ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes. The discussion of the components of our results of operations focuses on financial trends and events occurring between 2019 and 2020.
For additional information related to financial trends between 2019 and 2018 please see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 27, 2020, which information under that caption is incorporated herein by this reference. Historical results of operations are not necessarily predictive of future results.
GAAP Reconciliation and Explanation
This Report contains financial information determined by methods other than in accordance with GAAP. Such non-GAAP financial information includes the following measures: “tangible book value per common share” and “tangible common equity to tangible assets.” In addition, management presents non-GAAP operating performance measures, which exclude merger-related and other items that are not part of our core business operations. Operating performance measures include “expenses – operating,” “net income – operating,” “diluted net income per common share – operating,” “return on common equity – operating,” “return on tangible common equity – operating,” “return on assets – operating,” “dividend payout ratio – operating” and “efficiency ratio – operating.” Management has developed internal processes and procedures to accurately capture and account for merger-related and other charges and those charges are reviewed with the audit committee of our Board each quarter. Management uses these non-GAAP measures because it believes they may provide useful supplemental information for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP measures may also provide users of our financial information with a meaningful measure for assessing our financial results and credit trends, as well as a comparison to financial results for prior periods. These non-GAAP measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP and are not necessarily comparable to other similarly titled measures used by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable measures as reported in accordance with GAAP are included in Table 1 of MD&A.
Overview
We offer a wide array of commercial and consumer banking services and investment advisory services through a 160 branch network throughout Georgia, South Carolina, North Carolina, Tennessee and Florida. We have grown organically as well as through strategic acquisitions. At December 31, 2020, we had consolidated total assets of $17.8 billion and 2,399 full-time equivalent employees.
Recent Developments
Mergers and Acquisitions
In the past two years, we have continued to expand through acquisitions as follows:
•On July 1, 2020, we acquired Three Shores including its wholly-owned banking subsidiary, Seaside, headquartered in Orlando, Florida. Seaside was a premier commercial lender with a strong wealth management platform and operated a 14-branch network located in key Florida metropolitan markets. We acquired $2.13 billion of assets and assumed $1.99 billion of liabilities in the acquisition.
•On May 1, 2019, we acquired FMBT, which operated four branches in the Athens-Clarke County, Georgia MSA. We acquired $245 million of assets and assumed $213 million of liabilities in the acquisition.
The acquired entities’ results are included in our consolidated results beginning on the respective acquisition dates. We will continue to evaluate potential transactions as opportunities arise.
COVID-19
During 2020, the impact of the COVID-19 pandemic and the resulting preventative and protective government issued mandates materially restricted the level of economic activity in our markets. These mandates included restrictions on travel and business operations, stay-at-home advisories and requirements and temporary closures of businesses deemed to be non-essential. In turn,
unemployment dramatically increased in the United States and negatively impacted many businesses, and thereby threatened the repayment ability of some of our borrowers.
To address the economic impact in the United States, the CARES Act was enacted in March of 2020. The CARES Act and related banking interagency guidance included a number of provisions that affected us, including accounting relief for TDRs and regulatory capital relief for the effect of CECL implementation. The CARES Act also established the PPP through the SBA, which allowed us to lend money to small businesses to maintain employee payrolls and pay other qualified expenses during the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the proceeds are used in accordance with the requirements of the program. The Federal Reserve also took additional steps to bolster the economy by, among other things, reducing the federal funds rate and the discount-window borrowing rate to near zero.
In response to the pandemic, we implemented protocols and processes to help protect our employees, customers and communities. These measures included temporarily operating our branches under a drive-through model, appointment-only lobby service, taking measures to disperse critical operations teams to separate locations and, when possible, having employees work from home. We offered assistance to our customers affected by the economic impacts of the COVID-19 pandemic, including payment deferrals, waiving certain fees, suspending property foreclosures and participating in the CARES Act and PPP.
In an effort to ensure our capital and liquidity resources remain strong throughout the rapidly changing economic conditions, we issued $100 million of non-cumulative perpetual preferred stock, issued $100 million of senior debentures and temporarily suspended common stock repurchases. Given the unprecedented uncertainty and rapidly evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect impact on our business, results of operations and financial condition are highly uncertain. Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued adverse effect on our business and results of operations, which could include, but not be limited to: decreased demand for our products and services, protracted periods of lower interest rates, increased noninterest expenses, operational losses and increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining asset and collateral values, which may continue to increase our provision for credit losses and net charge-offs.
See Part I, Item 1. “Business” of this Report for more information related to the impact of COVID-19.
LIBOR and Other Benchmark Rates
As previously disclosed, to facilitate an orderly transition from Interbank Offered Rates (“IBORs”) and other benchmark rates to alternative reference rates (“ARRs”), we have established an enterprise-wide program to identify, assess and monitor risks associated with the expected discontinuation or unavailability of benchmarks, including LIBOR. As part of this program, we continue to identify, assess and monitor risks associated with the expected discontinuation or unavailability of LIBOR and other benchmarks, and evaluate and address documentation and contractual mechanics of outstanding IBOR-based products and contracts that mature after 2021 and new and potential future ARR-based products and contracts to achieve operational readiness. This program includes active involvement of senior management and regular reports to the Enterprise Risk Committee. The program is structured to address the industry and regulatory engagement, client and financial contract changes, internal and external communications, technology and operations modifications, introduction of new products, migration of existing clients, and program strategy and governance. As the markets for ARRs continue to grow, we continue to monitor the development and usage of ARRs, including SOFR. Additionally, any prolonged economic and market disruptions resulting from COVID-19 may have an adverse impact on the market and industry transition to ARRs, including the readiness of other market participants and third-party vendors, and our engagement with impacted clients and their operational readiness to transition to ARRs. For more information on the expected replacement of LIBOR and other benchmark rates, see Part I, Item 1A. Risk Factors – Market Risks of this Report.
Results of Operations
We reported net income of $164 million, or $1.91 per diluted share, in 2020, down from $186 million, or $2.31 per diluted share, in 2019. The decrease reflects the combined impact of a number of factors including the global COVID-19 pandemic and our implementation of CECL, both of which resulted in a higher provision for credit losses, and the impact of falling interest rates on our net interest margin.
We reported net income - operating (non-GAAP) of $170 million during 2020 compared to $191 million in 2019. For 2020, net income - operating (non-GAAP) excludes merger-related and branch closure charges, which net of tax, totaled $5.68 million. For 2019, net income - operating (non-GAAP) excludes merger-related, pension termination of the Funded Plan, executive retirement charges and branch closure charges, which net of tax, totaled $5.66 million.
Net interest revenue increased to $502 million for 2020, compared to $469 million for 2019, while the net interest margin decreased 52 basis points to 3.55% in 2020 from 4.07% in 2019. The increase in net interest revenue was primarily attributable to organic loan growth, loans acquired from Three Shores and PPP loans originated during the year. The net interest margin decreased primarily as a result of the impact of historically low interest rates on our asset sensitive balance sheet and a change in the composition of interest-earning assets due to an increase in on-balance sheet liquidity with limited opportunity to invest at reasonable rates.
The provision for credit losses was $80.4 million for 2020 under CECL, compared to $13.2 million for 2019 under the Incurred Loss method. Net charge-offs for 2020 were $18.3 million, compared to $12.2 million for 2019.
Noninterest income, which was up $51.4 million, or 49%, from 2019, was primarily driven by an increase in mortgage loan gains and related fees. The low rate environment spurred an increase in both purchase and refinance volume and combined with widening gain on sale margins to drive the increase in fees. Income from customer derivatives for 2020 also increased compared to 2019 due to increased demand for fixed rates during the current low rate environment. We also saw an increase in wealth management fees, which was driven by the addition of Three Shores’ wealth management business.
Noninterest expenses for 2020 of $368 million were up $45.7 million, or 14%, from 2019. Salaries and employee benefits expense was the largest contributor to the increase, up $27.6 million in 2020, due to several factors including increased mortgage commissions and the addition of Three Shores employees for the second half of 2020. During 2020, we formed a private foundation, United Community Bank Foundation (“Foundation”), to which we contributed $10.0 million. The Foundation was established to facilitate a more strategic approach to our charitable giving that will enhance how we give back to the communities in our footprint.
Critical Accounting Policies
Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Application of these principles requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and the accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments.
Estimates, assumptions or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon future events. Carrying assets and liabilities at fair value results in more financial statement volatility. The fair values and the information used to record the valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.
Certain policies inherently have a greater reliance on the use of estimates, assumptions or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of our ACL and fair value measurements to be the accounting areas that require the most subjective or complex judgments, estimates and assumptions, and where changes in those judgments, estimates and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements. Therefore, we consider these policies, discussed below, to be critical accounting policies and discuss them directly with the Audit Committee of our Board.
Our most significant accounting policies are presented in Note 1 to the accompanying consolidated financial statements. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Allowance for Credit Losses
Since the implementation of CECL on January 1, 2020, the ACL represents management’s current estimate of credit losses for the remaining estimated life of financial instruments, with particular applicability on our balance sheet to loans and unfunded loan commitments. Estimating the amount of the ACL requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Loan losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.
There are many factors affecting the ACL; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.
Additional information on the loan portfolio and ACL can be found in the sections of MD&A titled “Asset Quality and Risk Elements” and “Nonperforming Assets.” Note 1 to the consolidated financial statements includes additional information on accounting policies related to the ACL.
Fair Value Measurements
At December 31, 2020, the percentage of our total assets measured at fair value on a recurring basis was 19%. See Note 14 “Fair Value Measurements” in the consolidated financial statements herein for additional disclosures regarding the fair value of our assets and liabilities, including a description of the fair value hierarchy.
Fair value is defined by GAAP “as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.” GAAP further defines an “orderly transaction” as “a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets. It is not a forced transaction (for example, a forced liquidation or distress sale).”
The fair values for available-for-sale and held-to-maturity securities are generally based upon quoted market prices or observable market prices for similar instruments. Management utilizes a third-party pricing service to assist with determining the fair value of our securities portfolio. The pricing service uses observable inputs when available including benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. When market observable data is not available, which generally occurs due to the lack of liquidity for certain securities, the valuation of the security is subjective and may involve substantial judgment by management.
We have elected the fair value option for our portfolio of mortgage loans held for sale in order to reduce certain timing differences and better match changes in fair values of the loans with changes in the value of derivative instruments used to economically hedge them. The fair value of mortgage loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan, and as such is categorized as level 2.
We use derivatives primarily to manage our interest rate risk or to help our customers manage their interest rate risk. The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are primarily sensitive to market observable data. However, we do evaluate the level of these observable inputs and there are some instances where we have determined that the inputs are not directly observable.
We recognize a servicing rights asset upon the sale of residential mortgage loans and SBA/USDA loans sold with servicing retained. Servicing right assets are carried at fair value. Given the nature of these SBA/USDA and residential mortgage servicing assets, the key valuation inputs are unobservable and we disclose them as a level 3 item.
As of December 31, 2020, we had level 3 assets, those valued using unobservable inputs, of $35.2 million. The total level 3 assets consisted of $16.2 million in residential mortgage servicing rights, $10.8 million in derivative assets, $6.46 million in servicing rights for SBA/USDA loans and $1.75 million of available-for-sale debt securities. We also had level 3 derivative liabilities totaling $2.41 million.
From time to time, we may record assets at fair value on a nonrecurring basis, usually as a result of the write-downs of individual assets due to impairment. In particular, nonaccrual loans may be carried at the fair value of collateral if repayment is expected solely from the collateral. Although management believes its processes for determining the fair value of collateral-dependent loans are appropriate, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management’s determination of fair value.
UNITED COMMUNITY BANKS, INC.
Table 1 - Non-GAAP Performance Measures Reconciliation - Annual
Selected Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended December 31,
|
(in thousands, except per share data)
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Expense reconciliation
|
|
|
|
|
|
|
|
|
|
|
Expenses (GAAP)
|
|
$
|
367,989
|
|
|
$
|
322,245
|
|
|
$
|
306,285
|
|
|
$
|
267,611
|
|
|
$
|
241,289
|
|
Merger-related and other charges
|
|
(7,018)
|
|
|
(7,357)
|
|
|
(7,345)
|
|
|
(14,662)
|
|
|
(8,122)
|
|
Expenses - operating
|
|
$
|
360,971
|
|
|
$
|
314,888
|
|
|
$
|
298,940
|
|
|
$
|
252,949
|
|
|
$
|
233,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income reconciliation
|
|
|
|
|
|
|
|
|
|
|
Net income (GAAP)
|
|
$
|
164,089
|
|
|
$
|
185,721
|
|
|
$
|
166,111
|
|
|
$
|
67,821
|
|
|
$
|
100,656
|
|
Merger-related and other charges
|
|
7,018
|
|
|
7,357
|
|
|
7,345
|
|
|
14,662
|
|
|
8,122
|
|
Income tax benefit of merger-related and other charges
|
|
(1,340)
|
|
|
(1,695)
|
|
|
(1,494)
|
|
|
(3,745)
|
|
|
(3,074)
|
|
Impact of tax reform on remeasurement of deferred tax asset
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,199
|
|
|
—
|
|
Impairment of deferred tax asset on canceled non-qualified stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
976
|
|
Release of disproportionate tax effects lodged in OCI
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,400
|
|
|
—
|
|
Net income - operating
|
|
$
|
169,767
|
|
|
$
|
191,383
|
|
|
$
|
171,962
|
|
|
$
|
120,337
|
|
|
$
|
106,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share reconciliation
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share (GAAP)
|
|
$
|
1.91
|
|
|
$
|
2.31
|
|
|
$
|
2.07
|
|
|
$
|
0.92
|
|
|
$
|
1.40
|
|
Merger-related and other charges
|
|
0.07
|
|
|
0.07
|
|
|
0.07
|
|
|
0.14
|
|
|
0.07
|
|
Impact of tax reform on remeasurement of deferred tax asset
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.52
|
|
|
—
|
|
Impairment of deferred tax asset on canceled non-qualified stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.01
|
|
Release of disproportionate tax effects lodged in OCI
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.05
|
|
|
—
|
|
Diluted income per common share - operating
|
|
$
|
1.98
|
|
|
$
|
2.38
|
|
|
$
|
2.14
|
|
|
$
|
1.63
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share reconciliation
|
|
|
|
|
|
|
|
|
|
|
Book value per common share (GAAP)
|
|
$
|
21.90
|
|
|
$
|
20.53
|
|
|
$
|
18.24
|
|
|
$
|
16.67
|
|
|
$
|
15.06
|
|
Effect of goodwill and other intangibles
|
|
(4.34)
|
|
|
(4.25)
|
|
|
(4.00)
|
|
|
(3.02)
|
|
|
(2.11)
|
|
Tangible book value per common share
|
|
$
|
17.56
|
|
|
$
|
16.28
|
|
|
$
|
14.24
|
|
|
$
|
13.65
|
|
|
$
|
12.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on tangible common equity reconciliation
|
|
|
|
|
|
|
|
|
|
|
Return on common equity (GAAP)
|
|
9.25
|
%
|
|
11.89
|
%
|
|
11.60
|
%
|
|
5.67
|
%
|
|
9.41
|
%
|
Merger-related and other charges
|
|
0.33
|
|
|
0.36
|
|
|
0.41
|
|
|
0.92
|
|
|
0.48
|
|
Impact of tax reform on remeasurement of deferred tax asset
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.20
|
|
|
—
|
|
Impairment of deferred tax asset on canceled non-qualified stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.09
|
|
Release of disproportionate tax effects lodged in OCI
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.28
|
|
|
—
|
|
Return on common equity - operating
|
|
9.58
|
|
|
12.25
|
|
|
12.01
|
|
|
10.07
|
|
|
9.98
|
|
Effect of goodwill and other intangibles
|
|
2.66
|
|
|
3.56
|
|
|
3.68
|
|
|
1.95
|
|
|
1.88
|
|
Return on tangible common equity - operating
|
|
12.24
|
%
|
|
15.81
|
%
|
|
15.69
|
%
|
|
12.02
|
%
|
|
11.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets reconciliation
|
|
|
|
|
|
|
|
|
|
|
Return on assets (GAAP)
|
|
1.04
|
%
|
|
1.46
|
%
|
|
1.35
|
%
|
|
0.62
|
%
|
|
1.00
|
%
|
Merger-related and other charges
|
|
0.03
|
|
|
0.05
|
|
|
0.05
|
|
|
0.09
|
|
|
0.05
|
|
Impact of tax reform on remeasurement of deferred tax asset
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.35
|
|
|
—
|
|
Impairment of deferred tax asset on canceled non-qualified stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.01
|
|
Release of disproportionate tax effects lodged in OCI
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.03
|
|
|
—
|
|
Return on assets - operating
|
|
1.07
|
%
|
|
1.51
|
%
|
|
1.40
|
%
|
|
1.09
|
%
|
|
1.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio reconciliation
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio (GAAP)
|
|
37.70
|
%
|
|
29.44
|
%
|
|
28.02
|
%
|
|
41.30
|
%
|
|
21.43
|
%
|
Merger-related and other charges
|
|
(1.34)
|
|
|
(0.87)
|
|
|
(0.92)
|
|
|
(5.65)
|
|
|
(1.02)
|
|
Impact of tax reform on remeasurement of deferred tax asset
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.61)
|
|
|
—
|
|
Impairment of deferred tax asset on canceled non-qualified stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.14)
|
|
Release of disproportionate tax effects lodged in OCI
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.73)
|
|
|
—
|
|
Dividend payout ratio - operating
|
|
36.36
|
%
|
|
28.57
|
%
|
|
27.10
|
%
|
|
23.31
|
%
|
|
20.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio reconciliation
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio (GAAP)
|
|
55.71
|
%
|
|
55.77
|
%
|
|
57.31
|
%
|
|
59.95
|
%
|
|
59.80
|
%
|
Merger-related and other charges
|
|
(1.07)
|
|
|
(1.27)
|
|
|
(1.37)
|
|
|
(3.28)
|
|
|
(2.02)
|
|
Efficiency ratio - operating
|
|
54.64
|
%
|
|
54.50
|
%
|
|
55.94
|
%
|
|
56.67
|
%
|
|
57.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity to tangible assets reconciliation
|
|
|
|
|
|
|
|
|
|
|
Equity to assets (GAAP)
|
|
11.29
|
%
|
|
12.66
|
%
|
|
11.59
|
%
|
|
10.94
|
%
|
|
10.05
|
%
|
Effect of goodwill and other intangibles
|
|
(1.94)
|
|
|
(2.34)
|
|
|
(2.30)
|
|
|
(1.80)
|
|
|
(1.28)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of preferred equity
|
|
(0.54)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tangible common equity to tangible assets
|
|
8.81
|
%
|
|
10.32
|
%
|
|
9.29
|
%
|
|
9.14
|
%
|
|
8.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED COMMUNITY BANKS, INC.
Table 1 (Continued) - Non-GAAP Performance Measures Reconciliation - Quarterly
Selected Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
Expense reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses (GAAP)
|
|
$
|
106,490
|
|
|
$
|
95,981
|
|
|
$
|
83,980
|
|
|
$
|
81,538
|
|
|
$
|
81,424
|
|
|
$
|
82,924
|
|
|
$
|
81,813
|
|
|
$
|
76,084
|
|
Merger-related and other charges
|
|
(2,452)
|
|
|
(3,361)
|
|
|
(397)
|
|
|
(808)
|
|
|
74
|
|
|
(2,605)
|
|
|
(4,087)
|
|
|
(739)
|
|
Expenses - operating
|
|
$
|
104,038
|
|
|
$
|
92,620
|
|
|
$
|
83,583
|
|
|
$
|
80,730
|
|
|
$
|
81,498
|
|
|
$
|
80,319
|
|
|
$
|
77,726
|
|
|
$
|
75,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (GAAP)
|
|
$
|
59,502
|
|
|
$
|
47,607
|
|
|
$
|
25,096
|
|
|
$
|
31,884
|
|
|
$
|
49,012
|
|
|
$
|
48,362
|
|
|
$
|
44,085
|
|
|
$
|
44,262
|
|
Merger-related and other charges
|
|
2,452
|
|
|
3,361
|
|
|
397
|
|
|
808
|
|
|
(74)
|
|
|
2,605
|
|
|
4,087
|
|
|
739
|
|
Income tax benefit of merger-related and other charges
|
|
(552)
|
|
|
(519)
|
|
|
(87)
|
|
|
(182)
|
|
|
17
|
|
|
(600)
|
|
|
(940)
|
|
|
(172)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income - operating
|
|
$
|
61,402
|
|
|
$
|
50,449
|
|
|
$
|
25,406
|
|
|
$
|
32,510
|
|
|
$
|
48,955
|
|
|
$
|
50,367
|
|
|
$
|
47,232
|
|
|
$
|
44,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share (GAAP)
|
|
$
|
0.66
|
|
|
$
|
0.52
|
|
|
$
|
0.32
|
|
|
$
|
0.40
|
|
|
$
|
0.61
|
|
|
$
|
0.60
|
|
|
$
|
0.55
|
|
|
$
|
0.55
|
|
Merger-related and other charges
|
|
0.02
|
|
|
0.03
|
|
|
—
|
|
|
0.01
|
|
|
—
|
|
|
0.03
|
|
|
0.04
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share - operating
|
|
$
|
0.68
|
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
0.41
|
|
|
$
|
0.61
|
|
|
$
|
0.63
|
|
|
$
|
0.59
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share (GAAP)
|
|
$
|
21.90
|
|
|
$
|
21.45
|
|
|
$
|
21.22
|
|
|
$
|
20.80
|
|
|
$
|
20.53
|
|
|
$
|
20.16
|
|
|
$
|
19.65
|
|
|
$
|
18.93
|
|
Effect of goodwill and other intangibles
|
|
(4.34)
|
|
|
(4.36)
|
|
|
(4.27)
|
|
|
(4.28)
|
|
|
(4.25)
|
|
|
(4.26)
|
|
|
(4.27)
|
|
|
(4.00)
|
|
Tangible book value per common share
|
|
$
|
17.56
|
|
|
$
|
17.09
|
|
|
$
|
16.95
|
|
|
$
|
16.52
|
|
|
$
|
16.28
|
|
|
$
|
15.90
|
|
|
$
|
15.38
|
|
|
$
|
14.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on tangible common equity reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity (GAAP)
|
|
12.36
|
%
|
|
10.06
|
%
|
|
6.17
|
%
|
|
7.85
|
%
|
|
12.07
|
%
|
|
12.16
|
%
|
|
11.45
|
%
|
|
11.85
|
%
|
Merger-related and other charges
|
|
0.41
|
|
|
0.63
|
|
|
0.08
|
|
|
0.16
|
|
|
(0.01)
|
|
|
0.51
|
|
|
0.82
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity - operating
|
|
12.77
|
|
|
10.69
|
|
|
6.25
|
|
|
8.01
|
|
|
12.06
|
|
|
12.67
|
|
|
12.27
|
|
|
12.00
|
|
Effect of goodwill and other intangibles
|
|
3.46
|
|
|
2.83
|
|
|
1.84
|
|
|
2.56
|
|
|
3.43
|
|
|
3.71
|
|
|
3.61
|
|
|
3.46
|
|
Return on tangible common equity - operating
|
|
16.23
|
%
|
|
13.52
|
%
|
|
8.09
|
%
|
|
10.57
|
%
|
|
15.49
|
%
|
|
16.38
|
%
|
|
15.88
|
%
|
|
15.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets (GAAP)
|
|
1.30
|
%
|
|
1.07
|
%
|
|
0.71
|
%
|
|
0.99
|
%
|
|
1.50
|
%
|
|
1.51
|
%
|
|
1.40
|
%
|
|
1.44
|
%
|
Merger-related and other charges
|
|
0.04
|
|
|
0.07
|
|
|
0.01
|
|
|
0.02
|
|
|
—
|
|
|
0.07
|
|
|
0.10
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets - operating
|
|
1.34
|
%
|
|
1.14
|
%
|
|
0.72
|
%
|
|
1.01
|
%
|
|
1.50
|
%
|
|
1.58
|
%
|
|
1.50
|
%
|
|
1.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio (GAAP)
|
|
27.27
|
%
|
|
34.62
|
%
|
|
56.25
|
%
|
|
45.00
|
%
|
|
29.51
|
%
|
|
28.33
|
%
|
|
30.91
|
%
|
|
29.09
|
%
|
Merger-related and other charges
|
|
(0.80)
|
|
|
(1.89)
|
|
|
—
|
|
|
(1.10)
|
|
|
—
|
|
|
(1.35)
|
|
|
(2.10)
|
|
|
(0.52)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio - operating
|
|
26.47
|
%
|
|
32.73
|
%
|
|
56.25
|
%
|
|
43.90
|
%
|
|
29.51
|
%
|
|
26.98
|
%
|
|
28.81
|
%
|
|
28.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio (GAAP)
|
|
56.73
|
%
|
|
54.14
|
%
|
|
55.86
|
%
|
|
56.15
|
%
|
|
54.87
|
%
|
|
55.64
|
%
|
|
57.28
|
%
|
|
55.32
|
%
|
Merger-related and other charges
|
|
(1.31)
|
|
|
(1.90)
|
|
|
(0.27)
|
|
|
(0.56)
|
|
|
0.05
|
|
|
(1.74)
|
|
|
(2.86)
|
|
|
(0.54)
|
|
Efficiency ratio - operating
|
|
55.42
|
%
|
|
52.24
|
%
|
|
55.59
|
%
|
|
55.59
|
%
|
|
54.92
|
%
|
|
53.90
|
%
|
|
54.42
|
%
|
|
54.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity to tangible assets reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity to total assets (GAAP)
|
|
11.29
|
%
|
|
11.47
|
%
|
|
11.81
|
%
|
|
12.54
|
%
|
|
12.66
|
%
|
|
12.53
|
%
|
|
12.25
|
%
|
|
12.06
|
%
|
Effect of goodwill and other intangibles
|
|
(1.94)
|
|
|
(2.02)
|
|
|
(2.05)
|
|
|
(2.32)
|
|
|
(2.34)
|
|
|
(2.37)
|
|
|
(2.39)
|
|
|
(2.30)
|
|
Effect of preferred equity
|
|
(0.54)
|
|
|
(0.56)
|
|
|
(0.64)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tangible common equity to tangible assets
|
|
8.81
|
%
|
|
8.89
|
%
|
|
9.12
|
%
|
|
10.22
|
%
|
|
10.32
|
%
|
|
10.16
|
%
|
|
9.86
|
%
|
|
9.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Revenue
Net interest revenue, which is the difference between the interest earned on assets and the interest paid on deposits and borrowed funds, is the single largest component of revenue. Management seeks to optimize this revenue while balancing interest rate, credit, and liquidity risks.
The banking industry uses two key ratios to measure relative profitability of net interest revenue, which are the net interest spread and the net interest margin. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest spread eliminates the effect of noninterest-earning assets as well as noninterest-bearing deposits and other noninterest-bearing funding sources and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company’s balance sheet and is defined as net interest revenue as a percentage of total average interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and shareholders’ equity.
Net interest revenue for 2020 was $502 million, compared to $469 million for 2019. As set forth in the following table, FTE net interest revenue totaled $505 million in 2020, an increase of $33.2 million, or 7%, from 2019. The net interest spread was 3.31% and 3.68% for 2020 and 2019, respectively, while the net interest margin was 3.55% and 4.07%, respectively. The following table also indicates the relationship between interest revenue and expense and the average amounts of assets and liabilities for the years ended December 31, 2020 and 2019.
Average interest-earning assets for 2020 increased $2.62 billion, or 23%, from 2019, which was primarily driven by the increase in loans and interest-bearing deposits in banks. Average loans increased $1.76 billion, or 20%, from 2019, due to the addition of Three Shores’ loan portfolio totaling $1.44 billion at acquisition, PPP loans originated during the year, and organic growth. During 2020, we originated $1.12 billion of PPP loans and had $646 million of these loans outstanding at December 31, 2020. The reduction in the amount outstanding reflects repayment and loan forgiveness, most of which occurred during the fourth quarter of 2020. These increases were partially offset by the sale of the indirect auto loan portfolio on December 31, 2019. PPP loans also contributed to the increase in our interest-bearing deposits in banks as a result of a significant amount of PPP loan proceeds remaining in customer deposit accounts through the end of the year. In addition, average securities increased 4% from 2019, which reflects securities acquired from Three Shores and our decision to purchase additional securities in order to deploy excess liquidity.
Average interest-bearing liabilities increased $1.23 billion, or 16%, in 2020 from the prior year, which reflects an increase in interest-bearing customer deposits, partially offset by a reduction in wholesale borrowings. The increase in interest-bearing customer deposits was mostly attributable to deposits assumed in the acquisition of Three Shores, PPP loan proceeds remaining in customer deposit accounts, and organic growth of our customer deposit base. As we did in 2019, during 2020 we continued to reduce our use of FHLB advances, short-term borrowings, and brokered deposits, which drove the decrease in average wholesale borrowings. These decreases were offset by an increase in long-term debt resulting from our issuance of $100 million of senior debentures and our assumption of $15.0 million of subordinated debentures from Three Shores.
The increase in net interest revenue for 2020 compared to 2019 was primarily attributable to the loan growth discussed above, but was partially offset by the impact of falling interest rates. The forgiveness of PPP loans also provided for accelerated accretion of deferred origination fees and costs, which contributed $29.1 million to net interest revenue during 2020. In addition, interest expense related to average interest-bearing liabilities decreased $27.1 million compared to 2019 due to the low rate environment, a more favorable deposit mix and the reduction of average wholesale borrowings. In response to falling interest rates in early 2020, management began to lower discretionary deposit rates to offset the impact of declining loan yields.
The decreases in net interest spread and net interest margin are mostly a result of the impact of historically low interest rates on our asset sensitive balance sheet. During 2020, loan yields decreased at a rate faster than we could lower deposit rates. Since December 31, 2019, the FOMC lowered interest rates 150 basis points, which occurred during the first quarter of 2020 as a result of the COVID-19 pandemic. PPP loans increased the balance of interest-earning assets; however, the low yield on these loans exerted negative pressure on the net interest rate margin, partially offsetting the positive impact of the accelerated accretion of PPP fees as these loans were forgiven and repaid. Mitigating the decrease in net interest margin, our average noninterest-bearing deposits increased $1.21 billion from 2019 to 2020, which more than provided for our 2020 funding needs, resulting in a surplus liquidity position with limited investment opportunities to deploy the funds.
The following table shows the relationship between interest revenue and interest expense and the average balances of interest-earning assets and interest-bearing liabilities.
Table 2 - Average Consolidated Balance Sheets and Net Interest Margin Analysis
For the Years Ended December 31,
(in thousands, FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Average
Balance
|
|
Interest
|
|
Avg.
Rate
|
|
Average
Balance
|
|
Interest
|
|
Avg.
Rate
|
|
Average
Balance
|
|
Interest
|
|
Avg.
Rate
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income (FTE) (1)(2)
|
$
|
10,466,653
|
|
|
$
|
492,223
|
|
|
4.70
|
%
|
|
$
|
8,708,035
|
|
|
$
|
475,803
|
|
|
5.46
|
%
|
|
$
|
8,170,143
|
|
|
$
|
420,001
|
|
|
5.14
|
%
|
Taxable securities (3)
|
2,532,750
|
|
|
55,031
|
|
|
2.17
|
|
|
2,475,102
|
|
|
69,920
|
|
|
2.82
|
|
|
2,745,715
|
|
|
73,496
|
|
|
2.68
|
|
Tax-exempt securities (FTE) (1)(3)
|
219,668
|
|
|
9,458
|
|
|
4.31
|
|
|
171,549
|
|
|
6,130
|
|
|
3.57
|
|
|
152,855
|
|
|
5,641
|
|
|
3.69
|
|
Federal funds sold and other interest-earning assets
|
1,007,059
|
|
|
4,753
|
|
|
0.47
|
|
|
254,370
|
|
|
3,499
|
|
|
1.38
|
|
|
213,137
|
|
|
2,968
|
|
|
1.39
|
|
Total interest-earning assets (FTE)
|
14,226,130
|
|
|
561,465
|
|
|
3.95
|
|
|
11,609,056
|
|
|
555,352
|
|
|
4.78
|
|
|
11,281,850
|
|
|
502,106
|
|
|
4.45
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
(106,812)
|
|
|
|
|
|
|
(62,900)
|
|
|
|
|
|
|
(61,443)
|
|
|
|
|
|
Cash and due from banks
|
136,702
|
|
|
|
|
|
|
121,649
|
|
|
|
|
|
|
135,345
|
|
|
|
|
|
Premises and equipment
|
217,751
|
|
|
|
|
|
|
220,523
|
|
|
|
|
|
|
216,646
|
|
|
|
|
|
Other assets (3)
|
993,584
|
|
|
|
|
|
|
798,649
|
|
|
|
|
|
|
711,671
|
|
|
|
|
|
Total assets
|
$
|
15,467,355
|
|
|
|
|
|
|
$
|
12,686,977
|
|
|
|
|
|
|
$
|
12,284,069
|
|
|
|
|
|
Liabilities and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and interest-bearing demand
|
$
|
2,759,383
|
|
|
7,735
|
|
|
0.28
|
|
|
$
|
2,249,713
|
|
|
13,665
|
|
|
0.61
|
|
|
$
|
2,107,831
|
|
|
7,649
|
|
|
0.36
|
|
Money market
|
3,023,928
|
|
|
13,165
|
|
|
0.44
|
|
|
2,221,478
|
|
|
18,983
|
|
|
0.85
|
|
|
2,117,216
|
|
|
11,838
|
|
|
0.56
|
|
Savings deposits
|
821,344
|
|
|
169
|
|
|
0.02
|
|
|
690,028
|
|
|
149
|
|
|
0.02
|
|
|
672,735
|
|
|
150
|
|
|
0.02
|
|
Time deposits
|
1,832,319
|
|
|
20,146
|
|
|
1.10
|
|
|
1,791,319
|
|
|
28,313
|
|
|
1.58
|
|
|
1,547,221
|
|
|
12,585
|
|
|
0.81
|
|
Brokered deposits
|
97,788
|
|
|
557
|
|
|
0.57
|
|
|
240,646
|
|
|
5,746
|
|
|
2.39
|
|
|
347,072
|
|
|
7,321
|
|
|
2.11
|
|
Total interest-bearing deposits
|
8,534,762
|
|
|
41,772
|
|
|
0.49
|
|
|
7,193,184
|
|
|
66,856
|
|
|
0.93
|
|
|
6,792,075
|
|
|
39,543
|
|
|
0.58
|
|
Federal funds purchased and other
borrowings
|
1,220
|
|
|
3
|
|
|
0.25
|
|
|
33,504
|
|
|
838
|
|
|
2.50
|
|
|
57,376
|
|
|
1,112
|
|
|
1.94
|
|
FHLB advances
|
749
|
|
|
28
|
|
|
3.74
|
|
|
106,973
|
|
|
2,697
|
|
|
2.52
|
|
|
328,871
|
|
|
6,345
|
|
|
1.93
|
|
Long-term debt
|
274,069
|
|
|
14,434
|
|
|
5.27
|
|
|
247,732
|
|
|
12,921
|
|
|
5.22
|
|
|
290,004
|
|
|
14,330
|
|
|
4.94
|
|
Total borrowed funds
|
276,038
|
|
|
14,465
|
|
|
5.24
|
|
|
388,209
|
|
|
16,456
|
|
|
4.24
|
|
|
676,251
|
|
|
21,787
|
|
|
3.22
|
|
Total interest-bearing liabilities
|
8,810,800
|
|
|
56,237
|
|
|
0.64
|
|
|
7,581,393
|
|
|
83,312
|
|
|
1.10
|
|
|
7,468,326
|
|
|
61,330
|
|
|
0.82
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
4,600,152
|
|
|
|
|
|
|
3,385,431
|
|
|
|
|
|
|
3,207,625
|
|
|
|
|
|
Other liabilities
|
235,120
|
|
|
|
|
|
|
164,550
|
|
|
|
|
|
|
227,980
|
|
|
|
|
|
Total liabilities
|
13,646,072
|
|
|
|
|
|
|
11,131,374
|
|
|
|
|
|
|
10,903,931
|
|
|
|
|
|
Shareholders’ equity
|
1,821,283
|
|
|
|
|
|
|
1,555,603
|
|
|
|
|
|
|
1,380,138
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
$
|
15,467,355
|
|
|
|
|
|
|
$
|
12,686,977
|
|
|
|
|
|
|
$
|
12,284,069
|
|
|
|
|
|
Net interest revenue (FTE)
|
|
|
$
|
505,228
|
|
|
|
|
|
|
$
|
472,040
|
|
|
|
|
|
|
$
|
440,776
|
|
|
|
Net interest-rate spread (FTE)
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
3.68
|
%
|
|
|
|
|
|
3.63
|
%
|
Net interest margin (FTE) (4)
|
|
|
|
|
3.55
|
%
|
|
|
|
|
|
4.07
|
%
|
|
|
|
|
|
3.91
|
%
|
(1)Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans. The rate used for each year was 26% reflecting the statutory federal rate and the federal tax adjusted state tax rate.
(2)Included in the average balance of loans outstanding are loans where the accrual of interest has been discontinued.
(3)Securities available for sale are shown at amortized cost. Pretax unrealized gains of $67.3 million and $12.8 million in 2020 and 2019, respectively, and pretax unrealized losses of $45.2 million in 2018, are included in other assets for purposes of this presentation.
(4)Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets.
The following table shows the relative effect on net interest revenue resulting from changes in the average outstanding balances (volume) of interest-earning assets and interest-bearing liabilities and the rates we earned and paid on such assets and liabilities.
