United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 11/07/2012 13:49:09)
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 September 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 42,403,765 shares voting and 15,316,794 shares non-voting outstanding as of October 31, 2012.

 

 

 


Table of Contents

INDEX

 

PART I - Financial Information   
  

Item 1.

  

Financial Statements

  
     

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

     3   
     

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

     4   
     

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

     5   
     

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

     6   
     

Consolidated Statement of Cash Flows (unaudited) for the  Nine Months Ended September 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

     31   
  

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     54   
  

Item 4.

  

Controls and Procedures

     54   
PART II - Other Information   
  

Item 1.

   Legal Proceedings      55   
  

Item 1A.

   Risk Factors      55   
  

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      55   
  

Item 3.

   Defaults Upon Senior Securities      55   
  

Item 4.

   Mine Safety Disclosures      55   
  

Item 5.

   Other Information      55   
  

Item 6.

   Exhibits      56   

 

2


Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Operations (Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  

(in thousands, except per share data)

   2012     2011     2012     2011  

Interest revenue:

        

Loans, including fees

   $ 53,868      $ 59,294      $ 163,805      $ 181,359   

Investment securities, including tax exempt of $225, $244, $737 and $754

     10,706        14,568        34,772        42,964   

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

     985        261        3,093        1,832   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest revenue

     65,559        74,123        201,670        226,155   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits:

        

NOW

     447        831        1,587        3,191   

Money market

     599        1,129        1,901        4,656   

Savings

     37        52        112        193   

Time

     4,612        9,086        15,844        31,813   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total deposit interest expense

     5,695        11,098        19,444        39,853   

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

     514        1,081        2,463        3,197   

Federal Home Loan Bank advances

     26        441        882        1,601   

Long-term debt

     2,372        2,642        7,119        8,169   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     8,607        15,262        29,908        52,820   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest revenue

     56,952        58,861        171,762        173,335   

Provision for loan losses

     15,500        36,000        48,500        237,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest revenue after provision for loan losses

     41,452        22,861        123,262        (63,665
  

 

 

   

 

 

   

 

 

   

 

 

 

Fee revenue:

        

Service charges and fees

     7,696        7,534        23,295        21,862   

Mortgage loan and other related fees

     2,800        1,148        7,221        3,594   

Brokerage fees

     709        836        2,331        2,204   

Securities gains, net

     —          —          7,047        838   

Loss from prepayment of debt

     —          —          (6,681     (791

Other

     2,559        1,980        8,797        9,534   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total fee revenue

     13,764        11,498        42,010        37,241   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     55,216        34,359        165,272        (26,424
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Salaries and employee benefits

     22,918        25,262        72,440        76,622   

Communications and equipment

     3,254        3,284        9,620        10,006   

Occupancy

     3,539        3,794        10,849        11,673   

Advertising and public relations

     934        1,052        2,868        3,347   

Postage, printing and supplies

     954        1,036        2,849        3,239   

Professional fees

     2,180        2,051        6,107        7,731   

Foreclosed property

     3,706        2,813        9,382        69,603   

FDIC assessments and other regulatory charges

     2,537        2,603        7,592        11,660   

Amortization of intangibles

     728        748        2,190        2,270   

Other

     4,033        3,877        12,151        14,368   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     44,783        46,520        136,048        210,519   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) before income taxes

     10,433        (12,161     29,224        (236,943

Income tax (benefit) expense

     (135     (822     629        (296
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     10,568        (11,339     28,595        (236,647

Preferred stock dividends and discount accretion

     3,041        3,019        9,103        8,813   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common shareholders

   $ 7,527      $ (14,358   $ 19,492      $ (245,460
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per common share - Basic / Diluted

   $ .13      $ (.25   $ .34      $ (7.23

Weighted average common shares outstanding - Basic / Diluted

     57,880        57,599        57,826        33,973   

See accompanying notes to consolidated financial statements.

