United Community Banks, Inc.
UNITED COMMUNITY BANKS INC (Form: 10-Q, Received: 11/04/2016 17:02:33)

 

 

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, 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 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 70,863,730 shares outstanding as of October 31, 2016.

 

 

 

 

 

INDEX

 

PART I - Financial Information    
       
Item 1. Financial Statements.    
       
  Consolidated Statement of Income (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015   3
       
  Consolidated Statement of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015   4
       
  Consolidated Balance Sheet (unaudited) at September 30, 2016 and December 31, 2015   5
       
  Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Nine Months Ended September 30, 2016 and 2015   6
       
  Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, 2016 and 2015   7
       
  Notes to Consolidated Financial Statements   8
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   40
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk.   62
       
Item 4. Controls and Procedures.   62
       
PART II - Other Information    
       
Item 1.   Legal Proceedings.   63
Item 1A. Risk Factors.   63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   63
Item 3. Defaults Upon Senior Securities.   63
Item 4. Mine Safety Disclosures.   63
Item 5. Other Information.   63
Item 6. Exhibits.   64

 

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)   2016     2015     2016     2015  
                         
Interest revenue:                                
Loans, including fees   $ 69,440     $ 57,174     $ 196,888     $ 159,814  
Investment securities, including tax exempt of $134, $177, $449 and $516     15,418       12,801       48,039       36,896  
Deposits in banks and short-term investments     581       853       2,315       2,460  
Total interest revenue     85,439       70,828       247,242       199,170  
                                 
Interest expense:                                
Deposits:                                
NOW     452       337       1,381       1,079  
Money market     1,347       981       3,661       2,460  
Savings     43       25       102       71  
Time     667       830       2,052       2,834  
Total deposit interest expense     2,509       2,173       7,196       6,444  
Short-term borrowings     98       99       278       279  
Federal Home Loan Bank advances     1,015       461       2,731       1,307  
Long-term debt     2,828       2,669       8,178       7,481  
Total interest expense     6,450       5,402       18,383       15,511  
Net interest revenue     78,989       65,426       228,859       183,659  
Provision for credit losses     (300 )     700       (800 )     3,400  
Net interest revenue after provision for credit losses     79,289       64,726       229,659       180,259  
                                 
Fee revenue:                                
Service charges and fees     10,819       9,335       31,460       25,325  
Mortgage loan and other related fees     6,039       3,840       13,776       10,302  
Brokerage fees     1,199       1,200       3,369       3,983  
Gains from sales of government guaranteed loans     2,479       1,646       6,517       4,281  
Securities gains, net     261       325       922       1,877  
Loss from prepayment of debt     -       (256 )     -       (1,294 )
Other     5,564       2,207       12,420       6,771  
Total fee revenue     26,361       18,297       68,464       51,245  
Total revenue     105,650       83,023       298,123       231,504  
                                 
Operating expenses:                                
Salaries and employee benefits     36,478       29,342       103,112       83,749  
Communications and equipment     4,919       3,963       13,602       10,538  
Occupancy     5,132       4,013       14,393       10,706  
Advertising and public relations     1,088       812       3,275       2,689  
Postage, printing and supplies     1,451       1,049       4,029       2,980  
Professional fees     3,160       2,668       9,049       6,844  
FDIC assessments and other regulatory charges     1,412       1,136       4,453       3,643  
Amortization of intangibles     1,119       714       3,116       1,403  
Merger-related and other charges     3,152       5,744       6,981       8,917  
Other     6,112       4,828       17,958       14,281  
Total operating expenses     64,023       54,269       179,968       145,750  
 Net income before income taxes     41,627       28,754       118,155       85,754  
Income tax expense     15,753       10,867       44,720       32,384  
Net income     25,874       17,887       73,435       53,370  
Preferred stock dividends and discount accretion     -       25       21       42  
Net income available to common shareholders   $ 25,874     $ 17,862     $ 73,414     $ 53,328  
                                 
Earnings per common share:                                
Basic   $ .36     $ .27     $ 1.02     $ .84  
Diluted     .36       .27       1.02       .84  
Weighted average common shares outstanding:                                
Basic     71,556       66,294       71,992       63,297  
Diluted     71,561       66,300       71,996       63,302  

 

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,  
2016   Before-
tax
Amount
    Tax
(Expense)
Benefit
    Net of Tax
Amount
    Before-
tax
Amount
    Tax
(Expense)
Benefit
    Net of Tax
Amount
 
                                     
Net income   $ 41,627     $ (15,753 )   $ 25,874     $ 118,155     $ (44,720 )   $ 73,435  
Other comprehensive income:                                                
Unrealized gains on available-for-sale securities:                                                
Unrealized holding gains arising during period     4,927       (1,927 )     3,000       37,990       (14,488 )     23,502  
Reclassification adjustment for gains included in net income     (261 )     101       (160 )     (922 )     348       (574 )
Net unrealized gains     4,666       (1,826 )     2,840       37,068       (14,140 )     22,928  
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity     663       (237 )     426       1,601       (596 )     1,005  
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges     466       (181 )     285       1,426       (555 )     871  
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan     167       (65 )     102       501       (195 )     306  
                                                 
Total other comprehensive income     5,962       (2,309 )     3,653       40,596       (15,486 )     25,110  
                                                 
Comprehensive income   $ 47,589     $ (18,062 )   $ 29,527     $ 158,751     $ (60,206 )   $ 98,545  
                                                 
2015                                                
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 the 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  
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  
                                                 
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  
                                                 

 

See accompanying notes to consolidated financial statements.

