,672,119    4,568,886 
Less allowance for loan losses   (69,062)   (71,619)   (71,928)
Loans, net  $5,954,523   $4,600,500   $4,496,958 

 

At September 30, 2015, December 31, 2014 and September 30, 2014, loans totaling $2.51 billion, $2.35 billion and $2.21 billion, respectively, were pledged as collateral to secure FHLB advances and other contingent funding sources.

 

At September 30, 2015, the carrying value and unpaid principal balance of purchased credit impaired (“PCI”) loans accounted for under ASC 310-30 was $52.2 million and $73.1 million, respectively. The following table presents changes in the value of the accretable yield for acquired loans accounted for under ASC Topic 310-30 for the three and nine months ended September 30, 2015 (in thousands):

 

   Three Months Ended   Nine Months Ended 
   September 30, 2015   September 30, 2015 
Balance at beginning of period  $946   $- 
Additions due to acquisitions   4,834    5,863 
Accretion   (316)   (399)
Balance at end of period  $5,464   $5,464 

 

In addition to the accretable yield on loans accounted for under ASC Topic 310-30, the fair value adjustments on purchased loans outside the scope of ASC Topic 310-30 are also accreted to interest income over the life of the loans. At September 30, 2015, the remaining accretable fair value mark on loans acquired through a business combination and not accounted for under ASC Topic 310-30 was $7.71 million. In addition, indirect auto loans purchased at a premium outside of a business combination have a remaining premium of $11.0 million.

 

The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. The allowance for unfunded commitments is included in other liabilities in the consolidated balance sheet. Combined, the allowance for loan losses and allowance for unfunded commitments are referred to as the allowance for credit losses.

 

 19 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2015 and 2014 (in thousands).

 

   2015   2014 
Three Months Ended September 30, 

Beginning

Balance

  

Charge-

Offs

   Recoveries   Provision  

Ending

Balance

  

Beginning

Balance

  

Charge-

Offs

   Recoveries  

Allocation

of

Unallocated

   Provision  

Ending

Balance

 
                                             
Owner occupied commercial real estate  $16,339   $(463)  $228   $(495)  $15,609   $17,804   $(832)  $86   $-   $(1,758)  $15,300 
Income producing commercial real estate   8,200    (126)   231    (532)   7,773    11,761    (598)   494    -    (866)   10,791 
Commercial & industrial   4,728    (508)   319    1,041    5,580    3,885    (30)   372    -    (1,009)   3,218 
Commercial construction   4,895    (80)   21    1,659    6,495    4,067    (104)   1    -    1,686    5,650 
Residential mortgage   19,052    (848)   415    (1,880)   16,739    16,763    (1,357)   240    -    1,940    17,586 
Home equity lines of credit   5,479    (413)   120    1,119    6,305    6,338    (405)   50    -    (1,144)   4,839 
Residential construction   9,337    (50)   174    (1,078)   8,383    11,208    (753)   41    -    2,358    12,854 
Consumer installment   688    (496)   221    352    765    599    (449)   256    -    333    739 
Indirect auto   1,411    (175)   13    164    1,413    823    (178)   11    -    295    951 
Total allowance for loan losses   70,129    (3,159)   1,742    350    69,062    73,248    (4,706)   1,551    -    1,835    71,928 
Allowance for unfunded commitments   2,580    -    -    350    2,930    2,165    -    -    -    165    2,330 
Total allowance for credit losses  $72,709   $(3,159)  $1,742   $700   $71,992   $75,413   $(4,706)  $1,551   $-   $2,000   $74,258 

 

Nine Months Ended September 30, 

Beginning

Balance

  

Charge-

Offs

   Recoveries   Provision  

Ending

Balance

  

Beginning

Balance

  

Charge-

Offs

   Recoveries  

Allocation

of

Unallocated

   Provision  

Ending

Balance

 
                                             
