UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | ||||
FORM 10-Q | ||||
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the Quarterly Period Ended March 31, 2019 | ||||
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 ý NO ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted 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 such files).
YES ý NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company ¨ |
Emerging growth company ¨ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES ¨ NO ý
Common stock, par value $1 per share 79,039,390 shares outstanding as of April 30, 2019.
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common stock, par value $1 per share | UCBI | Nasdaq Global Select Market |
INDEX
Item 1. | Financial Statements. | ||
2
Part I – Financial Information
UNITED COMMUNITY BANKS, INC. Consolidated Statements of Income (Unaudited) | ||||||||
Three Months Ended March 31, | ||||||||
(in thousands, except per share data) | 2019 | 2018 | ||||||
Interest revenue: | ||||||||
Loans, including fees | $ | 115,259 | $ | 96,469 | ||||
Investment securities, including tax exempt of $1,169 and $972 | 20,818 | 18,295 | ||||||
Deposits in banks and short-term investments | 439 | 526 | ||||||
Total interest revenue | 136,516 | 115,290 | ||||||
Interest expense: | ||||||||
Deposits: | ||||||||
NOW and interest-bearing demand | 3,536 | 1,113 | ||||||
Money market | 4,205 | 2,175 | ||||||
Savings | 32 | 49 | ||||||
Time | 8,184 | 2,956 | ||||||
Total deposit interest expense | 15,957 | 6,293 | ||||||
Short-term borrowings | 161 | 300 | ||||||
Federal Home Loan Bank advances | 1,422 | 2,124 | ||||||
Long-term debt | 3,342 | 3,288 | ||||||
Total interest expense | 20,882 | 12,005 | ||||||
Net interest revenue | 115,634 | 103,285 | ||||||
Provision for credit losses | 3,300 | 3,800 | ||||||
Net interest revenue after provision for credit losses | 112,334 | 99,485 | ||||||
Noninterest income: | ||||||||
Service charges and fees | 8,453 | 8,925 | ||||||
Mortgage loan and other related fees | 3,748 | 5,359 | ||||||
Brokerage fees | 1,337 | 872 | ||||||
Gains from sales of SBA/USDA loans | 1,303 | 1,778 | ||||||
Securities losses, net | (267 | ) | (940 | ) | ||||
Other | 6,394 | 6,402 | ||||||
Total noninterest income | 20,968 | 22,396 | ||||||
Total revenue | 133,302 | 121,881 | ||||||
Noninterest expenses: | ||||||||
Salaries and employee benefits | 47,503 | 42,875 | ||||||
Communications and equipment | 5,788 | 4,632 | ||||||
Occupancy | 5,584 | 5,613 | ||||||
Advertising and public relations | 1,286 | 1,515 | ||||||
Postage, printing and supplies | 1,586 | 1,637 | ||||||
Professional fees | 3,161 | 4,044 | ||||||
FDIC assessments and other regulatory charges | 1,710 | 2,476 | ||||||
Amortization of intangibles | 1,293 | 1,898 | ||||||
Merger-related and other charges | 546 | 2,054 | ||||||
Other | 7,627 | 6,731 | ||||||
Total noninterest expenses | 76,084 | 73,475 | ||||||
Net income before income taxes | 57,218 | 48,406 | ||||||
Income tax expense | 12,956 | 10,748 | ||||||
Net income | $ | 44,262 | $ | 37,658 | ||||
Net income available to common shareholders | $ | 43,947 | $ | 37,381 | ||||
Earnings per common share: | ||||||||
Basic | $ | 0.55 | $ | 0.47 | ||||
Diluted | 0.55 | 0.47 | ||||||
Weighted average common shares outstanding: | ||||||||
Basic | 79,807 | 79,205 | ||||||
Diluted | 79,813 | 79,215 | ||||||
See accompanying notes to consolidated financial statements.
