United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 08/07/2012 13:08:58)
Table of Contents

 

 

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 June 30, 2012

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, or 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   ¨    Accelerated filer   x
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 41,774,770 shares voting and 15,914,209 shares non-voting outstanding as of July 31, 2012.

 

 

 


Table of Contents

INDEX

 

PART I - Financial Information

  

Item 1. Financial Statements

  

Consolidated Statement of Operations (unaudited) for the Three and Six Months Ended  June 30, 2012 and 2011

     3   

Consolidated Statement of Comprehensive (Loss) Income (unaudited) for the Three and Six Months Ended June 30, 2012 and 2011

     4   

Consolidated Balance Sheet at June 30, 2012 (unaudited), December 31, 2011  (audited) and June 30, 2011 (unaudited)

     5   

Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the  Six Months Ended June 30, 2012 and 2011

     6   

Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June  30, 2012 and 2011

     7   

Notes to Consolidated Financial Statements

     8   

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

     29   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     52   

Item 4. Controls and Procedures

     52   

PART II - Other Information

  

Item 1. Legal Proceedings

     53   

Item 1A. Risk Factors

     53   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     53   

Item 3. Defaults Upon Senior Securities

     53   

Item 4. Mine Safety Disclosures

     53   

Item 5. Other Information

     53   

Item 6. Exhibits

     54   

 

2


Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Operations (Unaudited)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

(in thousands, except per share data)

   2012     2011     2012     2011  

Interest revenue:

        

Loans, including fees

   $ 54,178      $ 60,958      $ 109,937      $ 122,065   

Investment securities, including tax exempt of $262, $251, $512 and $510

     11,062        14,792        24,066        28,396   

Federal funds sold, reverse repurchase agreements, commercial paper and deposits in banks

     1,096        752        2,108        1,571   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest revenue

     66,336        76,502        136,111        152,032   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits:

        

NOW

     503        1,036        1,140        2,360   

Money market

     661        1,499        1,302        3,527   

Savings

     38        64        75        141   

Time

     5,073        10,995        11,232        22,727   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total deposit interest expense

     6,275        13,594        13,749        28,755   

Federal funds purchased, repurchase agreements and other short-term borrowings

     904        1,074        1,949        2,116   

Federal Home Loan Bank advances

     390        570        856        1,160   

Long-term debt

     2,375        2,747        4,747        5,527   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     9,944        17,985        21,301        37,558   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest revenue

     56,392        58,517        114,810        114,474   

Provision for loan losses

     18,000        11,000        33,000        201,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest revenue after provision for loan losses

     38,392        47,517        81,810        (86,526
  

 

 

   

 

 

   

 

 

   

 

 

 

Fee revenue:

        

Service charges and fees

     7,816        7,608        15,599        14,328   

Mortgage loan and other related fees

     2,322        952        4,421        2,446   

Brokerage fees

     809        691        1,622        1,368   

Securities gains, net

     6,490        783        7,047        838   

Loss from prepayment of debt

     (6,199     (791     (6,681     (791

Other

     1,629        4,662        6,238        7,554   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total fee revenue

     12,867        13,905        28,246        25,743   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     51,259        61,422        110,056        (60,783
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Salaries and employee benefits

     24,297        26,436        49,522        51,360   

Communications and equipment

     3,211        3,378        6,366        6,722   

Occupancy

     3,539        3,805        7,310        7,879   

Advertising and public relations

     1,088        1,317        1,934        2,295   

Postage, printing and supplies

     916        1,085        1,895        2,203   

Professional fees

     1,952        2,350        3,927        5,680   

Foreclosed property

     1,851        1,891        5,676        66,790   

FDIC assessments and other regulatory charges

     2,545        3,644        5,055        9,057   

Amortization of intangibles

     730        760        1,462        1,522   

Other

     4,181        4,062        8,118        10,491   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     44,310        48,728        91,265        163,999   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) before income taxes

     6,949        12,694        18,791        (224,782

Income tax expense

     450        666        764        526   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     6,499        12,028        18,027        (225,308

Preferred stock dividends and discount accretion

     3,032        3,016        6,062        5,794   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common shareholders

   $ 3,467      $ 9,012      $ 11,965      $ (231,102
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per common share - Basic

   $ .06      $ .35      $ .21      $ (10.52

Earnings (loss) per common share - Diluted

     .06        .16        .21        (10.52

Weighted average common shares outstanding - Basic

     57,840        25,427        57,803        21,965   

Weighted average common shares outstanding - Diluted

     57,840        57,543        57,803        21,965   

See accompanying notes to consolidated financial statements.