Owner occupied commercial real estate  $16,041   $(1,194)  $317   $445   $15,609   $17,164   $(2,116)  $2,929   $1,278   $(3,955)  $15,300 
Income producing commercial real estate   10,296    (448)   588    (2,663)   7,773    7,174    (1,435)   691    688    3,673    10,791 
Commercial & industrial   3,255    (1,139)   1,236    2,228    5,580    6,527    (2,005)   1,263    318    (2,885)   3,218 
Commercial construction   4,747    (249)   72    1,925    6,495    3,669    (236)   1    388    1,828    5,650 
Residential mortgage   20,311    (2,535)   899    (1,936)   16,739    15,446    (5,738)   597    1,452    5,829    17,586 
Home equity lines of credit   4,574    (834)   160    2,405    6,305    5,528    (2,032)   218    391    734    4,839 
Residential construction   10,603    (1,689)   645    (1,176)   8,383    12,532    (3,004)   410    1,728    1,188    12,854 
Consumer installment   731    (1,171)   784    421    765    1,353    (1,580)   974    -    (8)   739 
Indirect auto   1,061    (433)   34    751    1,413    1,126    (344)   38    -    131    951 
Unallocated   -    -    -    -    -    6,243    -    -    (6,243)   -    - 
Total allowance for loan losses   71,619    (9,692)   4,735    2,400    69,062    76,762    (18,490)   7,121    -    6,535    71,928 
Allowance for unfunded commitments   1,930    -    -    1,000    2,930    2,165    -    -    -    165    2,330 
Total allowance for credit losses  $73,549   $(9,692)  $4,735   $3,400   $71,992   $78,927   $(18,490)  $7,121   $-   $6,700   $74,258 

 

In the first quarter of 2014, United modified its allowance for loan losses methodology to incorporate a loss emergence period. The increase in precision resulting from the use of the loss emergence period led to the full allocation of the portion of the allowance that had previously been unallocated.

 

The following table represents the recorded investment in loans by portfolio segment and the balance of the allowance for loan losses assigned to each segment based on the method of evaluating the loans for impairment as of September 30, 2015, December 31, 2014 and September 30, 2014 (in thousands).

 

   September 30, 2015   December 31, 2014   September 30, 2014 
Allowance for Loan Losses 

Individually

evaluated for

impairment

  

Collectively

evaluated for

impairment

  

Purchased

with

deteriorated

credit quality

  

Ending

Balance

  

Individually

evaluated for

impairment

  

Collectively

evaluated for

impairment

  

Ending

Balance

  

Individually

evaluated for

impairment

  

Collectively

evaluated for

impairment

  

Ending

Balance

 
                                         
Owner occupied commercial real estate  $1,506   $14,103   $-   $15,609   $2,737   $13,304   $16,041   $2,125   $13,175   $15,300 
Income producing commercial real estate   625    7,148    -    7,773    1,917    8,379    10,296    2,380    8,411    10,791 
Commercial & industrial   129    5,451    -    5,580    15    3,240    3,255    26    3,192    3,218 
Commercial construction   482    6,013    -    6,495    729    4,018    4,747    1,164    4,486    5,650 
Residential mortgage   3,205    13,534    -    16,739    3,227    17,084    20,311    3,501    14,085    17,586 
Home equity lines of credit   19    6,286    -    6,305    47    4,527    4,574    51    4,788    4,839 
Residential construction   207    8,176    -    8,383    1,192    9,411    10,603    1,037    11,817    12,854 
Consumer installment   10    755    -    765    18    713    731    23    716    739 
Indirect auto   -    1,413    -    1,413    -    1,061    1,061    -    951    951 
Total allowance for loan losses   6,183    62,879    -    69,062    9,882    61,737    71,619    10,307    61,621    71,928 
Allowance for unfunded commitments   -    2,930    -    2,930    -    1,930    1,930    -    2,330    2,330 
Total allowance for credit losses  $6,183   $65,809   $-   $71,992   $9,882   $63,667   $73,549   $10,307   $63,951   $74,258 
                                                   
