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 March 31, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ___________
Commission file number 001-39095
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UNITED COMMUNITY BANKS, INC.
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||
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(Exact name of registrant as specified in its charter)
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Georgia
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58-1807304
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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125 Highway 515 East
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||
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Blairsville, Georgia
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30512
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Address of Principal
Executive Offices |
(Zip Code)
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(706) 781-2265
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller Reporting Company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES o NO x
Common stock, par value $1 per share 104,568,558 shares
outstanding as of April 30, 2011
INDEX
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PART I - Financial Information
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Item 1. Financial Statements.
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Consolidated Statement of Operations (unaudited) for the Three Months Ended
March 31, 2011 and 2010
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2
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Consolidated Balance Sheet at March 31, 2011 (unaudited), December 31, 2010
(audited) and March 31, 2010 (unaudited)
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3
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Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the
Three Months Ended March 31, 2011 and 2010
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4
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Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended
March 31, 2011 and 2010
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5
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Notes to Consolidated Financial Statements
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6
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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27
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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52
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Item 4. Controls and Procedures.
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52
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PART II - Other Information
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||
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Item 1. Legal Proceedings.
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52
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Item 1A. Risk Factors.
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52
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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52
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Item 3. Defaults Upon Senior Securities.
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52
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Item 4. (Removed and Reserved)
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52
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Item 5. Other Information.
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52
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Item 6. Exhibits.
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52
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Part I – Financial Information
Item 1 – Financial Statements
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UNITED COMMUNITY BANKS, INC.
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||||||||
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Consolidated Statement of Operations (Unaudited)
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||||||||
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Three Months Ended
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||||||||
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March 31,
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||||||||
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(in thousands, except per share data)
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2011
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2010
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||||||
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Interest revenue:
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||||||||
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Loans, including fees
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$ | 61,107 | $ | 72,215 | ||||
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Investment securities, including tax exempt of $259 and $311
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13,604 | 16,203 | ||||||
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Federal funds sold, commercial paper and deposits in banks
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819 | 938 | ||||||
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Total interest revenue
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75,530 | 89,356 | ||||||
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Interest expense:
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||||||||
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Deposits:
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||||||||
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NOW
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1,324 | 1,854 | ||||||
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Money market
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2,028 | 1,757 | ||||||
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Savings
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77 | 84 | ||||||
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Time
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11,732 | 20,198 | ||||||
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Total deposit interest expense
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15,161 | 23,893 | ||||||
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Federal funds purchased, repurchase agreements and other short-term borrowings
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1,042 | 1,038 | ||||||
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Federal Home Loan Bank advances
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590 | 977 | ||||||
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Long-term debt
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2,780 | 2,662 | ||||||
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Total interest expense
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19,573 | 28,570 | ||||||
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Net interest revenue
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55,957 | 60,786 | ||||||
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Provision for loan losses
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190,000 | 75,000 | ||||||
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Net interest expense after provision for loan losses
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(134,043 | ) | (14,214 | ) | ||||