3
UNITED COMMUNITY BANKS, INC. Consolidated Statements of Comprehensive Income (Unaudited) | ||||||||||||
(in thousands) | Three Months Ended March 31, | |||||||||||
Before-tax Amount | Tax (Expense) Benefit | Net of Tax Amount | ||||||||||
2019 | ||||||||||||
Net income | $ | 57,218 | $ | (12,956 | ) | $ | 44,262 | |||||
Other comprehensive income: | ||||||||||||
Unrealized gains on available-for-sale securities: | ||||||||||||
Unrealized holding gains arising during period | 33,174 | (8,049 | ) | 25,125 | ||||||||
Reclassification adjustment for losses included in net income | 267 | (68 | ) | 199 | ||||||||
Net unrealized gains | 33,441 | (8,117 | ) | 25,324 | ||||||||
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity | 84 | (20 | ) | 64 | ||||||||
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges | 102 | (26 | ) | 76 | ||||||||
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan | 174 | (44 | ) | 130 | ||||||||
Total other comprehensive income | 33,801 | (8,207 | ) | 25,594 | ||||||||
Comprehensive income | $ | 91,019 | $ | (21,163 | ) | $ | 69,856 | |||||
2018 | ||||||||||||
Net income | $ | 48,406 | $ | (10,748 | ) | $ | 37,658 | |||||
Other comprehensive loss: | ||||||||||||
Unrealized losses on available-for-sale securities: | ||||||||||||
Unrealized holding losses arising during period | (29,265 | ) | 7,155 | (22,110 | ) | |||||||
Reclassification adjustment for losses included in net income | 940 | (221 | ) | 719 | ||||||||
Net unrealized losses | (28,325 | ) | 6,934 | (21,391 | ) | |||||||
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity | 222 | (54 | ) | 168 | ||||||||
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges | 147 | (38 | ) | 109 | ||||||||
Defined benefit pension plan activity: | ||||||||||||
Net actuarial loss on defined benefit pension plan | (5 | ) | 1 | (4 | ) | |||||||
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan | 227 | (58 | ) | 169 | ||||||||
Net defined benefit pension plan activity | 222 | (57 | ) | 165 | ||||||||
Total other comprehensive loss | (27,734 | ) | 6,785 | (20,949 | ) | |||||||
Comprehensive income | $ | 20,672 | $ | (3,963 | ) | $ | 16,709 | |||||
See accompanying notes to consolidated financial statements.
4
UNITED COMMUNITY BANKS, INC. Consolidated Balance Sheets (Unaudited) | ||||||||
March 31, 2019 | December 31, 2018 | |||||||
(in thousands, except share data) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 118,659 | $ | 126,083 | ||||
Interest-bearing deposits in banks (includes restricted cash of $6.43 million and $6.70 million) | 206,836 | 201,182 | ||||||
Cash and cash equivalents | 325,495 | 327,265 | ||||||
Debt securities available for sale | 2,454,625 | 2,628,467 | ||||||
Debt securities held to maturity (fair value $265,117 and $268,803) | 265,329 | 274,407 | ||||||
Loans held for sale at fair value | 26,341 | 18,935 | ||||||
Loans and leases, net of unearned income | 8,493,254 | 8,383,401 | ||||||
Less allowance for loan and lease losses | (61,642 | ) | (61,203 | ) | ||||
Loans and leases, net | 8,431,612 | 8,322,198 | ||||||
Premises and equipment, net | 214,022 | 206,140 | ||||||
Bank owned life insurance | 193,489 | 192,616 | ||||||
Accrued interest receivable | 35,126 | 35,413 | ||||||
Net deferred tax asset | 51,055 | 64,224 | ||||||
Derivative financial instruments | 25,924 | 24,705 | ||||||
Goodwill and other intangible assets | 322,779 | 324,072 | ||||||
Other assets | 160,030 | 154,750 | ||||||
Total assets | $ | 12,505,827 | $ | 12,573,192 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Deposits: | ||||||||
Noninterest-bearing demand | $ | 3,313,861 | $ | 3,210,220 | ||||
NOW and interest-bearing demand | 2,205,117 | 2,274,775 | ||||||
Money market | 2,106,045 | 2,097,526 | ||||||
Savings | 681,739 | 669,886 | ||||||
Time | 1,668,563 | 1,598,391 | ||||||
Brokered | 558,981 | 683,715 | ||||||
Total deposits | 10,534,306 | 10,534,513 | ||||||
Federal Home Loan Bank advances | 40,000 | 160,000 | ||||||
Long-term debt | 257,259 | 267,189 | ||||||
Derivative financial instruments | 18,789 | 26,433 | ||||||
Accrued expenses and other liabilities | 147,315 | 127,503 | ||||||
Total liabilities | 10,997,669 | 11,115,638 | ||||||
Shareholders' equity: | ||||||||
Common stock, $1 par value; 150,000,000 shares authorized; 79,035,459 and 79,234,077 shares issued and outstanding | 79,035 | 79,234 | ||||||
Common stock issuable; 621,491 and 674,499 shares | 10,291 | 10,744 | ||||||
Capital surplus | 1,494,400 | 1,499,584 | ||||||
Accumulated deficit | (59,573 | ) | (90,419 | ) | ||||
Accumulated other comprehensive loss | (15,995 | ) | (41,589 | ) | ||||
Total shareholders' equity | 1,508,158 | 1,457,554 | ||||||
Total liabilities and shareholders' equity | $ | 12,505,827 | $ | 12,573,192 | ||||
See accompanying notes to consolidated financial statements.