Table 3 - Change in Interest Revenue and Interest Expense
(in thousands, FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Compared to 2019
Increase (decrease) due to changes in
|
|
2019 Compared to 2018
Increase (decrease) due to changes in
|
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
|
88,168
|
|
|
$
|
(71,748)
|
|
|
$
|
16,420
|
|
|
$
|
28,541
|
|
|
$
|
27,261
|
|
|
$
|
55,802
|
|
Taxable securities
|
1,594
|
|
|
(16,483)
|
|
|
(14,889)
|
|
|
(7,500)
|
|
|
3,924
|
|
|
(3,576)
|
|
Tax-exempt securities
|
1,923
|
|
|
1,405
|
|
|
3,328
|
|
|
673
|
|
|
(184)
|
|
|
489
|
|
Federal funds sold and other interest-earning assets
|
4,788
|
|
|
(3,534)
|
|
|
1,254
|
|
|
568
|
|
|
(37)
|
|
|
531
|
|
Total interest-earning assets
|
96,473
|
|
|
(90,360)
|
|
|
6,113
|
|
|
22,282
|
|
|
30,964
|
|
|
53,246
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
NOW and interest-bearing demand
|
2,602
|
|
|
(8,532)
|
|
|
(5,930)
|
|
|
546
|
|
|
5,470
|
|
|
6,016
|
|
Money market
|
5,431
|
|
|
(11,249)
|
|
|
(5,818)
|
|
|
609
|
|
|
6,536
|
|
|
7,145
|
|
Savings deposits
|
27
|
|
|
(7)
|
|
|
20
|
|
|
4
|
|
|
(5)
|
|
|
(1)
|
|
Time deposits
|
634
|
|
|
(8,801)
|
|
|
(8,167)
|
|
|
2,254
|
|
|
13,474
|
|
|
15,728
|
|
Brokered deposits
|
(2,273)
|
|
|
(2,916)
|
|
|
(5,189)
|
|
|
(2,452)
|
|
|
877
|
|
|
(1,575)
|
|
Total interest-bearing deposits
|
6,421
|
|
|
(31,505)
|
|
|
(25,084)
|
|
|
961
|
|
|
26,352
|
|
|
27,313
|
|
Federal funds purchased and other short-term
borrowings
|
(431)
|
|
|
(404)
|
|
|
(835)
|
|
|
(542)
|
|
|
268
|
|
|
(274)
|
|
FHLB advances
|
(3,548)
|
|
|
879
|
|
|
(2,669)
|
|
|
(5,184)
|
|
|
1,536
|
|
|
(3,648)
|
|
Long-term debt
|
1,386
|
|
|
127
|
|
|
1,513
|
|
|
(2,173)
|
|
|
764
|
|
|
(1,409)
|
|
Total borrowed funds
|
(2,593)
|
|
|
602
|
|
|
(1,991)
|
|
|
(7,899)
|
|
|
2,568
|
|
|
(5,331)
|
|
Total interest-bearing liabilities
|
3,828
|
|
|
(30,903)
|
|
|
(27,075)
|
|
|
(6,938)
|
|
|
28,920
|
|
|
21,982
|
|
Increase in net interest revenue
|
$
|
92,645
|
|
|
$
|
(59,457)
|
|
|
$
|
33,188
|
|
|
$
|
29,220
|
|
|
$
|
2,044
|
|
|
$
|
31,264
|
|
Any variance attributable jointly to volume and rate changes is allocated to the volume and rate variance in proportion to the relationship of the absolute dollar amount of the change in each.
Provision for Credit Losses
Prior to the implementation of CECL on January 1, 2020, the provision for credit losses was based on the then-applicable Incurred Loss model and represented an estimate of probable incurred losses in the loan portfolio and unfunded commitments at the end of each reporting period. Since the implementation of CECL, the provision for credit losses represents management’s current estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments. The allowance for unfunded commitments, which is included in other liabilities in the consolidated balance sheets, represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances. Management’s estimate of credit losses under CECL is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and resulting provision for credit losses.
The provision for credit losses was $80.4 million in 2020 under the CECL method, compared to $13.2 million in 2019 under the Incurred Loss method. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the applicable accounting standards in effect at each balance sheet date. The elevated provision expense in 2020 was primarily a result of our implementation of CECL, combined with higher expected credit losses resulting from macroeconomic effects of the COVID-19 pandemic, which were incorporated into the forecast used in our CECL calculation. In addition, we recorded provision expense for the initial ACL recorded on Three Shores’ non-PCD loans and unfunded commitments of $9.78 million and $913,000, respectively. Loan growth also contributed to the higher provision for credit losses, but this impact on the provision was partially mitigated by the fact that PPP loans originated in 2020 are 100% government guaranteed, requiring no ACL. As of December 31, 2020, there were $646 million in PPP loans outstanding.
Additional discussion on credit quality and the ACL is included in the “Asset Quality and Risk Elements” and “Critical Accounting Polices” sections of this report, as well as Note 1 to the consolidated financial statements.
Noninterest Income
The following table presents the components of noninterest income for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4 - Noninterest Income
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Change
|
|
2020
|
|
2019
|
|
2018
|
|
2020-2019
|
Service charge and fees:
|
|
|
|
|
|
|
|
Overdraft fees
|
$
|
10,800
|
|
|
$
|
14,553
|
|
|
$
|
14,814
|
|
|
(26)
|
%
|
ATM and debit card interchange fees
|
13,299
|
|
|
13,517
|
|
|
12,649
|
|
|
(2)
|
|
Other service charges and fees
|
8,302
|
|
|
8,727
|
|
|
8,534
|
|
|
(5)
|
|
Total service charges and fees
|
32,401
|
|
|
36,797
|
|
|
35,997
|
|
|
(12)
|
|
Mortgage loan gains and related fees
|
76,087
|
|
|
27,145
|
|
|
19,010
|
|
|
180
|
|
Wealth management fees
|
9,240
|
|
|
6,150
|
|
|
5,191
|
|
|
50
|
|
Gains from sales of other loans, net
|
5,420
|
|
|
6,867
|
|
|
9,277
|
|
|
(21)
|
|
Securities gains (losses), net
|
748
|
|
|
(1,021)
|
|
|
(656)
|
|
|
|
|
|
|
|
|
|
|
|
Other noninterest income:
|
|
|
|
|
|
|
|
BOLI
|
5,080
|
|
|
5,417
|
|
|
3,557
|
|
|
(6)
|
|
Customer derivatives
|
6,392
|
|
|
2,875
|
|
|
2,669
|
|
|
122
|
|
Other
|
20,741
|
|
|
20,483
|
|
|
17,916
|
|
|
1
|
|
Total other noninterest income
|
32,213
|
|
|
28,775
|
|
|
24,142
|
|
|
12
|
|
Total noninterest income
|
$
|
156,109
|
|
|
$
|
104,713
|
|
|
$
|
92,961
|
|
|
49
|
|
Noninterest income increased $51.4 million from 2019, primarily due to increases in mortgage loan gains and related fees, wealth management fees, and customer derivatives income. These increases were partially offset by decreases in overdraft fees and net gains from other loan sales.
The decrease in overdraft fees was driven by lower customer transaction volume. The economic shutdown during the majority of 2020, combined with government stimulus payments during the second and third quarters of 2020, increased the balances of customer deposit accounts, which in turn reduced the number of overdraft transactions.
Mortgage loan gains and related fees for 2020 reflected an increase in mortgage loan sales and a wider margin on the sales, as well as fees on mortgage rate locks and closings compared to last year. The increase was driven by both higher demand due to a historically low interest rate environment and the organic growth of our mortgage business in existing and new markets. The low rate environment was primarily attributable to the 150 basis point decrease in the national federal funds rate during the first quarter of 2020 in response to the COVID-19 pandemic. The increase in mortgage loan gains and fees during 2020 was partially offset by negative fair value adjustments on the mortgage servicing rights asset due to the decrease in mortgage interest rates that resulted in an acceleration of prepayments.
The following table summarizes mortgage loan sales and closings for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5 - Mortgage Loan Sales
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
Change
|
|
|
Mortgage loans sold
|
$
|
1,466,314
|
|
|
$
|
707,142
|
|
|
|
|
107
|
%
|
|
|
# of mortgage loans sold
|
6,344
|
|
3,370
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans closed
|
|
|
|
|
|
|
|
|
|
Originations
|
$
|
1,128,412
|
|
|
$
|
746,488
|
|
|
|
|
51
|
|
|
|
Refinances
|
993,650
|
|
|
352,799
|
|
|
|
|
182
|
|
|
|
Total
|
$
|
2,122,062
|
|
|
$
|
1,099,287
|
|
|
|
|
93
|
|
|
|
# of mortgage loans closed
|
7,631
|
|
|
4,381
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our SBA/USDA lending strategy includes selling a portion of the loan production each quarter. The amount of loans sold depends on several variables including the current lending environment and balance sheet management activities. During the first quarter of 2020, less-favorable pricing for these loans driven by COVID-19 related market disruption led to our decision to hold more of our production in portfolio, rather than sell to the secondary market, until market conditions improved. The following table presents loans sold and corresponding gains or loss recognized on SBA/USDA loans and other loans sold for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6 - Other Loan Sales
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
|
|
Loans Sold
|
|
Gain (Loss)
|
|
Loans Sold
|
|
Gain (Loss)
|
|
|
Guaranteed portion of SBA/USDA loans
|
$
|
48,385
|
|
|
$
|
4,132
|
|
|
$
|
81,158
|
|
|
$
|
6,286
|
|
|
|
Equipment financing receivables
|
27,018
|
|
|
1,288
|
|
|
30,952
|
|
|
1,269
|
|
|
|
Indirect auto loans
|
—
|
|
|
—
|
|
|
102,789
|
|
|
(688)
|
|
|
|
Total
|
$
|
75,403
|
|
|
$
|
5,420
|
|
|
$
|
214,899
|
|
|
$
|
6,867
|
|
|
Income from customer derivatives for 2020 increased $3.52 million compared to 2019 due to increased demand for fixed rates during the current low rate environment. The increase in customer derivative income included the negative impact of an increase to the credit valuation adjustment on certain customer derivative positions.
During 2020 and 2019, we recognized death benefits resulting in elevated BOLI income for these periods.
Wealth management fees for 2020 increased 50% compared to 2019, which was primarily driven by the addition of Three Shores’ wealth management business in the third quarter of 2020.
Noninterest Expenses
The following table presents the components of noninterest expenses for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7 - Noninterest Expenses
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Change
|
|
2020
|
|
2019
|
|
2018
|
|
2020-2019
|
Salaries and employee benefits
|
$
|
224,060
|
|
|
$
|
196,440
|
|
|
$
|
181,015
|
|
|
14
|
%
|
Occupancy
|
25,791
|
|
|
23,350
|
|
|
22,781
|
|
|
10
|
|
Communications and equipment
|
27,149
|
|
|
24,613
|
|
|
21,277
|
|
|
10
|
|
Professional fees
|
18,032
|
|
|
17,028
|
|
|
15,540
|
|
|
6
|
|
Lending and loan servicing expense
|
10,993
|
|
|
9,416
|
|
|
8,697
|
|
|
17
|
|
Outside services - electronic banking
|
7,513
|
|
|
7,020
|
|
|
6,623
|
|
|
7
|
|
Postage, printing and supplies
|
6,779
|
|
|
6,370
|
|
|
6,416
|
|
|
6
|
|
Advertising and public relations
|
15,203
|
|
|
6,170
|
|
|
5,991
|
|
|
146
|
|
FDIC assessments and other regulatory charges
|
5,982
|
|
|
4,901
|
|
|
8,491
|
|
|
22
|
|
Amortization of core deposit intangibles
|
4,168
|
|
|
4,489
|
|
|
4,915
|
|
|
(7)
|
|
Other
|
15,301
|
|
|
15,092
|
|
|
17,194
|
|
|
1
|
|
Total excluding merger-related and other charges
and amortization of noncompete agreements
|
360,971
|
|
|
314,889
|
|
|
298,940
|
|
|
15
|
|
Merger-related and other charges
|
7,018
|
|
|
6,907
|
|
|
5,414
|
|
|
2
|
|
Amortization of noncompete agreements
|
—
|
|
|
449
|
|
|
1,931
|
|
|
|
Total noninterest expenses
|
$
|
367,989
|
|
|
$
|
322,245
|
|
|
$
|
306,285
|
|
|
14
|
|
Noninterest expenses for 2020 totaled $368 million, up 14% from 2019. The addition of Three Shores’ operating expenses for the second half of 2020 contributed to the increase, particularly in salaries and benefits and occupancy costs.
Salaries and employee benefits for 2020 increased $27.6 million compared to 2019. In addition to the growth in our employee base resulting from the Three Shores acquisition, the increase was also attributable to increased mortgage commissions resulting from strong mortgage production, bonuses and overtime wages paid to employees who assisted with PPP processing, a one-time $1.78 million accrual for paid time off hours allowed to be carried over into 2021 as result of the pandemic, and merit increases awarded during the second quarter of 2020. These increases were partially offset by higher deferred loan origination costs resulting from
increased loan production, including PPP loans. Full time equivalent headcount totaled 2,399 at December 31, 2020, up from 2,308 at December 31, 2019.
Communications and equipment expense increased primarily due to additional software maintenance costs and new software contracts. FDIC assessments and other regulatory charges increased compared to 2019 due to the receipt of a $1.38 million assessment credit from the FDIC during 2019, reducing expense for the year. Lending and loan servicing expense increased mostly due to the increase in mortgage origination volume. Advertising and public relations expense increased from 2019 due to contributions made to our newly formed Foundation, which totaled $10.0 million for 2020.
Merger-related and other charges for 2020 primarily consisted of merger costs related to the acquisition of Three Shores, severance, and branch closure costs. Merger-related and other charges for 2019 included a $2.94 million charge for the termination and settlement of the Funded Plan, as well as FMBT acquisition-related costs, branch closure costs, executive retirement charges, and gains and losses on the sale of surplus properties.
Fourth Quarter 2020 Discussion
Net interest revenue for the fourth quarter of 2020 increased $28.8 million, or 25%, to $145 million from the same period a year ago, which was primarily attributable to the increase in the loan portfolio from both organic loan growth and the acquisition of Three Shores. During the fourth quarter of 2020, the forgiveness and repayment of $633 million of PPP loans resulted in accelerated accretion of PPP net deferred fees and costs of $19.4 million, which largely contributed to the increase in net interest revenue compared to the same period of 2019. The net interest margin for the fourth quarter of 2020 decreased to 3.55% from 3.93% in the fourth quarter of 2019, reflecting the impact of historically low interest rates on our asset sensitive balance sheet as loan yields fell at a rate faster than we could lower deposit rates. During the first quarter of 2020, the FOMC lowered interest rates 150 basis points as a result of the COVID-19 pandemic. In addition, while PPP loans increased the balance of interest-earning assets, the low yield on these loans exerted negative pressure on the net interest margin, which offset the positive impact of the accelerated accretion of PPP fees on the margin.
We recorded a provision for credit losses in the fourth quarter of 2020 of $2.91 million, compared to $3.50 million for the fourth quarter of 2019. The provision expense for the fourth quarter of 2020 was determined using our CECL model, rather than the Incurred Loss method used prior to 2020. Our provision for the fourth quarter of 2020 reflected an improved economic outlook relative to prior quarters of 2020, which were significantly impacted by an increase in unemployment driven by policy decisions made in response to the COVID-19 pandemic.
The following table presents the components of noninterest income for the periods indicated.
Table 8 - Quarterly Noninterest Income
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
Service charges and fees:
|
|
|
|
|
|
|
|
Overdraft fees
|
$
|
2,800
|
|
|
$
|
3,825
|
|
|
(27)
|
%
|
|
|
ATM and debit card fees
|
3,454
|
|
|
3,408
|
|
|
1
|
|
|
|
Other service charges and fees
|
2,254
|
|
|
2,135
|
|
|
6
|
|
|
|
Total service charges and fees
|
8,508
|
|
|
9,368
|
|
|
(9)
|
|
|
|
Mortgage loan gains and related fees
|
18,974
|
|
|
9,395
|
|
|
102
|
|
|
|
Wealth management fees
|
3,221
|
|
|
1,526
|
|
|
111
|
|
|
|
Gains from other loan sales, net
|
1,531
|
|
|
2,455
|
|
|
(38)
|
|
|
|
Securities gains (losses), net
|
2
|
|
|
(903)
|
|
|
|
|
|
Other noninterest income:
|
|
|
|
|
|
|
|
BOLI
|
989
|
|
|
2,625
|
|
|
(62)
|
|
|
|
Customer derivatives
|
1,546
|
|
|
504
|
|
|
207
|
|
|
|
Other
|
6,604
|
|
|
5,213
|
|
|
27
|
|
|
|
Total other noninterest income
|
9,139
|
|
|
8,342
|
|
|
10
|
|
|
|
Total noninterest income
|
$
|
41,375
|
|
|
$
|
30,183
|
|
|
37
|
|
|
Noninterest income for the fourth quarter of 2020 increased $11.2 million from the fourth quarter of 2019. Increases in mortgage loan gains and related fees, wealth management fees, and customer derivative income offset by lower overdraft fees were driven by the same factors impacting the twelve months ended December 31, 2020, as previously discussed.
During the fourth quarter of 2019, we recognized BOLI death benefits of $1.65 million, which provided additional BOLI income for the period compared to the same period of 2020. Gains from other loan sales, net, for the fourth quarter of 2020 compared to the same period of 2019 decreased primarily due to fewer equipment financing receivable sales, which comprised $1.27 million of the gains for the fourth quarter of 2019, compared to nominal gains for the same period of 2020. We recognized losses on securities during the fourth quarter of 2019 as part of a plan to increase the securities portfolio yield by selling some lower-yielding securities. Increases in other income for the fourth quarter of 2020 were attributable to several factors including higher gains on other investments and increases in fees on equipment financing loans driven by production.
The following table presents noninterest expenses for the periods indicated.
Table 9 - Quarterly Noninterest Expenses
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
Salaries and employee benefits
|
$
|
61,824
|
|
|
$
|
50,279
|
|
|
23
|
%
|
|
|
Occupancy
|
7,082
|
|
|
5,926
|
|
|
20
|
|
|
|
Communications and equipment
|
7,687
|
|
|
6,380
|
|
|
20
|
|
|
|
FDIC assessments and other regulatory charges
|
1,594
|
|
|
1,330
|
|
|
20
|
|
|
|
Professional fees
|
4,029
|
|
|
5,098
|
|
|
(21)
|
|
|
|
Lending and loan servicing expense
|
2,468
|
|
|
1,908
|
|
|
29
|
|
|
|
Outside services - electronic banking
|
1,997
|
|
|
1,919
|
|
|
4
|
|
|
|
Postage, printing and supplies
|
1,793
|
|
|
1,637
|
|
|
10
|
|
|
|
Advertising and public relations
|
9,891
|
|
|
1,914
|
|
|
417
|
|
|
|
Amortization of core deposit intangibles
|
1,042
|
|
|
1,093
|
|
|
(5)
|
|
|
|
Other
|
4,631
|
|
|
4,014
|
|
|
15
|
|
|
|
Total excluding merger-related and other charges
|
104,038
|
|
|
81,498
|
|
|
28
|
|
|
|
Merger-related and other charges
|
2,452
|
|
|
(74)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
$
|
106,490
|
|
|
$
|
81,424
|
|
|
31
|
|
|
Noninterest expenses for the fourth quarter of 2020 increased $25.1 million compared to the fourth quarter of 2019. As previously mentioned in the year-to-date noninterest expense discussion, the increase for the fourth quarter of 2020 reflects the inclusion of the operating costs associated with the additional employees and locations acquired from Three Shores, an $8.50 million charitable contribution to the Foundation, increased commission expense and lending and loan servicing expense resulting from strong mortgage production, and a $1.78 million expense accrual for paid time off carried over to 2021 due to the pandemic.
Merger-related and other charges for the fourth quarter of 2020 included Three Shores merger costs and branch closure costs. Merger-related and other charges for the fourth quarter of 2019 included merger costs primarily attributable to FMBT offset by net gains recognized on the sale of surplus properties.
Balance Sheet Review
Total assets at December 31, 2020 were $17.8 billion, an increase of $4.88 billion, or 38%, from December 31, 2019. On a daily average basis, total assets increased $2.78 billion, or 22%, from 2019. Average interest-earning assets for 2020 and 2019 were $14.2 billion and $11.6 billion, respectively. Total liabilities at December 31, 2020 were $15.8 billion, an increase of $4.51 billion, or 40% from December 31, 2019. The acquisition of Three Shores added $2.13 billion of assets and $1.99 billion of liabilities to our balance sheet as of the acquisition date. Our participation in PPP contributed $1.17 billion in loan growth during the year, $646 million of which remained outstanding at December 31, 2020. The proceeds from PPP originations resulted in significant incremental deposit growth, and the resulting liquidity drove growth in the investment portfolio and cash balances. In addition, organic growth of loans and deposits added to the totals as well.
Shareholders’ equity totaled $2.01 billion and $1.64 billion at December 31, 2020 and 2019, respectively. The increase was a result of net income of $164 million, the issuance of $96.4 million of preferred stock, and the issuance of $164 million of common stock in
connection with the Three Shores acquisition. These increases were partially offset by dividends on common and preferred stock of $63.8 million, common stock repurchases of $20.8 million, and a $3.53 million adjustment to retained earnings resulting from the adoption of ASC 326 on January 1, 2020. At December 31, 2020, the regulatory capital ratios of United and the Bank were significantly above “well-capitalized” levels.
Loans
Our loan portfolio is our largest category of interest-earning assets. Total loans averaged $10.5 billion in 2020, compared with $8.71 billion in 2019, an increase of 20%. At December 31, 2020, total loans were $11.4 billion, an increase of 29%, from December 31, 2019. In addition to organic growth, the increase in loans is largely attributable to the $1.44 billion in loans acquired in the Three Shores transaction and $646 million in outstanding PPP loans originated during 2020. Approximately 69% of all loans were secured by real estate at year-end 2020.
The following table presents the composition of our loan portfolio for the last five years.
Table 10 - Loans Outstanding
As of December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans by Category
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
Owner occupied commercial real estate
|
$
|
2,090,443
|
|
|
$
|
1,720,227
|
|
|
$
|
1,647,904
|
|
|
$
|
1,923,993
|
|
|
$
|
1,650,360
|
|
Income producing commercial real estate
|
2,540,750
|
|
|
2,007,950
|
|
|
1,812,420
|
|
|
1,595,174
|
|
|
1,281,541
|
|
Commercial & industrial (1)
|
2,498,560
|
|
|
1,220,657
|
|
|
1,278,347
|
|
|
1,130,990
|
|
|
1,069,715
|
|
Commercial construction
|
967,305
|
|
|
976,215
|
|
|
796,158
|
|
|
711,936
|
|
|
633,921
|
|
Equipment financing
|
863,830
|
|
|
744,544
|
|
|
564,614
|
|
|
—
|
|
|
—
|
|
Total commercial
|
8,960,888
|
|
|
6,669,593
|
|
|
6,099,443
|
|
|
5,362,093
|
|
|
4,635,537
|
|
Residential mortgage
|
1,284,920
|
|
|
1,117,616
|
|
|
1,049,232
|
|
|
973,544
|
|
|
856,725
|
|
Home equity lines of credit
|
697,117
|
|
|
660,675
|
|
|
694,010
|
|
|
731,227
|
|
|
655,410
|
|
Residential construction
|
281,430
|
|
|
236,437
|
|
|
211,011
|
|
|
183,019
|
|
|
190,043
|
|
Consumer direct
|
146,460
|
|
|
128,232
|
|
|
122,013
|
|
|
127,504
|
|
|
123,567
|
|
Indirect auto
|
—
|
|
|
—
|
|
|
207,692
|
|
|
358,185
|
|
|
459,354
|
|
Total loans
|
$
|
11,370,815
|
|
|
$
|
8,812,553
|
|
|
$
|
8,383,401
|
|
|
$
|
7,735,572
|
|
|
$
|
6,920,636
|
|
(1) Commercial and industrial loans as of December 31, 2020 included $646 million of PPP loans.
As of December 31, 2020, our 25 largest credit relationships consisted of loans and loan commitments ranging from $22.9 million to $54.5 million, with an aggregate total credit exposure of $715 million. Total credit exposure included $116 million in unfunded commitments and $599 million in balances outstanding, excluding participations sold.
The following table sets forth the maturity distribution of commercial and construction loans, including the interest rate sensitivity for loans maturing after one year.
Table 11 - Loan Portfolio Maturity
As of December 31, 2020
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Rate Structure for Loans
Maturing Over One Year
|
|
One Year or Less
|
|
One through Five Years
|
|
Over Five Years
|
|
Total
|
|
Fixed Rate
|
|
Floating Rate
|
Commercial (commercial and industrial)
|
$
|
412,545
|
|
|
$
|
1,510,985
|
|
|
$
|
575,030
|
|
|
$
|
2,498,560
|
|
|
$
|
1,230,545
|
|
|
$
|
855,470
|
|
Construction (commercial and residential)
|
565,365
|
|
|
471,626
|
|
|
211,744
|
|
|
1,248,735
|
|
|
155,293
|
|
|
528,077
|
|
Equipment financing
|
34,478
|
|
|
674,932
|
|
|
154,420
|
|
|
863,830
|
|
|
829,352
|
|
|
—
|
|
Total
|
$
|
1,012,388
|
|
|
$
|
2,657,543
|
|
|
$
|
941,194
|
|
|
$
|
4,611,125
|
|
|
$
|
2,215,190
|
|
|
$
|
1,383,547
|
|
Asset Quality and Risk Elements
We manage asset quality and control credit risk through review and oversight of the loan portfolio as well as adherence to policies designed to promote sound underwriting and loan monitoring practices. Our credit administration function is responsible for monitoring asset quality and Board approved portfolio concentration limits, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures. Additional information on our credit administration function is included in Part I, Item 1 of this Report under the heading “Lending Activities.”
We classify loans as “substandard” when there is a well-defined weakness or weaknesses that jeopardize the repayment by the borrower and there is a distinct possibility that we could sustain some loss if the deficiency is not corrected. Performing substandard loans, which are substandard loans that are still accruing interest, totaled $165 million and $125 million as of December 31, 2020 and 2019, respectively, which represented an increase of 32%. The increase coincided with the overall increase in classified loans from December 31, 2019.
We conduct reviews of classified performing and non-performing loans, TDRs, past due loans and portfolio concentrations on a regular basis to identify risk migration and potential charges to the ACL. These items are discussed in a series of meetings attended by Credit Risk Management leadership and leadership from various lending groups. In addition to the reviews mentioned above, an independent loan review team reviews the portfolio to ensure consistent application of risk rating policies and procedures.
Since the implementation of CECL on January 1, 2020, the ACL reflects management’s assessment of the life of loan expected credit losses in the loan portfolio and unfunded loan commitments. Prior to the implementation of CECL, the ACL reflected management’s assessment of the probable incurred losses in the loan portfolio and unfunded loan commitments. Management’s assessment involves uncertainty and judgment and is subject to change in future periods. The amount of any changes could be significant if the assessment of loan quality or collateral values changes substantially with respect to one or more loan relationships or portfolios or if there is a significant change in the reasonable and supportable forecast used to model our expected credit losses. The allocation of the ACL is based on reasonable and supportable forecasts, historical data, subjective judgment and estimates and therefore, may not be predictive of the specific amounts or loan categories in which charge-offs may ultimately occur. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for credit losses in future periods if, in their opinion, the results of their review warrant such additions. See the Critical Accounting Policies section for additional information on the ACL.
The ACL, which includes a portion related to unfunded commitments, totaled $148 million at December 31, 2020 compared with $65.5 million at December 31, 2019. At December 31, 2020, the ACL for loans was $137 million, or 1.20% of total loans, compared with $62.1 million, or 0.70%, of loans at December 31, 2019. The implementation of CECL added $6.88 million to the ACL for loans and $1.87 million to the reserve for unfunded commitments resulting in a total ACL of $74.3 million at the time of adoption. The increase since adoption primarily reflects the impact of the COVID-19 pandemic, $11.2 million of allowance established for Three Shores PCD loans at acquisition with no impact to earnings, as well as the impact of loan growth during 2020 including the non-PCD loans received through the Three Shores acquisition. The impact of loan growth on the ACL was partially mitigated by the fact that PPP loans are considered low risk assets due to the 100% guarantee by the SBA.
The following table summarizes the allocation of the ACL for each of the past five years.
Table 12 - Allocation of ACL
As of December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CECL
|
|
Incurred Loss
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Amount
|
|
%*
|
|
Amount
|
|
%*
|
|
Amount
|
|
%*
|
|
Amount
|
|
%*
|
|
Amount
|
|
%*
|
Owner occupied commercial real estate
|
$
|
20,673
|
|
|
18
|
|
|
$
|
11,404
|
|
|
20
|
|
|
$
|
12,207
|
|
|
19
|
|
|
$
|
14,776
|
|
|
25
|
|
|
$
|
16,446
|
|
|
24
|
|
Income producing commercial real estate
|
41,737
|
|
|
22
|
|
|
12,306
|
|
|
23
|
|
|
11,073
|
|
|
22
|
|
|
9,381
|
|
|
21
|
|
|
8,843
|
|
|
18
|
|
Commercial & industrial
|
22,019
|
|
|
22
|
|
|
5,266
|
|
|
14
|
|
|
4,802
|
|
|
15
|
|
|
3,971
|
|
|
15
|
|
|
3,810
|
|
|
16
|
|
Commercial construction
|
10,952
|
|
|
9
|
|
|
9,668
|
|
|
11
|
|
|
10,337
|
|
|
9
|
|
|
10,523
|
|
|
9
|
|
|
13,405
|
|
|
9
|
|
Equipment financing
|
16,820
|
|
|
8
|
|
|
7,384
|
|
|
8
|
|
|
5,452
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial
|
112,201
|
|
|
79
|
|
|
46,028
|
|
|
76
|
|
|
43,871
|
|
|
72
|
|
|
38,651
|
|
|
70
|
|
|
42,504
|
|
|
67
|
|
Residential mortgage
|
15,341
|
|
|
11
|
|
|
8,081
|
|
|
13
|
|
|
8,295
|
|
|
13
|
|
|
10,097
|
|
|
13
|
|
|
8,545
|
|
|
13
|
|
Home equity lines of credit
|
8,417
|
|
|
6
|
|
|
4,575
|
|
|
7
|
|
|
4,752
|
|
|
8
|
|
|
5,177
|
|
|
9
|
|
|
4,599
|
|
|
9
|
|
Residential construction
|
764
|
|
|
3
|
|
|
2,504
|
|
|
3
|
|
|
2,433
|
|
|
3
|
|
|
2,729
|
|
|
2
|
|
|
3,264
|
|
|
3
|
|
Consumer direct
|
287
|
|
|
1
|
|
|
901
|
|
|
1
|
|
|
853
|
|
|
2
|
|
|
710
|
|
|
2
|
|
|
708
|
|
|
2
|
|
Indirect auto
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
999
|
|
|
2
|
|
|
1,550
|
|
|
4
|
|
|
1,802
|
|
|
6
|
|
Total ACL - loans
|
137,010
|
|
|
100
|
|
|
62,089
|
|
|
100
|
|
|
61,203
|
|
|
100
|
|
|
58,914
|
|
|
100
|
|
|
61,422
|
|
|
100
|
|
ACL - unfunded commitments
|
10,558
|
|
|
|
|
3,458
|
|
|
|
|
3,410
|
|
|
|
|
2,312
|
|
|
|
|
2,002
|
|
|
|
Total ACL
|
$
|
147,568
|
|
|
|
|
$
|
65,547
|
|
|
|
|
$
|
64,613
|
|
|
|
|
$
|
61,226
|
|
|
|
|
$
|
63,424
|
|
|
|
* Loan balance in each category, expressed as a percentage of total loans.
The following table presents a summary of changes in the ACL for each of the past five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 13 - ACL
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
CECL
|
|
Incurred Loss
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
ACL - loans, beginning of period
|
$
|
62,089
|
|
|
$
|
61,203
|
|
|
$
|
58,914
|
|
|
$
|
61,422
|
|
|
$
|
68,448
|
|
Implementation of CECL
|
6,880
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
ACL - loans, adjusted beginning balance
|
68,969
|
|
|
61,203
|
|
|
58,914
|
|
|
61,422
|
|
|
68,448
|
|
|
|
|
|
|
|
|
|
|
|
Initial ACL - PCD loans acquired during the period
|
11,152
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
70
|
|
|
5
|
|
|
303
|
|
|
406
|
|
|
2,029
|
|
Income producing commercial real estate
|
8,430
|
|
|
1,227
|
|
|
3,304
|
|
|
2,985
|
|
|
1,433
|
|
Commercial & industrial
|
10,707
|
|
|
5,849
|
|
|
1,669
|
|
|
1,528
|
|
|
1,830
|
|
Commercial construction
|
726
|
|
|
290
|
|
|
622
|
|
|
1,023
|
|
|
837
|
|
Equipment financing
|
8,764
|
|
|
5,675
|
|
|
1,536
|
|
|
—
|
|
|
—
|
|
Residential mortgage
|
398
|
|
|
616
|
|
|
754
|
|
|
1,473
|
|
|
1,151
|
|
Home equity lines of credit
|
221
|
|
|
996
|
|
|
1,194
|
|
|
1,435
|
|
|
1,690
|
|
Residential construction
|
93
|
|
|
306
|
|
|
54
|
|
|
129
|
|
|
533
|
|
Consumer direct
|
2,985
|
|
|
2,390
|
|
|
2,445
|
|
|
1,803
|
|
|
1,459
|
|
Indirect auto
|
—
|
|
|
663
|
|
|
1,277
|
|
|
1,420
|
|
|
1,399
|
|
Total charge-offs
|
32,394
|
|
|
18,017
|
|
|
13,158
|
|
|
12,202
|
|
|
12,361
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
2,565
|
|
|
375
|
|
|
1,227
|
|
|
980
|
|
|
706
|
|
Income producing commercial real estate
|
3,546
|
|
|
283
|
|
|
1,064
|
|
|
178
|
|
|
580
|
|
Commercial & industrial
|
1,371
|
|
|
852
|
|
|
1,390
|
|
|
1,768
|
|
|
1,689
|
|
Commercial construction
|
1,045
|
|
|
1,165
|
|
|
734
|
|
|
1,018
|
|
|
821
|
|
Equipment financing
|
2,004
|
|
|
781
|
|
|
460
|
|
|
—
|
|
|
—
|
|
Residential mortgage
|
455
|
|
|
481
|
|
|
336
|
|
|
314
|
|
|
301
|
|
Home equity lines of credit
|
677
|
|
|
610
|
|
|
423
|
|
|
567
|
|
|
386
|
|
Residential construction
|
156
|
|
|
157
|
|
|
376
|
|
|
178
|
|
|
79
|
|
Consumer direct
|
2,259
|
|
|
911
|
|
|
807
|
|
|
917
|
|
|
800
|
|
Indirect auto
|
—
|
|
|
186
|
|
|
228
|
|
|
284
|
|
|
233
|
|
Total recoveries
|
14,078
|
|
|
5,801
|
|
|
7,045
|
|
|
6,204
|
|
|
5,595
|
|
Net charge-offs
|
18,316
|
|
|
12,216
|
|
|
6,113
|
|
|
5,998
|
|
|
6,766
|
|
Provision for credit losses - loans
|
75,205
|
|
|
13,102
|
|
|
8,402
|
|
|
3,490
|
|
|
(260)
|
|
ACL- loans, end of period
|
137,010
|
|
|
62,089
|
|
|
61,203
|
|
|
58,914
|
|
|
61,422
|
|
|
|
|
|
|
|
|
|
|
|
ACL - unfunded commitments, beginning of period
|
3,458
|
|
|
3,410
|
|
|
2,312
|
|
|
2,002
|
|
|
2,542
|
|
Implementation of CECL
|
1,871
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
ACL - unfunded commitments, adjusted beginning balance
|
5,329
|
|
|
3,410
|
|
|
2,312
|
|
|
2,002
|
|
|
2,542
|
|
Provision for credit losses - unfunded commitments
|
5,229
|
|
|
48
|
|
|
1,098
|
|
|
310
|
|
|
(540)
|
|
ACL - unfunded commitments, end of period
|
10,558
|
|
|
3,458
|
|
|
3,410
|
|
|
2,312
|
|
|
2,002
|
|
Total ACL
|
$
|
147,568
|
|
|
$
|
65,547
|
|
|
$
|
64,613
|
|
|
$
|
61,226
|
|
|
$
|
63,424
|
|
|
|
|
|
|
|
|
|
|
|
Total loans:
|
|
|
|
|
|
|
|
|
|
At year-end
|
$
|
11,370,815
|
|
|
$
|
8,812,553
|
|
|
$
|
8,383,401
|
|
|
$
|
7,735,572
|
|
|
$
|
6,920,636
|
|
Average
|
10,466,653
|
|
|
8,708,035
|
|
|
8,170,143
|
|
|
7,150,211
|
|
|
6,412,740
|
|
|
|
|
|
|
|
|
|
|
|
ACL- loans as a percentage of year-end loans
|
1.20
|
%
|
|
0.70
|
%
|
|
0.73
|
%
|
|
0.76
|
%
|
|
0.89
|
%
|
|
|
|
|
|
|
|
|
|
|
As a percentage of average loans:
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
0.17
|
|
|
0.14
|
|
|
0.07
|
|
|
0.08
|
|
|
0.11
|
|
Provision for credit losses - loans
|
0.72
|
|
|
0.15
|
|
|
0.10
|
|
|
0.05
|
|
|
—
|
|
Nonperforming Assets
NPAs, which include nonaccrual loans and foreclosed properties, totaled $62.2 million at December 31, 2020, compared with $35.8 million at December 31, 2019.
The increase in NPAs since December 31, 2019 was primarily a result of an increase in nonaccrual loans. The inclusion of Three Shores nonaccrual loans and foreclosed properties in the NPA balances and the impact of the COVID-19 pandemic on our loan portfolio contributed to the increase from December 31, 2019. In addition, when we adopted ASC 326 on January 1, 2020, we elected to disaggregate the former PCI pools and no longer consider the loan pool to be the unit of account. Reporting these contractually delinquent PCD loans as nonaccrual loans using the same criteria as other loans contributed $3.53 million to the increase in nonaccrual loans since December 31, 2019. The table below summarizes NPAs at year-end for the last five years.