 

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Table of Contents

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Comprehensive Income (Loss) (Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  

(in thousands)

   2012     2011     2012     2011  

Net income (loss)

   $ 10,568      $ (11,339   $ 28,595      $ (236,647

Other comprehensive income (loss):

        

Unrealized gains (losses) on available for sale securities:

        

Unrealized holding gains (losses) arising during period

     5,813        (2,852     6,737        7,156   

Reclassification adjustment for gains included in net income

     —          —          (7,047     (838

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

     (499     (563     (1,312     (1,730

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

     (763     (2,948     (3,077     (12,570

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

     (3,943     —          (8,798     —     

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

     154        —          462        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     762        (6,363     (13,035     (7,982
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 11,330      $ (17,702   $ 15,560      $ (244,629
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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UNITED COMMUNITY BANKS, INC.

Consolidated Balance Sheet

 

(in thousands, except share and per share data)

   September 30,
2012
    December 31,
2011
    September 30,
2011
 
     (unaudited)     (audited)     (unaudited)  

ASSETS

      

Cash and due from banks

   $ 57,270      $ 53,807      $ 57,780   

Interest-bearing deposits in banks

     119,355        139,609        241,440   

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

     45,000        185,000        —     
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents

     221,625        378,416        299,220   

Securities available for sale

     1,761,994        1,790,047        1,769,083   

Securities held to maturity (fair value $281,336, $343,531 and $369,020)

     262,648        330,203        353,739   

Mortgage loans held for sale

     30,571        23,881        22,050   

Loans, net of unearned income

     4,137,845        4,109,614        4,109,875   

Less allowance for loan losses

     (107,642     (114,468     (146,092
  

 

 

   

 

 

   

 

 

 

Loans, net

     4,030,203        3,995,146        3,963,783   

Assets covered by loss sharing agreements with the FDIC

     53,070        78,145        83,623   

Premises and equipment, net

     170,532        175,088        176,839   

Bank owned life insurance

     81,574        80,599        80,452   

Accrued interest receivable

     19,133        20,693        19,744   

Goodwill and other intangible assets

     6,237        8,428        9,175   

Foreclosed property

     26,958        32,859        44,263   

Other assets

     34,690        69,915        72,302   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 6,699,235      $ 6,983,420      $ 6,894,273   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Liabilities:

      

Deposits:

      

Demand

   $ 1,210,703      $ 992,109      $ 966,452   

NOW

     1,184,341        1,509,896        1,299,512   

Money market

     1,126,312        1,038,778        1,030,370   

Savings

     222,431        199,007        200,231   

Time:

      

Less than $100,000

     1,123,672        1,332,394        1,393,559   

Greater than $100,000

     731,766        847,152        905,183   

Brokered

     223,474        178,647        209,998   
  

 

 

   

 

 

   

 

 

 

Total deposits

     5,822,699        6,097,983        6,005,305   

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

     53,243        102,577        102,883   

Federal Home Loan Bank advances

     50,125        40,625        40,625   

Long-term debt

     120,285        120,225        120,206   

Unsettled securities purchases

     24,319        10,325        10,585   

Accrued expenses and other liabilities

     43,309        36,199        31,302   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     6,113,980        6,407,934        6,310,906   
  

 

 

   

 

 

   

 

 

 

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

     178,183        177,092        176,739   

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; 42,393,319, 41,647,100 and 41,595,692 shares issued and outstanding

     42,393        41,647        41,596   

Common stock, non-voting, $1 par value; 30,000,000 shares authorized; 15,316,794, 15,914,209 and 15,914,209 shares issued and outstanding

     15,317        15,914        15,914   

Common stock issuable; 129,270, 93,681 and 88,501 shares

     3,247        3,233        3,590   

Capital surplus

     1,056,998        1,054,940        1,053,565   

Accumulated deficit

     (711,369     (730,861     (737,736

Accumulated other comprehensive (loss) income

     (16,344     (3,309     12,869   
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     585,255        575,486        583,367   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 6,699,235      $ 6,983,420      $ 6,894,273   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

For the Nine Months Ended September 30,

 

      Preferred Stock     Common
Stock
    Non-Voting
Common
Stock
    Common
Stock
Issuable
    Capital
Surplus
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

(in thousands, except
share and per share
data)

  Series
A
    Series
B
    Series
D
    Series
F
    Series
G
               

Balance, December 31, 2010

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

Net loss

                      (236,647       (236,647

Other comprehensive loss

                        (7,982     (7,982

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

                    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 (113,787 shares)