 

4  

 

  

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

 

    September 30,     December 31,  
(in thousands, except share and per share data)   2016     2015  
             
ASSETS                
Cash and due from banks   $ 94,744     $ 86,912  
Interest-bearing deposits in banks     131,415       153,451  
Cash and cash equivalents     226,159       240,363  
Securities available for sale     2,215,113       2,291,511  
Securities held to maturity (fair value $357,550 and $371,658)     344,917       364,696  
Mortgage loans held for sale (includes $279 and $0 at fair value)     30,814       24,231  
Loans, net of unearned income     6,725,110       5,995,441  
Less allowance for loan losses     (62,961 )     (68,448 )
Loans, net     6,662,149       5,926,993  
Premises and equipment, net     189,302       178,165  
Bank owned life insurance     123,129       105,493  
Accrued interest receivable     26,494       25,786  
Net deferred tax asset     156,408       197,613  
Derivative financial instruments     25,463       20,082  
Goodwill and other intangible assets     157,288       147,420  
Other assets     140,379       94,075  
Total assets   $ 10,297,615     $ 9,616,428  
LIABILITIES AND SHAREHOLDERS' EQUITY                
Liabilities:                
Deposits:                
Demand   $ 2,568,756     $ 2,204,755  
NOW     1,821,353       1,975,884  
Money market     1,798,548       1,599,637  
Savings     544,029       471,129  
Time     1,349,543       1,282,803  
Brokered     359,370       338,985  
Total deposits     8,441,599       7,873,193  
Short-term borrowings     35,050       16,640  
Federal Home Loan Bank advances     449,407       430,125  
Long-term debt     174,959       163,836  
Derivative financial instruments     32,548       28,825  
Accrued expenses and other liabilities     84,759       85,524  
Total liabilities     9,218,322       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; 150,000,000 shares authorized; 70,861,025 and 66,198,477 shares issued and outstanding     70,861       66,198  
Common stock, non-voting, $1 par value; 26,000,000 shares authorized; 0 and 5,285,516 shares issued and outstanding     -       5,286  
Common stock issuable; 520,014 and 458,953 shares     7,179       6,779  
Capital surplus     1,274,909       1,286,361  
Accumulated deficit     (273,314 )     (330,879 )
Accumulated other comprehensive loss     (342 )     (25,452 )
Total shareholders' equity     1,079,293       1,018,285  
Total liabilities and shareholders' equity   $ 10,297,615     $ 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 Nine Months Ended September 30,

 

    Preferred                                   Accumulated        
    Stock           Non-Voting     Common                 Other        
(in thousands, except share and   Series     Common     Common     Stock     Capital     Accumulated     Comprehensive        
per share data)   H     Stock     Stock     Issuable     Surplus     Deficit     Income (Loss)     Total  
                                                 
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 employee benefit plans (11,761 shares)             12                       192                       204  
Conversion of non-voting common stock to voting (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 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
                                                                 
Balance, December 31, 2015   $ 9,992     $ 66,198     $ 5,286     $ 6,779     $ 1,286,361   $ (330,879 )   $ (25,452 )   1,018,285  
Net income                                             73,435               73,435  
Other comprehensive income                                                     25,110       25,110  
Redemption of Series H preferred stock (9,992 shares)     (9,992 )                                                     (9,992 )
Common stock issued to dividend reinvestment plan and employee benefit plans (15,844 shares)             16                       254                       270  
Conversion of non-voting common stock to voting (5,285,516 shares)             5,286       (5,286 )                                     -  
Amortization of stock option and restricted stock awards                                     3,257                       3,257  
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (79,430 shares issued, 94,497 shares deferred)             79               1,384       (2,428 )                     (965 )
Purchases of common stock (764,000 shares)             (764 )                     (12,895 )                     (13,659 )
Deferred compensation plan, net, including dividend equivalents                             291                               291  
Shares issued from deferred compensation plan (45,758 shares)             46               (1,275 )     1,229                       -  
Common stock dividends ($.22 per share)                                             (15,849 )             (15,849 )
Tax on restricted stock vesting                                     (869 )                     (869 )
Preferred stock dividends:  Series H                                             (21 )             (21 )
Balance, September 30, 2016   $ -     $ 70,861     $ -     $ 7,179     $ 1,274,909   $ (273,314 )   $ (342 )   1,079,293

 

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)   2016     2015  
Operating activities:                
Net income   $ 73,435     $ 53,370  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation, amortization and accretion     22,612       16,788  
(Release of) provision for credit losses     (800 )     3,400  
Stock based compensation     3,257       3,343  
Deferred income tax expense     45,308       28,495  
Securities gains, net     (922 )     (1,877 )
Gains from sales of government guaranteed loans     (6,517 )     (4,281 )
Net gains on sale of other assets     (381 )     (437 )
Net gains and write downs on sales of other real estate owned     (59 )     (368 )
Loss on prepayment of borrowings     -       1,294  
Changes in assets and liabilities:                
Other assets and accrued interest receivable     (41,886 )     4,232  
Accrued expenses and other liabilities     (2,753 )     4,191  
Mortgage loans held for sale     (6,441 )     (5,562 )
Net cash provided by operating activities     84,853       102,588  
                 
Investing activities:                
Investment securities held to maturity:                
Proceeds from maturities and calls of securities held to maturity     49,968       57,721  
Purchases of securities held to maturity     (20,656 )     -  
Investment securities available for sale:                
Proceeds from sales of securities available for sale     189,164       274,519  
Proceeds from maturities and calls of securities available for sale     292,200       212,383  
Purchases of securities available for sale     (308,800 )     (476,917 )
Net increase in loans     (453,541 )     (324,868 )
Funds paid to FDIC under loss sharing agreements     -       (1,198 )
Proceeds from sales of premises and equipment     5,038       2,127  
Purchases of premises and equipment     (13,716 )     (7,191 )
Net cash received for acquisition     1,912       35,497  
Proceeds from sale of other real estate     9,370       3,184  
Net cash used in investing activities     (249,061 )     (224,743 )
                 
