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EX-32 - EXHIBIT 32 - UNITED COMMUNITY BANKS INCt1600695_ex32.htm
EX-31.2 - EXHIBIT 31.2 - UNITED COMMUNITY BANKS INCt1600695_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - UNITED COMMUNITY BANKS INCt1600695_ex31-1.htm

 

 

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, 2016

 

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 70,863,730 shares outstanding as of October 31, 2016.

 

 

 

 

 

INDEX

 

PART I - Financial Information    
       
Item 1. Financial Statements.    
       
  Consolidated Statement of Income (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015   3
       
  Consolidated Statement of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015   4
       
  Consolidated Balance Sheet (unaudited) at September 30, 2016 and December 31, 2015   5
       
  Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Nine Months Ended September 30, 2016 and 2015   6
       
  Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, 2016 and 2015   7
       
  Notes to Consolidated Financial Statements   8
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   40
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk.   62
       
Item 4. Controls and Procedures.   62
       
PART II - Other Information    
       
Item 1.   Legal Proceedings.   63
Item 1A. Risk Factors.   63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   63
Item 3. Defaults Upon Senior Securities.   63
Item 4. Mine Safety Disclosures.   63
Item 5. Other Information.   63
Item 6. Exhibits.   64

 

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)  2016   2015   2016   2015 
                 
Interest revenue:                    
Loans, including fees  $69,440   $57,174   $196,888   $159,814 
Investment securities, including tax exempt of $134, $177, $449 and $516   15,418    12,801    48,039    36,896 
Deposits in banks and short-term investments   581    853    2,315    2,460 
Total interest revenue   85,439    70,828    247,242    199,170 
                     
Interest expense:                    
Deposits:                    
NOW   452    337    1,381    1,079 
Money market   1,347    981    3,661    2,460 
Savings   43    25    102    71 
Time   667    830    2,052    2,834 
Total deposit interest expense   2,509    2,173    7,196    6,444 
Short-term borrowings   98    99    278    279 
Federal Home Loan Bank advances   1,015    461    2,731    1,307 
Long-term debt   2,828    2,669    8,178    7,481 
Total interest expense   6,450    5,402    18,383    15,511 
Net interest revenue   78,989    65,426    228,859    183,659 
Provision for credit losses   (300)   700    (800)   3,400 
Net interest revenue after provision for credit losses   79,289    64,726    229,659    180,259 
                     
Fee revenue:                    
Service charges and fees   10,819    9,335    31,460    25,325 
Mortgage loan and other related fees   6,039    3,840    13,776    10,302 
Brokerage fees   1,199    1,200    3,369    3,983 
Gains from sales of government guaranteed loans   2,479    1,646    6,517    4,281 
Securities gains, net   261    325    922    1,877 
Loss from prepayment of debt   -    (256)   -    (1,294)
Other   5,564    2,207    12,420    6,771 
Total fee revenue   26,361    18,297    68,464    51,245 
Total revenue   105,650    83,023    298,123    231,504 
                     
Operating expenses:                    
Salaries and employee benefits   36,478    29,342    103,112    83,749 
Communications and equipment   4,919    3,963    13,602    10,538 
Occupancy   5,132    4,013    14,393    10,706 
Advertising and public relations   1,088    812    3,275    2,689 
Postage, printing and supplies   1,451    1,049    4,029    2,980 
Professional fees   3,160    2,668    9,049    6,844 
FDIC assessments and other regulatory charges   1,412    1,136    4,453    3,643 
Amortization of intangibles   1,119    714    3,116    1,403 
Merger-related and other charges   3,152    5,744    6,981    8,917 
Other   6,112    4,828    17,958    14,281 
Total operating expenses   64,023    54,269    179,968    145,750 
 Net income before income taxes   41,627    28,754    118,155    85,754 
Income tax expense   15,753    10,867    44,720    32,384 
Net income   25,874    17,887    73,435    53,370 
Preferred stock dividends and discount accretion   -    25    21    42 
Net income available to common shareholders  $25,874   $17,862   $73,414   $53,328 
                     
Earnings per common share:                    
Basic  $.36   $.27   $1.02   $.84 
Diluted   .36    .27    1.02    .84 
Weighted average common shares outstanding:                    
Basic   71,556    66,294    71,992    63,297 
Diluted   71,561    66,300    71,996    63,302 

 

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, 
2016  Before-
tax
Amount
   Tax
(Expense)
Benefit
   Net of Tax
Amount
   Before-
tax
Amount
   Tax
(Expense)
Benefit
   Net of Tax
Amount
 
                         
Net income  $41,627   $(15,753)  $25,874   $118,155   $(44,720)  $73,435 
Other comprehensive income:                              
Unrealized gains on available-for-sale securities:                              
Unrealized holding gains arising during period   4,927    (1,927)   3,000    37,990    (14,488)   23,502 
Reclassification adjustment for gains included in net income   (261)   101    (160)   (922)   348    (574)
Net unrealized gains   4,666    (1,826)   2,840    37,068    (14,140)   22,928 
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity   663    (237)   426    1,601    (596)   1,005 
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges   466    (181)   285    1,426    (555)   871 
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan   167    (65)   102    501    (195)   306 
                               
Total other comprehensive income   5,962    (2,309)   3,653    40,596    (15,486)   25,110 
                               
Comprehensive income  $47,589   $(18,062)  $29,527   $158,751   $(60,206)  $98,545 
                               
2015                              
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 the 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 
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 
                               
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 
                               

 

See accompanying notes to consolidated financial statements.

 

4 

 

  

UNITED COMMUNITY BANKS, INC.
Consolidated Balance Sheet (Unaudited)

 

   September 30,   December 31, 
(in thousands, except share and per share data)  2016   2015 
         
ASSETS          
Cash and due from banks  $94,744   $86,912 
Interest-bearing deposits in banks   131,415    153,451 
Cash and cash equivalents   226,159    240,363 
Securities available for sale   2,215,113    2,291,511 
Securities held to maturity (fair value $357,550 and $371,658)   344,917    364,696 
Mortgage loans held for sale (includes $279 and $0 at fair value)   30,814    24,231 
Loans, net of unearned income   6,725,110    5,995,441 
Less allowance for loan losses   (62,961)   (68,448)
Loans, net   6,662,149    5,926,993 
Premises and equipment, net   189,302    178,165 
Bank owned life insurance   123,129    105,493 
Accrued interest receivable   26,494    25,786 
Net deferred tax asset   156,408    197,613 
Derivative financial instruments   25,463    20,082 
Goodwill and other intangible assets   157,288    147,420 
Other assets   140,379    94,075 
Total assets  $10,297,615   $9,616,428 
LIABILITIES AND SHAREHOLDERS' EQUITY          
Liabilities:          
Deposits:          
Demand  $2,568,756   $2,204,755 
NOW   1,821,353    1,975,884 
Money market   1,798,548    1,599,637 
Savings   544,029    471,129 
Time   1,349,543    1,282,803 
Brokered   359,370    338,985 
Total deposits   8,441,599    7,873,193 
Short-term borrowings   35,050    16,640 
Federal Home Loan Bank advances   449,407    430,125 
Long-term debt   174,959    163,836 
Derivative financial instruments   32,548    28,825 
Accrued expenses and other liabilities   84,759    85,524 
Total liabilities   9,218,322    8,598,143 
Shareholders' equity:          
Preferred stock, $1 par value; 10,000,000 shares authorized; Series H; $1,000 stated value; 0 and 9,992 shares issued and outstanding   -    9,992 
Common stock, $1 par value; 150,000,000 shares authorized; 70,861,025 and 66,198,477 shares issued and outstanding   70,861    66,198 
Common stock, non-voting, $1 par value; 26,000,000 shares authorized; 0 and 5,285,516 shares issued and outstanding   -    5,286 
Common stock issuable; 520,014 and 458,953 shares   7,179    6,779 
Capital surplus   1,274,909    1,286,361 
Accumulated deficit   (273,314)   (330,879)
Accumulated other comprehensive loss   (342)   (25,452)
Total shareholders' equity   1,079,293    1,018,285 
Total liabilities and shareholders' equity  $10,297,615   $9,616,428 