Table 14 - NPAs
As of December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
Nonaccrual loans
|
$
|
61,599
|
|
|
$
|
35,341
|
|
|
$
|
23,778
|
|
|
$
|
23,658
|
|
|
$
|
21,539
|
|
Foreclosed properties
|
647
|
|
|
476
|
|
|
1,305
|
|
|
3,234
|
|
|
7,949
|
|
Total NPAs
|
$
|
62,246
|
|
|
$
|
35,817
|
|
|
$
|
25,083
|
|
|
$
|
26,892
|
|
|
$
|
29,488
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans as a percentage of total loans
|
0.54
|
%
|
|
0.40
|
%
|
|
0.28
|
%
|
|
0.31
|
%
|
|
0.31
|
%
|
NPAs as a percentage of loans and foreclosed properties
|
0.55
|
|
|
0.41
|
|
|
0.30
|
|
|
0.35
|
|
|
0.43
|
|
NPAs as a percentage of total assets
|
0.35
|
|
|
0.28
|
|
|
0.20
|
|
|
0.23
|
|
|
0.28
|
|
The following table summarizes nonaccrual loans by category.
Table 15 - Nonaccrual Loans by Category
As of December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
$
|
8,582
|
|
|
$
|
10,544
|
|
|
|
Income producing commercial real estate
|
15,149
|
|
|
1,996
|
|
|
|
Commercial & industrial
|
16,634
|
|
|
2,545
|
|
|
|
Commercial construction
|
1,745
|
|
|
2,277
|
|
|
|
Equipment financing
|
3,405
|
|
|
3,141
|
|
|
|
Total commercial
|
45,515
|
|
|
20,503
|
|
|
|
Residential mortgage
|
12,858
|
|
|
10,567
|
|
|
|
Home equity lines of credit
|
2,487
|
|
|
3,173
|
|
|
|
Residential construction
|
514
|
|
|
939
|
|
|
|
Consumer direct
|
225
|
|
|
159
|
|
|
|
Total nonaccrual loans
|
$
|
61,599
|
|
|
$
|
35,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020 and 2019, we had $61.6 million and $54.2 million, respectively, in loans with terms that have been modified in a TDR. Included therein were $20.6 million and $8.25 million, respectively, of TDRs that were nonaccrual loans. The remaining TDRs with aggregate balances of $41.0 million and $46.0 million, respectively, were performing according to their modified terms and were therefore not considered to be NPAs.
Under the CARES Act, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from TDR classification under GAAP. In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., payment deferrals) granted to loans that were current as of the loan modification program implementation date are not new TDRs. During 2020 we granted a significant number of payment deferral requests to our borrowers related to the economic disruption created by COVID-19, most of which were exempt from TDR classification in the short term. By year-end, most of the loans with deferral periods had resumed normal payments. The following table presents remaining COVID-19 related short-term deferrals that, to the extent they qualified for exemption, were not considered TDRs as of December 31, 2020.
|
|
|
Table 16 - COVID-19 Deferrals
|
As of December 31, 2020
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
|
|
|
|
|
|
$
|
4,774
|
|
|
|
|
Income producing commercial real estate
|
|
|
|
|
|
|
45,190
|
|
|
|
|
Commercial & industrial
|
|
|
|
|
|
|
5,682
|
|
|
|
|
Commercial construction
|
|
|
|
|
|
|
1,745
|
|
|
|
|
Equipment financing
|
|
|
|
|
|
|
3,474
|
|
|
|
|
Total commercial
|
|
|
|
|
|
|
60,865
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
8,731
|
|
|
|
|
Home equity lines of credit
|
|
|
|
|
|
|
1,012
|
|
|
|
|
Residential construction
|
|
|
|
|
|
|
55
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
46
|
|
|
|
|
Total COVID-19 deferrals
|
|
|
|
|
|
|
$
|
70,709
|
|
|
|
|
COVID-19 deferrals as % of total loans
|
|
|
|
|
|
|
1
|
%
|
|
|
Investment Securities
The composition of our investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also provides a balance to interest rate risk in other categories of the balance sheet, while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits and borrowings. Total investment securities at December 31, 2020 increased $1.09 billion from December 31, 2019. The increased balances reflected securities acquired from Three Shores as well as our decision to deploy excess liquidity by purchasing securities.
At December 31, 2020 and 2019, we had debt securities held-to-maturity with a carrying value of $420 million and $284 million, respectively, and debt securities available-for-sale totaling $3.22 billion and $2.27 billion, respectively. At December 31, 2020 and 2019, the securities portfolio represented approximately 20% of total assets. At December 31, 2020, the effective duration of the investment portfolio was 3.68 years, compared with 2.81 years at December 31, 2019.
The investment securities portfolio primarily consists of Treasury securities, U.S. government securities, U.S. government sponsored agency mortgage-backed securities, non-agency mortgage-backed securities, corporate securities, municipal securities and asset-backed securities. Mortgage-backed securities, which include both U.S. government sponsored agency and non-agency securities, rely on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will differ from the contractual maturities because the loans underlying the security can prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining or prolonged low interest rate environment, we may not be able to reinvest the proceeds from these prepayments in assets that have comparable yields. In a rising rate environment, the opposite may occur. Prepayments tend to slow and the weighted average life extends. This is referred to as extension risk, which can lead to lower levels of liquidity due to the delay of cash receipts, and can result in the holding of a below market yielding asset for a longer period of time.
At December 31, 2020 and 2019, we had 62% and 71%, respectively, of our total investment securities portfolio invested in mortgage-backed securities. We have continued to purchase mortgage-backed securities in order to obtain a favorable yield with low risk. We did not have debt obligations of any issuer in excess of 10% of equity at year-end 2020 or 2019, excluding U.S. government sponsored entities. As of December 31, 2020, no securities were rated below “Baa” and 85% of securities were rated “Aaa”. See Note 5 to the consolidated financial statements for further discussion of the investment portfolio and related fair value and maturity information.
Since our implementation of CECL, our held-to-maturity securities portfolio is evaluated quarterly to assess whether an ACL is required. We measure expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At adoption on January 1, 2020 and at December 31, 2020, calculated credit losses and, thus, the related ACL on held-to-maturity debt securities were not material. As a result, we did not record an ACL for held-to-maturity securities at adoption or at December 31, 2020.
For available-for-sale debt securities in an unrealized loss position, if we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, the security's amortized cost basis is written down to fair value through income. Absent an intent or more than likely requirement to sell, we evaluate whether the decline in fair value has resulted from credit losses or other factors. The evaluation considers factors such as the extent to which fair value is less than amortized cost,
changes to the security’s rating, and adverse conditions specific to the security. Since the adoption of ASC 326, if the evaluation indicates a credit loss exists, an ACL may be recorded, with such allowance limited to the amount by which fair value is below amortized cost. Any impairment unrelated to credit factors is recognized in other comprehensive income. Based on the assessment performed at December 31, 2020, there was no ACL required related to the available-for-sale portfolio. Losses on fixed income securities at December 31, 2020 primarily reflected the effect of changes in interest rates.
Prior to the implementation of CECL, management evaluated our securities portfolio each quarter to determine if any security was other than temporarily impaired. In making this evaluation, management considered our ability and intent to hold securities to recover current market losses. We did not recognize any other than temporary impairment losses on our investment securities in 2019 or 2018.
Goodwill and Other Intangible Assets
Goodwill represents the premium paid for acquired companies above the fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. Goodwill is not amortized, but is assessed for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment, referred to as a triggering event. Upon the occurrence of a triggering event, accounting guidance allows for an assessment of qualitative factors to determine whether it is more likely than not, or a greater than 50% likelihood, that the fair value of the entity is less than its carrying amount, including goodwill. When it is more likely than not that impairment has occurred, management is required to perform a quantitative analysis and, if necessary, adjust the carrying amount of goodwill by recording a goodwill impairment loss.
Due to market concerns about the potential impact of COVID-19, our common stock price declined such that it traded below book value for much of 2020. We generally perform our annual goodwill impairment assessment during the fourth quarter of each year, using data as of the end of the third quarter; however as a result of this triggering event, we qualitatively assessed goodwill at the end of each interim quarter of 2020. Each assessment resulted in the conclusion that there was not a greater than 50% likelihood that United’s fair value was less than its carrying amount, given the anticipated short duration of the change in macroeconomic conditions. During the fourth quarter of 2020, our stock returned to trading above book value. Based on the excess value and other qualitative factors, the latest annual assessment performed during the fourth quarter resulted in the conclusion that there was not a greater than 50% likelihood that United’s fair value was less than its carrying amount as of December 31, 2020.
Core deposit intangibles, representing the value of the acquired deposit base, are amortizing intangible assets that are required to be tested for impairment only when events or circumstances indicate that impairment may exist. There were no events or circumstances that led us to believe that any impairment exists in our core deposit intangibles.
In connection with the acquisition of Three Shores on July 1, 2020, we recorded goodwill and a core deposit intangible of $40.4 million and $3.36 million, respectively.
Deposits
Customer deposits are the primary source of funds for the continued growth of our earning assets. Our high level of service, as evidenced by our strong customer satisfaction scores, has been instrumental in attracting and retaining customer deposit accounts. Customer deposits as of December 31, 2020 were up $4.21 billion, or 39%, compared to December 31, 2019. In addition to organic growth, the increase in customer deposits was also attributable to deposits acquired from Three Shores ($1.79 billion at the July 1, 2020 acquisition date) and PPP-related deposits. The following table sets forth the deposit composition for the periods indicated.
Table 17 - Deposits
As of December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Noninterest-bearing demand
|
$
|
5,390,291
|
|
|
$
|
3,477,979
|
|
|
|
NOW and interest-bearing demand
|
3,346,490
|
|
|
2,461,895
|
|
|
|
Money market and savings
|
4,501,189
|
|
|
2,937,095
|
|
|
|
Time
|
1,704,290
|
|
|
1,859,574
|
|
|
|
Total customer deposits
|
14,942,260
|
|
|
10,736,543
|
|
|
|
Brokered deposits
|
290,098
|
|
|
160,701
|
|
|
|
Total deposits
|
$
|
15,232,358
|
|
|
$
|
10,897,244
|
|
|
The following table sets forth the scheduled maturities of time deposits of $250,000 and greater.
Table 18 - Maturities of Customer Time Deposits of $250,000 and Greater
As of December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Three months or less
|
$
|
94,569
|
|
|
$
|
86,324
|
|
|
|
Three to six months
|
65,395
|
|
|
100,380
|
|
|
|
Six to twelve months
|
88,325
|
|
|
139,897
|
|
|
|
Over one year
|
68,595
|
|
|
40,375
|
|
|
|
Total
|
$
|
316,884
|
|
|
$
|
366,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing Activities
At December 31, 2020 and 2019, we had long-term debt outstanding of $327 million and $213 million, respectively, which included senior debentures, subordinated debentures, and trust preferred securities. During the second quarter of 2020, we issued $100 million of 5% fixed-to-floating rate senior debentures with a maturity date of June 15, 2030. The proceeds generated from the issuance of these debentures will be used for general business purposes. During the third quarter of 2020, we assumed $15.0 million of subordinated debt from Three Shores. Additional information regarding these debt instruments is provided in Note 12 to the consolidated financial statements.
Liquidity Management
Liquidity is defined as the ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the ability to meet the daily cash flow requirements of customers, both depositors and borrowers. The primary objective is to ensure that sufficient funding is available, at a reasonable cost, to meet ongoing operational cash needs and to take advantage of revenue producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, our primary goal is to maintain a sufficient level of liquidity in all expected economic environments. To assist in determining the adequacy of our liquidity, we perform a variety of liquidity stress tests. We maintain an unencumbered liquid asset reserve to help ensure our ability to meet our obligations under normal conditions for at least a 12-month period and under severely adverse liquidity conditions for a minimum of 30 days.
An important part of the Bank’s liquidity resides in the asset portion of the balance sheet, which provides liquidity primarily through loan interest and principal repayments and the maturities and sales of securities, as well as the ability to use these assets as collateral for borrowings on a secured basis.
The Bank’s main source of liquidity is customer interest-bearing and noninterest-bearing deposit accounts. Liquidity is also available from wholesale funding sources consisting primarily of Federal funds purchased, FHLB advances, and brokered deposits. These sources of liquidity are generally short-term in nature and are used as necessary to fund asset growth and meet other short-term liquidity needs.
In addition, because the Holding Company is a separate entity and apart from the Bank, it must provide for its own liquidity. The Holding Company is responsible for the payment of dividends declared for its common and preferred shareholders, and interest and principal on any outstanding debt or trust preferred securities. The Holding Company currently has internal capital resources to meet these obligations. While the Holding Company has access to the capital markets and maintains a line of credit as a contingent funding source, the ultimate sources of its liquidity are subsidiary service fees and dividends from the Bank, which are limited by applicable law and regulations. In 2020, the Bank paid dividends of $150 million to the Holding Company. In 2019, the Bank paid no dividends to the Holding Company. Holding Company liquidity is managed to a minimum of 15-months of positive cash flow after considering all of its liquidity needs over this period.
The table below presents a summary of short-term borrowings over the last three years.
Table 19 - Short-Term Borrowings
As of and for the year ended December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end balance
|
|
|
|
Maximum outstanding at any month-end
|
|
Average amounts outstanding during the year
|
|
Weighted-average rate for the year
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
$
|
—
|
|
|
|
|
$
|
5,000
|
|
|
$
|
550
|
|
|
0.37
|
%
|
|
|
Repurchase agreements
|
|
—
|
|
|
|
|
5,138
|
|
|
670
|
|
|
0.15
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
1,220
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
$
|
—
|
|
|
|
|
$
|
70,000
|
|
|
$
|
33,504
|
|
|
2.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
33,504
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
$
|
—
|
|
|
|
|
$
|
65,000
|
|
|
$
|
55,799
|
|
|
1.98
|
%
|
|
|
Repurchase agreements
|
|
—
|
|
|
|
|
—
|
|
|
1,577
|
|
|
0.44
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
57,376
|
|
|
|
|
At December 31, 2020, we had sufficient qualifying collateral to increase FHLB advances by $1.40 billion and Federal Reserve discount window capacity of $1.38 billion, as well as unpledged investment securities of $2.53 billion that could be used as collateral for additional borrowings. Management also has the ability to raise substantial funds through brokered deposits. In addition to these wholesale sources, we have the ability to attract retail deposits at any time by competing more aggressively on pricing.
As disclosed in the consolidated statements of cash flows, net cash provided by operating activities was $159 million for the year ended December 31, 2020. Net income of $164 million for the year included non-cash income and expense of the following: deferred income tax expense of $2.67 million, net depreciation, amortization and accretion income of $8.59 million, provision expense of $80.4 million, and stock-based compensation expense of $7.89 million. Uses of cash from operating activities included an increase in other assets and accrued interest receivable of $20.1 million, a decrease in accrued expenses and other liabilities of $14.8 million, and an increase in loans held for sale of $46.7 million.
Net cash used in investing activities of $1.58 billion consisted primarily of a net increase in loans of $1.07 billion, $1.46 billion of purchases of debt securities available-for-sale and equity securities, $157 million of purchases of debt securities held-to-maturity, and purchases of premises and equipment of $18.5 million. These uses of cash were partially offset by net cash received in the acquisition of Three Shores of $196 million, proceeds from maturities and calls of debt securities available-for-sale of $835 million, sales of debt securities available-for-sale and equity securities of $40.6 million, and maturities and calls of securities held-to-maturity of $58.0 million.
The $2.52 billion provided by financing activities consisted primarily of a net increase in deposits of $2.53 billion, net proceeds from the issuance of long-term debt of $98.6 million, and net proceeds from the issuance of preferred stock of $96.4 million. Partially offsetting these sources of cash were the net repayment of $129 million in FHLB advances, $62.4 million in common and preferred stock dividends, and repurchases of common stock of $20.8 million. In the opinion of management, our liquidity position at December 31, 2020 was sufficient to meet our expected cash requirements.
The following table presents the contractual maturity of investment securities by date and average yields. The composition and maturity / repricing distribution of the securities portfolio is subject to change depending on rate sensitivity, capital and liquidity needs.
Table 20 - Contractual Maturity of Available-for-Sale and Held-to-Maturity Debt Securities
As of December 31, 2020
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity By Years
|
|
1 or Less
|
|
1 to 5
|
|
5 to 10
|
|
Over 10
|
|
Total
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
20,311
|
|
|
$
|
107,761
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,072
|
|
U.S. Government agencies & GSEs
|
201
|
|
|
16,820
|
|
|
55,481
|
|
|
80,470
|
|
|
152,972
|
|
State and political subdivisions
|
20,232
|
|
|
51,544
|
|
|
64,843
|
|
|
137,853
|
|
|
274,472
|
|
Residential mortgage-backed securities, Agency & GSE
|
—
|
|
|
12,777
|
|
|
44,660
|
|
|
1,246,455
|
|
|
1,303,892
|
|
Residential mortgage-backed securities, Non-agency
|
—
|
|
|
—
|
|
|
—
|
|
|
181,693
|
|
|
181,693
|
|
Commercial mortgage-backed, Agency & GSE
|
18,638
|
|
|
135,864
|
|
|
188,923
|
|
|
188,843
|
|
|
532,268
|
|
Commercial mortgage-backed, Non-agency
|
—
|
|
|
—
|
|
|
—
|
|
|
16,863
|
|
|
16,863
|
|
Corporate bonds
|
11,592
|
|
|
45,837
|
|
|
13,485
|
|
|
853
|
|
|
71,767
|
|
Asset-backed securities
|
4,323
|
|
|
390,799
|
|
|
19,199
|
|
|
148,401
|
|
|
562,722
|
|
Total securities available-for-sale
|
$
|
75,297
|
|
|
$
|
761,402
|
|
|
$
|
386,591
|
|
|
$
|
2,001,431
|
|
|
$
|
3,224,721
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield (1)
|
2.10
|
%
|
|
1.33
|
%
|
|
1.79
|
%
|
|
2.02
|
%
|
|
1.83
|
%
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies & GSEs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,575
|
|
|
$
|
10,575
|
|
State and political subdivisions
|
1,700
|
|
|
14,505
|
|
|
7,028
|
|
|
174,490
|
|
|
197,723
|
|
Residential mortgage-backed securities, Agency & GSE
|
—
|
|
|
7,865
|
|
|
16,557
|
|
|
88,978
|
|
|
113,400
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed, Agency & GSE
|
—
|
|
|
6,154
|
|
|
9,051
|
|
|
83,458
|
|
|
98,663
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held-to-maturity
|
$
|
1,700
|
|
|
$
|
28,524
|
|
|
$
|
32,636
|
|
|
$
|
357,501
|
|
|
$
|
420,361
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield (1)
|
3.79
|
%
|
|
3.66
|
%
|
|
2.29
|
%
|
|
2.27
|
%
|
|
2.38
|
%
|
|
|
|
|
|
|
|
|
|
|
Combined Portfolio
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
20,311
|
|
|
$
|
107,761
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,072
|
|
U.S. Government agencies & GSEs
|
201
|
|
|
16,820
|
|
|
55,481
|
|
|
91,045
|
|
|
163,547
|
|
State and political subdivisions
|
21,932
|
|
|
66,049
|
|
|
71,871
|
|
|
312,343
|
|
|
472,195
|
|
Residential mortgage-backed securities, Agency & GSE
|
—
|
|
|
20,642
|
|
|
61,217
|
|
|
1,335,433
|
|
|
1,417,292
|
|
Residential mortgage-backed securities, Non-agency
|
—
|
|
|
—
|
|
|
—
|
|
|
181,693
|
|
|
181,693
|
|
Commercial mortgage-backed, Agency & GSE
|
18,638
|
|
|
142,018
|
|
|
197,974
|
|
|
272,301
|
|
|
630,931
|
|
Commercial mortgage-backed, Non-agency
|
—
|
|
|
—
|
|
|
—
|
|
|
16,863
|
|
|
16,863
|
|
Corporate bonds
|
11,592
|
|
|
45,837
|
|
|
13,485
|
|
|
853
|
|
|
71,767
|
|
Asset-backed securities
|
4,323
|
|
|
390,799
|
|
|
19,199
|
|
|
148,401
|
|
|
562,722
|
|
Total securities
|
$
|
76,997
|
|
|
$
|
789,926
|
|
|
$
|
419,227
|
|
|
$
|
2,358,932
|
|
|
$
|
3,645,082
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield (1)
|
2.14
|
%
|
|
1.41
|
%
|
|
1.83
|
%
|
|
2.06
|
%
|
|
1.89
|
%
|
(1) Based on carrying value.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments, which included commitments to extend credit and letters of credit, totaled $3.08 billion at December 31, 2020.
A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Letters of credit and financial guarantees are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as extending loan facilities to customers. Those commitments are primarily issued to local businesses.
The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, letters of credit and financial guarantees is represented by the contractual amount of these instruments. We use the same credit underwriting procedures for making commitments, letters of credit and financial guarantees as we use for underwriting on-balance sheet instruments. Management evaluates each customer’s creditworthiness on a case-by-case basis and the amount of the collateral, if deemed necessary, is based on the credit evaluation. Collateral held varies, but may include unimproved and improved real estate, certificates of deposit, personal property or other acceptable collateral.
All of these instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The total amount of these instruments does not necessarily represent future cash requirements because a significant portion of these instruments expire without being used. We believe that we have adequate sources of liquidity to fund commitments that are drawn upon by the borrowers. We are not involved in off-balance sheet contractual relationships, other than those disclosed in this Report, that could result in liquidity needs or other commitments, or that could significantly affect earnings. See Note 22 to the consolidated financial statements for additional information on off-balance sheet arrangements.
The following table shows United’s contractual obligations and other commitments.
Table 21 - Contractual Obligations and Other Commitments
As of December 31, 2020
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity By Years
|
|
Total
|
|
Unamortized Premium
(Discount)
|
|
1 or Less
|
|
1 to 3
|
|
3 to 5
|
|
Over 5
|
Contractual Cash Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
326,956
|
|
|
(9,296)
|
|
|
—
|
|
|
50,000
|
|
|
11,250
|
|
|
275,002
|
|
Operating leases
|
33,095
|
|
|
(1,664)
|
|
|
7,446
|
|
|
14,497
|
|
|
5,820
|
|
|
6,996
|
|
Total contractual cash obligations
|
$
|
360,051
|
|
|
$
|
(10,960)
|
|
|
$
|
7,446
|
|
|
$
|
64,497
|
|
|
$
|
17,070
|
|
|
$
|
281,998
|
|
Other Commitments
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
$
|
3,052,657
|
|
|
$
|
—
|
|
|
$
|
983,103
|
|
|
$
|
653,223
|
|
|
$
|
475,169
|
|
|
$
|
941,162
|
|
Commercial letters of credit
|
31,748
|
|
|
—
|
|
|
25,602
|
|
|
5,292
|
|
|
665
|
|
|
189
|
|
Uncertain tax positions
|
2,163
|
|
|
—
|
|
|
441
|
|
|
1,301
|
|
|
421
|
|
|
—
|
|
Total other commitments
|
$
|
3,086,568
|
|
|
$
|
—
|
|
|
$
|
1,009,146
|
|
|
$
|
659,816
|
|
|
$
|
476,255
|
|
|
$
|
941,351
|
|
Subsequent to year-end, we redeemed two long-term debt instruments totaling $15.6 million, which are included in the table above. See Note 12 to the consolidated financial statements for further detail.
Capital Resources and Dividends
The maintenance and management of capital levels is one of management’s significant priorities. Shareholders’ equity at December 31, 2020 was $2.01 billion, an increase of $372 million from December 31, 2019 primarily due to earnings, the issuance of preferred stock, common stock issued in the Three Shores transaction, and other comprehensive income partially offset by dividends declared and shares repurchased.
Under the risk-based capital guidelines of Basel III, assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of the collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with the category. The resulting weighted values from each of the risk categories are added together, and generally this sum is our total RWAs. RWAs for purposes of our capital ratios are calculated under these guidelines.
CET1 capital consists of common shareholders’ equity, excluding AOCI, intangible assets (goodwill, deposit-based intangibles and certain other intangibles, including certain servicing assets), net of associated deferred tax liabilities, and disallowed deferred tax
assets. Tier 1 capital consists of CET1, plus perpetual preferred stock and other qualifying capital securities. Tier 2 capital components include supplemental capital such as the qualifying portion of the ACL and qualifying subordinated debt. Tier 1 capital plus Tier 2 capital is referred to as Total risk-based capital.
We have outstanding junior subordinated debentures related to trust preferred securities totaling $25.0 million at December 31, 2020. Beginning in the third quarter of 2020, the related trust preferred securities of $24.3 million (excluding common securities) qualified as Tier 2 capital for United under risk-based capital guidelines, subject to certain limitations. Prior to that date, trust preferred securities qualified as Tier 1 capital. Further information on trust preferred securities is provided in Note 12 to the consolidated financial statements.
The following table outlines the minimum ratios required for capital adequacy purposes, as well as the thresholds for a categorization of “well-capitalized”.
Table 22 - Capital Ratios
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Community Banks, Inc. (consolidated)
|
|
United Community Bank
|
|
Minimum Capital
|
|
Well-Capitalized
|
|
Minimum Capital Plus Capital Conservation Buffer
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Risk-based ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital
|
4.5
|
%
|
|
6.5
|
%
|
|
7.0
|
%
|
|
12.31
|
%
|
|
12.97
|
%
|
|
13.31
|
%
|
|
14.87
|
%
|
Tier 1 capital
|
6.0
|
|
|
8.0
|
|
|
8.5
|
|
|
13.10
|
|
|
13.21
|
|
|
13.31
|
|
|
14.87
|
|
Total capital
|
8.0
|
|
|
10.0
|
|
|
10.5
|
|
|
15.15
|
|
|
15.01
|
|
|
14.28
|
|
|
15.54
|
|
Leverage ratio
|
4.0
|
|
|
5.0
|
|
|
N/A
|
|
9.28
|
|
|
10.34
|
|
|
9.42
|
|
|
11.63
|
|
Additional information related to capital ratios, as calculated under regulatory guidelines, as of December 31, 2020 and 2019, is provided in Note 21 to the consolidated financial statements. As of December 31, 2020 and 2019, both United and the Bank were characterized as “well-capitalized”.
Effect of Inflation and Changing Prices
A bank’s asset and liability structure is substantially different from that of an industrial firm, because primarily all assets and liabilities of a bank are monetary in nature, with relatively little investment in fixed assets or inventories. Inflation has an important effect on the growth of total assets and the resulting need to increase equity capital at higher than nominal rates in order to maintain an appropriate equity to assets ratio.
Our management believes the effect of inflation on financial results depends on our ability to react to changes in interest rates and, by such reaction, reduce the inflationary effect on performance. We have an asset/liability management program to monitor and manage our interest rate sensitivity position. In addition, periodic reviews of banking services and products are conducted to adjust pricing in view of current and expected costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Sensitivity Management
The absolute level and volatility of interest rates can have a significant effect on profitability. The objective of interest rate risk management is to identify and manage the sensitivity of net interest revenue to changing interest rates, consistent with our overall financial goals. Based on economic conditions, asset quality and various other considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges.
Net interest revenue and the fair value of financial instruments are influenced by changes in the level of interest rates. We limit our exposure to fluctuations in interest rates through policies established by our ALCO and approved by the Board. ALCO meets periodically and has responsibility for formulating and recommending asset/liability management policies to the Board, formulating and implementing strategies to improve balance sheet positioning and/or earnings, and reviewing interest rate sensitivity.
One of the tools management uses to estimate and manage the sensitivity of net interest revenue to changes in interest rates is an asset/liability simulation model. Resulting estimates are based upon several assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments. ALCO periodically reviews the assumptions for reasonableness based on historical data and future expectations; however, actual net interest revenue may differ from model results. The primary objective of the simulation model is to measure the potential change in net interest revenue over time using multiple interest rate scenarios. The base scenario assumes rates remain flat and is the scenario to which all others are compared to in order to measure the change in net interest revenue. Policy limits are based on immediate rate shock scenarios, as well as gradually rising and falling rate scenarios, which are all compared to the base scenario. Other scenarios analyzed may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements. While the primary policy scenarios focus on a 12-month time frame, longer time horizons are also modeled.
Our policy is based on the 12-month impact on net interest revenue of interest rate shocks and ramps that increase from 100 to 400 basis points or decrease 100 to 200 basis points from the base scenario. In the shock scenarios, rates immediately change the full amount at the scenario onset. In the ramp scenarios, rates change by 25 basis points per month. Our policy limits the projected change in net interest revenue over the first 12 months to an 8% decrease for each 100 basis point change in the increasing and decreasing rate ramp and shock scenarios. The following table presents our interest sensitivity position at the dates indicated.
Table 23 - Interest Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest Revenue from Base Scenario at
December 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
Change in Rates
|
|
Shock
|
|
Ramp
|
|
Shock
|
|
Ramp
|
|
|
100 basis point increase
|
|
3.80
|
%
|
|
2.88
|
%
|
|
2.91
|
%
|
|
2.22
|
%
|
|
|
100 basis point decrease
|
|
(1.89)
|
|
|
(1.82)
|
|
|
(4.86)
|
|
|
(3.92)
|
|
|
Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-earning assets and interest-bearing liabilities are subject to change in interest rates either at replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates. Effective interest rate sensitivity management seeks to ensure that both assets and liabilities respond to changes in interest rates on a net basis within an acceptable timeframe, thereby minimizing the potentially adverse effect of interest rate changes on net interest revenue.
We have discretion in the extent and timing of deposit repricing depending upon the competitive pressures in the markets in which we operate. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. The interest rate spread between an asset and its supporting liability can vary significantly even when the timing of repricing for both the asset and the liability remains the same, due to the two instruments repricing according to different indices. This is commonly referred to as basis risk.
Derivative financial instruments are used to manage interest rate sensitivity. These contracts generally consist of interest rate swaps under which we pay a variable rate (or fixed rate, as the case may be) and receive a fixed rate (or variable rate, as the case may be). In addition, investment securities and wholesale funding strategies are used to manage interest rate risk.
Derivative financial instruments that are designated as accounting hedges are classified as either cash flow or fair value hedges. The change in fair value of cash flow hedges is recognized in other comprehensive income. Fair value hedges recognize in earnings both the effect of the change in the fair value of the derivative financial instrument and the offsetting effect of the change in fair value of the hedged asset or liability associated with the particular risk of that asset or liability being hedged. We have other derivative financial instruments that are not designated as accounting hedges, but are used for interest rate risk management purposes and as effective economic hedges. Derivative financial instruments that are not accounted for as accounting hedges are marked to market through earnings.
Our policy requires all non-customer derivative financial instruments be used only for asset/liability management through the hedging of specific transactions, positions or risks, and not for trading or speculative purposes. Management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is appropriately monitored and controlled and will not have any material adverse effect on financial condition or results of operations. In order to mitigate potential credit risk, from time to time we may require the counterparties to derivative contracts to pledge cash and/or securities as collateral to cover the net exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the registrant and report of independent registered public accounting firm are included herein on the pages that follow.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of United Community Banks, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and affected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the internal control over financial reporting as of December 31, 2020. In making this assessment, we used the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management also conducted an assessment of requirements pertaining to Section 112 of the Federal Deposit Insurance Corporation Improvement Act. This section relates to management’s evaluation of internal control over financial reporting, including controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) and in compliance with laws and regulations. In conducting the evaluation of the effectiveness of its internal control over financial reporting, including controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) and in compliance with laws and regulations as of December 31, 2020, the Company has excluded the operations of Three Shores Bancorporation, Inc. (“Three Shores”) including its wholly-owned subsidiary, Seaside National Bank & Trust (“Seaside”) as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period) and as permitted by the guidance issued by the Federal Deposit Insurance Corporation noted in Part 363 – annual independent audits and reporting requirements (not to extend more than one annual part 363 assessment report). The acquisition was completed on July 1, 2020. Three Shores Bancorporation, Inc.’s assets and total revenues represent 11% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.
Based on our assessment, management concluded that as of December 31, 2020, United Community Banks, Inc.’s internal control over financial reporting is effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ H. Lynn Harton
|
|
/s/ Jefferson L. Harralson
|
|
|
H. Lynn Harton
|
|
Jefferson L. Harralson
|
|
|
President and Chief Executive Officer
|
|
Executive Vice President and
|
|
|
|
|
Chief Financial Officer
|
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of United Community Banks, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of United Community Banks, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income (loss), of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on financial instruments in 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded the operations associated with Three Shores Bancorporation, Inc., including its wholly-owned subsidiary, Seaside National Bank & Trust (collectively “Three Shores”) from its assessment of internal control over financial reporting as of December 31, 2020 because Three Shores was acquired by the Company in a purchase business combination during 2020. We have also excluded the operations associated with Three Shores from our audit of internal control over financial reporting. The total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting relating to the operations associated with Three Shores represent 11% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management's assessment and our audit of United Community Banks, Inc.’s internal control over financial reporting also included controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses - Loans
As described in Notes 1, 2, and 6 to the consolidated financial statements, the allowance for credit losses - loans represents management’s estimate of expected credit losses for the remaining estimated life of loans and leases, (collectively referred to as “loans”), as of the end of the period. As of December 31, 2020, the allowance for credit losses - loans was $137 million. Management determines the allowance for credit losses - loans using relevant available information, from internal and external sources, relating to past events, and current conditions with a one-year reasonable and supportable forecast period and a two-year straight-line reversion period. Expected credit loss rates were estimated using a regression model based on historical data from peer banks which incorporates a third party vendor’s economic forecast to predict the change in credit losses. The allowance for credit losses - loans is calculated using a discounted cash flow methodology at the loan level, with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type. At December 31, 2020, the Company adjusted the economic forecast by eliminating the initial spike in unemployment evidenced in the first half of the year to account for the impact of government stimulus programs. In addition, the
Company used a model overlay for the economic forecast for residential mortgage loans to better align losses in that portfolio to current conditions.
The principal considerations for our determination that the allowance for credit losses - loans is a critical audit matter are (i) the significant judgment by management when estimating expected credit losses, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the selection of and adjustments to the economic forecast; and (ii) the audit effort involved use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s allowance for credit losses estimation process, including controls over the selection of and adjustments to the economic forecast. Our procedures also included, among others, (i) testing management’s process for determining the allowance for credit losses - loans, (ii) evaluating the appropriateness of management’s methodology (iii) testing the completeness and accuracy of the data and (iv) evaluating the reasonableness of the selection of and adjustments to the economic forecast, which also involved the use of professionals with specialized skill and knowledge to assist in performing these procedures.
Initial Valuation of Acquired Loans - Three Shores
As described in Notes 1 and 3 to the consolidated financial statements, during 2020 the Company completed the acquisition of Three Shores. The acquisition included a fair value of acquired loans balance of $1.428 billion. Purchased loans are recorded at fair value on the date of acquisition. Fair values for acquired loans are generally based on a discounted cash flow methodology that considers credit loss expectations, market interest rates and other market factors such as liquidity from the perspective of a market participant. The probability of default, loss given default and prepayment assumptions are the key factors driving credit losses which were embedded into the estimated cash flows. These assumptions were informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The interest and liquidity component of the estimate was determined by discounting interest and principal cash flows through the expected life of each loan. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity.