Financing activities:                
Net change in deposits     169,156       219,454  
Net change in short-term borrowings     8,360       (16,238 )
Repayments of trust preferred securities     -       (48,521 )
Proceeds from FHLB advances     7,080,000       1,495,000  
Repayments of FHLB advances     (7,074,000 )     (1,587,070 )
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     270       204  
Retirement of preferred stock     (9,992 )     -  
Purchase of common stock     (13,659 )     -  
Cash dividends on common stock     (10,085 )     (10,506 )
Cash dividends on preferred stock     (46 )     (25 )
Net cash provided by financing activities     150,004       136,439  
                 
Net change in cash and cash equivalents     (14,204 )     14,284  
                 
Cash and cash equivalents at beginning of period     240,363       192,655  
                 
Cash and cash equivalents at end of period   $ 226,159     $ 206,939  
                 
Supplemental disclosures of cash flow information:                
Interest paid   $ 25,815     $ 16,567  
Income taxes paid     3,431       3,453  
Significant non-cash investing and financing transactions:                
Unsettled government guaranteed loan sales     22,355       11,020  
Unsettled purchases of securities available for sale     8,973       -  
Transfers of loans to foreclosed properties     6,647       3,428  
Acquisitions:                
Assets acquired     450,958       1,736,203  
Liabilities assumed     439,749       1,427,358  
Net assets acquired     11,209       308,845  
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 (“GAAP”) and reporting guidelines of banking regulatory authorities and regulators. 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 statement. 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 on 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.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. Application of this update will primarily be on a modified retrospective approach, although the guidance for debt securities for which an other-than-temporary impairment has been recognized before the effective date and for loans previously covered by ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality will be applied on a prospective basis. For public entities, this update is effective for fiscal years beginning after December 15, 2019. United is currently evaluating the impact of this guidance on its consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . This update provides guidance on the treatment of eight specific cash flow issues for which there was diversity in practice. For example, cash payments for debt prepayment should be classified as cash outflows for financing activities. Cash payments for contingent consideration after a business combination if made soon after the acquisition date should be classified as investing outflows, while similar payments not made soon after the acquisition date should be classified as financing outflows (up to the amount of the contingent consideration liability recognized at the acquisition date, including measurement period adjustments) or operating activities (for any excess). Cash proceeds from the settlement of insurance claims should be classified on the basis of the related insurance coverage, while proceeds from the settlement of bank owned life insurance should be classified as investing inflows. For public entities, this update is effective for fiscal years beginning after December 15, 2017. The adoption of this update is not expected to have a material impact on United’s consolidated financial statements.

 

Note 3 – Acquisitions

 

Acquisition of Tidelands Bancshares, Inc.

 

On July 1, 2016, United completed the acquisition of Tidelands Bancshares, Inc. (“Tidelands”) and its wholly-owned bank subsidiary Tidelands Bank. Tidelands operated seven branches in coastal South Carolina. In connection with the acquisition, United acquired $440 million of assets and assumed $440 million of liabilities. Under the terms of the merger agreement, Tidelands shareholders received cash equal to $0.52 per common share, or an aggregate of $2.22 million. Additionally, at closing, United redeemed all of Tidelands’ fixed-rate cumulative preferred stock that was issued to the United States Department of the Treasury (the “Treasury”) under the Treasury’s Capital Purchase Program, plus unpaid dividends, for $8.98 million in aggregate. 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 $10.7 million, representing the intangible value of Tidelands’ business and reputation within the market it served. None of the goodwill recognized is expected to be deductible for income tax purposes. United will amortize the related core deposit intangible of $1.57 million using the sum-of-the-years-digits method over five years, which represents the expected useful life of the asset.

 

As of the acquisition date, United assumed long-term debt obligations with an aggregate balance of $14.4 million and an aggregate fair value of $10.8 million related to Tidelands’ outstanding trust preferred securities and paid all amounts required to bring current the payment of interest (including deferred interest) on such trust preferred securities. The $8.25 million of debt related to Tidelands Statutory Trust I has a stated maturity date of March 30, 2036 and a rate equal to LIBOR plus 1.38%, which resets quarterly. The $6.19 million of debt related to Tidelands Statutory Trust II has a stated maturity date of June 30, 2038 and a rate equal to LIBOR plus 5.075%, which resets quarterly.

 

United’s operating results for the period ended September 30, 2016 include the operating results of the acquired assets and assumed liabilities for the period subsequent to the acquisition date of July 1, 2016.

 

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 Tidelands     Adjustments  (1)     United  
Assets                        
Cash and cash equivalents   $ 13,121     $ -     $ 13,121  
Securities     65,676       (155 )     65,521  
Loans held for sale     139       3       142  
Loans, net     317,938       (12,035 )     305,903  
Premises and equipment, net     19,133       (7,944 )     11,189  
Bank owned life insurance     16,917       -       16,917  
Accrued interest receivable     1,086       (167 )     919  
Net deferred tax asset     73       15,639       15,712  
Core deposit intangible     -       1,570       1,570  
Other real estate owned     9,881       (2,386 )     7,495  
Other assets     1,920       (164 )     1,756  
Total assets acquired   $ 445,884     $ (5,639 )   $ 440,245  
Liabilities                        
Deposits   $ 398,108     $ 1,765     $ 399,873  
Repurchase agreements     10,000       155       10,155  
Federal Home Loan Bank advances     13,000       354       13,354  
Long-term debt     14,434       (3,668 )     10,766  
Other liabilities     11,587       (5,986 )     5,601  
Total liabilities assumed     447,129       (7,380 )     439,749  
Excess of assets acquired over liabilities assumed   $ (1,245 )                
Aggregate fair value adjustments           $ 1,741          
Total identifiable net assets                   $ 496  
Consideration transferred                        
Cash paid to redeem common stock                     2,224  
Cash paid to redeem preferred stock issued under the Treasury's Capital Purchase Program                     8,985  
Total fair value of consideration transferred                     11,209  
Goodwill                   $ 10,713  

 

(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.

