United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 05/09/2016 16:29:46)

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

     For the Quarterly Period Ended March 31, 2016

 

OR

 

☐      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to ___________

 

Commission file number 001-35095

 

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

 

Georgia   58-1807304
(State of Incorporation)   (I.R.S. Employer Identification No.)

  

125 Highway 515 East    
Blairsville, Georgia   30512
Address of Principal
Executive Offices
  (Zip Code)

 

(706) 781-2265

(Telephone Number)

 

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

 

YES ☒   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 ☒   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 ☒ 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 ☒

 

Common stock, par value $1 per share 70,305,168 shares voting and 1,258,792 shares non-voting outstanding as of May 2, 2016.

 

 

 
 

 

INDEX

       
PART I - Financial Information  
       
  Item 1. Financial Statements.  
       
    Consolidated Statement of Income (unaudited) for the Three Months Ended March 31, 2016 and 2015 3
       
    Consolidated Statement of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2016 and 2015 4
       
    Consolidated Balance Sheet (unaudited) at March 31, 2016 and December 31, 2015 5
       
    Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2016 and 2015 6
       
    Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 2016 and 2015 7
       
    Notes to Consolidated Financial Statements 8
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 36
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk. 58
       
  Item 4. Controls and Procedures. 59
       
PART II - Other Information  
       
  Item 1. Legal Proceedings. 59
  Item 1A. Risk Factors. 59
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 59
  Item 3. Defaults Upon Senior Securities. 59
  Item 4. Mine Safety Disclosures. 59
  Item 5. Other Information. 59
  Item 6. Exhibits. 60

 

2
 

 

Part I – Financial Information

 

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Income
(Unaudited)  

             
    Three Months Ended
March 31,
 
(in thousands, except per share data)   2016     2015  
Interest revenue:                
Loans, including fees   $ 63,976     $ 49,664  
Investment securities, including tax exempt of $166 and $158     15,788       12,058  
Deposits in banks and short-term investments     957       812  
Total interest revenue     80,721       62,534  
                 
Interest expense:                
Deposits:                
NOW     485       394  
Money market     1,108       673  
Savings     29       20  
Time     642       1,109  
Total deposit interest expense     2,264       2,196  
Short-term borrowings     87       98  
Federal Home Loan Bank advances     733       392  
Long-term debt     2,685       2,606  
Total interest expense     5,769       5,292  
Net interest revenue     74,952       57,242  
(Release of) provision for credit losses     (200 )     1,800  
Net interest revenue after provision for credit losses     75,152       55,442  
                 
Fee revenue:                
Service charges and fees     10,126       7,615  
Mortgage loan and other related fees     3,289       2,755  
Brokerage fees     1,053       1,551  
Gains from sales of government guaranteed loans     1,237       1,141  
Securities gains, net     379       1,539  
Loss from prepayment of debt     -       (1,038 )
Other     2,522       2,119  
Total fee revenue     18,606       15,682  
Total revenue     93,758       71,124  
                 
Operating expenses:                
Salaries and employee benefits     33,062       26,446  
Communications and equipment     4,290       3,271  
Occupancy     4,723       3,278  
Advertising and public relations     864       750  
Postage, printing and supplies     1,280       938  
Professional fees     2,700       1,919  
FDIC assessments and other regulatory charges     1,524       1,209  
Amortization of intangibles     1,010       242  
Merger-related and other charges     2,653       -  
Other     5,779       5,008  
Total operating expenses     57,885       43,061  
Net income before income taxes     35,873       28,063  
Income tax expense     13,578       10,393  
Net income     22,295       17,670  
Preferred stock dividends     21       -  
Net income available to common shareholders   $ 22,274     $ 17,670  
                 
Earnings per common share:                
Basic   $ .31     $ .29  
Diluted     .31       .29  
Weighted average common shares outstanding:                
Basic     72,162       60,905  
Diluted     72,166       60,909  

 

See accompanying notes to consolidated financial statements.

 

3
 

 

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Comprehensive Income (Unaudited)

                                     
    Three Months Ended
March 31,
 
(in thousands)   2016     2015  
    Before-tax
Amount
    Tax
(Expense)
Benefit
    Net of Tax
Amount
    Before-tax
Amount
    Tax
(Expense)
Benefit
    Net of Tax
Amount
 
                                     
Net income   $ 35,873     $ (13,578 )   $ 22,295     $ 28,063     $ (10,393 )   $ 17,670  
Other comprehensive income:                                                
Unrealized gains on available-for-sale securities:                                                
Unrealized holding gains arising during period     11,697       (4,455 )     7,242       13,989       (5,305 )     8,684  
Reclassification adjustment for gains included in net income     (379 )     141       (238 )     (1,539 )     598       (941 )
Net unrealized gains     11,318       (4,314 )     7,004       12,450       (4,707 )     7,743  
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity     464       (181 )     283       484       (182 )     302  
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges     500       (195 )     305       425       (165 )     260  
Unrealized losses on derivative financial instruments accounted for as cash flow hedges     -       -       -       (471 )     183       (288 )
Net cash flow hedge activity     500       (195 )     305       (46 )     18       (28 )
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan     167       (65 )     102       159       (62 )     97  
Net defined benefit pension plan activity     167       (65 )     102       159       (62 )     97  
Total other comprehensive income     12,449       (4,755 )     7,694       13,047       (4,933 )     8,114  
Comprehensive income   $ 48,322     $ (18,333 )   $ 29,989     $ 41,110     $ (15,326 )   $ 25,784  

 

See accompanying notes to consolidated financial statements.

 

4
 

 

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

             
(in thousands, except share and per share data)   March 31,
2016
    December 31,
2015
 
