Credit Quality | NOTE E—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 December 31, 2016, United had TDRs of $21,152,000 as compared to $23,890,000 as of December 31, 2015. Of the $21,152,000 aggregate balance of TDRs at December 31, 2016, $11,106,000 was on nonaccrual status and included in the “Loans on Nonaccrual Status” on the following pages. Of the $23,890,000 aggregate balance of TDRs at December 31, 2015, $11,949,000 was on nonaccrual status and included in the “Loans on Nonaccrual Status” on the following page. As of December 31, 2016, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At December 31, 2016, United had restructured loans in the amount of $2,667,000 that were modified by a reduction in the interest rate, $6,513,000 that were modified by a combination of a reduction in the interest rate and the principal and $11,972,000 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 unless it does not perform in accordance with its restructured contractual provisions. The following table sets forth United’s troubled debt restructurings that have been restructured during the year ended December 31, 2016 and 2015, segregated by class of loans: Troubled Debt Restructurings For the Year Ended December 31, 2016 (In thousands) Number of Pre-Modification Post-Modification Commercial real estate: Owner-occupied 1 $ 1,190 $ 1,178 Nonowner-occupied 0 0 0 Other commercial 7 2,803 2,213 Residential real estate 1 1,400 1,400 Construction & land development 0 0 0 Consumer: Bankcard 0 0 0 Other consumer 0 0 0 Total 9 $ 5,393 $ 4,791 Troubled Debt Restructurings For the Year Ended December 31, 2015 (In thousands) Number of Pre-Modification Post-Modification Commercial real estate: Owner-occupied 0 $ 0 $ 0 Nonowner-occupied 1 669 647 Other commercial 3 2,942 2,918 Residential real estate 0 0 0 Construction & land development 0 0 0 Consumer: Bankcard 0 0 0 Other consumer 0 0 0 Total 4 $ 3,611 $ 3,565 During 2016, $2,887,000 of restructured loans were modified by a change in loan terms and $1,904,000 of restructured loans were modified by a combination of a reduction in the interest rate and an extension of the maturity date. During 2015, restructured loans of $3,565,000 were modified by a change in terms. In some instances, the post-modification balance on a restructured loan 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. The following table presents a troubled debt restructuring, by class of loan, that had a charge-off during the year ended December 31, 2016. This loan was restructured during the twelve months ended December 31, 2016 and subsequently defaulted, resulting in a principal charge-off during the year of 2016. No loans restructured during the twelve-month period ended December 31, 2015 subsequently defaulted, resulting in a principal charge-off during the year ended December 31, 2015. Year Ended December 31, 2016 (In thousands) Number of Recorded Troubled Debt Restructurings Commercial real estate: 0 $ 0 Owner-occupied 0 0 Nonowner-occupied 0 0 Other commercial 1 37 Residential real estate 0 0 Construction & land development 0 0 Consumer: 0 0 Bankcard 0 0 Other consumer 0 0 Total 1 $ 37 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 December 31, 2016 (In thousands) 30-89 90 Days or more Total Past Current & Total Financing Recorded Commercial real estate: Owner-occupied $ 5,850 $ 3,981 $ 9,831 $ 1,040,054 $ 1,049,885 $ 94 Nonowner-occupied 9,288 20,847 30,135 3,395,318 3,425,453 172 Other commercial 15,273 42,766 58,039 1,555,398 1,613,437 2,518 Residential real estate 29,976 25,991 55,967 2,347,470 2,403,437 4,216 Construction & land development 3,809 7,779 11,588 1,244,150 1,255,738 33 Consumer: Bankcard 422 141 563 13,624 14,187 141 Other consumer 10,015 1,712 11,727 582,855 594,582 1,412 Total $ 74,633 $ 103,217 $ 177,850 $ 10,178,869 $ 10,356,719 $ 8,586 (1) Other includes loans with a