 

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Table of Contents

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Comprehensive (Loss) Income (Unaudited)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

(in thousands)

   2012     2011     2012     2011  

Net income (loss)

   $ 6,499      $ 12,028      $ 18,027      $ (225,308

Other comprehensive loss:

        

Unrealized (losses) gains on available for sale securities:

        

Unrealized holding gains arising during period

     4,264        10,967        924        10,008   

Reclassification adjustment for gains included in net income

     (6,490     (783     (7,047     (838

Amortization of gains included in net income (loss) on available for sale securities transferred to held to maturity

     (400     (504     (813     (1,167

Amortization of gains included in net income (loss) on derivative financial instruments accounted for as cash flow hedges

     (714     (5,399     (2,314     (9,622

Unrealized losses on derivative financial instruments accounted for as cash flow hedges

     (4,855       (4,855  

Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plans

     154        —          308        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

     (8,041     4,281        (13,797     (1,619
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

   $ (1,542   $ 16,309      $ 4,230      $ (226,927
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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UNITED COMMUNITY BANKS, INC.

Consolidated Balance Sheet

 

     June 30,     December 31,     June 30,  
     2012     2011     2011  
(in thousands, except share and per share data)    (unaudited)     (audited)     (unaudited)  

ASSETS

      

Cash and due from banks

   $ 50,596      $ 53,807      $ 163,331   

Interest-bearing deposits in banks

     133,857        139,609        41,863   

Federal funds sold, reverse repurchase agreements, commercial paper and short-term investments

     120,000        185,000        174,996   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents

     304,453        378,416        380,190   

Securities available for sale

     1,701,583        1,790,047        1,816,613   

Securities held to maturity (fair value $299,971, $343,531 and $379,231)

     282,750        330,203        371,578   

Mortgage loans held for sale

     18,645        23,881        19,406   

Loans, net of unearned income

     4,119,235        4,109,614        4,163,447   

Less allowance for loan losses

     112,705        114,468        127,638   
  

 

 

   

 

 

   

 

 

 

Loans, net

     4,006,530        3,995,146        4,035,809   

Assets covered by loss sharing agreements with the FDIC

     65,914        78,145        95,726   

Premises and equipment, net

     172,200        175,088        178,208   

Bank owned life insurance

     81,265        80,599        80,134   

Accrued interest receivable

     20,151        20,693        21,291   

Goodwill and other intangible assets

     6,965        8,428        9,922   

Foreclosed property

     30,421        32,859        47,584   

Other assets

     46,229        69,915        95,834   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 6,737,106      $ 6,983,420      $ 7,152,295   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Liabilities:

      

Deposits:

      

Demand

   $ 1,150,444      $ 992,109      $ 899,017   

NOW

     1,196,507        1,509,896        1,306,109   

Money market

     1,117,139        1,038,778        989,600   

Savings

     219,077        199,007        197,927   

Time:

      

Less than $100,000

     1,164,451        1,332,394        1,508,444   

Greater than $100,000

     764,343        847,152        981,154   

Brokered

     210,506        178,647        300,964   
  

 

 

   

 

 

   

 

 

 

Total deposits

     5,822,467        6,097,983        6,183,215   

Federal funds purchased, repurchase agreements, and other short-term borrowings

     53,656        102,577        103,666   

Federal Home Loan Bank advances

     125,125        40,625        40,625   

Long-term debt

     120,265        120,225        150,186   

Unsettled securities purchases

     —          10,325        35,634   

Accrued expenses and other liabilities

     39,598        36,199        36,368   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     6,161,111        6,407,934        6,549,694   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity:

      

Preferred stock, $1 par value; 10,000,000 shares authorized;

      

Series A; $10 stated value; 21,700 shares issued and outstanding

     217        217        217   

Series B; $1,000 stated value; 180,000 shares issued and outstanding

     177,814        177,092        176,392   

Series D; $1,000 stated value; 16,613 shares issued and outstanding

     16,613        16,613        16,613   

Common stock, $1 par value; 100,000,000 shares authorized;

      

41,726,509, 41,647,100 and 41,554,874 shares issued and outstanding

     41,727        41,647        41,555   

Common stock, non-voting, $1 par value; 30,000,000 shares authorized;

      

15,914,209 shares issued and outstanding

     15,914        15,914        15,914   

Common stock issuable; 94,657, 93,681 and 83,575 shares

     2,893        3,233        3,574   

Capital surplus

     1,056,819        1,054,940        1,052,482   

Accumulated deficit

     (718,896     (730,861     (723,378

Accumulated other comprehensive (loss) income

     (17,106     (3,309     19,232   
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     575,995        575,486        602,601   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 6,737,106      $ 6,983,420      $ 7,152,295   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

For the Six Months Ended June 30,

 

    Preferred Stock           Non-Voting     Common                 Accumulated
Other
       
(in thousands, except share   Series     Series     Series     Series     Series     Common     Common     Stock     Capital     Accumulated     Comprehensive        

and per share data)           

  A     B     D     F     G     Stock     Stock     Issuable     Surplus     Deficit     Income (Loss)     Total  

Balance, December 31, 2010

  $ 217      $ 175,711      $ —        $ —        $ —        $ 18,937      $ —        $ 3,894      $ 741,244      $ (492,276   $ 20,851      $ 468,578   

Net loss

                      (225,308       (225,308

Other comprehensive loss

                        (1,619     (1,619

Preferred for common equity exchange related to tax benefits preservation plan (1,551,126 common shares)