 

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,

 

   Preferred                       Accumulated     
   Stock       Non-Voting   Common           Other     
(in thousands, except share and  Series   Common   Common   Stock   Capital   Accumulated   Comprehensive     
per share data)  H   Stock   Stock   Issuable   Surplus   Deficit   Income (Loss)   Total 
                                 
Balance, December 31, 2014  $-   $50,178   $10,081   $5,168    $1,080,508  $(387,568)  $(18,790)  $739,577 
Net income                            53,370         53,370 
Other comprehensive income                                 3,662    3,662 
Common stock issued to dividend reinvestment plan and employee benefit plans (11,761 shares)        12              192              204 
Conversion of non-voting common stock to voting (1,795,271 shares)        1,795    (1,795)                       - 
Common and preferred stock issued for acquisition (11,058,515 common shares and 9,992 preferred shares)   9,992    11,059              203,092              224,143 
Amortization of stock option and restricted stock awards                       3,343              3,343 
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (118,672 shares issued, 106,935 shares deferred)        119         1,444    (3,009)             (1,446)
Deferred compensation plan, net, including dividend equivalents                  274    (1)             273 
Shares issued from deferred compensation plan (23,613 shares)        23         (216)   193              - 
Common stock dividends ($.16 per share)                            (10,506)        (10,506)
Tax on 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
                                         
Balance, December 31, 2015  $9,992   $66,198   $5,286   $6,779   $1,286,361  $(330,879)  $(25,452)  1,018,285 
Net income                            73,435         73,435 
Other comprehensive income                                 25,110    25,110 
Redemption of Series H preferred stock (9,992 shares)   (9,992)                                 (9,992)
Common stock issued to dividend reinvestment plan and employee benefit plans (15,844 shares)        16              254              270 
Conversion of non-voting common stock to voting (5,285,516 shares)        5,286    (5,286)                       - 
Amortization of stock option and restricted stock awards                       3,257              3,257 
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (79,430 shares issued, 94,497 shares deferred)        79         1,384    (2,428)             (965)
Purchases of common stock (764,000 shares)        (764)             (12,895)             (13,659)
Deferred compensation plan, net, including dividend equivalents                  291                   291 
Shares issued from deferred compensation plan (45,758 shares)        46         (1,275)   1,229              - 
Common stock dividends ($.22 per share)                            (15,849)        (15,849)
Tax on restricted stock vesting                       (869)             (869)
Preferred stock dividends:  Series H                            (21)        (21)
Balance, September 30, 2016  $-   $70,861   $-   $7,179   $1,274,909  $(273,314)  $(342)  1,079,293

 

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)  2016   2015 
Operating activities:          
Net income  $73,435   $53,370 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation, amortization and accretion   22,612    16,788 
(Release of) provision for credit losses   (800)   3,400 
Stock based compensation   3,257    3,343 
Deferred income tax expense   45,308    28,495 
Securities gains, net   (922)   (1,877)
Gains from sales of government guaranteed loans   (6,517)   (4,281)
Net gains on sale of other assets   (381)   (437)
Net gains and write downs on sales of other real estate owned   (59)   (368)
Loss on prepayment of borrowings   -    1,294 
Changes in assets and liabilities:          
Other assets and accrued interest receivable   (41,886)   4,232 
Accrued expenses and other liabilities   (2,753)   4,191 
Mortgage loans held for sale   (6,441)   (5,562)
Net cash provided by operating activities   84,853    102,588 
           
Investing activities:          
Investment securities held to maturity:          
Proceeds from maturities and calls of securities held to maturity   49,968    57,721 
Purchases of securities held to maturity   (20,656)   - 
Investment securities available for sale:          
Proceeds from sales of securities available for sale   189,164    274,519 
Proceeds from maturities and calls of securities available for sale   292,200    212,383 
Purchases of securities available for sale   (308,800)   (476,917)
Net increase in loans   (453,541)   (324,868)
Funds paid to FDIC under loss sharing agreements   -    (1,198)
Proceeds from sales of premises and equipment   5,038    2,127 
Purchases of premises and equipment   (13,716)   (7,191)
Net cash received for acquisition   1,912    35,497 
Proceeds from sale of other real estate   9,370    3,184 
Net cash used in investing activities   (249,061)   (224,743)
           
Financing activities:          
Net change in deposits   169,156    219,454 
Net change in short-term borrowings   8,360    (16,238)
Repayments of trust preferred securities   -    (48,521)
Proceeds from FHLB advances   7,080,000    1,495,000 
Repayments of FHLB advances   (7,074,000)   (1,587,070)
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   270    204 
Retirement of preferred stock   (9,992)   - 
Purchase of common stock   (13,659)   - 
Cash dividends on common stock   (10,085)   (10,506)
Cash dividends on preferred stock   (46)   (25)
Net cash provided by financing activities   150,004    136,439 
           
Net change in cash and cash equivalents   (14,204)   14,284 
           
Cash and cash equivalents at beginning of period   240,363    192,655 
           
Cash and cash equivalents at end of period  $226,159   $206,939 
           
Supplemental disclosures of cash flow information:          
Interest paid  $25,815   $16,567 
Income taxes paid   3,431    3,453 
Significant non-cash investing and financing transactions:          
Unsettled government guaranteed loan sales   22,355    11,020 
Unsettled purchases of securities available for sale   8,973    - 
Transfers of loans to foreclosed properties   6,647    3,428 
Acquisitions:          
Assets acquired   450,958    1,736,203 
Liabilities assumed   439,749    1,427,358 
Net assets acquired   11,209    308,845 
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 (“GAAP”) and reporting guidelines of banking regulatory authorities and regulators. 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, 2015.

 

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 statement. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.

 

Certain 2015 amounts have been reclassified to conform to the 2016 presentation.

 

Note 2 –Accounting Standards Updates and Recently Adopted Standards

 

In April 2015, the Financial Accounting Standards Board (“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 was effective January 1, 2016 and has been retrospectively reflected in the accompanying consolidated balance sheet, with a corresponding reclassification for December 31, 2015 between other assets for $9.68 million, brokered deposits for $7.90 million and long-term debt for $1.78 million.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. For public entities, this update is effective for fiscal years beginning after December 15, 2018, with modified retrospective application to prior periods presented. Upon adoption, United will gross up its balance sheet by the present value of future minimum lease payments. Such payments amounted to $23.5 million at December 31, 2015.