 

The following table presents additional information related to the acquired loan portfolio at the acquisition date (in thousands) :

 

    July 1, 2016  
Accounted for pursuant to ASC 310-30:        
Contractually required principal and interest   $ 50,660  
Non-accretable difference     13,483  
Cash flows expected to be collected     37,177  
Accretable yield     2,113  
Fair value   $ 35,064  
         
Excluded from ASC 310-30:        
Fair value   $ 270,839  
Gross contractual amounts receivable     302,331  
Estimate of contractual cash flows not expected to be collected     3,859  

 

10  

 

   

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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. Information related to the fair value of assets and liabilities acquired from Palmetto is included in United’s Annual Report on Form 10-K for the year ended December 31, 2015. During second quarter 2016, within the one year measurement period, United received additional information regarding the acquisition date fair values of premises and equipment and other real estate owned (“OREO”). As a result the provisional values assigned to the acquired premises and equipment and OREO have been adjusted to $17.0 million and $2.63 million, respectively, which represent a decrease of $640,000 and $497,000, respectively, from amounts previously disclosed. The tax effect of these adjustments was reflected as an increase to the deferred tax asset of $437,000, with the net amount of $700,000 reflected as an increase to goodwill.

 

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. Information related to the fair value of assets and liabilities acquired from MoneyTree is included in United’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

Pro forma information

 

The following table discloses the impact of the mergers with Tidelands, Palmetto and MoneyTree since their respective acquisition dates through September 30 of the year of acquisition. The table also presents certain pro forma information as if Tidelands had been acquired on January 1, 2015 and Palmetto and MoneyTree had been acquired on January 1, 2014. These results combine the historical results of the acquired entities with United’s consolidated statement of income and, while 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 in earlier years.

 

The following table presents the actual results and pro forma information for the periods indicated (in thousands) . Merger-related costs of $2.93 million from the Tidelands acquisition have been excluded from the 2016 pro forma information presented below and included in the 2015 pro forma information below. Merger-related costs of $8.92 million from the Palmetto and MoneyTree acquisitions have been excluded from the 2015 pro forma information presented below.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    Revenue     Net Income     Revenue     Net Income  
                         
2016                                
Actual Tidelands results included in statement of income since acquisition date   $ 3,988     $ 658     $ 3,988     $ 658  
Supplemental consolidated pro forma as if Tidelands had been acquired January 1, 2015     105,281       27,499       305,273       72,436  
                                 
2015                                
Actual Palmetto results included in statement of  income since acquisition date   $ 4,382     $ 1,659     $ 4,382     $ 1,659  
Actual MoneyTree results included in statement of  income since acquisition date     3,081       1,394       5,365       1,778  
Supplemental consolidated pro forma as if Tidelands  had been acquired January 1, 2015 and Palmetto and MoneyTree had been acquired January 1, 2014     95,385       20,805       284,799       63,190  

 

11  

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 4 – 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
       
September 30, 2016   Recognized
Assets
    the Balance
Sheet
    Net  Asset
Balance
    Financial
Instruments
    Collateral
Received
    Net
Amount
 
                                     
Repurchase agreements / reverse repurchase agreements   $ 150,000     $ (150,000 )   $ -     $ -     $ -     $ -  
Derivatives     25,463       -       25,463       (1,472 )     (3,307 )     20,684  
Total   $ 175,463     $ (150,000 )   $ 25,463     $ (1,472 )   $ (3,307 )   $ 20,684  
                                                 
Weighted average interest rate of reverse repurchase agreements     1.40 %                                        

 

    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   $ 150,000     $ (150,000 )   $ -     $ -     $ -     $ -  
Derivatives     32,548       -       32,548       (1,472 )     (31,960 )     -  
Total   $ 182,548     $ (150,000 )   $ 32,548     $ (1,472 )   $ (31,960 )   $ -  
                                                 
Weighted average interest rate of repurchase agreements     .50 %                                        

 

    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 %                                        

 

At September 30, 2016, United recognized the right to reclaim cash collateral of $32.3 million and the obligation to return cash collateral of $3.31 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.

 

12  

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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  
    Overnight and                          
As of September 30, 2016   Continuous     Up to 30 Days     30 to 90 Days     91 to 110 days     Total  
                               
 U.S. Treasuries   $ -     $ -     $ 10,050     $ -     $ 10,050  
 Mortgage-backed securities     -       50,000       100,000       -       150,000  
                                         
 Total   $ -     $ 50,000     $ 110,050     $ -     $ 160,050  
                                         
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure                                   $ 150,000  
Amounts related to agreements not included in offsetting disclosure                                   $ 10,050  

 

    Remaining Contractual Maturity of the Agreements  
    Overnight and                          
As of December 31, 2015   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 5 – 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) .

 

          Gross     Gross        
    Amortized     Unrealized     Unrealized     Fair  
As of September 30, 2016   Cost     Gains     Losses     Value  
                         
 State and political subdivisions   $ 57,911     $ 3,545     $ 61     $ 61,395  
 Mortgage-backed securities (1)     287,006       9,267       118       296,155  
                                 
 Total   $ 344,917     $ 12,812     $ 179     $ 357,550  
                                 
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  

 

13  

 

  

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) .