recorded investment of $171,596 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 (In thousands) 30-89 90 Days or more Total Past Current & Total Financing Recorded 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 (In thousands) December 31, 2016 December 31, 2015 Commercial real estate: Owner-occupied $ 3,887 $ 9,431 Nonowner-occupied 20,675 25,574 Other commercial 40,248 29,654 Residential real estate 21,775 24,038 Construction & land development 7,746 14,069 Consumer: Bankcard 0 0 Other consumer 300 372 Total $ 94,631 $ 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 generally 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 December 31, 2016 Commercial Real Estate (In thousands) Owner- Nonowner- Other Construction & Grade: Pass $ 963,503 $ 3,284,497 $ 1,463,797 $ 1,126,742 Special mention 20,490 36,462 26,537 52,327 Substandard 65,892 104,494 122,893 76,669 Doubtful 0 0 210 0 Total $ 1,049,885 $ 3,425,453 $ 1,613,437 $ 1,255,738 Credit Quality Indicators Corporate Credit Exposure As of December 31, 2015 Commercial Real Estate (In thousands) Owner- Nonowner- Other Construction & 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 December 31, 2016 (In thousands) Residential Bankcard Other Grade: Pass $ 2,348,017 $ 13,624 $ 582,704 Special mention 18,240 422 10,132 Substandard 36,995 141 1,746 Doubtful 185 0 0 Total $ 2,403,437 $ 14,187 $ 594,582 As of December 31, 2015 (In thousands) Residential Bankcard Other 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-plus days) 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 set forth United’s impaired loans information, by class of loans: Impaired Loans December 31, 2016 December 31, 2015 (In thousands) Recorded Unpaid Related Recorded Unpaid Related With no related allowance recorded: Commercial real estate: Owner-occupied $ 46,575 $ 47,108 $ 0 $ 36,615 $ 36,828 $ 0 Nonowner-occupied 92,654 93,104 0 69,053 69,517 0 Other commercial 46,064 48,308 0 30,433 32,158 0 Residential real estate 22,747 24,404 0 21,431 22,329 0 Construction & land development 19,863 21,746 0 28,245 29,953 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 36 36 0 32 32 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 1,787 $ 2,082 $ 815 $ 4,555 $ 4,555 $ 1,253 Nonowner-occupied 17,938 17,938 2,524 7,890 7,890 1,362 Other commercial 43,774 46,188 13,441 29,486 33,127 18,269 Residential real estate 12,066 12,801 3,431 13,305 14,625 2,118 Construction & land development 4,940 7,899 3,206 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 $ 48,362 $ 49,190 $ 815 $ 41,170 $ 41,383 $ 1,253 Nonowner-occupied 110,592 111,042 2,524 76,943 77,407 1,362 Other commercial 89,838 94,496 13,441 59,919 65,285 18,269 Residential real estate 34,813 37,205 3,431 34,736 36,954 2,118 Construction & land development 24,803 29,645 3,206 42,377 50,088 4,789 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 36 36 0 32 32 0 Impaired Loans For the Year Ended December 31, 2016 December 31, 2015 (In thousands) Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 36,800 $ 1,038 $ 41,336 $ 264 Nonowner-occupied 75,848 1,108 68,727 1,139 Other commercial 39,776 1,540 33,510 463 Residential real estate 25,964 538 27,224 234 Construction & land development 24,902 133 33,167 199 Consumer: Bankcard 0 0 0 0 Other consumer 33 0 35 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 3,138 $ 97 $ 4,629 $ 122 Nonowner-occupied 11,920 564 6,954 357 Other commercial 36,511 1,615 20,885 580 Residential real estate 9,585 342 9,314 41 Construction & land development 8,994 83 12,196 252 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 39,938 $ 1,135 $ 45,965 $ 386 Nonowner-occupied 87,768 1,672 75,681 1,496 Other commercial 76,287 3,155 54,395 1,043 Residential real estate 35,549 880 36,538 275 Construction & land development 33,896 216 45,363 451 Consumer: Bankcard 0 0 0 0 Other consumer 33 0 35 0 |