United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 11/10/2014 14:43:02)



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, 2014
 
OR
 
o      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 o
 
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 o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x Accelerated filer o
   
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller Reporting Company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
YES o   NO x
 
Common stock, par value $1 per share 50,172,042 shares voting and 10,080,787 shares non-voting outstanding as of October 31, 2014.
 
 

 

 

         
INDEX
   
     
   
         
     
         
     
3
         
     
4
         
     
5
         
     
6
         
     
7
         
     
8
         
   
42
         
   
66
         
   
66
         
   
         
   
67
   
67
   
67
   
67
   
67
   
67
    68
 
2
 

 

Part I – Financial Information
 
Item 1 – Financial Statements
                         
UNITED COMMUNITY BANKS, INC.
                       
                       
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(in thousands, except per share data)
 
2014
   
2013
   
2014
   
2013
 
Interest revenue:
                       
Loans, including fees
  $ 49,653     $ 50,162     $ 145,602     $ 151,827  
Investment securities, including tax exempt of $177, $202, $558 and $624
    12,346       9,887       36,118       29,905  
Deposits in banks and short-term investments
    934       1,007       2,757       2,793  
Total interest revenue
    62,933       61,056       184,477       184,525  
                                 
Interest expense:
                               
Deposits:
                               
NOW
    365       413       1,216       1,286  
Money market
    872       545       2,192       1,641  
Savings
    20       37       61       109  
Time
    1,721       2,630       5,510       8,871  
Total deposit interest expense
    2,978       3,625       8,979       11,907  
Short-term borrowings
    316       525       2,064       1,563  
Federal Home Loan Bank advances
    435       16       573       65  
Long-term debt
    2,642       3,003       7,914       8,331  
Total interest expense
    6,371       7,169       19,530       21,866  
Net interest revenue
    56,562       53,887       164,947       162,659  
Provision for credit losses
    2,000       3,000       6,700       62,500  
Net interest revenue after provision for credit losses
    54,562       50,887       158,247       100,159  
                                 
Fee revenue:
                               
Service charges and fees
    8,202       8,456       24,627       23,831  
Mortgage loan and other related fees
    2,178       2,554       5,409       8,212  
Brokerage fees
    1,209       1,274       3,631       3,104  
Securities gains, net
    11             4,663       116  
Loss from prepayment of debt
                (4,446 )      
Other
    2,812       1,941       6,847       7,816  
Total fee revenue
    14,412       14,225       40,731       43,079  
Total revenue
    68,974       65,112       198,978       143,238  
                                 
Operating expenses:
                               
Salaries and employee benefits
    25,666       23,090       74,349       71,416  
Communications and equipment
    3,094       3,305       9,370       9,819  
Occupancy
    3,425       3,379       10,065       10,195  
Advertising and public relations
    894       962       2,659       2,937  
Postage, printing and supplies
    876       644       2,456       2,401  
Professional fees
    2,274       2,650       5,873       7,515  
Foreclosed property
    285       194       503       7,678  
FDIC assessments and other regulatory charges
    1,131       2,405       3,909       7,415  
Amortization of intangibles
    313       427       1,061       1,623  
Other
    3,406       3,041       10,701       11,691  
Total operating expenses
    41,364       40,097       120,946       132,690  
    Net income before income taxes
    27,610       25,015       78,032       10,548  
Income tax expense (benefit)
    9,994       9,515       28,659       (246,681 )
Net income
    17,616       15,500       49,373       257,229  
Preferred stock dividends and discount accretion
          3,059       439       9,166  
Net income available to common shareholders
  $ 17,616     $ 12,441     $ 48,934     $ 248,063  
                                 
Earnings per common share:
                               
     Basic
  $ .29     $ .21     $ .81     $ 4.24  
     Diluted
    .29       .21       .81       4.24  
Weighted average common shares outstanding:
                               
     Basic
    60,776       59,100       60,511       58,443  
     Diluted
    60,779       59,202       60,513       58,444  

See accompanying notes to consolidated financial statements.
 
3
 

 

 
                                     
UNITED COMMUNITY BANKS, INC.
                                   