                 
ASSETS                
Cash and due from banks   $ 93,821     $ 86,912  
Interest-bearing deposits in banks     88,995       153,451  
Cash and cash equivalents     182,816       240,363  
Securities available for sale     2,405,467       2,291,511  
Securities held to maturity (fair value $363,092 and $371,658)     351,700       364,696  
Mortgage loans held for sale     26,578       24,231  
Loans, net of unearned income     6,106,189       5,995,441  
Less allowance for loan losses     (66,310 )     (68,448 )
Loans, net     6,039,879       5,926,993  
Premises and equipment, net     180,690       178,165  
Bank owned life insurance     105,803       105,493  
Accrued interest receivable     25,893       25,786  
Net deferred tax asset     180,371       197,613  
Derivative financial instruments     23,488       20,082  
Goodwill and other intangible assets     146,409       147,420  
Other assets     112,237       94,075  
Total assets   $ 9,781,331     $ 9,616,428  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Liabilities:                
Deposits:                
Demand   $ 2,370,842     $ 2,204,755  
NOW     1,794,241       1,975,884  
Money market     1,630,565       1,599,637  
Savings     491,542       471,129  
Time     1,233,647       1,282,803  
Brokered     439,486       338,985  
Total deposits     7,960,323       7,873,193  
Repurchase agreements     -       16,640  
Federal Home Loan Bank advances     510,125       430,125  
Long-term debt     163,955       163,836  
Derivative financial instruments     31,374       28,825  
Accrued expenses and other liabilities     81,829       85,524  
Total liabilities     8,747,606       8,598,143  
Shareholders’ equity:                
Preferred stock, $1 par value; 10,000,000 shares authorized; Series H; $1,000 stated value; 0 and 9,992 shares issued and outstanding     -       9,992  
Common stock, $1 par value; 100,000,000 shares authorized; 66,258,777 and 66,198,477 shares issued and outstanding     66,259       66,198  
Common stock, non-voting, $1 par value; 26,000,000 shares authorized; 5,285,516 and 5,285,516 shares issued and outstanding     5,286       5,286  
Common stock issuable; 496,515 and 458,953 shares     6,700       6,779  
Capital surplus     1,286,884       1,286,361  
Accumulated deficit     (313,646 )     (330,879 )
Accumulated other comprehensive loss     (17,758 )     (25,452 )
Total shareholders’ equity     1,033,725       1,018,285  
Total liabilities and shareholders’ equity   $ 9,781,331     $ 9,616,428  

 

See accompanying notes to consolidated financial statements.

 

5
 

 

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
For the Three Months Ended March 31,

                                                   
(in thousands, except share and per
share data)
  Preferred
Stock
Series
H
  Common
Stock
  Non-Voting
Common
Stock
  Common
Stock
Issuable
  Capital
Surplus
  Accumulated
Deficit
  Accumulated
Other
Comprehensive
Loss
  Total  
                                                   
Balance, December 31, 2014   $ -   $ 50,178   $ 10,081   $ 5,168   $ 1,080,508   $ (387,568 ) $ (18,790 ) $ 739,577  
Net income                                   17,670           17,670  
Other comprehensive income                                         8,114     8,114  
Common stock issued to dividend reinvestment plan and employee benefit plans (3,689 shares)           4                 57                 61  
Amortization of stock option and restricted stock awards                             991                 991  
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (31,718 shares issued, 51,326 shares deferred)           32           759     (1,129 )               (338 )
Deferred compensation plan, net, including dividend equivalents                       106                       106  
Shares issued from deferred compensation plan (14,063 shares)           14           (138 )   124                 -  
Common stock dividends ($.05 per share)                                   (3,035 )         (3,035 )
Tax on restricted stock vesting                             559                 559  
Balance, March 31, 2015   $ -   $ 50,228   $ 10,081   $ 5,895   $ 1,081,110   $ (372,933 ) $ (10,676 ) $ 763,705  
                                                   
Balance, December 31, 2015   $ 9,992   $ 66,198   $ 5,286   $ 6,779   $ 1,286,361   $ (330,879 ) $ (25,452 ) $ 1,018,285  
Net income                                   22,295           22,295  
Other comprehensive income                                         7,694     7,694  
Redemption of Series H preferred stock (9,992 shares)     (9,992 )                                       (9,992 )
Common stock issued to dividend reinvestment plan and employee benefit plans (5,154 shares)           5                 79                 84  
Amortization of stock option and restricted stock awards                             918                 918  
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (26,385 shares issued, 62,422 shares deferred)           27           912     (1,422 )               (483 )
Deferred compensation plan, net, including dividend equivalents                       116                       116  
Shares issued from deferred compensation plan (28,761 shares)           29           (1,107 )   1,078                 -  
Common stock dividends ($.07 per share)                                   (5,041 )         (5,041 )
Tax on restricted stock vesting                             (130 )               (130 )
Preferred stock dividends, Series H                                   (21 )         (21 )
Balance, March 31, 2016   $ -   $ 66,259   $ 5,286   $ 6,700   $ 1,286,884   $ (313,646 ) $ (17,758 ) $ 1,033,725  

 

See accompanying notes to consolidated financial statements.

 

6
 

 

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows (Unaudited)

       
    Three Months Ended
March 31,
 
(in thousands)   2016     2015  
Operating activities:                
Net income   $ 22,295     $ 17,670  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation, amortization and accretion     7,087       5,158  
(Release of) provision for credit losses     (200 )     1,800  
Stock based compensation     918       991  
Deferred income tax expense     13,553       8,672  
Securities gains, net     (379 )     (1,539 )
Gains from sales of government guaranteed loans     (1,237 )     (1,141 )
Net gains and write downs on sales of other real estate owned     (214 )     (81 )
Loss on prepayment of borrowings     -       1,038  
Changes in assets and liabilities:                
Other assets and accrued interest receivable     (34,039 )     7,106  
Accrued expenses and other liabilities     (3,049 )     (11,342 )
Mortgage loans held for sale     (2,347 )     (1,986 )
Net cash provided by operating activities     2,388       26,346  
                 
Investing activities:                
Investment securities held to maturity:                
Proceeds from maturities and calls of securities held to maturity     14,207       16,144  
Purchases of securities held to maturity     (1,000 )     -  
Investment securities available for sale:                
Proceeds from sales of securities available for sale     61,305       69,467  
Proceeds from maturities and calls of securities available for sale     82,029       55,121  
Purchases of securities available for sale     (246,666 )     (137,305 )
Net increase in loans     (101,828 )     (121,116 )
Funds paid to FDIC under loss sharing agreements     -       (1,198 )
Proceeds from sales of premises and equipment     29       -  
Purchases of premises and equipment     (5,104 )     (1,768 )
Proceeds from sale of other real estate     1,524       1,408  
Net cash used in investing activities     (195,504 )     (119,247 )
                 
Financing activities:                
Net change in deposits     87,204       111,419  
Net change in short-term borrowings     (16,640 )     (6,540 )
Repayments of trust preferred securities     -       (15,998 )
Proceeds from FHLB advances     1,715,000       410,000  
Repayments of FHLB advances     (1,635,000 )     (410,000 )
Retirement of preferred stock     (9,992 )     -  
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans     84       61  
Cash dividends on common stock     (5,041 )     (3,032 )
Cash dividends on preferred stock     (46 )     -  
Net cash provided by financing activities     135,569       85,910  
                 
Net change in cash and cash equivalents     (57,547 )     (6,991 )
                 
Cash and cash equivalents at beginning of period     240,363       192,655  
                 
Cash and cash equivalents at end of period   $ 182,816     $ 185,664  
                 
Supplemental disclosures of cash flow information:                
Interest paid   $ 7,407     $ 6,334  
Income taxes paid     2,013       1,800  
Significant non-cash investing and financing transactions:                
Unsettled government guaranteed loan purchases     18,068       -  
Unsettled government guaranteed loan sales     6,774       3,671  
Transfers of loans to foreclosed properties     1,590       459  

 

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, 2015.