              114            987            1,101   

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

                    1,485            1,485   

Vesting of restricted stock (6,709 shares issued, 6,382 shares deferred)

              7          54        (61         —     

Deferred compensation plan, net, including dividend equivalents

                  183              183   

Shares issued from deferred compensation plan (3,466 shares)

              3          (541     538            —     

Tax on option exercise and restricted stock vesting

                    (376         (376

Preferred stock dividends:

                       

Series A

                      (10       (10

Series B

      1,028                      (7,798       (6,770

Series D

                      (1,005       (1,005
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2011

  $ 217      $ 176,739      $ 16,613      $ —        $ —        $ 41,596      $ 15,914      $ 3,590      $ 1,056,565      $ (737,736   $ 12,869      $ 583,367   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

                      28,595          28,595   

Other comprehensive loss

                        (13,035     (13,035

Common stock issued to dividend reinvestment plan and to employee benefit plans (87,086 shares)

              86            616            702   

Conversion of non-voting common stock to voting common stock (597,415 shares)

              597        (597          

Amortization of stock options and restricted stock awards

                    1,412            1,412   

Vesting of restricted stock, net of shares surrendered to cover payroll taxes (59,081 shares issued, 36,673 shares deferred)

              60          155        (257         (42

Deferred compensation plan, net, including dividend equivalents

                  149              149   

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

              3          (290     287            —     

Preferred stock dividends:

                       

Series A

                      (9       (9

Series B

      1,091                      (7,841       (6,750

Series D

                      (1,253       (1,253
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2012

  $ 217      $ 178,183      $ 16,613      $ —        $ —        $ 42,393      $ 15,317      $ 3,247      $ 1,056,998      $ (711,369   $ (16,344   $ 585,255   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows (Unaudited)

 

     Nine Months Ended
September 30,
 

(in thousands)

   2012     2011  

Operating activities:

    

Net income (loss)

   $ 28,595      $ (236,647

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

    

Depreciation, amortization and accretion

     24,478        14,670   

Provision for loan losses

     48,500        237,000   

Stock based compensation

     1,412        1,485   

Securities gains, net

     (7,047     (838

Losses and write downs on sales of other real estate owned

     5,687        61,473   

Loss on prepayment of borrowings

     6,681        791   

Changes in assets and liabilities:

    

Other assets and accrued interest receivable

     40,708        29,854   

Accrued expenses and other liabilities

     (3,108     (2,739

Mortgage loans held for sale

     (6,690     13,858   
  

 

 

   

 

 

 

Net cash provided by operating activities

     139,216        118,907   
  

 

 

   

 

 

 

Investing activities:

    

Investment securities held to maturity:

    

Proceeds from maturities and calls

     65,040        52,520   

Purchases

     —          (142,777

Investment securities available for sale:

    

Proceeds from sales

     371,103        106,603   

Proceeds from maturities and calls

     492,768        363,333   

Purchases

     (818,048     (1,000,378

Net (increase) decrease in loans

     (104,806     106,341   

Proceeds from loan sales

     —          99,298   

Proceeds collected from FDIC under loss sharing agreements

     7,301        29,987   

Proceeds from sales of premises and equipment

     667        636   

Purchases of premises and equipment

     (3,231     (6,442

Proceeds from sale of other real estate

     22,309        70,951   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     33,103        (319,928
  

 

 

   

 

 

 

Financing activities:

    

Net change in deposits

     (275,284     (463,867

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

     (53,814     1,816   

Proceeds from Federal Home Loan Bank advances

     1,629,000        —     

Settlement of Federal Home Loan Bank advances

     (1,621,701     (15,291

Repayments of long-term debt

     —          (30,000

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

     702        1,101   

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

     (8,013     (7,785
  

 

 

   

 

 

 

Net cash used in financing activities

     (329,110     (149,216
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (156,791     (350,237

Cash and cash equivalents at beginning of period

     378,416        649,457   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 221,625      $ 299,220   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 32,668      $ 55,580   

Income taxes

     (27,103     179   

Unsettled securities purchases

     24,319        10,585   

See accompanying notes to consolidated financial statements.