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Fee revenue:
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||||||||
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Service charges and fees
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6,720 | 7,447 | ||||||
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Mortgage loan and other related fees
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1,494 | 1,479 | ||||||
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Brokerage fees
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677 | 567 | ||||||
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Securities gains, net
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55 | 61 | ||||||
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Other
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2,892 | 2,112 | ||||||
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Total fee revenue
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11,838 | 11,666 | ||||||
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Total revenue
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(122,205 | ) | (2,548 | ) | ||||
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Operating expenses:
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||||||||
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Salaries and employee benefits
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24,924 | 24,360 | ||||||
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Communications and equipment
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3,344 | 3,273 | ||||||
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Occupancy
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4,074 | 3,814 | ||||||
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Advertising and public relations
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978 | 1,043 | ||||||
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Postage, printing and supplies
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1,118 | 1,225 | ||||||
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Professional fees
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3,330 | 1,943 | ||||||
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Foreclosed property
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64,899 | 10,813 | ||||||
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FDIC assessments and other regulatory charges
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5,413 | 3,626 | ||||||
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Amortization of intangibles
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762 | 802 | ||||||
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Other
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6,429 | 3,921 | ||||||
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Total operating expenses
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115,271 | 54,820 | ||||||
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Loss from continuing operations before income taxes
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(237,476 | ) | (57,368 | ) | ||||
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Income tax benefit
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(94,990 | ) | (22,910 | ) | ||||
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Net loss from continuing operations
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(142,486 | ) | (34,458 | ) | ||||
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Loss from discontinued operations, net of income taxes
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- | (101 | ) | |||||
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Gain from sale of subsidiary, net of income taxes and selling costs
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- | 1,266 | ||||||
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Net loss
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(142,486 | ) | (33,293 | ) | ||||
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Preferred stock dividends and discount accretion
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2,778 | 2,572 | ||||||
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Net loss available to common shareholders
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$ | (145,264 | ) | $ | (35,865 | ) | ||
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Loss from continuing operations per common share - Basic / Diluted
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$ | (1.57 | ) | $ | (.39 | ) | ||
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Loss per common share - Basic / Diluted
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(1.57 | ) | (.38 | ) | ||||
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Weighted average common shares outstanding - Basic / Diluted
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92,330 | 94,390 | ||||||
See accompanying notes to consolidated financial statements.
2
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UNITED COMMUNITY BANKS, INC.
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||||||||||||
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Consolidated Balance Sheet
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||||||||||||
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March 31,
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December 31,
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March 31,
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||||||||||
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(in thousands, except share and per share data)
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2011
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2010
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2010
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|||||||||
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(unaudited)
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(audited)
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(unaudited)
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||||||||||
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ASSETS
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||||||||||||
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Cash and due from banks
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$ | 153,891 | $ | 95,994 | $ | 105,613 | ||||||
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Interest-bearing deposits in banks
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465,656 | 111,901 | 99,893 | |||||||||
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Federal funds sold, commercial paper and short-term investments
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470,087 | 441,562 | 183,049 | |||||||||
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Cash and cash equivalents
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1,089,634 | 649,457 | 388,555 | |||||||||
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Securities available for sale
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1,638,494 | 1,224,417 | 1,526,589 | |||||||||
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Securities held to maturity (fair value $248,361 and $267,988)
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245,430 | 265,807 | - | |||||||||
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Loans held for sale
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80,629 | - | - | |||||||||
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Mortgage loans held for sale