 

In March 2016, the FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. This update clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public entities, this update is effective for fiscal years beginning after December 15, 2016, with application on either a prospective or modified retrospective basis. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. This update clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under this update is required to assess the embedded call (put) options solely in accordance with a four-step decision sequence as outlined in the guidance. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. For public entities, this update is effective for fiscal years beginning after December 15, 2016, with application on a modified retrospective basis. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. For public entities, this update is effective for fiscal years beginning after December 15, 2016, with application on a prospective basis. 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 March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments require that excess tax benefits and deficiencies be recognized as income tax expense or benefit in the income statement and as an operating activity in the statement of cash flows. In addition, an entity can make a policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The guidance modifies the threshold to qualify for equity classification to permit withholding up to the maximum statutory tax rate and clarifies that cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. For public entities, this update is effective for fiscal years beginning after December 15, 2016. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. Application of this update will primarily be on a modified retrospective approach, although the guidance for debt securities for which an other-than-temporary impairment has been recognized before the effective date and for loans previously covered by ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality will be applied on a prospective basis. For public entities, this update is effective for fiscal years beginning after December 15, 2019. United is currently evaluating the impact of this guidance on its consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update provides guidance on the treatment of eight specific cash flow issues for which there was diversity in practice. For example, cash payments for debt prepayment should be classified as cash outflows for financing activities. Cash payments for contingent consideration after a business combination if made soon after the acquisition date should be classified as investing outflows, while similar payments not made soon after the acquisition date should be classified as financing outflows (up to the amount of the contingent consideration liability recognized at the acquisition date, including measurement period adjustments) or operating activities (for any excess). Cash proceeds from the settlement of insurance claims should be classified on the basis of the related insurance coverage, while proceeds from the settlement of bank owned life insurance should be classified as investing inflows. For public entities, this update is effective for fiscal years beginning after December 15, 2017. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

Note 3 – Acquisitions

 

Acquisition of Tidelands Bancshares, Inc.

 

On July 1, 2016, United completed the acquisition of Tidelands Bancshares, Inc. (“Tidelands”) and its wholly-owned bank subsidiary Tidelands Bank. Tidelands operated seven branches in coastal South Carolina. In connection with the acquisition, United acquired $440 million of assets and assumed $440 million of liabilities. Under the terms of the merger agreement, Tidelands shareholders received cash equal to $0.52 per common share, or an aggregate of $2.22 million. Additionally, at closing, United redeemed all of Tidelands’ fixed-rate cumulative preferred stock that was issued to the United States Department of the Treasury (the “Treasury”) under the Treasury’s Capital Purchase Program, plus unpaid dividends, for $8.98 million in aggregate. 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 $10.7 million, representing the intangible value of Tidelands’ business and reputation within the market it served. None of the goodwill recognized is expected to be deductible for income tax purposes. United will amortize the related core deposit intangible of $1.57 million using the sum-of-the-years-digits method over five years, which represents the expected useful life of the asset.

 

As of the acquisition date, United assumed long-term debt obligations with an aggregate balance of $14.4 million and an aggregate fair value of $10.8 million related to Tidelands’ outstanding trust preferred securities and paid all amounts required to bring current the payment of interest (including deferred interest) on such trust preferred securities. The $8.25 million of debt related to Tidelands Statutory Trust I has a stated maturity date of March 30, 2036 and a rate equal to LIBOR plus 1.38%, which resets quarterly. The $6.19 million of debt related to Tidelands Statutory Trust II has a stated maturity date of June 30, 2038 and a rate equal to LIBOR plus 5.075%, which resets quarterly.

 

United’s operating results for the period ended September 30, 2016 include the operating results of the acquired assets and assumed liabilities for the period subsequent to the acquisition date of July 1, 2016.

 

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 Tidelands   Adjustments (1)   United 
Assets               
Cash and cash equivalents  $13,121   $-   $13,121 
Securities   65,676    (155)   65,521 
Loans held for sale   139    3    142 
Loans, net   317,938    (12,035)   305,903 
Premises and equipment, net   19,133    (7,944)   11,189 
Bank owned life insurance   16,917    -    16,917 
Accrued interest receivable   1,086    (167)   919 
Net deferred tax asset   73    15,639    15,712 
Core deposit intangible   -    1,570    1,570 
Other real estate owned   9,881    (2,386)   7,495 
Other assets   1,920    (164)   1,756 
Total assets acquired  $445,884   $(5,639)  $440,245 
Liabilities               
Deposits  $398,108   $1,765   $399,873 
Repurchase agreements   10,000    155    10,155 
Federal Home Loan Bank advances   13,000    354    13,354 
Long-term debt   14,434    (3,668)   10,766 
Other liabilities   11,587    (5,986)   5,601 
Total liabilities assumed   447,129    (7,380)   439,749 
Excess of assets acquired over liabilities assumed  $(1,245)          
Aggregate fair value adjustments       $1,741      
Total identifiable net assets            $496 
Consideration transferred               
Cash paid to redeem common stock             2,224 
Cash paid to redeem preferred stock issued under the Treasury's Capital Purchase Program             8,985 
Total fair value of consideration transferred             11,209 
Goodwill            $10,713 

 

(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.

 

The following table presents additional information related to the acquired loan portfolio at the acquisition date (in thousands):

 

   July 1, 2016 
Accounted for pursuant to ASC 310-30:     
Contractually required principal and interest  $50,660 
Non-accretable difference   13,483 
Cash flows expected to be collected   37,177 
Accretable yield   2,113 
Fair value  $35,064 
      
Excluded from ASC 310-30:     
Fair value  $270,839 
Gross contractual amounts receivable   302,331 
Estimate of contractual cash flows not expected to be collected   3,859 

 

10 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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. Information related to the fair value of assets and liabilities acquired from Palmetto is included in United’s Annual Report on Form 10-K for the year ended December 31, 2015. During second quarter 2016, within the one year measurement period, United received additional information regarding the acquisition date fair values of premises and equipment and other real estate owned (“OREO”). As a result the provisional values assigned to the acquired premises and equipment and OREO have been adjusted to $17.0 million and $2.63 million, respectively, which represent a decrease of $640,000 and $497,000, respectively, from amounts previously disclosed. The tax effect of these adjustments was reflected as an increase to the deferred tax asset of $437,000, with the net amount of $700,000 reflected as an increase to goodwill.

 

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. Information related to the fair value of assets and liabilities acquired from MoneyTree is included in United’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

Pro forma information

 

The following table discloses the impact of the mergers with Tidelands, Palmetto and MoneyTree since their respective acquisition dates through September 30 of the year of acquisition. The table also presents certain pro forma information as if Tidelands had been acquired on January 1, 2015 and Palmetto and MoneyTree had been acquired on January 1, 2014. These results combine the historical results of the acquired entities with United’s consolidated statement of income and, while 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 in earlier years.

 

The following table presents the actual results and pro forma information for the periods indicated (in thousands). Merger-related costs of $2.93 million from the Tidelands acquisition have been excluded from the 2016 pro forma information presented below and included in the 2015 pro forma information below. Merger-related costs of $8.92 million from the Palmetto and MoneyTree acquisitions have been excluded from the 2015 pro forma information presented below.