Loans Outstanding                                                  
                                                   
Owner occupied commercial real estate  $38,513   $1,426,787   $13,946   $1,479,246   $34,654   $1,128,826   $1,163,480   $33,635   $1,120,298   $1,153,933 
Income producing commercial real estate   20,580    769,093    28,160    817,833    24,484    574,053    598,537    26,120    578,607    604,727 
Commercial & industrial   4,564    885,002    667    890,233    3,977    706,279    710,256    4,540    645,313    649,853 
Commercial construction   12,413    303,683    2,249    318,345    12,321    183,709    196,030    12,127    168,667    180,794 
Residential mortgage   22,446    1,034,893    4,271    1,061,610    18,775    847,014    865,789    18,778    846,790    865,568 
Home equity lines of credit   477    582,754    1,703    584,934    478    465,394    465,872    531    458,288    458,819 
Residential construction   8,352    324,599    1,133    334,084    11,604    287,023    298,627    13,055    294,123    307,178 
Consumer installment   235    116,349    19    116,603    179    104,720    104,899    245    105,100    105,345 
Indirect auto   -    420,608    89    420,697    -    268,629    268,629    -    242,669    242,669 
Total loans  $107,580   $5,863,768   $52,237   $6,023,585   $106,472   $4,565,647   $4,672,119   $109,031   $4,459,855   $4,568,886 

 

 20 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Excluding loans accounted for under ASC Topic 310-30, management considers all loans that are on nonaccrual with a balance of $500,000 or greater and all troubled debt restructurings (“TDRs”) to be impaired. In addition, management reviews all accruing substandard loans greater than $2 million to determine if the loan is impaired. A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the original contractual terms of the loan will not be collected. All TDRs are considered impaired regardless of accrual status. Impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. For TDRs less than $500,000, impairment is estimated based on the average impairment of TDRs greater than $500,000 by loan category. For loan types that do not have TDRs greater than $500,000, the average impairment for all TDR loans is used to quantify the amount of required specific reserve. A specific reserve is established for impaired loans for the amount of calculated impairment. Interest payments received on impaired nonaccrual loans are applied as a reduction of the outstanding principal balance. For impaired loans not on nonaccrual status, interest is accrued according to the terms of the loan agreement. Loans are evaluated for impairment quarterly and specific reserves are established in the allowance for loan losses for any measured impairment.

 

Each quarter, United’s management prepares an analysis of the allowance for credit losses to determine the appropriate balance that measures and quantifies the amount of probable incurred losses in the loan portfolio and unfunded loan commitments. The allowance is comprised of specific reserves on individually impaired loans, which are determined as described above, and general reserves which are determined based on historical loss experience as adjusted for current trends and economic conditions multiplied by a loss emergence period factor. Management uses eight quarters of historical loss experience to determine the loss factors to be used in the reserve calculation for loans evaluated in the aggregate. Eight quarters has been determined to be an appropriate time period as it is recent enough to be relevant to current conditions and covers a length of time sufficient to minimize distortions caused by nonrecurring and unusual activity that might otherwise influence a shorter time period. In previous years, the loss rates were weighted toward more recent quarters by multiplying each quarter’s annualized historical net charge-off rate by 1 through 8, with 8 representing the most recent quarter and 1 representing the oldest quarter. Management adopted this method of weighting quarterly loss rates to capture the rapidly deteriorating credit conditions in its loss factors during the financial crisis. In the first quarter of 2014, in light of stabilizing credit conditions, management concluded that it was appropriate to apply a more level weighting to capture the full range and impacts of credit losses experienced during the most recent economic and credit cycle. For the four quarters of 2014, management applied a weighting factor of 1.75 to the most recent four quarters and a weighting of 1.00 for the four oldest quarters. Beginning with the first quarter of 2015, management began applying equal weight to all eight quarters to capture the full range of the loss cycle. Management believes the current weightings are more appropriate to measure the probable losses incurred within the loan portfolio.

 

Also, beginning in the first quarter of 2014, management updated its method for measuring the loss emergence period in the calculation of the allowance for credit losses. The rapidly deteriorating credit conditions during the peak of the credit cycle shortened the length of time between management’s estimation of the incurrence of a loss and its recognition as a charge-off. In most cases, the loss emergence period was within a twelve month period which made the use of annualized loss factors appropriate for measuring the amount of incurred yet unconfirmed credit losses within the loan portfolio. As United has moved out beyond the peak of the financial crisis, management has observed that the loss emergence period has extended. Management calculates the loss emergence period for each pool of loans based on the average length of time between the date a loan first exceeds 30 days past due and the date the loan is charged off.

 

The updates to the weightings to the eight quarters of loss history and the update to our estimation of the loss emergence period did not have a material effect on the total allowance for loan losses or the provision for loan losses, however, the revised loss emergence period resulted in the full allocation of the previously unallocated portion of the allowance for loan losses.

