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, 2016, United had TDRs of $24,944 as compared to $23,890 as of December 31, 2015. Of the $24,944 aggregate balance of TDRs at June 30, 2016, $10,682 was on nonaccrual status and included in the “Loans on Nonaccrual Status” on the following page. Of the $23,890 aggregate balance of TDRs at December 31, 2015, $11,949 was on nonaccrual status and included in the “Loans on Nonaccrual Status” on the following page. As of June 30, 2016, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At June 30, 2016, United had restructured loans in the amount of $2,721 that were modified by a reduction in the interest rate, $8,755 that were modified by a combination of a reduction in the interest rate and the principal and $13,468 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, 2016 and 2015, segregated by class of loans: Troubled Debt Restructurings For the Three Months Ended June 30, 2016 June 30, 2015 Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Number of Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Commercial real estate: Owner-occupied 1 $ 1,190 $ 1,188 0 $ 0 $ 0 Nonowner-occupied 0 0 0 1 669 669 Other commercial 1 700 700 0 0 0 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 $ 1,890 $ 1,888 1 $ 669 $ 669 The following table sets forth United’s troubled debt restructurings that have been restructured during the six months ended June 30, 2016 and 2015, segregated by class of loans: Troubled Debt Restructurings For the Six Months Ended June 30, 2016 June 30, 2015 Number of Pre- Modification Post- Modification Number of Pre- Modification Post- Modification Commercial real estate: Owner-occupied 1 $ 1,190 $ 1,188 0 $ 0 $ 0 Nonowner-occupied 0 0 0 1 669 669 Other commercial 4 2,141 2,134 1 240 240 Residential real estate 1 1,400 1,400 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 6 $ 4,731 $ 4,722 2 $ 909 $ 909 During the second quarter and first six months of 2016, $1,888 and $3,322, respectively, of restructured loans were modified by a change in loan terms. In addition, during the first six months of 2016, $1,400 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 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. 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, 2016 and 2015 subsequently defaulted, resulting in a principal charge-off during the first six months of 2016 and 2015, 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, 2016 30-89 90 Days Total Past Current & Total Financing Recorded & Accruing Commercial real estate: Owner-occupied $ 8,422 $ 8,828 $ 17,250 $ 860,143 $ 877,393 $ 0 Nonowner-occupied 10,699 17,688 28,387 3,647,478 3,675,865 0 Other commercial 11,090 36,202 47,292 1,636,716 1,684,008 699 Residential real estate 32,796 23,018 55,814 2,347,652 2,403,466 3,463 Construction & land development 9,191 11,433 20,624 1,264,547 1,285,171 37 Consumer: Bankcard 331 103 434 11,640 12,074 103 Other consumer 8,660 1,513 10,173 489,204 499,377 1,292 Total $ 81,189 $ 98,785 $ 179,974 $ 10,257,380 $ 10,437,354 $ 5,594 (1) Other includes loans with a recorded investment of $111,137 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, 2015 30-89 90 Days or more Total Past Current & Total Financing Recorded & Accruing Commercial real estate: Owner-occupied $ 8,639 $ 9,831 $ 18,470 $ 909,276 $ 927,746 $ 400 Nonowner-occupied 24,209 26,126 50,335 2,846,032 2,896,367 552 Other commercial 14,888 33,297 48,185 1,554,037 1,602,222 3,643 Residential real estate 44,312 28,332 72,644 2,196,041 2,268,685 4,294 Construction & land development 2,412 15,416 17,828 1,255,226 1,273,054 1,347 Consumer: Bankcard 223 168 391 11,262 11,653 168 Other consumer 9,082 1,596 10,678 408,547 419,225 1,224 Total $ 103,765 $ 114,766 $ 218,531 $ 9,180,421 $ 9,398,952 $ 11,628 (1) Other includes loans with a recorded investment of $148,197 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, 2016 December 31, 2015 Commercial real estate: Owner-occupied $ 8,828 $ 9,431 Nonowner-occupied 17,688 25,574 Other commercial 35,503 29,654 Residential real estate 19,555 24,038 Construction & land development 11,396 14,069 Consumer: Bankcard 0 0 Other consumer 221 372 Total $ 93,191 $ 103,138 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, 2016 Commercial Real Estate Construction Owner- occupied Nonowner- occupied Other Commercial & Land Development Grade: Pass $ 760,312 $ 3,522,786 $ 1,538,941 $ 1,127,373 Special mention 38,739 31,690 