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   Revenue   Net Income   Revenue   Net Income 
                 
2016                    
Actual Tidelands results included in statement of income since acquisition date  $3,988   $658   $3,988   $658 
Supplemental consolidated pro forma as if Tidelands had been acquired January 1, 2015   105,281    27,499    305,273    72,436 
                     
2015                    
Actual Palmetto results included in statement of  income since acquisition date  $4,382   $1,659   $4,382   $1,659 
Actual MoneyTree results included in statement of  income since acquisition date   3,081    1,394    5,365    1,778 
Supplemental consolidated pro forma as if Tidelands  had been acquired January 1, 2015 and Palmetto and MoneyTree had been acquired January 1, 2014   95,385    20,805    284,799    63,190 

 

11 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 4 – Balance Sheet Offsetting and Repurchase Agreements Accounted for as Secured Borrowings

 

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 the dates indicated (in thousands).

 

   Gross
Amounts of
   Gross
Amounts
Offset on
       Gross Amounts not Offset
in the Balance Sheet
     
September 30, 2016  Recognized
Assets
   the Balance
Sheet
   Net Asset
Balance
   Financial
Instruments
   Collateral
Received
   Net
Amount
 
                         
Repurchase agreements / reverse repurchase agreements  $150,000   $(150,000)  $-   $-   $-   $- 
Derivatives   25,463    -    25,463    (1,472)   (3,307)   20,684 
Total  $175,463   $(150,000)  $25,463   $(1,472)  $(3,307)  $20,684 
                               
Weighted average interest rate of reverse repurchase agreements   1.40%                         

 

   Gross
Amounts of
   Gross
Amounts
Offset on
   Net    Gross Amounts not Offset
in the Balance Sheet
     
   Recognized
Liabilities
   the Balance
Sheet
   Liability
Balance
   Financial
Instruments
   Collateral
Pledged
   Net
Amount
 
                         
Repurchase agreements / reverse repurchase agreements  $150,000   $(150,000)  $-   $-   $-   $- 
Derivatives   32,548    -    32,548    (1,472)   (31,960)   - 
Total  $182,548   $(150,000)  $32,548   $(1,472)  $(31,960)  $- 
                               
Weighted average interest rate of repurchase agreements   .50%                         

 

   Gross
Amounts of
   Gross
Amounts
Offset on
       Gross Amounts not Offset
in the Balance Sheet
     
December 31, 2015  Recognized
Assets
   the Balance
Sheet
   Net Asset
Balance
   Financial
Instruments
   Collateral
Received
   Net
Amount
 
                         
Repurchase agreements / reverse repurchase agreements  $400,000   $(400,000)  $-   $-   $-   $- 
Derivatives   20,082    -    20,082    (519)   (3,729)   15,834 
Total  $420,082   $(400,000)  $20,082   $(519)  $(3,729)  $15,834 
                               
Weighted average interest rate of reverse repurchase agreements   1.34%                         

 

   Gross
Amounts of
   Gross
Amounts
Offset on
   Net    Gross Amounts not Offset
in the Balance Sheet
     
   Recognized
Liabilities
   the Balance
Sheet
   Liability
Balance
   Financial
Instruments
   Collateral
Pledged
   Net
Amount
 
                         
Repurchase agreements / reverse repurchase agreements  $400,000   $(400,000)  $-   $-   $-   $- 
Derivatives   28,825    -    28,825    (519)   (30,917)   - 
Total  $428,825   $(400,000)  $28,825   $(519)  $(30,917)  $- 
                               
Weighted average interest rate of repurchase agreements   .50%                         

 

At September 30, 2016, United recognized the right to reclaim cash collateral of $32.3 million and the obligation to return cash collateral of $3.31 million. At December 31, 2015, United recognized the right to reclaim cash collateral of $6.26 million and the obligation to return cash collateral of $3.73 million. The right to reclaim cash collateral and the obligation to return cash collateral were included in the consolidated balance sheet in other assets and other liabilities, respectively.

 

12 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table presents additional detail regarding repurchase agreements accounted for as secured borrowings and the securities underlying these agreements as of the dates indicated (in thousands).

 

   Remaining Contractual Maturity of the Agreements 
   Overnight and                 
As of September 30, 2016  Continuous   Up to 30 Days   30 to 90 Days   91 to 110 days   Total 
                     
 U.S. Treasuries  $-   $-   $10,050   $-   $10,050 
 Mortgage-backed securities   -    50,000    100,000    -    150,000 
                          
 Total  $-   $50,000   $110,050   $-   $160,050 
                          
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure                      $150,000 
Amounts related to agreements not included in offsetting disclosure                      $10,050 

 

   Remaining Contractual Maturity of the Agreements 
   Overnight and                 
As of December 31, 2015  Continuous   Up to 30 Days   30 to 90 Days   91 to 110 days   Total 
                     
 U.S. Treasuries  $-   $-   $100,000   $-   $100,000 
 U.S. Government agencies   32    -    -    -    32 
 Mortgage-backed securities   16,608    25,000    175,000    100,000    316,608 
                          
 Total  $16,640   $25,000   $275,000   $100,000   $416,640 
                          
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure                      $400,000 
Amounts related to agreements not included in offsetting disclosure                      $16,640 

 

United is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price.  United manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

 

Note 5 – Securities

 

The amortized cost basis, unrealized gains and losses and fair value of securities held-to-maturity as of the dates indicated are as follows (in thousands).

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
As of September 30, 2016  Cost   Gains   Losses   Value 
                 
 State and political subdivisions  $57,911   $3,545   $61   $61,395 
 Mortgage-backed securities (1)   287,006    9,267    118    296,155 
                     
 Total  $344,917   $12,812   $179   $357,550 
                     
As of December 31, 2015                    
                     
 State and political subdivisions  $62,073   $3,211   $-   $65,284 
 Mortgage-backed securities (1)   302,623    5,424    1,673    306,374 
                     
 Total  $364,696   $8,635   $1,673   $371,658 

 

13 

 

  

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 as of the dates indicated are presented below (in thousands).

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
As of September 30, 2016  Cost   Gains   Losses   Value 
                 
 U.S. Treasuries  $140,500   $4,374   $-   $144,874 
 U.S. Government agencies   20,205    268    18    20,455 
 State and political subdivisions   63,001    1,885    -    64,886 
 Mortgage-backed securities (1)   1,151,570    24,569    358    1,175,781 
 Corporate bonds   307,240    6,231    912    312,559 
 Asset-backed securities   495,286    2,728    2,581    495,433 
 Other   1,125    -    -    1,125 
                     
 Total  $2,178,927   $40,055   $3,869   $2,215,113 
                     
As of December 31, 2015                    
                     
 U.S. Treasuries  $169,034   $156   $484   $168,706 
 U.S. Government agencies   112,394    385    439    112,340 
 State and political subdivisions   56,265    461    458    56,268 
 Mortgage-backed securities (1)   1,108,206    12,077    7,165    1,113,118 
 Corporate bonds   308,102    933    3,009    306,026 
 Asset-backed securities   538,679    569    6,006    533,242 
 Other   1,811    -    -    1,811 
                     
 Total  $2,294,491   $14,581   $17,561   $2,291,511 

 

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

 

Securities with a carrying value of $1.34 billion and $1.63 billion were pledged to secure public deposits, derivatives and other secured borrowings at September 30, 2016 and December 31, 2015, respectively.