                             
             
(in thousands)
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
2014
 
Before-tax Amount
   
Tax
(Expense) Benefit
   
Net of Tax Amount
   
Before-tax Amount
   
Tax
(Expense) Benefit
   
Net of Tax Amount
 
Net income
  $ 27,610     $ (9,994 )   $ 17,616     $ 78,032     $ (28,659 )   $ 49,373  
Other comprehensive income:
                                               
Unrealized gains (losses) on available-for-sale securities:
                                               
Unrealized holding gains (losses) arising during period
    (4,357 )     1,626       (2,731 )     10,696       (4,031 )     6,665  
Reclassification adjustment for gains included in net income
    (11 )     4       (7 )     (4,663 )     1,821       (2,842 )
Net unrealized gains (losses)
    (4,368 )     1,630       (2,738 )     6,033       (2,210 )     3,823  
Amortization of gains included in net income on available-for-sale securities transferred to held-to-maturity
    468       (176 )     292       1,207       (453 )     754  
Net unrealized gains
    468       (176 )     292       1,207       (453 )     754  
Amounts reclassified into net income on cash flow hedges
    711       (277 )     434       1,381       (538 )     843  
Unrealized gains (losses) on derivative financial instruments accounted for as cash flow hedges
    412       (160 )     252       (5,967 )     2,322       (3,645 )
Net unrealized gains (losses)
    1,123       (437 )     686       (4,586 )     1,784       (2,802 )
Net actuarial gain on defined benefit pension plan
                      296       (115 )     181  
Amortization of prior service cost and actuarial losses included in  net periodic pension cost for defined benefit pension plan
    91       (36 )     55       274       (107 )     167  
Net defined benefit pension plan activity
    91       (36 )     55       570       (222 )     348  
Total other comprehensive income (loss)
    (2,686 )     981       (1,705 )     3,224       (1,101 )     2,123  
Comprehensive income
  $ 24,924     $ (9,013 )   $ 15,911     $ 81,256     $ (29,760 )   $ 51,496  
                                                 
2013
                                               
                                                 
Net income
  $ 25,015     $ (9,515 )   $ 15,500     $ 10,548     $ 246,681     $ 257,229  
Other comprehensive loss:
                                               
Unrealized losses on available-for-sale securities:
                                               
Unrealized holding losses arising during period
    (13,215 )     4,971       (8,244 )     (26,932 )     10,148       (16,784 )
Reclassification adjustment for gains included in net income
                      (116 )     45       (71 )
Adjustment of valuation allowance for the change in deferred  taxes arising from unrealized gains and losses on available-  for-sale securities and release of valuation allowance
                            (2,950 )     (2,950 )
Net unrealized losses
    (13,215 )     4,971       (8,244 )     (27,048 )     7,243       (19,805 )
Amortization of gains included in net income on available-for-sale  securities transferred to held-to-maturity
    (214 )     82       (132 )     (804 )     309       (495 )
Adjustment of valuation allowance for the change in deferred taxes arising from the amortization of gains included in net  income on available-for-sale securities transferred to  held-to-maturity and release of valuation allowance
                            1,293       1,293  
Net unrealized losses
    (214 )     82       (132 )     (804 )     1,602       798  
Amounts reclassified into net income on cash flow hedges
    (58 )     23       (35 )     (902 )     351       (551 )
Unrealized gains on derivative financial instruments accounted for as cash flow hedges
    (3,369 )     1,321       (2,048 )     8,733       (3,386 )     5,347  
Adjustment of valuation allowance for the change in deferred taxes  arising from unrealized gains and losses and amortization of gains included in net income on cash flow hedges and release of valuation allowance
                            13,698       13,698  
Net unrealized (losses) gains
    (3,427 )     1,344       (2,083 )     7,831       10,663       18,494  
Net actuarial loss on defined benefit pension plan
                      (415 )     161       (254 )
Amortization of prior service cost and actuarial losses included in  net periodic pension cost for defined benefit pension plan
    133       (52 )     81       398       (155 )     243  
Net defined benefit pension plan activity
    133       (52 )     81       (17 )     6       (11 )
Total other comprehensive loss
    (16,723 )     6,345       (10,378 )     (20,038 )     19,514       (524 )
Comprehensive income
  $ 8,292     $ (3,170 )   $ 5,122     $ (9,490 )   $ 266,195     $ 256,705  
 
See accompanying notes to consolidated financial statements.
 