 

On junior lien home equity loans, management has limited ability to monitor the delinquency status of the first lien unless the first lien is also held by United. As a result, management applies the weighted average historical loss factor for this category and appropriately adjusts it to reflect the increased risk of loss from these credits.

 

Management carefully reviews the resulting loss factors for each category of the loan portfolio and evaluates whether qualitative adjustments are necessary to take into consideration recent credit trends such as increases or decreases in past due, nonaccrual, criticized and classified loans, and other macro environmental factors such as changes in unemployment rates, lease vacancy rates and trends in property values and absorption rates.

 

Management believes that its method of determining the balance of the allowance for credit losses provides a reasonable and reliable basis for measuring and reporting losses that are incurred in the loan portfolio as of the reporting date.

 

When a loan officer determines that a loan is uncollectible, he or she is responsible for recommending that the loan be placed on nonaccrual and charged off. Full or partial charge-offs may also be recommended by the Collections Department, the Special Assets Department, the Loss Mitigation Department and the Foreclosure/OREO Department. Nonaccrual real estate loans that are collateral dependent are generally charged down to 80% of the appraised value of the underlying collateral at the time they are placed on nonaccrual status.

 

 21 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Commercial and consumer asset quality committees consisting of the Chief Credit Officer, Senior Risk Officers and Senior Credit Officers meet monthly to review charge-offs that have occurred during the previous month.

 

Generally, closed-end retail loans (installment and residential mortgage loans) past due 90 cumulative days are written down to their collateral value less estimated selling costs unless the loan is well secured and in process of collection (within the next 90 days). Open-end (revolving) unsecured retail loans which are past due 90 cumulative days from their contractual due date are generally charged-off.

 

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2015, December 31, 2014 and September 30, 2014 (in thousands).

 

   September 30, 2015   December 31, 2014   September 30, 2014 
   Unpaid
Principal
Balance
   Recorded
Investment
   Allowance
for Loan
Losses
Allocated
   Unpaid
Principal
Balance
   Recorded
Investment
   Allowance
for Loan
Losses
Allocated
   Unpaid
Principal
Balance
   Recorded
Investment
   Allowance
for Loan
Losses
Allocated
 
                                     
With no related allowance recorded:                                             
Owner occupied commercial real estate  $14,274   $13,949   $-   $12,025   $11,325   $-   $11,370   $10,370   $- 
Income producing commercial real estate   10,746    10,603    -    8,311    8,311    -    9,872    9,872    - 
Commercial & industrial   1,721    1,624    -    1,679    1,042    -    2,178    1,560    - 
Commercial construction   -    -    -    -    -    -    -    -    - 
Total commercial   26,741    26,176    -    22,015    20,678    -    23,420    21,802    - 
Residential mortgage   1,943    1,220    -    2,569    1,472    -    1,319    954    - 
Home equity lines of credit   -    -    -    -    -    -    -    -    - 
Residential construction   3,255    3,255    -    4,338    3,338    -    5,460    4,172    - 
Consumer installment   -    -    -    -    -    -    -    -    - 
Indirect auto   -    -    -    -    -    -    -    -    - 
Total with no related allowance recorded   31,939    30,651    -    28,922    25,488    -    30,199    26,928    - 
                                              
With an allowance recorded:                                             
Owner occupied commercial real estate   24,755    24,564    1,506    24,728    23,329    2,737    24,828    23,265    2,125 
Income producing commercial real estate   10,067    9,977    625    16,352    16,173    1,917    16,797    16,248    2,380 
Commercial & industrial   2,940    2,940    129    2,936    2,935    15    2,980    2,980    26 
Commercial construction   12,584    12,413    482    12,401    12,321    729    12,281    12,127    1,164 
Total commercial   50,346    49,894    2,742    56,417    54,758    5,398    56,886    54,620    5,695 
Residential mortgage   21,738    21,226    3,205    17,732    17,303    3,227    18,657    17,824    3,501 
Home equity lines of credit   477    477    19    478    478    47    531    531    51 
Residential construction   6,098    5,097    207    8,962    8,266    1,192    9,427    8,883    1,037 
Consumer installment   260    235    10    179    179    18    245    245    23 
Indirect auto   -    -    -    -    -    -    -    -    - 
Total with an allowance recorded   78,919    76,929    6,183    83,768    80,984    9,882    85,746    82,103    10,307 
Total  $110,858   $107,580   $6,183   $112,690   $106,472   $9,882   $115,945   $109,031   $10,307 

 

Excluding loans accounted for under ASC Topic 310-30, there were no loans more than 90 days past due and still accruing interest at September 30, 2015, December 31, 2014 or September 30, 2014. Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans. United’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.

