Credit Quality | 5. CREDIT QUALITY Management monitors the credit quality of its loans on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan. For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on nonaccrual status. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. However, regardless of delinquency status, if a loan is fully secured and in the process of collection and resolution of collection is expected in the near term (generally less than 90 days), then the loan will not be placed on nonaccrual status. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. United’s method of income recognition for loans that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. Nonaccrual loans will not normally be returned to accrual status unless all past due principal and interest has been paid and the borrower has evidenced their ability to meet the contractual provisions of the note. A loan is categorized as a troubled debt restructuring (TDR) if a concession is granted and there is deterioration in the financial condition of the borrower. TDRs can take the form of a reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary terms on the other loan, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, the reduction of accrued interest or any other concessionary type of renegotiated debt. As of June 30, 2015, United had TDRs of $21,992 as compared to $22,234 as of December 31, 2014. Of the $21,992 aggregate balance of TDRs at June 30, 2015, $9,837 was on nonaccrual status and included in the “Loans on Nonaccrual Status” on the following page. Of the $22,234 aggregate balance of TDRs at December 31, 2014, $4,194 was on nonaccrual status and included in the “Loans on Nonaccrual Status” on the following page. As of June 30, 2015, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At June 30, 2015, United had restructured loans in the amount of $3,913 that were modified by a reduction in the interest rate, $8,017 that were modified by a combination of a reduction in the interest rate and the principal and $10,062 that was modified by a change in terms. A loan acquired and accounted for under ASC topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” is reported as an accruing loan and a performing asset. The following table sets forth United’s troubled debt restructurings that have been restructured during the three months ended June 30, 2015 and 2014, segregated by class of loans: Troubled Debt Restructurings For the Three Months Ended June 30, 2015 June 30, 2014 Number of Pre- Modification Post- Number of Pre- Modification Post- Commercial real estate: Owner-occupied 0 $ 0 $ 0 0 $ 0 $ 0 Nonowner-occupied 1 669 669 0 0 0 Other commercial 0 0 0 2 5,630 5,630 Residential real estate 0 0 0 0 0 0 Construction & land development 0 0 0 0 0 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total 1 $ 669 $ 669 2 $ 5,630 $ 5,630 The following table sets forth United’s troubled debt restructurings that have been restructured during the six months ended June 30, 2015 and 2014, segregated by class of loans: Troubled Debt Restructurings For the Six Months Ended June 30, 2015 June 30, 2014 Number of Pre- Modification Post- Number of Pre- Modification Post- Commercial real estate: Owner-occupied 0 $ 0 $ 0 0 $ 0 $ 0 Nonowner-occupied 1 669 669 0 0 0 Other commercial 1 240 240 2 5,630 5,630 Residential real estate 0 0 0 0 0 0 Construction & land development 0 0 0 0 0 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total 2 $ 909 $ 909 2 $ 5,630 $ 5,630 During the second quarter and first six months of 2015, $669 and $909, respectively, of restructured loans were modified by a combination of a reduction in the interest rate and an extension of the maturity date. During the second quarter and first six months of 2014, $5,630 of restructured loans were modified by a combination of a reduction in the interest rate and an extension of the maturity date. In some instances, the post-modification balance on the restructured loans is larger than the pre-modification balance due to the advancement of monies for items such as delinquent taxes on real estate property. The loans were evaluated individually for allocation within United’s allowance for loan losses. The modifications had an immaterial impact on the financial condition and results of operations for United. No loans restructured during the twelve-month periods ended June 30, 2015 and 2014 subsequently defaulted, resulting in a principal