 

          Gross     Gross        
    Amortized     Unrealized     Unrealized     Fair  
As of September 30, 2016   Cost     Gains     Losses     Value  
                         
 U.S. Treasuries   $ 140,500     $ 4,374     $ -     $ 144,874  
 U.S. Government agencies     20,205       268       18       20,455  
 State and political subdivisions     63,001       1,885       -       64,886  
 Mortgage-backed securities (1)     1,151,570       24,569       358       1,175,781  
 Corporate bonds     307,240       6,231       912       312,559  
 Asset-backed securities     495,286       2,728       2,581       495,433  
 Other     1,125       -       -       1,125  
                                 
 Total   $ 2,178,927     $ 40,055     $ 3,869     $ 2,215,113  
                                 
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 $1.34 billion and $1.63 billion were pledged to secure public deposits, derivatives and other secured borrowings at September 30, 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 September 30, 2016   Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
 
                                     
State and political subdivisions   $ 18,332     $ 61     $ -     $ -     $ 18,332     $ 61  
Mortgage-backed securities     19,537       118       -       -       19,537       118  
 Total unrealized loss position   $ 37,869     $ 179     $ -     $ -     $ 37,869     $ 179  
                                                 
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  

 

14  

 

  

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 September 30, 2016   Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
    Fair Value     Unrealized
Loss
 
                                     
U.S. Government agencies   $ 1,017     $ 18     $ -     $ -     $ 1,017     $ 18  
Mortgage-backed securities     51,399       105       50,387       253       101,786       358  
Corporate bonds     54,607       393       20,481       519       75,088       912  
Asset-backed securities     14,885       380       159,336       2,201       174,221       2,581  
 Total unrealized loss position   $ 121,908     $ 896     $ 230,204     $ 2,973     $ 352,112     $ 3,869  
                                                 
                                                 
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 September 30, 2016, there were 53 available-for-sale securities and seven 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, 2016 were primarily attributable to changes in interest rates and spread relationships.

 

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, 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 and nine months ended September 30, 2016 and 2015 (in thousands) .

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2016     2015     2016     2015  
                         
Proceeds from sales   $ 100,867     $ 137,702     $ 189,164     $ 274,519  
                                 
Gross gains on sales   $ 607     $ 328     $ 1,565     $ 1,880  
Gross losses on sales     (346 )     (3 )     (643 )     (3 )
                                 
 Net gains on sales of securities   $ 261     $ 325     $ 922     $ 1,877  
                                 
Income tax expense attributable to sales   $ 101     $ 121     $ 348     $ 724  

 

15  

 

  

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, 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   $ 65,957     $ 67,453     $ -     $ -  
 5 to 10 years     74,543       77,421       -       -  
      140,500       144,874       -       -  
                                 
US Government agencies:                                
 1 to 5 years     990       995       -       -  
 5 to 10 years     18,180       18,443       -       -  
 More than 10 years     1,035       1,017                  
      20,205       20,455       -       -  
                                 
State and political subdivisions:                                
 Within 1 year     1,252       1,263       4,012       4,077  
 1 to 5 years     31,964       32,790       12,860       13,681  
 5 to 10 years     23,673       24,516       22,152       24,774  
 More than 10 years     6,112       6,317       18,887       18,863  
      63,001       64,886       57,911       61,395  
                                 
Corporate bonds:                                
 1 to 5 years     233,824       237,475       -       -  
 5 to 10 years     72,416       74,584       -       -  
 More than 10 years     1,000       500       -       -  
      307,240       312,559       -       -  
                                 
Asset-backed securities:                                
 1 to 5 years     17,250       17,459       -       -  
 5 to 10 years     333,434       333,831       -       -  
 More than 10 years     144,602       144,143       -       -  
      495,286       495,433       -       -  
                                 
Other:                                
 More than 10 years     1,125       1,125       -       -  
      1,125       1,125       -       -  
                                 
Total securities other than mortgage-backed securities:                                
 Within 1 year     1,252       1,263       4,012       4,077  
 1 to 5 years     349,985       356,172       12,860       13,681  
 5 to 10 years     522,246       528,795       22,152       24,774  
 More than 10 years     153,874       153,102       18,887       18,863  
                                 
Mortgage-backed securities     1,151,570       1,175,781       287,006       296,155  
                                 
    $ 2,178,927     $ 2,215,113     $ 344,917     $ 357,550  

 

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

 

16  

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 6 – Loans and Allowance for Credit Losses

 

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

 

    September 30,     December 31,  
    2016     2015  
             
Owner occupied commercial real estate   $ 1,512,185     $ 1,493,966  
Income producing commercial real estate     1,105,293       823,729  
Commercial & industrial     994,350       785,417  
Commercial construction     388,861       342,078  
 Total commercial     4,000,689       3,445,190  
Residential mortgage     1,055,166       1,029,663  
Home equity lines of credit     698,356       597,806  
Residential construction     378,329       351,700  
Consumer installment     126,468       115,111  
Indirect auto     466,102       455,971  
                 
 Total loans     6,725,110       5,995,441  
                 
Less allowance for loan losses     (62,961 )     (68,448 )
                 
 Loans, net   $ 6,662,149     $ 5,926,993  

 

At September 30, 2016 and December 31, 2015, loans totaling $3.05 billion and $2.44 billion, respectively, were pledged as collateral to secure Federal Home Loan Bank advances and other contingent funding sources.