5
UNITED COMMUNITY BANKS, INC. Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) For the Three Months Ended March 31, | ||||||||||||||||||||||||
(in thousands, except share and per share data) | Common Stock | Common Stock Issuable | Capital Surplus | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||
Balance, December 31, 2017 | $ | 77,580 | $ | 9,083 | $ | 1,451,814 | $ | (209,902 | ) | $ | (25,241 | ) | $ | 1,303,334 | ||||||||||
Net income | 37,658 | 37,658 | ||||||||||||||||||||||
Other comprehensive loss | (20,949 | ) | (20,949 | ) | ||||||||||||||||||||
Common stock issued to dividend reinvestment plan and employee benefit plans (5,204 shares) | 5 | 139 | 144 | |||||||||||||||||||||
Common stock issued for acquisition (1,443,987 shares) | 1,444 | 44,302 | 45,746 | |||||||||||||||||||||
Amortization of stock option and restricted stock awards | 1,148 | 1,148 | ||||||||||||||||||||||
Vesting of restricted stock and exercise of stock options, net of shares surrendered to cover payroll taxes (48,310 shares issued, 46,074 shares deferred) | 48 | 850 | (1,725 | ) | (827 | ) | ||||||||||||||||||
Deferred compensation plan, net, including dividend equivalents | 143 | 143 | ||||||||||||||||||||||
Shares issued from deferred compensation plan, net of shares surrendered to cover payroll taxes (45,558 shares) | 46 | (684 | ) | 629 | (9 | ) | ||||||||||||||||||
Common stock dividends ($0.12 per share) | (9,633 | ) | (9,633 | ) | ||||||||||||||||||||
Balance, March 31, 2018 | $ | 79,123 | $ | 9,392 | $ | 1,496,307 | $ | (181,877 | ) | $ | (46,190 | ) | $ | 1,356,755 | ||||||||||
Balance, December 31, 2018 | $ | 79,234 | $ | 10,744 | $ | 1,499,584 | $ | (90,419 | ) | $ | (41,589 | ) | $ | 1,457,554 | ||||||||||
Net income | 44,262 | 44,262 | ||||||||||||||||||||||
Other comprehensive income | 25,594 | 25,594 | ||||||||||||||||||||||
Exercise of stock options (12,000 shares) | 12 | 185 | 197 | |||||||||||||||||||||
Common stock issued to dividend reinvestment plan and employee benefit plans (8,445 shares) | 8 | 178 | 186 | |||||||||||||||||||||
Amortization of restricted stock awards | 1,985 | 1,985 | ||||||||||||||||||||||
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (15,945 shares issued, 19,450 shares deferred) | 16 | 532 | (865 | ) | (317 | ) | ||||||||||||||||||
Purchases of common stock (305,052 shares) | (305 | ) | (7,535 | ) | (7,840 | ) | ||||||||||||||||||
Deferred compensation plan, net, including dividend equivalents | 185 | 185 | ||||||||||||||||||||||
Shares issued from deferred compensation plan, net of shares surrendered to cover payroll taxes (70,044 shares) | 70 | (1,170 | ) | 868 | (232 | ) | ||||||||||||||||||
Common stock dividends ($0.16 per share) | (12,867 | ) | (12,867 | ) | ||||||||||||||||||||
Adoption of new accounting standard | (549 | ) | (549 | ) | ||||||||||||||||||||
Balance, March 31, 2019 | $ | 79,035 | $ | 10,291 | $ | 1,494,400 | $ | (59,573 | ) | $ | (15,995 | ) | $ | 1,508,158 | ||||||||||
See accompanying notes to consolidated financial statements.