 

Loans accounted for under ASC Topic 310-30 are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered as performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. Loans accounted for under ASC Topic 310-30 were not classified as nonaccrual at September 30, 2015 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest income, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all acquired loans being accounted for under ASC Topic 310-30.

 

The gross additional interest revenue that would have been earned if the loans classified as nonaccrual had performed in accordance with the original terms was approximately $262,000 and $705,000 for the three months ended September 30, 2015 and 2014, respectively and $686,000 and $1.37 million for the nine months ended September 30, 2015 and 2014, respectively. The gross additional interest revenue that would have been earned for the three and nine months ended September 30, 2015 and 2014 had performing TDRs performed in accordance with the original terms is immaterial.

 

 22 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The average balances of impaired loans and income recognized on impaired loans while they were considered impaired are presented below for the three and nine months ended September 30, 2015 and 2014 (in thousands).

 

   2015   2014 
Three Months Ended September 30,  Average
Balance
   Interest
Revenue
Recognized
During
Impairment
   Cash Basis
Interest
Revenue
Received
   Average
Balance
   Interest
Revenue
Recognized
During
Impairment
   Cash Basis
Interest
Revenue
Received
 
Owner occupied commercial real estate  $37,840   $484   $523   $33,715   $430   $448 
Income producing commercial real estate   20,802    265    281    26,622    325    341 
Commercial & industrial   4,637    43    77    4,698    43    85 
Commercial construction   12,584    116    116    12,203    119    96 
Total commercial   75,863    908    997    77,238    917    970 
Residential mortgage   23,176    242    197    19,235    215    215 
Home equity lines of credit   477    5    5    538    6    5 
Residential construction   8,560    123    123    13,146    130    130 
Consumer installment   242    5    4    251    4    5 
Indirect auto   -    -    -    -    -    - 
Total  $108,318   $1,283   $1,326   $110,408   $1,272   $1,325 
                               
Nine Months Ended September 30,                              
Owner occupied commercial real estate  $37,605   $1,413   $1,491   $31,460   $1,191   $1,219 
Income producing commercial real estate   21,427    805    810    26,299    953    991 
Commercial & industrial   4,627    126    202    4,314    135    186 
Commercial construction   12,340    349    353    12,086    335    338 
Total commercial   75,999    2,693    2,856    74,159    2,614    2,734 
Residential mortgage   21,955    667    633    20,384    672    670 
Home equity lines of credit   504    15    15    531    16    17 
Residential construction   9,294    371    381    13,315    452    455 
Consumer installment   185    11    10    345    16    19 
Indirect auto   -    -    -    -    -    - 
Total  $107,937   $3,757   $3,895   $108,734   $3,770   $3,895 

 

The following table presents the recorded investment in nonaccrual loans by loan class as of September 30, 2015, December 31, 2014 and September 30, 2014 (in thousands).

 

   Nonaccrual Loans 
   September 30,
2015
   December 31,
2014
   September 30,
2014
 
             
Owner occupied commercial real estate  $5,918   $4,133   $2,156 
Income producing commercial real estate   1,238    717    1,742 
Commercial & industrial   1,068    1,571    1,593 
Commercial construction   256    83    148 
Total commercial   8,480    6,504    5,639 
Residential mortgage   8,847    8,196    8,350 
Home equity lines of credit   890    695    720 
Residential construction   929    2,006    3,543 
Consumer installment   196    134    139 
Indirect auto   722    346    354 
Total  $20,064   $17,881   $18,745 

 

 23 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table presents the aging of the recorded investment in past due loans as of September 30, 2015, December 31, 2014 and September 30, 2014 by class of loans (in thousands).