charge-off during the first six months of 2015 and 2014, respectively. The following table sets forth United’s age analysis of its past due loans, segregated by class of loans: Age Analysis of Past Due Loans As of June 30, 2015 30-89 90 Days or more Past Due Total Past Current & Total Financing Recorded Commercial real estate: Owner-occupied $ 6,907 $ 13,228 $ 20,135 $ 942,480 $ 962,615 $ 585 Nonowner-occupied 33,582 22,233 55,815 2,664,095 2,719,910 3,414 Other commercial 22,238 25,266 47,504 1,560,215 1,607,719 3,453 Residential real estate 35,357 30,279 65,636 2,182,401 2,248,037 2,648 Construction & land development 6,449 15,858 22,307 1,140,435 1,162,742 425 Consumer: Bankcard 214 166 380 10,048 10,428 166 Other consumer 6,878 1,285 8,163 377,687 385,850 944 Total $ 111,625 $ 108,315 $ 219,940 $ 8,877,361 $ 9,097,301 $ 11,635 (1) Other includes loans with a recorded investment of $162,073 acquired and accounted for under ASC topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. Age Analysis of Past Due Loans As of December 31, 2014 30-89 90 Days Total Past Current & Total Financing Recorded Commercial real estate: Owner-occupied $ 4,158 $ 13,582 $ 17,740 $ 998,624 $ 1,016,364 $ 1,039 Nonowner-occupied 10,627 14,859 25,486 2,734,703 2,760,189 45 Other commercial 17,348 17,975 35,323 1,542,115 1,577,438 3,034 Residential real estate 40,793 25,544 66,337 2,197,017 2,263,354 5,417 Construction & land development 5,329 17,119 22,448 1,110,803 1,133,251 648 Consumer: Bankcard 471 114 585 9,852 10,437 114 Other consumer 8,992 1,727 10,719 347,740 358,459 1,378 Total $ 87,718 $ 90,920 $ 178,638 $ 8,940,854 $ 9,119,492 $ 11,675 (1) Other includes loans with a recorded investment of $176,339 acquired and accounted for under ASC topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The following table sets forth United’s nonaccrual loans, segregated by class of loans: Loans on Nonaccrual Status June 30, 2015 December 31, 2014 Commercial real estate: Owner-occupied $ 12,643 $ 12,543 Nonowner-occupied 18,819 14,814 Other commercial 21,813 14,941 Residential real estate 27,631 20,127 Construction & land development 15,433 16,471 Consumer: Bankcard 0 0 Other consumer 341 349 Total $ 96,680 $ 79,245 United assigns credit quality indicators of pass, special mention, substandard and doubtful to its loans. For United’s loans with a corporate credit exposure, United internally assigns a grade based on the creditworthiness of the borrower. For loans with a consumer credit exposure, United internally assigns a grade based upon an individual loan’s delinquency status. United reviews and updates, as necessary, these grades on a quarterly basis. Special mention loans, with a corporate credit exposure, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company’s credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. For loans with a consumer credit exposure, loans that are past due 30-89 days are considered special mention. A substandard loan with a corporate credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard. A loan with corporate credit exposure is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, there are not any loans with a consumer credit exposure that are classified as doubtful. Usually, they are charged-off prior to such a classification. Loans classified as doubtful are also considered impaired. The following tables set forth United’s credit quality indicators information, by class of loans: Credit Quality Indicators Corporate Credit Exposure As of June 30, 2015 Commercial Real Estate Other Construction Owner- Nonowner- Grade: Pass $ 871,955 $ 2,547,470 $ 1,453,495 $ 993,568 Special mention 19,006 37,040 25,093 61,078 Substandard 71,654 135,400 123,302 108,096 Doubtful 0 0 5,829 0 Total $ 962,615 $ 2,719,910 $ 1,607,719 $ 1,162,742 As of December 31, 2014 Commercial Real Estate Other Construction Owner- Nonowner- Grade: Pass $ 920,981 $ 2,592,783 $ 1,407,853 $ 966,335 Special mention 26,181 48,382 20,776 64,597 Substandard 69,202 119,024 147,494 102,319 Doubtful 0 0 1,315 0 Total $ 1,016,364 $ 2,760,189 $ 1,577,438 $ 1,133,251 Credit Quality Indicators Consumer Credit Exposure As of June 30, 2015 Residential Bankcard Other Grade: Pass $ 2,165,134 $ 10,047 $ 377,467 Special mention 16,609 215 6,988 Substandard 64,800 166 1,395 Doubtful 1,494 0 0 Total $ 2,248,037 $ 10,428 $ 385,850 As of December 31, 2014 Residential Bankcard Other Grade: Pass $ 2,176,655 $ 9,852 $ 347,442 Special mention 18,254 471 9,113 Substandard 66,973 114 1,904 Doubtful 1,472 0 0 Total $ 2,263,354 $ 10,437 $ 358,459 Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, United does not consider loans for impairment unless a sustained period of delinquency (i.e. 90 days or more) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent foreclosure proceedings, etc.). Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Consistent with United’s existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible. The following table sets forth United’s impaired loans information, by class of loans: Impaired Loans June 30, 2015 December 31, 2014 Recorded Unpaid Related Recorded Unpaid Related With no related allowance recorded: Commercial real estate: Owner-occupied $ 43,920 $ 44,133 $ 0 $ 37,811 $ 37,811 $ 0 Nonowner-occupied 71,073 71,538 0 48,126 48,462 0 Other commercial 35,676 37,389 0 38,521 40,329 0 Residential real estate 31,368 32,133 0 31,262 31,930 0 Construction & land development 33,500 37,481 0 64,945 68,799 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 30 30 0 41 41 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 4,616 $ 4,616 $ 1,099 $ 5,014 $ 5,014 $ 776 Nonowner-occupied 6,727 6,727 1,347 6,994 6,994 797 Other commercial 19,692 23,193 11,887 17,554 20,554 7,168 Residential real estate 7,548 8,869 3,577 6,028 7,349 2,578 Construction & land development 11,686 15,415 3,859 10,779 14,189 3,627 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 48,536 $ 48,749 $ 1,099 $ 42,825 $ 42,825 $ 776 Nonowner-occupied 77,800 78,265 1,347 55,120 55,456 797 Other commercial 55,368 60,582 11,887 56,075 60,883 7,168 Residential real estate 38,916 41,002 3,577 37,290 39,279 2,578 Construction & land development 45,186 52,896 3,859 75,724 82,988 3,627 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 30 30 0 41 41 0 Impaired Loans For the Three Months Ended June 30, 2015 June 30, 2014 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 43,898 $ 117 $ 37,654 $ 425 Nonowner-occupied 66,936 354 63,135 154 Other commercial 35,659 140 31,403 147 Residential real estate 30,867 97 30,535 96 Construction & land development 36,722 80 47,169 68 Consumer: Bankcard 0 0 0 0 Other consumer 35 0 42 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 4,789 $ 20 $ 3,695 $ 34 Nonowner-occupied 6,847 7 7,794 46 Other commercial 19,764 154 12,234 82 Residential real estate 7,119 18 7,880 29 Construction & land development 10,740 58 10,328 12 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 152 0 Total: Commercial real estate: Owner-occupied $ 48,687 $ 137 $ 41,349 $ 459 Nonowner-occupied 73,783 361 70,929 200 Other commercial 55,423 294 43,637 229 Residential real estate 37,986 115 38,415 125 Construction & land development 47,462 138 57,497 80 Consumer: Bankcard 0 0 0 0 Other consumer 35 0 194 0 Impaired Loans For the Six Months Ended June 30, 2015 June 30, 2014 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 40,294 $ 179 $ 26,752 $ 488 Nonowner-occupied 61,290 517 44,110 210 Other commercial 32,580 240 24,368 158 Residential real estate 31,912 146 24,369 149 Construction & land development 45,541 159 36,118 137 Consumer: Bankcard 0 0 0 0 Other consumer 40 0 28 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 4,936 $ 58 $ 3,916 $ 75 Nonowner-occupied 7,112 46 8,313 92 Other commercial 19,083 218 12,680 88 Residential real estate 6,692 29 7,810 93 Construction & land development 10,833 92 10,569 16 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 152 0 Total: Commercial real estate: Owner-occupied $ 45,230 $ 237 $ 30,668 $ 563 Nonowner-occupied 68,402 563 52,423 302 Other commercial 51,663 458 37,048 246 Residential real estate 38,604 175 32,179 242 Construction & land development 56,374 251 46,687 153 Consumer: Bankcard 0 0 0 0 Other consumer 40 0 180 0 At June 30, 2015 and December 31, 2014, other real estate owned (OREO) included in other assets in the Consolidated Balance Sheets was $34,964 and $38,778, respectively. OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Any adjustment to the fair value at the date of transfer is charged against the allowance for loan losses. Any subsequent valuation adjustments as well as any costs relating to operating, holding or disposing of the property are recorded in other expense in the period incurred. At June 30, 2015 and December 31, 2014, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $655 and $311, respectively. |