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 – Accounting Policies

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in its Annual Report on Form 10-K/A 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 the estimated cost to sell. If the fair value, less the estimated cost 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 the 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 August 2012, the FASB issued Accounting Standards Update No. 2012-03, Technical Amendments and Corrections to SEC sections. It amends various paragraphs related to SEC Staff Accounting Bulletin No. 114, which revises or rescinds portions of the interpretive guidance included in the codification of the Staff Accounting Bulletin Series; SEC Release No. 33-9250, which makes technical amendments to various rules and forms under the Securities Act of 1933 to conform those rules and forms to the ASC; and makes technical corrections related to FASB Accounting Standards Update No. 2010-22, Accounting for Various Topics – Technical Corrections to SEC Paragraphs . The update was effective upon issuance and did not have a material impact on United’s financial position, results of operations or disclosures.

In October 2012, the FASB issued Accounting Standards Update No. 2012-04, Technical Corrections and Improvement. It makes conforming amendments related to fair value measurements within the ASC as well as other technical corrections covering a broad range of topics. The amendments in the update that did not have transition guidance were effective upon issuance and the amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012, for public entities. The guidance 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.

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The table below shows the components of covered assets at September 30, 2012, December 31, 2011 and September 30, 2011 (in thousands) .

 

September 30, 2012                                

   Purchased
Impaired
Loans
     Other
Purchased
Loans
     Other      Total  

Commercial (secured by real estate)

   $ —         $ 25,808       $ —         $ 25,808   

Commercial & industrial

     —           1,065         —           1,065   

Construction and land development

     405         4,088         —           4,493   

Residential mortgage

     116         5,466         —           5,582   

Consumer installment

     1         101         —           102   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     522         36,528         —           37,050   

Covered foreclosed property

     —           —           7,050         7,050   

Estimated loss reimbursement from the FDIC

     —           —           8,970         8,970   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered assets

   $ 522       $ 36,528       $ 16,020       $ 53,070   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011                                

                           

Commercial (secured by real estate)

   $ —         $ 32,934       $ —         $ 32,934   

Commercial & industrial

     —           2,133         —           2,133   

Construction and land development

     547         10,592         —           11,139   

Residential mortgage

     145         7,970         —           8,115   

Consumer installment

     5         156         —           161   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     697         53,785         —           54,482   

Covered foreclosed property

     —           —           10,371         10,371   

Estimated loss reimbursement from the FDIC

     —           —           13,292         13,292   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered assets

   $ 697       $ 53,785       $ 23,663       $ 78,145   
  

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2011                                

                           

Commercial (secured by real estate)

   $ —         $ 34,546       $ —         $ 34,546   

Commercial & industrial

     —           2,485         —           2,485   

Construction and land development

     1,771         10,282         —           12,053   

Residential mortgage

     186         8,376         —           8,562   

Consumer installment

     6         181         —           187   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     1,963         55,870         —           57,833   

Covered foreclosed property

     —           —           11,488         11,488   

Estimated loss reimbursement from the FDIC

     —           —           14,302         14,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total covered assets

   $ 1,963       $ 55,870       $ 25,790       $ 83,623   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 4 – Reverse Repurchase Agreements / Securities Lending Transactions

United enters into reverse repurchase agreements in order to invest short-term funds. In addition, United enters into repurchase agreements and reverse repurchase agreements and offsetting securities lending transactions 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 .

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table presents a summary of amounts outstanding under reverse repurchase agreements and securities lending transactions including those entered into in connection with the same counterparty under master netting agreements as of September 30, 2012 and December 31, 2011 (in thousands) . There were no balances outstanding at September 30, 2011.

 

     September 30, 2012  
       Assets     Liabilities     Net Balance
(Asset)
 

September 30, 2012

      

Repurchase agreements / reverse repurchase agreements subject to master netting agreements

   $ 225,000      $ 225,000      $ —     

Offsetting securities lending transactions subject to master netting arrangements

     100,000        100,000        —     

Other reverse repurchase agreements

     45,000        —          45,000   
  

 

 

   

 

 

   

 

 

 

Total

   $ 370,000      $ 325,000      $ 45,000   
  

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     1.19     .41  

December 31, 2011

      

Repurchase agreements / reverse repurchase agreements subject to master netting agreements

   $ 60,000      $ 60,000      $ —     

Other reverse repurchase agreements

     185,000        —          185,000   
  

 

 

   

 

 

   

 

 

 

Total

   $ 245,000      $ 60,000      $ 185,000   
  

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     1.07     .38  

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 nine month periods ended September 30, 2012 and 2011 (in thousands) .