 

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

 

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

 

Note 2 –Accounting Standards Updates and Recently Adopted Standards

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs . To simplify presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability consistent with debt discounts. The standard was effective January 1, 2016 and has been retrospectively reflected in the accompanying consolidated balance sheet, with a corresponding reclassification for December 31, 2015 between other assets for $9.68 million, brokered deposits for $7.90 million and long-term debt for $1.78 million.

 

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

 

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

 

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

 

In March 2016, the FASB issued ASU No. 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting . This update eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. For public entities, this update is effective for fiscal years beginning after December 15, 2016, with application a prospective basis. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

8
 

 

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

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . This update simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments require that excess tax benefits and deficiencies be recognized as income tax expense or benefit in the income statement and as an operating activity in the statement of cash flows. In addition, an entity can make a policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The guidance modifies the threshold to qualify for equity classification to permit withholding up to the maximum statutory tax rate and clarifies that cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. For public entities, this update is effective for fiscal years beginning after December 15, 2016. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

Note 3 – Balance Sheet Offsetting and Repurchase Agreements Accounted for as Secured Borrowings

 

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

 

The following table presents a summary of amounts outstanding under reverse repurchase agreements and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of the dates indicated (in thousands) .

                                                 
    Gross
Amounts of
    Gross
Amounts
Offset on
          Gross Amounts not Offset
in the Balance Sheet
       
March 31, 2016   Recognized
Assets
    the Balance
Sheet
    Net Asset
Balance
    Financial
Instruments
    Collateral
Received
    Net
Amount
 
                                     
Repurchase agreements / reverse repurchase agreements   $ 350,000     $ (350,000 )   $ -     $ -     $ -     $ -  
Derivatives     23,488       -       23,488       (1,384 )     (4,845 )     17,259  
Total   $ 373,488     $ (350,000 )   $ 23,488     $ (1,384 )   $ (4,845 )   $ 17,259  
Weighted average interest rate of reverse repurchase agreements     1.45 %                                        

                                                 
    Gross
Amounts of
    Gross
Amounts
Offset on
    Net       Gross Amounts not Offset
in the Balance Sheet
         
    Recognized
Liabilities
    the Balance
Sheet
    Liability
Balance
    Financial
Instruments
    Collateral
Pledged
    Net
Amount
 
                                                 
Repurchase agreements / reverse repurchase agreements   $ 350,000     $ (350,000 )   $ -     $ -     $ -     $ -  
Derivatives     31,374       -       31,374       (1,384 )     (28,998 )     992  
Total   $ 381,374     $ (350,000 )   $ 31,374     $ (1,384 )   $ (28,998 )   $ 992  
Weighted average interest rate of repurchase agreements     .59 %                                        

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

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

   

9
 

 

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

 

At March 31, 2016, United recognized the right to reclaim cash collateral of $28.7 million and the obligation to return cash collateral of $4.37 million. At December 31, 2015, United recognized the right to reclaim cash collateral of $6.26 million and the obligation to return cash collateral of $3.73 million. The right to reclaim cash collateral and the obligation to return cash collateral were included in the consolidated balance sheet in other assets and other liabilities, respectively.

 

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

                               
    Remaining Contractual Maturity of the Agreements  
As of March 31, 2016   Overnight and
Continuous
    Up to 30 Days     30 to 90 Days     91 to 110 days     Total  
                               
U.S. Treasuries   $ -     $ -     $ 50,000     $ 50,000     $ 100,000  
Mortgage-backed securities     -       50,000       50,000       150,000       250,000  
Total   $ -     $ 50,000     $ 100,000     $ 200,000     $ 350,000  
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure             $ 350,000  
Amounts related to agreements not included in offsetting disclosure             $ -  

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

 

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

 

Note 4 – Securities

 

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

 

As of March 31, 2016   Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
                                 
State and political subdivisions   $ 61,499     $ 4,904     $ -     $ 66,403  
Mortgage-backed securities (1)     290,201       6,867       379       296,689  
Total   $ 351,700     $ 11,771     $ 379     $ 363,092  
                                 
As of December 31, 2015                                
                                 
State and political subdivisions   $ 62,073     $ 3,211     $ -     $ 65,284  
Mortgage-backed securities (1)     302,623       5,424       1,673       306,374  
Total   $ 364,696     $ 8,635     $ 1,673     $ 371,658  

 

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

 

10
 

 

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

 

The cost basis, unrealized gains and losses, and fair value of securities available-for-sale as of the dates indicated are presented below (in thousands) .

                         
As of March 31, 2016   Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
U.S. Treasuries   $ 140,574     $ 2,477     $ -     $ 143,051  
U.S. Government agencies     85,891       1,053       21       86,923  
State and political subdivisions     73,361       781       2       74,140  
Mortgage-backed securities (1)     1,253,173       17,511       3,349       1,267,335  
Corporate bonds     308,064       1,920       1,522       308,462  
Asset-backed securities     531,488       504       9,374       522,618  
Other     2,938       -       -       2,938  
Total   $ 2,395,489     $ 24,246     $ 14,268     $ 2,405,467  
                                 
As of December 31, 2015                                
                                 
U.S. Treasuries   $ 169,034     $ 156     $ 484     $ 168,706  
U.S. Government agencies     112,394       385       439       112,340  
State and political subdivisions     56,265       461       458       56,268  
Mortgage-backed securities (1)     1,108,206       12,077       7,165       1,113,118  
Corporate bonds     308,102       933       3,009       306,026  
Asset-backed securities     538,679       569       6,006       533,242  
Other     1,811       -       -       1,811  
Total   $ 2,294,491     $ 14,581     $ 17,561     $ 2,291,511  

 

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

 

Securities with a carrying value of $1.36 billion and $1.63 billion were pledged to secure public deposits, derivatives and other secured borrowings at March 31, 2016 and December 31, 2015, respectively.

 

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

                                     
    Less than 12 Months     12 Months or More     Total  
As of March 31, 2016   Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
 
Mortgage-backed securities   $ 52,172     $ 175     $ 12,889     $ 204     $ 65,061     $ 379  
Total unrealized loss position   $ 52,172     $ 175     $ 12,889     $ 204     $ 65,061     $ 379  
                                                 
As of December 31, 2015                                                
                                                 
Mortgage-backed securities   $ 140,362     $ 1,331     $ 13,127     $ 342     $ 153,489     $ 1,673  
Total unrealized loss position   $ 140,362     $ 1,331     $ 13,127     $ 342     $ 153,489     $ 1,673  

 

11
 

 

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

 

The following table summarizes available-for-sale securities in an unrealized loss position as of the dates indicated (in thousands) .

