United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 11/06/2015 14:11:44)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2015

 

OR

 

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

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to ___________

 

Commission file number 001-35095

 

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

 

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

 

(706) 781-2265

(Telephone Number)

 

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

 

YES  x   NO  ¨

 

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

 

YES  x   NO  ¨

 

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

 

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

 

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

 

YES  ¨   NO  x

 

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

 

 

 

 

 

 

INDEX

 

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

 

  2  
 

 

Part I – Financial Information

 

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

 

See accompanying notes to consolidated financial statements.

 

  3  
 

 

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

Before-tax

Amount

   

Tax
(Expense)

Benefit

   

Net of Tax

Amount

   

Before-tax

Amount

   

Tax
(Expense)

Benefit

   

Net of Tax

Amount

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

 

See accompanying notes to consolidated financial statements.

 

  4  
 

 

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

 

See accompanying notes to consolidated financial statements.

 

  5  
 

 

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders' Equity (Unaudited)

For the Nine Months Ended September 30,

 

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

 

See accompanying notes to consolidated financial statements.

 

  6  
 

 

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

 

See accompanying notes to consolidated financial statements.

 

  7  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 1 – Accounting Policies

 

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

 

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

 

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

 

Note 2 –Accounting Standards Updates and Recently Adopted Standards

 

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

 

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

 

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

 

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

 

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

 

  8  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

Note 3 – Acquisitions

 

Acquisition of Palmetto Bancshares, Inc.

 

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

 

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

 

  9  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

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

 

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

 

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

 

  10  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Acquisition of MoneyTree Corporation

 

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

 

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

 

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

 

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

 

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

 

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

 

  11  
 

 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

Pro forma information

 

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

 

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

 

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

 

Acquisition of Business Carolina, Inc.

 

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

 

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

 

  12  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 4 – Balance Sheet Offsetting

 

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

 

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

 

   

Gross

Amounts of

   

Gross

Amounts

Offset on the

         

Gross Amounts not Offset

in the Balance Sheet

       
September 30, 2015  

Recognized

Assets

   

Balance

Sheet

   

Net Asset

Balance

   

Financial

Instruments

   

Collateral

Received

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

 

   

Gross

Amounts of

   

Gross

Amounts

Offset on the

    Net    

Gross Amounts not Offset

in the Balance Sheet

       
   

Recognized

Liabilities

   

Balance

Sheet

   

Liability

Balance

   

Financial

Instruments

   

Collateral

Pledged

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

 

   

Gross

Amounts of

   

Gross

Amounts

Offset on the

         

Gross Amounts not Offset

in the Balance Sheet

       
December 31, 2014  

Recognized

Assets

   

Balance

Sheet

   

Net Asset

Balance

   

Financial

Instruments

   

Collateral

Received

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

 

   

Gross

Amounts of

   

Gross

Amounts

Offset on the

    Net    

Gross Amounts not Offset

in the Balance Sheet

       
   

Recognized

Liabilities

   

Balance

Sheet

   

Liability

Balance

   

Financial

Instruments

   

Collateral

Pledged

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

 

  13  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

   

Gross

Amounts of

   

Gross

Amounts

Offset on the

         

Gross Amounts not Offset

in the Balance Sheet

       
September 30, 2014  

Recognized

Assets

   

Balance

Sheet

   

Net Asset

Balance

   

Financial

Instruments

   

Collateral

Received

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

 

   

Gross

Amounts of

   

Gross

Amounts

Offset on the

    Net    

Gross Amounts not Offset

in the Balance Sheet

       
   

Recognized

Liabilities

   

Balance

Sheet

   

Liability

Balance

   

Financial

Instruments

   

Collateral

Pledged

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

 

Note 5 – Securities

 

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

 

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

 

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

 

  14  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

  15  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

  16  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

Unrealized

Loss

    Fair Value    

Unrealized

Loss

    Fair Value    

Unrealized

Loss

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

 

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

 

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

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

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

 

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

 

  17  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

  18  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 6 – Loans and Allowance for Credit Losses

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  19  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

    2015     2014  
Three Months Ended September 30,  

Beginning

Balance

   

Charge-

Offs

    Recoveries     Provision    

Ending

Balance

   

Beginning

Balance

   

Charge-

Offs

    Recoveries    

Allocation

of

Unallocated

    Provision    

Ending

Balance

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

 

Nine Months Ended September 30,  

Beginning

Balance

   

Charge-

Offs

    Recoveries     Provision    

Ending

Balance

   

Beginning

Balance

   

Charge-

Offs

    Recoveries    

Allocation

of

Unallocated

    Provision    

Ending

Balance

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

 

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

 

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

 

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

Individually

evaluated for

impairment

   

Collectively

evaluated for

impairment

   

Purchased

with

deteriorated

credit quality

   

Ending

Balance

   

Individually

evaluated for

impairment

   

Collectively

evaluated for

impairment

   

Ending

Balance

   

Individually

evaluated for

impairment

   

Collectively

evaluated for

impairment

   

Ending

Balance

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

 

  20  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  21  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  22  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

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

 

  23  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

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

 

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

 

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

 

  24  
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

  

    September 30, 2015     December 31, 2014     September 30, 2014  
    Number
of
Contracts
    Pre-
Modification
Outstanding
Recorded
Investment
    Post-
Modification
Outstanding
Recorded
Investment
    Number
of
Contracts
    Pre-
Modification
Outstanding
Recorded
Investment
    Post-
Modification
Outstanding
Recorded
Investment
    Number
of
Contracts
    Pre-
Modification
Outstanding
Recorded
Investment
    Post-
Modification
Outstanding
Recorded
Investment
 
                                                       
Owner occupied commercial real estate     55     $ 32,931     $ 32,796       54     $ 27,695     $ 26,296       52     $ 27,811     $ 26,248  
Income producing commercial real estate     28       14,435       14,361       31       18,094       17,915       32       19,652       19,104  
Commercial & industrial     31       3,465       3,459       32       2,848       2,847       33       2,941       2,941  
Commercial construction     15       11,557       11,386       14       11,360       11,280       14       11,238       11,084   </