 

     Three Months  Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Proceeds from sales

   $ —         $ —         $ 371,103       $ 106,603   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross gains on sales

   $ —         $ —         $ 7,047       $ 1,169   

Gross losses on sales

     —           —           —           (331
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains on sales of securities

   $ —         $ —         $ 7,047       $ 838   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities with a carrying value of $1.28 billion, $1.72 billion, and $1.89 billion were pledged to secure public deposits and other secured borrowings at September 30, 2012, December 31, 2011 and September 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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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
       Cost      Gains      Losses      Value  

As of September 30, 2012

           

State and political subdivisions

   $ 51,790       $ 5,795       $ —         $ 57,585   

Mortgage-backed securities (1)

     210,858         12,893         —           223,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 262,648       $ 18,688       $ —         $ 281,336   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2011

           

U.S. Government agencies

   $ 5,000       $ 17       $ —         $ 5,017   

State and political subdivisions

     50,185         3,721         22         53,884   

Mortgage-backed securities (1)

     298,554         11,871         306         310,119   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 353,739       $ 15,609       $ 328       $ 369,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

All are residential type mortgage-backed securities

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

 

            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
       Cost      Gains      Losses      Value  

As of September 30, 2012

           

State and political subdivisions

   $ 27,403       $ 1,478       $ 3       $ 28,878   

Mortgage-backed securities (1)

     1,356,002         27,689         751         1,382,940   

Corporate bonds

     148,315         450         5,613         143,152   

Asset-backed securities

     204,522         713         806         204,429   

Other

     2,595         —           —           2,595   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,738,837       $ 30,330       $ 7,173       $ 1,761,994   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2011

           

U.S. Government agencies

   $ 33,597       $ 109       $ —         $ 33,706   

State and political subdivisions

     25,435         1,400         4         26,831   

Mortgage-backed securities (1)

     1,556,639         39,177         416         1,595,400   

Corporate bonds

     119,066         —           8,424         110,642   

Other

     2,504         —           —           2,504   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,737,241       $ 40,686       $ 8,844       $ 1,769,083   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

All are residential type mortgage-backed securities

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table summarizes held to maturity securities in an unrealized loss position as of December 31, 2011 and September 30, 2011 (in thousands) . As of September 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 September 30, 2011

                 

State and political subdivisions

   $ 354       $ 22       $ —         $ —         $ 354       $ 22   

Mortgage-backed securities

     9,828         306         —           —           9,828         306   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 10,182       $ 328       $ —         $ —         $ 10,182       $ 328   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes available for sale securities in an unrealized loss position as of September 30, 2012, December 31, 2011 and September 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 September 30, 2012                  

State and political subdivisions

   $ —         $ —         $ 12       $ 3       $ 12       $ 3   

Mortgage-backed securities

     105,296         741         17,059         10         122,355         751   

Corporate bonds

     4,893         10         113,590         5,603         118,483         5,613   

Asset-backed securities

     90,766         806         —           —           90,766         806   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 200,955       $ 1,557       $ 130,661       $ 5,616       $ 331,616       $ 7,173   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
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 September 30, 2011                                          

State and political subdivisions

   $ —         $ —         $ 10       $ 4       $ 10       $ 4   

Mortgage-backed securities

     255,896         416         —           —           255,896         416   

Corporate bonds

     44,251         3,765         66,341         4,659         110,592         8,424   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unrealized loss position

   $ 300,147       $ 4,181       $ 66,351       $ 4,663       $ 366,498       $ 8,844   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2012, there were 41 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 September 30, 2012, December 31, 2011 and September 30, 2011 were primarily attributable to changes in interest rates, however the unrealized losses in corporate bonds also reflect downgrades in the underlying securities ratings since the time of acquisition. The bonds remain above investment grade and United does not consider them to be impaired.