        16,613            (1,551         (15,062         —     

Penalty received on incomplete private equity transaction, net of tax expense

                    3,250            3,250   

Conversion of Series F and Series G Preferred Stock (20,618,156 voting and 15,914,209 non-voting common shares)

          (195,872     (151,185     20,618        15,914          310,525            —     

Common stock issued to dividend reinvestment plan and employee benefit plans (78,584 shares)

              79            665            744   

Common and preferred stock issued (3,467,699 common shares)

          195,872        151,185        3,468            11,035            361,560   

Amortization of stock options and restricted stock awards

                    758            758   

Vesting of restricted stock (1,417 shares issued, 6,382 shares deferred)

              1          54        (55         —     

Deferred compensation plan, net, including dividend equivalents

                  127              127   

Shares issued from deferred compensation plan (3,209 shares)

              3          (501     498            —     

Tax on option exercise and restricted stock vesting

                    (376         (376

Preferred stock dividends:

                       

Series A

                      (7       (7

Series B

      681                      (5,200       (4,519

Series D

                      (587       (587
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

  $ 217      $ 176,392      $ 16,613      $ —        $ —        $ 41,555      $ 15,914      $ 3,574      $ 1,052,482      $ (723,378   $ 19,232      $ 602,601   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

  $ 217      $ 177,092      $ 16,613      $ —        $ —        $ 41,647      $ 15,914      $ 3,233      $ 1,054,940      $ (730,861   $ (3,309   $ 575,486   

Net income

                      18,027          18,027   

Other comprehensive loss

                        (13,797     (13,797

Common stock issued to dividend reinvestment plan and to employee benefit plans (60,982 shares)

              61            440            501   

Amortization of stock options and restricted stock awards

                    946            946   

Vesting of restricted stock (15,790 shares issued, (8,399 shares deferred)

              16          (151     206            71   

Deferred compensation plan, net, including dividend equivalents

                  101              101   

Shares issued from deferred compensation plan (2,637 shares)

              3          (290     287            —     

Preferred stock dividends:

                       

Series A

                      (6       (6

Series B

      722                      (5,222       (4,500

Series D

                      (834       (834
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

  $ 217      $ 177,814      $ 16,613      $ —        $ —        $ 41,727      $ 15,914      $ 2,893      $ 1,056,819      $ (718,896   $ (17,106   $ 575,995   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows (Unaudited)

 

     Six Months Ended  
     June 30,  

(in thousands)

   2012     2011  

Operating activities:

    

Net income (loss)

   $ 18,027      $ (225,308

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation, amortization and accretion

     16,511        9,374   

Provision for loan losses

     33,000        201,000   

Stock based compensation

     946        758   

Securities gains, net

     (7,047     (838

Losses and write downs on sales of other real estate owned

     2,943        60,505   

Loss on prepayment of borrowings

     6,681        791   

Changes in assets and liabilities:

    

Other assets and accrued interest receivable

     22,783        29,332   

Accrued expenses and other liabilities

     (6,754     1,078   

Mortgage loans held for sale

     5,236        16,502   
  

 

 

   

 

 

 

Net cash provided by operating activities

     92,326        93,194   
  

 

 

   

 

 

 

Investing activities:

    

Investment securities held to maturity:

    

Proceeds from maturities and calls

     45,741        34,742   

Purchases

     —          (141,862

Investment securities available for sale:

    

Proceeds from sales

     371,103        106,603   

Proceeds from maturities and calls

     289,985        220,018   

Purchases

     (580,652     (875,250

Net (increase) decrease in loans

     (58,765     64,778   

Proceeds from loan sales

     —          99,298   

Proceeds collected from FDIC under loss sharing agreements

     5,054        11,852   

Proceeds from sales of premises and equipment

     664        534   

Purchases of premises and equipment

     (2,581     (5,276

Proceeds from sale of other real estate

     14,620        60,310   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     85,169        (424,253
  

 

 

   

 

 

 

Financing activities:

    

Net change in deposits

     (275,516     (285,957

Net change in federal funds purchased, repurchase agreements, and other short-term borrowings

     (53,401     2,599   

Proceeds from Federal Home Loan Bank advances

     1,489,000        —     

Settlement of Federal Home Loan Bank advances

     (1,406,701     (15,291

Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans

     501        744   

Proceeds from issuance of common and preferred stock, net of offering costs

     —          361,560   

Proceeds from penalty on incomplete private equity transaction

     —          3,250   

Cash dividends on preferred stock

     (5,341     (5,113
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (251,458     61,792   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (73,963     (269,267

Cash and cash equivalents at beginning of period

     378,416        649,457   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 304,453      $ 380,190   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 23,222      $ 36,703   

Income taxes

     (27,105     1,527   

Unsettled securities purchases

     —          35,634   

See accompanying notes to consolidated financial statements.

 

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Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

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, 2011.

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.

Foreclosed property is initially recorded at fair value, less estimated costs to sell. If the fair value, less estimated costs to sell at the time of foreclosure, is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the fair value, less cost to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to operating expenses. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property. Financed sales of foreclosed property are accounted for in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 360-20, Real Estate Sales.