                                     
    Less than 12 Months     12 Months or More     Total  
As of March 31, 2016   Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
 
U.S. Treasuries   $ -     $ -     $ -     $ -     $ -     $ -  
U.S. Government agencies     7,600       21       -       -       7,600       21  
State and political subdivisions     1,664       2       -       -       1,664       2  
Mortgage-backed securities     89,267       648       159,558       2,701       248,825       3,349  
Corporate bonds     105,223       1,172       650       350       105,873       1,522  
Asset-backed securities     379,984       9,106       4,805       268       384,789       9,374  
Total unrealized loss position   $ 583,738     $ 10,949     $ 165,013     $ 3,319     $ 748,751     $ 14,268  
                                                 
As of December 31, 2015                                                
                                                 
U.S. Treasuries   $ 126,066     $ 484     $ -     $ -     $ 126,066     $ 484  
U.S. Government agencies     74,189       439       -       -       74,189       439  
State and political subdivisions     27,014       458       -       -       27,014       458  
Mortgage-backed securities     274,005       2,580       173,254       4,585       447,259       7,165  
Corporate bonds     221,337       2,759       750       250       222,087       3,009  
Asset-backed securities     358,940       5,746       4,816       260       363,756       6,006  
Total unrealized loss position   $ 1,081,551     $ 12,466     $ 178,820     $ 5,095     $ 1,260,371     $ 17,561  

 

At March 31, 2016, there were 138 available-for-sale securities and 12 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 March 31, 2016 were primarily attributable to changes in interest rates and declining prices in the equity markets.

 

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 months ended March 31, 2016 or 2015.

 

Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes available-for-sale securities sales activity for the three months ended March 31, 2016 and 2015 (in thousands) .

 

    Three Months Ended
March 31,
 
    2016     2015  
             
Proceeds from sales   $ 61,305     $ 69,467  
                 
Gross gains on sales   $ 673     $ 1,539  
Gross losses on sales     (294 )     -  
                 
Net gains on sales of securities   $ 379     $ 1,539  
                 
Income tax expense attributable to sales   $ 141     $ 598  

 

12
 

 

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 March 31, 2016, by contractual maturity, are presented in the following table (in thousands) .

                         
    Available-for-Sale     Held-to-Maturity  
    Amortized Cost     Fair Value     Amortized Cost     Fair Value  
                                 
US Treasuries:                                
1 to 5 years   $ 66,071     $ 66,859     $ -     $ -  
5 to 10 years     74,503       76,192       -       -  
      140,574       143,051       -       -  
                                 
US Government agencies:                                
1 to 5 years     12,943       12,938       -       -  
5 to 10 years     72,948       73,985       -       -  
      85,891       86,923       -       -  
                                 
State and political subdivisions:                                
Within 1 year     1,443       1,446       3,503       3,528  
1 to 5 years     10,603       10,838       15,638       16,614  
5 to 10 years     52,851       53,189       21,579       23,862  
More than 10 years     8,464       8,667       20,779       22,399  
      73,361       74,140       61,499       66,403  
                                 
Corporate bonds:                                
1 to 5 years     223,383       223,309       -       -  
5 to 10 years     52,286       53,259       -       -  
More than 10 years     32,395       31,894       -       -  
      308,064       308,462       -       -  
                                 
Asset-backed securities:                                
1 to 5 years     24,284       24,356       -       -  
5 to 10 years     264,883       259,436       -       -  
More than 10 years     242,321       238,826       -       -  
      531,488       522,618       -       -  
                                 
Other:                                
More than 10 years     2,938       2,938       -       -  
      2,938       2,938       -       -  
                                 
Total securities other than mortgage-backed securities:                                
Within 1 year     1,443       1,446       3,503       3,528  
1 to 5 years     337,284       338,300       15,638       16,614  
5 to 10 years     517,471       516,061       21,579       23,862  
More than 10 years     286,118       282,325       20,779       22,399  
                                 
Mortgage-backed securities     1,253,173       1,267,335       290,201       296,689  
    $ 2,395,489     $ 2,405,467     $ 351,700     $ 363,092  

 

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

 

13
 

 

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

 

Note 5 – Loans and Allowance for Credit Losses

 

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

             
    March 31,
2016
    December 31,
2015
 
                 
Owner occupied commercial real estate   $ 1,434,152     $ 1,493,966  
Income producing commercial real estate     879,880       823,729  
Commercial & industrial     854,794       785,417  
Commercial construction     353,855       342,078  
Total commercial     3,522,681       3,445,190  
Residential mortgage     1,031,653       1,029,663  
Home equity lines of credit     604,208       597,806  
Residential construction     347,864       351,700  
Consumer installment     125,303       115,111  
Indirect auto     474,480       455,971  
Total loans     6,106,189       5,995,441  
Less allowance for loan losses     (66,310 )     (68,448 )
Loans, net   $ 6,039,879     $ 5,926,993  

 

At March 31, 2016 and December 31, 2015, loans totaling $2.75 billion and $2.44 billion, respectively, were pledged as collateral to secure Federal Home Loan Bank advances and other contingent funding sources.

 

At March 31, 2016, the carrying value and outstanding balance of purchased credit impaired (“PCI”) loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality , were $43.9 million and $60.7 million, respectively. At December 31, 2015, the carrying value and outstanding balance of PCI loans were $51.3 million and $71.0 million, respectively. The following table presents changes in the value of the accretable yield for acquired loans accounted for under ASC 310-30 for the periods indicated (in thousands) :

             
    Three Months Ended March 31,  
    2016     2015  
                 
Balance at beginning of period   $ 4,279     $ -  
Accretion     (1,315 )     -  
Reclassification from nonaccretable difference     646       -  
Changes in expected cash flows that do not affect nonaccretable difference     534       -  
Balance at end of period   $ 4,144     $ -  

 

In addition to the accretable yield on loans accounted for under ASC 310-30, the fair value adjustments on purchased loans outside the scope of ASC 310-30 are also accreted to interest income over the life of the loans. At March 31, 2016 and December 31, 2015, the remaining accretable fair value marks on loans acquired through a business combination and not accounted for under ASC 310-30 were $6.48 million and $7.03 million, respectively. In addition, indirect auto loans purchased at a premium outside of a business combination have a remaining premium of $12.7 million and $12.0 million, respectively, as of March 31, 2016 and December 31, 2015.

 

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

 

14
 

 

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

 

The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the periods indicated (in thousands) .