 

The following table summarizes held-to-maturity securities in an unrealized loss position as of the dates indicated (in thousands).

  

   Less than 12 Months   12 Months or More   Total 
As of September 30, 2016  Fair Value   Unrealized
Loss
   Fair Value   Unrealized
Loss
   Fair Value   Unrealized
Loss
 
                         
State and political subdivisions  $18,332   $61   $-   $-   $18,332   $61 
Mortgage-backed securities   19,537    118    -    -    19,537    118 
 Total unrealized loss position  $37,869   $179   $-   $-   $37,869   $179 
                               
As of December 31, 2015                              
                               
Mortgage-backed securities  $140,362   $1,331   $13,127   $342   $153,489   $1,673 
 Total unrealized loss position  $140,362   $1,331   $13,127   $342   $153,489   $1,673 

 

14 

 

  

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 the dates indicated (in thousands).

 

   Less than 12 Months   12 Months or More   Total 
As of September 30, 2016  Fair Value   Unrealized
Loss
   Fair Value   Unrealized
Loss
   Fair Value   Unrealized
Loss
 
                         
U.S. Government agencies  $1,017   $18   $-   $-   $1,017   $18 
Mortgage-backed securities   51,399    105    50,387    253    101,786    358 
Corporate bonds   54,607    393    20,481    519    75,088    912 
Asset-backed securities   14,885    380    159,336    2,201    174,221    2,581 
 Total unrealized loss position  $121,908   $896   $230,204   $2,973   $352,112   $3,869 
                               
                               
As of December 31, 2015                              
                               
U.S. Treasuries  $126,066   $484   $-   $-   $126,066   $484 
U.S. Government agencies   74,189    439    -    -    74,189    439 
State and political subdivisions   27,014    458    -    -    27,014    458 
Mortgage-backed securities   274,005    2,580    173,254    4,585    447,259    7,165 
Corporate bonds   221,337    2,759    750    250    222,087    3,009 
Asset-backed securities   358,940    5,746    4,816    260    363,756    6,006 
 Total unrealized loss position  $1,081,551   $12,466   $178,820   $5,095   $1,260,371   $17,561 

 

At September 30, 2016, there were 53 available-for-sale securities and seven 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, 2016 were primarily attributable to changes in interest rates and spread relationships.

 

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, 2016 or 2015.

 

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, 2016 and 2015 (in thousands).

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2016   2015   2016   2015 
                 
Proceeds from sales  $100,867   $137,702   $189,164   $274,519 
                     
Gross gains on sales  $607   $328   $1,565   $1,880 
Gross losses on sales   (346)   (3)   (643)   (3)
                     
 Net gains on sales of securities  $261   $325   $922   $1,877 
                     
Income tax expense attributable to sales  $101   $121   $348   $724 

 

15 

 

  

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, 2016, 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  $65,957   $67,453   $-   $- 
 5 to 10 years   74,543    77,421    -    - 
    140,500    144,874    -    - 
                     
US Government agencies:                    
 1 to 5 years   990    995    -    - 
 5 to 10 years   18,180    18,443    -    - 
 More than 10 years   1,035    1,017           
    20,205    20,455    -    - 
                     
State and political subdivisions:                    
 Within 1 year   1,252    1,263    4,012    4,077 
 1 to 5 years   31,964    32,790    12,860    13,681 
 5 to 10 years   23,673    24,516    22,152    24,774 
 More than 10 years   6,112    6,317    18,887    18,863 
    63,001    64,886    57,911    61,395 
                     
Corporate bonds:                    
 1 to 5 years   233,824    237,475    -    - 
 5 to 10 years   72,416    74,584    -    - 
 More than 10 years   1,000    500    -    - 
    307,240    312,559    -    - 
                     
Asset-backed securities:                    
 1 to 5 years   17,250    17,459    -    - 
 5 to 10 years   333,434    333,831    -    - 
 More than 10 years   144,602    144,143    -    - 
    495,286    495,433    -    - 
                     
Other:                    
 More than 10 years   1,125    1,125    -    - 
    1,125    1,125    -    - 
                     
Total securities other than mortgage-backed securities:                    
 Within 1 year   1,252    1,263    4,012    4,077 
 1 to 5 years   349,985    356,172    12,860    13,681 
 5 to 10 years   522,246    528,795    22,152    24,774 
 More than 10 years   153,874    153,102    18,887    18,863 
                     
Mortgage-backed securities   1,151,570    1,175,781    287,006    296,155 
                     
   $2,178,927   $2,215,113   $344,917   $357,550 

 

Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations.

 

16 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 6 – Loans and Allowance for Credit Losses

 

Major classifications of loans are summarized as of the dates indicated as follows (in thousands).

 

   September 30,   December 31, 
   2016   2015 
         
Owner occupied commercial real estate  $1,512,185   $1,493,966 
Income producing commercial real estate   1,105,293    823,729 
Commercial & industrial   994,350    785,417 
Commercial construction   388,861    342,078 
 Total commercial   4,000,689    3,445,190 
Residential mortgage   1,055,166    1,029,663 
Home equity lines of credit   698,356    597,806 
Residential construction   378,329    351,700 
Consumer installment   126,468    115,111 
Indirect auto   466,102    455,971 
           
 Total loans   6,725,110    5,995,441 
           
Less allowance for loan losses   (62,961)   (68,448)
           
 Loans, net  $6,662,149   $5,926,993 

 

At September 30, 2016 and December 31, 2015, loans totaling $3.05 billion and $2.44 billion, respectively, were pledged as collateral to secure Federal Home Loan Bank advances and other contingent funding sources.

 

At September 30, 2016, the carrying value and outstanding balance of purchased credit impaired (“PCI”) loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, were $67.5 million and $95.3 million, respectively. At December 31, 2015, the carrying value and outstanding balance of PCI loans were $51.3 million and $71.0 million, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated (in thousands):

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2016   2015   2016   2015 
Balance at beginning of period  $5,337   $946   $4,279   $- 
Additions due to acquisitions   2,113    4,834    2,113    5,863 
Accretion   (1,116)   (316)   (3,058)   (399)
Reclassification from nonaccretable difference   1,455    -    2,908    - 
Changes in expected cash flows that do not affect nonaccretable difference   362    -    1,909    - 
Balance at end of period  $8,151   $5,464   $8,151   $5,464 

 

In addition to the accretable yield on PCI loans, the fair value adjustments on purchased loans outside the scope of ASC 310-30 are also accreted to interest revenue over the life of the loans. At September 30, 2016 and December 31, 2015, the remaining accretable fair value marks on loans acquired through a business combination and not accounted for under ASC 310-30 were $8.30 million and $7.03 million, respectively. In addition, indirect auto loans purchased at a premium outside of a business combination have a remaining premium of $11.8 million and $12.0 million, respectively, as of September 30, 2016 and December 31, 2015.

 

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.

 

17 

 

  

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 periods indicated (in thousands).