The principal considerations for our determination that performing procedures relating to the initial valuation of acquired loans in the acquisition of Three Shores is a critical audit matter are (i) the significant judgment by management to determine the fair value of the acquired loans, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the discount rate, probability of default, and loss given default assumptions used to determine the fair value of the acquired loans; (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s initial valuation of the acquired loans, including controls over the assumptions. These procedures also included, among others (i) testing the completeness and accuracy of data provided by management, (ii) using professionals with specialized skills and knowledge to assist with (a) developing an independent estimate of fair value for a sample of acquired loan portfolios, and (b) comparing the independent estimate to management’s estimate to evaluate the reasonableness of management’s estimate. Developing the independent estimate of fair value involved (i) independently developing the discount rate, probability of default and loss given default assumptions using contractual loan terms and external market data and (ii) independently determining the discounted cash flows to estimate the fair value of the acquired loans.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 25, 2021
We have served as the Company’s auditor since 2013.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2020 and 2019
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
Cash and due from banks
|
$
|
148,896
|
|
|
$
|
125,844
|
|
Interest-bearing deposits in banks
|
1,459,723
|
|
|
389,362
|
|
Cash and cash equivalents
|
1,608,619
|
|
|
515,206
|
|
Debt securities available-for-sale
|
3,224,721
|
|
|
2,274,581
|
|
Debt securities held-to-maturity (fair value $437,193 and $287,904, respectively)
|
420,361
|
|
|
283,533
|
|
Loans held for sale at fair value
|
105,433
|
|
|
58,484
|
|
Loans and leases held for investment
|
11,370,815
|
|
|
8,812,553
|
|
Less allowance for credit losses - loans and leases
|
(137,010)
|
|
|
(62,089)
|
|
Loans and leases, net
|
11,233,805
|
|
|
8,750,464
|
|
Premises and equipment, net
|
218,489
|
|
|
215,976
|
|
Bank owned life insurance
|
201,969
|
|
|
202,664
|
|
Accrued interest receivable
|
47,672
|
|
|
32,660
|
|
Net deferred tax asset
|
38,411
|
|
|
34,059
|
|
Derivative financial instruments
|
86,666
|
|
|
35,007
|
|
Goodwill and other intangible assets, net
|
381,823
|
|
|
342,247
|
|
Other assets
|
226,405
|
|
|
171,135
|
|
Total assets
|
$
|
17,794,374
|
|
|
$
|
12,916,016
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Deposits:
|
|
|
|
Noninterest-bearing demand
|
$
|
5,390,291
|
|
|
$
|
3,477,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
9,842,067
|
|
|
7,419,265
|
|
Total deposits
|
15,232,358
|
|
|
10,897,244
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
326,956
|
|
|
212,664
|
|
Derivative financial instruments
|
29,003
|
|
|
15,516
|
|
Accrued expenses and other liabilities
|
198,527
|
|
|
154,900
|
|
Total liabilities
|
15,786,844
|
|
|
11,280,324
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
Preferred stock, $1 par value: 10,000,000 shares authorized; Series I, $25,000 per share liquidation
preference; 4,000 and no shares issued and outstanding, respectively
|
96,422
|
|
|
—
|
|
Common stock, $1 par value; 150,000,000 shares authorized;
86,675,279 and 79,013,729 shares issued and outstanding, respectively
|
86,675
|
|
|
79,014
|
|
Common stock issuable; 600,834 and 664,640 shares, respectively
|
10,855
|
|
|
11,491
|
|
Capital surplus
|
1,638,999
|
|
|
1,496,641
|
|
Retained earnings
|
136,869
|
|
|
40,152
|
|
Accumulated other comprehensive income
|
37,710
|
|
|
8,394
|
|
Total shareholders’ equity
|
2,007,530
|
|
|
1,635,692
|
|
Total liabilities and shareholders’ equity
|
$
|
17,794,374
|
|
|
$
|
12,916,016
|
|
See accompanying notes to consolidated financial statements.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 2020, 2019 and 2018
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Interest revenue:
|
|
|
|
|
|
Loans, including fees
|
$
|
494,212
|
|
|
$
|
476,039
|
|
|
$
|
420,383
|
|
Investment securities:
|
|
|
|
|
|
Taxable
|
55,031
|
|
|
69,920
|
|
|
73,496
|
|
Tax exempt
|
7,043
|
|
|
4,564
|
|
|
4,189
|
|
Deposits in banks and short-term investments
|
1,710
|
|
|
2,183
|
|
|
2,012
|
|
Total interest revenue
|
557,996
|
|
|
552,706
|
|
|
500,080
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
41,772
|
|
|
66,856
|
|
|
39,543
|
|
Short-term borrowings
|
3
|
|
|
838
|
|
|
1,112
|
|
Federal Home Loan Bank advances
|
28
|
|
|
2,697
|
|
|
6,345
|
|
Long-term debt
|
14,434
|
|
|
12,921
|
|
|
14,330
|
|
Total interest expense
|
56,237
|
|
|
83,312
|
|
|
61,330
|
|
Net interest revenue
|
501,759
|
|
|
469,394
|
|
|
438,750
|
|
Provision for credit losses
|
80,434
|
|
|
13,150
|
|
|
9,500
|
|
Net interest revenue after provision for credit losses
|
421,325
|
|
|
456,244
|
|
|
429,250
|
|
Noninterest income:
|
|
|
|
|
|
Service charges and fees
|
32,401
|
|
|
36,797
|
|
|
35,997
|
|
Mortgage loan gains and related fees
|
76,087
|
|
|
27,145
|
|
|
19,010
|
|
Wealth management fees
|
9,240
|
|
|
6,150
|
|
|
5,191
|
|
Gains from other loan sales, net
|
5,420
|
|
|
6,867
|
|
|
9,277
|
|
Securities gains (losses), net
|
748
|
|
|
(1,021)
|
|
|
(656)
|
|
Other
|
32,213
|
|
|
28,775
|
|
|
24,142
|
|
Total noninterest income
|
156,109
|
|
|
104,713
|
|
|
92,961
|
|
Total revenue
|
577,434
|
|
|
560,957
|
|
|
522,211
|
|
Noninterest expenses:
|
|
|
|
|
|
Salaries and employee benefits
|
224,060
|
|
|
196,440
|
|
|
181,015
|
|
Occupancy
|
25,791
|
|
|
23,350
|
|
|
22,781
|
|
Communications and equipment
|
27,149
|
|
|
24,613
|
|
|
21,277
|
|
Professional fees
|
18,032
|
|
|
17,028
|
|
|
15,540
|
|
Lending and loan servicing expense
|
10,993
|
|
|
9,416
|
|
|
8,697
|
|
Outside services - electronic banking
|
7,513
|
|
|
7,020
|
|
|
6,623
|
|
Postage, printing and supplies
|
6,779
|
|
|
6,370
|
|
|
6,416
|
|
Advertising and public relations
|
15,203
|
|
|
6,170
|
|
|
5,991
|
|
FDIC assessments and other regulatory charges
|
5,982
|
|
|
4,901
|
|
|
8,491
|
|
Amortization of intangibles
|
4,168
|
|
|
4,938
|
|
|
6,846
|
|
Merger-related and other charges
|
7,018
|
|
|
6,907
|
|
|
5,414
|
|
Other
|
15,301
|
|
|
15,092
|
|
|
17,194
|
|
Total noninterest expenses
|
367,989
|
|
|
322,245
|
|
|
306,285
|
|
Income before income taxes
|
209,445
|
|
|
238,712
|
|
|
215,926
|
|
Income tax expense
|
45,356
|
|
|
52,991
|
|
|
49,815
|
|
Net income
|
$
|
164,089
|
|
|
$
|
185,721
|
|
|
$
|
166,111
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
$
|
159,269
|
|
|
$
|
184,346
|
|
|
$
|
164,927
|
|
|
|
|
|
|
|
Income per common share:
|
|
|
|
|
|
Basic
|
$
|
1.91
|
|
|
$
|
2.31
|
|
|
$
|
2.07
|
|
Diluted
|
1.91
|
|
|
2.31
|
|
|
2.07
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
83,184
|
|
|
79,700
|
|
|
79,662
|
|
Diluted
|
83,248
|
|
|
79,708
|
|
|
79,671
|
|
See accompanying notes to consolidated financial statements.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2020, 2019 and 2018
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Before-tax Amount
|
|
Tax (Expense) Benefit
|
|
Net of Tax Amount
|
|
Before-tax Amount
|
|
Tax (Expense) Benefit
|
|
Net of Tax Amount
|
|
Before-tax Amount
|
|
Tax (Expense) Benefit
|
|
Net of Tax Amount
|
Net income
|
$
|
209,445
|
|
|
$
|
(45,356)
|
|
|
$
|
164,089
|
|
|
$
|
238,712
|
|
|
$
|
(52,991)
|
|
|
$
|
185,721
|
|
|
$
|
215,926
|
|
|
$
|
(49,815)
|
|
|
$
|
166,111
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for- sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period
|
39,385
|
|
|
(9,514)
|
|
|
29,871
|
|
|
64,749
|
|
|
(15,696)
|
|
|
49,053
|
|
|
(24,990)
|
|
|
6,081
|
|
|
(18,909)
|
|
Reclassification adjustment for losses (gains) recognized in net income
|
(748)
|
|
|
191
|
|
|
(557)
|
|
|
1,021
|
|
|
(247)
|
|
|
774
|
|
|
656
|
|
|
(132)
|
|
|
524
|
|
Net unrealized gains (losses)
|
38,637
|
|
|
(9,323)
|
|
|
29,314
|
|
|
65,770
|
|
|
(15,943)
|
|
|
49,827
|
|
|
(24,334)
|
|
|
5,949
|
|
|
(18,385)
|
|
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity
|
723
|
|
|
(173)
|
|
|
550
|
|
|
383
|
|
|
(92)
|
|
|
291
|
|
|
739
|
|
|
(180)
|
|
|
559
|
|
Derivative instruments designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of losses included in net income on terminated derivative financial instruments previously accounted for as cash flow hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
337
|
|
|
(86)
|
|
|
251
|
|
|
499
|
|
|
(129)
|
|
|
370
|
|
Unrealized holding losses on derivatives arising during the period
|
(149)
|
|
|
38
|
|
|
(111)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification of losses on derivative instruments recognized in net income
|
359
|
|
|
(91)
|
|
|
268
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash flow hedge activity
|
210
|
|
|
(53)
|
|
|
157
|
|
|
337
|
|
|
(86)
|
|
|
251
|
|
|
499
|
|
|
(129)
|
|
|
370
|
|
Defined benefit pension plan activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of defined benefit pension plan
|
—
|
|
|
—
|
|
|
—
|
|
|
1,558
|
|
|
(398)
|
|
|
1,160
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amendments to defined benefit pension plans
|
—
|
|
|
—
|
|
|
—
|
|
|
(386)
|
|
|
99
|
|
|
(287)
|
|
|
(413)
|
|
|
105
|
|
|
(308)
|
|
Net actuarial (loss) gain on defined benefit pension plans
|
(1,804)
|
|
|
461
|
|
|
(1,343)
|
|
|
(2,390)
|
|
|
610
|
|
|
(1,780)
|
|
|
1,015
|
|
|
(259)
|
|
|
756
|
|
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plans
|
857
|
|
|
(219)
|
|
|
638
|
|
|
699
|
|
|
(178)
|
|
|
521
|
|
|
907
|
|
|
(247)
|
|
|
660
|
|
Net defined benefit pension plan activity
|
(947)
|
|
|
242
|
|
|
(705)
|
|
|
(519)
|
|
|
133
|
|
|
(386)
|
|
|
1,509
|
|
|
(401)
|
|
|
1,108
|
|
Total other comprehensive income (loss)
|
38,623
|
|
|
(9,307)
|
|
|
29,316
|
|
|
65,971
|
|
|
(15,988)
|
|
|
49,983
|
|
|
(21,587)
|
|
|
5,239
|
|
|
(16,348)
|
|
Comprehensive income
|
$
|
248,068
|
|
|
$
|
(54,663)
|
|
|
$
|
193,405
|
|
|
$
|
304,683
|
|
|
$
|
(68,979)
|
|
|
$
|
235,704
|
|
|
$
|
194,339
|
|
|
$
|
(44,576)
|
|
|
$
|
149,763
|
|
See accompanying notes to consolidated financial statements.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
For the Years Ended December 31, 2020, 2019 and 2018
(in thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
Preferred Stock
|
|
Common Stock
|
|
Common Stock Issuable
|
|
Capital Surplus
|
|
Retained Earnings (Accumulated Deficit)
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total
|
December 31, 2017
|
77,579,561
|
|
|
$
|
—
|
|
|
$
|
77,580
|
|
|
$
|
9,083
|
|
|
$
|
1,451,814
|
|
|
$
|
(209,902)
|
|
|
$
|
(25,241)
|
|
|
$
|
1,303,334
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
166,111
|
|
|
|
|
166,111
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,348)
|
|
|
(16,348)
|
|
Common stock issued for acquisitions
|
1,443,987
|
|
|
|
|
1,444
|
|
|
|
|
44,302
|
|
|
|
|
|
|
45,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends ($0.58 per share)
|
|
|
|
|
|
|
|
|
|
|
(46,628)
|
|
|
|
|
(46,628)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of equity-based compensation awards
|
137,067
|
|
|
|
|
137
|
|
|
1,931
|
|
|
2,143
|
|
|
|
|
|
|
4,211
|
|
Impact of other United sponsored equity plans
|
73,462
|
|
|
|
|
73
|
|
|
(270)
|
|
|
1,325
|
|
|
|
|
|
|
1,128
|
|
December 31, 2018
|
79,234,077
|
|
|
—
|
|
|
79,234
|
|
|
10,744
|
|
|
1,499,584
|
|
|
(90,419)
|
|
|
(41,589)
|
|
|
1,457,554
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
185,721
|
|
|
|
|
185,721
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
49,983
|
|
|
49,983
|
|
Purchases of common stock
|
(500,495)
|
|
|
|
|
(500)
|
|
|
|
|
(12,520)
|
|
|
|
|
|
|
(13,020)
|
|
Common stock dividends ($0.68 per share)
|
|
|
|
|
|
|
|
|
|
|
(54,601)
|
|
|
|
|
(54,601)
|
|
Impact of equity-based compensation awards
|
122,100
|
|
|
|
|
122
|
|
|
1,476
|
|
|
6,532
|
|
|
|
|
|
|
8,130
|
|
Impact of other United sponsored equity plans
|
158,047
|
|
|
|
|
158
|
|
|
(729)
|
|
|
3,045
|
|
|
|
|
|
|
2,474
|
|
Adoption of new accounting standard
|
|
|
|
|
|
|
|
|
|
|
(549)
|
|
|
|
|
(549)
|
|
December 31, 2019
|
79,013,729
|
|
|
—
|
|
|
79,014
|
|
|
11,491
|
|
|
1,496,641
|
|
|
40,152
|
|
|
8,394
|
|
|
1,635,692
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
164,089
|
|
|
|
|
164,089
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
29,316
|
|
|
29,316
|
|
Issuance of preferred stock
|
|
|
96,422
|
|
|
|
|
|
|
|
|
|
|
|
|
96,422
|
|
Common stock issued for acquisitions
|
8,130,633
|
|
|
|
|
8,131
|
|
|
|
|
155,458
|
|
|
|
|
|
|
163,589
|
|
Purchases of common stock
|
(826,482)
|
|
|
|
|
(827)
|
|
|
|
|
(19,955)
|
|
|
|
|
|
|
(20,782)
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
(3,533)
|
|
|
|
|
(3,533)
|
|
Common stock dividends ($0.72 per share)
|
|
|
|
|
|
|
|
|
|
|
(60,310)
|
|
|
|
|
(60,310)
|
|
Impact of equity-based compensation awards
|
202,437
|
|
|
|
|
202
|
|
|
1,120
|
|
|
4,764
|
|
|
|
|
|
|
6,086
|
|
Impact of other United sponsored equity plans
|
154,962
|
|
|
|
|
155
|
|
|
(1,756)
|
|
|
2,091
|
|
|
|
|
|
|
490
|
|
Adoption of new accounting standard
|
|
|
|
|
|
|
|
|
|
|
(3,529)
|
|
|
|
|
(3,529)
|
|
December 31, 2020
|
86,675,279
|
|
|
$
|
96,422
|
|
|
$
|
86,675
|
|
|
$
|
10,855
|
|
|
$
|
1,638,999
|
|
|
$
|
136,869
|
|
|
$
|
37,710
|
|
|
$
|
2,007,530
|
|
See accompanying notes to consolidated financial statements
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2020, 2019 and 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Operating activities:
|
|
|
|
|
|
Net income
|
$
|
164,089
|
|
|
$
|
185,721
|
|
|
$
|
166,111
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation, amortization and accretion
|
(8,586)
|
|
|
23,952
|
|
|
30,971
|
|
Provision for credit losses
|
80,434
|
|
|
13,150
|
|
|
9,500
|
|
Stock-based compensation
|
7,887
|
|
|
9,360
|
|
|
6,057
|
|
Deferred income tax expense
|
2,668
|
|
|
14,909
|
|
|
32,630
|
|
Securities (gains) losses, net
|
(748)
|
|
|
1,021
|
|
|
656
|
|
Gains from other loan sales, net
|
(5,420)
|
|
|
(6,867)
|
|
|
(9,277)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
(Increase) decrease in other assets and accrued interest receivable
|
(20,139)
|
|
|
(45,789)
|
|
|
13,195
|
|
(Decrease) increase in accrued expenses and other liabilities
|
(14,783)
|
|
|
(1,975)
|
|
|
3,772
|
|
(Increase) decrease in loans held for sale
|
(46,721)
|
|
|
(39,549)
|
|
|
16,391
|
|
Net cash provided by operating activities
|
158,681
|
|
|
153,933
|
|
|
270,006
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Debt securities held-to-maturity:
|
|
|
|
|
|
Proceeds from maturities and calls
|
57,981
|
|
|
50,379
|
|
|
58,605
|
|
Purchases
|
(157,465)
|
|
|
(59,629)
|
|
|
(11,983)
|
|
Debt securities available-for-sale and equity securities with readily determinable fair values:
|
|
|
|
|
|
Proceeds from sales
|
40,625
|
|
|
352,106
|
|
|
168,891
|
|
Proceeds from maturities and calls
|
834,725
|
|
|
349,758
|
|
|
346,505
|
|
Purchases
|
(1,456,311)
|
|
|
(294,245)
|
|
|
(566,333)
|
|
Net increase in loans
|
(1,069,089)
|
|
|
(205,612)
|
|
|
(291,890)
|
|
|
|
|
|
|
|
Net cash received in (paid for) acquisitions
|
195,699
|
|
|
(19,545)
|
|
|
(56,800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of premises and equipment
|
(18,462)
|
|
|
(20,944)
|
|
|
(17,617)
|
|
Proceeds from sales of premises and equipment
|
903
|
|
|
6,595
|
|
|
6,483
|
|
Proceeds from sale of other real estate owned
|
1,074
|
|
|
2,439
|
|
|
4,664
|
|
Other investing activities, net
|
(10,243)
|
|
|
1,916
|
|
|
—
|
|
Net cash (used in) provided by investing activities
|
(1,580,563)
|
|
|
163,218
|
|
|
(359,475)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
Net increase in deposits
|
2,534,471
|
|
|
151,401
|
|
|
727,839
|
|
Net decrease in short-term borrowings
|
—
|
|
|
—
|
|
|
(264,923)
|
|
Proceeds from Federal Home Loan Bank advances
|
5,000
|
|
|
1,625,000
|
|
|
2,860,000
|
|
Repayment of Federal Home Loan Bank advances
|
(134,121)
|
|
|
(1,785,000)
|
|
|
(3,204,003)
|
|
Repayment of long-term debt
|
—
|
|
|
(55,266)
|
|
|
(71,831)
|
|
Proceeds from issuance of long-term debt, net of issuance costs
|
98,552
|
|
|
—
|
|
|
98,188
|
|
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans
|
1,317
|
|
|
2,193
|
|
|
679
|
|
Proceeds from exercise of stock options
|
—
|
|
|
212
|
|
|
142
|
|
Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock units
|
(3,119)
|
|
|
(1,686)
|
|
|
(1,998)
|
|
Repurchase of common stock
|
(20,782)
|
|
|
(13,020)
|
|
|
—
|
|
Proceeds from issuance of Series I preferred stock, net of issuance costs
|
96,422
|
|
|
—
|
|
|
—
|
|
Cash dividends on common stock
|
(58,912)
|
|
|
(53,044)
|
|
|
(41,634)
|
|
Cash dividends on preferred stock
|
(3,533)
|
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
2,515,295
|
|
|
(129,210)
|
|
|
102,459
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents, including restricted cash
|
1,093,413
|
|
|
187,941
|
|
|
12,990
|
|
Cash and cash equivalents, including restricted cash, at beginning of year
|
515,206
|
|
|
327,265
|
|
|
314,275
|
|
Cash and cash equivalents, including restricted cash, at end of year
|
$
|
1,608,619
|
|
|
$
|
515,206
|
|
|
$
|
327,265
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
Interest
|
$
|
59,967
|
|
|
$
|
85,973
|
|
|
$
|
56,830
|
|
Income taxes
|
36,536
|
|
|
33,776
|
|
|
7,880
|
|
See accompanying notes to consolidated financial statements.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
See the Glossary of Defined Terms at the beginning of this Report for terms used herein. The accounting principles followed by United and the methods of applying these principles conform with GAAP and with general practices within the banking industry. The following is a description of the significant policies.
Organization and Basis of Presentation
The Holding Company is a bank holding company subject to the regulation of the Board of Governors of the Federal Reserve whose principal business is conducted by its wholly-owned commercial bank subsidiary, United Community Bank (the “Bank”). United is subject to regulation under the BHC Act. The consolidated financial statements include the accounts of the Holding Company, the Bank and other wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Bank is a Georgia state chartered commercial bank that serves both rural and metropolitan markets in Georgia, South Carolina, North Carolina, Tennessee and Florida and provides a full range of banking services. The Bank is insured and subject to the regulation of the FDIC and is also subject to the regulation of the GADBF.
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheet and revenue and expenses for the years then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change are the determination of the ACL, the valuation of acquired loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of goodwill and separately identifiable intangible assets associated with mergers and acquisitions, and the valuation of deferred tax assets.
Operating Segments
Operating segments are components of a business about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. Public companies are required to report certain financial information about operating segments in interim and annual financial statements. United’s community banking operations are divided among geographic regions and local community banks within those regions. Those regions and banks have similar economic characteristics and are therefore considered to be one operating segment.
Additionally, management assessed other operating units to determine if they should be classified and reported as segments, including Mortgage, Wealth Management and Commercial Banking Solutions. Qualitatively, these business units are primarily operating in the same geographic footprint as the community banks and face many of the same customers as the community banks. While the chief operating decision maker does have some limited production information for these entities, that information is not complete since it does not include a full allocation of revenue, costs and capital from key corporate functions. The business units are currently viewed more as a product line extension of the community banks. However, management will continue to evaluate these business units for separate reporting as facts and circumstances change.
Based on this analysis, United concluded that it has one operating and reportable segment.
Cash and Cash Equivalents
Cash equivalents include amounts due from banks, interest-bearing deposits in banks, federal funds sold, commercial paper, reverse repurchase agreements and short-term investments and are carried at cost. Federal funds are generally sold for one-day periods, interest-bearing deposits in banks are available on demand and commercial paper investments and reverse repurchase agreements mature within a period of less than 90 days. A portion of the cash on hand and on deposit with the Federal Reserve Bank of Atlanta was required to meet regulatory reserve requirements.
Investment Securities
Debt Securities: Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they may be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are generally amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains or losses associated with transfers of securities from available-for-sale to held-to-maturity are included in the balance of AOCI in the consolidated balance sheets. These unrealized holding gains or losses are amortized/accreted into income over the remaining life of the security as an adjustment to the yield in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.
ACL - Held-to-Maturity Securities: Since the adoption of ASC 326, management measures current expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities totaled $1.78 million at December 31, 2020 and was excluded from the estimate of credit losses.
The estimate of current expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-maturity portfolio into the following major security types: U.S. Government agencies and GSEs, state and political subdivisions, residential mortgage-backed, agency and GSEs and commercial mortgage-backed, agency and GSEs.
All of the residential and commercial mortgage-backed securities held by United as held-to-maturity are issued by U.S. Government agencies and GSEs. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The state and political subdivision securities are highly rated by major rating agencies.
ACL - Available-For-Sale Securities: For available-for-sale debt securities in an unrealized loss position, United first assesses whether it intends to sell, or whether it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, United evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Since the adoption of ASC 326, if the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income.
Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable on available-for-sale debt securities totaled $9.11 million at December 31, 2020 and was excluded from the estimate of credit losses.
Equity securities: Equity securities are included in other assets on the consolidated balance sheets. Those with readily determinable fair values are carried at fair value with changes in fair value recognized in net income. Those without readily determinable fair values include, among others, FHLB stock held to meet FHLB requirements related to outstanding advances and CRA equity investments, including those where the returns are primarily derived from LIHTC. Our investment in FHLB stock, which totaled $13.3 million at December 31, 2020, is accounted for using the cost method of accounting. Our LIHTC investments are accounted for using the proportional amortization method of accounting for qualified affordable housing investments which
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
results in the amortization being reported as a component of income tax expense. Our obligations related to unfunded commitments for our LIHTC investments are reported in other liabilities. Our other CRA investments are accounted for using the equity method of accounting. As conditions warrant, we review our investments for impairment and will adjust the carrying value of the investment if it is deemed to be impaired.
Loans Held for Sale
United has elected the fair value option for mortgage loans held for sale in order to reduce certain timing differences and match changes in fair values of the loans with changes in the fair value of derivative instruments used to economically hedge them.
Loans and Leases
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $35.5 million at December 31, 2020 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.
Equipment Financing Lease Receivables: Equipment financing lease receivables, which are classified as sales-type or direct financing leases, are recorded as the sum of the future minimum lease payments, initial deferred costs and, if applicable, estimated or contractual residual values less unearned income and security deposits. For lease receivables with a residual value, the determination of such value is derived from a variety of sources including equipment valuation services, appraisals, and publicly available market data on recent sales transactions on similar equipment. The length of time until contract termination, the cyclical nature of equipment values and the limited marketplace for re-sale of certain leased assets are important variables considered in making this determination. Interest income, which is included in loan interest revenue in the consolidated statements of income, is recognized as earned using the effective interest method. Direct fees and costs associated with the origination of leases are deferred and included as a component of equipment financing receivables. Net deferred fees or costs are recognized as an adjustment to interest income over the contractual life of the lease using the effective interest method. These lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term. United excludes sales taxes from consideration in these lease contracts.
PCD Loans (CECL): In acquisitions, United may acquire loans, some of which have experienced more than insignificant credit deterioration since origination. In those cases, United will consider internal loan grades, delinquency status and other relevant factors in assessing whether purchased loans are PCD. PCD loans are recorded at their fair value at the acquisition date. An initial ACL is determined using the same methodology as other loans held for investment and recognized as an adjustment to the acquisition price of the asset; thus, the sum of the loan's purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent to initial recognition, PCD loans are subject to the same interest income recognition and impairment model as non-PCD loans, with changes to the ACL recorded through provision expense.
Upon adoption of ASC 326, loans that were designated as PCI loans under the Incurred Loss guidance were classified as PCD loans without reassessment.
PCI Loans (Incurred Loss): Prior to the adoption of ASC 326 on January 1, 2020, purchased loans with evidence of credit deterioration since origination were accounted for pursuant to ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These PCI loans were recorded at their estimated fair value at date of purchase. After acquisition, further losses evidenced by decreases in expected cash flows were recognized by an increase in the ACL.
PCI loans were aggregated into pools of loans based on common risk characteristics such as the type of loan, payment status, or collateral type. United estimated the amount and timing of expected cash flows for each purchased loan pool and the expected cash flows in excess of the amount paid were recorded as interest income over the remaining life of the pool (accretable yield). The excess of the pool’s contractual principal and interest over expected cash flows was not recorded (nonaccretable difference).
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
Over the life of the loan pool, expected cash flows continued to be estimated. If the present value of expected cash flows was less than the carrying amount, a loss was recorded. If the present value of expected cash flows was greater than the carrying amount, it was recognized as part of future interest revenue.
Nonaccrual Loans: The accrual of interest is generally discontinued when a loan becomes 90 days past due or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectable in the normal course of business. A loan may continue to accrue interest after 90 days if it is well collateralized and in the process of collection. Past due status is based on contractual terms of the loan. During 2020, United granted loan payment deferrals in accordance with the CARES Act and interagency guidance for certain borrowers experiencing temporary cash flow shortages as a result of the COVID-19 pandemic. During the temporary payment deferral period, these loans are not considered past due.
All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance and future payments are reasonably assured.
TDRs: A loan for which the terms have been modified resulting in a more than insignificant concession, and for which the borrower is experiencing financial difficulties, is generally considered to be a TDR. Modified terms that result in a TDR include one or a combination of the following: a reduction of the stated interest rate of the loan, 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” in which 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.
Collateral dependent TDRs that subsequently default or are placed on nonaccrual are charged down to the fair value of the collateral consistent with United’s policy for nonaccrual loans.
As discussed in Note 2, in accordance with the CARES Act, United implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. These loan modifications were not considered TDRs to the extent that the borrower was impacted by the COVID-19 pandemic and was not more than 30 days past due at December 31, 2019, or in certain circumstances, at the time that the COVID-19 loan modification program was implemented, unless the loan was previously classified as a TDR.
Impaired Loans (Incurred Loss): With the exception of PCI loans, a loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due, according to the contractual terms of the loan, will not be collected. Individually impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Interest revenue on impaired loans is discontinued when the loans meet the criteria for nonaccrual status. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
PCI loans are considered to be impaired when it is probable that United will be unable to collect all the cash flows expected at acquisition, plus additional cash flows expected to be collected arising from changes in estimates after acquisition. Loans that are accounted for in pools are evaluated collectively for impairment on a pool by pool basis based on expected pool cash flows. Discounts continue to be accreted as long as there are expected future cash flows in excess of the current carrying amount of the specifically-reviewed loan or pool.
Prior to the implementation of CECL, management individually evaluated certain impaired loans on a quarterly basis, including all non-PCI nonaccrual relationships with a balance of $500,000 or greater and all TDRs for impairment. Impairment for
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
collateral dependent loans within this population is measured based on the fair value of the collateral. If impairment is identified, the loan is generally charged down to the fair value of the underlying collateral, less selling costs. Impairment for non-collateral dependent TDRs within this population is measured based on discounted cash flows or the loan’s observable market price. Impairment identified using these methods would result in the establishment of a specific reserve.
Concentration of Credit Risk: Most of United’s business activity is with customers located within the markets where it has banking operations. Therefore, United’s exposure to credit risk is significantly affected by changes in the economy within its markets. Approximately 69% of United’s loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.
ACL- Loans
United implemented CECL upon adoption of ASC 326 on January 1, 2020. The following discussion provides a description of the methodology applied to calculate the ACL under CECL for 2020 and under the Incurred Loss method for periods prior to 2020.
CECL: The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the uncollectability of a loan balance is confirmed. Accrued interest receivable is excluded from the estimate of credit losses.
Management determines the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit behaviors along with model judgments provide the basis for the estimation of expected credit losses. Adjustments to modeled loss estimates may be made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in economic conditions, property values, or other relevant factors.
The ACL-loans is measured on a collective basis when similar risk characteristics exist. United has identified the following portfolio segments and calculates the ACL for each using a discounted cash flow methodology at the loan level, with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type:
Owner occupied commercial real estate - Loans in this category are susceptible to business failure and general economic conditions.
Income producing commercial real estate - Common risks for this loan category are declines in general economic conditions, declines in real estate value, declines in occupancy rates, and lack of suitable alternative use for the property.
Commercial & industrial - Risks to this loan category include the inability to monitor the condition of the collateral, which often consists of inventory, accounts receivable and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt.
Commercial construction - Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements and declines in real estate values.
Equipment financing - Risks associated with equipment financing are similar to those described for commercial and industrial loans, including general economic conditions, as well as appropriate lien priority on equipment, equipment obsolescence and the general mobility of the collateral.
Residential mortgage - Residential mortgage loans are susceptible to weakening general economic conditions, increases in unemployment rates and declining real estate values.
Home equity lines of credit - Risks common to home equity lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values that reduce or eliminate the borrower’s home equity.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
Residential construction - Residential construction loans are susceptible to the same risks as residential mortgage loans. Changes in market demand for property lead to longer marketing times resulting in higher carrying costs and declining values.
Consumer - Risks common to consumer direct loans include unemployment and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property.
Indirect auto - Risks common to indirect auto loans include unemployment and changes in local economic conditions as well as the inability to monitor collateral. During 2019, United sold its portfolio of indirect auto loans.
When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
When the discounted cash flow method is used to determine the ACL, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments. The ACL on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.
Determining the Contractual Term: Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by United.
Incurred Loss ACL: Under the Incurred Loss method, the ACL represents an amount, which, in management’s judgment, is adequate to absorb probable losses on existing loans as of the date of the balance sheet. The Incurred Loss ACL is composed of general reserves, specific reserves, and PCI reserves. General reserves are determined by applying loss percentages to the individual loan categories that are based on actual historical loss experience. Additionally, the general economic and business conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, the findings of internal and external credit reviews and results from external bank regulatory examinations are considered in this evaluation. The need for specific reserves was evaluated on nonaccrual loan relationships greater than $500,000 and all TDRs. The specific reserves were determined on a loan-by-loan basis based on management’s evaluation of United’s exposure for each credit, given the current payment status of the loan and the value of any underlying collateral. Loans for which specific reserves are provided are excluded from the calculation of general reserves. For PCI loans, a valuation allowance is established when it is probable that the Company will be unable to collect all the cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition.
ACL - Off-Balance Sheet Credit Exposures
Management estimates expected credit losses on commitments to extend credit over the contractual period during which United is exposed to credit risk on the underlying commitments. The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The ACL is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily using the straight line method over the estimated useful lives of the related assets. Costs incurred for maintenance and repairs are expensed as incurred. The range of estimated useful lives for buildings and improvements is 10 to 40 years, for land improvements, 10 years, and for furniture and equipment, 3 to 10 years. United periodically reviews the carrying value of premises and equipment for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
Foreclosed Properties (Other Real Estate Owned)
Foreclosed property is initially recorded at fair value, less cost to sell. If the fair value, less cost to sell at the time of foreclosure is less than the loan balance, the deficiency is recorded as a loan charge-off against the ACL. 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.
Goodwill and Other Intangible Assets
Goodwill is an asset representing the future economic benefits from other assets acquired that are not individually identified and separately recognized. Goodwill is measured as the excess of the consideration transferred, net of the fair value of identifiable assets acquired and liabilities assumed at the acquisition date. Goodwill is not amortized, but instead is tested for impairment annually or more frequently if events or circumstances exist that indicate a goodwill impairment test should be performed.
Other intangible assets, which are initially recorded at fair value, consist of core deposit intangible assets and noncompete agreements resulting from acquisitions. Core deposit intangible assets are amortized on a sum-of-the-years-digits basis over their estimated useful lives. Noncompete agreements, which were fully amortized at December 31, 2019, were amortized on a straight line basis over their estimated useful lives.
Management evaluates other intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from United, the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets and United does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.
Servicing Rights
United records a separate servicing asset for SBA loans, USDA loans, and residential mortgage loans when the loan is sold but servicing is retained. This asset represents the right to service the loans and receive a fee in compensation. Servicing assets are initially recorded at their fair value as a component of the sale proceeds. The fair value of the servicing assets is based on an analysis of discounted cash flows that incorporates estimates of (1) market servicing costs, (2) market-based prepayment rates, and (3) market profit margins. Servicing assets are included in other assets.
United has elected to subsequently measure the servicing assets for government guaranteed loans and residential mortgage loans at fair value. The rate of prepayment of loans serviced is the most significant estimate involved in the measurement process. Estimates of prepayment rates are based on market expectations of future prepayment rates, industry trends, and other considerations. Actual prepayment rates will differ from those projected by management due to changes in a variety of economic factors, including prevailing interest rates and the availability of alternative financing sources to borrowers. If actual prepayments of the loans being serviced were to occur more quickly than projected, the carrying value of servicing assets might have to be written down through a charge to earnings in the current period. If actual prepayments of the loans being serviced were to occur more slowly than had been projected, the carrying value of servicing assets could increase, and servicing income would exceed previously projected amounts.
United accounts for the servicing liabilities associated with sold equipment financing loans using the amortization method. Servicing liabilities are included in accrued expenses and other liabilities.
BOLI
United has purchased life insurance policies on certain key executives and members of management. United has also received life insurance policies on members of acquired bank management teams through acquisitions of other banks. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other changes or other amounts due that are probable at settlement.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
Operating Leases
Effective January 1, 2019, United records a right-of-use asset, included in other assets, and a related lease liability, included in other liabilities, for eligible operating leases for which it is the lessee, which include leases for land, buildings, and equipment. Payments related to these leases consist primarily of base rent and, in the case of building leases, additional operating costs associated with the leased property such as common area maintenance and utilities. In most cases these operating costs vary over the term of the lease, and therefore are classified as variable lease costs, which are recognized as incurred in the consolidated statement of income. In addition, certain operating leases include costs such as property taxes and insurance, which are recognized as incurred in the consolidated statement of income. Many of United’s operating leases contain renewal options, which are included in the measurement of the right-of-use asset and lease liability only to the extent they are reasonably certain to be exercised. United also subleases and leases certain real estate properties to third parties under operating leases. United does not recognize a lease liability or right-of-use asset on the consolidated balance sheet related to short-term leases with a term of less than one year. Lease payments for short-term leases are recognized as expense over the lease term.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The face amount for these items represents the exposure to loss before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Revenue from Contracts with Customers
In addition to lending and related activities, United offers various services to customers that generate revenue, certain of which are governed by ASC Topic 606 Revenue from Contracts with Customers. United’s services that fall within the scope of this topic are presented within noninterest income and include service charges and fees, wealth management fees, and other transaction-based fees. Revenue is recognized when the transactions occur or as services are performed over primarily monthly or quarterly periods. Payment is typically received in the period the transactions occur. Fees may be fixed or, where applicable, based on a percentage of transaction size.
Income Taxes
DTAs and DTLs are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. DTAs and DTLs are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect of a change in tax rates on DTAs and DTLs is recognized in income taxes during the period that includes the enactment date.
In the event the future tax consequences of differences between the financial reporting bases and the tax bases of assets and liabilities results in DTAs, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the DTA when it is more likely than not that some or all of the DTA will not be realized. In assessing the realizability of the DTAs, management considers the scheduled reversals of DTLs, projected future taxable earnings and prudent and feasible tax planning strategies. Management weighs both the positive and negative evidence, giving more weight to evidence that can be objectively verified.
The income tax benefit or expense is the total of the current year income tax due or refundable and the change in DTAs and DTLs.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
United recognizes interest and / or penalties related to income tax matters in income tax expense.
Derivative Instruments and Hedging Activities
United’s interest rate risk management strategy incorporates the use of derivative instruments to minimize fluctuations in net income that are caused by interest rate volatility. The objective is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that net interest revenue and certain interest sensitive components of noninterest revenue are not, on a material basis, adversely affected by movements in interest rates. United views
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
this strategy as a prudent management of interest rate risk, such that net income is not exposed to undue risk presented by changes in interest rates. In carrying out this part of its interest rate risk management strategy, management uses derivatives, primarily interest rate swaps. Interest rate swaps generally involve the exchange of fixed- and variable-rate interest payments between two parties, based on a common notional principal amount and maturity date. United has also occasionally used interest rate caps to serve as an economic macro hedge of exposure to rising interest rates.
United originates certain residential mortgage loans with the intention of selling these loans. Between the time United enters into an interest-rate lock commitment to originate a residential mortgage loan that is to be held for sale and the time the loan is funded and eventually sold, the Company is subject to the risk of variability in market prices. United enters into forward sale agreements to mitigate risk and to protect the expected gain on the eventual loan sale. The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments which are entered into as part of an economic hedging strategy to manage exposure related to mortgage loans held for sale.
To accommodate customers, United enters into interest rate swaps or caps with certain commercial loan customers, with offsetting positions to dealers under a back-to-back swap/cap program. In addition, United occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. This allows customers to execute an interest rate swap with one bank while allowing for the distribution of the credit risk among participating members. Credit risk participation agreements arise when United contracts with other financial institutions, as a guarantor, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. These transactions are typically executed in conjunction with a participation in a loan with the same customer. Collateral used to support the credit risk for the underlying lending relationship is also available to offset the risk of the credit risk participation.