Note 2 – Accounting Standards Updates

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard). It allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and entities can choose to early adopt the revised guidance. It is not expected to have a material impact on United’s financial position, results of operations or disclosures.

Note 3 – Mergers and Acquisitions

On June 19, 2009, United Community Bank (“UCB” or the “Bank”) purchased substantially all the assets and assumed substantially all the liabilities of Southern Community Bank (“SCB”) from the Federal Deposit Insurance Corporation (“FDIC”), as Receiver of SCB. UCB and the FDIC entered loss sharing agreements regarding future losses incurred on loans and foreclosed loan collateral existing at June 19, 2009. Under the terms of the loss sharing agreements, the FDIC will absorb 80 percent of losses and share 80 percent of loss recoveries on the first $109 million of losses and, absorb 95 percent of losses and share in 95 percent of loss recoveries on losses exceeding $109 million. The term for loss sharing on 1-4 Family loans is ten years, while the term for loss sharing on all other loans is five years.

Under the loss sharing agreement, the portion of the losses expected to be indemnified by the FDIC is considered an indemnification asset in accordance with ASC 805 Business Combinations . The indemnification asset, referred to as “estimated loss reimbursement from the FDIC,” is included in the balance of “Assets covered by loss sharing agreements with the FDIC” on the Consolidated Balance Sheet. The indemnification asset was recognized at fair value, which was estimated at the acquisition date based on the terms of the loss sharing agreement. The indemnification asset is expected to be collected over a four-year average life. No valuation allowance was required.

Loans, foreclosed property and the estimated FDIC reimbursement resulting from the loss sharing agreements with the FDIC are reported as “Assets covered by loss sharing agreements with the FDIC” in the consolidated balance sheet.

The table below shows the components of covered assets at June 30, 2012 (in thousands) .

 

(in thousands)

   Purchased
Impaired
Loans
     Other
Purchased
Loans
     Other      Total  

Commercial (secured by real estate)

   $ —         $ 28,021       $ —         $ 28,021   

Commercial & industrial

     —           1,473         —           1,473   

Construction and land development

     525         4,709         —           5,234   

Residential mortgage

     145         6,429         —           6,574   

Consumer installment

     —           152         —           152   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     670         40,784         —           41,454   

Covered foreclosed property

     —           —           14,098         14,098   

Estimated loss reimbursement from the FDIC

     —           —           10,362         10,362   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered assets

   $ 670       $ 40,784       $ 24,460       $ 65,914   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

Note 4 – Reverse Repurchase Agreements

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 including those entered into in connection with repurchase agreements with the same counterparty under master netting agreements (in thousands).

 

     June 30, 2012  
     Reverse
Repurchase
Agreements
(Assets)
    Repurchase
Agreements
(Liabilities)
    Net Reported
Balance (Asset)
 

Amounts subject to master netting agreements

   $ 200,000      $ 200,000      $ —     

Other reverse repurchase agreements

     120,000        —          120,000   
  

 

 

   

 

 

   

 

 

 

Total

   $ 320,000      $ 200,000      $ 120,000   
  

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     1.27     .41  

In addition to the collateral swap transactions, United has entered into offsetting securities lending agreements with counterparties that function similar to the collateral swaps. United had $80.0 million in offsetting securities lending positions outstanding at June 30, 2012.

Note 5 – Securities

Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes securities sales activity for the three and six month periods ended June 30, 2012 and 2011 (in thousands) .

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012      2011     2012      2011  

Proceeds from sales

   $ 265,992       $ 55,363      $ 371,103       $ 106,603   
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross gains on sales

   $ 6,490       $ 838      $ 7,047       $ 1,169   

Gross losses on sales

     —           (55     —           (331
  

 

 

    

 

 

   

 

 

    

 

 

 

Net gains on sales of securities

   $ 6,490       $ 783      $ 7,047       $ 838   
  

 

 

    

 

 

   

 

 

    

 

 

 

Securities with a carrying value of $1.29 billion, $1.72 billion, and $2.11 billion were pledged to secure public deposits, FHLB advances and other secured borrowings at June 30, 2012, December 31, 2011 and June 30, 2011, respectively. Substantial borrowing capacity remains available under borrowing arrangements with the FHLB with currently pledged securities.

Securities are classified as held to maturity when management has the positive intent and ability to hold them until maturity. Securities held to maturity are carried at amortized cost.

 

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Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at June 30, 2012, December 31, 2011 and June 30, 2011 are as follows (in thousands) .

