Credit Quality | 4. 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, 2019, United had TDRs of $58,750 as compared to $59,425 as of December 31, 2018. Of the $58,750 aggregate balance of TDRs at June 30, 2019, $48,586 was on nonaccrual and $1,278 were 30-89 days past due. Of the $59,425 aggregate balance of TDRs at December 31, 2018, $48,899 were on nonaccrual and $690 were 90 days or more past due. All these amounts are included in the appropriate categories in the “Age Analysis of Past Due Loans” table on a subsequent page. As of June 30, 2019, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At June 30, 2019, United had restructured loans in the amount of $1,801 that were modified by a reduction in the interest rate, $1,796 that were modified by a combination of a reduction in the interest rate and the principal and $55,153 that were modified by a change in terms. A loan acquired and accounted for under ASC Topic 310-30 The following table sets forth United’s troubled debt restructurings that have been restructured during the three months ended June 30, 2019 and 2018, segregated by class of loans: Troubled Debt Restructurings For the Three Months Ended June 30, 2019 June 30, 2018 Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Commercial real estate: Owner-occupied 1 $ 150 $ 150 0 $ 0 $ 0 Nonowner-occupied 0 0 0 0 0 0 Other commercial 1 559 559 4 9,571 9,571 Residential real estate 2 1,845 1,832 2 6,953 6,953 Construction & land 3 2,242 2,202 0 0 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total 7 $ 4,796 $ 4,743 6 $ 16,524 $ 16,524 The following table sets forth United’s troubled debt restructurings that have been restructured during the six months ended June 30, 2019 and 2018, segregated by class of loans: Troubled Debt Restructurings For the Six Months Ended June 30, 2019 June 30, 2018 Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Commercial real estate: Owner-occupied 1 $ 150 $ 150 0 $ 0 $ 0 Nonowner-occupied 0 0 0 0 0 0 Other commercial 2 824 811 4 9,571 9,571 Residential real estate 3 2,258 2,234 2 6,953 6,953 Construction & land development 3 2,242 2,202 0 0 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total 9 $ 5,474 $ 5,397 6 $ 16,524 $ 16,524 During the second quarter of 2019, $4,743 of restructured loans were modified by a change in terms. For the first six months of 2019, $ 251 The following table presents troubled debt restructurings, by class of loan, that were restructured during the twelve-month period ended June 30, 2019 and had charge-offs during the six months ended June 30, 2019. No troubled debt restructurings had charge-offs during the second quarter of 2019. Six Months Ended June 30, 2019 (In thousands) Number of Contracts Recorded Investment Troubled Debt Restructurings Commercial real estate: Owner-occupied 0 $ 0 Nonowner-occupied 0 0 Other commercial 1 1,321 Residential real estate 0 0 Construction & land development 0 0 Consumer: Bankcard 0 0 Other consumer 0 0 Total 1 $ 1,321 No loans restructured during the twelve-month period ended June 30, 2018 subsequently defaulted, resulting in a principal charge-off during the second quarter and first six months of 2018. 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, 2019 30-89 Days Past Due 90 Days or more Past Due Total Past Due Current & Other (1) Total Financing Receivables Recorded Investment >90 Days & Accruing Commercial real estate: Owner-occupied $ 11,074 $ 17,603 $ 28,677 $ 1,211,277 $ 1,239,954 $ 1,136 Nonowner-occupied 7,572 19,678 27,250 4,166,814 4,194,064 2,713 Other commercial 10,075 44,843 54,918 1,967,035 2,021,953 745 Residential real estate 33,514 32,418 65,932 3,608,073 3,674,005 7,069 Construction & land development 4,233 17,083 21,316 1,442,748 1,464,064 495 Consumer: Bankcard 450 129 579 8,801 9,380 129 Other consumer 8,011 684 8,695 1,027,831 1,036,526 442 Total $ 74,929 $ 132,438 $ 207,367 $ 13,432,579 $ 13,639,946 $ 12,729 (1) Other includes loans with a recorded investment of $ 111,611 310-30 Age Analysis of Past Due Loans As of December 31, 2018 30-89 Days Past Due 90 Days or more Past Due Total Past Due Current & Other (1) Total Financing Receivables Recorded Investment >90 Days & Accruing Commercial real estate: Owner-occupied $ 9,224 $ 17,742 $ 26,966 $ 1,264,824 $ 1,291,790 $ 629 Nonowner-occupied 16,108 18,092 34,200 4,269,413 4,303,613 1,171 Other commercial 13,556 46,040 59,596 1,898,045 1,957,641 2,850 Residential real estate 37,111 30,278 67,389 3,434,004 3,501,393 9,141 Construction & land development 8,462 19,412 27,874 1,382,594 1,410,468 680 Consumer: Bankcard 657 177 834 9,369 10,203 177 Other consumer 8,909 1,243 10,152 944,272 954,424 893 Total $ 94,027 $ 132,984 $ 227,011 $ 13,202,521 $ 13,429,532 $ 15,541 (1) Other includes loans with a recorded investment of $149,737 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, 2019 December 31, 2018 Commercial real estate: Owner-occupied $ 16,467 $ 17,113 