United classifies its derivative financial instruments as either (1) a hedge of an exposure to changes in the fair value of a recorded asset or liability (“fair value hedge”), (2) a hedge of an exposure to changes in the cash flows of a recognized asset, liability or forecasted transaction (“cash flow hedge”), or (3) derivatives not designated as accounting hedges. Changes in the fair value of derivatives not designated as hedges are recognized in current period earnings. United has master netting agreements with the derivatives dealers with which it does business, but reflects gross assets and liabilities at fair value on the consolidated balance sheets.
United assesses hedge effectiveness at inception and over the life of the hedge. Management documents, at inception, its analysis of actual and expected hedge effectiveness. This analysis includes techniques such as regression analysis and hypothetical derivatives to demonstrate that the hedge is expected to be highly effective in offsetting corresponding changes in the fair value or cash flows of the hedged item. At least quarterly thereafter, the terms of the hedging instrument and the hedged item are assessed to determine whether a material change has occurred relating to the hedge relationship. If it is determined that a change has occurred, a quantitative analysis as described will occur to determine whether the hedge is expected to be highly effective in offsetting future corresponding changes in the fair value or cash flows of the hedged item. For a qualifying fair value hedge, the changes in the value of derivatives are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged. For a qualifying cash flow hedge, the changes in the fair value of the derivatives that have been highly effective are recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings.
For fair value hedges and cash flow hedges, ineffectiveness is recognized in the same income statement line as interest accruals on the hedged item to the extent that changes in the value of the derivative instruments do not perfectly offset changes in the value of the hedged items. If the hedge ceases to be highly effective, United discontinues hedge accounting and recognizes the changes in fair value in current period earnings. If a derivative that qualifies as a fair value or cash flow hedge is terminated or the designation removed, the realized or then unrealized gain or loss is recognized into income over the life of the hedged item (fair value hedge) or over the time when the hedged item was forecasted to impact earnings (cash flow hedge). Immediate recognition in earnings is required upon sale or extinguishment of the hedged item (fair value hedge) or if it is probable that the hedged cash flows will not occur (cash flow hedge).
By using derivative instruments, United is exposed to credit and market risk. If the counterparty fails to perform, credit risk is represented by the fair value gain in a derivative. When the fair value of a derivative contract is positive, this situation generally indicates that the counterparty is obligated to pay United, and, therefore, creates a repayment risk for United. When the fair value of a derivative contract is negative, United is obligated to pay the counterparty and, therefore, has no repayment risk. United minimizes the credit risk in non-customer derivative instruments by entering into transactions with high-quality counterparties
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
that are reviewed periodically by management. United also requires non-customer counterparties to pledge cash as collateral to cover the net exposure. All new non-customer derivatives that can be cleared are cleared through a central clearinghouse, which reduces counterparty exposure.
Derivative activities are monitored by the ALCO as part its oversight of asset/liability and treasury functions. The ALCO is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into the overall interest-rate risk management process.
Acquisition Activities
United accounts for business combinations under the acquisition method of accounting. Assets acquired and liabilities assumed are measured and recorded at fair value at the date of acquisition, including identifiable intangible assets. If the fair value of net assets purchased exceeds the fair value of consideration paid, a bargain purchase gain is recognized at the date of acquisition. Conversely, if the consideration paid exceeds the fair value of the net assets acquired, goodwill is recognized at the acquisition date. Fair values 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.
Fair values for acquired loans are generally based on a discounted cash flow methodology that considers credit loss expectations, market interest rates and other market factors such as liquidity from the perspective of a market participant. Loans are grouped together according to similar characteristics and are generally treated in the aggregate when applying various valuation techniques. The probability of default, loss given default and prepayment assumptions are the key factors driving credit losses which are embedded into the estimated cash flows. These assumptions are informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The interest and liquidity component of the estimate is determined by discounting interest and principal cash flows through the expected life of each loan. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. For additional information about the accounting for purchased loans see PCD Loans (CECL) under the Loans and Leases section of this footnote.
All identifiable intangible assets that are acquired in a business combination are recognized at fair value on the acquisition date. Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e., capable of being sold, transferred, licensed, rented, or exchanged separately from the entity). Deposit liabilities and the related depositor relationship intangible assets may be exchanged in observable exchange transactions. As a result, the depositor relationship intangible asset is considered identifiable, because the separability criterion has been met.
Earnings Per Common Share
Basic earnings per common share is net income available to common shareholders divided by the weighted average number of shares of common stock outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Additionally, shares issuable to participants in United’s deferred compensation plan are considered to be participating securities for purposes of calculating basic earnings per share. Accordingly, net income available to common shareholders is calculated pursuant to the two-class method, whereby net income after subtracting preferred stock dividends is allocated between common shareholders and participating securities. Diluted earnings per common share includes the dilutive effect of additional potential shares of common stock issuable under stock options, unvested restricted stock units without nonforfeitable rights to dividends, warrants and securities convertible into common stock.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements.
Dividend Restrictions
Banking regulations require maintaining certain capital levels and may limit dividends paid by the Bank to the Holding Company or by the Holding Company to shareholders. The Board may declare dividends from the Bank to the Holding Company out of retained earnings of up to fifty percent of the Bank’s net income from the previous year without notifying or seeking approval
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
from the GADBF as long as total classified assets do not exceed 80% of tier 1 capital and the tier 1 risk based capital ratio is not less than 6%. Dividends paid by the Bank to the Holding Company in excess of that amount require pre-approval of the GADBF.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions as more fully disclosed in Note 14. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
Stock-Based Compensation
United uses the fair value method of recognizing expense for stock-based compensation based on the fair value of option and restricted stock unit awards at the date of grant. United accounts for forfeitures as they occur.
(2) Accounting Standards Updates and Recently Adopted Standards
Recently Adopted Standards
On January 1, 2020, United adopted ASC 326, which replaced the Incurred Loss framework in prior GAAP with a CECL framework. The CECL framework requires an estimate of expected credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an ACL. PCD loans will receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings. Credit losses relating to available-for-sale debt securities will be recorded through an ACL prospectively, with such allowance limited to the amount by which fair value is below amortized cost.
United adopted ASC 326 as of January 1, 2020 using the modified retrospective method for loans, leases and off-balance sheet credit exposures. Adoption of this guidance resulted in an $8.75 million increase in the ACL, comprised of increases in the ACL for loans of $6.88 million and the ACL for unfunded commitments of $1.87 million, with $3.59 million of the increase reclassified from the amortized cost basis of PCD financial assets. The cumulative effect adjustment to retained earnings was $3.53 million, net of tax. Calculated credit losses on held-to-maturity debt securities were not material and there was no impact to the available-for-sale securities portfolio or other financial instruments. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with Incurred Loss.
The ACL for the majority of loans and leases was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a two-year straight-line reversion period. In connection with the adoption, management has implemented changes to relevant systems, processes and controls where necessary. United’s CECL allowance will fluctuate over time due to macroeconomic conditions and forecasts as well as the size and composition of the loan portfolios. United has adopted the relief provided by federal banking regulatory agencies for the delay of the adverse capital impact of CECL at adoption and during the subsequent two-year period following adoption. This optional two-year delay is followed by an optional three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. Under the transition provision, the amount of aggregate capital benefit is phased out by 25% each year with the full impact of adoption completely recognized by the beginning of the sixth year.
United adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as PCI. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. As mentioned above, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $3.59 million to the ACL. The remaining noncredit discount (based on the adjusted amortized cost basis) is being accreted into interest income at a rate that approximates the effective interest rate beginning on January 1, 2020.
With regard to PCD assets, because United elected to disaggregate the former PCI pools and no longer considers these pools to be the unit of account, contractually delinquent PCD loans are now being reported as nonaccrual loans using the same criteria as other loans. Similarly, although management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption, PCD loans that are restructured and meet the definition of TDR after the adoption of ASC 326 are being reported as such.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Accounting Standards Updates and Recently Adopted Standards, continued
In addition to the aforementioned elections, United made the following elections at adoption:
•not to measure an ACL for accrued interest receivable and instead elected to reverse interest income on those loans that are 90 days past due;
•to exclude accrued interest receivable from the amortized cost basis of financial instruments subject to ASC 326 and to separately state the balance of accrued interest receivable on the consolidated balance sheet;
•to adjust the discount rate used to calculate credit losses for expected prepayments and is including all changes in discounted cash flows as credit loss; and
•as a practical expedient, elected to use the fair value of collateral when determining the ACL for loans if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty (collateral-dependent loans).
On March 27, 2020, the CARES Act was signed into law, with certain relief extended in December 2020 by the Consolidated Appropriations Act, 2021. Additional COVID-19 pandemic relief was granted by the bank regulatory agencies through a series of interagency statements issued during 2020. The CARES Act, as extended, and the interagency statements include a number of provisions that were applicable to United, including the following:
•Accounting Relief for TDRs: The CARES Act provides that modifications under certain forbearance conditions for loans that were not more than 30 days past due at December 31, 2019 will not be considered TDRs for regulatory reporting and GAAP. This exemption period ends on the earlier of January 1, 2022 or the date that is 60 days after the termination date of the national emergency. The interagency statements provide additional relief from TDR status for certain short-term deferrals related to the COVID-19 pandemic for borrowers that were current at the time a modification program was implemented or at the time of the modification itself.
•Optional Delay and Regulatory Relief for ASC 326 Adoption: The CARES Act stipulates that large SEC filers have the option of delaying the adoption of ASC 326 from January 1, 2020 to the earlier of the end of the COVID-19 emergency period or December 31, 2020. Banks that were required to implement ASC 326 by the end of 2020 were granted the option to defer any impact on regulatory capital for two years before beginning the original three-year regulatory phase-in period, for a total five-year phase-in period. Although United did not elect to delay the adoption of ASC 326, the Company elected the five-year phase-in period for regulatory capital purposes, as discussed above.
•PPP: The CARES Act creates the PPP through the SBA, which allowed United to lend money to small businesses to maintain employee payrolls and pay other qualified expenses during the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the proceeds are used for payroll and other permitted expenses in accordance with the requirements of the PPP.
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This update clarified certain minor issues within the codification, including, among other things, debt securities disclosure for financial institutions and determination of the contractual term of a net investment in a lease. The standard was effective immediately, and did not have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update, the scope of which was clarified with ASU No. 2021-01 in January of 2021, provides expedients for contracts that are modified because of reference rate reform, including receivables, debt, leases, and certain derivatives. In addition, the update provides a one-time election to sell or transfer debt securities classified as held-to-maturity that reference a rate that is affected by reference rate reform. The update is effective as of March 12, 2020 through December 31, 2022. At the time of adoption, there was no material impact on the consolidated financial statements, although United anticipates optional expedients adopted such as contract modification and hedge accounting will provide relief otherwise not provided through December 31, 2022.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments. In addition to amending guidance related to the new CECL standard, this update clarifies certain aspects of hedge accounting and recognition and measurement of financial instruments. United adopted this update as of January 1, 2020, with no material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update eliminates Step 2 from the goodwill impairment test, which required an entity to calculate the
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Accounting Standards Updates and Recently Adopted Standards, continued
implied fair value of goodwill by valuing a reporting unit’s assets and liabilities using the same process that would be required to value assets and liabilities in a business combination. Instead, the amendments require that an entity perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. United adopted this update as of January 1, 2020, with no material impact on the consolidated financial statements.
Accounting Standards Updates Not Yet Adopted as of December 31, 2020
In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. In addition to consolidating existing disclosure guidance into a single codification section to reduce the likelihood of a required disclosure being missed, this update clarifies the application of select guidance in cases where the original guidance may have been unclear. Adoption of this update, which is effective for United as of January 1, 2021, is not expected to have a material impact on the consolidated financial statements.
In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. This update clarifies that an entity should reevaluate whether a callable debt security meets the criteria to adjust the amortization period of any related premium at each reporting period. Adoption of this update, which is effective for United as of January 1, 2021, is not expected to have a material impact on the consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force). This update clarifies whether an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative and how to account for certain forward contracts and purchased options to purchase securities. For public entities, this guidance is effective for fiscal years beginning after December 15, 2020. United does not expect the new guidance to have a material impact on the consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update removes several exceptions related to intraperiod tax allocation when there is a loss from continuing operations and income from other items, foreign subsidiaries becoming equity method investments and vice versa, and calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The guidance also amends requirements related to franchise tax that is partially based on income, a step up in the tax basis of goodwill, allocation of consolidated tax expense to a legal entity not subject to tax in its separate financial statements, the effects of enacted changes in tax laws and other minor codification improvements regarding employee stock ownership plans and investments in qualified affordable housing projects. For public entities, this guidance is effective for fiscal years beginning after December 15, 2020. United does not expect the new guidance to have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The update removes disclosures that are no longer considered cost beneficial, clarifies specific requirements of disclosures, and adds disclosure requirements identified as relevant. For public entities, this guidance is effective for fiscal years ending after December 15, 2020 and requires retrospective application to prior periods presented. United does not expect the new guidance to have a material impact on the consolidated financial statements.
(3) Mergers and Acquisitions
Acquisition of Three Shores
On July 1, 2020, United completed the acquisition of Three Shores, including its wholly-owned subsidiary, Seaside, headquartered in Orlando, Florida. Seaside operated a 14-branch network located in key Florida metropolitan markets. In connection with the acquisition, United acquired $2.13 billion of assets and assumed $1.99 billion of liabilities. Under the terms of the merger agreement, Three Shores shareholders received $188 million in total consideration, of which $164 million was United common stock and $24.1 million was cash. United issued 8.13 million shares of common stock to Three Shores shareholders in the acquisition. 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 $40.4 million, representing the intangible value of Three Shores’ business and reputation within the markets it served. None of the goodwill is expected to be deductible for income tax purposes. United will amortize the related core deposit intangible of $3.36 million using the sum-of-the-years-digits method over 10 years, which represents the expected useful life of the asset.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Mergers and Acquisitions, continued
United’s operating results for the year ended December 31, 2020 include the operating results of the acquired business for the period subsequent to the acquisition date of July 1, 2020.
The acquisition of Three Shores has been accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as of the acquisition date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. 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.
During the fourth quarter of 2020, within the one-year measurement period, United received additional information regarding acquisition date money market fund balances held by third party investment brokers and accrued interest receivable on certain debt securities and loans. As a result, the provisional fair values assigned to acquired cash and cash equivalents and accrued interest receivable increased by $1.09 million and $116,000, respectively. As a result of these adjustments, goodwill was reduced by $1.21 million. These adjustments are reflected in the fair values presented in the table below.
The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Recorded by United
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
$
|
219,807
|
|
|
|
Debt securities
|
|
|
|
|
381,740
|
|
|
|
Loans
|
|
|
|
|
1,427,966
|
|
|
|
Premises and equipment, net
|
|
|
|
|
1,584
|
|
|
|
Accrued interest receivable
|
|
|
|
|
7,681
|
|
|
|
Derivative assets
|
|
|
|
|
11,800
|
|
|
|
Net deferred tax asset
|
|
|
|
|
15,061
|
|
|
|
Core deposit intangible
|
|
|
|
|
3,360
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
65,340
|
|
|
|
Total assets acquired
|
|
|
|
|
2,134,339
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
1,802,694
|
|
|
|
FHLB advances and long-term debt
|
|
|
|
|
144,121
|
|
|
|
Derivative liabilities
|
|
|
|
|
12,165
|
|
|
|
Other liabilities
|
|
|
|
|
28,046
|
|
|
|
Total liabilities assumed
|
|
|
|
|
1,987,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable net assets
|
|
|
|
|
147,313
|
|
|
|
Consideration transferred
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
24,108
|
|
|
|
Common stock issued (8,130,633 shares)
|
|
|
|
|
163,589
|
|
|
|
Total fair value of consideration transferred
|
|
|
|
|
187,697
|
|
|
|
Goodwill
|
|
|
|
|
$
|
40,384
|
|
|
The following table presents additional information related to the acquired loan portfolio at the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2020
|
|
|
PCD loans:
|
|
|
|
Par Value
|
$
|
283,137
|
|
|
|
ACL at acquisition
|
(11,152)
|
|
|
|
Non-credit discount
|
(8,694)
|
|
|
|
Purchase price
|
$
|
263,291
|
|
|
|
|
|
|
|
Non-PCD loans:
|
|
|
|
Fair value
|
$
|
1,164,675
|
|
|
|
Gross contractual amounts receivable
|
1,358,793
|
|
|
|
Estimate of contractual cash flows not expected to be collected
|
76,503
|
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Mergers and Acquisitions, continued
Acquisition of FMBT
On May 1, 2019, United completed the acquisition of FMBT. FMBT operated four banking offices in Athens-Clarke County, Georgia. In connection with the acquisition, United acquired $245 million of assets and assumed $213 million of liabilities. Under the terms of the merger agreement, FMBT shareholders received $52.1 million in cash. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of $20.3 million, representing the intangible value of FMBT’s business and reputation within the markets it served. None of the goodwill recognized is expected to be deductible for income tax purposes. United is amortizing the related core deposit intangible of $2.80 million using the sum-of-the-years-digits method over 9.25 years, which represents the expected useful life of the asset.
The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Recorded by United
|
|
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
32,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
192,494
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
|
8,524
|
|
|
|
BOLI
|
|
|
|
6,823
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
|
157
|
|
|
|
Core deposit intangible
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
1,278
|
|
|
|
Total assets acquired
|
|
|
|
244,624
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits
|
|
|
|
212,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
717
|
|
|
|
Total liabilities assumed
|
|
|
|
212,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable net assets
|
|
|
|
31,780
|
|
|
|
|
|
|
|
|
|
|
Cash consideration transferred
|
|
|
|
52,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
$
|
20,313
|
|
|
The following table presents additional information related to the acquired loan portfolio at the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2019
|
|
|
PCI loans:
|
|
|
|
Contractually required principal and interest
|
$
|
13,145
|
|
|
|
Non-accretable difference
|
2,517
|
|
|
|
Cash flows expected to be collected
|
10,628
|
|
|
|
Accretable yield
|
1,300
|
|
|
|
Fair value
|
$
|
9,328
|
|
|
|
|
|
|
|
Non-PCI loans:
|
|
|
|
Fair value
|
$
|
183,166
|
|
|
|
Gross contractual amounts receivable
|
218,855
|
|
|
|
Estimate of contractual cash flows not expected to be collected
|
8,826
|
|
|
Acquisition of Navitas
On February 1, 2018, United completed the acquisition of Navitas, a specialty lending company providing equipment finance credit services to small and medium-sized businesses nationwide. In connection with the acquisition, United acquired $393 million of assets and assumed $350 million of liabilities. Under the terms of the merger agreement, Navitas shareholders received $130 million in total consideration, of which $84.5 million was paid in cash and $45.7 million was paid in United common stock. 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 $87.4 million, representing the intangible value of Navitas’ business and reputation within the markets it served. None of the goodwill recognized is expected to be deductible for income tax purposes.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Mergers and Acquisitions, continued
The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Recorded by United
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
$
|
27,700
|
|
|
|
Loans and leases, net
|
|
|
|
|
358,352
|
|
|
|
Premises and equipment, net
|
|
|
|
|
324
|
|
|
|
Net deferred tax asset
|
|
|
|
|
2,873
|
|
|
|
Other assets
|
|
|
|
|
4,051
|
|
|
|
Total assets acquired
|
|
|
|
|
393,300
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
|
|
214,923
|
|
|
|
Long-term debt
|
|
|
|
|
119,402
|
|
|
|
Other liabilities
|
|
|
|
|
16,108
|
|
|
|
Total liabilities assumed
|
|
|
|
|
350,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable net assets
|
|
|
|
|
42,867
|
|
|
|
Consideration transferred
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
84,500
|
|
|
|
Common stock issued (1,443,987 shares)
|
|
|
|
|
45,746
|
|
|
|
Total fair value of consideration transferred
|
|
|
|
|
130,246
|
|
|
|
Goodwill
|
|
|
|
|
$
|
87,379
|
|
|
The following table presents additional information related to the acquired loan and lease portfolio at the acquisition date (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2018
|
|
|
PCI loans:
|
|
|
|
Contractually required principal and interest
|
$
|
24,711
|
|
|
|
Non-accretable difference
|
5,505
|
|
|
|
Cash flows expected to be collected
|
19,206
|
|
|
|
Accretable yield
|
1,977
|
|
|
|
Fair value
|
$
|
17,229
|
|
|
|
|
|
|
|
Non-PCI loans:
|
|
|
|
Fair value
|
$
|
341,123
|
|
|
|
Gross contractual amounts receivable
|
389,432
|
|
|
|
Estimate of contractual cash flows not expected to be collected
|
8,624
|
|
|
In January 2018, after announcement of its intention to acquire Navitas but prior to the completion of the acquisition, United purchased $19.9 million in loans from Navitas in a transaction separate from the business combination.
Pro forma information - unaudited
The following table discloses the impact of the mergers with Three Shores, FMBT, and Navitas, since the respective acquisition dates through December 31 of the year of acquisition. The table also presents certain pro forma information as if Three Shores had been acquired January 1, 2019, FMBT had been acquired on January 1, 2018 and Navitas had been acquired on January 1, 2017. These results combine the historical results of the acquired entities with United’s consolidated statements 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 acquisitions taken place in earlier years.
For purposes of pro forma information, merger-related costs incurred in the year of acquisition are excluded from the actual acquisition year results and included in the pro forma acquisition year results. As a result, merger-related costs related to the acquisition of Three Shores of $5.04 million are reflected in 2019 pro forma information and merger-related costs related to the acquisition of FMBT of $2.02 million are reflected in 2018 pro forma information. Merger-related costs related to the acquisition of Navitas of $4.98 million were previously reported in 2017 pro forma information, which is not presented in the following table.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Mergers and Acquisitions, continued
The following table presents the actual results and pro forma information for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
Year Ended December 31,
|
|
Revenue
|
|
Net Income
|
2020
|
|
|
|
Actual Three Shores results included in statement of income since acquisition date
|
$
|
24,541
|
|
|
$
|
6,800
|
|
Supplemental consolidated pro forma as if Three Shores had been acquired January 1, 2019
|
597,729
|
|
|
168,717
|
|
|
|
|
|
2019
|
|
|
|
Actual FMBT results included in statement of income since acquisition date
|
$
|
7,525
|
|
|
$
|
4,053
|
|
Supplemental consolidated pro forma as if Three Shores had been acquired on January 1, 2019 and FMBT had been acquired January 1, 2018
|
636,079
|
|
|
210,232
|
|
2018
|
|
|
|
Actual Navitas results included in the statement of income since acquisition date
|
$
|
24,285
|
|
|
$
|
7,149
|
|
Supplemental consolidated pro forma as if FMBT had been acquired January 1, 2018 and Navitas had been acquired January 1, 2017
|
539,152
|
|
|
171,218
|
|
(4) Cash Flows
During 2020, 2019 and 2018, loans having a value of $822,000, $1.17 million and $3.02 million, respectively, were transferred to foreclosed property.
United accounts for sales of SBA/USDA loans on the trade date. At December 31, 2020 United had no unsettled sales of SBA/USDA loans. At December 31, 2019 and 2018, United had unsettled sales of SBA/USDA loans of $8.19 million and $32.9 million, respectively.
During 2020, United acquired, through a business combination, assets with a fair value totaling $2.17 billion and liabilities with a fair value totaling $1.99 billion, for net assets acquired of $188 million. Common stock issued pursuant to this business combination totaled $164 million.
During 2019, United acquired, through a business combination, assets with a fair value totaling $265 million and liabilities with a fair value totaling $213 million, for net assets acquired of $52.1 million.
During 2018, United acquired, through a business combination, assets with a fair value totaling $481 million and liabilities with a fair value totaling $350 million, for net assets acquired of $130 million. Common stock issued pursuant to this business combination totaled $45.7 million.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investment Securities
At December 31, 2020 and 2019, securities with a carrying value of $1.11 billion and $918 million, respectively, were pledged to secure public deposits, derivatives and other secured borrowings.
The 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 December 31, 2020
|
|
|
|
|
|
|
|
U.S. Government agencies & GSEs
|
$
|
10,575
|
|
|
$
|
26
|
|
|
$
|
11
|
|
|
$
|
10,590
|
|
State and political subdivisions
|
197,723
|
|
|
7,658
|
|
|
242
|
|
|
205,139
|
|
Residential mortgage-backed, Agency & GSE
|
113,400
|
|
|
4,774
|
|
|
1
|
|
|
118,173
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed, Agency & GSE
|
98,663
|
|
|
4,874
|
|
|
246
|
|
|
103,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
420,361
|
|
|
$
|
17,332
|
|
|
$
|
500
|
|
|
$
|
437,193
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
State and political subdivisions
|
$
|
45,479
|
|
|
$
|
1,574
|
|
|
$
|
9
|
|
|
$
|
47,044
|
|
Residential mortgage-backed, Agency & GSE
|
153,967
|
|
|
2,014
|
|
|
694
|
|
|
155,287
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed, Agency & GSE
|
84,087
|
|
|
1,627
|
|
|
141
|
|
|
85,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
283,533
|
|
|
$
|
5,215
|
|
|
$
|
844
|
|
|
$
|
287,904
|
|
The cost basis, unrealized gains and losses, and fair value of debt securities available-for-sale as of the dates indicated are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
As of December 31, 2020
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
123,677
|
|
|
$
|
4,395
|
|
|
$
|
—
|
|
|
$
|
128,072
|
|
U.S. Government agencies & GSEs
|
152,596
|
|
|
701
|
|
|
325
|
|
|
152,972
|
|
State and political subdivisions
|
253,630
|
|
|
20,891
|
|
|
49
|
|
|
274,472
|
|
Residential mortgage-backed, Agency & GSE
|
1,275,551
|
|
|
29,107
|
|
|
766
|
|
|
1,303,892
|
|
Residential mortgage-backed, Non-agency
|
174,322
|
|
|
7,499
|
|
|
128
|
|
|
181,693
|
|
Commercial mortgage-backed, Agency & GSE
|
524,852
|
|
|
8,013
|
|
|
597
|
|
|
532,268
|
|
Commercial mortgage-backed, Non-agency
|
15,350
|
|
|
1,513
|
|
|
—
|
|
|
16,863
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
70,057
|
|
|
1,711
|
|
|
1
|
|
|
71,767
|
|
Asset-backed securities
|
562,076
|
|
|
1,278
|
|
|
632
|
|
|
562,722
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,152,111
|
|
|
$
|
75,108
|
|
|
$
|
2,498
|
|
|
$
|
3,224,721
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
152,990
|
|
|
$
|
1,628
|
|
|
$
|
—
|
|
|
$
|
154,618
|
|
U.S. Government agencies & GSEs
|
2,848
|
|
|
188
|
|
|
1
|
|
|
3,035
|
|
State and political subdivisions
|
214,677
|
|
|
11,813
|
|
|
—
|
|
|
226,490
|
|
Residential mortgage-backed, Agency & GSE
|
1,030,948
|
|
|
12,022
|
|
|
726
|
|
|
1,042,244
|
|
Residential mortgage-backed, Non-agency
|
250,550
|
|
|
6,231
|
|
|
—
|
|
|
256,781
|
|
Commercial mortgage-backed, Agency & GSE
|
266,770
|
|
|
2,261
|
|
|
128
|
|
|
268,903
|
|
Commercial mortgage-backed, Non-agency
|
15,395
|
|
|
918
|
|
|
263
|
|
|
16,050
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
202,131
|
|
|
1,178
|
|
|
218
|
|
|
203,091
|
|
Asset-backed securities
|
104,298
|
|
|
743
|
|
|
1,672
|
|
|
103,369
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,240,607
|
|
|
$
|
36,982
|
|
|
$
|
3,008
|
|
|
$
|
2,274,581
|
|
At year-end 2020 and 2019, there were no holdings of debt obligations of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investment Securities, continued
The following 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 December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies & GSEs
|
$
|
4,677
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,677
|
|
|
$
|
11
|
|
State and political subdivisions
|
14,870
|
|
|
242
|
|
|
—
|
|
|
—
|
|
|
14,870
|
|
|
242
|
|
Residential mortgage-backed, Agency & GSE
|
999
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
999
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed, Agency & GSE
|
24,956
|
|
|
236
|
|
|
1,352
|
|
|
10
|
|
|
26,308
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized loss position
|
$
|
45,502
|
|
|
$
|
490
|
|
|
$
|
1,352
|
|
|
$
|
10
|
|
|
$
|
46,854
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
$
|
10,117
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,117
|
|
|
$
|
9
|
|
Residential mortgage-backed, Agency & GSE
|
16,049
|
|
|
64
|
|
|
48,237
|
|
|
630
|
|
|
64,286
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed, Agency & GSE
|
21,841
|
|
|
87
|
|
|
1,685
|
|
|
54
|
|
|
23,526
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized loss position
|
$
|
48,007
|
|
|
$
|
160
|
|
|
$
|
49,922
|
|
|
$
|
684
|
|
|
$
|
97,929
|
|
|
$
|
844
|
|
The following 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 December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies & GSEs
|
$
|
27,952
|
|
|
$
|
324
|
|
|
$
|
607
|
|
|
$
|
1
|
|
|
$
|
28,559
|
|
|
$
|
325
|
|
State and political subdivisions
|
9,402
|
|
|
49
|
|
|
—
|
|
|
—
|
|
|
9,402
|
|
|
49
|
|
Residential mortgage-backed, Agency & GSE
|
232,199
|
|
|
766
|
|
|
—
|
|
|
—
|
|
|
232,199
|
|
|
766
|
|
Residential mortgage-backed, Non-agency
|
2,331
|
|
|
128
|
|
|
—
|
|
|
—
|
|
|
2,331
|
|
|
128
|
|
Commercial mortgage-backed, Agency & GSE
|
89,918
|
|
|
597
|
|
|
—
|
|
|
—
|
|
|
89,918
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
1,410
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1,410
|
|
|
1
|
|
Asset-backed securities
|
87,305
|
|
|
28
|
|
|
53,587
|
|
|
604
|
|
|
140,892
|
|
|
632
|
|
Total unrealized loss position
|
$
|
450,517
|
|
|
$
|
1,893
|
|
|
$
|
54,194
|
|
|
$
|
605
|
|
|
$
|
504,711
|
|
|
$
|
2,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies & GSEs
|
$
|
404
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
404
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed, Agency & GSE
|
228,611
|
|
|
576
|
|
|
18,294
|
|
|
150
|
|
|
246,905
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed, Agency & GSE
|
—
|
|
|
—
|
|
|
33,517
|
|
|
128
|
|
|
33,517
|
|
|
128
|
|
Commercial mortgage-backed, Non-agency
|
—
|
|
|
—
|
|
|
4,864
|
|
|
263
|
|
|
4,864
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
19,742
|
|
|
216
|
|
|
998
|
|
|
2
|
|
|
20,740
|
|
|
218
|
|
Asset-backed securities
|
32,294
|
|
|
625
|
|
|
38,990
|
|
|
1,047
|
|
|
71,284
|
|
|
1,672
|
|
Total unrealized loss position
|
$
|
281,051
|
|
|
$
|
1,418
|
|
|
$
|
96,663
|
|
|
$
|
1,590
|
|
|
$
|
377,714
|
|
|
$
|
3,008
|
|
At December 31, 2020, there were 72 debt securities available-for-sale and 13 debt securities held-to-maturity that were in an unrealized loss position. Management does not intend to sell nor believes it will be required to sell securities in an unrealized loss position prior to the recovery of its amortized cost basis. Unrealized losses at December 31, 2020 and 2019 were primarily attributable to changes in interest rates.
At adoption of ASC 326 on January 1, 2020 and at December 31, 2020, calculated credit losses and, thus, the related ACL on held-to-maturity debt securities were not material due to the high credit quality of the portfolio. As a result, no ACL was recorded on the held-to-maturity portfolio at December 31, 2020. In addition, based on the assessment performed as of December 31, 2020, there was no ACL required related to the available-for-sale portfolio. See Note 1 for additional details on the adoption of ASC 326 as it relates to the securities portfolio.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investment Securities, continued
Prior to the adoption of ASC 326, management evaluated securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warranted such evaluation. Consideration was given to the length of time and the extent to which the fair value had 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 considered whether the securities were issued by the federal government or its agencies, whether downgrades by bond rating agencies had occurred, and industry analyst’s reports. No impairment charges were recognized during 2019 or 2018.
Realized gains and losses are derived using the specific identification method for determining the cost of the securities sold. The following summarizes securities sales activities for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Proceeds from sales
|
$
|
40,625
|
|
|
$
|
352,106
|
|
|
$
|
168,891
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains on sales
|
$
|
748
|
|
|
$
|
1,843
|
|
|
$
|
2,082
|
|
|
|
Gross losses on sales
|
—
|
|
|
(2,864)
|
|
|
(2,738)
|
|
|
|
Net gains (losses) on sales of securities
|
$
|
748
|
|
|
$
|
(1,021)
|
|
|
$
|
(656)
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) attributable to sales
|
$
|
191
|
|
|
$
|
(247)
|
|
|
$
|
(132)
|
|
|
The amortized cost and fair value of debt available-for-sale and held-to-maturity securities at December 31, 2020, by contractual maturity, are presented in the following table (in thousands). Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Within 1 year:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
20,014
|
|
|
$
|
20,311
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Government agencies & GSEs
|
201
|
|
|
201
|
|
|
—
|
|
|
—
|
|
State and political subdivisions
|
20,020
|
|
|
20,232
|
|
|
1,700
|
|
|
1,743
|
|
Corporate bonds
|
11,441
|
|
|
11,592
|
|
|
—
|
|
|
—
|
|
|
51,676
|
|
|
52,336
|
|
|
1,700
|
|
|
1,743
|
|
1 to 5 years:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
103,663
|
|
|
107,761
|
|
|
—
|
|
|
—
|
|
U.S. Government agencies & GSEs
|
16,710
|
|
|
16,820
|
|
|
—
|
|
|
—
|
|
State and political subdivisions
|
48,354
|
|
|
51,544
|
|
|
14,505
|
|
|
16,059
|
|
Corporate bonds
|
44,636
|
|
|
45,837
|
|
|
—
|
|
|
—
|
|
|
213,363
|
|
|
221,962
|
|
|
14,505
|
|
|
16,059
|
|
5 to 10 years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies & GSEs
|
55,588
|
|
|
55,481
|
|
|
—
|
|
|
—
|
|
State and political subdivisions
|
59,837
|
|
|
64,843
|
|
|
7,028
|
|
|
7,957
|
|
Corporate bonds
|
13,206
|
|
|
13,485
|
|
|
—
|
|
|
—
|
|
|
128,631
|
|
|
133,809
|
|
|
7,028
|
|
|
7,957
|
|
More than 10 years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies & GSEs
|
80,097
|
|
|
80,470
|
|
|
10,575
|
|
|
10,590
|
|
State and political subdivisions
|
125,419
|
|
|
137,853
|
|
|
174,490
|
|
|
179,380
|
|
Corporate bonds
|
774
|
|
|
853
|
|
|
—
|
|
|
—
|
|
|
206,290
|
|
|
219,176
|
|
|
185,065
|
|
|
189,970
|
|
Debt securities not due at a single maturity:
|
|
|
|
|
|
|
|
Asset-backed securities
|
562,076
|
|
|
562,722
|
|
|
—
|
|
|
—
|
|
Residential mortgage-backed securities
|
1,449,873
|
|
|
1,485,585
|
|
|
113,400
|
|
|
118,173
|
|
Commercial mortgage-backed securities
|
540,202
|
|
|
549,131
|
|
|
98,663
|
|
|
103,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,152,111
|
|
|
$
|
3,224,721
|
|
|
$
|
420,361
|
|
|
$
|
437,193
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Owner occupied commercial real estate
|
$
|
2,090,443
|
|
|
$
|
1,720,227
|
|
|
|
Income producing commercial real estate
|
2,540,750
|
|
|
2,007,950
|
|
|
|
Commercial & industrial(1)
|
2,498,560
|
|
|
1,220,657
|
|
|
|
Commercial construction
|
967,305
|
|
|
976,215
|
|
|
|
Equipment financing
|
863,830
|
|
|
744,544
|
|
|
|
Total commercial
|
8,960,888
|
|
|
6,669,593
|
|
|
|
Residential mortgage
|
1,284,920
|
|
|
1,117,616
|
|
|
|
Home equity lines of credit
|
697,117
|
|
|
660,675
|
|
|
|
Residential construction
|
281,430
|
|
|
236,437
|
|
|
|
Consumer
|
146,460
|
|
|
128,232
|
|
|
|
|
|
|
|
|
|
Total loans
|
11,370,815
|
|
|
8,812,553
|
|
|
|
Less ACL - loans
|
(137,010)
|
|
|
(62,089)
|
|
|
|
Loans, net
|
$
|
11,233,805
|
|
|
$
|
8,750,464
|
|
|
(1) Commercial and industrial loans as of December 31, 2020 included $646 million of PPP loans.
At December 31, 2020 and 2019, $2.18 million and $1.30 million, respectively, in overdrawn deposit accounts were reclassified as consumer loans.
At December 31, 2020, the loan portfolio was subject to blanket pledges on certain qualifying loan types with the FHLB and FRB to secure contingent funding sources.