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25,364 | 35,908 | 21,998 | |||||||||
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Loans, net of unearned income
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4,194,372 | 4,604,126 | 4,992,045 | |||||||||
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Less allowance for loan losses
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133,121 | 174,695 | 173,934 | |||||||||
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Loans, net
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4,061,251 | 4,429,431 | 4,818,111 | |||||||||
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Assets covered by loss sharing agreements with the FDIC
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125,789 | 131,887 | 169,287 | |||||||||
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Premises and equipment, net
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179,143 | 178,239 | 181,217 | |||||||||
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Accrued interest receivable
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21,687 | 24,299 | 30,492 | |||||||||
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Goodwill and other intangible assets
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10,684 | 11,446 | 224,394 | |||||||||
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Foreclosed property
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54,378 | 142,208 | 136,275 | |||||||||
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Net deferred tax asset
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266,367 | 166,937 | 92,986 | |||||||||
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Other assets
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174,742 | 183,160 | 247,114 | |||||||||
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Total assets
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$ | 7,973,592 | $ | 7,443,196 | $ | 7,837,018 | ||||||
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LIABILITIES AND SHAREHOLDERS' EQUITY
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||||||||||||
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Liabilities:
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||||||||||||
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Deposits:
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||||||||||||
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Demand
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$ | 864,708 | $ | 793,414 | $ | 740,727 | ||||||
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NOW
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1,320,136 | 1,424,781 | 1,344,973 | |||||||||
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Money market
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967,938 | 891,252 | 729,283 | |||||||||
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Savings
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193,591 | 183,894 | 186,699 | |||||||||
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Time:
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||||||||||||
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Less than $100,000
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1,576,505 | 1,496,700 | 1,643,059 | |||||||||
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Greater than $100,000
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990,289 | 1,002,359 | 1,132,034 | |||||||||
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Brokered
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684,581 | 676,772 | 710,813 | |||||||||
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Total deposits
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6,597,748 | 6,469,172 | 6,487,588 | |||||||||
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Federal funds purchased, repurchase agreements, and other short-term borrowings
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102,107 | 101,067 | 102,480 | |||||||||
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Federal Home Loan Bank advances
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55,125 | 55,125 | 114,303 | |||||||||
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Long-term debt
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150,166 | 150,146 | 150,086 | |||||||||
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Unsettled securities purchases
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177,532 | - | 17,588 | |||||||||
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Accrued expenses and other liabilities
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40,766 | 32,171 | 39,078 | |||||||||
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Total liabilities
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7,123,444 | 6,807,681 | 6,911,123 | |||||||||
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Shareholders' equity:
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||||||||||||
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Preferred stock, $1 par value; 10,000,000 shares authorized;
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||||||||||||
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Series A; $10 stated value; 21,700 shares issued and outstanding
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217 | 217 | 217 | |||||||||
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Series B; $1,000 stated value; 180,000 shares issued and outstanding
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176,049 | 175,711 | 174,727 | |||||||||
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Series D; $1,000 stated value; 16,613 shares issued and outstanding
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16,613 | - | - | |||||||||
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Series F; $1,000 stated value; 195,872 shares issued and outstanding
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195,872 | - | - | |||||||||
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Series G; $1,000 stated value; 151,185 shares issued and outstanding
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151,185 | - | - | |||||||||
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Common stock, $1 par value; 200,000,000 shares authorized;
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||||||||||||
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104,515,553, 94,685,003 and 94,175,857 shares issued and outstanding
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104,516 | 94,685 | 94,176 | |||||||||
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Common stock issuable; 397,138, 336,437 and 262,002 shares
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3,681 | 3,894 | 4,127 | |||||||||
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Capital surplus
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655,350 | 665,496 | 622,803 | |||||||||
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Accumulated deficit
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(480,831 | ) | (335,567 | ) | (15,481 | ) | ||||||
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Accumulated other comprehensive income
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27,496 | 31,079 | 45,326 | |||||||||
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Total shareholders' equity
|
850,148 | 635,515 | 925,895 | |||||||||
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Total liabilities and shareholders' equity
|
$ | 7,973,592 | $ | 7,443,196 | $ | 7,837,018 | ||||||
See accompanying notes to consolidated financial statements.