Nonowner-occupied 16,965 16,921 Other commercial 44,098 43,190 Residential real estate 25,349 21,137 Construction & land development 16,588 18,732 Consumer: Bankcard 0 0 Other consumer 242 350 Total $ 119,709 $ 117,443 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 June 30, 2019 Commercial Real Estate Other Construction & Land Development Owner- Nonowner- Grade: Pass $ 1,146,018 $ 4,080,814 $ 1,892,676 $ 1,377,072 Special mention 33,082 37,946 55,345 11,038 Substandard 60,854 75,304 73,497 75,954 Doubtful 0 0 435 0 Total $ 1,239,954 $ 4,194,064 $ 2,021,953 $ 1,464,064 As of December 31, 2018 Commercial Real Estate Other Construction & Land Owner- Nonowner- Grade: Pass $ 1,201,387 $ 4,161,149 $ 1,858,821 $ 1,330,899 Special mention 34,487 46,442 14,424 28,629 Substandard 55,916 96,022 81,946 50,940 Doubtful 0 0 2,450 0 Total $ 1,291,790 $ 4,303,613 $ 1,957,641 $ 1,410,468 Credit Quality Indicators Consumer Credit Exposure As of June 30, 2019 Residential Bankcard Other Grade: Pass $ 3,611,502 $ 8,801 $ 1,027,772 Special mention 15,833 450 8,015 Substandard 46,670 129 739 Doubtful 0 0 0 Total $ 3,674,005 $ 9,380 $ 1,036,526 As of December 31, 2018 Residential Bankcard Other Grade: Pass $ 3,436,584 $ 9,369 $ 944,241 Special mention 19,051 657 8,914 Substandard 45,758 177 1,269 Doubtful 0 0 0 Total $ 3,501,393 $ 10,203 $ 954,424 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, 2019 December 31, 2018 Recorded Unpaid Related Recorded Unpaid Related With no related allowance recorded: Commercial real estate: Owner-occupied $ 71,948 $ 73,267 $ 0 $ 63,633 $ 63,798 $ 0 Nonowner-occupied 50,228 50,294 0 98,845 98,904 0 Other commercial 63,121 68,326 0 40,291 50,459 0 Residential real estate 34,972 35,174 0 28,207 29,279 0 Construction & land development 36,868 43,318 0 37,174 40,459 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 31 31 0 27 27 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 4,942 $ 4,942 $ 1,390 $ 10,004 $ 10,004 $ 2,542 Nonowner-occupied 10,371 10,371 1,524 15,720 15,720 2,715 Other commercial 35,166 37,403 7,805 61,266 62,812 17,581 Residential real estate 12,013 13,618 1,390 19,623 22,064 3,265 Construction & land development 14,085 16,135 1,954 14,742 19,446 2,254 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 76,890 $ 78,209 $ 1,390 $ 73,637 $ 73,802 $ 2,542 Nonowner-occupied 60,599 60,665 1,524 114,565 114,624 2,715 Other commercial 98,287 105,729 7,805 101,557 113,271 17,581 Residential real estate 46,985 48,792 1,390 47,830 51,343 3,265 Construction & land development 50,953 59,453 1,954 51,916 59,905 2,254 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 31 31 0 27 27 0 Impaired Loans For the Three Months Ended June 30, 2019 June 30, 2018 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 70,051 $ 467 $ 74,330 $ 354 Nonowner-occupied 68,371 354 108,343 159 Other commercial 52,659 327 52,384 246 Residential real estate 32,287 158 24,220 85 Construction & land development 36,654 199 46,909 98 Consumer: Bankcard 0 0 0 0 Other consumer 29 0 32 0 Impaired Loans For the Three Months Ended June 30, 2019 June 30, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With an allowance recorded: Commercial real estate: Owner-occupied $ 5,212 $ 0 $ 5,319 $ 6 Nonowner-occupied 12,210 39 9,503 60 Other commercial 41,641 9 46,376 10 Residential real estate 14,451 48 11,992 11 Construction & land development 14,413 20 2,008 20 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 75,263 $ 467 $ 79,649 $ 360 Nonowner-occupied 80,581 393 117,846 219 Other commercial 94,300 336 98,760 256 Residential real estate 46,738 206 36,212 96 Construction & land development 51,067 219 48,917 118 Consumer: Bankcard 0 0 0 0 Other consumer 29 0 32 0 Impaired Loans For the Six Months Ended June 30, 2019 June 30, 2018 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 67,911 $ 911 $ 75,592 $ 739 Nonowner-occupied 78,529 708 116,941 328 Other commercial 48,536 614 50,587 470 Residential real estate 30,927 342 25,064 180 Construction & land development 36,828 417 48,699 197 Consumer: Bankcard 0 0 0 0 Other consumer 28 0 26 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 6,809 $ 0 $ 6,590 $ 31 Nonowner-occupied 13,380 84 8,934 119 Other commercial 48,183 49 51,088 28 Residential real estate 16,175 140 11,266 21 Construction & land development 14,522 40 1,800 40 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 74,720 $ 911 $ 82,182 $ 770 Nonowner-occupied 91,909 792 125,875 447 Other commercial 96,719 663 101,675 498 Residential real estate 47,102 482 36,330 201 Construction & land development 51,350 457 50,499 237 Consumer: Bankcard 0 0 0 0 Other consumer 28 0 26 0 At June 30, 2019 and December 31, 2018, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $14,469 and $16,865, 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, 2019 and December 31, 2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $288 and $520, respectively. |