The following table presents loans sold by United for the periods presented (in thousands). The gains and losses on these loan sales were included in noninterest income on the consolidated statements of income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Sold
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Guaranteed portion of SBA/USDA loans
|
$
|
48,385
|
|
|
$
|
81,158
|
|
|
$
|
120,977
|
|
|
|
Equipment financing receivables
|
27,018
|
|
|
30,952
|
|
|
—
|
|
|
|
Indirect auto loans
|
—
|
|
|
102,789
|
|
|
—
|
|
|
|
Total
|
$
|
75,403
|
|
|
$
|
214,899
|
|
|
$
|
120,977
|
|
|
At December 31, 2020 and 2019, equipment financing assets included leases of $36.8 million and $37.4 million, respectively. The components of the net investment in leases, which included both sales-type and direct financing, are presented below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Minimum future lease payments receivable
|
$
|
38,934
|
|
|
$
|
39,709
|
|
|
|
Estimated residual value of leased equipment
|
3,263
|
|
|
3,631
|
|
|
|
Initial direct costs
|
672
|
|
|
842
|
|
|
|
Security deposits
|
(727)
|
|
|
(989)
|
|
|
|
Purchase accounting premium
|
117
|
|
|
273
|
|
|
|
Unearned income
|
(5,457)
|
|
|
(6,088)
|
|
|
|
Net investment in leases
|
$
|
36,802
|
|
|
$
|
37,378
|
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
Minimum future lease payments expected to be received from equipment financing lease contracts as of December 31, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
2021
|
$
|
15,152
|
|
|
|
2022
|
11,516
|
|
|
|
2023
|
7,452
|
|
|
|
2024
|
3,429
|
|
|
|
2025
|
1,341
|
|
|
|
Thereafter
|
44
|
|
|
|
Total
|
$
|
38,934
|
|
|
Nonaccrual and Past Due Loans
The following table presents the amortized cost basis in loans by aging category and accrual status as of December 31, 2020 (in thousands). Short-term deferrals of approximately $70.7 million related to the COVID-19 crisis are not reported as past due during the deferral period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
|
|
|
|
|
|
|
|
|
|
Loans Past Due
|
|
|
|
|
|
Current Loans
|
|
30 - 59 Days
|
|
60 - 89 Days
|
|
> 90 Days
|
|
|
|
Nonaccrual Loans
|
|
Total Loans
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
$
|
2,079,845
|
|
|
$
|
2,013
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
|
|
$
|
8,582
|
|
|
$
|
2,090,443
|
|
Income producing commercial real estate
|
2,522,743
|
|
|
1,608
|
|
|
1,250
|
|
|
—
|
|
|
|
|
15,149
|
|
|
2,540,750
|
|
Commercial & industrial
|
2,480,483
|
|
|
1,176
|
|
|
267
|
|
|
—
|
|
|
|
|
16,634
|
|
|
2,498,560
|
|
Commercial construction
|
964,947
|
|
|
231
|
|
|
382
|
|
|
—
|
|
|
|
|
1,745
|
|
|
967,305
|
|
Equipment financing
|
856,985
|
|
|
2,431
|
|
|
1,009
|
|
|
—
|
|
|
|
|
3,405
|
|
|
863,830
|
|
Total commercial
|
8,905,003
|
|
|
7,459
|
|
|
2,911
|
|
|
—
|
|
|
|
|
45,515
|
|
|
8,960,888
|
|
Residential mortgage
|
1,265,019
|
|
|
5,549
|
|
|
1,494
|
|
|
—
|
|
|
|
|
12,858
|
|
|
1,284,920
|
|
Home equity lines of credit
|
692,504
|
|
|
1,942
|
|
|
184
|
|
|
—
|
|
|
|
|
2,487
|
|
|
697,117
|
|
Residential construction
|
280,551
|
|
|
365
|
|
|
—
|
|
|
—
|
|
|
|
|
514
|
|
|
281,430
|
|
Consumer
|
145,770
|
|
|
429
|
|
|
36
|
|
|
—
|
|
|
|
|
225
|
|
|
146,460
|
|
Total loans
|
$
|
11,288,847
|
|
|
$
|
15,744
|
|
|
$
|
4,625
|
|
|
$
|
—
|
|
|
|
|
$
|
61,599
|
|
|
$
|
11,370,815
|
|
The following table presents the aging of recorded investment in loans, including accruing and nonaccrual loans, as of December 31, 2019 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Past Due - Accrual and Non-accrual
|
|
|
|
|
|
|
As of December 31, 2019
|
30 - 59 Days
|
|
60 - 89 Days
|
|
> 90
Days (1)
|
|
Total
|
|
Current Loans
|
|
PCI Loans
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
$
|
2,913
|
|
|
$
|
2,007
|
|
|
$
|
6,079
|
|
|
$
|
10,999
|
|
|
$
|
1,700,682
|
|
|
$
|
8,546
|
|
|
$
|
1,720,227
|
|
Income producing commercial real estate
|
562
|
|
|
706
|
|
|
401
|
|
|
1,669
|
|
|
1,979,053
|
|
|
27,228
|
|
|
2,007,950
|
|
Commercial & industrial
|
2,140
|
|
|
491
|
|
|
2,119
|
|
|
4,750
|
|
|
1,215,581
|
|
|
326
|
|
|
1,220,657
|
|
Commercial construction
|
1,867
|
|
|
557
|
|
|
96
|
|
|
2,520
|
|
|
966,833
|
|
|
6,862
|
|
|
976,215
|
|
Equipment financing
|
2,065
|
|
|
923
|
|
|
3,045
|
|
|
6,033
|
|
|
734,526
|
|
|
3,985
|
|
|
744,544
|
|
Total commercial
|
9,547
|
|
|
4,684
|
|
|
11,740
|
|
|
25,971
|
|
|
6,596,675
|
|
|
46,947
|
|
|
6,669,593
|
|
Residential mortgage
|
5,655
|
|
|
2,212
|
|
|
2,171
|
|
|
10,038
|
|
|
1,097,999
|
|
|
9,579
|
|
|
1,117,616
|
|
Home equity lines of credit
|
1,697
|
|
|
421
|
|
|
1,385
|
|
|
3,503
|
|
|
655,762
|
|
|
1,410
|
|
|
660,675
|
|
Residential construction
|
325
|
|
|
125
|
|
|
402
|
|
|
852
|
|
|
235,211
|
|
|
374
|
|
|
236,437
|
|
Consumer
|
668
|
|
|
181
|
|
|
27
|
|
|
876
|
|
|
127,020
|
|
|
336
|
|
|
128,232
|
|
Total loans
|
$
|
17,892
|
|
|
$
|
7,623
|
|
|
$
|
15,725
|
|
|
$
|
41,240
|
|
|
$
|
8,712,667
|
|
|
$
|
58,646
|
|
|
$
|
8,812,553
|
|
(1) Excluding PCI loans, substantially all loans more than 90 days past due were on nonaccrual status at December 31, 2019.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
The following table presents nonaccrual loans by loan class for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
CECL
|
|
Incurred Loss
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
With no allowance
|
|
With an allowance
|
|
Total
|
|
Owner occupied commercial real estate
|
$
|
6,614
|
|
|
$
|
1,968
|
|
|
$
|
8,582
|
|
|
$
|
10,544
|
|
Income producing commercial real estate
|
10,008
|
|
|
5,141
|
|
|
15,149
|
|
|
1,996
|
|
Commercial & industrial
|
2,004
|
|
|
14,630
|
|
|
16,634
|
|
|
2,545
|
|
Commercial construction
|
1,339
|
|
|
406
|
|
|
1,745
|
|
|
2,277
|
|
Equipment financing
|
156
|
|
|
3,249
|
|
|
3,405
|
|
|
3,141
|
|
Total commercial
|
20,121
|
|
|
25,394
|
|
|
45,515
|
|
|
20,503
|
|
Residential mortgage
|
1,855
|
|
|
11,003
|
|
|
12,858
|
|
|
10,567
|
|
Home equity lines of credit
|
1,329
|
|
|
1,158
|
|
|
2,487
|
|
|
3,173
|
|
Residential construction
|
274
|
|
|
240
|
|
|
514
|
|
|
939
|
|
Consumer
|
181
|
|
|
44
|
|
|
225
|
|
|
159
|
|
Total
|
$
|
23,760
|
|
|
$
|
37,839
|
|
|
$
|
61,599
|
|
|
$
|
35,341
|
|
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 $2.86 million, $1.26 million, and $1.09 million for 2020, 2019, and 2018, respectively.
Risk Ratings
United categorizes commercial loans, with the exception of equipment financing receivables, into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current industry and economic trends, among other factors. United analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continual basis. United uses the following definitions for its risk ratings:
Pass. Loans in this category are considered to have a low probability of default and do not meet the criteria of the risk categories below.
Watch. Loans in this category are presently protected from apparent loss, however weaknesses exist that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. These loans require more than the ordinary amount of supervision. Collateral values generally afford adequate coverage, but may not be immediately marketable.
Substandard. These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged. Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. There is the distinct possibility that United will sustain some loss if deficiencies are not corrected. If possible, immediate corrective action is taken.
Doubtful. Specific weaknesses characterized as Substandard that are severe enough to make collection in full highly questionable and improbable. There is no reliable secondary source of full repayment.
Loss. Loans categorized as Loss have the same characteristics as Doubtful; however probability of loss is certain. Loans classified as Loss are charged off.
Equipment Financing Receivables and Consumer Purpose Loans. United applies a pass / fail grading system to all equipment financing receivables and consumer purpose loans. Under this system, loans that are on nonaccrual status, become past due 90 days or are in bankruptcy are classified as “fail” and all other loans are classified as “pass”. For reporting purposes, loans classified as “fail” are reported as “substandard” and all other loans are reported as “pass”.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
Based on the most recent analysis performed, the amortized cost of loans by risk category by vintage year as of December 31, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans by Origination Year
|
|
Revolvers
|
|
Revolvers converted to term loans
|
|
Total
|
December 31, 2020
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
|
|
Pass
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
|
$
|
707,501
|
|
|
$
|
368,615
|
|
|
$
|
231,316
|
|
|
$
|
197,778
|
|
|
$
|
201,362
|
|
|
$
|
229,667
|
|
|
$
|
56,273
|
|
|
$
|
9,072
|
|
|
$
|
2,001,584
|
|
Income producing commercial real estate
|
|
815,799
|
|
|
376,911
|
|
|
361,539
|
|
|
277,769
|
|
|
206,068
|
|
|
198,080
|
|
|
28,542
|
|
|
12,128
|
|
|
2,276,836
|
|
Commercial & industrial
|
|
1,092,767
|
|
|
287,857
|
|
|
263,439
|
|
|
115,790
|
|
|
92,968
|
|
|
58,359
|
|
|
515,593
|
|
|
3,777
|
|
|
2,430,550
|
|
Commercial construction
|
|
314,154
|
|
|
217,643
|
|
|
226,308
|
|
|
53,708
|
|
|
30,812
|
|
|
21,985
|
|
|
20,278
|
|
|
3,947
|
|
|
888,835
|
|
Equipment financing
|
|
413,653
|
|
|
270,664
|
|
|
125,869
|
|
|
39,982
|
|
|
9,404
|
|
|
445
|
|
|
—
|
|
|
—
|
|
|
860,017
|
|
Total commercial
|
|
3,343,874
|
|
|
1,521,690
|
|
|
1,208,471
|
|
|
685,027
|
|
|
540,614
|
|
|
508,536
|
|
|
620,686
|
|
|
28,924
|
|
|
8,457,822
|
|
Residential mortgage
|
|
468,945
|
|
|
195,213
|
|
|
125,492
|
|
|
120,944
|
|
|
122,013
|
|
|
230,771
|
|
|
18
|
|
|
5,393
|
|
|
1,268,789
|
|
Home equity lines of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
675,878
|
|
|
17,581
|
|
|
693,459
|
|
Residential construction
|
|
225,727
|
|
|
30,646
|
|
|
4,026
|
|
|
4,544
|
|
|
3,172
|
|
|
12,546
|
|
|
—
|
|
|
64
|
|
|
280,725
|
|
Consumer
|
|
54,997
|
|
|
25,528
|
|
|
14,206
|
|
|
4,531
|
|
|
3,595
|
|
|
1,677
|
|
|
41,445
|
|
|
76
|
|
|
146,055
|
|
|
|
4,093,543
|
|
|
1,773,077
|
|
|
1,352,195
|
|
|
815,046
|
|
|
669,394
|
|
|
753,530
|
|
|
1,338,027
|
|
|
52,038
|
|
|
10,846,850
|
|
Watch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
|
8,759
|
|
|
4,088
|
|
|
4,221
|
|
|
10,025
|
|
|
11,138
|
|
|
4,728
|
|
|
100
|
|
|
—
|
|
|
43,059
|
|
Income producing commercial real estate
|
|
35,471
|
|
|
42,831
|
|
|
39,954
|
|
|
13,238
|
|
|
24,164
|
|
|
11,337
|
|
|
—
|
|
|
1,681
|
|
|
168,676
|
|
Commercial & industrial
|
|
1,451
|
|
|
16,315
|
|
|
2,176
|
|
|
630
|
|
|
459
|
|
|
17
|
|
|
6,464
|
|
|
—
|
|
|
27,512
|
|
Commercial construction
|
|
21,366
|
|
|
272
|
|
|
816
|
|
|
23,292
|
|
|
11,775
|
|
|
477
|
|
|
—
|
|
|
—
|
|
|
57,998
|
|
Equipment financing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial
|
|
67,047
|
|
|
63,506
|
|
|
47,167
|
|
|
47,185
|
|
|
47,536
|
|
|
16,559
|
|
|
6,564
|
|
|
1,681
|
|
|
297,245
|
|
Residential mortgage
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Home equity lines of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
67,047
|
|
|
63,506
|
|
|
47,167
|
|
|
47,185
|
|
|
47,536
|
|
|
16,559
|
|
|
6,564
|
|
|
1,681
|
|
|
297,245
|
|
Substandard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
|
6,586
|
|
|
10,473
|
|
|
7,596
|
|
|
3,717
|
|
|
6,753
|
|
|
8,473
|
|
|
1,528
|
|
|
674
|
|
|
45,800
|
|
Income producing commercial real estate
|
|
45,125
|
|
|
8,940
|
|
|
2,179
|
|
|
5,034
|
|
|
31,211
|
|
|
2,652
|
|
|
—
|
|
|
97
|
|
|
95,238
|
|
Commercial & industrial
|
|
1,545
|
|
|
5,536
|
|
|
6,193
|
|
|
1,684
|
|
|
1,292
|
|
|
1,485
|
|
|
22,170
|
|
|
593
|
|
|
40,498
|
|
Commercial construction
|
|
2,466
|
|
|
735
|
|
|
13,741
|
|
|
340
|
|
|
1,931
|
|
|
250
|
|
|
—
|
|
|
1,009
|
|
|
20,472
|
|
Equipment financing
|
|
631
|
|
|
1,392
|
|
|
1,371
|
|
|
306
|
|
|
96
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
3,813
|
|
Total commercial
|
|
56,353
|
|
|
27,076
|
|
|
31,080
|
|
|
11,081
|
|
|
41,283
|
|
|
12,877
|
|
|
23,698
|
|
|
2,373
|
|
|
205,821
|
|
Residential mortgage
|
|
2,049
|
|
|
2,106
|
|
|
3,174
|
|
|
1,369
|
|
|
679
|
|
|
5,860
|
|
|
—
|
|
|
894
|
|
|
16,131
|
|
Home equity lines of credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
265
|
|
|
3,393
|
|
|
3,658
|
|
Residential construction
|
|
106
|
|
|
37
|
|
|
54
|
|
|
4
|
|
|
124
|
|
|
380
|
|
|
—
|
|
|
—
|
|
|
705
|
|
Consumer
|
|
—
|
|
|
97
|
|
|
49
|
|
|
60
|
|
|
78
|
|
|
98
|
|
|
—
|
|
|
23
|
|
|
405
|
|
|
|
58,508
|
|
|
29,316
|
|
|
34,357
|
|
|
12,514
|
|
|
42,164
|
|
|
19,215
|
|
|
23,963
|
|
|
6,683
|
|
|
226,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,219,098
|
|
|
$
|
1,865,899
|
|
|
$
|
1,433,719
|
|
|
$
|
874,745
|
|
|
$
|
759,094
|
|
|
$
|
789,304
|
|
|
$
|
1,368,554
|
|
|
$
|
60,402
|
|
|
$
|
11,370,815
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
The following table presents the risk category of loans by class of loan as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
Pass
|
|
Watch
|
|
Substandard
|
|
Doubtful /
Loss
|
|
Total
|
Owner occupied commercial real estate
|
|
$
|
1,638,398
|
|
|
$
|
24,563
|
|
|
$
|
48,720
|
|
|
$
|
—
|
|
|
$
|
1,711,681
|
|
Income producing commercial real estate
|
|
1,914,524
|
|
|
40,676
|
|
|
25,522
|
|
|
—
|
|
|
1,980,722
|
|
Commercial & industrial
|
|
1,156,366
|
|
|
16,385
|
|
|
47,580
|
|
|
—
|
|
|
1,220,331
|
|
Commercial construction
|
|
960,251
|
|
|
2,298
|
|
|
6,804
|
|
|
—
|
|
|
969,353
|
|
Equipment financing
|
|
737,418
|
|
|
—
|
|
|
3,141
|
|
|
—
|
|
|
740,559
|
|
Total commercial
|
|
6,406,957
|
|
|
83,922
|
|
|
131,767
|
|
|
—
|
|
|
6,622,646
|
|
Residential mortgage
|
|
1,093,902
|
|
|
—
|
|
|
14,135
|
|
|
—
|
|
|
1,108,037
|
|
Home equity lines of credit
|
|
654,619
|
|
|
—
|
|
|
4,646
|
|
|
—
|
|
|
659,265
|
|
Residential construction
|
|
234,791
|
|
|
—
|
|
|
1,272
|
|
|
—
|
|
|
236,063
|
|
Consumer
|
|
127,507
|
|
|
8
|
|
|
381
|
|
|
—
|
|
|
127,896
|
|
Total loans, excluding PCI loans
|
|
8,517,776
|
|
|
83,930
|
|
|
152,201
|
|
|
—
|
|
|
8,753,907
|
|
Owner occupied commercial real estate
|
|
3,238
|
|
|
2,797
|
|
|
2,511
|
|
|
—
|
|
|
8,546
|
|
Income producing commercial real estate
|
|
19,648
|
|
|
6,305
|
|
|
1,275
|
|
|
—
|
|
|
27,228
|
|
Commercial & industrial
|
|
104
|
|
|
81
|
|
|
141
|
|
|
—
|
|
|
326
|
|
Commercial construction
|
|
3,628
|
|
|
590
|
|
|
2,644
|
|
|
—
|
|
|
6,862
|
|
Equipment financing
|
|
3,952
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
3,985
|
|
Total commercial
|
|
30,570
|
|
|
9,773
|
|
|
6,604
|
|
|
—
|
|
|
46,947
|
|
Residential mortgage
|
|
8,112
|
|
|
—
|
|
|
1,467
|
|
|
—
|
|
|
9,579
|
|
Home equity lines of credit
|
|
1,350
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
1,410
|
|
Residential construction
|
|
348
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
374
|
|
Consumer
|
|
303
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
336
|
|
Total PCI loans
|
|
40,683
|
|
|
9,773
|
|
|
8,190
|
|
|
—
|
|
|
58,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan portfolio
|
|
$
|
8,558,459
|
|
|
$
|
93,703
|
|
|
$
|
160,391
|
|
|
$
|
—
|
|
|
$
|
8,812,553
|
|
At December 31, 2019, the carrying value and outstanding balance of PCI loans was $58.6 million and $83.1 million, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the year ended December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
$
|
26,868
|
|
|
|
Additions due to acquisitions
|
|
|
1,300
|
|
|
|
Accretion
|
|
|
(17,885)
|
|
|
|
Reclassification from nonaccretable difference
|
|
|
9,237
|
|
|
|
Changes in expected cash flows that do not affect nonaccretable difference
|
|
|
4,400
|
|
|
|
Balance at end of period
|
|
|
$
|
23,920
|
|
|
Troubled Debt Restructurings and Other Modifications
As of December 31, 2020 and 2019, United had TDRs totaling $61.6 million and $54.2 million, respectively. As of December 31, 2020, United had remaining short-term deferrals related to the COVID-19 crisis of approximately $70.7 million, which generally represented payment deferrals for up to 90 days. To the extent that these deferrals qualified under either the CARES Act or interagency guidance, they were not considered new TDRs.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
Loans modified under the terms of a TDR during the years ended December 31 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 years ended December 31 that were initially restructured within one year prior to default (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New TDRs
|
|
|
Number of
Contracts
|
|
|
|
Post-Modification Outstanding Recorded Investment
by Type of Modification
|
|
TDRs Modified Within the Year That Have Subsequently Defaulted
|
Year Ended December 31, 2020
|
|
|
|
Rate
Reduction
|
|
Structure
|
|
Other
|
|
Total
|
|
Number of Contracts
|
|
Recorded
Investment
|
Owner occupied commercial real estate
|
|
8
|
|
|
|
|
$
|
—
|
|
|
$
|
833
|
|
|
$
|
1,536
|
|
|
$
|
2,369
|
|
|
—
|
|
|
$
|
—
|
|
Income producing commercial real estate
|
|
7
|
|
|
|
|
—
|
|
|
4,856
|
|
|
6,699
|
|
|
11,555
|
|
|
1
|
|
|
5,998
|
|
Commercial & industrial
|
|
4
|
|
|
|
|
—
|
|
|
586
|
|
|
15
|
|
|
601
|
|
|
3
|
|
|
819
|
|
Commercial construction
|
|
7
|
|
|
|
|
—
|
|
|
832
|
|
|
70
|
|
|
902
|
|
|
—
|
|
|
—
|
|
Equipment financing
|
|
172
|
|
|
|
|
—
|
|
|
5,821
|
|
|
|
|
5,821
|
|
|
22
|
|
|
944
|
|
Total commercial
|
|
198
|
|
|
|
|
—
|
|
|
12,928
|
|
|
8,320
|
|
|
21,248
|
|
|
26
|
|
|
7,761
|
|
Residential mortgage
|
|
40
|
|
|
|
|
—
|
|
|
4,359
|
|
|
3
|
|
|
4,362
|
|
|
2
|
|
|
145
|
|
Home equity lines of credit
|
|
4
|
|
|
|
|
—
|
|
|
164
|
|
|
—
|
|
|
164
|
|
|
1
|
|
|
60
|
|
Residential construction
|
|
3
|
|
|
|
|
—
|
|
|
123
|
|
|
—
|
|
|
123
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
7
|
|
|
|
|
—
|
|
|
11
|
|
|
24
|
|
|
35
|
|
|
1
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
252
|
|
|
|
|
$
|
—
|
|
|
$
|
17,585
|
|
|
$
|
8,347
|
|
|
$
|
25,932
|
|
|
30
|
|
|
$
|
7,969
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
|
4
|
|
|
|
|
$
|
—
|
|
|
$
|
1,739
|
|
|
$
|
—
|
|
|
$
|
1,739
|
|
|
—
|
|
|
$
|
—
|
|
Income producing commercial real estate
|
|
3
|
|
|
|
|
—
|
|
|
9,013
|
|
|
—
|
|
|
9,013
|
|
|
—
|
|
|
—
|
|
Commercial & industrial
|
|
2
|
|
|
|
|
—
|
|
|
75
|
|
|
7
|
|
|
82
|
|
|
—
|
|
|
—
|
|
Commercial construction
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equipment financing
|
|
9
|
|
|
|
|
—
|
|
|
1,071
|
|
|
—
|
|
|
1,071
|
|
|
—
|
|
|
—
|
|
Total commercial
|
|
18
|
|
|
|
|
—
|
|
|
11,898
|
|
|
7
|
|
|
11,905
|
|
|
—
|
|
|
—
|
|
Residential mortgage
|
|
15
|
|
|
|
|
—
|
|
|
2,057
|
|
|
—
|
|
|
2,057
|
|
|
1
|
|
|
135
|
|
Home equity lines of credit
|
|
1
|
|
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
—
|
|
Residential construction
|
|
1
|
|
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
21
|
|
|
1
|
|
|
13
|
|
Consumer
|
|
5
|
|
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
45
|
|
|
—
|
|
|
—
|
|
Indirect auto
|
|
15
|
|
|
|
|
—
|
|
|
—
|
|
|
262
|
|
|
262
|
|
|
—
|
|
|
—
|
|
Total loans
|
|
55
|
|
|
|
|
$
|
—
|
|
|
$
|
14,005
|
|
|
$
|
335
|
|
|
$
|
14,340
|
|
|
2
|
|
|
$
|
148
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied commercial real estate
|
|
5
|
|
|
|
|
$
|
—
|
|
|
$
|
1,387
|
|
|
$
|
—
|
|
|
$
|
1,387
|
|
|
3
|
|
|
$
|
1,869
|
|
Income producing commercial real estate
|
|
2
|
|
|
|
|
106
|
|
|
3,637
|
|
|
—
|
|
|
3,743
|
|
|
—
|
|
|
—
|
|
Commercial & industrial
|
|
2
|
|
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
32
|
|
|
1
|
|
|
232
|
|
Commercial construction
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
3
|
|
Equipment financing
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial
|
|
9
|
|
|
|
|
106
|
|
|
5,056
|
|
|
—
|
|
|
5,162
|
|
|
5
|
|
|
2,104
|
|
Residential mortgage
|
|
15
|
|
|
|
|
130
|
|
|
1,770
|
|
|
—
|
|
|
1,900
|
|
|
1
|
|
|
101
|
|
Home equity lines of credit
|
|
1
|
|
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
41
|
|
|
—
|
|
|
—
|
|
Residential construction
|
|
2
|
|
|
|
|
—
|
|
|
32
|
|
|
13
|
|
|
45
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
2
|
|
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
—
|
|
|
—
|
|
Indirect auto
|
|
35
|
|
|
|
|
—
|
|
|
—
|
|
|
643
|
|
|
643
|
|
|
—
|
|
|
—
|
|
Total loans
|
|
64
|
|
|
|
|
$
|
236
|
|
|
$
|
6,858
|
|
|
$
|
704
|
|
|
$
|
7,798
|
|
|
6
|
|
|
$
|
2,205
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
Allowance for Credit Losses
The following table presents the balance and activity in the ACL by portfolio segment for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CECL
|
Year Ended December 31, 2020
|
|
Dec. 31, 2019
|
|
Adoption of CECL
|
|
Jan. 1, 2020
|
|
Initial ACL- PCD loans(1)
|
|
Charge-Offs
|
|
Recoveries
|
|
Provision
|
|
Ending
Balance
|
Owner occupied commercial
real estate
|
|
$
|
11,404
|
|
|
$
|
(1,616)
|
|
|
$
|
9,788
|
|
|
$
|
1,779
|
|
|
$
|
(70)
|
|
|
$
|
2,565
|
|
|
$
|
6,611
|
|
|
$
|
20,673
|
|
Income producing commercial
real estate
|
|
12,306
|
|
|
(30)
|
|
|
12,276
|
|
|
1,208
|
|
|
(8,430)
|
|
|
3,546
|
|
|
33,137
|
|
|
41,737
|
|
Commercial & industrial
|
|
5,266
|
|
|
4,012
|
|
|
9,278
|
|
|
7,680
|
|
|
(10,707)
|
|
|
1,371
|
|
|
14,397
|
|
|
22,019
|
|
Commercial construction
|
|
9,668
|
|
|
(2,583)
|
|
|
7,085
|
|
|
74
|
|
|
(726)
|
|
|
1,045
|
|
|
3,474
|
|
|
10,952
|
|
Equipment financing
|
|
7,384
|
|
|
5,871
|
|
|
13,255
|
|
|
—
|
|
|
(8,764)
|
|
|
2,004
|
|
|
10,325
|
|
|
16,820
|
|
Residential mortgage
|
|
8,081
|
|
|
1,569
|
|
|
9,650
|
|
|
195
|
|
|
(398)
|
|
|
455
|
|
|
5,439
|
|
|
15,341
|
|
Home equity lines of credit
|
|
4,575
|
|
|
1,919
|
|
|
6,494
|
|
|
209
|
|
|
(221)
|
|
|
677
|
|
|
1,258
|
|
|
8,417
|
|
Residential construction
|
|
2,504
|
|
|
(1,771)
|
|
|
733
|
|
|
—
|
|
|
(93)
|
|
|
156
|
|
|
(32)
|
|
|
764
|
|
Consumer
|
|
901
|
|
|
(491)
|
|
|
410
|
|
|
7
|
|
|
(2,985)
|
|
|
2,259
|
|
|
596
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACL - loans
|
|
62,089
|
|
|
6,880
|
|
|
68,969
|
|
|
11,152
|
|
|
(32,394)
|
|
|
14,078
|
|
|
75,205
|
|
|
137,010
|
|
ACL - unfunded commitments
|
|
3,458
|
|
|
1,871
|
|
|
5,329
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,229
|
|
|
10,558
|
|
Total ACL
|
|
$
|
65,547
|
|
|
$
|
8,751
|
|
|
$
|
74,298
|
|
|
$
|
11,152
|
|
|
$
|
(32,394)
|
|
|
$
|
14,078
|
|
|
$
|
80,434
|
|
|
$
|
147,568
|
|
(1) Represents the initial ACL related to PCD loans acquired in the Three Shores transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Loss
|
Year Ended December 31, 2019
|
|
Beginning
Balance
|
|
Charge-Offs
|
|
Recoveries
|
|
Provision
|
|
Ending
Balance
|
Owner occupied commercial real estate
|
|
$
|
12,207
|
|
|
$
|
(5)
|
|
|
$
|
375
|
|
|
$
|
(1,173)
|
|
|
$
|
11,404
|
|
Income producing commercial real estate
|
|
11,073
|
|
|
(1,227)
|
|
|
283
|
|
|
2,177
|
|
|
12,306
|
|
Commercial & industrial
|
|
4,802
|
|
|
(5,849)
|
|
|
852
|
|
|
5,461
|
|
|
5,266
|
|
Commercial construction
|
|
10,337
|
|
|
(290)
|
|
|
1,165
|
|
|
(1,544)
|
|
|
9,668
|
|
Equipment financing
|
|
5,452
|
|
|
(5,675)
|
|
|
781
|
|
|
6,826
|
|
|
7,384
|
|
Residential mortgage
|
|
8,295
|
|
|
(616)
|
|
|
481
|
|
|
(79)
|
|
|
8,081
|
|
Home equity lines of credit
|
|
4,752
|
|
|
(996)
|
|
|
610
|
|
|
209
|
|
|
4,575
|
|
Residential construction
|
|
2,433
|
|
|
(306)
|
|
|
157
|
|
|
220
|
|
|
2,504
|
|
Consumer
|
|
853
|
|
|
(2,390)
|
|
|
911
|
|
|
1,527
|
|
|
901
|
|
Indirect auto
|
|
999
|
|
|
(663)
|
|
|
186
|
|
|
(522)
|
|
|
—
|
|
ACL - loans
|
|
61,203
|
|
|
(18,017)
|
|
|
5,801
|
|
|
13,102
|
|
|
62,089
|
|
ACL - unfunded commitments
|
|
3,410
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
3,458
|
|
Total ACL
|
|
$
|
64,613
|
|
|
$
|
(18,017)
|
|
|
$
|
5,801
|
|
|
$
|
13,150
|
|
|
$
|
65,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Loss
|
Year Ended December 31, 2018
|
|
Beginning
Balance
|
|
Charge-Offs
|
|
Recoveries
|
|
Provision
|
|
Ending
Balance
|
Owner occupied commercial real estate
|
|
$
|
14,776
|
|
|
$
|
(303)
|
|
|
$
|
1,227
|
|
|
$
|
(3,493)
|
|
|
$
|
12,207
|
|
Income producing commercial real estate
|
|
9,381
|
|
|
(3,304)
|
|
|
1,064
|
|
|
3,932
|
|
|
11,073
|
|
Commercial & industrial
|
|
3,971
|
|
|
(1,669)
|
|
|
1,390
|
|
|
1,110
|
|
|
4,802
|
|
Commercial construction
|
|
10,523
|
|
|
(622)
|
|
|
734
|
|
|
(298)
|
|
|
10,337
|
|
Equipment financing
|
|
—
|
|
|
(1,536)
|
|
|
460
|
|
|
6,528
|
|
|
5,452
|
|
Residential mortgage
|
|
10,097
|
|
|
(754)
|
|
|
336
|
|
|
(1,384)
|
|
|
8,295
|
|
Home equity lines of credit
|
|
5,177
|
|
|
(1,194)
|
|
|
423
|
|
|
346
|
|
|
4,752
|
|
Residential construction
|
|
2,729
|
|
|
(54)
|
|
|
376
|
|
|
(618)
|
|
|
2,433
|
|
Consumer
|
|
710
|
|
|
(2,445)
|
|
|
807
|
|
|
1,781
|
|
|
853
|
|
Indirect auto
|
|
1,550
|
|
|
(1,277)
|
|
|
228
|
|
|
498
|
|
|
999
|
|
ACL - loans
|
|
58,914
|
|
|
(13,158)
|
|
|
7,045
|
|
|
8,402
|
|
|
61,203
|
|
ACL - unfunded commitments
|
|
2,312
|
|
|
—
|
|
|
—
|
|
|
1,098
|
|
|
3,410
|
|
Total ACL
|
|
$
|
61,226
|
|
|
$
|
(13,158)
|
|
|
$
|
7,045
|
|
|
$
|
9,500
|
|
|
$
|
64,613
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
As of January 1, 2020 and December 31, 2020, United used a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period. Expected credit loss rates were estimated using a regression model based on historical data from peer banks which incorporates a third party vendor’s economic forecast to predict the change in credit losses. These results were then combined with a starting value that was based on United’s recent default experience, which was adjusted for select portfolios based on expectations of future performance. At December 31, 2020, the third party vendor’s forecast, which was representative of a baseline scenario, captured the recent challenging economic environment that included high levels of unemployment, but also indicated mild improvement in the short term. The increase in the ACL compared to January 1, 2020 was primarily attributable to the worsening trends in the forecast at December 31, 2020 compared to the beginning of 2020, with the primary economic forecast driver being the change in unemployment claims due to policy decisions made in response to the COVID-19 pandemic. At December 31, 2020, United adjusted the economic forecast by eliminating the initial spike in unemployment evidenced in the first half of the year to account for the impact of government stimulus programs. In addition, United used a model overlay for the economic forecast for residential mortgage loans to better align losses in that portfolio to current conditions.
For periods beyond the reasonable and supportable forecast period of one year, United reverted to historical credit loss information on a straight line basis over two years. For all collateral types excluding residential mortgage, United reverted to through-the-cycle average default rates using peer data from 2000 to 2017. For loans secured by residential mortgages, the peer data was adjusted for changes in lending practices designed to prevent the magnitude of losses observed during the mortgage crisis.
PPP loans were considered low risk assets due to the related 100% guarantee by the SBA and were therefore excluded from the calculation.
Disaggregation of Incurred Loss Impairment Methodology
The following table presents the recorded investment in loans by portfolio segment and the balance of the ACL assigned to each segment based on the method of evaluating the loans for impairment as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Outstanding
|
|
Allowance for Credit Losses
|
|
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
|
$
|
19,233
|
|
|
$
|
1,692,448
|
|
|
$
|
8,546
|
|
|
$
|
1,720,227
|
|
|
$
|
816
|
|
|
$
|
10,483
|
|
|
$
|
105
|
|
|
$
|
11,404
|
|
Income producing commercial real estate
|
18,134
|
|
|
1,962,588
|
|
|
27,228
|
|
|
2,007,950
|
|
|
770
|
|
|
11,507
|
|
|
29
|
|
|
12,306
|
|
Commercial & industrial
|
1,449
|
|
|
1,218,882
|
|
|
326
|
|
|
1,220,657
|
|
|
21
|
|
|
5,193
|
|
|
52
|
|
|
5,266
|
|
Commercial construction
|
3,675
|
|
|
965,678
|
|
|
6,862
|
|
|
976,215
|
|
|
55
|
|
|
9,613
|
|
|
—
|
|
|
9,668
|
|
Equipment financing
|
1,027
|
|
|
739,532
|
|
|
3,985
|
|
|
744,544
|
|
|
—
|
|
|
7,240
|
|
|
144
|
|
|
7,384
|
|
Residential mortgage
|
15,991
|
|
|
1,092,046
|
|
|
9,579
|
|
|
1,117,616
|
|
|
782
|
|
|
7,296
|
|
|
3
|
|
|
8,081
|
|
Home equity lines of credit
|
992
|
|
|
658,273
|
|
|
1,410
|
|
|
660,675
|
|
|
16
|
|
|
4,541
|
|
|
18
|
|
|
4,575
|
|
Residential construction
|
1,256
|
|
|
234,807
|
|
|
374
|
|
|
236,437
|
|
|
47
|
|
|
2,456
|
|
|
1
|
|
|
2,504
|
|
Consumer
|
214
|
|
|
127,682
|
|
|
336
|
|
|
128,232
|
|
|
5
|
|
|
885
|
|
|
11
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ACL - loans
|
$
|
61,971
|
|
|
$
|
8,691,936
|
|
|
$
|
58,646
|
|
|
$
|
8,812,553
|
|
|
2,512
|
|
|
59,214
|
|
|
363
|
|
|
62,089
|
|
ACL - unfunded commitments
|
|
|
|
|
|
|
|
|
—
|
|
|
3,458
|
|
|
—
|
|
|
3,458
|
|
Total ACL
|
|
|
|
|
|
|
|
|
$
|
2,512
|
|
|
$
|
62,672
|
|
|
$
|
363
|
|
|
$
|
65,547
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Loans and Leases and Allowance for Credit Losses, continued
The following table presents loans individually evaluated for impairment by class of loans as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Unpaid Principal Balance
|
|
Recorded Investment
|
|
ACL Allocated
|
With no related ACL recorded:
|
|
|
|
|
|
Owner occupied commercial real estate
|
$
|
9,527
|
|
|
$
|
8,118
|
|
|
$
|
—
|
|
Income producing commercial real estate
|
5,159
|
|
|
4,956
|
|
|
—
|
|
Commercial & industrial
|
1,144
|
|
|
890
|
|
|
—
|
|
Commercial construction
|
2,458
|
|
|
2,140
|
|
|
—
|
|
Equipment financing
|
1,027
|
|
|
1,027
|
|
|
—
|
|
Total commercial
|
19,315
|
|
|
17,131
|
|
|
—
|
|
Residential mortgage
|
7,362
|
|
|
6,436
|
|
|
—
|
|
Home equity lines of credit
|
1,116
|
|
|
861
|
|
|
—
|
|
Residential construction
|
731
|
|
|
626
|
|
|
—
|
|
Consumer
|
66
|
|
|
53
|
|
|
—
|
|
|
|
|
|
|
|
Total with no related ACL recorded
|
28,590
|
|
|
25,107
|
|
|
—
|
|
With an ACL recorded:
|
|
|
|
|
|
Owner occupied commercial real estate
|
11,136
|
|
|
11,115
|
|
|
816
|
|
Income producing commercial real estate
|
13,591
|
|
|
13,178
|
|
|
770
|
|
Commercial & industrial
|
559
|
|
|
559
|
|
|
21
|
|
Commercial construction
|
1,535
|
|
|
1,535
|
|
|
55
|
|
Equipment financing
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial
|
26,821
|
|
|
26,387
|
|
|
1,662
|
|
Residential mortgage
|
9,624
|
|
|
9,555
|
|
|
782
|
|
Home equity lines of credit
|
146
|
|
|
131
|
|
|
16
|
|
Residential construction
|
643
|
|
|
630
|
|
|
47
|
|
Consumer
|
161
|
|
|
161
|
|
|
5
|
|
|
|
|
|
|
|
Total with an ACL recorded
|
37,395
|
|
|
36,864
|
|
|
2,512
|
|
Total
|
$
|
65,985
|
|
|
$
|
61,971
|
|
|
$
|
2,512
|
|
The average balances of impaired loans and income recognized on impaired loans while they were considered impaired is presented below for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
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
|
$
|
18,575
|
|
|
$
|
1,124
|
|
|
$
|
1,171
|
|
|
$
|
19,881
|
|
|
$
|
1,078
|
|
|
$
|
1,119
|
|
Income producing commercial
real estate
|
14,253
|
|
|
739
|
|
|
730
|
|
|
17,138
|
|
|
893
|
|
|
895
|
|
Commercial & industrial
|
1,837
|
|
|
84
|
|
|
100
|
|
|
1,777
|
|
|
100
|
|
|
100
|
|
Commercial construction
|
3,233
|
|
|
129
|
|
|
146
|
|
|
3,247
|
|
|
176
|
|
|
174
|
|
Equipment financing
|
159
|
|
|
23
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial
|
38,057
|
|
|
2,099
|
|
|
2,170
|
|
|
42,043
|
|
|
2,247
|
|
|
2,288
|
|
Residential mortgage
|
16,115
|
|
|
748
|
|
|
749
|
|
|
14,515
|
|
|
641
|
|
|
643
|
|
Home equity lines of credit
|
488
|
|
|
14
|
|
|
15
|
|
|
284
|
|
|
18
|
|
|
16
|
|
Residential construction
|
1,332
|
|
|
92
|
|
|
94
|
|
|
1,405
|
|
|
96
|
|
|
95
|
|
Consumer
|
203
|
|
|
15
|
|
|
15
|
|
|
249
|
|
|
18
|
|
|
18
|
|
Indirect auto
|
1,028
|
|
|
50
|
|
|
50
|
|
|
1,252
|
|
|
64
|
|
|
64
|
|
Total
|
$
|
57,223
|
|
|
$
|
3,018
|
|
|
$
|
3,093
|
|
|
$
|
59,748
|
|
|
$
|
3,084
|
|
|
$
|
3,124
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Premises and Equipment
Premises and equipment are summarized as follows as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Land and land improvements
|
$
|
82,816
|
|
|
$
|
81,150
|
|
|
|
Buildings and improvements
|
173,497
|
|
|
170,629
|
|
|
|
Furniture and equipment
|
96,157
|
|
|
97,997
|
|
|
|
Construction in progress
|
7,590
|
|
|
1,701
|
|
|
|
|
360,060
|
|
|
351,477
|
|
|
|
Less accumulated depreciation
|
(141,571)
|
|
|
(135,501)
|
|
|
|
Premises and equipment, net
|
$
|
218,489
|
|
|
$
|
215,976
|
|
|
Depreciation expense was $15.6 million, $15.3 million and $14.2 million for 2020, 2019 and 2018, respectively.