 

   2016   2015 
Three Months Ended September 30,  Beginning
Balance
   Charge-
Offs
   Recoveries   (Release)
Provision
   Ending
Balance
   Beginning
Balance
   Charge-
Offs
   Recoveries   (Release)
Provision
   Ending
Balance
 
                                         
Owner occupied commercial real estate  $14,432   $(276)  $108   $(207)  $14,057   $16,339   $(463)  $228   $(495)  $15,609 
Income producing commercial real estate   5,522    (201)   44    1,587    6,952    8,200    (126)   231    (532)   7,773 
Commercial & industrial   3,207    (850)   398    689    3,444    4,728    (508)   319    1,041    5,580 
Commercial construction   8,938    (14)   100    350    9,374    4,895    (80)   21    1,659    6,495 
Residential mortgage   15,662    (253)   508    (179)   15,738    19,052    (848)   415    (1,880)   16,739 
Home equity lines of credit   5,318    (321)   54    191    5,242    5,479    (413)   120    1,119    6,305 
Residential construction   9,005    (269)   134    (2,990)   5,880    9,337    (50)   174    (1,078)   8,383 
Consumer installment   723    (426)   190    183    670    688    (496)   221    352    765 
Indirect auto   1,446    (354)   69    443    1,604    1,411    (175)   13    164    1,413 
Total allowance for loan losses   64,253    (2,964)   1,605    67    62,961    70,129    (3,159)   1,742    350    69,062 
Allowance for unfunded commitments   2,369    -    -    (367)   2,002    2,580    -    -    350    2,930 
Total allowance for credit losses  $66,622   $(2,964)  $1,605   $(300)  $64,963   $72,709   $(3,159)  $1,742   $700   $71,992 

 

Nine Months Ended September 30,  Beginning
Balance
   Charge-
Offs
   Recoveries   (Release)
Provision
   Ending
Balance
   Beginning
Balance
   Charge-
Offs
   Recoveries   (Release)
Provision
   Ending
Balance
 
                                         
Owner occupied commercial real estate  $16,732   $(1,288)  $251   $(1,638)  $14,057   $16,041   $(1,194)  $317   $445   $15,609 
Income producing commercial real estate   8,235    (544)   199    (938)   6,952    10,296    (448)   588    (2,663)   7,773 
Commercial & industrial   4,442    (1,645)   1,302    (655)   3,444    3,255    (1,139)   1,236    2,228    5,580 
Commercial construction   5,583    (325)   102    4,014    9,374    4,747    (249)   72    1,925    6,495 
Residential mortgage   17,232    (1,489)   866    (871)   15,738    20,311    (2,535)   899    (1,936)   16,739 
Home equity lines of credit   6,042    (1,513)   361    352    5,242    4,574    (834)   160    2,405    6,305 
Residential construction   7,961    (598)   575    (2,058)   5,880    10,603    (1,689)   645    (1,176)   8,383 
Consumer installment   828    (1,295)   625    512    670    731    (1,171)   784    421    765 
Indirect auto   1,393    (953)   142    1,022    1,604    1,061    (433)   34    751    1,413 
Total allowance for loan losses   68,448    (9,650)   4,423    (260)   62,961    71,619    (9,692)   4,735    2,400    69,062 
Allowance for unfunded commitments   2,542    -    -    (540)   2,002    1,930    -    -    1,000    2,930 
Total allowance for credit losses  $70,990   $(9,650)  $4,423   $(800)  $64,963   $73,549   $(9,692)  $4,735   $3,400   $71,992 

 

18 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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 the dates indicated (in thousands).

 

   Allowance for Loan Losses 
   September 30, 2016   December 31, 2015 
  

Individually

evaluated
for
impairment

   Collectively
evaluated for
impairment
   PCI   Ending
Balance
   Individually
evaluated
for
impairment
   Collectively
evaluated for
impairment
   PCI   Ending
Balance
 
                                 
Owner occupied commercial real estate  $1,212   $12,845   $-   $14,057   $1,465   $15,267   $-   $16,732 
Income producing commercial real estate   714    6,238    -    6,952    961    7,274    -    8,235 
Commercial & industrial   64    3,380    -    3,444    280    4,162    -    4,442 
Commercial construction   42    9,303    29    9,374    13    5,570    -    5,583 
Residential mortgage   3,613    12,124    1    15,738    3,885    13,347    -    17,232 
Home equity lines of credit   3    5,231    8    5,242    6    6,036    -    6,042 
Residential construction   139    5,736    5    5,880    174    7,787    -    7,961 
Consumer installment   9    661    -    670    13    815    -    828 
Indirect auto   -    1,604    -    1,604    -    1,393    -    1,393 
Total allowance for loan losses   5,796    57,122    43    62,961    6,797    61,651    -    68,448 
Allowance for unfunded commitments   -    2,002    -    2,002    -    2,542    -    2,542 
Total allowance for credit losses  $5,796   $59,124   $43   $64,963   $6,797   $64,193   $-   $70,990 

 

   Loans Outstanding 
   September 30, 2016   December 31, 2015 
   Individually
evaluated
for
impairment
   Collectively
evaluated for
impairment
   PCI   Ending
Balance
   Individually
evaluated
for
impairment
   Collectively
evaluated for
impairment
   PCI   Ending
Balance
 
                                 
Owner occupied commercial real estate  $34,319   $1,459,218   $18,648   $1,512,185   $38,268   $1,442,024   $13,674  

1,493,966

 
Income producing commercial real estate   28,418    1,052,242    24,633    1,105,293    23,013    772,945    27,771    823,729 
Commercial & industrial   2,515    990,788    1,047    994,350    3,339    781,423    655    785,417 
Commercial construction   1,383    382,283    5,195    388,861    10,616    329,320    2,142    342,078 
Residential mortgage   19,586    1,029,629    5,951    1,055,166    19,627    1,005,860    4,176    1,029,663 
Home equity lines of credit   103    690,865    7,388    698,356    167    595,951    1,688    597,806 
Residential construction   5,925    367,900    4,504    378,329    7,900    342,677    1,123    351,700 
Consumer installment   285    126,012    171    126,468    329    114,741    41    115,111 
Indirect auto   1,022    465,072    8    466,102    749    455,173    49    455,971 
Total loans  $93,556  

6,564,009

   $67,545   $6,725,110   $104,008   $5,840,114   $51,319   $

5,995,441

 

 

Excluding loans accounted for under ASC 310-30, management individually evaluates all loans that are on nonaccrual with a balance of $500,000 or greater and all troubled debt restructurings (“TDRs”) for impairment. 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. 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 recorded investment in the loan. 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, 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 had previously used eight quarters of historical loss experience look-back period to determine the loss factors to be used in the reserve calculation for loans evaluated in the aggregate. Beginning in the third quarter of 2016, management extended the look-back period to 17 quarters to better capture the full range of the loss cycle balanced with the availability of reliable historical data. The look-back period will be extended by one quarter each quarter going forward. Management weights each quarter in the look-back period equally to capture the full range of the cycle. Management believes the weightings are appropriate to measure the probable losses incurred within the loan portfolio.

 

Management calculates the loss emergence period for each pool of loans based on the weighted average length of time between the date a loan first exceeds 30 days past due and the date the loan is charged off.

 

19 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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 status 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 are generally charged down to fair value less costs to sell at the time they are placed on nonaccrual status.

 

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. 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 the dates indicated (in thousands).