6
UNITED COMMUNITY BANKS, INC. Consolidated Statements of Cash Flows (Unaudited) | ||||||||
Three Months Ended March 31, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Operating activities: | ||||||||
Net income | $ | 44,262 | $ | 37,658 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, amortization and accretion | 6,373 | 10,487 | ||||||
Provision for credit losses | 3,300 | 3,800 | ||||||
Stock based compensation | 1,985 | 1,148 | ||||||
Deferred income tax expense | 658 | 10,225 | ||||||
Securities losses, net | 267 | 940 | ||||||
Gains from sales of SBA/USDA loans | (1,303 | ) | (1,778 | ) | ||||
Net (gains) losses and write downs on sales of other real estate owned | (45 | ) | 188 | |||||
Changes in assets and liabilities: | ||||||||
Other assets and accrued interest receivable | (6,206 | ) | (385 | ) | ||||
Accrued expenses and other liabilities | (5,994 | ) | 1,371 | |||||
Loans held for sale | (7,406 | ) | 8,833 | |||||
Net cash provided by operating activities | 35,891 | 72,487 | ||||||
Investing activities: | ||||||||
Debt securities held to maturity: | ||||||||
Proceeds from maturities and calls of securities held to maturity | 9,049 | 13,832 | ||||||
Purchases of securities held to maturity | — | (4,781 | ) | |||||
Debt securities available for sale and equity securities: | ||||||||
Proceeds from sales of securities available for sale | 178,604 | 113,961 | ||||||
Proceeds from maturities and calls of securities available for sale | 60,779 | 85,331 | ||||||
Purchases of securities available for sale | (34,729 | ) | (30,161 | ) | ||||
Net increase in loans | (90,380 | ) | (79,404 | ) | ||||
Proceeds from sales of premises and equipment | 105 | 195 | ||||||
Purchases of premises and equipment | (11,686 | ) | (6,107 | ) | ||||
Net cash paid for acquisition | — | (56,800 | ) | |||||
Proceeds from sale of other real estate | 974 | 957 | ||||||
Net cash provided by investing activities | 112,716 | 37,023 | ||||||
Financing activities: | ||||||||
Net change in deposits | 117 | 186,089 | ||||||
Net change in short-term borrowings | — | (264,923 | ) | |||||
Repayment of long-term debt | (10,110 | ) | (12,309 | ) | ||||
Proceeds from FHLB advances | 780,000 | 760,000 | ||||||
Repayment of FHLB advances | (900,000 | ) | (830,000 | ) | ||||
Proceeds from issuance of subordinated debt, net of issuance costs | — | 98,188 | ||||||
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans | 186 | 144 | ||||||
Proceeds from exercise of stock options | 197 | — | ||||||
Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock | (549 | ) | (836 | ) | ||||
Repurchase of common stock | (7,342 | ) | — | |||||
Cash dividends on common stock | (12,876 | ) | (7,885 | ) | ||||
Net cash used in financing activities | (150,377 | ) | (71,532 | ) | ||||
Net change in cash and cash equivalents, including restricted cash | (1,770 | ) | 37,978 | |||||
Cash and cash equivalents, including restricted cash, at beginning of period | 327,265 | 314,275 | ||||||
Cash and cash equivalents, including restricted cash, at end of period | $ | 325,495 | $ | 352,253 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Interest paid | $ | 22,963 | $ | 13,069 | ||||
Income taxes paid | 939 | 811 | ||||||
Significant non-cash investing and financing transactions: | ||||||||
Unsettled securities purchases | — | 4,790 | ||||||
Unsettled government guaranteed loan sales | 13,934 | 14,240 | ||||||
Transfers of loans to foreclosed properties | 751 | 625 | ||||||
Unsettled repurchases of common stock | 498 | — | ||||||
Acquisitions: | ||||||||
Assets acquired | — | 480,679 | ||||||
Liabilities assumed | — | 350,433 | ||||||
Net assets acquired | — | 130,246 | ||||||
Common stock issued in acquisitions | — | 45,746 | ||||||
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. and its subsidiaries (collectively referred to herein as “United”) 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, 2018.
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.