 

   Loans Past Due   Loans Not         
As of September 30, 2015  30 - 59 Days   60 - 89 Days   > 90 Days   Total   Past Due   PCI Loans   Total 
Owner occupied commercial real estate  $3,200   $788   $3,267   $7,255   $1,458,045   $13,946   $1,479,246 
Income producing commercial real estate   1,814    -    440    2,254    787,419    28,160    817,833 
Commercial & industrial   1,040    163    858    2,061    887,505    667    890,233 
Commercial construction   285    79    44    408    315,688    2,249    318,345 
Total commercial   6,339    1,030    4,609    11,978    3,448,657    45,022    3,505,657 
Residential mortgage   4,937    2,501    2,504    9,942    1,047,397    4,271    1,061,610 
Home equity lines of credit   1,237    360    196    1,793    581,438    1,703    584,934 
Residential construction   663    88    129    880    332,071    1,133    334,084 
Consumer installment   549    94    50    693    115,891    19    116,603 
Indirect auto   852    468    319    1,639    418,969    89    420,697 
Total loans  $14,577   $4,541   $7,807   $26,925   $5,944,423   $52,237   $6,023,585 
                                    
As of December 31, 2014                                   
Owner occupied commercial real estate  $1,444   $1,929   $1,141   $4,514   $1,158,966   $-   $1,163,480 
Income producing commercial real estate   2,322    1,172    -    3,494    595,043    -    598,537 
Commercial & industrial   302    40    1,425    1,767    708,489    -    710,256 
Commercial construction   -    -    66    66    195,964    -    196,030 
Total commercial   4,068    3,141    2,632    9,841    2,658,462    -    2,668,303 
Residential mortgage   5,234    2,931    3,278    11,443    854,346    -    865,789 
Home equity lines of credit   961    303    167    1,431    464,441    -    465,872 
Residential construction   1,172    268    1,395    2,835    295,792    -    298,627 
Consumer installment   607    136    33    776    104,123    -    104,899 
Indirect auto   200    146    141    487    268,142    -    268,629 
Total loans  $12,242   $6,925   $7,646   $26,813   $4,645,306   $-   $4,672,119 
                                    
As of September 30, 2014                                   
Owner occupied commercial real estate  $2,769   $257   $947   $3,973   $1,149,960   $-   $1,153,933 
Income producing commercial real estate   417    991    226    1,634    603,093    -    604,727 
Commercial & industrial   900    103    861    1,864    647,989    -    649,853 
Commercial construction   123    182    -    305    180,489    -    180,794 
Total commercial   4,209    1,533    2,034    7,776    2,581,531    -    2,589,307 
Residential mortgage   6,985    3,136    2,563    12,684    852,884    -    865,568 
Home equity lines of credit   1,566    373    375    2,314    456,505    -    458,819 
Residential construction   1,262    329    2,803    4,394    302,784    -    307,178 
Consumer installment   995    322    191    1,508    103,837    -    105,345 
Indirect auto   278    83    200    561    242,108    -    242,669 
Total loans  $15,295   $5,776   $8,166   $29,237   $4,539,649   $-   $4,568,886 

 

As of September 30, 2015, December 31, 2014, and September 30, 2014, $5.66 million, $9.72 million and $9.82 million, respectively, of specific reserves were allocated to customers whose loan terms have been modified in TDRs. United committed to lend additional amounts totaling up to $189,000, $51,000 and $38,000 as of September 30, 2015, December 31, 2014 and September 30, 2014, respectively, to customers with outstanding loans that are classified as TDRs.

 

The modification of the terms of the TDRs included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the amortization period that would not otherwise be considered in the current market for new debt with similar risk characteristics; a restructuring of the borrower’s debt into an “A/B note structure” where the A note would fall within the borrower’s ability to pay and the remainder would be included in the B note; a mandated bankruptcy restructuring; or interest-only payment terms greater than 90 days where the borrower is unable to amortize the loan.

 

 24 
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table presents information on TDRs including the number of loan contracts restructured and the pre- and post-modification recorded investment as of September 30, 2015, December 31, 2014 and September 30, 2014 (dollars in thousands).