                               
Three Months Ended March 31, 2016   Beginning
Balance
    Charge-
Offs
    Recoveries     (Release)
Provision
    Ending
Balance
 
                                         
Owner occupied commercial real estate   $ 16,732     $ (402 )   $ 97     $ 437     $ 16,864  
Income producing commercial real estate     8,235       (222 )     11       (2,004 )     6,020  
Commercial & industrial     4,442       (572 )     289       (1,006 )     3,153  
Commercial construction     5,583       (287 )     -       3,642       8,938  
Residential mortgage     17,232       (176 )     127       (2,978 )     14,205  
Home equity lines of credit     6,042       (723 )     91       585       5,995  
Residential construction     7,961       (59 )     163       969       9,034  
Consumer installment     828       (479 )     206       218       773  
Indirect auto     1,393       (233 )     31       137       1,328  
Total allowance for loan losses     68,448       (3,153 )     1,015       -       66,310  
Allowance for unfunded commitments     2,542       -       -       (200 )     2,342  
Total allowance for credit losses   $ 70,990     $ (3,153 )   $ 1,015     $ (200 )   $ 68,652  

                               
Three Months Ended March 31, 2015   Beginning
Balance
    Charge-
Offs
    Recoveries    

(Release)

Provision

    Ending
Balance
 
                                         
Owner occupied commercial real estate   $ 16,041     $ (368 )   $ 11     $ (732 )   $ 14,952  
Income producing commercial real estate     10,296       (248 )     7       (400 )     9,655  
Commercial & industrial     3,255       (469 )     128       528       3,442  
Commercial construction     4,747       (22 )     -       610       5,335  
Residential mortgage     20,311       (578 )     162       243       20,138  
Home equity lines of credit     4,574       (73 )     14       (194 )     4,321  
Residential construction     10,603       (1,140 )     79       668       10,210  
Consumer installment     731       (326 )     376       (68 )     713  
Indirect auto     1,061       (128 )     13       295       1,241  
Total allowance for loan losses     71,619       (3,352 )     790       950       70,007  
Allowance for unfunded commitments     1,930       -       -       850       2,780  
Total allowance for credit losses   $ 73,549     $ (3,352 )   $ 790     $ 1,800     $ 72,787  

 

15
 

 

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

 

The following table represents the recorded investment in loans by portfolio segment and the balance of the allowance for loan losses assigned to each segment based on the method of evaluating the loans for impairment as of the dates indicated (in thousands) .

 

    Allowance for Loan Losses  
    March 31, 2016     December 31, 2015  
    Individually evaluated
for impairment
    Collectively evaluated for impairment     PCI     Ending Balance     Individually evaluated
for impairment
    Collectively evaluated for impairment     PCI     Ending Balance  
                                                 
Owner occupied commercial real estate   $ 1,374     $ 15,490     $ -     $ 16,864     $ 1,465     $ 15,267     $ -     $ 16,732  
Income producing commercial real estate     401       5,619       -       6,020       961       7,274       -       8,235  
Commercial & industrial     54       3,099       -       3,153       280       4,162       -       4,442  
Commercial construction     34       8,904       -       8,938       13       5,570       -       5,583  
Residential mortgage     1,850       12,347       8       14,205       3,885       13,347       -       17,232  
Home equity lines of credit     1       5,994       -       5,995       6       6,036       -       6,042  
Residential construction     98       8,936       -       9,034       174       7,787       -       7,961  
Consumer installment     7       766       -       773       13       815       -       828  
Indirect auto     -       1,328       -       1,328       -       1,393       -       1,393  
Total allowance for loan losses     3,819       62,483       8       66,310       6,797       61,651       -       68,448  
Allowance for unfunded commitments     -       2,342       -       2,342       -       2,542       -       2,542  
Total allowance for credit losses   $ 3,819     $ 64,825     $ 8     $ 68,652     $ 6,797     $ 64,193     $ -     $ 70,990  

 

    Loans Outstanding  
    March 31, 2016     December 31, 2015  
    Individually evaluated
for impairment
    Collectively evaluated for impairment     PCI     Ending Balance     Individually evaluated
for impairment
    Collectively evaluated for impairment     PCI     Ending Balance  
                                                 
Owner occupied commercial real estate   $ 31,231     $ 1,393,537     $ 9,384     $ 1,434,152     $ 38,268     $ 1,442,024     $ 13,674     $ 1,493,966  
Income producing commercial real estate     24,811       832,546       22,523       879,880       23,013       772,945       27,771       823,729  
Commercial & industrial     2,366       850,994       1,434       854,794       3,339       781,423       655       785,417  
Commercial construction     1,527       347,337       4,991       353,855       10,616       329,320       2,142       342,078  
Residential mortgage     19,821       1,008,435       3,397       1,031,653       19,627       1,005,860       4,176       1,029,663  
Home equity lines of credit     63       602,570       1,575       604,208       167       595,951       1,688       597,806  
Residential construction     5,256       342,050       558       347,864       7,900       342,677       1,123       351,700  
Consumer installment     331       124,961       11       125,303       329       114,741       41       115,111  
Indirect auto     795       473,655       30       474,480       749       455,173       49       455,971  
Total loans   $ 86,201     $ 5,976,085     $ 43,903     $ 6,106,189     $ 104,008     $ 5,840,114     $ 51,319     $ 5,995,441  

 

Excluding loans accounted for under ASC 310-30, management individually evaluates all loans that are on nonaccrual with a balance of $500,000 or greater and all troubled debt restructurings (“TDRs”) for impairment. In addition, management reviews all accruing substandard loans greater than $2 million to determine if the loan is impaired. A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the original contractual terms of the loan will not be collected. All TDRs are considered impaired regardless of accrual status. Impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. 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, 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. 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 appropriate to measure the probable losses incurred within the loan portfolio.

 

16
 

 

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

 

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.

 

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

 

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

 

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

 

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

 

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 the dates indicated (in thousands) .