 

   September 30, 2016   December 31, 2015 
   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  $13,030   $12,892   $-   $14,793   $14,460   $- 
Income producing commercial real estate   17,144    16,963    -    13,044    12,827    - 
Commercial & industrial   473    473    -    493    469    - 
Commercial construction   -    -    -    -    -    - 
Total commercial   30,647    30,328    -    28,330    27,756    - 
Residential mortgage   692    689    -    791    791    - 
Home equity lines of credit   -    -    -    -    -    - 
Residential construction   1,439    1,388    -    3,731    3,429    - 
Consumer installment   -    -    -    -    -    - 
Indirect auto   1,022    1,022    -    749    749    - 
Total with no related allowance recorded   33,800    33,427    -    33,601    32,725    - 
                               
With an allowance recorded:                              
Owner occupied commercial real estate   22,096    21,427    1,212    24,043    23,808    1,465 
Income producing commercial real estate   11,503    11,455    714    10,281    10,186    961 
Commercial & industrial   2,218    2,042    64    2,957    2,870    280 
Commercial construction   1,478    1,383    42    10,787    10,616    13 
Total commercial   37,295    36,307    2,032    48,068    47,480    2,719 
Residential mortgage   19,426    18,897    3,613    19,346    18,836    3,885 
Home equity lines of credit   103    103    3    167    167    6 
Residential construction   5,209    4,537    139    4,854    4,471    174 
Consumer installment   314    285    9    354    329    13 
Indirect auto   -    -    -    -    -    - 
Total with an allowance recorded   62,347    60,129    5,796    72,789    71,283    6,797 
Total  $96,147   $93,556   $5,796   $106,390   $104,008   $6,797 

 

Excluding PCI loans, there were no loans more than 90 days past due and still accruing interest at September 30, 2016 or December 31, 2015. 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 full 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 the loan’s recorded investment.

 

20 

 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

PCI loans 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 to be 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. The accrual of interest is discontinued on PCI loans if management can no longer reliably estimate future cash flows on the loan. No PCI loans were classified as nonaccrual at September 30, 2016 or December 31, 2015 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans.

 

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 for the three months ended September 30, 2016 and 2015 and $686,000 for the nine months ended September 30, 2016 and 2015.

 

The average balances of impaired loans and income recognized on impaired loans while they were considered impaired are presented below for the periods indicated (in thousands).

 

   2016   2015 
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  $33,387   $414   $414   $37,840   $484   $523 
Income producing commercial real estate   28,487    375    343    20,802    265    281 
Commercial & industrial   2,553    33    33    4,637    43    77 
Commercial construction   1,411    26    26    12,584    116    116 
Total commercial   65,838    848    816    75,863    908    997 
Residential mortgage   19,653    201    196    23,176    242    197 
Home equity lines of credit   103    1    1    477    5    5 
Residential construction   6,115    59    60    8,560    123    123 
Consumer installment   291    5    6    242    5    4 
Indirect auto   959    11    11    -    -    - 
Total  $92,959   $1,125   $1,090   $108,318   $1,283   $1,326 
                               
Nine Months Ended September 30,                              
                               
Owner occupied commercial real estate  $31,648   $1,223   $1,249   $37,605   $1,413   $1,491 
Income producing commercial real estate   28,726    943    940    21,427    805    810 
Commercial & industrial   2,614    99    95    4,627    126    202 
Commercial construction   1,462    70    70    12,340    349    353 
Total commercial   64,450    2,335    2,354    75,999    2,693    2,856 
Residential mortgage   19,860    670    664    21,955    667    633 
Home equity lines of credit   103    3    3    504    15    15 
Residential construction   6,372    197    203    9,294    371    381 
Consumer installment   303    17    18    185    11    10 
Indirect auto   871    33    33    -    -    - 
Total  $91,959   $3,255   $3,275   $107,937   $3,757   $3,895 

 

21 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table presents the recorded investment in nonaccrual loans by loan class as of the dates indicated (in thousands).

 

   September 30,   December 31, 
   2016   2015 
           
Owner occupied commercial real estate  $6,454   $7,036 
Income producing commercial real estate   949    2,595 
Commercial & industrial   1,079    892 
Commercial construction   98    328 
Total commercial   8,580    10,851 
Residential mortgage   8,152    8,555 
Home equity lines of credit   1,194    851 
Residential construction   2,248    1,398 
Consumer installment   98    175 
Indirect auto   1,300    823 
Total  $21,572   $22,653 

 

The following table presents the aging of the recorded investment in past due loans by class of loans as of the dates indicated (in thousands).

 

   Loans Past Due   Loans Not         
As of September 30, 2016  30 - 59 Days   60 - 89 Days   > 90 Days   Total   Past Due   PCI Loans   Total 
                             
Owner occupied commercial real estate  $2,975   $1,279   $2,291   $6,545   $1,486,992   $18,648   $1,512,185 
Income producing commercial real estate   667    -    180    847    1,079,813    24,633    1,105,293 
Commercial & industrial   678    681    475    1,834    991,469    1,047    994,350 
Commercial construction   365    -    -    365    383,301    5,195    388,861 
Total commercial   4,685    1,960    2,946    9,591    3,941,575    49,523    4,000,689 
Residential mortgage   6,644    1,981    2,477    11,102    1,038,113    5,951    1,055,166 
Home equity lines of credit   1,743    474    452    2,669    688,299    7,388    698,356 
Residential construction   991    1,111    859    2,961    370,864    4,504    378,329 
Consumer installment   648    43    8    699    125,598    171    126,468 
Indirect auto   853    539    795    2,187    463,907    8    466,102 
Total loans  $15,564   $6,108   $7,537   $29,209   $6,628,356   $67,545   $6,725,110 
                                    
As of December 31, 2015                                   
                                    
Owner occupied commercial real estate  $3,733   $1,686   $1,400   $6,819   $1,473,473   $13,674   $1,493,966 
Income producing commercial real estate   204    1,030    621    1,855    794,103    27,771    823,729 
Commercial & industrial   858    88    489    1,435    783,327    655    785,417 
Commercial construction   159    -    76    235    339,701    2,142    342,078 
Total commercial   4,954    2,804    2,586    10,344    3,390,604    44,242    3,445,190 
Residential mortgage   5,111    1,338    3,544    9,993    1,015,494    4,176    1,029,663 
Home equity lines of credit   1,118    188    287    1,593    594,525    1,688    597,806 
Residential construction   2,180    239    344    2,763    347,814    1,123    351,700 
Consumer installment   610    115    83    808    114,262    41    115,111 
Indirect auto   611    311    561    1,483    454,439    49    455,971 
Total loans  $14,584   $4,995   $7,405   $26,984   $5,917,138   $51,319   $5,995,441 

 

As of September 30, 2016 and December 31, 2015, $5.18 million and $6.37 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 $55,000 and $224,000 as of September 30, 2016 and December 31, 2015, 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. Modified PCI loans are not accounted for as TDRs because they are not separated from the pools, and as such are not classified as impaired loans.

 

22 

 

  

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 the dates indicated (dollars in thousands).