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

As of June 30, 2012

           

State and political subdivisions

   $ 51,801       $ 5,586       $ —         $ 57,387   

Mortgage-backed securities (1)

     230,949         11,635         —           242,584   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 282,750       $ 17,221       $ —         $ 299,971   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2011

           

U.S. Government agencies

   $ 5,000       $ 6       $ —         $ 5,006   

State and political subdivisions

     51,903         4,058         13         55,948   

Mortgage-backed securities (1)

     273,300         9,619         342         282,577   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 330,203       $ 13,683       $ 355       $ 343,531   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2011

           

U.S. Government agencies

   $ 5,000       $ —         $ —         $ 5,000   

State and political subdivisions

     49,122         1,823         292         50,653   

Mortgage-backed securities (1)

     317,456         6,184         62         323,578   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 371,578       $ 8,007       $ 354       $ 379,231   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

All are residential type mortgage-backed securities

The cost basis, unrealized gains and losses, and fair value of securities available for sale at June 30, 2012, December 31, 2011 and June 30, 2011 are presented below (in thousands) .

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

As of June 30, 2012

           

U.S. Government agencies

   $ 43,618       $ 256       $ —         $ 43,874   

State and political subdivisions

     25,704         1,462         7         27,159   

Mortgage-backed securities (1)

     1,408,047         25,723         339         1,433,431   

Corporate bonds

     119,198         —           9,160         110,038   

Asset-backed securities

     85,090         —           592         84,498   

Other

     2,583         —           —           2,583   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,684,240       $ 27,441       $ 10,098       $ 1,701,583   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2011

           

U.S. Government agencies

   $ 43,592       $ 158       $ —         $ 43,750   

State and political subdivisions

     24,997         1,345         3         26,339   

Mortgage-backed securities (1)

     1,576,064         33,988         143         1,609,909   

Corporate bonds

     119,110         —           11,432         107,678   

Other

     2,371         —           —           2,371   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,766,134       $ 35,491       $ 11,578       $ 1,790,047   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2011

           

U.S. Government agencies

   $ 77,930       $ 61       $ 514       $ 77,477   

State and political subdivisions

     25,569         1,207         4         26,772   

Mortgage-backed securities (1)

     1,556,910         35,991         283         1,592,618   

Corporate bonds

     119,021         100         1,827         117,294   

Other

     2,452         —           —           2,452   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,781,882       $ 37,359       $ 2,628       $ 1,816,613   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

All are residential type mortgage-backed securities

 

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Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

The following table summarizes held to maturity securities in an unrealized loss position as of, December 31, 2011 and June 30, 2011 (in thousands) . As of June 30, 2012, there were no held to maturity securities in an unrealized loss position.

 

     Less than 12 Months      12 Months or More      Total  
       Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
 

As of December 31, 2011

                 

State and political subdivisions

   $ —         $ —         $ 363       $ 13       $ 363       $ 13   

Mortgage-backed securities

     10,967         342         —           —           10,967         342   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 10,967       $ 342       $ 363       $ 13       $ 11,330       $ 355   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2011

                 

State and political subdivisions

   $ 10,160       $ 292       $ —         $ —         $ 10,160       $ 292   

Mortgage-backed securities

     25,160         60         1,937         2         27,097         62   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 35,320       $ 352       $ 1,937       $ 2       $ 37,257       $ 354   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes available for sale securities in an unrealized loss position as of June 30, 2012, December 31, 2011 and June 30, 2011 (in thousands) .

 

     Less than 12 Months      12 Months or More      Total  
       Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
 

As of June 30, 2012

                 

State and political subdivisions

   $ 5,696       $ 3       $ 11       $ 4       $ 5,707       $ 7   

Mortgage-backed securities

     104,644         332         19,436         7         124,080         339   

Corporate bonds

     16,500         3,500         93,488         5,660         109,988         9,160   

Asset-backed securities

     74,097         592         —           —           74,097         592   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 200,937       $ 4,427       $ 112,935       $ 5,671       $ 313,872       $ 10,098   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2011

                 

State and political subdivisions

   $ —         $ —         $ 11       $ 3       $ 11       $ 3   

Mortgage-backed securities

     98,687         110         22,719         33         121,406         143   

Corporate bonds

     42,864         5,197         64,765         6,235         107,629         11,432   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 141,551       $ 5,307       $ 87,495       $ 6,271       $ 229,046       $ 11,578   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2011

                 

U.S. Government agencies

   $ 54,482       $ 514       $ —         $ —         $ 54,482       $ 514   

State and political subdivisions

     301         —           10         4         311         4   

Mortgage-backed securities

     169,907         283         —           —           169,907         283   

Corporate bonds

     97,145         1,827         —           —           97,145         1,827   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 321,835       $ 2,624       $ 10       $ 4       $ 321,845       $ 2,628   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012, there were 36 available for sale securities and no 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 June 30, 2012 were primarily attributable to changes in interest rates, however the unrealized losses in corporate bonds also reflect downgrades in the underlying securities ratings. The bonds remain above investment grade and United does not consider them to be impaired. Unrealized losses at June 30, 2011 were primarily attributable to changes in interest rates.

 

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Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

Management evaluates securities for other-than-temporary impairment at least 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 analyst’s reports. No impairment charges were recognized during the second quarter or six months ended June 30, 2012 or 2011.