 

    March 31, 2016     December 31, 2015  
    Unpaid Principal Balance     Recorded Investment     Allowance for Loan Losses Allocated     Unpaid Principal Balance     Recorded Investment     Allowance for Loan Losses Allocated  
                                                 
With no related allowance recorded:                                                
Owner occupied commercial real estate   $ 8,794     $ 8,136     $ -     $ 14,793     $ 14,460     $ -  
Income producing commercial real estate     14,673       14,597       -       13,044       12,827       -  
Commercial & industrial     -       -       -       493       469       -  
Commercial construction     -       -       -       -       -       -  
Total commercial     23,467       22,733       -       28,330       27,756       -  
Residential mortgage     692       689       -       791       791       -  
Home equity lines of credit     -       -       -       -       -       -  
Residential construction     856       856       -       3,731       3,429       -  
Consumer installment     -       -       -       -       -       -  
Indirect auto     795       795       -       749       749       -  
Total with no related allowance recorded     25,810       25,073       -       33,601       32,725       -  
                                                 
With an allowance recorded:                                                
Owner occupied commercial real estate     23,619       23,095       1,374       24,043       23,808       1,465  
Income producing commercial real estate     10,330       10,214       401       10,281       10,186       961  
Commercial & industrial     2,451       2,366       54       2,957       2,870       280  
Commercial construction     1,702       1,527       34       10,787       10,616       13  
Total commercial     38,102       37,202       1,863       48,068       47,480       2,719  
Residential mortgage     19,686       19,132       1,850       19,346       18,836       3,885  
Home equity lines of credit     63       63       1       167       167       6  
Residential construction     4,787       4,400       98       4,854       4,471       174  
Consumer installment     359       331       7       354       329       13  
Indirect auto     -       -       -       -       -       -  
Total with an allowance recorded     62,997       61,128       3,819       72,789       71,283       6,797  
Total   $ 88,807     $ 86,201     $ 3,819     $ 106,390     $ 104,008     $ 6,797  

 

17
 

 

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

 

Excluding PCI loans, there were no loans more than 90 days past due and still accruing interest at March 31, 2016 or December 31, 2015. Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans. United’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in full or when the loan becomes 90 days past due and is not well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.

 

PCI loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered to be performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. No PCI loans were classified as nonaccrual at March 31, 2016 or December 31, 2015 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest income, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans.

 

The gross additional interest revenue that would have been earned if the loans classified as nonaccrual had performed in accordance with the original terms was approximately $254,000 and $260,000 for the three months ended March 31, 2016 and 2015, respectively. The gross additional interest revenue that would have been earned for the three months ended March 31, 2016 and 2015 had performing TDRs performed in accordance with the original terms is immaterial.

 

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

 

    2016     2015  
Three Months Ended March 31,   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   $ 31,502     $ 430     $ 447     $ 36,989     $ 460     $ 459  
Income producing commercial real estate     24,950       284       302       21,424       267       275  
Commercial & industrial     2,446       31       27       4,023       38       37  
Commercial construction     1,532       22       23       12,273       116       121  
Total commercial     60,430       767       799       74,709       881       892  
Residential mortgage     19,980       206       203       22,085       226       233  
Home equity lines of credit     63       1       1       478       5       5  
Residential construction     5,317       67       63       10,575       120       126  
Consumer installment     341       6       7       153       3       3  
Indirect auto     784       11       11       -       -       -  
Total   $ 86,915     $ 1,058     $ 1,084     $ 108,000     $ 1,235     $ 1,259  

 

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

 

    March 31,     December 31,  
    2016     2015  
                 
Owner occupied commercial real estate   $ 6,775     $ 7,036  
Income producing commercial real estate     2,959       2,595  
Commercial & industrial     978       892  
Commercial construction     266       328  
Total commercial     10,978       10,851  
Residential mortgage     8,037       8,555  
Home equity lines of credit     1,198       851  
Residential construction     1,122       1,398  
Consumer installment     211       175  
Indirect auto     873       823  
Total   $ 22,419     $ 22,653  

 

18
 

 

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 by class of loans as of the dates indicated (in thousands) .

                                                         
    Loans Past Due     Loans Not                  
As of March 31, 2016   30 - 59 Days     60 - 89 Days     > 90 Days     Total     Past Due     PCI Loans     Total  
Owner occupied commercial real estate   $ 2,849     $ 815     $ 2,692     $ 6,356     $ 1,418,412     $ 9,384     $ 1,434,152  
Income producing commercial real estate     1,029       163       867       2,059       855,298       22,523       879,880  
Commercial & industrial     623       234       456       1,313       852,047       1,434       854,794  
Commercial construction     79       -       -       79       348,785       4,991       353,855  
Total commercial     4,580       1,212       4,015       9,807       3,474,542       38,332       3,522,681  
Residential mortgage     5,931       1,392       2,537       9,860       1,018,396       3,397       1,031,653  
Home equity lines of credit     2,209       560       592       3,361       599,272       1,575       604,208  
Residential construction     819       219       259       1,297       346,009       558       347,864  
Consumer installment     531       58       43       632       124,660       11       125,303  
Indirect auto     644       464       531       1,639       472,811       30       474,480  
Total loans   $ 14,714     $ 3,905     $ 7,977     $ 26,596     $ 6,035,690     $ 43,903     $ 6,106,189  
                                                         
As of December 31, 2015                                                        
Owner occupied commercial real estate   $ 3,733     $ 1,686     $ 1,400     $ 6,819     $ 1,473,473     $ 13,674     $ 1,493,966  
Income producing commercial real estate     204       1,030       621       1,855       794,103       27,771       823,729  
Commercial & industrial     858       88       489       1,435       783,327       655       785,417  
Commercial construction     159       -       76       235       339,701       2,142       342,078  
Total commercial     4,954       2,804       2,586       10,344       3,390,604       44,242       3,445,190  
Residential mortgage     5,111       1,338       3,544       9,993       1,015,494       4,176       1,029,663  
Home equity lines of credit     1,118       188       287       1,593       594,525       1,688       597,806  
Residential construction     2,180       239       344       2,763       347,814       1,123       351,700  
Consumer installment     610       115       83       808       114,262       41       115,111  
Indirect auto     611       311       561       1,483       454,439       49       455,971  
Total loans   $ 14,584     $ 4,995     $ 7,405     $ 26,984     $ 5,917,138     $ 51,319     $ 5,995,441  

 

As of March 31, 2016 and December 31, 2015, $3.00 million and $6.37 million, respectively, of specific reserves were allocated to customers whose loan terms have been modified in TDRs. United committed to lend additional amounts totaling up to $148,000 and $224,000 as of March 31, 2016 and December 31, 2015, respectively, to customers with outstanding loans that are classified as TDRs.

 

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

 

19
 

 

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

 

The following table presents information on TDRs, including the number of loan contracts restructured and the pre- and post-modification recorded investment as of the dates indicated (dollars in thousands) .

                                     
    March 31, 2016     December 31, 2015  
    Number of Contracts     Pre-
Modification Outstanding Recorded Investment
    Post-
Modification Outstanding Recorded Investment
    Number of Contracts     Pre-
Modification Outstanding Recorded Investment
    Post-
Modification Outstanding Recorded Investment
 
                                     
Owner occupied commercial real estate     56     $ 28,076     $ 27,291       54     $ 32,544     $ 32,058  
Income producing commercial real estate     30       20,630       20,630       29       15,703       15,629  
Commercial & industrial     24       2,289       2,209       26       2,955       2,870  
Commercial construction     9       1,696       1,527       14       10,785       10,616  
Total commercial     119       52,691       51,657       123       61,987       61,173  
Residential mortgage     175       19,445       19,132       173       19,101       18,836  
Home equity lines of credit     1       63       63       2       167       167  
Residential construction     43       5,585       5,256       44       5,663       5,334  
Consumer installment     22       352       331       22       348       329  
Indirect auto     52       795       795       49       749       749  
Total loans     412     $ 78,931     $ 77,234       413     $ 88,015     $ 86,588  

 

Loans modified under the terms of a TDR during the three months ended March 31, 2016 and 2015 are presented in the table below. In addition, the following table presents loans modified under the terms of a TDR within the past 12 months that became 90 days or more delinquent since restructure (dollars in thousands) .