  

   September 30, 2015   December 31, 2014   September 30, 2014 
   Number
of
Contracts
   Pre-
Modification
Outstanding
Recorded
Investment
   Post-
Modification
Outstanding
Recorded
Investment
   Number
of
Contracts
   Pre-
Modification
Outstanding
Recorded
Investment
   Post-
Modification
Outstanding
Recorded
Investment
   Number
of
Contracts
   Pre-
Modification
Outstanding
Recorded
Investment
   Post-
Modification
Outstanding
Recorded
Investment
 
                                     
Owner occupied commercial real estate   55   $32,931   $32,796    54   $27,695   $26,296    52   $27,811   $26,248 
Income producing commercial real estate   28    14,435    14,361    31    18,094    17,915    32    19,652    19,104 
Commercial & industrial   31    3,465    3,459    32    2,848    2,847    33    2,941    2,941 
Commercial construction   15    11,557    11,386    14    11,360    11,280    14    11,238    11,084 
Total commercial   129    62,388    62,002    131    59,997    58,338    131    61,642    59,377 
Residential mortgage   171    20,074    19,421    154    18,630    17,836    160    19,555    18,356 
Home equity lines of credit   2    477    477    2    478    478    4    531    531 
Residential construction   45    6,585    5,968    48    8,962    8,265    50    10,916    10,084 
Consumer installment   22    254    235    17    179    179    20    245    245 
Indirect auto   35    572    572    -    -    -    -    -    - 
Total loans   404   $90,350   $88,675    352   $88,246   $85,096    365   $92,889   $88,593 

 

Loans modified under the terms of a TDR during the three and nine months ended September 30, 2015 and 2014 are presented in the table below. In addition, the following table presents loans modified under the terms of a TDR that became 90 days or more delinquent during the three and nine months ended September 30, 2015 and 2014, that were initially restructured within one year prior to becoming delinquent (dollars in thousands).

 

   New TDRs for the Three Months Ended September 30,   New TDRs for the Nine Months Ended September 30, 
       Pre-
Modification
Outstanding
   Post-
Modification
Outstanding
   Modified Within the 
Previous Twelve Months 
that Have Subsequently 
Defaulted During the 
Three Months Ended
September 30, 2015
       Pre-
Modification
Outstanding
   Post-
Modification
Outstanding
   Modified Within the
Previous Twelve Months
that Have Subsequently
Defaulted During the Nine
Months Ended
September 30, 2015
 
2015  Number of
Contracts
   Recorded
Investment
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
 
                                         
Owner occupied commercial real estate   3   $667   $666    1   $178    11   $13,204   $13,159    1   $178 
Income producing commercial real estate   -    -    -    -    -    3    310    310    -    - 
Commercial & industrial   1    23    23    -    -    7    1,203    1,203    -    - 
Commercial construction   -    -    -    -    -    1    233    233    -    - 
Total commercial   4    690    689    1    178    22    14,950    14,905    1    178 
Residential mortgage   10    939    939    -    -    33    3,060    3,060    -    - 
Home equity lines of credit   -    -    -    -    -    1    83    74    -    - 
Residential construction   1    347    347    -    -    3    510    486    -    - 
Consumer installment   4    58    58    -    -    6    86    86    1    30 
Indirect auto   -    -    -    -    -    -    -    -    -    - 
Total loans   19   $2,034   $2,033    1   $178    65   $18,689   $18,611    2   $208 

 

       Pre-
Modification
Outstanding
   Post-
Modification
Outstanding
   Modified Within the
Previous Twelve Months
that Have Subsequently
Defaulted During the
Three Months Ended
September 30, 2014
       Pre-
Modification
Outstanding
   Post-
Modification
Outstanding
   Modified Within the
Previous Twelve Months
that Have Subsequently
Defaulted During the Nine
Months Ended
September 30, 2014
 
2014  Number of 
Contracts
   Recorded
Investment
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
 
                                         
Owner occupied commercial real estate   2   $747   $747    -   $-    9   $4,139   $4,139    1   $104 
Income producing commercial real estate   -    -    -    -    -    5    1,992    1,992    -    - 
Commercial & industrial   6    452    452    -    -    10    782    782    2    54 
Commercial construction   -    -    -    -    -    2    471    471    -    - 
Total commercial   8    1,199    1,199    -    -    26