3
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Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
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||||||||||||||||||||
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For the Three Months Ended March 31,
|
||||||||||||||||||||
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(Accumulated
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Accumulated
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|||||||||||||||||||||||||||||||||||||||||||
|
Preferred Stock
|
Common
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Deficit)
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Other
|
|||||||||||||||||||||||||||||||||||||||||
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(in thousands, except share
|
Series
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Series
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Series
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Series
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Series
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Common
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Stock
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Capital
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Retained
|
Comprehensive
|
||||||||||||||||||||||||||||||||||
| and per share data) | A | B | D | F | G |
Stock
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Issuable
|
Surplus
|
Earnings
|
Income
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Total
|
|||||||||||||||||||||||||||||||||
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Balance, December 31, 2009
|
$ | 217 | $ | 174,408 | $ | - | $ | - | $ | - | $ | 94,046 | $ | 3,597 | $ | 622,034 | $ | 20,384 | $ | 47,635 | $ | 962,321 | ||||||||||||||||||||||
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Comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||||||
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Net loss
|
(33,293 | ) | (33,293 | ) | ||||||||||||||||||||||||||||||||||||||||
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Other comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||||||||||
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Unrealized holding gains on
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||||||||||||||||||||||||||||||||||||||||||||
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available for sale securities,
|
||||||||||||||||||||||||||||||||||||||||||||
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net of deferred tax expense
|
||||||||||||||||||||||||||||||||||||||||||||
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and reclassification adjustment
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783 | 783 | ||||||||||||||||||||||||||||||||||||||||||
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Unrealized losses on derivative
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||||||||||||||||||||||||||||||||||||||||||||
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financial instruments qualifying
|
||||||||||||||||||||||||||||||||||||||||||||
|
as cash flow hedges, net of
|
||||||||||||||||||||||||||||||||||||||||||||
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deferred tax benefit
|
(3,092 | ) | (3,092 | ) | ||||||||||||||||||||||||||||||||||||||||
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Comprehensive loss
|
(33,293 | ) | (2,309 | ) | (35,602 | ) | ||||||||||||||||||||||||||||||||||||||
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Common stock issued to dividend
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||||||||||||||||||||||||||||||||||||||||||||
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Reinvestment plan and employee
|
||||||||||||||||||||||||||||||||||||||||||||
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benefit plans (125,021 shares)
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124 | 387 | 511 | |||||||||||||||||||||||||||||||||||||||||
|
Amortization of stock option and
|
||||||||||||||||||||||||||||||||||||||||||||
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restricted stock
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832 | 832 | ||||||||||||||||||||||||||||||||||||||||||
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Vesting of restricted stock (12,447
|
||||||||||||||||||||||||||||||||||||||||||||
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shares issued, 16,162 shares
|
||||||||||||||||||||||||||||||||||||||||||||
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deferred)