 

    New TDRs     TDRs Modified Within
the Past 12 Months That
Have Subsequently
Defaulted
 
Three months ended March 31, 2016   Number of Contracts     Pre-
Modification Outstanding Recorded Investment
    Post-
Modification Outstanding Recorded Investment
    Number of Contracts     Recorded Investment  
Owner occupied commercial real estate     3     $ 649     $ 649       1     $ 247  
Income producing commercial real estate     -       -       -       -       -  
Commercial & industrial     1       197       197       -       -  
Commercial construction     -       -       -       -       -  
Total commercial     4       846       846       1       247  
Residential mortgage     7       799       763       -       -  
Home equity lines of credit     -       -       -       -       -  
Residential construction     1       66       66       -       -  
Consumer installment     1       20       20       -       -  
Indirect auto     -       -       -       -       -  
Total loans     13     $ 1,731     $ 1,695       1     $ 247  
                                         
Three months ended March 31, 2015                                        
Owner occupied commercial real estate     2     $ 4,497     $ 4,497       -     $ -  
Income producing commercial real estate     2       255       255       -       -  
Commercial & industrial     2       188       188       -       -  
Commercial construction     -       -       -       -       -  
Total commercial     6       4,940       4,940       -       -  
Residential mortgage     15       1,598       1,598       -       -  
Home equity lines of credit     -       -       -       -       -  
Residential construction     -       -       -       -       -  
Consumer installment     1       3       3       1       30  
Indirect auto     -       -       -       -       -  
Total loans     22     $ 6,541     $ 6,541       1     $ 30  

 

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

 

20
 

 

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

 

Risk Ratings

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

21
 

 

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

 

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

                                         
As of March 31, 2016   Pass     Watch     Substandard     Doubtful /
Loss
    Total  
Owner occupied commercial real estate   $ 1,362,185     $ 27,700     $ 34,883     $ -     $ 1,424,768  
Income producing commercial real estate     830,360       6,997       20,000       -       857,357  
Commercial & industrial     834,535       10,004       8,821       -       853,360  
Commercial construction     343,618       4,049       1,197       -       348,864  
Total commercial     3,370,698       48,750       64,901       -       3,484,349  
Residential mortgage     985,272       5,415       37,569       -       1,028,256  
Home equity lines of credit     596,641       25       5,967       -       602,633  
Residential construction     335,814       3,736       7,756       -       347,306  
Consumer installment     124,429       -       863       -       125,292  
Indirect auto     472,094       -       2,356       -       474,450  
Total loans, excluding PCI loans   $ 5,884,948     $ 57,926     $ 119,412     $ -     $ 6,062,286  
                                         
Owner occupied commercial real estate   $ 1,440     $ 3,136     $ 4,808     $ -     $ 9,384  
Income producing commercial real estate     3,848       5,732       12,943       -       22,523  
Commercial & industrial     60       61       1,313       -       1,434  
Commercial construction     1,671       2,924       396       -       4,991  
Total commercial     7,019       11,853       19,460       -       38,332  
Residential mortgage     -       382       3,015       -       3,397  
Home equity lines of credit     217       -       1,358       -       1,575  
Residential construction     321       33       204       -       558  
Consumer installment     1       -       10       -       11  
Indirect auto     -       -       30       -       30  
Total PCI loans   $ 7,558     $ 12,268     $ 24,077     $ -     $ 43,903  
                                         
As of December 31, 2015                                        
Owner occupied commercial real estate   $ 1,414,353     $ 24,175     $ 41,764     $ -     $ 1,480,292  
Income producing commercial real estate     771,792       4,151       20,015       -       795,958  
Commercial & industrial     770,287       8,171       6,304       -       784,762  
Commercial construction     335,571       3,069       1,296       -       339,936  
Total commercial     3,292,003       39,566       69,379       -       3,400,948  
Residential mortgage     985,109       5,070       35,308       -       1,025,487  
Home equity lines of credit     589,749       24       6,345       -       596,118  
Residential construction     335,341       3,813       11,423       -       350,577  
Consumer installment     114,178       -       892       -       115,070  
Indirect auto     453,935       -       1,987       -       455,922  
Total loans, excluding PCI loans   $ 5,770,315     $ 48,473     $ 125,334     $ -     $ 5,944,122  
                                         
Owner occupied commercial real estate   $ 1,811     $ 6,705     $ 4,809     $ 349     $ 13,674  
Income producing commercial real estate     9,378       5,766       12,627       -       27,771  
Commercial & industrial     17       83       505       50       655  
Commercial construction     1,698       6       438       -       2,142  
Total commercial     12,904       12,560       18,379       399       44,242  
Residential mortgage     -       410       3,766       -       4,176  
Home equity lines of credit     214       -       1,474       -       1,688  
Residential construction     345       39       227       512       1,123  
Consumer installment     1       -       40       -       41  
Indirect auto     -       -       49       -       49  
Total PCI loans   $ 13,464     $ 13,009     $ 23,935     $ 911     $ 51,319  

 

22
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements  

 

Note 6 – Reclassifications Out of Accumulated Other Comprehensive Income

 

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

             
Details about Accumulated Other   Amounts Reclassified from
Accumulated Other
Comprehensive Income
For the three months
ended March 31,
  Affected Line Item in the Statement
Comprehensive Income Components   2016     2015     Where Net Income is Presented
                     
Realized gains on available-for-sale securities:                    
    $ 379     $ 1,539     Securities gains, net
      (141 )     (598 )   Tax expense
    $ 238     $ 941     Net of tax
                     
Amortization of losses included in net income on available-for-sale securities transferred to held to maturity:
    $ (464 )   $ (484 )   Investment securities interest revenue
      181       182     Tax benefit
    $ (283 )   $ (302 )   Net of tax
                     
Gains included in net income on derivative financial instruments accounted for as cash flow hedges:
Amortization of losses on de-designated positions   $ (7 )   $ (48 )   Deposits in banks and short-term investments interest revenue
Amortization of losses on de-designated positions     (191 )     (119 )   Money market deposit interest expense
Amortization of losses on de-designated positions     (302 )     (258 )   Federal Home Loan Bank advances interest expense
      (500 )     (425 )   Total before tax
      195       165     Tax benefit
    $ (305 )   $ (260 )   Net of tax
                     
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan:
Prior service cost   $ (125 )   $ (91 )   Salaries and employee benefits expense
Actuarial losses     (42 )     (68 )   Salaries and employee benefits expense
      (167 )     (159 )   Total before tax
      65       62     Tax benefit
    $ (102 )   $ (97 )   Net of tax
                     
Total reclassifications for the period   $ (452 )   $ 282     Net of tax
                     
Amounts shown above in parentheses reduce earnings                    

 

Note 7 – Earnings Per Share

 

United is required to report on the face of the consolidated statement of income, earnings per common share with and without the dilutive effects of potential common stock issuances from instruments such as options, convertible securities and warrants. Basic earnings per common share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per common share.