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 analysts’ reports. No impairment charges were recognized during the three or nine months ended September 30, 2012 or 2011.

 

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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, 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  

State and political subdivisions:

           

Within 1 year

   $ 5,960       $ 5,969       $ —         $ —     

1 to 5 years

     15,266         16,321         8,589         9,379   

5 to 10 years

     5,329         5,656         21,558         24,064   

More than 10 years

     848         932         21,643         24,142   
  

 

 

    

 

 

    

 

 

    

 

 

 
     27,403         28,878         51,790         57,585   
  

 

 

    

 

 

    

 

 

    

 

 

 

Corporate bonds:

           

1 to 5 years

     38,002         37,503         —           —     

5 to 10 years

     109,313         105,349         —           —     

More than 10 years

     1,000         300         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     148,315         143,152         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Asset-backed securities

           

1 to 5 years

     61,429         61,108         —           —     

5 to 10 years

     134,885         135,212         —           —     

More than 10 years

     8,208         8,109         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     204,522         204,429         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other:

           

More than 10 years

     2,595         2,595         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,595         2,595         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities other than mortgage-backed securities:

           

Within 1 year

     5,960         5,969         —           —     

1 to 5 years

     114,697         114,932         8,589         9,379   

5 to 10 years

     249,527         246,217         21,558         24,064   

More than 10 years

     12,651         11,936         21,643         24,142   

Mortgage-backed securities

     1,356,002         1,382,940         210,858         223,751   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,738,837       $ 1,761,994       $ 262,648       $ 281,336   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

Effective July 1, 2012, United changed the time period over which it amortizes premiums on pass through mortgage backed securities. Previously, United amortized premiums over the average life of the securities which resulted in the recognition of greater amortization charges in the early years of the bond’s life. The effect on amortization of management’s recent strategy of purchasing high premium securities to protect net interest revenue in the event of rising interest rates led management to the decision to change the amortization period. Effective July 1, 2012, United began amortizing premiums on these securities to the final payment window date as published by Bloomberg. Management believes that the premium amortization charges resulting from amortizing to the final payment window date, together with the related premium amortization on principal pay-downs, more closely approach the level yield amortization required by GAAP, particularly as it relates to these securities. The change in accounting estimate increased interest revenue on investment securities in the third quarter by approximately $2 million and earnings per share by $.03.

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 6 – Loans and Allowance for Loan Losses

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

 

     September 30,     December 31,     September 30,  
     2012     2011     2011  

Commercial (secured by real estate)

   $ 1,819,155      $ 1,821,414      $ 1,771,101   

Commercial & industrial

     459,997        428,249        429,043   

Commercial construction

     160,765        164,155        168,531   
  

 

 

   

 

 

   

 

 

 

Total commercial

     2,439,917        2,413,818        2,368,675   

Residential mortgage

     1,174,236        1,134,902        1,149,678   

Residential construction

     388,742        448,391        474,552   

Consumer installment

     134,950        112,503        116,970   
  

 

 

   

 

 

   

 

 

 

Total loans

     4,137,845        4,109,614        4,109,875   

Less allowance for loan losses

     (107,642     (114,468     (146,092
  

 

 

   

 

 

   

 

 

 

Loans, net

   $ 4,030,203      $ 3,995,146      $ 3,963,783   
  

 

 

   

 

 

   

 

 

 

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 its 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 nine months ended September 30, 2012 and 2011 are summarized as follows (in thousands) .

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012      2011      2012      2011  

Balance beginning of period

   $ 112,705       $ 127,638       $ 114,468       $ 174,695   

Provision for loan losses

     15,500         36,000         48,500         237,000   

Charge-offs:

           

Commercial (secured by real estate)

     8,445         2,270         16,791         54,410   

Commercial & industrial

     343         866         1,987         5,832   

Commercial construction

     3,198         1,705         3,650         52,400   

Residential mortgage

     3,575         6,399         13,356         47,742   

Residential construction

     6,231         7,668         21,706         106,692   

Consumer installment

     442         970         1,603         2,949   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans charged-off

     22,234         19,878         59,093         270,025   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recoveries:

           

Commercial (secured by real estate)

     271         78         571         352   

Commercial & industrial

     602         446         802         849   

Commercial construction

     8         80         38         191   

Residential mortgage

     48         289         592         660   

Residential construction

     555         1,287         1,153         1,544   

Consumer installment

     187         152         611         826   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recoveries

     1,671         2,332         3,767         4,422   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     20,563         17,546         55,326         265,603   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance end of period

   $ 107,642       $ 146,092       $ 107,642       $ 146,092   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14


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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

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 of 2011 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 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 September 30, 2012, December 31, 2011 and September 30, 2011 ( in thousands) .