 

   September 30, 2016   December 31, 2015 
   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   54   $26,050   $25,560    54   $32,544   $32,058 
Income producing commercial real estate   31    21,012    21,012    29    15,703    15,629 
Commercial & industrial   20    1,961    1,882    26    2,955    2,870 
Commercial construction   8    1,463    1,383    14    10,785    10,616 
Total commercial   113    50,486    49,837    123    61,987    61,173 
Residential mortgage   171    19,036    18,768    173    19,101    18,836 
Home equity lines of credit   2    103    103    2    167    167 
Residential construction   48    5,971    5,381    44    5,663    5,334 
Consumer installment   19    306    285    22    348    329 
Indirect auto   61    1,022    1,022    49    749    749 
Total loans   414   $76,924   $75,396    413   $88,015   $86,588 

 

Loans modified under the terms of a TDR during the three and nine months ended September 30, 2016 and 2015 are presented in the table below. In addition, the following table presents loans modified under the terms of a TDR that defaulted (became 90 days or more delinquent) during the periods presented and were initially restructured within one year prior to default (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,
       Pre-
Modification
Outstanding
   Post-
Modification
Outstanding
   Modified Within the
Previous Twelve
Months That Have
Subsequently Defaulted
during the Nine Months
Ended September 30,
 
2016  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   1   $1,007   $1,007    -   $-    7   $2,524   $2,524    1   $252 
Income producing commercial real estate   -    -    -    -    -    -    -    -    -    - 
Commercial & industrial   2    66    66    2    34    5    1,012    1,012    2    34 
Commercial construction   -    -    -    -    -    -    -    -    -    - 
Total commercial   3    1,073    1,073    2    34    12    3,536    3,536    3    286 
Residential mortgage   7    862    807    -    -    25    3,465    3,371    1    85 
Home equity lines of credit   -    -    -    -    -    1    38    38    -    - 
Residential construction   2    272    272    -    -    8    766    711    -    - 
Consumer installment   2    14    14    -    -    3    34    34    -    - 
Indirect auto   8    226    226    -    -    26    699    699    -    - 
Total loans   22   $2,447   $2,392    2   $34    75   $8,538   $8,389    4   $371 
                                                   
2015                                                  
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 

 

TDRs that subsequently default and are placed on nonaccrual are charged down to the fair value of the collateral consistent with United’s policy for nonaccrual loans.

 

23 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Risk Ratings

 

United categorizes commercial loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current industry and economic trends, among other factors. United analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continual basis. United uses the following definitions for its risk ratings:

 

Watch. Loans in this category are presently protected from apparent loss; however, weaknesses exist that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. These loans require more than the ordinary amount of supervision. Collateral values generally afford adequate coverage, but may not be immediately marketable.

 

Substandard. These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged. Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. There is the distinct possibility that United will sustain some loss if deficiencies are not corrected. If possible, immediate corrective action is taken.

 

Doubtful. Specific weaknesses characterized as Substandard that are severe enough to make collection in full highly questionable and improbable. There is no reliable secondary source of full repayment.

 

Loss. Loans categorized as Loss have the same characteristics as Doubtful; however, probability of loss is certain. Loans classified as Loss are charged off.

 

Consumer Purpose Loans. United applies a pass / fail grading system to all consumer purpose loans. Under the pass / fail grading system, consumer purpose loans that become past due 90 days or are in bankruptcy are classified as “fail” and all other loans are classified as “pass”. For reporting purposes, consumer purpose loans classified as “fail” are reported in the substandard column and all other consumer purpose loans are reported in the “pass” column.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

 

24 

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Based on the most recent analysis performed, the risk category of loans by class of loans as of the dates indicated is as follows (in thousands).

 

               Doubtful /     
As of September 30, 2016  Pass   Watch (1)   Substandard   Loss   Total 
                     
Owner occupied commercial real estate  $1,443,160   $19,613   $30,764   $-   $1,493,537 
Income producing commercial real estate   1,054,769    2,622    23,269    -    1,080,660 
Commercial & industrial   978,008    5,007    10,288    -    993,303 
Commercial construction   381,336    1,333    997    -    383,666 
Total commercial   3,857,273    28,575    65,318    -    3,951,166 
Residential mortgage   1,007,944    7,470    33,801    -    1,049,215 
Home equity lines of credit   685,670    26    5,272    -    690,968 
Residential construction   359,126    4,871    9,828    -    373,825 
Consumer installment   125,540    -    757    -    126,297 
Indirect auto   463,186    -    2,908    -    466,094 
Total loans, excluding PCI loans  $6,498,739   $40,942   $117,884   $-   $6,657,565 
                          
Owner occupied commercial real estate  $2,211   $3,379   $13,058   $-   $18,648 
Income producing commercial real estate   12,667    10,028    1,938    -    24,633 
Commercial & industrial   92    117    838    -    1,047 
Commercial construction   1,594    299    3,302    -    5,195 
Total commercial   16,564    13,823    19,136    -    49,523 
Residential mortgage   722    666    4,563    -    5,951 
Home equity lines of credit   6,419    -    969    -    7,388 
Residential construction   2,588    1,281    635    -    4,504 
Consumer installment   168    -    3    -    171 
Indirect auto   -    -    8    -    8 
Total PCI loans  $26,461   $15,770   $25,314   $-   $67,545 
                          
As of December 31, 2015                         
                          
Owner occupied commercial real estate  $1,414,353   $24,175   $41,764   $-   $1,480,292 
Income producing commercial real estate   771,792    4,151    20,015    -    795,958 
Commercial & industrial   770,287    8,171    6,304    -    784,762 
Commercial construction   335,571    3,069    1,296    -    339,936 
Total commercial   3,292,003    39,566    69,379    -    3,400,948 
Residential mortgage   985,109    5,070    35,308    -    1,025,487 
Home equity lines of credit   589,749    24    6,345    -    596,118 
Residential construction   335,341    3,813    11,423    -    350,577 
Consumer installment   114,178    -    892    -    115,070 
Indirect auto   453,935    -    1,987    -    455,922 
Total loans, excluding PCI loans  $5,770,315   $48,473   $125,334   $-   $5,944,122 
                          
Owner occupied commercial real estate  $1,811   $6,705   $4,809   $349   $13,674 
Income producing commercial real estate   9,378    5,766    12,627    -    27,771 
Commercial & industrial   17    83    505    50    655 
Commercial construction   1,698    6    438    -    2,142 
Total commercial   12,904    12,560    18,379    399    44,242 
Residential mortgage   -    410    3,766    -    4,176 
Home equity lines of credit   214    -    1,474    -    1,688 
Residential construction   345    39    227    512    1,123 
Consumer installment   1    -    40    -    41 
Indirect auto   -    -    49    -    49 
Total PCI loans  $13,464   $13,009   $23,935   $911   $51,319 

 

(1) Residential mortgage loans and home equity loans reported in the watch column are generally commercial purpose loans secured by the borrower's residence.

 

25 

 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 7 – Reclassifications Out of Accumulated Other Comprehensive Income

 

The following table presents the details regarding amounts reclassified out of accumulated other comprehensive income for the periods indicated (in thousands).

 

   Amounts Reclassified from Accumulated Other
Comprehensive Income
 
Details about Accumulated Other  For the Three Months
Ended September 30,
   For the Nine Months
 Ended September 30,
   Affected Line Item in the Statement
Comprehensive Income Components  2016   2015   2016   2015   Where Net Income is Presented
                    
Realized gains on available-for-sale securities:                       
   $261   $325   $922   $1,877   Securities gains, net
    (101)   (121)   (348)   (724)  Tax expense
   $160   $204   $574   $1,153   Net of tax