 

During the three months ended March 31, 2016, United accrued dividends of $21,000 on its Series H preferred stock. The preferred stock dividends were subtracted from net income in order to arrive at net income available to common shareholders. During the three months ended March 31, 2015, United did not accrue any dividends on its preferred stock.

 

23
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data) .

       
    Three Months Ended
March 31,
 
    2016     2015  
                 
Net income available to common shareholders   $ 22,274     $ 17,670  
                 
Weighted average shares outstanding:                
Basic     72,162       60,905  
Effect of dilutive securities                
   Stock options     4       4  
Diluted     72,166       60,909  
                 
Net income per common share:                
Basic   $ .31     $ .29  
Diluted   $ .31     $ .29  

 

At March 31, 2016, United had the following potentially dilutive stock options and warrants outstanding: a warrant to purchase 219,909 shares of common stock at $61.40 per share; 235,771 shares of common stock issuable upon exercise of stock options granted to employees with a weighted average exercise price of $89.61; and 597,240 shares of common stock issuable upon completion of vesting of restricted stock unit awards.

 

At March 31, 2015, United had the following potentially dilutive stock options and warrants outstanding: a warrant to purchase 219,909 shares of common stock at $61.40 per share; 301,344 shares of common stock issuable upon exercise of stock options granted to employees with a weighted average exercise price of $93.01; and 773,304 shares of common stock issuable upon completion of vesting of restricted stock unit awards. 

 

Note 8 – Derivatives and Hedging Activities

 

Risk Management Objective of Using Derivatives

 

United is exposed to certain risks arising from both its business operations and economic conditions. United principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. United manages interest rate risk primarily by managing the amount, sources, and duration of its investment securities portfolio and wholesale funding and through the use of derivative financial instruments. Specifically, United enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments are used to manage differences in the amount, timing, and duration of known or expected cash receipts and its known or expected cash payments principally related to loans, investment securities, wholesale borrowings and deposits.

 

In conjunction with the FASB’s fair value measurement guidance, United made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a gross basis.

 

24
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The table below presents the fair value of United’s derivative financial instruments as of the dates indicated as well as their classification on the consolidated balance sheet (in thousands) .

                   
Derivatives designated as hedging instruments under ASC 815
        Fair Value  
Interest Rate Products   Balance Sheet
Location
  March 31,
2016
  December 31,
2015
 
Fair value hedge of brokered CD’s   Derivative assets   $ 86   $ -  
Fair value hedge of corporate bonds   Derivative assets     -     31  
        $ 86   $ 31  
                   

Fair value hedge of brokered CD’s

  Derivative liabilities   $ 61   $ 2,169  
Fair value hedge of corporate bonds   Derivative liabilities     1,584     -  
        $ 1,645   $ 2,169  
Derivatives not designated as hedging instruments under ASC 815
        Fair Value  
Interest Rate Products   Balance Sheet
Location
  March 31,
2016
  December 31,
2015
 
Customer swap positions   Derivative assets   $ 12,895   $ 6,185  
Dealer offsets to customer swap positions   Derivative assets     -     31  
Mortgage banking - loan commitment   Derivative assets     188     188  
Mortgage banking - forward sales commitment   Derivative assets     2     1  
Bifurcated embedded derivatives   Derivative assets     3,727     9,230  
Offsetting positions for de-designated cash flow hedges   Derivative assets     6,590     4,416  
        $ 23,402   $ 20,051  
                   
Customer swap positions   Derivative liabilities   $ -   $ 31  
Dealer offsets to customer swap positions   Derivative liabilities     12,966     6,339  
Mortgage banking - forward sales commitment   Derivative liabilities     22     22  
Dealer offsets to bifurcated embedded derivatives   Derivative liabilities     10,151     15,794  
De-designated cash flow hedges   Derivative liabilities     6,590     4,470  
        $ 29,729   $ 26,656  

 

Derivative contracts that are not accounted for as hedging instruments under ASC 815, Derivatives and Hedging, and are described as “customer derivatives,” are between United and certain commercial loan customers with offsetting positions to dealers under a back-to-back swap program. United also has three interest rate swap contracts that are not designated as hedging instruments but are economic hedges of market linked brokered certificates of deposit. The market linked brokered certificates of deposit contain embedded derivatives that are bifurcated from the host instruments and marked to market through earnings. The marks on the market linked swaps and the bifurcated embedded derivatives tend to move in opposite directions with changes in 90-day LIBOR and therefore provide an effective economic hedge.

 

In addition, United originates certain residential mortgage loans with the intention of selling these loans. Between the time United enters into an interest-rate lock commitment to originate a residential mortgage loan that is to be held for sale and the time the loan is funded and eventually sold, the Company is subject to the risk of variability in market prices. United also enters into forward sale agreements to mitigate risk and to protect the expected gain on the eventual loan sale. Most of this activity is on a matched basis, with a loan sale commitment hedging a specific loan. The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments. The underlying loans are accounted for under the lower of cost or fair value method and are not reflected in the table above. Fair value adjustments on these derivative instruments are recorded within mortgage loan and other related fee income in the consolidated statement of income.

 

Cash Flow Hedges of Interest Rate Risk

 

At March 31, 2016 and December 31, 2015 United did not have any active cash flow hedges. Changes in United’s balance sheet composition and interest rate risk position made cash flow hedges no longer necessary as protection against rising interest rates and as a result, United de-designated its former cash flow hedges. The loss remaining in other comprehensive income on the de-designated swaps is being amortized into earnings over the original term of the swaps as the forecasted transactions that the swaps were originally designated to hedge are still expected to occur. United expects that $1.80 million will be reclassified as an increase to interest expense over the next twelve months related to these cash flow hedges.

 

25
 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The table below presents the effect of United’s cash flow hedges on the consolidated statement of income for the periods indicated (in thousands)