Note 2 –Accounting Standards Updates and Recently Adopted Standards
Accounting Standards Updates
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance was further modified in November 2018 by ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The new guidance replaces the incurred loss impairment methodology in current GAAP with a current expected credit loss (“CECL”) 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 deteriorated 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 Accounting Standards Codification (“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. Upon adoption, United expects that the allowance for credit losses will be higher given the change to estimated losses for the estimated life of the financial asset; however, management is still in the process of determining the impact. During the first quarter 2019, management’s CECL steering committee continued the process of populating relevant data, building models and documenting processes and controls in preparation for adoption of Topic 326. During the remainder of 2019, management plans to run multiple parallel runs of the allowance model under the expected credit loss methodology, starting with a loan-focused parallel run using first quarter data. Management will incrementally widen the scope of model runs thereafter until a full CECL run is completed. During monthly steering committee meetings, management regularly reviews project status, gap remediation efforts and project priorities.
Recently Adopted Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance was further modified by ASU No. 2018-10, Codification Improvements to Topic 842 Leases, ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors and ASU No. 2019-01, Leases (Topic 842): Codification Improvements. These standards require a lessee to recognize in the consolidated balance sheet 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. United adopted the standard on January 1, 2019 using the optional transition method, which allowed for a modified retrospective method of adoption with a cumulative effect adjustment to shareholders’ equity without restating comparable periods. United also elected the relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs as well as an exemption for short-term leases with a term of less than one year, whereby United does not recognize a lease liability or right-of-use asset on the consolidated balance sheet but instead recognizes lease payments as an expense over the lease term as appropriate. The adoption of this guidance resulted in recognition of a right-of-use asset of $23.8 million, a lease liability of $26.8 million and a reduction of shareholders’ equity of $549,000, net of tax, related to its operating leases. In addition, United has equipment financing leases for which it is the lessor, which were previously accounted for as capital leases. Upon adoption of Topic 842, these leases were classified as direct financing leases, which required no significant change in accounting policy or treatment. These lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term. As a lessor, United elected to exclude sales taxes from consideration in lease contracts. In the opinion of management, the changes described above resulting from the adoption of the standard did not have a material impact on the consolidated financial statements. See Notes 5 and 14 for additional information on direct financing leases and operating leases, respectively.
8
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 – Balance Sheet Offsetting and Repurchase Agreements Accounted for as Secured Borrowings
United enters into reverse repurchase agreements in order to invest short-term funds. In addition, United enters into repurchase agreements and reverse repurchase agreements with the same counterparty in transactions commonly referred to as collateral swaps that are subject to master netting agreements under which the balances are netted in the balance sheet in accordance with ASC 210-20, Offsetting.
The following table presents a summary of amounts outstanding under reverse repurchase agreements, of which there were none as of March 31, 2019, 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 Recognized Assets | Gross Amounts Offset on the Balance Sheet | Gross Amounts not Offset in the Balance Sheet | ||||||||||||||||||||||
March 31, 2019 | Net Asset Balance | Financial Instruments | Collateral Received | Net Amount | ||||||||||||||||||||
Derivatives | $ | 25,924 | $ | — | $ | 25,924 | $ | (2,295 | ) | $ | (1,797 | ) | $ | 21,832 | ||||||||||
Total | $ | 25,924 | $ | — | $ | 25,924 | $ | (2,295 | ) | $ | (1,797 | ) | $ | 21,832 | ||||||||||
Gross Amounts of Recognized Liabilities | Gross Amounts Offset on the Balance Sheet | Net Liability Balance | Gross Amounts not Offset in the Balance Sheet | |||||||||||||||||||||
Financial Instruments | Collateral Pledged | Net Amount | ||||||||||||||||||||||
Derivatives | $ | 18,789 | $ | — | $ | 18,789 | $ | (2,295 | ) | $ | (11,870 | ) | $ | 4,624 | ||||||||||
Total | $ | 18,789 | $ | — | $ | 18,789 | $ | (2,295 | ) | $ | (11,870 | ) | $ | 4,624 | ||||||||||
Gross Amounts of Recognized Assets | Gross Amounts Offset on the Balance Sheet | Gross Amounts not Offset in the Balance Sheet | ||||||||||||||||||||||