|
6 | 444 | (450 | ) | - | |||||||||||||||||||||||||||||||||||||||
|
Deferred compensation plan, net,
|
||||||||||||||||||||||||||||||||||||||||||||
|
including dividend equivalents
|
86 | 86 | ||||||||||||||||||||||||||||||||||||||||||
|
Dividends on Series A preferred stock
|
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividends on Series B preferred stock | 319 | (2,569 | ) | (2,250 | ) | |||||||||||||||||||||||||||||||||||||||
|
Balance, March 31, 2010
|
$ | 217 | $ | 174,727 | $ | - | $ | - | $ | - | $ | 94,176 | $ | 4,127 | $ | 622,803 | $ | (15,481 | ) | $ | 45,326 | $ | 925,895 | |||||||||||||||||||||
|
Balance, December 31, 2010
|
$ | 217 | $ | 175,711 | $ | - | $ | - | $ | - | $ | 94,685 | $ | 3,894 | $ | 665,496 | $ | (335,567 | ) | $ | 31,079 | $ | 635,515 | |||||||||||||||||||||
|
Comprehensive loss:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(142,486 | ) | (142,486 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Other comprehensive loss:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Unrealized holding gains on
|
||||||||||||||||||||||||||||||||||||||||||||
|
available for sale securities,
|
||||||||||||||||||||||||||||||||||||||||||||
|
net of deferred tax expense
|
||||||||||||||||||||||||||||||||||||||||||||
|
and reclassification adjustment
|
(1,003 | ) | (1,003 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Unrealized losses on derivative
|
||||||||||||||||||||||||||||||||||||||||||||
|
financial instruments qualifying
|
||||||||||||||||||||||||||||||||||||||||||||
|
as cash flow hedges, net of
|
||||||||||||||||||||||||||||||||||||||||||||
|
deferred tax benefit
|
(2,580 | ) | (2,580 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Comprehensive loss
|
(142,486 | ) | (3,583 | ) | (146,069 | ) | ||||||||||||||||||||||||||||||||||||||
|
Preferred for common equity exchange
|
||||||||||||||||||||||||||||||||||||||||||||
|
related to tax benefits preservation
|
||||||||||||||||||||||||||||||||||||||||||||
|
plan (7,755,631 common shares)
|
16,613 | (7,756 | ) | (8,857 | ) | - | ||||||||||||||||||||||||||||||||||||||
|
Common stock issued to dividend
|
||||||||||||||||||||||||||||||||||||||||||||
|
reinvestment plan and employee
|
||||||||||||||||||||||||||||||||||||||||||||
|
benefit plans (230,096 shares)
|
232 | 143 | 375 | |||||||||||||||||||||||||||||||||||||||||
|
Common and preferred stock issued
|
||||||||||||||||||||||||||||||||||||||||||||
|
(17,338,497 common shares)
|
195,872 | 151,185 | 17,338 | (1,866 | ) | 362,529 | ||||||||||||||||||||||||||||||||||||||
|
Amortization of stock options and
|
||||||||||||||||||||||||||||||||||||||||||||
|
restricted stock awards
|
549 | 549 | ||||||||||||||||||||||||||||||||||||||||||
|
Vesting of restricted stock (7,097
|
||||||||||||||||||||||||||||||||||||||||||||
|
shares issued, 31,910 shares
|
||||||||||||||||||||||||||||||||||||||||||||
|
deferred)
|
7 | 54 | (61 | ) | - | |||||||||||||||||||||||||||||||||||||||
|
Deferred compensation plan, net,
|
||||||||||||||||||||||||||||||||||||||||||||
|
including dividend equivalents
|
65 | 65 | ||||||||||||||||||||||||||||||||||||||||||
|
Shares issued from deferred
|
||||||||||||||||||||||||||||||||||||||||||||
|
compensation plan (10,491 shares)
|
10 | (332 | ) | 322 | - | |||||||||||||||||||||||||||||||||||||||
|
Tax on option exercise and restricted
|
||||||||||||||||||||||||||||||||||||||||||||
|
stock vesting
|
(376 | ) | (376 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Dividends on Series A preferred stock
|
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Dividends on Series B preferred stock
|
338 | (2,602 | ) | (2,264 | ) | |||||||||||||||||||||||||||||||||||||||
|
Dividends on Series D preferred stock
|
(173 | ) | (173 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Balance, March 31, 2011
|
$ | 217 | $ | 176,049 | $ | 16,613 | $ | 195,872 | $ | 151,185 | $ | 104,516 | $ | 3,681 | $ | 655,350 | $ | (480,831 | ) | $ | 27,496 | $ | 850,148 | |||||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
|
UNITED COMMUNITY BANKS, INC.
|
||||||||
|
Consolidated Statement of Cash Flows (Unaudited)
|
||||||||
|
Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
(in thousands)
|
2011
|
2010
|
||||||
|
Operating activities:
|
||||||||
|
Net loss
|
$ | (142,486 | ) | $ | (33,293 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Depreciation, amortization and accretion
|
4,743 | 3,814 | ||||||
|
Provision for loan losses
|
190,000 | 75,000 | ||||||
|
Stock based compensation
|
549 | 832 | ||||||
|
Securities gains, net
|