(8) Derivatives and Hedging Activities
The table below presents the fair value of derivative financial instruments as of the dates indicated as well as their classification on the consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Notional Amount
|
|
Fair Value
|
|
Fair Value
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Derivative Assets
|
|
Derivative Liabilities
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge of subordinated debt
|
|
$
|
100,000
|
|
|
$
|
3,378
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash flow hedge of trust preferred securities
|
|
20,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value hedge of brokered CDs
|
|
20,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
880
|
|
Total
|
|
140,000
|
|
|
3,378
|
|
|
—
|
|
|
—
|
|
|
880
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Customer derivative positions
|
|
1,329,271
|
|
|
72,508
|
|
|
17
|
|
|
27,277
|
|
|
446
|
|
Dealer offsets to customer derivative positions
|
|
1,329,271
|
|
|
1
|
|
|
24,614
|
|
|
394
|
|
|
6,425
|
|
Risk participations
|
|
48,843
|
|
|
28
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Mortgage banking - loan commitment
|
|
253,243
|
|
|
10,751
|
|
|
—
|
|
|
1,970
|
|
|
—
|
|
Mortgage banking - forward sales commitment
|
|
325,145
|
|
|
—
|
|
|
1,964
|
|
|
98
|
|
|
86
|
|
Bifurcated embedded derivatives
|
|
51,935
|
|
|
—
|
|
|
1,449
|
|
|
5,268
|
|
|
—
|
|
Dealer offsets to bifurcated embedded derivatives
|
|
51,935
|
|
|
—
|
|
|
947
|
|
|
—
|
|
|
7,667
|
|
Total
|
|
3,389,643
|
|
|
83,288
|
|
|
29,003
|
|
|
35,007
|
|
|
14,636
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
3,529,643
|
|
|
$
|
86,666
|
|
|
$
|
29,003
|
|
|
$
|
35,007
|
|
|
$
|
15,516
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross derivative instruments
|
|
|
|
$
|
86,666
|
|
|
$
|
29,003
|
|
|
$
|
35,007
|
|
|
$
|
15,516
|
|
Less: Amounts subject to master netting agreements
|
|
|
|
(114)
|
|
|
(114)
|
|
|
(401)
|
|
|
(401)
|
|
Less: Cash collateral received/pledged
|
|
|
|
(3,200)
|
|
|
(27,092)
|
|
|
—
|
|
|
(14,933)
|
|
Net amount
|
|
|
|
$
|
83,352
|
|
|
$
|
1,797
|
|
|
$
|
34,606
|
|
|
$
|
182
|
|
United clears certain derivatives centrally through the CME. CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives’ exposure rather than as collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting purposes. Variation margin,
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Derivatives and Hedging Activities, continued
as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero.
Hedging Derivatives
Cash Flow Hedges of Interest Rate Risk
United enters into cash flow hedges to mitigate exposure to the variability of future cash flows or other forecasted transactions. During the second quarter of 2020, United entered into three cash flow hedges using interest rate caps and swaps with an aggregate notional amount of $120 million to hedge the variability of cash flows due to changes in interest rates on certain of its variable-rate subordinated debt and trust preferred securities. United considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest rates. Therefore, changes in the fair value of these derivative instruments are recognized in other comprehensive income. Gains and losses related to changes in fair value are reclassified into earnings in the periods the hedged forecasted transactions occur. Losses representing amortization of the premium recorded on cash flow hedges, which is a component excluded from the assessment of effectiveness, are recognized in earnings on a straight-line basis in the same caption as the hedged item over the term of the hedge. Over the next twelve months United expects to reclassify $594,000 of losses from AOCI into earnings related to these agreements.
At December 31, 2019, United had no active cash flow hedges. The loss remaining in other comprehensive income from prior hedges that had previously been de-designated was being amortized into earnings over the original term of the swaps as the forecasted transactions that the swaps were originally designated to hedge were still expected to occur. This was the only effect of cash flow hedges on the consolidated statements of income for the years ended December 31, 2019 and 2018. During the second quarter of 2019, United amortized the remaining balance of losses on terminated hedging positions from other comprehensive income. See Note 17 for further detail.
Fair Value Hedges of Interest Rate Risk
United is exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in interest rates. United uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in interest rates. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. United includes the gain or loss on the hedged items in the same income statement line item as the offsetting loss or gain on the related derivatives.
At December 31, 2020 and 2019, United had two and four interest rate swaps with an aggregate notional amount of $20.0 million and $37.9 million, respectively, that were designated as fair value hedges of fixed-rate brokered time deposits. The swaps involved the receipt of fixed-rate amounts from a counterparty in exchange for United making variable rate payments over the life of the agreements.
In certain cases, the estate of deceased brokered certificate of deposit holders may put the certificate of deposit back to United at par upon the death of the holder. When these events occur (estate puts), a gain or loss is recognized for the difference between the fair value and the par amount of the deposits put back. The change in the fair value of brokered time deposits that are being hedged in fair value hedging relationships reported in the table below includes gains and losses from estate puts.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Derivatives and Hedging Activities, continued
The table below presents the effect of derivatives in hedging relationships on the consolidated statements of income (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
|
|
2019
|
|
|
|
2018
|
|
Interest expense
|
|
|
|
Interest expense
|
|
|
|
Interest expense
|
|
Interest revenue - taxable investment securities
|
Other noninterest income
|
Total income (expense) presented in the
consolidated statements of income
|
$
|
(56,237)
|
|
|
|
|
$
|
(83,312)
|
|
|
|
|
$
|
(61,330)
|
|
|
$
|
73,496
|
|
$
|
24,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts related to interest settlements
on derivatives
|
291
|
|
|
|
|
(327)
|
|
|
|
|
(245)
|
|
|
17
|
|
—
|
|
Recognized on derivatives
|
870
|
|
|
|
|
733
|
|
|
|
|
(220)
|
|
|
—
|
|
356
|
|
Recognized on hedged items
|
(880)
|
|
|
|
|
(766)
|
|
|
|
|
(145)
|
|
|
—
|
|
(447)
|
|
Net income (expense) recognized on fair value hedges
|
$
|
281
|
|
|
|
|
$
|
(360)
|
|
|
|
|
$
|
(610)
|
|
|
$
|
17
|
|
$
|
(91)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on cash flow hedging relationships (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized losses reclassified from AOCI into net income (2)
|
$
|
(359)
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
Net expense recognized on cash flow hedges
|
$
|
(359)
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
(1) Excludes 2019 and 2018 amortization of losses related to de-designated cash flow hedges. See Note 17 for further detail.
(2) Includes $329,000 of premium amortization expense excluded from the assessment of hedge effectiveness for the year ended December 31, 2020.
The table below presents the carrying amount of hedged fixed-rate brokered time deposits and cumulative fair value hedging adjustments included in the carrying amount of the hedged liability for the periods presented (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Balance Sheet Location
|
|
Carrying amount of Assets (Liabilities)
|
|
Hedge Accounting Basis Adjustment
|
|
Carrying amount of Assets (Liabilities)
|
|
Hedge Accounting Basis Adjustment
|
|
Deposits
|
|
$
|
(20,216)
|
|
|
$
|
(235)
|
|
|
$
|
(35,880)
|
|
|
$
|
645
|
|
|
Derivatives Not Designated as Hedging Instruments
Customer derivative positions include swaps, caps, and collars between United and certain commercial loan customers with offsetting positions to dealers under a back-to-back program. In addition, United occasionally enters into credit risk participation agreements with counterparty banks to accept or transfer a portion of the credit risk related to interest rate swaps. The agreements, which are typically executed in conjunction with a participation in a loan with the same customer, allow customers to execute an interest rate swap with one bank while allowing for the distribution of the credit risk among participating members.
United also has three interest rate swap contracts that are not designated as hedging instruments but are economic hedges of market-linked brokered certificates of deposit. The market-linked brokered certificates of deposit contain embedded derivatives that are bifurcated from the host instruments and marked to market through earnings. The fair value marks on the market linked swaps and the bifurcated embedded derivatives tend to move in opposite directions with changes in 90-day LIBOR and therefore provide an economic hedge.
In addition, United originates certain residential mortgage loans with the intention of selling these loans. Between the time United enters into an interest-rate lock commitment to originate a residential mortgage loan that is to be held for sale and the time the
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Derivatives and Hedging Activities, continued
loan is funded and eventually sold, United is subject to the risk of variability in market prices. United also enters into forward sale agreements to mitigate risk and to protect the expected gain on the eventual loan sale. The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments. Fair value adjustments on these derivative instruments are recorded within mortgage loan gains and related fees in the consolidated statements of income.
The table below presents the gains and losses recognized in income on derivatives not designated as hedging instruments for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Location
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Customer derivatives and dealer offsets
|
Other noninterest income
|
|
$
|
6,732
|
|
|
$
|
2,878
|
|
|
$
|
2,658
|
|
Bifurcated embedded derivatives and dealer offsets
|
Other noninterest income
|
|
(63)
|
|
|
212
|
|
|
307
|
|
Interest rate caps
|
Other noninterest income
|
|
—
|
|
|
—
|
|
|
501
|
|
De-designated hedges
|
Other noninterest income
|
|
—
|
|
|
(193)
|
|
|
31
|
|
Mortgage banking derivatives
|
Mortgage loan revenue
|
|
(7,873)
|
|
|
(1,797)
|
|
|
904
|
|
Risk participations
|
Other noninterest income
|
|
(340)
|
|
|
(3)
|
|
|
12
|
|
Total gains and losses
|
|
|
$
|
(1,544)
|
|
|
$
|
1,097
|
|
|
$
|
4,413
|
|
Credit-risk-related Contingent Features
United manages its credit exposure on derivative transactions by entering into a bilateral credit support agreement with each non-customer counterparty. The credit support agreements require collateralization of exposures beyond specified minimum threshold amounts. The details of these agreements, including the minimum thresholds, vary by counterparty.
United’s agreements with each of its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivative counterparties also include provisions that if not met, could result in United being declared in default. United has agreements with certain of its derivative counterparties that provide that if United fails to maintain its status as a well-capitalized institution or is subject to a prompt corrective action directive, the counterparty could terminate the derivative positions and United would be required to settle its obligations under the agreements. Derivatives that are centrally cleared do not have credit-risk-related features that require additional collateral if United’s credit rating were downgraded.
(9) Goodwill and Other Intangible Assets
The carrying amount of goodwill and other intangible assets is summarized below as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Core deposit intangible
|
$
|
36,162
|
|
|
$
|
32,802
|
|
|
|
Less: accumulated amortization
|
(22,148)
|
|
|
(17,980)
|
|
|
|
Net core deposit intangible
|
14,014
|
|
|
14,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
367,809
|
|
|
327,425
|
|
|
|
Total goodwill and other intangible assets, net
|
$
|
381,823
|
|
|
$
|
342,247
|
|
|
The following is a summary of changes in the carrying amounts of goodwill for the years indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (1)
|
|
|
December 31, 2018
|
|
|
|
|
$
|
307,112
|
|
|
|
Acquisition of FMBT
|
|
|
|
|
20,313
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
327,425
|
|
|
|
Acquisition of Three Shores
|
|
|
|
|
40,384
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
$
|
367,809
|
|
|
(1) Goodwill balances presented are shown net of accumulated impairment losses of $306 million incurred prior to 2018. Gross goodwill for December 31, 2020, 2019, and 2018 totaled $673 million, $633 million and $613 million, respectively.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Goodwill and Other Intangible Assets, continued
The estimated aggregate amortization expense for future periods for core deposit intangibles is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
2021
|
$
|
3,622
|
|
|
|
2022
|
2,915
|
|
|
|
2023
|
2,321
|
|
|
|
2024
|
1,834
|
|
|
|
2025
|
1,414
|
|
|
|
Thereafter
|
1,908
|
|
|
|
Total
|
$
|
14,014
|
|
|
(10) Servicing Assets and Liabilities
Servicing Rights for SBA/USDA Loans
United accounts for servicing rights for SBA/USDA loans at fair value. The following table summarizes the changes in SBA/USDA servicing rights for the years indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Servicing rights for SBA/USDA loans, beginning of period
|
$
|
6,794
|
|
|
$
|
7,510
|
|
|
$
|
7,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated servicing rights capitalized upon sale of loans
|
1,114
|
|
|
1,835
|
|
|
2,573
|
|
|
|
|
|
|
|
Disposals
|
(624)
|
|
|
(1,258)
|
|
|
(810)
|
|
|
|
|
|
|
|
Measurement period adjustment to acquired servicing rights
|
—
|
|
|
—
|
|
|
(354)
|
|
Changes in fair value due to change in inputs or assumptions used in the valuation
|
(822)
|
|
|
(1,293)
|
|
|
(1,639)
|
|
Servicing rights for SBA/USDA loans, end of period
|
$
|
6,462
|
|
|
$
|
6,794
|
|
|
$
|
7,510
|
|
The portfolio of SBA/USDA loans serviced for others, which is not included in the accompanying balance sheets, was $402 million and $411 million, respectively, at December 31, 2020 and 2019. The amount of contractually specified servicing fees earned by United on these servicing rights during the years ended December 31, 2020, 2019 and 2018 was $3.77 million, $3.82 million and $3.44 million, respectively.
A summary of the key characteristics, inputs, and economic assumptions used in the discounted cash flow method utilized to estimate the fair value of the servicing asset for SBA/USDA loans and the sensitivity of the fair values to immediate adverse changes in those assumptions are shown in the table below as of the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Fair value of retained servicing assets
|
$
|
6,462
|
|
|
$
|
6,794
|
|
|
|
Prepayment rate assumption:
|
|
|
|
|
|
Weighted average
|
17.8
|
%
|
|
16.5
|
%
|
|
|
Range
|
2.7% - 33.6%
|
|
|
|
|
10% adverse change
|
$
|
(358)
|
|
|
$
|
(352)
|
|
|
|
20% adverse change
|
(680)
|
|
|
(671)
|
|
|
|
Discount rate:
|
|
|
|
|
|
Weighted average
|
8.9
|
%
|
|
12.3
|
%
|
|
|
Range
|
1.6% - 44.1%
|
|
|
|
|
100 bps adverse change
|
$
|
(171)
|
|
|
$
|
(184)
|
|
|
|
200 bps adverse change
|
(333)
|
|
|
(358)
|
|
|
|
Life (in years):
|
|
|
|
|
|
Weighted-average
|
3.5
|
|
3.9
|
|
|
Range
|
0.6 - 5.6
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
Weighted-average
|
1.9
|
%
|
|
1.9
|
%
|
|
|
Range
|
0.0% - 3.2%
|
|
|
|
The above sensitivities are hypothetical and changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table,
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Servicing Assets and Liabilities, continued
the effect of a variation in a particular assumption is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.
Residential Mortgage Servicing Rights
United accounts for residential mortgage servicing rights at fair value. The following table summarizes the changes in residential mortgage servicing rights for the years indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Residential mortgage servicing rights, beginning of period
|
$
|
13,565
|
|
|
$
|
11,877
|
|
|
$
|
8,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated servicing rights capitalized upon sale of loans
|
11,911
|
|
|
5,783
|
|
|
4,587
|
|
|
|
|
|
|
|
Disposals
|
(2,868)
|
|
|
(1,098)
|
|
|
(537)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value due to change in inputs or assumptions used in the valuation
|
(6,392)
|
|
|
(2,997)
|
|
|
(435)
|
|
Residential mortgage servicing rights, end of period
|
$
|
16,216
|
|
|
$
|
13,565
|
|
|
$
|
11,877
|
|
The portfolio of residential mortgage loans serviced for others, which is not included in the consolidated balance sheets, was $2.31 billion and $1.60 billion, respectively, at December 31, 2020 and 2019. The amount of contractually specified servicing fees earned by United on these servicing rights during the years ended December 31, 2020, 2019 and 2018 was $4.82 million, $3.67 million and $2.37 million, respectively.
A summary of the key characteristics, inputs, and economic assumptions used to estimate the fair value of the servicing asset for residential mortgage loans and the sensitivity of the fair values to immediate adverse changes in those assumptions are shown in the table below as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Fair value of retained servicing assets
|
$
|
16,216
|
|
|
$
|
13,565
|
|
|
|
Prepayment rate assumption:
|
|
|
|
|
|
Weighted average
|
17.7
|
%
|
|
14.1
|
%
|
|
|
Range
|
8.7% - 19.5%
|
|
|
|
|
10% adverse change
|
$
|
(999)
|
|
|
$
|
(662)
|
|
|
|
20% adverse change
|
(1,912)
|
|
|
(1,270)
|
|
|
|
Discount rate:
|
|
|
|
|
|
Weighted average
|
10.0
|
%
|
|
10.0
|
%
|
|
|
Range
|
10.0% - 11.0%
|
|
|
|
|
100 bps adverse change
|
$
|
(518)
|
|
|
$
|
(467)
|
|
|
|
200 bps adverse change
|
(1,001)
|
|
|
(900)
|
|
|
The above sensitivities are hypothetical and changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.
Servicing Liabilities for Equipment Financing Loans
United accounts for servicing liabilities associated with sold equipment finance loans using the amortization method. The portfolio of equipment financing loans serviced for others, which is not included in the accompanying balance sheets, was $45.5 million and $42.4 million at December 31, 2020 and 2019, respectively. The servicing liabilities related to these loans totaled $357,000 and $363,000 at December 31, 2020 and 2019, respectively.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Time Deposits
At December 31, 2020, the contractual maturities of time deposits, including brokered time deposits, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
$
|
1,418,807
|
|
|
|
2022
|
211,523
|
|
|
|
2023
|
59,153
|
|
|
|
2024
|
25,513
|
|
|
|
2025
|
20,816
|
|
|
|
Thereafter
|
50,579
|
|
|
|
Total time deposits
|
$
|
1,786,391
|
|
|
At December 31, 2020 and 2019, time deposits, excluding brokered time deposits, that met or exceeded the FDIC insurance limit of $250,000 totaled $317 million and $367 million, respectively.
(12) Long-term Debt
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Issue Date
|
|
Stated Maturity Date
|
|
Earliest Call Date
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Interest Rate
|
Obligations of the Bank:
|
|
|
|
|
|
|
|
|
|
|
|
2026 subordinated debentures
|
$
|
15,000
|
|
|
$
|
—
|
|
|
2016
|
|
2026
|
|
2021
|
|
5.875% through August 2021, 3-month LIBOR plus 4.70% thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of the Holding Company:
|
|
|
|
|
|
|
|
|
|
|
|
2022 senior debentures
|
50,000
|
|
|
50,000
|
|
|
2015
|
|
2022
|
|
2020
|
|
5.000% through August 2020, 3-month LIBOR plus 3.814% thereafter
|
2027 senior debentures
|
35,000
|
|
|
35,000
|
|
|
2015
|
|
2027
|
|
2025
|
|
5.500% through August 2025, 3-month LIBOR plus 3.71% thereafter
|
2030 senior debentures
|
100,000
|
|
|
—
|
|
|
2020
|
|
2030
|
|
2025
|
|
5.00% through June 2025, 3-month SOFR plus 4.87% thereafter
|
Total senior debentures
|
185,000
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2028 subordinated debentures
|
100,000
|
|
|
100,000
|
|
|
2018
|
|
2028
|
|
2023
|
|
4.500% through January 2023, 3-month LIBOR plus 2.12% thereafter
|
2025 subordinated debentures
|
11,250
|
|
|
11,250
|
|
|
2015
|
|
2025
|
|
2020
|
|
6.250%
|
Total subordinated debentures
|
111,250
|
|
|
111,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Bancorp Capital Trust I
|
4,382
|
|
|
4,382
|
|
|
2004
|
|
2034
|
|
2009
|
|
Prime + 1.00%
|
Tidelands Statutory Trust I
|
8,248
|
|
|
8,248
|
|
|
2006
|
|
2036
|
|
2011
|
|
3-month LIBOR plus 1.38%
|
Four Oaks Statutory Trust I
|
12,372
|
|
|
12,372
|
|
|
2006
|
|
2036
|
|
2011
|
|
3-month LIBOR plus 1.35%
|
Total trust preferred securities
|
25,002
|
|
|
25,002
|
|
|
|
|
|
|
|
|
|
Less net discount
|
(9,296)
|
|
|
(8,588)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
$
|
326,956
|
|
|
$
|
212,664
|
|
|
|
|
|
|
|
|
|
Interest is currently paid at least semiannually for all senior and subordinated debentures, and trust preferred securities.
Subsequent to year-end, United redeemed in whole the 2025 subordinated debentures and the Southern Bancorp Capital Trust I trust preferred securities.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Operating Leases
The following table presents the balances of the right-of-use asset and corresponding operating lease liability as of the dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Balance Sheet Location
|
|
2020
|
|
2019
|
|
|
Right-of-use asset
|
Other assets
|
|
$
|
31,398
|
|
|
$
|
19,894
|
|
|
|
Operating lease liability
|
Other liabilities
|
|
33,095
|
|
|
22,039
|
|
|
During 2020, United obtained building and office space right-of-use assets resulting in an increase in its operating lease liability of $17.4 million. Leases assumed as part of the Three Shores transaction accounted for $15.1 million of the increase.
The table below presents the operating lease income and expense recognized for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Location
|
|
2020
|
|
2019
|
|
|
|
Operating lease cost
|
Occupancy expense
|
|
$
|
6,449
|
|
|
$
|
5,067
|
|
|
|
|
Variable lease cost
|
Occupancy expense
|
|
757
|
|
|
449
|
|
|
|
|
Short-term lease cost
|
Occupancy expense
|
|
100
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
|
$
|
7,306
|
|
|
$
|
5,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease income and rental income from owned properties under operating leases
|
Other noninterest income
|
|
$
|
1,022
|
|
|
$
|
1,160
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense recorded in accordance with ASC 840 for the year ended December 31, 2018 was $4.70 million.
As of December 31, 2020, the weighted average remaining lease term and weighted average discount rate of operating leases was 5.74 years and 1.79%, respectively. Absent a readily determinable interest rate in the lease agreement, the discount rate applied to each individual lease obligation was the Bank’s incremental borrowing rate for secured borrowings.
As of December 31, 2020, future minimum lease payments under operating leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
2021
|
$
|
7,446
|
|
|
|
2022
|
7,544
|
|
|
|
2023
|
6,953
|
|
|
|
2024
|
3,417
|
|
|
|
2025
|
2,403
|
|
|
|
Thereafter
|
6,996
|
|
|
|
Total
|
34,759
|
|
|
|
Less discount
|
(1,664)
|
|
|
|
Present value of lease liability
|
$
|
33,095
|
|
|
(14) Fair Value Measurements
Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, United uses a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). United has processes in place to review the significant valuation inputs and to reassess how the instruments are classified in the valuation framework.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value Measurements, continued
Fair Value Hierarchy
Level 1 Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that United has the ability to access.
Level 2 Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.
Level 3 Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. United’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.
Investment Securities
Debt securities available-for-sale and equity securities with readily determinable fair values are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds, corporate debt securities and asset-backed securities and are valued based on observable inputs that include: quoted market prices for similar assets, quoted market prices that are not in an active market or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the securities. Securities classified as Level 3 include those traded in less liquid markets and are valued based on estimates obtained from broker-dealers that are not directly observable.
Deferred Compensation Plan Assets and Liabilities
Included in other assets in the consolidated balance sheets are assets related to employee deferred compensation plans. The assets associated with these plans are invested in mutual funds and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which mirrors the fair value of the invested assets and is included in other liabilities in the consolidated balance sheets.
Mortgage Loans Held for Sale
United has elected the fair value option for newly originated mortgage loans held for sale in order to reduce certain timing differences and better match changes in fair values of the loans with changes in the value of derivative instruments used to economically hedge them. The fair value of mortgage loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan and are classified as Level 2.
Derivative Financial Instruments
United uses derivatives to manage interest rate risk. The valuation of these instruments is typically determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. United also uses best effort and mandatory delivery forward loan sale commitments to hedge risk in its mortgage lending business.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value Measurements, continued
United incorporates credit valuation adjustments (“CVAs”) as necessary to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, United has considered the effect of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.
Management has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. However, the CVAs associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. Generally, management’s assessment of the significance of the CVAs has indicated that they are not a significant input to the overall valuation of the derivatives. In cases where management’s assessment indicates that the CVA is a significant input, the related derivative is disclosed as a Level 3 value. During the second quarter of 2020, certain derivative assets were transferred from Level 2 to Level 3 of the fair value hierarchy due to a change in the assessment of significance of the CVA.
Other derivatives classified as Level 3 include structured derivatives for which broker quotes, used as a key valuation input, were not observable. Risk participation agreements are classified as Level 3 instruments due to the incorporation of significant Level 3 inputs used to evaluate the probability of funding and the likelihood of customer default. Interest rate lock commitments, which relate to mortgage loan commitments, are categorized as Level 3 instruments as the fair value of these instruments is based on unobservable inputs for commitments that United does not expect to fund.
Servicing Rights for Residential Mortgage and SBA/USDA Loans
United recognizes servicing rights upon the sale of residential mortgage and SBA/USDA loans sold with servicing retained. Management has elected to carry these assets at fair value. Given the nature of the assets, the key valuation inputs are unobservable and management considers these Level 3 assets. For disclosure regarding the fair value of servicing rights, see Note 10.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The table below presents United’s assets and liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Debt securities available for sale:
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
128,072
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,072
|
|
U.S. Government agencies & GSEs
|
|
—
|
|
|
152,972
|
|
|
—
|
|
|
152,972
|
|
State and political subdivisions
|
|
—
|
|
|
274,472
|
|
|
—
|
|
|
274,472
|
|
Residential mortgage-backed securities
|
|
—
|
|
|
1,485,585
|
|
|
—
|
|
|
1,485,585
|
|
Commercial mortgage-backed securities
|
|
—
|
|
|
549,131
|
|
|
—
|
|
|
549,131
|
|
Corporate bonds
|
|
—
|
|
|
70,017
|
|
|
1,750
|
|
|
71,767
|
|
Asset-backed securities
|
|
—
|
|
|
562,722
|
|
|
—
|
|
|
562,722
|
|
Equity securities with readily determinable fair values
|
|
774
|
|
|
913
|
|
|
—
|
|
|
1,687
|
|
Mortgage loans held for sale
|
|
—
|
|
|
105,433
|
|
|
—
|
|
|
105,433
|
|
Deferred compensation plan assets
|
|
9,584
|
|
|
—
|
|
|
—
|
|
|
9,584
|
|
Servicing rights for SBA/USDA loans
|
|
—
|
|
|
—
|
|
|
6,462
|
|
|
6,462
|
|
Residential mortgage servicing rights
|
|
—
|
|
|
—
|
|
|
16,216
|
|
|
16,216
|
|
Derivative financial instruments
|
|
—
|
|
|
75,887
|
|
|
10,779
|
|
|
86,666
|
|
Total assets
|
|
$
|
138,430
|
|
|
$
|
3,277,132
|
|
|
$
|
35,207
|
|
|
$
|
3,450,769
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability
|
|
$
|
9,590
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,590
|
|
Derivative financial instruments
|
|
—
|
|
|
26,595
|
|
|
2,408
|
|
|
29,003
|
|
Total liabilities
|
|
$
|
9,590
|
|
|
$
|
26,595
|
|
|
$
|
2,408
|
|
|
$
|
38,593
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value Measurements, continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
154,618
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
154,618
|
|
U.S. Government agencies & GSEs
|
|
—
|
|
|
3,035
|
|
|
—
|
|
|
3,035
|
|
State and political subdivisions
|
|
—
|
|
|
226,490
|
|
|
—
|
|
|
226,490
|
|
Residential mortgage-backed securities
|
|
—
|
|
|
1,299,025
|
|
|
—
|
|
|
1,299,025
|
|
Commercial mortgage-backed securities
|
|
—
|
|
|
284,953
|
|
|
—
|
|
|
284,953
|
|
Corporate bonds
|
|
—
|
|
|
202,093
|
|
|
998
|
|
|
203,091
|
|
Asset-backed securities
|
|
—
|
|
|
103,369
|
|
|
—
|
|
|
103,369
|
|
Equity securities with readily determinable fair values
|
|
1,973
|
|
|
—
|
|
|
—
|
|
|
1,973
|
|
Mortgage loans held for sale
|
|
—
|
|
|
58,484
|
|
|
—
|
|
|
58,484
|
|
Deferred compensation plan assets
|
|
8,133
|
|
|
—
|
|
|
—
|
|
|
8,133
|
|
Servicing rights for SBA/USDA loans
|
|
—
|
|
|
—
|
|
|
6,794
|
|
|
6,794
|
|
Residential mortgage servicing rights
|
|
—
|
|
|
—
|
|
|
13,565
|
|
|
13,565
|
|
Derivative financial instruments
|
|
—
|
|
|
27,769
|
|
|
7,238
|
|
|
35,007
|
|
Total assets
|
|
$
|
164,724
|
|
|
$
|
2,205,218
|
|
|
$
|
28,595
|
|
|
$
|
2,398,537
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability
|
|
$
|
8,132
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,132
|
|
Derivative financial instruments
|
|
—
|
|
|
6,957
|
|
|
8,559
|
|
|
15,516
|
|
Total liabilities
|
|
$
|
8,132
|
|
|
$
|
6,957
|
|
|
$
|
8,559
|
|
|
$
|
23,648
|
|
For disclosure regarding the fair value of servicing rights, see Note 10. The following table shows a reconciliation of the beginning and ending balances for all other assets measured at fair value on a recurring basis using significant unobservable inputs that are classified as Level 3 values (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Asset
|
|
Derivative
Liability
|
|
|
|
|
|
Debt Securities
Available-
for-Sale
|
|
|
December 31, 2017
|
$
|
12,207
|
|
|
$
|
16,744
|
|
|
|
|
|
|
$
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and settlements
|
(1,029)
|
|
|
(1,347)
|
|
|
|
|
|
|
—
|
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
|
|
|
|
95
|
|
|
|
Amounts included in earnings - fair value adjustments
|
663
|
|
|
335
|
|
|
|
|
|
|
—
|
|
|
|
December 31, 2018
|
11,841
|
|
|
15,732
|
|
|
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and settlements
|
(1,135)
|
|
|
(2,330)
|
|
|
|
|
|
|
—
|
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
|
|
|
|
3
|
|
|
|
Amounts included in earnings - fair value adjustments
|
(3,468)
|
|
|
(4,843)
|
|
|
|
|
|
|
—
|
|
|
|
December 31, 2019
|
7,238
|
|
|
8,559
|
|
|
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into Level 3
|
583
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
Additions
|
368
|
|
|
—
|
|
|
|
|
|
|
1,750
|
|
|
|
Sales and settlements
|
—
|
|
|
—
|
|
|
|
|
|
|
(1,000)
|
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
|
|
|
|
2
|
|
|
|
Amounts included in earnings - fair value adjustments
|
2,590
|
|
|
(6,151)
|
|
|
|
|
|
|
—
|
|
|
|
December 31, 2020
|
$
|
10,779
|
|
|
$
|
2,408
|
|
|
|
|
|
|
$
|
1,750
|
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value Measurements, continued
The following table presents quantitative information about recurring Level 3 fair value measurements, excluding servicing rights which are detailed in Note 10 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Technique
|
|
|
|
December 31,
|
Level 3 Assets
|
|
|
|
|
|
|
Unobservable Inputs
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Low
|
High
|
Weighted Average
|
|
|
|
Weighted Average
|
Corporate bonds
|
|
|
|
|
|
Indicative bid provided by a broker
|
|
Multiple factors, including but not limited to, current operations, financial condition, cash flows, and similar financing transactions executed in the market
|
|
N/A
|
N/A
|
N/A
|
|
|
|
N/A
|
Derivative assets - mortgage
|
|
|
|
|
|
Internal model
|
|
Pull through rate
|
|
65.6%
|
100%
|
83.9%
|
|
|
|
83.6%
|
Derivative assets - customer derivative positions
|
|
|
|
|
|
Internal model
|
|
Probability of default rate & loss given default
|
|
100
|
100
|
100
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets & liabilities - risk participations
|
|
|
|
|
|
Internal model
|
|
Probable exposure rate
|
|
0.06
|
3.66
|
1.81
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
Probability of default rate
|
|
0.16
|
13.1
|
4.03
|
|
|
|
1.80
|
Derivative assets & liabilities - other
|
|
|
|
|
|
Dealer priced
|
|
Dealer priced
|
|
N/A
|
N/A
|
N/A
|
|
|
|
N/A
|
Fair Value Option
United records mortgage loans held for sale at fair value under the fair value option. Interest income on these loans is calculated based on the note rate of the loan and is recorded in interest revenue. The following tables present the fair value and outstanding principal balance of these loans, as well as the gain or loss recognized resulting from the change in fair value for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Held for Sale
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Outstanding principal balance
|
$
|
99,746
|
|
|
$
|
56,613
|
|
|
|
Fair value
|
105,433
|
|
|
58,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized on
Mortgage Loans Held for Sale
|
|
|
Location
|
2020
|
|
2019
|
|
2018
|
|
|
|
Mortgage loan gains and other related fees
|
$
|
3,815
|
|
|
$
|
1,177
|
|
|
$
|
(133)
|
|
|
|
Changes in fair value were mostly offset by hedging activities. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
United may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.
The following table presents the fair value hierarchy and carrying value of all assets that were still held as of December 31, 2020 and 2019, for which a nonrecurring fair value adjustment was recorded during the periods presented (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,404
|
|
|
$
|
29,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,977
|
|
|
$
|
20,977
|
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value Measurements, continued
Loans that are reported above as being measured at fair value on a nonrecurring basis are generally impaired loans that have either been partially charged off or have been assigned a specific reserve. Nonaccrual loans that are collateral dependent are generally written down to net realizable value, which reflects fair values less the estimated costs to sell. Specific reserves that are established based on appraised value of collateral are considered nonrecurring fair value adjustments as well. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value is further impaired below the appraised value and there is no observable market price, United records the impaired loan as nonrecurring Level 3.
Assets and Liabilities Not Measured at Fair Value
For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate are assumed to have a fair value that approximates reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For off-balance sheet derivative instruments, fair value is estimated as the amount that United would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.