26,435 55,444 Substandard 78,342 121,389 115,922 102,234 Doubtful 0 0 2,710 120 Total $ 877,393 $ 3,675,865 $ 1,684,008 $ 1,285,171 As of December 31, 2015 Commercial Real Estate Construction Owner- occupied Nonowner- occupied Other Commercial & Land Development Grade: Pass $ 835,082 $ 2,710,504 $ 1,436,670 $ 1,095,238 Special mention 20,391 32,249 26,148 59,100 Substandard 72,273 153,614 136,585 118,716 Doubtful 0 0 2,819 0 Total $ 927,746 $ 2,896,367 $ 1,602,222 $ 1,273,054 Credit Quality Indicators Consumer Credit Exposure As of June 30, 2016 Residential Real Estate Bankcard Other Consumer Grade: Pass $ 2,336,352 $ 11,640 $ 488,943 Special mention 20,667 331 8,769 Substandard 46,008 103 1,665 Doubtful 439 0 0 Total $ 2,403,466 $ 12,074 $ 499,377 As of December 31, 2015 Residential Real Estate Bankcard Other Consumer Grade: Pass $ 2,195,420 $ 11,262 $ 408,271 Special mention 13,494 223 9,188 Substandard 57,981 168 1,766 Doubtful 1,790 0 0 Total $ 2,268,685 $ 11,653 $ 419,225 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, 2016 December 31, 2015 Recorded Unpaid Related Recorded Unpaid Related With no related allowance recorded: Commercial real estate: Owner-occupied $ 26,557 $ 27,090 $ 0 $ 36,615 $ 36,828 $ 0 Nonowner-occupied 59,080 59,575 0 69,053 69,517 0 Other commercial 22,654 24,889 0 30,433 32,158 0 Residential real estate 27,833 29,420 0 21,431 22,329 0 Construction & land development 21,891 24,105 0 28,245 29,953 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 39 39 0 32 32 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 4,915 $ 4,915 $ 1,712 $ 4,555 $ 4,555 $ 1,253 Nonowner-occupied 10,800 10,800 1,716 7,890 7,890 1,362 Other commercial 35,486 36,786 16,617 29,486 33,127 18,269 Residential real estate 4,034 4,769 898 13,305 14,625 2,118 Construction & land development 11,273 14,331 4,939 14,132 20,135 4,789 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 31,472 $ 32,005 $ 1,712 $ 41,170 $ 41,383 $ 1,253 Nonowner-occupied 69,880 70,375 1,716 76,943 77,407 1,362 Other commercial 58,140 61,675 16,617 59,919 65,285 18,269 Residential real estate 31,867 34,189 898 34,736 36,954 2,118 Construction & land development 33,164 38,436 4,939 42,377 50,088 4,789 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 39 39 0 32 32 0 Impaired Loans For the Three Months Ended June 30, 2016 June 30, 2015 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 27,267 $ 125 $ 43,898 $ 117 Nonowner-occupied 62,049 186 66,936 354 Other commercial 25,816 124 35,659 140 Residential real estate 28,074 97 30,867 97 Construction & land development 22,838 40 36,722 80 Consumer: Bankcard 0 0 0 0 Other consumer 33 0 35 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 4,552 $ 30 $ 4,789 $ 20 Nonowner-occupied 8,615 195 6,847 7 Other commercial 37,584 98 19,764 154 Residential real estate 8,174 19 7,119 18 Construction & land development 11,919 48 10,740 58 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 31,819 $ 155 $ 48,687 $ 137 Nonowner-occupied 70,664 381 73,783 361 Other commercial 63,400 222 55,423 294 Residential real estate 36,248 116 37,986 115 Construction & land development 34,757 88 47,462 138 Consumer: Bankcard 0 0 0 0 Other consumer 33 0 35 0 Impaired Loans For the Six Months Ended June 30, 2016 June 30, 2015 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 33,221 $ 184 $ 40,294 $ 179 Nonowner-occupied 66,395 393 61,290 517 Other commercial 27,861 224 32,580 240 Residential real estate 26,872 237 31,912 146 Construction & land development 25,916 67 45,541 159 Consumer: Bankcard 0 0 0 0 Other consumer 34 0 40 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 4,564 $ 57 $ 4,936 $ 58 Nonowner-occupied 8,507 238 7,112 46 Other commercial 34,134 228 19,083 218 Residential real estate 9,339 25 6,692 29 Construction & land development 12,994 90 10,833 92 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 37,785 $ 241 $ 45,230 $ 237 Nonowner-occupied 74,902 631 68,402 563 Other commercial 61,995 452 51,663 458 Residential real estate 36,211 262 38,604 175 Construction & land development 38,910 157 56,374 251 Consumer: Bankcard 0 0 0 0 Other consumer 34 0 40 0 At June 30, 2016 and December 31, 2015, other real estate owned (OREO) included in other assets in the Consolidated Balance Sheets was $34,894 and $32,228, 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, 2016 and December 31, 2015, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $180 and $234, respectively. |