(55 | ) | (61 | ) | ||||
|
Losses and write downs on sales of other real estate owned
|
60,605 | 8,097 | ||||||
|
Gain from sale of subsidiary
|
- | (2,110 | ) | |||||
|
Changes in assets and liabilities:
|
||||||||
|
Other assets and accrued interest receivable
|
(90,321 | ) | (11,557 | ) | ||||
|
Accrued expenses and other liabilities
|
6,518 | (4,956 | ) | |||||
|
Mortgage loans held for sale
|
10,544 | 8,228 | ||||||
|
Net cash provided by operating activities
|
40,097 | 43,994 | ||||||
|
Investing activities:
|
||||||||
|
Investment securities held to maturity:
|
||||||||
|
Proceeds from maturities and calls
|
21,116 | - | ||||||
|
Purchases
|
(1,500 | ) | - | |||||
|
Investment securities available for sale:
|
||||||||
|
Proceeds from sales
|
51,240 | 40,817 | ||||||
|
Proceeds from maturities and calls
|
116,175 | 200,578 | ||||||
|
Purchases
|
(405,979 | ) | (219,354 | ) | ||||
|
Net decrease in loans
|
93,949 | 65,889 | ||||||
|
Proceeds from sales of premises and equipment
|
160 | 8 | ||||||
|
Purchases of premises and equipment
|
(3,604 | ) | (2,024 | ) | ||||
|
Net cash received from sale of subsidiary
|
- | 290 | ||||||
|
Proceeds from sale of other real estate
|
36,003 | 21,692 | ||||||
|
Net cash (used in) provided by investing activities
|
(92,440 | ) | 107,896 | |||||
|
Financing activities:
|
||||||||
|
Net change in deposits
|
128,576 | (139,051 | ) | |||||
|
Net change in federal funds purchased, repurchase agreements, and other short-term borrowings
|
1,040 | 1,091 | ||||||
|
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans
|
375 | 511 | ||||||
|
Proceeds from issuance of common and preferred stock, net of offering costs
|
362,529 | - | ||||||
|
Cash dividends on preferred stock
|
- | (2,253 | ) | |||||
|
Net cash provided by (used in) financing activities
|
492,520 | (139,702 | ) | |||||
|
Net change in cash and cash equivalents
|
440,177 | 12,188 | ||||||
|
Cash and cash equivalents at beginning of period
|
649,457 | 376,367 | ||||||
|
Cash and cash equivalents at end of period
|
$ | 1,089,634 | $ | 388,555 | ||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid during the period for:
|
||||||||
|
Interest
|
$ | 17,936 | $ | 33,283 | ||||
|
Income taxes
|
1,287 | 767 | ||||||
|
Unsettled securities purchases
|
177,532 | 17,588 | ||||||
See accompanying notes to consolidated financial statements.
5
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 – Accounting Policies
The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in the 2010 annual report filed on Form 10-K.
In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.
Foreclosed property is initially recorded at fair value, less estimated costs to sell. If the fair value, less estimated costs to sell at the time of foreclosure, is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the fair value, less cost to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to operating expenses. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property. Financed sales of foreclosed property are accounted for in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 360, Subtopic 20, Real Estate Sales (“ASC 360-20”).
Note 2 – Accounting Standards Updates
In April 2011, the FASB issued Accounting Standards Update No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU No. 2011-02”). ASU No. 2011-02 requires a creditor to separately conclude that 1.) the restructuring constitutes a concession and 2.) the debtor is experiencing financial difficulties in order for a modification to be considered a troubled debt restructuring (“TDR”). The guidance was issued to provide clarification and to address diversity in practice in identifying TDR’s. It is effective for United in the third quarter of 2011 and will be applied retrospectively to the beginning of the year. Although evaluation of the impact is not complete, it is not expected to have a material impact on United’s results of operations, financial position, or disclosures.
In April 2011, the FASB issued Accounting Standards Update No. 2011-03, Reconsideration of Effective Control in Repurchase Agreements (“ASU No. 2011-03”). ASU No. 2011-03 removes from the assessment of effective control the criterion related to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. In addition, this guidance also eliminates the requirement to demonstrate that a transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. It is effective for United for the first quarter of 2012, and is not expected to have a material impact on United’s results of operations, financial position, or disclosures.