 

Nine Months Ended September 30, 2012

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

Allowance for loan losses:

               

Beginning balance

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

Charge-offs

    (16,791     (1,987     (3,650     (13,356     (21,706     (1,603     —          (59,093

Recoveries

    571        802        38        592        1,153        611        —          3,767   

Provision

    11,351        362        6,101        11,163        18,233        1,738        (448     48,500   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 26,775      $ 4,858      $ 8,586      $ 27,475      $ 28,059      $ 2,870      $ 9,019      $ 107,642   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending allowance attributable to loans:

               

Individually evaluated for impairment

  $ 6,692      $ 725      $ 2,289      $ 1,856      $ 1,270      $ 21      $ —        $ 12,853   

Collectively evaluated for impairment

    20,083        4,133        6,297        25,619        26,789        2,849        9,019        94,789   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

  $ 26,775      $ 4,858      $ 8,586      $ 27,475      $ 28,059      $ 2,870      $ 9,019      $ 107,642   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

               

Individually evaluated for impairment

  $ 119,023      $ 53,531      $ 42,249      $ 21,678      $ 31,576      $ 498      $ —        $ 268,555   

Collectively evaluated for impairment

    1,700,132        406,466        118,516        1,152,558        357,166        134,452        —          3,869,290   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,819,155      $ 459,997      $ 160,765      $ 1,174,236      $ 388,742      $ 134,950      $ —        $ 4,137,845   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nine Months Ended September 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

    (54,410     (5,832     (52,400     (47,742     (106,692     (2,949     —          (270,025

Recoveries

    352        849        191        660        1,544        826        —          4,422   

Provision

    48,344        20,174        54,133        53,786        57,842        1,296        1,425        237,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 25,477      $ 22,771      $ 8,704      $ 29,009      $ 45,265      $ 2,203      $ 12,663      $ 146,092   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending allowance attributable to loans:

               

Individually evaluated for impairment

  $ 4,070      $ 17,067      $ 4,038      $ 1,062      $ 7,267      $ 37      $ —        $ 33,541   

Collectively evaluated for impairment

    21,407        5,704        4,666        27,947        37,998        2,166        12,663        112,551   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

  $ 25,477      $ 22,771      $ 8,704      $ 29,009      $ 45,265      $ 2,203      $ 12,663      $ 146,092   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

               

Individually evaluated for impairment

  $ 54,126      $ 52,433      $ 23,844      $ 8,043      $ 44,189      $ 95      $ —        $ 182,730   

Collectively evaluated for impairment

    1,716,975        376,610        144,687        1,141,635        430,363        116,875        —          3,927,145   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,771,101      $ 429,043      $ 168,531      $ 1,149,678      $ 474,552      $ 116,970      $ —        $ 4,109,875   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 TDRs 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, 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.

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Each quarter, United’s management prepares an analysis of the allowance for loan losses to determine the appropriate balance that measures and quantifies the amount of loss inherent in the loan portfolio. The allowance is comprised of specific reserves which are determined as described above, general reserves which are determined based on historical loss experience as adjusted for current trends and economic conditions and an unallocated portion. United uses eight quarters of historical loss experience weighted toward the most recent quarters to determine the loss factors to be used. Eight quarters has been determined to be an appropriate time period as it is recent enough to be relevant to current conditions and covers a length of time sufficient to normalize for nonrecurring and unusual activity that might otherwise influence a shorter time period. The weighted average is accomplished by multiplying each quarter’s annualized historical net charge-off rate by 1 through 8, with 8 representing the most recent quarter and 1 representing the oldest quarter. United uses annualized charge-off rates under the broad assumption that losses inherent in the loan portfolio will generally be resolved within twelve months. Problem loans that are not resolved within twelve months are generally larger loans that are more complex in nature requiring more time to either rehabilitate or work out of the bank. These credits are subject to impairment testing and specific reserves.