4
 

 


UNITED COMMUNITY BANKS, INC.
                 
                 
                   
   
September 30,
   
December 31,
   
September 30,
 
(in thousands, except share and per share data)
 
2014
   
2013
   
2013
 
ASSETS
                 
Cash and due from banks
  $ 75,268     $ 71,230     $ 70,986  
Interest-bearing deposits in banks
    117,399       119,669       131,147  
Short-term investments
    23,397       37,999       62,000  
Cash and cash equivalents
    216,064       228,898       264,133  
Securities available for sale
    1,789,667       1,832,217       1,963,424  
Securities held to maturity (fair value $440,311, $485,585 and $214,651)
    432,418       479,742       205,613  
Mortgage loans held for sale
    20,004       10,319       11,987  
Loans, net of unearned income
    4,568,886       4,329,266       4,267,067  
Less allowance for loan losses
    (71,928 )     (76,762 )     (80,372 )
Loans, net
    4,496,958       4,252,504       4,186,695  
Assets covered by loss sharing agreements with the FDIC
    3,253       22,882       31,207  
Premises and equipment, net
    160,454       163,589       165,993  
Bank owned life insurance
    81,101       80,670       80,537  
Accrued interest receivable
    19,908       19,598       18,199  
Goodwill and core deposit intangibles
    3,910       3,480       3,888  
Foreclosed property
    3,146       4,221       4,467  
Net deferred tax asset
    224,734       258,518       269,784  
Derivative financial instruments
    22,221       23,833       8,092  
Other assets
    52,051       44,948       29,274  
      Total assets
  $ 7,525,889     $ 7,425,419     $ 7,243,293  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Liabilities:
                       
Deposits:
                       
Demand
  $ 1,561,020     $ 1,388,512     $ 1,418,782  
NOW
    1,399,449       1,427,939       1,279,134  
Money market
    1,281,526       1,227,575       1,197,495  
       Savings
    287,797       251,125       249,044  
       Time:
                       
            Less than $100,000
    774,201       892,961       925,089  
            Greater than $100,000
    531,428       588,689       624,019  
       Brokered
    405,308       424,704       419,344  
                     Total deposits
    6,240,729       6,201,505       6,112,907  
Short-term borrowings
    6,001       53,241       53,769  
Federal Home Loan Bank advances
    330,125       120,125       125  
Long-term debt
    129,865       129,865       129,865  
Derivative financial instruments
    36,171       46,232       37,269  
Unsettled securities purchases
          29,562       11,610  
Accrued expenses and other liabilities
    46,573       49,174       45,531  
Total liabilities
    6,789,464       6,629,704       6,391,076  
Shareholders’ equity:
                       
    Preferred stock, $1 par value; 10,000,000 shares authorized;
                       
         Series A; $10 stated value; 0, 0 and 21,700 shares issued and outstanding
                217  
         Series B; $1,000 stated value; 0, 105,000 and 180,000 shares issued and outstanding
          105,000       179,714  
         Series D; $1,000 stated value; 0, 16,613 and 16,613 shares issued and outstanding
          16,613       16,613  
Common stock, $1 par value; 100,000,000 shares authorized; 50,167,191, 46,243,345 and 45,222,839 shares issued and outstanding
50,167       46,243       45,223  
    Common stock, non-voting, $1 par value; 26,000,000 shares authorized; 10,080,787, 13,188,206 and 14,189,006 shares issued and outstanding
    10,081       13,188       14,189  
    Common stock issuable; 354,961, 241,832 and 242,262 shares
    5,116       3,930       3,979  
    Capital surplus
    1,091,555       1,078,676       1,077,536  
    Accumulated deficit
    (402,773 )     (448,091 )     (461,090 )
    Accumulated other comprehensive loss
    (17,721 )     (19,844 )     (24,164 )
        Total shareholders’ equity
    736,425       795,715       852,217  
        Total liabilities and shareholders’ equity
  $ 7,525,889     $ 7,425,419     $ 7,243,293  
 
See accompanying notes to consolidated financial statements.
 