The amortized cost and fair value of held to maturity and available for sale securities at June 30, 2012, 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  

U.S. Government agencies:

           

5 to 10 years

   $ 43,618       $ 43,874       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     43,618         43,874         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

State and political subdivisions:

           

Within 1 year

     6,567         6,576         —           —     

1 to 5 years

     14,960         15,982         6,826         7,419   

5 to 10 years

     3,329         3,676         21,808         24,264   

More than 10 years

     848         925         23,167         25,704   
  

 

 

    

 

 

    

 

 

    

 

 

 
     25,704         27,159         51,801         57,387   
  

 

 

    

 

 

    

 

 

    

 

 

 

Corporate bonds:

           

1 to 5 years

     28,198         27,182         —           —     

5 to 10 years

     90,000         82,556         —           —     

More than 10 years

     1,000         300         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     119,198         110,038         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Asset-backed securities

           

5 to 10 years

     85,090         84,498         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     85,090         84,498         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other:

           

More than 10 years

     2,583         2,583         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,583         2,583         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities other than mortgage-backed securities:

           

Within 1 year

     6,567         6,576         —           —     

1 to 5 years

     43,158         43,164         6,826         7,419   

5 to 10 years

     222,037         214,604         21,808         24,264   

More than 10 years

     4,431         3,808         23,167         25,704   

Mortgage-backed securities

     1,408,047         1,433,431         230,949         242,584   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,684,240       $ 1,701,583       $ 282,750       $ 299,971   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

12


Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

Note 6 – Loans and Allowance for Loan Losses

Major classifications of loans as of June 30, 2012, December 31, 2011 and June 30, 2011, are summarized as follows (in thousands) .

 

     June 30,      December 31,      June 30,  
     2012      2011      2011  

Commercial (secured by real estate)

   $ 1,836,477       $ 1,821,414       $ 1,741,754   

Commercial & industrial

     450,222         428,249         428,058   

Commercial construction

     169,338         164,155         195,190   
  

 

 

    

 

 

    

 

 

 

Total commercial

     2,456,037         2,413,818         2,365,002   

Residential mortgage

     1,128,336         1,134,902         1,177,226   

Residential construction

     408,966         448,391         501,909   

Consumer installment

     125,896         112,503         119,310   
  

 

 

    

 

 

    

 

 

 

Total loans

     4,119,235         4,109,614         4,163,447   

Less allowance for loan losses

     112,705         114,468         127,638   
  

 

 

    

 

 

    

 

 

 

Loans, net

   $ 4,006,530       $ 3,995,146       $ 4,035,809   
  

 

 

    

 

 

    

 

 

 

The Bank makes loans and extensions of credit to individuals and a variety of firms and corporations located primarily in counties in north Georgia, the Atlanta, Georgia metropolitan statistical area, the Gainesville, Georgia metropolitan statistical area, coastal Georgia, western North Carolina and east Tennessee. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market.

Changes in the allowance for loan losses for the three and six months ended June 30, 2012 and 2011 are summarized as follows (in thousands) .

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

Balance beginning of period

   $ 113,601       $ 133,121       $ 114,468       $ 174,695   

Provision for loan losses

     18,000         11,000         33,000         201,000   

Charge-offs:

           

Commercial (secured by real estate)

     4,418         3,433         8,346         52,140   

Commercial & industrial

     888         604         1,644         4,966   

Commercial construction

     88         980         452         50,695   

Residential mortgage

     4,014         4,667         9,781         41,343   

Residential construction

     9,846         6,769         15,475         99,024   

Consumer installment

     408         883         1,161         1,979   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans charged-off

     19,662         17,336         36,859         250,147   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recoveries:

           

Commercial (secured by real estate)

     69         174         300         274   

Commercial & industrial

     113         81         200         403   

Commercial construction

     —           111         30         111   

Residential mortgage

     152         78         544         371   

Residential construction

     283         140         598         257   

Consumer installment

     149         269         424         674   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recoveries

     766         853         2,096         2,090   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     18,896         16,483         34,763         248,057   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance end of period

   $ 112,705       $ 127,638       $ 112,705       $ 127,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

The following table presents the balance and activity in the allowance for loan losses by portfolio segment and the recorded investment in loans by portfolio segment based on the impairment method as of June 30, 2012, December 31, 2011 and June 30, 2011 ( in thousands) .

 

      Commercial
(Secured by
Real Estate)
    Commercial &
Industrial
    Commercial
Construction
    Residential
Mortgage
    Residential
Construction
    Consumer
Installment
    Unallocated     Total  

Six Months Ended June 30, 2012

               

Allowance for loan losses:

               

Beginning balance

  $ 31,644      $ 5,681      $ 6,097      $ 29,076      $ 30,379      $ 2,124      $ 9,467      $ 114,468   

Charge-offs

    (8,346     (1,644     (452     (9,781     (15,475     (1,161     —          (36,859

Recoveries

    300        200        30        544        598        424        —          2,096   

Provision

    6,288        1,061        4,662        6,471        13,712        1,183        (377     33,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 29,886      $ 5,298      $ 10,337      $ 26,310      $ 29,214      $ 2,570      $ 9,090      $ 112,705   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending allowance attributable to loans:

               

Individually evaluated for impairment

  $ 8,544      $ 753      $ 2,476      $ 1,389      $ 4,188      $ 20      $ —        $ 17,370   

Collectively evaluated for impairment

    21,342        4,545        7,861        24,921        25,026        2,550        9,090        95,335   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

  $ 29,886      $ 5,298      $ 10,337      $ 26,310      $ 29,214      $ 2,570      $ 9,090      $ 112,705   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

               

Individually evaluated for impairment

  $ 130,838      $ 57,747      $ 42,833      $ 19,844      $ 41,906      $ 511      $ —        $ 293,679   

Collectively evaluated for impairment

    1,705,639        392,475        126,505        1,108,492        367,060        125,385        —          3,825,556   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,836,477      $ 450,222      $ 169,338      $ 1,128,336      $ 408,966      $ 125,896      $ —        $ 4,119,235   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2011

               

Allowance for loan losses:

               

Ending allowance attributable to loans:

               

Individually evaluated for impairment

  $ 7,491      $ 1,117      $ 236      $ 2,234      $ 3,731      $ 16      $ —        $ 14,825   

Collectively evaluated for impairment

    24,153        4,564        5,861        26,842        26,648        2,108        9,467        99,643   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

  $ 31,644      $ 5,681      $ 6,097      $ 29,076      $ 30,379      $ 2,124      $ 9,467      $ 114,468   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

               

Individually evaluated for impairment

  $ 107,831      $ 57,828      $ 26,245      $ 18,376      $ 46,687      $ 292      $ —        $ 257,259   

Collectively evaluated for impairment

    1,713,583        370,421        137,910        1,116,526        401,704        112,211        —          3,852,355   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,821,414      $ 428,249      $ 164,155      $ 1,134,902      $ 448,391      $ 112,503      $ —        $ 4,109,614   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2011

               

Allowance for loan losses:

               

Beginning balance

  $ 31,191      $ 7,580      $ 6,780      $ 22,305      $ 92,571      $ 3,030      $ 11,238      $ 174,695   

Charge-offs

    (52,140     (4,966     (50,695     (41,343     (99,024     (1,979     —          (250,147

Recoveries

    274        403        111        371        257        674        —          2,090   

Provision

    42,671        4,016        51,256        49,063        55,249        498        (1,753     201,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 21,996      $ 7,033      $ 7,452      $ 30,396      $ 49,053      $ 2,223      $ 9,485      $ 127,638   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending allowance attributable to loans:

               

Individually evaluated for impairment

  $ 78      $ —        $ 450      $ 639      $ —        $ —        $ —        $ 1,167   

Collectively evaluated for impairment

    21,918        7,033        7,002        29,757        49,053        2,223        9,485        126,471   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

  $ 21,996      $ 7,033      $ 7,452      $ 30,396      $ 49,053      $ 2,223      $ 9,485      $ 127,638   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

               

Individually evaluated for impairment

  $ 14,780      $ —        $ 1,015      $ 7,247      $ 12,611      $ —        $ —        $ 35,653   

Collectively evaluated for impairment

    1,726,974        428,058        194,175        1,169,979        489,298        119,310        —          4,127,794   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,741,754      $ 428,058      $ 195,190      $ 1,177,226      $ 501,909      $ 119,310      $ —        $ 4,163,447   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In calculating specific reserves, United reviews all loans that are on nonaccrual with a balance of $500,000 or greater for impairment, as well as accruing substandard relationships greater than $2 million and all troubled debt restructurings (“TDRs”). A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due, according to the contractual terms of the loan, will not be collected. All troubled debt restructurings are considered impaired regardless of accrual status. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. 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. Impairment amounts are recorded quarterly and specific reserves are recorded in the allowance for loan losses.

At June 30, 2012, December 31, 2011 and June 30, 2011, loans with a carrying value of $1.61 billion, $1.52 billion and $991 million were pledged as collateral to secure FHLB advances and other contingent funding sources.

 

14


Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

In the first quarter of 2011, United’s Board of Directors adopted an accelerated problem asset disposition plan which included the bulk sale of $267 million in classified loans. Those loans were classified as held for sale at the end of the first quarter and were written down to the expected proceeds from the sale. The charge-offs on the loans transferred to held for sale in anticipation of the bulk loan sale which closed on April 18, 2011, increased first quarter 2011 loan charge-offs by $186 million. The actual loss on the bulk loan sale at closing was less than the amount charged-off in the first quarter, resulting in a $7.27 million reduction of second quarter 2011 charge-offs.

The recorded investments in individually evaluated impaired loans at June 30, 2012, December 31, 2011 and June 30, 2011 were as follows ( in thousands) .