 

At September 30, 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 $67.5 million and $95.3 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 PCI loans for the periods indicated (in thousands) :

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Balance at beginning of period   $ 5,337     $ 946     $ 4,279     $ -  
Additions due to acquisitions     2,113       4,834       2,113       5,863  
Accretion     (1,116 )     (316 )     (3,058 )     (399 )
Reclassification from nonaccretable difference     1,455       -       2,908       -  
Changes in expected cash flows that do not affect nonaccretable difference     362       -       1,909       -  
Balance at end of period   $ 8,151     $ 5,464     $ 8,151     $ 5,464  

 

In addition to the accretable yield on PCI loans, the fair value adjustments on purchased loans outside the scope of ASC 310-30 are also accreted to interest revenue over the life of the loans. At September 30, 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 $8.30 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 $11.8 million and $12.0 million, respectively, as of September 30, 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.

 

17  

 

  

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) .

 

    2016     2015  
Three Months Ended September 30,   Beginning
Balance
    Charge-
Offs
    Recoveries     (Release)
Provision
    Ending
Balance
    Beginning
Balance
    Charge-
Offs
    Recoveries     (Release)
Provision
    Ending
Balance
 
                                                             
Owner occupied commercial real estate   $ 14,432     $ (276 )   $ 108     $ (207 )   $ 14,057     $ 16,339     $ (463 )   $ 228     $ (495 )   $ 15,609  
Income producing commercial real estate     5,522       (201 )     44       1,587       6,952       8,200       (126 )     231       (532 )     7,773  
Commercial & industrial     3,207       (850 )     398       689       3,444       4,728       (508 )     319       1,041       5,580  
Commercial construction     8,938       (14 )     100       350       9,374       4,895       (80 )     21       1,659       6,495  
Residential mortgage     15,662       (253 )     508       (179 )     15,738       19,052       (848 )     415       (1,880 )     16,739  
Home equity lines of credit     5,318       (321 )     54       191       5,242       5,479       (413 )     120       1,119       6,305  
Residential construction     9,005       (269 )     134       (2,990 )     5,880       9,337       (50 )     174       (1,078 )     8,383  
Consumer installment     723       (426 )     190       183       670       688       (496 )     221       352       765  
Indirect auto     1,446       (354 )     69       443       1,604       1,411       (175 )     13       164       1,413  
Total allowance for loan losses     64,253       (2,964 )     1,605       67       62,961       70,129       (3,159 )     1,742       350       69,062  
Allowance for unfunded commitments     2,369       -       -       (367 )     2,002       2,580       -       -       350       2,930  
Total allowance for credit losses   $ 66,622     $ (2,964 )   $ 1,605     $ (300 )   $ 64,963     $ 72,709     $ (3,159 )   $ 1,742     $ 700     $ 71,992  

 

Nine Months Ended September 30,   Beginning
Balance
    Charge-
Offs
    Recoveries     (Release)
Provision
    Ending
Balance
    Beginning
Balance
    Charge-
Offs
    Recoveries     (Release)
Provision
    Ending
Balance
 
                                                             
Owner occupied commercial real estate   $ 16,732     $ (1,288 )   $ 251     $ (1,638 )   $ 14,057     $ 16,041     $ (1,194 )   $ 317     $ 445     $ 15,609  
Income producing commercial real estate     8,235       (544 )     199       (938 )     6,952       10,296       (448 )     588       (2,663 )     7,773  
Commercial & industrial     4,442       (1,645 )     1,302       (655 )     3,444       3,255       (1,139 )     1,236       2,228       5,580  
Commercial construction     5,583       (325 )     102       4,014       9,374       4,747       (249 )     72       1,925       6,495  
Residential mortgage     17,232       (1,489 )     866       (871 )     15,738       20,311       (2,535 )     899       (1,936 )     16,739  
Home equity lines of credit     6,042       (1,513 )     361       352       5,242       4,574       (834 )     160       2,405       6,305  
Residential construction     7,961       (598 )     575       (2,058 )     5,880       10,603       (1,689 )     645       (1,176 )     8,383  
Consumer installment     828       (1,295 )     625       512       670       731       (1,171 )     784       421       765  
Indirect auto     1,393       (953 )     142       1,022       1,604       1,061       (433 )     34       751       1,413  
Total allowance for loan losses     68,448       (9,650 )     4,423       (260 )     62,961       71,619       (9,692 )     4,735       2,400       69,062  
Allowance for unfunded commitments     2,542       -       -       (540 )     2,002       1,930       -       -       1,000       2,930  
Total allowance for credit losses   $ 70,990     $ (9,650 )   $ 4,423     $ (800 )   $ 64,963     $ 73,549     $ (9,692 )   $ 4,735     $ 3,400     $ 71,992  

 

18  

 

  

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  
    September 30, 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   $ 1,212     $ 12,845     $ -     $ 14,057     $ 1,465     $ 15,267     $ -     $ 16,732  
Income producing commercial real estate     714       6,238       -       6,952       961       7,274       -       8,235  
Commercial & industrial     64       3,380       -       3,444       280       4,162       -       4,442  
Commercial construction     42       9,303       29       9,374       13       5,570       -       5,583  
Residential mortgage     3,613       12,124       1       15,738       3,885       13,347       -       17,232  
Home equity lines of credit     3       5,231       8       5,242       6       6,036       -       6,042  
Residential construction     139       5,736       5       5,880       174       7,787       -       7,961  
Consumer installment     9       661       -       670       13       815       -       828  
Indirect auto     -       1,604       -       1,604       -       1,393       -       1,393  
Total allowance for loan losses     5,796       57,122       43       62,961       6,797       61,651       -       68,448  
Allowance for unfunded commitments     -       2,002       -       2,002       -       2,542       -       2,542  
Total allowance for credit losses   $ 5,796     $ 59,124     $ 43     $ 64,963     $ 6,797     $ 64,193     $ -     $ 70,990  