Cash and cash equivalents and repurchase agreements have short maturities and therefore the carrying value approximates fair value. Due to the short-term settlement of accrued interest receivable and payable, the carrying amount closely approximates fair value.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of United’s entire holdings. All estimates are inherently subjective in nature. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include the mortgage banking operation, wealth management network, deferred income taxes, premises and equipment and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
Off-balance sheet instruments (commitments to extend credit and standby letters of credit) for which draws can be reasonably predicted are generally short-term and at variable rates. Therefore, both the carrying amount and the estimated fair value associated with these instruments are immaterial.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value Measurements, continued
The carrying amount and fair values for other financial instruments that are not measured at fair value on a recurring basis in United’s consolidated balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value Level
|
December 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
$
|
420,361
|
|
|
$
|
—
|
|
|
$
|
437,193
|
|
|
$
|
—
|
|
|
$
|
437,193
|
|
Loans, net
|
|
11,233,805
|
|
|
—
|
|
|
—
|
|
|
11,209,717
|
|
|
11,209,717
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
15,232,358
|
|
|
—
|
|
|
15,232,274
|
|
|
—
|
|
|
15,232,274
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
326,956
|
|
|
—
|
|
|
—
|
|
|
336,763
|
|
|
336,763
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
$
|
283,533
|
|
|
$
|
—
|
|
|
$
|
287,904
|
|
|
$
|
—
|
|
|
$
|
287,904
|
|
Loans, net
|
|
8,750,464
|
|
|
—
|
|
|
—
|
|
|
8,714,592
|
|
|
8,714,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
10,897,244
|
|
|
—
|
|
|
10,897,465
|
|
|
—
|
|
|
10,897,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
212,664
|
|
|
—
|
|
|
—
|
|
|
217,665
|
|
|
217,665
|
|
(15) Common and Preferred Stock
Common Stock
In November of 2020, United’s Board re-authorized its common stock repurchase plan to permit the repurchase of up to $50 million of its common stock. The program is scheduled to expire on the earlier of United’s repurchase of its common stock having an aggregate purchase price of $50 million or December 31, 2021. Under the program, shares may be repurchased in open market transactions or in privately negotiated transactions, from time to time, subject to market conditions. During 2020 and 2019, 826,482 and 500,495 shares were repurchased under the program, respectively. During 2018, no shares were repurchased under the program. As of December 31, 2020, United had remaining authorization to repurchase up to $50.0 million of outstanding common stock under the program.
United sponsors a DRIP that allows participants who already own United’s common stock to purchase additional shares directly from the Company. The DRIP also allows participants to automatically reinvest their quarterly dividends in additional shares of common stock without a commission. In 2020, 2019 and 2018, 38,107, 62,629 and 7,307 shares, respectively, were issued under the DRIP.
Preferred Stock
During 2020, United issued $100 million, or 4,000 shares, of Series I perpetual non-cumulative preferred stock (“Preferred Stock”) with a dividend rate of 6.875% per annum for net proceeds of $96.4 million and corresponding depositary shares each representing a 1/1,000th interest in one share of Preferred Stock. If declared, dividends are payable quarterly in arrears. The Preferred Stock has no stated maturity and redemption is solely at the option of United in whole, but not in part, upon the occurrence of a regulatory capital treatment event, as defined. In addition, the Preferred Stock may be redeemed on or after September 15, 2025 at a cash redemption price equal to $25,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends. As of December 31, 2020, the Preferred Stock had a carrying amount of $96.4 million. United had no preferred stock outstanding as of December 31, 2019.
(16) Equity Compensation Plans
United has an equity compensation plan that allows for grants of various share-based compensation. Options granted under the plan can have an exercise price no less than the fair market value of the underlying stock at the date of grant. The general terms of the plan include a vesting period (usually four years) with an exercisable period not to exceed ten years. Certain options and restricted stock unit awards provide for accelerated vesting if there is a change in control of United or certain other conditions are met (as defined in the plan document). As of December 31, 2020, 908,000 additional awards could be granted under the plan.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Equity Compensation Plans, continued
Restricted stock units and options outstanding and activity for the years ended December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Options
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Aggregate
Intrinsic
Value (000’s)
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
|
|
|
December 31, 2017
|
663,817
|
|
|
$
|
22.40
|
|
|
|
|
60,287
|
|
|
$
|
24.12
|
|
|
|
|
|
Granted
|
416,484
|
|
|
30.54
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Vested / Exercised
|
(290,013)
|
|
|
20.18
|
|
|
|
|
(12,000)
|
|
|
11.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
(30,542)
|
|
|
23.65
|
|
|
|
|
(1,148)
|
|
|
31.50
|
|
|
|
|
|
December 31, 2018
|
759,746
|
|
|
27.66
|
|
|
|
|
47,139
|
|
|
27.07
|
|
|
|
|
|
Granted
|
315,827
|
|
|
26.74
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Vested / Exercised
|
(216,138)
|
|
|
25.38
|
|
|
|
|
(13,000)
|
|
|
16.34
|
|
|
|
|
|
Expired
|
—
|
|
|
|
|
|
|
(30,243)
|
|
|
31.43
|
|
|
|
|
|
Cancelled
|
(51,011)
|
|
|
27.18
|
|
|
|
|
(2,396)
|
|
|
29.68
|
|
|
|
|
|
December 31, 2019
|
808,424
|
|
|
27.94
|
|
|
|
|
1,500
|
|
|
27.95
|
|
|
|
|
|
Granted
|
446,512
|
|
|
19.15
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Vested / Exercised
|
(324,697)
|
|
|
26.42
|
|
|
$
|
7,212
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
—
|
|
|
|
|
|
|
(1,500)
|
|
|
27.95
|
|
|
|
|
|
Cancelled
|
(36,808)
|
|
|
25.73
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
December 31, 2020
|
893,431
|
|
|
23.75
|
|
|
25,409
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No compensation expense relating to options was included in earnings for 2020 or 2019. Compensation expense relating to options of $18,000 was included in earnings for 2018. The amount of compensation expense for all periods was determined based on the fair value of options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period.
Compensation expense for restricted stock units without market conditions is based on the market value of United’s common stock on the date of grant. United recognizes the impact of forfeitures as they occur. The value of restricted stock unit awards is amortized into expense over the service period.
Compensation expense recognized in the consolidated statements of income for employee restricted stock unit awards in 2020, 2019 and 2018 was $7.40 million, $8.98 million and $5.69 million, respectively. Of the expense related to restricted stock unit awards during the twelve months ended December 31, 2019, $1.38 million related to the modification of existing awards resulting from an acceleration of vesting of awards due to retirement and $740,000 related to awards granted in conjunction with an acquisition, both of which were recognized in merger-related and other charges in the consolidated statement of income. The remaining 2019 expense of $6.86 million was recognized in salaries and employee benefits expense, as were the entire amounts for 2020 and 2018. In addition, in 2020, 2019, and 2018, $484,000, $379,000 and $338,000, respectively, was recognized in other operating expenses for restricted stock unit awards granted to members of the Board.
During 2020, 2019 and 2018, in addition to time-based restricted stock unit awards, the Board approved PSUs. The PSUs will vest based on achieving, during the applicable calendar-year performance periods, certain performance and market targets relative to a bank peer group. Achievement of the base-level performance and market targets for all applicable periods will result in the issuance of 148,109 shares, which are included in the outstanding balance in the table above. Additional shares may be issued if more stringent performance and market hurdles are met. The grant date per share fair market value of these PSUs was estimated using the Monte Carlo Simulation valuation model.
Deferred income tax benefits related to compensation expense for options and restricted stock units of $2.01 million, $2.39 million and $1.54 million were included in the determination of income tax expense in 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $14.4 million of unrecognized compensation cost related to restricted stock units granted under the plan. The cost is expected to be recognized over a weighted-average period of 2.6 years.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Reclassifications Out of AOCI
The following presents the details regarding amounts reclassified out of AOCI (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from AOCI For the Years Ended December 31,
|
|
|
|
|
Details about AOCI Components
|
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on available-for-sale securities:
|
|
|
|
|
|
|
|
|
$
|
748
|
|
|
$
|
(1,021)
|
|
|
$
|
(656)
|
|
|
Securities gains (losses), net
|
|
|
|
|
(191)
|
|
|
247
|
|
|
132
|
|
|
Income tax (expense) benefit
|
|
|
|
|
$
|
557
|
|
|
$
|
(774)
|
|
|
$
|
(524)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of losses included in net income on available-for-sale securities transferred to held to maturity:
|
|
|
|
|
|
|
$
|
(723)
|
|
|
$
|
(383)
|
|
|
$
|
(739)
|
|
|
Investment securities interest revenue
|
|
|
|
|
173
|
|
|
92
|
|
|
180
|
|
|
Income tax benefit
|
|
|
|
|
$
|
(550)
|
|
|
$
|
(291)
|
|
|
$
|
(559)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications related to derivative financial instruments accounted for as cash flow hedges:
|
|
|
|
|
Amortization of losses on de-designated positions
|
|
$
|
—
|
|
|
$
|
(235)
|
|
|
$
|
—
|
|
|
Other expense
|
|
|
Amortization of losses on de-designated positions
|
|
—
|
|
|
(102)
|
|
|
(499)
|
|
|
Deposit interest expense
|
|
|
Interest rate contracts
|
|
(359)
|
|
|
—
|
|
|
—
|
|
|
Long-term debt interest expense
|
|
|
|
|
(359)
|
|
|
(337)
|
|
|
(499)
|
|
|
Total before tax
|
|
|
|
|
91
|
|
|
86
|
|
|
129
|
|
|
Income tax benefit
|
|
|
|
|
$
|
(268)
|
|
|
$
|
(251)
|
|
|
$
|
(370)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications related to defined benefit pension plan activity:
|
|
|
|
|
Prior service cost
|
|
$
|
(531)
|
|
|
$
|
(640)
|
|
|
$
|
(666)
|
|
|
Salaries and employee benefits expense
|
|
|
Actuarial losses
|
|
(326)
|
|
|
(59)
|
|
|
(241)
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of Funded Plan
|
|
—
|
|
|
(1,558)
|
|
|
—
|
|
|
Merger-related and other
|
|
|
|
|
(857)
|
|
|
(2,257)
|
|
|
(907)
|
|
|
Total before tax
|
|
|
|
|
219
|
|
|
576
|
|
|
247
|
|
|
Income tax benefit
|
|
|
|
|
$
|
(638)
|
|
|
$
|
(1,681)
|
|
|
$
|
(660)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(899)
|
|
|
$
|
(2,997)
|
|
|
$
|
(2,113)
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts shown above in parentheses reduce earnings
|
|
|
|
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Earnings Per Share
The following table sets forth the computation of basic and diluted net income per common share for the years indicated (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Net income
|
$
|
164,089
|
|
|
$
|
185,721
|
|
|
$
|
166,111
|
|
Undistributed earnings allocated to participating securities
|
(1,287)
|
|
|
(1,375)
|
|
|
(1,184)
|
|
Dividends on preferred stock
|
(3,533)
|
|
|
—
|
|
|
—
|
|
Net income available to common stockholders
|
$
|
159,269
|
|
|
$
|
184,346
|
|
|
$
|
164,927
|
|
Net income per common share:
|
|
|
|
|
|
Basic
|
$
|
1.91
|
|
|
$
|
2.31
|
|
|
$
|
2.07
|
|
Diluted
|
1.91
|
|
|
2.31
|
|
|
2.07
|
|
Weighted average common shares:
|
|
|
|
|
|
Basic
|
83,184
|
|
|
79,700
|
|
|
79,662
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Stock options
|
—
|
|
|
1
|
|
|
7
|
|
Restricted stock units
|
64
|
|
|
7
|
|
|
2
|
|
Diluted
|
83,248
|
|
|
79,708
|
|
|
79,671
|
|
At December 31, 2020, United had no potentially dilutive instruments outstanding that were not included in the above analysis.
At December 31, 2019, United had the following potentially dilutive instruments outstanding: 1,000 shares of common stock issuable upon exercise of stock options with a weighted average exercise price of $30.45 and 183,168 shares of common stock issuable upon vesting of restricted stock unit awards.
At December 31, 2018, United excluded 32,316 potentially dilutive shares of common stock issuable upon exercise of stock options because of their antidilutive effect.
(19) Income Taxes
Income tax expense is as follows for the years indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Current
|
$
|
42,688
|
|
|
$
|
38,082
|
|
|
$
|
17,185
|
|
Deferred
|
2,668
|
|
|
14,909
|
|
|
32,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
$
|
45,356
|
|
|
$
|
52,991
|
|
|
$
|
49,815
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) Income Taxes, continued
The differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 21% in 2020, 2019 and 2018 to income before income taxes are as follows for the years indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Pretax income at statutory rates
|
$
|
43,983
|
|
|
$
|
50,130
|
|
|
$
|
45,344
|
|
Add (deduct):
|
|
|
|
|
|
State taxes, net of federal benefit
|
5,928
|
|
|
7,168
|
|
|
6,765
|
|
BOLI earnings
|
(1,052)
|
|
|
(1,127)
|
|
|
(747)
|
|
Adjustment to reserve for uncertain tax positions
|
(1,212)
|
|
|
84
|
|
|
80
|
|
Tax-exempt interest revenue
|
(2,169)
|
|
|
(1,827)
|
|
|
(1,229)
|
|
Equity compensation
|
(174)
|
|
|
(375)
|
|
|
(892)
|
|
Transaction costs
|
217
|
|
|
16
|
|
|
78
|
|
Tax credit investments
|
(930)
|
|
|
(464)
|
|
|
(29)
|
|
Change in state statutory tax rate
|
—
|
|
|
—
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
765
|
|
|
(614)
|
|
|
(138)
|
|
Total income tax expense
|
$
|
45,356
|
|
|
$
|
52,991
|
|
|
$
|
49,815
|
|
The following summarizes the sources and expected tax consequences of future taxable deductions (revenue) which comprise the net DTA as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
DTAs:
|
|
|
|
ACL
|
$
|
33,213
|
|
|
$
|
14,910
|
|
Net operating loss carryforwards
|
22,277
|
|
|
27,568
|
|
Deferred compensation
|
10,012
|
|
|
9,363
|
|
Loan purchase accounting adjustments
|
8,567
|
|
|
6,599
|
|
Reserve for losses on foreclosed properties
|
33
|
|
|
20
|
|
Nonqualified share based compensation
|
1,833
|
|
|
2,041
|
|
Accrued expenses
|
6,865
|
|
|
3,958
|
|
Investment in partnerships
|
71
|
|
|
67
|
|
Unamortized pension actuarial losses and prior service cost
|
1,981
|
|
|
1,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities purchase accounting adjustments
|
—
|
|
|
687
|
|
Lease liability
|
8,055
|
|
|
5,327
|
|
Other
|
4,018
|
|
|
1,351
|
|
Total DTAs
|
96,925
|
|
|
73,630
|
|
DTLs:
|
|
|
|
Unrealized gains on securities available-for-sale
|
17,439
|
|
|
7,943
|
|
Unrealized gains on cash flow hedges
|
54
|
|
|
—
|
|
Acquired intangible assets
|
2,576
|
|
|
2,530
|
|
Premises and equipment
|
4,241
|
|
|
3,002
|
|
Loan origination costs
|
4,857
|
|
|
3,538
|
|
True tax leases
|
7,846
|
|
|
7,783
|
|
Prepaid expenses
|
230
|
|
|
373
|
|
Servicing assets
|
4,816
|
|
|
4,428
|
|
Derivatives
|
2,250
|
|
|
1,075
|
|
Right-of-use asset
|
7,642
|
|
|
4,809
|
|
Securities purchase accounting adjustments
|
3,146
|
|
|
—
|
Uncertain tax positions
|
1,813
|
|
|
1,792
|
|
Total DTLs
|
56,910
|
|
|
37,273
|
|
Less valuation allowance
|
1,604
|
|
|
2,298
|
|
Net DTA
|
$
|
38,411
|
|
|
$
|
34,059
|
|
The change in the net DTA includes an increase of $16.3 million due to current year merger and acquisition activity and the adoption of CECL.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) Income Taxes, continued
At December 31, 2020, United had:
•$36.0 million of state net operating loss carryforwards subject to annual limitation under IRC Section 382 that begin to expire in 2021, if not previously utilized.
•$113 million of state net operating loss carryforwards that begin to expire in 2031, if not previously utilized.
•$63.8 million in federal net operating loss carryforwards subject to annual limitation under IRC Section 382 that begin to expire in 2027, if not previously utilized.
•$3.70 million of state tax credits that begin to expire in 2021, if not previously utilized.
Management assesses the valuation allowance recorded against DTAs at each reporting period. The determination of whether a valuation allowance for DTAs is appropriate is subject to considerable judgment and requires an evaluation of all the positive and negative evidence. ASC 740 requires that companies assess whether a valuation allowance should be established against their DTAs based on the consideration of all available evidence using a “more likely than not” standard.
At December 31, 2020 and 2019, based on the assessment of all the positive and negative evidence, management concluded that it is more likely than not that nearly all of the net DTA will be realized based upon future taxable income. The valuation allowance of $1.60 million and $2.30 million, respectively, was related to specific state income tax credits that have short carryforward periods and certain acquired state net operating losses, both of which are expected to expire unused.
The valuation allowance could fluctuate in future periods based on the assessment of the positive and negative evidence. Management’s conclusion at December 31, 2020 that it was more likely than not that the net DTA of $38.4 million will be realized is based on management’s estimate of future taxable income. Management’s estimate of future taxable income is based on internal forecasts which consider historical performance, various internal estimates and assumptions, as well as certain external data all of which management believes to be reasonable although inherently subject to significant judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, the valuation allowance may need to be increased for some or all of the deferred tax asset.
A reconciliation of the beginning and ending unrecognized tax benefit related to uncertain tax positions is as follows for the years indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Balance at beginning of year
|
$
|
3,370
|
|
|
$
|
3,264
|
|
|
$
|
3,163
|
|
Additions based on tax positions related to the current year
|
421
|
|
|
481
|
|
|
470
|
|
Decreases resulting from a lapse in the applicable statute of limitations
|
(1,628)
|
|
|
(375)
|
|
|
(369)
|
|
|
|
|
|
|
|
Balance at end of year
|
$
|
2,163
|
|
|
$
|
3,370
|
|
|
$
|
3,264
|
|
Approximately $1.71 million of the unrecognized tax benefit at December 31, 2020 would increase income from continuing operations, and thus affect United’s effective tax rate, if ultimately recognized into income.
It is United’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective federal or state income taxes accounts. There were no penalties and interest related to income taxes recorded in the income statement in 2020, 2019 or 2018. No amounts were accrued for interest and penalties on the balance sheet at December 31, 2020 or 2019.
United and its subsidiaries file a consolidated U.S. federal income tax return, as well as various state returns in the states where it operates. United’s federal and state income tax returns are no longer subject to examination by taxing authorities for years before 2017.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) Benefit Plans
Defined Contribution Benefit Plans
401(k) Plan
United offers a defined contribution 401(k) plan (the “401(k) Plan”) that covers substantially all employees meeting certain minimum service requirements. The 401(k) Plan allows employees to make pre-tax contributions to the 401(k) Plan and, United matches 100% of employee contributions up to 5% of eligible compensation. Employees begin to receive matching contributions after completing one year of service.
Effective January 1, 2020, United amended the 401(k) Plan to be a safe harbor plan. Under safe harbor provisions, United is required to provide a matching contribution and participants are immediately 100% vested in safe harbor matching contributions. Under the safe harbor amendment the Company will continue to match 100% of participant deferral contributions up to 5% of the participant’s annual base salary and commissions for those who have completed at least one year of service. Prior to January 1, 2020, matching contributions vested after three years of service.
United’s 401(k) Plan is administered in accordance with applicable laws and regulations. Compensation expense from continuing operations related to the 401(k) Plan totaled $6.16 million, $5.30 million and $4.73 million in 2020, 2019 and 2018, respectively.
Deferred Compensation Plan
United also sponsors a non-qualified deferred compensation plan for its executive officers, certain other key employees and members of the Board and its community banks’ advisory boards of directors. The deferred compensation plan provides for the pre-tax deferral of compensation, fees and other specified benefits. Specifically, the deferred compensation plan permits each employee participant to elect to defer a portion of his or her base salary, bonus or vested restricted stock units and permits each eligible director participant to elect to defer all or a portion of his or her director’s fees. Further, the deferred compensation plan allows for additional contributions by an employee, with matching contributions by United, for amounts that exceed the allowable amounts under the 401(k) Plan.
During 2020, 2019 and 2018, United recognized $49,000, $162,000 and $119,000, respectively, in matching contributions for this provision of the deferred compensation plan. The Board may also elect to make a discretionary contribution to any or all participants. No discretionary contributions were made in 2020, 2019 or 2018.
In addition to common stock related to elected deferrals of vested restricted stock units, United offers its common stock as an investment option for cash contributions to the deferred compensation plan. The common stock component is accounted for as an equity instrument and is reflected in the consolidated balance sheets as common stock issuable. The deferred compensation plan does not allow for diversification once an election is made to invest in United stock and settlement must be accomplished in shares at the time the deferral period is completed. At December 31, 2020 and 2019, United had 600,834 shares and 664,640 shares, respectively, of its common stock that was issuable under the deferred compensation plan.
Defined Benefit Pension Plans
United has an unfunded noncontributory defined benefit pension plan, or the Modified Retirement Plan, that covers certain executive officers and other key employees. The Modified Retirement Plan provides a fixed annual retirement benefit to plan participants.
Weighted-average assumptions used to determine the pension benefit obligation of the Modified Retirement Plan at year end and net periodic pension cost are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Discount rate for disclosures
|
2.55
|
%
|
|
|
|
3.25
|
%
|
|
|
|
|
Discount rate for net periodic benefit cost
|
3.25
|
%
|
|
|
|
4.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement date
|
12/31/2020
|
|
|
|
12/31/2019
|
|
|
|
The Modified Retirement Plan discount rates are determined in consultation with the third-party actuary and are set by matching the projected benefit cash flow to a notional yield curve developed by reference to high-quality fixed income investments. The discount rates are determined as the rate which would provide the same present value as the plan cash flows discounted to the measurement date using the full series of spot rates along the notional yield curve as of the measurement date.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) Benefit Plans, continued
United acquired Palmetto on September 1, 2015, including its funded noncontributory defined benefit pension plan, or the Funded Plan, which covered all full-time Palmetto employees who had fulfilled at least 12 months of continuous service and attained age 21 by December 31, 2007. Benefits under the Funded Plan were no longer accrued for service subsequent to 2007. During 2019, United settled the liabilities of its Funded Plan. Participants elected to receive either lump sum distributions or annuity contracts purchased from a third-party insurance company that provided for the payment of vested benefits. United contributed $4.90 million to the Funded Plan in the third quarter 2019 to fund its liquidation.
As a result of the pension termination, unrecognized losses of $1.56 million, which were previously recorded in AOCI on the consolidated balance sheets, were recognized as expense and an additional pension plan settlement loss of $1.38 million was recorded in the consolidated statements of income. Including both charges, the total Funded Plan settlement loss was $2.94 million, which was included in merger-related and other charges for the year ended December 31, 2019.
United recognizes the underfunded status of the plans as a liability in the consolidated balance sheets. Information about changes in obligations and plan assets follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Modified
Retirement
Plan
|
|
|
|
Modified
Retirement
Plan
|
|
Funded
Plan
|
Accumulated benefit obligation:
|
|
|
|
|
|
|
|
Accumulated benefit obligation - beginning of year
|
$
|
25,105
|
|
|
|
|
$
|
21,736
|
|
|
$
|
16,011
|
|
Service cost
|
588
|
|
|
|
|
392
|
|
|
—
|
|
Interest cost
|
795
|
|
|
|
|
931
|
|
|
166
|
|
Plan amendments
|
—
|
|
|
|
|
386
|
|
|
—
|
|
Actuarial losses
|
1,804
|
|
|
|
|
2,390
|
|
|
1,489
|
|
Benefits paid
|
(1,193)
|
|
|
|
|
(730)
|
|
|
(17,666)
|
|
Accumulated benefit obligation - end of year
|
27,099
|
|
|
|
|
25,105
|
|
|
—
|
|
Change in plan assets, at fair value:
|
|
|
|
|
|
|
|
Beginning plan assets
|
—
|
|
|
|
|
—
|
|
|
12,595
|
|
Actual return
|
—
|
|
|
|
|
—
|
|
|
173
|
|
Employer contribution
|
1,193
|
|
|
|
|
730
|
|
|
4,898
|
|
Benefits paid
|
(1,193)
|
|
|
|
|
(730)
|
|
|
(17,666)
|
|
Plan assets - end of year
|
—
|
|
|
|
|
—
|
|
|
—
|
|
Funded status - end of year (plan assets less benefit obligations)
|
$
|
(27,099)
|
|
|
|
|
$
|
(25,105)
|
|
|
$
|
—
|
|
Components of net periodic benefit cost and other amounts recognized in other comprehensive income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Modified
Retirement
Plan
|
|
|
|
Modified
Retirement
Plan
|
|
Funded
Plan
|
|
Modified
Retirement
Plan
|
|
Funded
Plan
|
Service cost
|
$
|
588
|
|
|
|
|
$
|
392
|
|
|
$
|
—
|
|
|
$
|
363
|
|
|
$
|
—
|
|
Interest cost
|
795
|
|
|
|
|
931
|
|
|
166
|
|
|
801
|
|
|
647
|
|
Expected return on plan assets
|
—
|
|
|
|
|
—
|
|
|
(106)
|
|
|
—
|
|
|
(551)
|
|
Amortization of prior service cost
|
531
|
|
|
|
|
635
|
|
|
—
|
|
|
666
|
|
|
—
|
|
Amortization of net actuarial losses
|
326
|
|
|
|
|
59
|
|
|
—
|
|
|
241
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
2,240
|
|
|
|
|
$
|
2,017
|
|
|
$
|
60
|
|
|
$
|
2,071
|
|
|
$
|
96
|
|
The estimated net actuarial loss and prior service costs for the Modified Retirement Plan that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $575,000 and $469,000, respectively, as of December 31, 2020.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) Benefit Plans, continued
The following table summarizes the estimated future benefit payments expected to be paid from the Modified Retirement Plan for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
$
|
1,170
|
|
|
|
|
|
2022
|
1,165
|
|
|
|
|
|
2023
|
1,159
|
|
|
|
|
|
2024
|
1,152
|
|
|
|
|
|
2025
|
1,195
|
|
|
|
|
|
2026-2030
|
7,675
|
|
|
|
|
|
|
|
|
|
|
Other United sponsored benefit plans
United has an Employee Stock Purchase Program (“ESPP”) that allows eligible employees to purchase shares of common stock at a discount (10%), with no commission charges. During 2020, 2019 and 2018 United issued 34,423, 20,928 shares and 17,941 shares, respectively, through the ESPP.
(21) Regulatory Matters
Capital Requirements
United and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on United. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, United and the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures (as defined) established by regulation to ensure capital adequacy require United and the Bank to maintain minimum amounts and ratios of total capital, Tier 1 capital, and CET1 to RWAs, and of Tier 1 capital to average assets.
United and the Bank are also subject to a “capital conservation buffer,” which is designed to absorb losses during periods of economic stress. Banking organizations with a ratio of CET1 to RWAs above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and discretionary bonus compensation based on the amount of the shortfall.
As of December 31, 2020, United and the Bank were categorized as well-capitalized under the regulatory framework for prompt corrective action in effect at such time. To be categorized as well-capitalized at December 31, 2020, United and the Bank must have exceeded the well-capitalized guideline ratios in effect at such time, as set forth in the table below and have met certain other requirements. Management believes that United and the Bank exceeded all well-capitalized requirements at December 31, 2020, and there have been no conditions or events since year-end that would change the status of well-capitalized.
Pursuant to the CARES Act, United has adopted relief provided by federal banking regulatory agencies for the delay of the adverse capital impact of CECL at adoption of ASC 326 and during the subsequent two-year period after adoption. This optional two-year delay is followed by an optional three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. Under the transition provision, the amount of aggregate capital benefit is phased out by 25% each year with the full impact of adoption completely recognized by the beginning of the sixth year after adoption.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(21) Regulatory Matters, continued
Regulatory capital ratios at December 31, 2020 and 2019, along with the minimum amounts required for capital adequacy purposes and to be well-capitalized under prompt corrective action provisions in effect at such times are presented below for United and the Bank (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basel III Guidelines
|
|
United Community Banks, Inc.
(consolidated)
|
|
United Community Bank
|
|
Minimum (1)
|
|
Well
Capitalized
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Risk-based ratios:
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital
|
4.5
|
%
|
|
6.5
|
%
|
|
12.31
|
%
|
|
12.97
|
%
|
|
13.31
|
%
|
|
14.87
|
%
|
Tier 1 capital
|
6.0
|
|
|
8.0
|
|
|
13.10
|
|
|
13.21
|
|
|
13.31
|
|
|
14.87
|
|
Total capital
|
8.0
|
|
|
10.0
|
|
|
15.15
|
|
|
15.01
|
|
|
14.28
|
|
|
15.54
|
|
Tier 1 leverage ratio
|
4.0
|
|
|
5.0
|
|
|
9.28
|
|
|
10.34
|
|
|
9.42
|
|
|
11.63
|
|
CET1 capital
|
|
|
|
|
$
|
1,506,750
|
|
|
$
|
1,275,148
|
|
|
$
|
1,625,292
|
|
|
$
|
1,458,720
|
|
Tier 1 capital
|
|
|
|
|
1,603,172
|
|
|
1,299,398
|
|
|
1,625,292
|
|
|
1,458,720
|
|
Total capital
|
|
|
|
|
1,854,368
|
|
|
1,476,302
|
|
|
1,743,045
|
|
|
1,524,267
|
|
RWAs
|
|
|
|
|
12,240,440
|
|
|
9,834,051
|
|
|
12,207,940
|
|
|
9,810,477
|
|
Average total assets
|
|
|
|
|
17,276,853
|
|
|
12,568,563
|
|
|
17,246,878
|
|
|
12,545,254
|
|
(1) As of December 31, 2020 and 2019, the additional capital conservation buffer in effect was 2.50%.
Cash, Dividend, Loan and Other Restrictions
At December 31, 2020 and 2019, the Bank did not have a required reserve balance at the Federal Reserve Bank of Atlanta.
Federal and state banking regulations place certain restrictions on dividends paid by the Bank to the Holding Company. During 2020, the Bank received regulatory approval to pay cash dividends to the Holding Company of $150 million. No cash dividends were paid by the Bank to the Holding Company in 2019.
The Federal Reserve Act requires that extensions of credit by the Bank to certain affiliates, including the Holding Company, be secured by specific collateral, that the extension of credit to any one affiliate be limited to 10% of capital and surplus (as defined), and that extensions of credit to all such affiliates be limited to 20% of capital and surplus.
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. United uses the same credit policies in making commitments and conditional obligations as it uses for underwriting on-balance sheet instruments. In most cases, collateral or other security is required to support financial instruments with credit risk.
(22) Commitments and Contingencies
The following table summarizes, as of the dates indicated, the contract amount of off-balance sheet instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Financial instruments whose contract amounts represent credit risk:
|
|
|
|
Commitments to extend credit
|
$
|
3,052,657
|
|
|
$
|
2,126,275
|
|
Letters of credit
|
31,748
|
|
|
22,533
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(22) Commitments and Contingencies, continued
Since many of the commitments may expire without being drawn on, the total commitment amounts do not necessarily represent future cash requirements. United evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management’s credit evaluation. Collateral held varies, but may include unimproved and improved real estate, certificates of deposit, personal property or other acceptable collateral.
Letters of credit are conditional commitments issued by United and could result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party or upon the non-performance of the customer. Those guarantees are primarily issued to local businesses and government agencies. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In most cases, the Bank holds real estate, certificates of deposit, and other acceptable collateral as security supporting those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments varies.
United maintains an ACL for unfunded loan commitments which is included in the balance of other liabilities in the consolidated balance sheets. The ACL for unfunded loan commitments is determined as part of the quarterly ACL analysis. See Note 1 for further detail.
The Bank holds minor investments in certain limited partnerships for CRA purposes. As of December 31, 2020, the Bank had a recorded investment of $58.3 million in these limited partnerships, which is included in other assets on the consolidated balance sheet, and had committed to fund an additional $9.81 million related to future capital calls that has not been reflected in the consolidated balance sheet.
United, in the normal course of business, is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible to predict the outcome of these lawsuits, or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on financial position or results of operations.
(23) Condensed Financial Statements of United Community Banks, Inc. (Holding Company Only)
Balance Sheets
As of December 31, 2020 and 2019
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Assets
|
|
|
|
Cash and cash equivalents
|
$
|
289,243
|
|
|
$
|
32,495
|
|
Investment in bank
|
2,028,965
|
|
|
1,814,414
|
|
Investment in other subsidiaries
|
752
|
|
|
752
|
|
Other assets
|
34,661
|
|
|
29,308
|
|
Total assets
|
$
|
2,353,621
|
|
|
$
|
1,876,969
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
Long-term debt
|
$
|
311,956
|
|
|
$
|
212,664
|
|
Other liabilities
|
34,135
|
|
|
28,613
|
|
Total liabilities
|
346,091
|
|
|
241,277
|
|
Shareholders’ equity
|
2,007,530
|
|
|
1,635,692
|
|
Total liabilities and shareholders’ equity
|
$
|
2,353,621
|
|
|
$
|
1,876,969
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(23) Condensed Financial Statements of United Community Banks, Inc. (Holding Company Only), continued
Statements of Income
For the Years Ended December 31, 2020, 2019 and 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Dividends from bank
|
$
|
150,000
|
|
|
$
|
—
|
|
|
$
|
161,500
|
|
Dividends from other subsidiaries
|
—
|
|
|
4,651
|
|
|
850
|
|
Shared service fees from subsidiaries
|
13,020
|
|
|
14,721
|
|
|
10,257
|
|
Other
|
1,436
|
|
|
1,468
|
|
|
133
|
|
Total income
|
164,456
|
|
|
20,840
|
|
|
172,740
|
|
Interest expense
|
13,994
|
|
|
11,573
|
|
|
11,868
|
|
Other expense
|
16,473
|
|
|
18,965
|
|
|
14,456
|
|
Total expenses
|
30,467
|
|
|
30,538
|
|
|
26,324
|
|
Income tax benefit
|
2,681
|
|
|
8,711
|
|
|
1,640
|
|
Income (loss) before equity in undistributed earnings of subsidiaries
|
136,670
|
|
|
(987)
|
|
|
148,056
|
|
Equity in undistributed earnings of subsidiaries
|
27,419
|
|
|
186,708
|
|
|
18,055
|
|
Net income
|
$
|
164,089
|
|
|
$
|
185,721
|
|
|
$
|
166,111
|
|
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(23) Condensed Financial Statements of United Community Banks, Inc. (Holding Company Only), continued
Statements of Cash Flows
For the Years Ended December 31, 2020, 2019 and 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Operating activities:
|
|
|
|
|
|
Net income
|
$
|
164,089
|
|
|
$
|
185,721
|
|
|
$
|
166,111
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Equity in undistributed earnings of the subsidiaries
|
(27,419)
|
|
|
(186,708)
|
|
|
(18,055)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
7,887
|
|
|
9,360
|
|
|
6,057
|
|
Change in assets and liabilities:
|
|
|
|
|
|
Other assets
|
(3,662)
|
|
|
(3,022)
|
|
|
1,777
|
|
Other liabilities
|
5,261
|
|
|
2,080
|
|
|
3,124
|
|
Net cash provided by operating activities
|
146,156
|
|
|
7,431
|
|
|
159,014
|
|
Investing activities:
|
|
|
|
|
|
Net cash received (paid) for acquisition
|
3,397
|
|
|
(52,093)
|
|
|
(84,499)
|
|
Purchases of premises and equipment
|
—
|
|
|
—
|
|
|
(364)
|
|
Purchases of debt securities available-for-sale and equity securities
|
(2,750)
|
|
|
(3,000)
|
|
|
(2,489)
|
|
Proceeds from sales and maturities of debt securities available-for-sale and equity securities
|
—
|
|
|
83
|
|
|
—
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
647
|
|
|
(55,010)
|
|
|
(87,352)
|
|
Financing activities:
|
|
|
|
|
|
Repayment of long-term debt
|
—
|
|
|
(250)
|
|
|
(7,424)
|
|
Proceeds from issuance of long-term debt, net of issuance costs
|
98,552
|
|
|
—
|
|
|
98,188
|
|
Proceeds from issuance of preferred stock, net of issuance costs
|
96,422
|
|
|
—
|
|
|
—
|
|
Cash related to shares withheld to cover payroll taxes upon vesting of restricted stock units
|
(3,119)
|
|
|
(1,686)
|
|
|
(1,998)
|
|
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans
|
1,317
|
|
|
2,193
|
|
|
679
|
|
Proceeds from exercise of stock options
|
—
|
|
|
212
|
|
|
142
|
|
|
|
|
|
|
|
Repurchase of common stock
|
(20,782)
|
|
|
(13,020)
|
|
|
—
|
|
Cash dividends on preferred stock
|
(3,533)
|
|
|
—
|
|
|
—
|
|
Cash dividends on common stock
|
(58,912)
|
|
|
(53,044)
|
|
|
(41,634)
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
109,945
|
|
|
(65,595)
|
|
|
47,953
|
|
Net change in cash
|
256,748
|
|
|
(113,174)
|
|
|
119,615
|
|
Cash at beginning of year
|
32,495
|
|
|
145,669
|
|
|
26,054
|
|
Cash at end of year
|
$
|
289,243
|
|
|
$
|
32,495
|
|
|
$
|
145,669
|
|
(24) Subsequent Events
On February 18, 2021, the Board approved a regular quarterly cash dividend of $0.19 per common share and a preferred stock dividend of $429.6875 per preferred share (equivalent to $0.4296875 per depositary share, or 1/1000 interest per share). The common stock dividend is payable April 5, 2021, to common shareholders of record on March 15, 2021. The preferred stock dividend is payable March 15, 2021, to preferred shareholders of record on February 28, 2021.