The weighted loss factor results for each quarter are added together and divided by 36 (the sum of 1, 2, 3, 4, 5, 6, 7 and 8) to arrive at the weighted average historical loss factor for each category of loans. United calculates loss factors for each major category of loans (commercial real estate, commercial & industrial, commercial construction, residential construction and consumer installment) except residential real estate loans which are further divided into home equity first lien, home equity junior lien and all other residential real estate loans and a loss factor is calculated for each category.

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, acceleration or delays in timing of recognition of losses that may render the use of annualized charge-off rates to be inappropriate, and other macro environmental factors such as changes in unemployment rates, lease vacancy rates and trends in property values and absorption rates.

To validate the results, management closely monitors the loan portfolio to determine the range of potential losses based upon probability of default and losses upon default for each major loan category. The potential range of losses resulting from this analysis is compared to the resulting loss factors for each major loan category to validate the loss factors and determine if qualitative adjustments are necessary. United’s management believes that its method of determining the balance of the allowance for loan losses provides a reasonable and reliable basis for measuring and reporting losses that are inherent in the loan portfolio as of the reporting date.

At September 30, 2012, December 31, 2011 and September 30, 2011, loans with a carrying value of $1.78 billion, $1.52 billion and $1.37 billion were pledged as collateral to secure FHLB advances and other contingent funding sources.

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

 

     September 30,      December 31,      September 30,  
     2012      2011      2011  

Period-end loans with no allocated allowance for loan losses

   $ 174,113       $ 188,509       $ 66,636   

Period-end loans with allocated allowance for loan losses

     94,442         68,750         116,094   
  

 

 

    

 

 

    

 

 

 

Total

   $ 268,555       $ 257,259       $ 182,730   
  

 

 

    

 

 

    

 

 

 

Amount of allowance for loan losses allocated

   $ 12,853       $ 14,825       $ 33,541   

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

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012      2011      2012      2011  

Average balance of individually evaluated impaired loans during period

   $ 275,960       $ 109,164       $ 281,307       $ 81,031   

Interest income recognized during impairment

     2,110         797         6,798         797   

Cash-basis interest income recognized

     2,932         630         9,340         630   

 

16


Table of Contents

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

    September 30, 2012     December 31, 2011     September 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)

  $ 85,137      $ 77,801      $ —        $ 82,887      $ 76,215      $ —        $ 45,242      $ 38,242      $ —     

Commercial & industrial

    76,247        51,247        —          77,628        52,628        —          48        48        —     

Commercial construction

    17,739        16,656        —          24,927        23,609        —          6,803        6,309        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    179,123        145,704        —          185,442        152,452        —          52,093        44,599        —     

Residential mortgage

    11,091        8,746        —          13,845        10,804        —          7,745        5,588        —     

Residential construction

    32,228        19,601        —          38,955        25,190        —          31,646        16,421        —     

Consumer installment

    62        62        —          63        63        —          28        28        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with no related allowance recorded

    222,504        174,113        —          238,305        188,509        —          91,512        66,636        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With an allowance recorded:

                 

Commercial (secured by real estate)

    44,590        41,222        6,692        31,806        31,616        7,491        16,173        15,884        4,070   

Commercial & industrial

    2,321        2,284        725        5,200        5,200        1,117        54,259        52,385        17,067   

Commercial construction

    26,476        25,593        2,289        2,636        2,636        236        17,850        17,535        4,038   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial

    73,387        69,099        9,706        39,642        39,452        8,844        88,282        85,804        25,175   

Residential mortgage

    13,410        12,932        1,856        7,642        7,572        2,234        2,455        2,455        1,062   

Residential construction

    13,105        11,975        1,270        21,629        21,497        3,731        28,428        27,768        7,267   

Consumer installment

    444        436        21        235        229        16        67        67        37   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with an allowance recorded

    100,346        94,442        12,853        69,148        68,750        14,825        119,232        116,094        33,541   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 322,850      $ 268,555      $ 12,853      $ 307,453      $ 257,259      $ 14,825      $ 210,744      $