December 31, 2018 | Net Asset Balance | Financial Instruments | Collateral Received | Net Amount | ||||||||||||||||||||
Repurchase agreements / reverse repurchase agreements | $ | 50,000 | $ | (50,000 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Derivatives | 24,705 | — | 24,705 | (973 | ) | (8,029 | ) | 15,703 | ||||||||||||||||
Total | $ | 74,705 | $ | (50,000 | ) | $ | 24,705 | $ | (973 | ) | $ | (8,029 | ) | $ | 15,703 | |||||||||
Weighted average interest rate of reverse repurchase agreements | 3.20 | % | ||||||||||||||||||||||
Gross Amounts of Recognized Liabilities | Gross Amounts Offset on the Balance Sheet | Gross Amounts not Offset in the Balance Sheet | ||||||||||||||||||||||
Net Liability Balance | Financial Instruments | Collateral Pledged | Net Amount | |||||||||||||||||||||
Repurchase agreements / reverse repurchase agreements | $ | 50,000 | $ | (50,000 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Derivatives | 26,433 | — | 26,433 | (973 | ) | (16,126 | ) | 9,334 | ||||||||||||||||
Total | $ | 76,433 | $ | (50,000 | ) | $ | 26,433 | $ | (973 | ) | $ | (16,126 | ) | $ | 9,334 | |||||||||
Weighted average interest rate of repurchase agreements | 2.45 | % | ||||||||||||||||||||||
At March 31, 2019, United recognized the right to reclaim cash collateral of $11.9 million and the obligation to return cash collateral of $1.80 million. At December 31, 2018, United recognized the right to reclaim cash collateral of $16.1 million and the obligation to return cash collateral of $8.03 million. The right to reclaim cash collateral and the obligation to return cash collateral were included in the consolidated balance sheets in other assets and other liabilities, respectively.
9
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 December 31, 2018 (in thousands).
Remaining Contractual Maturity of the Agreements | ||||||||||||||||||||
Overnight and Continuous | Up to 30 Days | 30 to 90 Days | 91 to 110 days | Total | ||||||||||||||||
Mortgage-backed securities | $ | — | $ | — | $ | 50,000 | $ | — | $ | 50,000 | ||||||||||
Total | $ | — | $ | — | $ | 50,000 | $ | — | $ | 50,000 | ||||||||||
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure | $ | 50,000 | ||||||||||||||||||
Amounts related to agreements not included in offsetting disclosure | $ | — | ||||||||||||||||||
United is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. United manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.
Note 4 – Securities
The amortized cost basis, unrealized gains and losses and fair value of debt securities held-to-maturity as of the dates indicated are as follows (in thousands).
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
As of March 31, 2019 | |||||||||||||||
State and political subdivisions | $ | 65,519 | $ | 1,443 | $ | 456 | $ | 66,506 | |||||||
Residential mortgage-backed securities | 170,980 | 1,078 | 2,532 | 169,526 | |||||||||||
Commercial mortgage-backed securities | 28,830 | 323 | 68 | 29,085 | |||||||||||
Total | $ | 265,329 | $ | 2,844 | $ | 3,056 | $ | 265,117 | |||||||
As of December 31, 2018 | |||||||||||||||
State and political subdivisions | $ | 68,551 | $ | 952 | $ | 2,191 | $ | 67,312 | |||||||
Residential mortgage-backed securities | 176,488 | 652 | 5,094 | 172,046 | |||||||||||
Commercial mortgage-backed securities | 29,368 | 173 | 96 | 29,445 | |||||||||||
Total | $ | 274,407 | $ | 1,777 | $ | 7,381 | $ | 268,803 | |||||||
10
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The cost basis, unrealized gains and losses, and fair value of debt securities available-for-sale as of the dates indicated are presented below (in thousands).
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
As of March 31, 2019 | |||||||||||||||
U.S. Treasuries | $ | 142,409 | $ | 22 | $ | 576 | $ | 141,855 | |||||||
U.S. Government agencies | 4,812 | 292 | 3 | 5,101 | |||||||||||
State and political subdivisions | 217,120 | 5,124 | 64 | 222,180 | |||||||||||
Residential mortgage-backed securities | 1,414,612 | 9,222 | 9,749 | 1,414,085 | |||||||||||
Commercial mortgage-backed securities | 345,198 | 432 | 2,291 | 343,339 | |||||||||||
Corporate bonds | 200,471 | 506 | 301 | 200,676 | |||||||||||
Asset-backed securities | 128,359 | 183 | 1,153 | 127,389 | |||||||||||
Total | $ | 2,452,981 | $ | 15,781 | $ | 14,137 | $ | 2,454,625 | |||||||
As of December 31, 2018 | |||||||||||||||
U.S. Treasuries | $ | 150,712 | $ | 767 | $ | 2,172 | $ | 149,307 | |||||||
U.S. Government agencies | 25,493 | 335 | 275 | 25,553 | |||||||||||
State and political subdivisions | 234,750 | 907 | 1,716 | 233,941 | |||||||||||
Residential mortgage-backed securities | 1,464,380 | 3,428 | 21,898 | 1,445,910 | |||||||||||
Commercial mortgage-backed securities | 399,663 | 187 | 7,933 | 391,917 | |||||||||||
Corporate bonds | 200,582 | 502 | 1,921 | 199,163 | |||||||||||
Asset-backed securities | 184,683 | 328 | 2,335 | 182,676 | |||||||||||
Total | $ | 2,660,263 | $ | 6,454 | $ | 38,250 | $ | 2,628,467 | |||||||
Securities with a carrying value of $842 million and $925 million were pledged to secure public deposits, derivatives and other secured borrowings at March 31, 2019 and December 31, 2018, respectively.