5
 

 

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
For the Nine Months Ended September 30,
                                                             
                                                   
Accumulated
       
    Preferred Stock          
Non-Voting
   
Common
               
Other
       
(in thousands, except share
 
Series
   
Series
   
Series
   
Common
   
Common
   
Stock
   
Capital
   
Accumulated
   
Comprehensive
       
and per share data)
    A       B       D    
Stock
   
Stock
   
Issuable
   
Surplus
   
Deficit
   
Income (Loss)
   
Total
 
Balance, December 31, 2012
  $ 217     $ 178,557     $ 16,613     $ 42,424     $ 15,317     $ 3,119     $ 1,057,951     $ (709,153 )   $ (23,640 )   $ 581,405  
Net income
                                                            257,229               257,229  
Other comprehensive income
                                                                    (524 )     (524 )
Common stock issued to dividend reinvestment plan and employee benefit plans (49,830 shares)
                            50                       532                       582  
Conversion of non-voting common stock to voting (1,127,788 shares)
                            1,128       (1,128 )                                      
Warrant exercise (1,551,126 shares)
                            1,551                       17,838                       19,389  
Amortization of stock options and restricted stock awards
                                                    2,168                       2,168  
Vesting of restricted stock (51,995 shares issued, 115,664 shares deferred)
                            52               1,693       (1,900 )                     (155 )
Deferred compensation plan, net, including dividend equivalents
                                            132                               132  
Shares issued from deferred compensation plan (18,230 shares)
                            18               (965 )     947                        
Preferred stock dividends:
                                                                               
Series A
                                                            (9 )             (9 )
Series B
            1,157                                               (7,907 )             (6,750 )
Series D
                                                            (1,250 )             (1,250 )
Balance, September 30, 2013
  $ 217     $ 179,714     $ 16,613     $ 45,223     $ 14,189     $ 3,979     $ 1,077,536     $ (461,090 )   $ (24,164 )   $ 852,217  
Balance, December 31, 2013
  $     $ 105,000     $ 16,613     $ 46,243     $ 13,188     $ 3,930     $ 1,078,676     $ (448,091 )   $ (19,844 )   $ 795,715  
Net income
                                                            49,373               49,373  
Other comprehensive income
                                                                    2,123       2,123  
Redemption of Series B preferred stock (105,000 shares)
            (105,000 )                                                             (105,000 )
Redemption of Series D preferred stock (16,613 shares)
                    (16,613 )                                                     (16,613 )
Cash dividends declared on common stock ($.06 per share)
                                                            (3,616 )             (3,616 )
Common stock issued at market (640,000 shares)
                            640                       11,566                       12,206  
Common stock issued to dividend reinvestment plan and to employee benefit plans (25,284 shares)
                            25                       399                       424  
Conversion of non-voting common stock to voting (3,107,419 shares)
                            3,107       (3,107 )                                      
Amortization of stock options and restricted stock awards
                                                    3,315                       3,315  
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (137,920 shares issued, 115,609 shares deferred)
                            138               1,275       (2,658 )                     (1,245 )
Deferred compensation plan, net, including dividend equivalents
                                            182                               182  
Shares issued from deferred
compensation plan
(13,223 shares)
                            14               (271 )     257                        
Preferred stock dividends:
                                                                               
Series B
                                                            (159 )             (159 )
Series D
                                                            (280 )             (280 )
Balance, September 30, 2014
  $     $     $     $ 50,167     $ 10,081     $ 5,116     $ 1,091,555     $ (402,773 )   $ (17,721 )   $ 736,425  

See accompanying notes to consolidated financial statements.
 