 

    Loans Outstanding  
    September 30, 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   $ 34,319     $ 1,459,218     $ 18,648     $ 1,512,185     $ 38,268     $ 1,442,024     $ 13,674    

1,493,966

 
Income producing commercial real estate     28,418       1,052,242       24,633       1,105,293       23,013       772,945       27,771       823,729  
Commercial & industrial     2,515       990,788       1,047       994,350       3,339       781,423       655       785,417  
Commercial construction     1,383       382,283       5,195       388,861       10,616       329,320       2,142       342,078  
Residential mortgage     19,586       1,029,629       5,951       1,055,166       19,627       1,005,860       4,176       1,029,663  
Home equity lines of credit     103       690,865       7,388       698,356       167       595,951       1,688       597,806  
Residential construction     5,925       367,900       4,504       378,329       7,900       342,677       1,123       351,700  
Consumer installment     285       126,012       171       126,468       329       114,741       41       115,111  
Indirect auto     1,022       465,072       8       466,102       749       455,173       49       455,971  
Total loans   $ 93,556    

6,564,009

    $ 67,545     $ 6,725,110     $ 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. 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 recorded investment in the loan. 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 had previously used eight quarters of historical loss experience look-back period to determine the loss factors to be used in the reserve calculation for loans evaluated in the aggregate. Beginning in the third quarter of 2016, management extended the look-back period to 17 quarters to better capture the full range of the loss cycle balanced with the availability of reliable historical data. The look-back period will be extended by one quarter each quarter going forward. Management weights each quarter in the look-back period equally to capture the full range of the cycle. Management believes the weightings are appropriate to measure the probable losses incurred within the loan portfolio.

 

Management calculates the loss emergence period for each pool of loans based on the weighted average length of time between the date a loan first exceeds 30 days past due and the date the loan is charged off.

 

19  

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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 fair value less costs to sell at the time they are placed on nonaccrual status.

 

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. 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) .

 

    September 30, 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   $ 13,030     $ 12,892     $ -     $ 14,793     $ 14,460     $ -  
Income producing commercial real estate     17,144       16,963       -       13,044       12,827       -  
Commercial & industrial     473       473       -       493       469       -  
Commercial construction     -       -       -       -       -       -  
Total commercial     30,647       30,328       -       28,330       27,756       -  
Residential mortgage     692       689       -       791       791       -  
Home equity lines of credit     -       -       -       -       -       -  
Residential construction     1,439       1,388       -       3,731       3,429       -  
Consumer installment     -       -       -       -       -       -  
Indirect auto     1,022       1,022       -       749       749       -  
Total with no related allowance recorded     33,800       33,427       -       33,601       32,725       -  
                                                 
With an allowance recorded:                                                
Owner occupied commercial real estate     22,096       21,427       1,212       24,043       23,808       1,465  
Income producing commercial real estate     11,503       11,455       714       10,281       10,186       961  
Commercial & industrial     2,218       2,042       64       2,957       2,870       280  
Commercial construction     1,478       1,383       42       10,787       10,616       13  
Total commercial     37,295       36,307       2,032       48,068       47,480       2,719  
Residential mortgage     19,426       18,897       3,613       19,346       18,836       3,885  
Home equity lines of credit     103       103       3       167       167       6  
Residential construction     5,209       4,537       139       4,854       4,471       174  
Consumer installment     314       285       9       354       329       13  
Indirect auto     -       -       -       -       -       -  
Total with an allowance recorded     62,347       60,129       5,796       72,789       71,283       6,797  
Total   $ 96,147     $ 93,556     $ 5,796     $ 106,390     $ 104,008     $ 6,797  

 

Excluding PCI loans, there were no loans more than 90 days past due and still accruing interest at September 30, 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 the loan’s recorded investment.

 

20  

 

 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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. The accrual of interest is discontinued on PCI loans if management can no longer reliably estimate future cash flows on the loan. No PCI loans were classified as nonaccrual at September 30, 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 revenue, 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 $262,000 for the three months ended September 30, 2016 and 2015 and $686,000 for the nine months ended September 30, 2016 and 2015.

 

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 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   $ 33,387     $ 414     $ 414     $ 37,840     $ 484     $ 523  
Income producing commercial real estate     28,487       375       343       20,802       265       281  
Commercial & industrial     2,553       33       33       4,637       43       77  
Commercial construction     1,411       26       26       12,584       116       116  
Total commercial     65,838       848       816       75,863       908       997  
Residential mortgage     19,653       201       196       23,176       242       197  
Home equity lines of credit     103       1       1       477       5       5  
Residential construction     6,115       59       60       8,560       123       123  
Consumer installment     291       5       6       242       5       4  
Indirect auto     959       11       11       -       -       -  
Total   $ 92,959     $ 1,125     $ 1,090     $ 108,318     $ 1,283     $ 1,326  
                                                 
Nine Months Ended September 30,                                                
                                                 
Owner occupied commercial real estate   $ 31,648     $ 1,223     $ 1,249     $ 37,605     $ 1,413     $ 1,491  
Income producing commercial real estate     28,726       943       940       21,427       805       810  
Commercial & industrial     2,614       99       95       4,627       126       202  
Commercial construction     1,462       70       70       12,340       349       353  
Total commercial     64,450       2,335       2,354       75,999       2,693       2,856  
Residential mortgage     19,860       670       664       21,955       667       633  
Home equity lines of credit     103       3       3       504       15       15  
Residential construction     6,372       197       203       9,294       371       381  
Consumer installment     303       17       18       185       11       10  
Indirect auto     871       33       33       -       -       -  
Total   $ 91,959     $ 3,255     $ 3,275     $ 107,937     $ 3,757     $ 3,895  