 

     June 30,      December 31,      June 30,  
     2012      2011      2011  

Period-end loans with no allocated allowance for loan losses

   $ 214,808       $ 188,509       $ 32,791   

Period-end loans with allocated allowance for loan losses

     78,871         68,750         2,862   
  

 

 

    

 

 

    

 

 

 

Total

   $ 293,679       $ 257,259       $ 35,653   
  

 

 

    

 

 

    

 

 

 

Amount of allowance for loan losses allocated

   $ 17,370       $ 14,825       $ 1,167   

The average balances of impaired loans and income recognized on impaired loans while they were considered impaired is presented below for the three and six months ended June 30, 2012 and 2011 ( in thousands) .

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

Average balance of individually evaluated impaired loans during period

   $ 287,336       $ 42,099       $ 283,981       $ 68,631   

Interest income recognized during impairment

     2,421         —           4,688         —     

Cash-basis interest income recognized

     3,216         —           6,408         —     

 

15


Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2012, December 31, 2011 and June 30, 2011 (in thousands) .

 

    June 30, 2012     December 31, 2011     June 30, 2011  
    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:

                 

Commercial (secured by real estate)

  $ 105,788      $ 95,543      $ —        $ 82,887      $ 76,215      $ —        $ 19,653      $ 13,572      $ —     

Commercial & industrial

    81,036        56,036        —          77,628        52,628        —          —          —          —     

Commercial construction

    22,491        21,372        —          24,927        23,609        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    209,315        172,951        —          185,442        152,452        —          19,653        13,572        —     

Residential mortgage

    13,994        11,578        —          13,845        10,804        —          10,006        6,608        —     

Residential construction

    46,589        30,094        —          38,955        25,190        —          27,441        12,611        —     

Consumer installment

    185        185        —          63        63        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with no related allowance recorded

    270,083        214,808        —          238,305        188,509        —          57,100        32,791        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With an allowance recorded:

                 

Commercial (secured by real estate)

    35,348        35,295        8,544        31,806        31,616        7,491        1,398        1,208        78   

Commercial & industrial

    1,711        1,711        753        5,200        5,200        1,117        —          —          —     

Commercial construction

    21,461        21,461        2,476        2,636        2,636        236        1,441        1,015        450   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    58,520        58,467        11,773        39,642        39,452        8,844        2,839        2,223        528   

Residential mortgage

    8,458        8,266        1,389        7,642        7,572        2,234        639        639        639   

Residential construction

    11,886        11,812        4,188        21,629        21,497        3,731        —          —          —     

Consumer installment

    335        326        20        235        229        16        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with an allowance recorded

    79,199        78,871        17,370        69,148        68,750        14,825        3,478        2,862        1,167   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 349,282      $ 293,679      $ 17,370      $ 307,453      $ 257,259      $ 14,825      $ 60,578      $ 35,653      $ 1,167   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

There were no loans more than 90 days past due and still accruing interest at June 30, 2012, December 31, 2011 or June 30, 2011. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans with larger balances.

The following table presents the recorded investment (unpaid principal less amounts charged-off) in nonaccrual loans by loan class as of June 30, 2012, December 31, 2011 and June 30, 2011 (in thousands) .

 

     Nonaccrual Loans  
     June 30,
2012
    December 31,
2011
    June 30,
2011
 

Commercial (secured by real estate)

   $ 19,115      $ 27,322      $ 17,764   

Commercial & industrial

     34,982        34,613        1,998   

Commercial construction

     18,175        16,655        2,782   
  

 

 

   

 

 

   

 

 

 

Total commercial

     72,272        78,590        22,544   

Residential mortgage

     16,631        22,358        24,809   

Residential construction

     25,530        25,523        22,643   

Consumer installment

     907        1,008        1,069   
  

 

 

   

 

 

   

 

 

 

Total

   $ 115,340      $ 127,479      $ 71,065   
  

 

 

   

 

 

   

 

 

 

Balance as a percentage of unpaid principal

     68.8     71.3     64.5

 

16


Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSDIARIES

Notes to Consolidated Financial Statements

 

The following table presents the aging of the recorded investment in past due loans as of June 30, 2012, December 31, 2011 and June 30, 2011 by class of loans (in thousands) .

 

     Loans Past Due      Loans Not         
     30 - 59 Days      60 - 89 Days      > 90 Days      Total      Past Due      Total  

As of June 30, 2012

                 

Commercial (secured by real estate)

   $ 7,053       $ 1,342       $ 11,996       $ 20,391       $ 1,816,086       $ 1,836,477   

Commercial & industrial

     663         1,496         389         2,548         447,674         450,222   

Commercial construction

     3,555         133         950         4,638         164,700         169,338   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     11,271         2,971         13,335         27,577         2,428,460         2,456,037   

Residential mortgage

     12,636         2,980         6,756         22,372         1,105,964         1,128,336   

Residential construction

     4,781         1,189         11,096         17,066         391,900         408,966   

Consumer installment

     971         325         398         1,694         124,202         125,896   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 29,659       $ 7,465       $ 31,585       $ 68,709       $ 4,050,526       $ 4,119,235   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2011

              

Commercial (secured by real estate)

   $ 8,036       $ 4,182       $ 10,614       $ 22,832       $ 1,798,582       $ 1,821,414   

Commercial & industrial

     3,869         411         </