The following table summarizes debt securities held-to-maturity in an unrealized loss position as of the dates indicated (in thousands).
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
As of March 31, 2019 | |||||||||||||||||||||||
State and political subdivisions | $ | — | $ | — | $ | 22,356 | $ | 456 | $ | 22,356 | $ | 456 | |||||||||||
Residential mortgage-backed securities | — | — | 112,921 | 2,532 | 112,921 | 2,532 | |||||||||||||||||
Commercial mortgage-backed securities | — | — | 4,095 | 68 | 4,095 | 68 | |||||||||||||||||
Total unrealized loss position | $ | — | $ | — | $ | 139,372 | $ | 3,056 | $ | 139,372 | $ | 3,056 | |||||||||||
As of December 31, 2018 | |||||||||||||||||||||||
State and political subdivisions | $ | 7,062 | $ | 46 | $ | 34,146 | $ | 2,145 | $ | 41,208 | $ | 2,191 | |||||||||||
Residential mortgage-backed securities | 6,579 | 61 | 136,376 | 5,033 | 142,955 | 5,094 | |||||||||||||||||
Commercial mortgage-backed securities | — | — | 4,290 | 96 | 4,290 | 96 | |||||||||||||||||
Total unrealized loss position | $ | 13,641 | $ | 107 | $ | 174,812 | $ | 7,274 | $ | 188,453 | $ | 7,381 | |||||||||||
11
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes debt securities available-for-sale in an unrealized loss position as of the dates indicated (in thousands).
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
As of March 31, 2019 | |||||||||||||||||||||||
U.S. Treasuries | $ | — | $ | — | $ | 122,122 | $ | 576 | $ | 122,122 | $ | 576 | |||||||||||
U.S. Government agencies | — | — | 471 | 3 | 471 | 3 | |||||||||||||||||
State and political subdivisions | 415 | 1 | 18,186 | 63 | 18,601 | 64 | |||||||||||||||||
Residential mortgage-backed securities | 47,263 | 644 | 665,525 | 9,105 | 712,788 | 9,749 | |||||||||||||||||
Commercial mortgage-backed securities | — | — | 237,883 | 2,291 | 237,883 | 2,291 | |||||||||||||||||
Corporate bonds | — | — | 108,272 | 301 | 108,272 | 301 | |||||||||||||||||
Asset-backed securities | 71,224 | 720 | 17,825 | 433 | 89,049 | 1,153 | |||||||||||||||||
Total unrealized loss position | $ | 118,902 | $ | 1,365 | $ | 1,170,284 | $ | 12,772 | $ | 1,289,186 | $ | 14,137 | |||||||||||
As of December 31, 2018 | |||||||||||||||||||||||
U.S. Treasuries | $ | — | $ | — | $ | 120,391 | $ | 2,172 | $ | 120,391 | $ | 2,172 | |||||||||||
U.S. Government agencies | — | — | 21,519 | 275 | 21,519 | 275 | |||||||||||||||||
State and political subdivisions | 15,160 | 28 | 133,500 | 1,688 | 148,660 | 1,716 | |||||||||||||||||
Residential mortgage-backed securities | 234,583 | 808 | 775,360 | 21,090 | 1,009,943 | 21,898 | |||||||||||||||||
Commercial mortgage-backed securities | 4,552 | 594 | 355,292 | 7,339 | 359,844 | 7,933 | |||||||||||||||||
Corporate bonds | — | — | 117,296 | 1,921 | 117,296 | 1,921 | |||||||||||||||||
Asset-backed securities | 74,492 | 1,879 | 31,968 | 456 | 106,460 | 2,335 | |||||||||||||||||
Total unrealized loss position | $ | 328,787 | $ | 3,309 | $ | 1,555,326 | $ | 34,941 | $ | 1,884,113 | $ | 38,250 | |||||||||||
At March 31, 2019, there were 174 debt securities available-for-sale and 56 debt securities held-to-maturity that were in an unrealized loss position. United does not intend to sell nor believes it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at March 31, 2019 were primarily attributable to changes in interest rates.
Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. No impairment charges were recognized during the three months ended March 31, 2019 or 2018.
Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes available-for-sale securities sales activity for the three months ended March 31, 2019 and 2018 (in thousands).
Three Months Ended March 31, | |||||||||
2019 | 2018 | ||||||||
Proceeds from sales | $ | 178,604 | $ | 113,961 | |||||
Gross gains on sales | $ | 1,287 | $ | 417 | |||||
Gross losses on sales | (1,554 | ) | (1,357 | ) | |||||
Net losses on sales of securities | $ | (267 | ) | $ | (940 | ) | |||
Income tax benefit attributable to sales | $ | (68 | ) | $ | (221 | ) | |||
12
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The amortized cost and fair value of debt securities available-for-sale and held-to-maturity at March 31, 2019, 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 | ||||||||||||
U.S. Treasuries: | |||||||||||||||
1 to 5 years | $ | 142,409 | $ | 141,855 | $ | — | $ | — | |||||||
142,409 | 141,855 | — | — | ||||||||||||
U.S. Government agencies: | |||||||||||||||
1 to 5 years | 474 | 471 | — | — | |||||||||||
More than 10 years | 4,338 | 4,630 | — | — | |||||||||||
4,812 | 5,101 | — | — | ||||||||||||
State and political subdivisions: | |||||||||||||||
Within 1 year | 500 | 502 | 3,250 | 3,262 | |||||||||||
1 to 5 years | 36,058 | 36,060 | 11,567 | 12,024 | |||||||||||
5 to 10 years | 35,888 | 36,743 | 7,753 | 8,423 | |||||||||||
More than 10 years | 144,674 | 148,875 | 42,949 | 42,797 | |||||||||||
217,120 | 222,180 | 65,519 | 66,506 | ||||||||||||
Corporate bonds: | |||||||||||||||
Within 1 year | 10,239 | 10,219 | — | — | |||||||||||
1 to 5 years | 187,732 | 187,948 | — | — | |||||||||||
5 to 10 years | 1,500 | 1,514 | — | — | |||||||||||
More than 10 years | 1,000 | 995 | — | — | |||||||||||
200,471 | 200,676 | — | — | ||||||||||||
Asset-backed securities: | |||||||||||||||
1 to 5 years | 2,121 | 2,107 | — | — | |||||||||||
More than 10 years | 126,238 | 125,282 | — | — | |||||||||||
128,359 | 127,389 | — | — | ||||||||||||
Total securities other than mortgage-backed securities: | |||||||||||||||
Within 1 year | 10,739 | 10,721 | 3,250 | 3,262 | |||||||||||
1 to 5 years | 368,794 | 368,441 | 11,567 | 12,024 | |||||||||||
5 to 10 years | 37,388 | 38,257 | 7,753 | 8,423 | |||||||||||
More than 10 years | 276,250 | 279,782 | 42,949 | 42,797 | |||||||||||
Residential mortgage-backed securities | 1,414,612 | 1,414,085 | 170,980 | 169,526 | |||||||||||
Commercial mortgage-backed securities | 345,198 | 343,339 | 28,830 | 29,085 | |||||||||||
$ | 2,452,981 | $ | 2,454,625 | $ | 265,329 | $ | 265,117 | ||||||||
Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations.
13
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans and Leases and Allowance for Credit Losses
Major classifications of the loan and lease portfolio (collectively referred to as the “loan portfolio” or “loans”) are summarized as of the dates indicated as follows (in thousands).
March 31, 2019 | December 31, 2018 | ||||||
Owner occupied commercial real estate | $ | 1,620,068 | $ | 1,647,904 | |||
Income producing commercial real estate | 1,867,425 | 1,812,420 | |||||
Commercial & industrial | 1,283,865 | 1,278,347 | |||||