 

21  

 

  

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

 

    September 30,     December 31,  
    2016     2015  
                 
Owner occupied commercial real estate   $ 6,454     $ 7,036  
Income producing commercial real estate     949       2,595  
Commercial & industrial     1,079       892  
Commercial construction     98       328  
Total commercial     8,580       10,851  
Residential mortgage     8,152       8,555  
Home equity lines of credit     1,194       851  
Residential construction     2,248       1,398  
Consumer installment     98       175  
Indirect auto     1,300       823  
Total   $ 21,572     $ 22,653  

 

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 September 30, 2016   30 - 59 Days     60 - 89 Days     > 90 Days     Total     Past Due     PCI Loans     Total  
                                           
Owner occupied commercial real estate   $ 2,975     $ 1,279     $ 2,291     $ 6,545     $ 1,486,992     $ 18,648     $ 1,512,185  
Income producing commercial real estate     667       -       180       847       1,079,813       24,633       1,105,293  
Commercial & industrial     678       681       475       1,834       991,469       1,047       994,350  
Commercial construction     365       -       -       365       383,301       5,195       388,861  
Total commercial     4,685       1,960       2,946       9,591       3,941,575       49,523       4,000,689  
Residential mortgage     6,644       1,981       2,477       11,102       1,038,113       5,951       1,055,166  
Home equity lines of credit     1,743       474       452       2,669       688,299       7,388       698,356  
Residential construction     991       1,111       859       2,961       370,864       4,504       378,329  
Consumer installment     648       43       8       699       125,598       171       126,468  
Indirect auto     853       539       795       2,187       463,907       8       466,102  
Total loans   $ 15,564     $ 6,108     $ 7,537     $ 29,209     $ 6,628,356     $ 67,545     $ 6,725,110  
                                                         
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 September 30, 2016 and December 31, 2015, $5.18 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 $55,000 and $224,000 as of September 30, 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.

 

22  

 

  

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) .

 

    September 30, 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     54     $ 26,050     $ 25,560       54     $ 32,544     $ 32,058  
Income producing commercial real estate     31       21,012       21,012       29       15,703       15,629  
Commercial & industrial     20       1,961       1,882       26       2,955       2,870  
Commercial construction     8       1,463       1,383       14       10,785       10,616  
Total commercial     113       50,486       49,837       123       61,987       61,173  
Residential mortgage     171       19,036       18,768       173       19,101       18,836  
Home equity lines of credit     2       103       103       2       167       167  
Residential construction     48       5,971       5,381       44       5,663       5,334  
Consumer installment     19       306       285       22       348       329  
Indirect auto     61       1,022       1,022       49       749       749  
Total loans     414     $ 76,924     $ 75,396       413     $ 88,015     $ 86,588  

 

Loans modified under the terms of a TDR during the three and nine months ended September 30, 2016 and 2015 are presented in the table below. In addition, the following table presents loans modified under the terms of a TDR that defaulted (became 90 days or more delinquent) during the periods presented and were initially restructured within one year prior to default (dollars in thousands) .

 

    New TDRs for the Three Months Ended September 30,     New TDRs for the Nine Months Ended September 30,  
        Pre-
Modification
Outstanding
    Post-
Modification
Outstanding
    Modified Within the
Previous Twelve Months
That Have Subsequently
Defaulted during the
Three Months Ended
September 30,
          Pre-
Modification
Outstanding
    Post-
Modification
Outstanding
    Modified Within the
Previous Twelve
Months That Have
Subsequently Defaulted
during the Nine Months
Ended September 30,
 
2016   Number of
Contracts
    Recorded
Investment
    Recorded
Investment
    Number of
Contracts
    Recorded
Investment
    Number of
Contracts
    Recorded
Investment
    Recorded
Investment
    Number of
Contracts
    Recorded
Investment 
 
                                                             
Owner occupied commercial real estate     1     $ 1,007     $ 1,007       -     $ -       7     $ 2,524     $ 2,524       1     $ 252  
Income producing commercial real estate     -       -       -       -       -       -       -       -       -       -  
Commercial & industrial     2       66       66       2       34       5       1,012       1,012       2       34  
Commercial construction     -       -       -       -       -       -       -       -       -       -  
Total commercial     3       1,073       1,073       2       34       12       3,536       3,536       3       286  
Residential mortgage     7       862       807       -       -       25       3,465       3,371       1       85  
Home equity lines of credit     -       -       -       -       -       1       38       38       -       -  
Residential construction     2       272       272       -       -       8       766       711       -       -  
Consumer installment     2       14       14       -       -       3       34       34       -       -  
Indirect auto     8       226       226       -       -       26       699       699       -       -  
Total loans     22     $ 2,447     $ 2,392       2     $ 34       75     $ 8,538     $ 8,389       4     $ 371  
                                                                                 
2015                                                                                
Owner occupied commercial real estate     3     $ 667     $ 666       1     $ 178       11     $ 13,204     $ 13,159       1     $ 178  
Income producing commercial real estate     -       -       -       -       -       3       310       310       -       -  
Commercial & industrial     1       23       23       -       -       7       1,203       1,203       -       -  
Commercial construction     -       -       -       -       -       1       233       233       -       -  
Total commercial     4       690       689       1       178       22       14,950       14,905       1       178  
Residential mortgage     10       939       939       -       -       33       3,060       3,060       -       -  
Home equity lines of credit     -       -       -       -       -       1       83       74       -       -  
Residential construction     1       347       347       -       -       3       510       486       -       -  
Consumer installment     4       58       58       -       -       6       86       86       1       30  
Indirect auto