Note 3 – Mergers and Acquisitions
On June 19, 2009, United Community Bank (“UCB” or the “Bank”) purchased substantially all the assets and assumed substantially all the liabilities of Southern Community Bank (“SCB”) from the Federal Deposit Insurance Corporation (“FDIC”), as Receiver of SCB. UCB and the FDIC entered loss sharing agreements regarding future losses incurred on loans and foreclosed loan collateral existing at June 19, 2009. Under the terms of the loss sharing agreements, the FDIC will absorb 80 percent of losses and share 80 percent of loss recoveries on the first $109 million of losses and, absorb 95 percent of losses and share in 95 percent of loss recoveries on losses exceeding $109 million. The term for loss sharing on 1-4 Family loans is ten years, while the term for loss sharing on all other loans is five years.
Under the loss sharing agreement, the portion of the losses expected to be indemnified by FDIC is considered an indemnification asset in accordance with ASC 805 Business Combinations. The indemnification asset, referred to as “estimated loss reimbursement from the FDIC” is included in the balance of “Assets covered by loss sharing agreements with the FDIC” on the Consolidated Balance Sheet. The indemnification asset was recognized at fair value, which was estimated at the acquisition date based on the terms of the loss sharing agreement. The indemnification asset is expected to be collected over a four-year average life. No valuation allowance was required.
Loans, foreclosed property and the estimated FDIC reimbursement resulting from the loss sharing agreements with the FDIC are reported as “assets covered by loss sharing agreements with the FDIC” in the consolidated balance sheet.
6
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The table below shows the components of covered assets at March 31, 2011 (in thousands).
|
(in thousands)
|
Purchased
Impaired
Loans
|
Other Purchased Loans
|
Other
|
Total
|
||||||||||||
|
Commercial (secured by real estate)
|
$ | - | $ | 35,129 | $ | - | $ | 35,129 | ||||||||
|
Commercial (commercial and industrial)
|
- | 3,478 | - | 3,478 | ||||||||||||
|
Construction and land development
|
1,644 | 13,335 | - | 14,979 | ||||||||||||
|
Residential mortgage
|
145 | 9,322 | - | 9,467 | ||||||||||||
|
Installment
|
7 | 229 | - | 236 | ||||||||||||
|
Total covered loans
|
1,796 | 61,493 | - | 63,289 | ||||||||||||
|
Covered forclosed property
|
- | - | 30,833 | 30,833 | ||||||||||||
|
Estimated loss reimbursement from the FDIC
|
- | - | 31,667 | 31,667 | ||||||||||||
|
Total covered assets
|
$ | 1,796 | $ | 61,493 | $ | 62,500 | $ | 125,789 | ||||||||
Note 4 – Securities
During the second quarter of 2010, securities available for sale with a fair value of $315 million were transferred to held to maturity. The securities were transferred at their fair value on the date of transfer. The unrealized gain of $7.1 million on the transferred securities on the date of transfer is being amortized into interest revenue as an adjustment to the yield on those securities over the remaining life of the transferred securities. Securities are classified as held to maturity when management has the positive intent and ability to hold them until maturity. Securities held to maturity are carried at amortized cost.
The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at March 31, 2011 and December 31, 2010, are as follows (in thousands). There were no securities classified as held to maturity at March 31, 2010.
|
Gross
|
Gross
|
|||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
As of March 31, 2011
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
U.S. Government agencies
|
$ | 4,989 | $ | 12 | $ | - | $ | 5,001 | ||||||||
|
State and political subdivisions
|
48,497 | 616 | 731 | 48,382 | ||||||||||||
|
Mortgage-backed securities (1)
|
191,944 | 3,041 | 7 | 194,978 | ||||||||||||
|
Total
|
$ | 245,430 | $ | 3,669 | $ | 738 | $ | 248,361 | ||||||||
|
As of December 31, 2010
|
||||||||||||||||
|
U.S. Government agencies
|
$ | 11,939 | $ | 79 | $ | - | $ | 12,018 | ||||||||
|
State and political subdivisions
|
47,007 | 416 | 1,005 | 46,418 | ||||||||||||
|
Mortgage-backed securities (1)
|
206,861 | 2,700 | 9 | 209,552 | ||||||||||||
|
Total
|
$ | 265,807 | $ | 3,195 | $ | 1,014 | $ | 267,988 | ||||||||
|
(1) All are residential type mortgage-backed securities
|
||||||||||||||||
7
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The cost basis, unrealized gains and losses, and fair value of securities available for sale at March 31, 2011, December 31, 2010 and March 31, 2010 are presented below (in thousands).