6
 

 

 
 
           
   
Nine Months Ended
 
   
September 30,
 
(in thousands)
 
2014
   
2013
 
Operating activities:
           
Net income
  $ 49,373     $ 257,229  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation, amortization and accretion
    15,098       20,847  
Provision for credit losses
    6,700       62,500  
Stock based compensation
    3,315       2,168  
Deferred income tax expense (benefit)
    28,112       (250,054 )
Securities gains, net
    (4,663 )     (116 )
Loss on prepayment of borrowings
    4,446        
Net (gains) losses on sales of foreclosed property
    (518 )     5,141  
Changes in assets and liabilities:
               
Other assets and accrued interest receivable
    (12,334 )     16,225  
Accrued expenses and other liabilities
    (16,813 )     31,562  
Mortgage loans held for sale
    (9,685 )     16,834  
Net cash provided by operating activities
    63,031       162,336  
Investing activities:
               
Investment securities held-to-maturity:
               
Proceeds from maturities and calls
    47,567       45,578  
Purchases
    (173 )     (8,481 )
Investment securities available-for-sale:
               
Proceeds from sales
    403,517       20,751  
Proceeds from maturities and calls
    176,423       399,304  
Purchases
    (552,025 )     (574,020 )
Net increase in loans
    (220,061 )     (288,514 )
Proceeds from note sales
    4,561       91,913  
Cash paid for acquisition
    (31,243 )      
Funds collected from FDIC under loss sharing agreements
    2,890       5,121  
Proceeds from sales of premises and equipment
    2,488       3,550  
Purchases of premises and equipment
    (3,260 )     (7,533 )
Proceeds from sale of other real estate
    7,920       24,049  
Net cash used in investing activities
    (161,396 )     (288,282 )
Financing activities:
               
Net change in deposits
    39,224       160,767  
Net change in short-term borrowings
    (51,686 )     1,195  
Proceeds from Federal Home Loan Bank advances
    930,000       650,000  
Repayment of Federal Home Loan Bank advances
    (720,000 )     (690,000 )
Proceeds from issuance of senior debt
          40,000  
Repayment of subordinated debentures
          (35,000 )
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans
    424       582  
Retirement of preferred stock
    (121,613 )      
Issuance of common stock
    12,206        
Proceeds from warrant exercise
          19,389  
Cash dividends on common stock
    (1,810 )      
Cash dividends on preferred stock
    (1,214 )     (8,003 )
Net cash provided by financing activities
    85,531       138,930  
Net change in cash and cash equivalents
    (12,834 )     12,984  
Cash and cash equivalents at beginning of period
    228,898       251,149  
Cash and cash equivalents at end of period
  $ 216,064     $ 264,133  
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 20,598     $ 26,517  
Income taxes
    2,497       2,361  
Unsettled securities purchases
          11,610  
Transfers of loans to foreclosed property
    8,216       18,460  

See accompanying notes to consolidated financial statements.
 
7
 

 

 
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
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, 2013.
 
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.
 
Reclassifications
 
Certain 2013 amounts have been reclassified to conform to the 2014 presentation.  During the fourth quarter of 2013, United reclassified hedge ineffectiveness gains and losses from other fee revenue to net interest revenue.  The impact of the reclassification has been reflected in all periods and was not material to any period.
 
Note 2 –Accounting Standards Updates and Recently Adopted Standards
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers .  This ASU provides guidance on the recognition of revenue from contracts with customers.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and will be applied retrospectively either to each prior reporting period or with a cumulative effect recognized at the date of initial application.  United is in the process of evaluating this guidance, but its effect on United’s financial condition or results of operations is not expected to be material.
 
In June 2014, FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings and Disclosures.   This ASU changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting.  For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting.  The ASU also requires new disclosures for repurchase agreements, securities lending transactions and repurchase-to-maturity transactions.  The Update is effective for the first interim or annual period beginning after December 15, 2014.  United is currently evaluating the guidance’s impact on its financial position, results of operation and disclosures.
 
 In June 2014, FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.   This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and should not be reflected in estimating the grant-date fair value of the award.  The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015.  This guidance is not expected to have a material impact on United’s financial position, results of operations or disclosures.
 
In August 2014, the FASB issued ASU No. 2014-13, Consolidation, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity .  This ASU addresses measurement differences in practice in both the initial consolidation and subsequent measurement of the financial assets and financial liabilities of a collateralized financing entity for a reporting entity that consolidates a collateralized financing entity.  Collateralized financing entities include collateralized debt obligations (“CDOs”) and collateralized loan obligations (“CLOs”).  This ASU becomes effective for public business entities for annual periods and interim periods within those annual periods, beginning after December 15, 2015.  Although United holds CLOs in its investment securities portfolio, United is not required to consolidate any of the CLOs it currently holds.  Therefore this ASU is not currently applicable to United.
 