|
Gross
|
Gross
|
|||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
As of March 31, 2011
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
U.S. Government agencies
|
$ | 94,966 | $ | 16 | $ | 1,204 | $ | 93,778 | ||||||||
|
State and political subdivisions
|
26,870 | 983 | 20 | 27,833 | ||||||||||||
|
Mortgage-backed securities (1)
|
1,388,702 | 27,617 | 1,474 | 1,414,845 | ||||||||||||
|
Other
|
103,408 | 150 | 1,520 | 102,038 | ||||||||||||
|
Total
|
$ | 1,613,946 | $ | 28,766 | $ | 4,218 | $ | 1,638,494 | ||||||||
|
As of December 31, 2010
|
||||||||||||||||
|
U.S. Government agencies
|
$ | 99,969 | $ | 67 | $ | 1,556 | $ | 98,480 | ||||||||
|
State and political subdivisions
|
27,600 | 878 | 36 | 28,442 | ||||||||||||
|
Mortgage-backed securities (1)
|
963,475 | 29,204 | 1,671 | 991,008 | ||||||||||||
|
Other
|
107,811 | 192 | 1,516 | 106,487 | ||||||||||||
|
Total
|
$ | 1,198,855 | $ | 30,341 | $ | 4,779 | $ | 1,224,417 | ||||||||
|
As of March 31, 2010
|
||||||||||||||||
|
U.S. Government agencies
|
$ | 306,916 | $ | 553 | $ | 891 | $ | 306,578 | ||||||||
|
State and political subdivisions
|
63,175 | 1,450 | 81 | 64,544 | ||||||||||||
|
Mortgage-backed securities (1)
|
1,101,456 | 41,754 | 1,031 | 1,142,179 | ||||||||||||
|
Other
|
13,006 | 290 | 8 | 13,288 | ||||||||||||
|
Total
|
$ | 1,484,553 | $ | 44,047 | $ | 2,011 | $ | 1,526,589 | ||||||||
|
(1) All are residential type mortgage-backed securities
|
||||||||||||||||
The following table summarizes held to maturity securities in an unrealized loss position as of March 31, 2011 and December 31, 2010 (in thousands).
|
Less than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||
|
As of March 31, 2011
|
Fair Value
|
Unrealized Loss
|
Fair Value
|
Unrealized Loss
|
Fair Value
|
Unrealized Loss
|
||||||||||||||||||
|
State and political subdivisions
|
$ | 21,313 | $ | 731 | $ | - | $ | - | $ | 21,313 | $ | 731 | ||||||||||||
|
Mortgage-backed securities
|
1,942 | 7 | - | - | 1,942 | 7 | ||||||||||||||||||
|
Total unrealized loss position
|
$ | 23,255 | $ | 738 | $ | - | $ | - | $ | 23,255 | $ | 738 | ||||||||||||
|
As of December 31, 2010
|
||||||||||||||||||||||||
|
State and political subdivisions
|
$ | 28,949 | $ | 1,005 | $ | - | $ | - | $ | 28,949 | $ | 1,005 | ||||||||||||
|
Mortgage-backed securities
|
1,951 | 9 | - | - | 1,951 | 9 | ||||||||||||||||||
|
Total unrealized loss position
|
$ | 30,900 | $ | 1,014 | $ | - | $ | - | $ | 30,900 | $ | 1,014 | ||||||||||||
| < | ||||||||||||||||||||||||