In August 2014, the FASB issued ASU No. 2014-14, Receivables – Troubled Debt Restructurings by Creditors, Classification of Certain Government Guaranteed Mortgage Loans upon Foreclosure .  This ASU addresses diversity in practice related to how creditors classify government-guaranteed mortgage loans, including Federal Housing Administration or U.S. Department of Veterans Affairs guaranteed loans upon foreclosure.  The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:  1) The loan has a government guarantee that is not separable from the loan before foreclosure, 2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and 3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  This guidance is not expected to have a material impact on United’s financial position, results of operations or disclosures.
 
8
 

 

 
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 
 

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging – Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity . This ASU was issued to eliminate the use of different methods currently used in practice to account for hybrid financial instruments issued in the form of a share. The amendments in this ASU apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share. The amendments in this ASU are to be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant periods. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. United is not an issuer of or an investor in hybrid financial instruments issued in the form of a share and therefore this ASU is not currently applicable to United.

 
Note 3 – Acquisition
 
On June 26, 2014, United completed the acquisition of substantially all of the assets of Business Carolina, Inc., a specialty Small Business Administration (“SBA”) / United States Department of Agriculture (“USDA”) lender headquartered in Columbia, South Carolina.  On the closing date, United paid $31.2 million in cash for loans having a fair value on the purchase date of $24.8 million, accrued interest of $83,000, servicing rights with a fair value on the purchase date of $2.13 million, premises and equipment with a fair value on the purchase date of $2.60 million and goodwill in the amount of $1.49 million representing the premium paid over the fair value of the separately identifiable assets and liabilities acquired.  United has not identified any material separately identifiable intangible assets resulting from the acquisition.
 
Note 4 – Balance Sheet Offsetting
 
United enters into reverse repurchase agreements in order to invest short-term funds.  In addition, United enters into repurchase agreements and reverse repurchase agreements with the same counterparty in transactions commonly referred to as collateral swaps that are subject to master netting agreements under which the balances are netted in the balance sheet in accordance with ASC 210-20, Offsetting.
 
The following table presents a summary of amounts outstanding under reverse repurchase agreements and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of September 30, 2014, December 31, 2013 and September 30, 2013 (in thousands) .
                                     
         
Gross
                         
   
Gross
   
Amounts
       
Gross Amounts not Offset
       
   
Amounts of
   
Offset on the
          in the Balance Sheet        
   
Recognized
   
Balance
 
Net Asset
 
Financial
   
Collateral
       
September 30, 2014
 
Assets
   
Sheet
 
Balance
 
Instruments
   
Received
 
Net Amount
 
                                     
Repurchase agreements / reverse repurchase agreements
  $ 392,000     $ (375,000 )   $ 17,000     $     $ (17,985 )   $  
Derivatives
    22,221             22,221       (2,093 )     (3,427 )     16,701  
Total
  $ 414,221     $ (375,000 )   $ 39,221     $ (2,093 )   $ (21,412 )   $ 16,701  
Weighted average interest rate of reverse repurchase agreements
    1.16 %                                        
                                               
           
Gross
                                 
   
Gross
   
Amounts
         
Gross Amounts not Offset
         
   
Amounts of
   
Offset on the
  Net     in the Balance Sheet          
   
Recognized
   
Balance
 
Liability
 
Financial
   
Collateral
         
   
Liabilities
   
Sheet
 
Balance
 
Instruments
   
Pledged
 
Net Amount
 
                                                 
Repurchase agreements / reverse repurchase agreements
  $ 375,000     $ (375,000 )   $     $     $     $  
Derivatives
    36,171             36,171       (2,093 )     (38,195 )      
Total
  $ 411,171     $ (375,000 )   $ 36,171     $ (2,093 )   $ (38,195 )   $  
Weighted average interest rate of repurchase agreements
    .31 %                                        
 
9
 

 

 
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
                                     
         
Gross
                         
   
Gross
   
Amounts
       
Gross Amounts not Offset
       
   
Amounts of
   
Offset on the
          in the Balance Sheet        
   
Recognized
   
Balance
   
Net Asset
 
Financial
  &