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 September 30, 2019, United had TDRs of $60,559 as compared to $59,425 as of December 31, 2018. Of the $60,559 aggregate balance of TDRs at September 30, 2019, $50,757 was on nonaccrual and $1,115 were 30-89 there was a commitment to lend additional funds of $293 to one debtor owing receivables whose terms have been modified in TDRs. During the third quarter of 2019, $24 was advanced to this debtor under a loan that had been previously modified . 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 September 30, 2019 and 2018, segregated by class of loans: Troubled Debt Restructurings For the Three Months Ended September 30, 2019 September 30, 2018 Number of Pre- Modification Post- Number of Pre- Modification Post- Commercial real estate: Owner-occupied 1 $ 1,030 $ 1,030 0 $ 0 $ 0 Nonowner-occupied 0 0 0 0 0 0 Other commercial 1 5,137 5,076 5 7,420 7,364 Residential real estate 0 0 0 1 272 272 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 $ 6,167 $ 6,106 6 $ 7,692 $ 7,636 The following table sets forth United’s troubled debt restructurings that have been restructured during the nine months ended September 30, 2019 and 2018, segregated by class of loans: Troubled Debt Restructurings For the Nine Months Ended September 30, 2019 September 30, 2018 Number of Pre- Modification Post- Number of Pre- Modification Post- Commercial real estate: Owner-occupied 2 $ 1,179 $ 1,179 0 $ 0 $ 0 Nonowner-occupied 0 0 0 0 0 0 Other commercial 3 5,962 5,849 9 16,992 16,890 Residential real estate 3 2,258 2,022 3 7,225 7,225 Construction & land development 3 2,266 2,214 0 0 0 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total 11 $ 11,665 $ 11,264 12 $ 24,217 $ 24,115 During the third quarter of 2019, $6,106 of restructured loans were modified by a change in terms. For the first nine months of 2019, $246 thousand of restructured loans were modified by an interest rate reduction and $11,018 of restructured loans were modified by a change in terms. During the third quarter and first nine months of 2018, $7,636 and $24,115 of restructured loans were modified by a change in loan terms. In some instances, the post-modification balance on the restructured loans is larger than the pre-modification The following table presents troubled debt restructurings, by class of loan, that were restructured during the twelve-month period ended September 30, 2019 and had charge-offs during the three and Three September 30, 2019 Nine Months Ended Number of Recorded Number of Recorded Troubled Debt Restructurings Commercial real estate: Owner-occupied 0 $ 0 0 $ 0 Nonowner-occupied 0 0 0 0 Other commercial 1 534 2 1,477 Residential real estate 0 0 0 0 Construction & land development 0 0 0 0 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total 1 $ 534 2 $ 1,477 The following table presents troubled debt restructurings, by class of loan, that had charge-offs during the three months and nine months ended September 30, 2018. Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Number of Recorded Number of Recorded Troubled Debt Restructurings Commercial real estate: Owner-occupied 0 $ 0 0 $ 0 Nonowner-occupied 0 0 0 0 Other commercial 1 622 1 622 Residential real estate 0 0 0 0 Construction & land development 0 0 0 0 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total 1 $ 622 1 $ 622 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 September 30, 2019 30-89 90 Days or Total Past Current & Total Financing Recorded Commercial real estate: Owner-occupied $ 17,635 $ 13,463 $ 31,098 $ 1,190,549 $ 1,221,647 $ 1,105 Nonowner-occupied 14,171 19,342 33,513 4,208,169 4,241,682 471 Other commercial 11,446 53,250 64,696 2,043,169 2,107,865 533 Residential real estate 33,863 27,155 61,018 3,583,550 3,644,568 6,248 Construction & land development 5,299 16,024 21,323 1,279,558 1,300,881 478 Consumer: Bankcard 303 155 458 9,074 9,532 155 Other consumer 8,959 1,092 10,051 1,101,012 1,111,063 850 Total $ 91,676 $ 130,481 $ 222,157 $ 13,415,081 $ 13,637,238 $ 9,840 (1) Other includes loans with a recorded investment of $103,017 acquired and accounted for under ASC Topic 310-30 Age Analysis of Past Due Loans As of December 31, 2018 30-89 Days 90 Days or Total Past Current & Total Financing Recorded 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 The following table sets forth United’s nonaccrual loans, segregated by class of loans: Loans on Nonaccrual Status September 30, 2019 December 31, 2018 Commercial real estate: Owner-occupied $ 12,358 $ 17,113 Nonowner-occupied 18,871 16,921 Other commercial 52,717 43,190 Residential real estate 20,907 21,137 Construction & land development 15,546 18,732 Consumer: Bankcard 0 0 Other consumer 242 350 Total $ 120,641 $ 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 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 The following tables set forth United’s credit quality indicators information, by class of loans: Credit Quality Indicators Corporate Credit Exposure As of September 30, 2019 Commercial Real Estate Other Construction & Owner- Nonowner- Grade: Pass $ 1,147,536 $ 4,141,992 $ 1,964,260 $ 1,221,350 Special mention 20,588 27,493 62,015 10,105 Substandard 53,164 72,197 81,320 69,426 Doubtful 359 0 270 0 Total $ 1,221,647 $ 4,241,682 $ 2,107,865 $ 1,300,881 As of December 31, 2018 Commercial Real Estate Other Construction & 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 September 30, 2019 Residential Bankcard Other Grade: Pass $ 3,596,942 $ 9,073 $ 1,100,971 Special mention 9,776 304 8,962 Substandard 37,850 155 1,130 Doubtful 0 0 0 Total $ 3,644,568 $ 9,532 $ 1,111,063 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 September 30, 2019 December 31, 2018 Recorded Unpaid Related Recorded Unpaid Related With no related allowance recorded: Commercial real estate: Owner-occupied $ 68,541 $ 70,625 $ 0 $ 63,633 $ 63,798 $ 0 Nonowner-occupied 45,039 45,232 0 98,845 98,904 0 Other commercial 59,855 67,441 0 40,291 50,459 0 Residential real estate 31,992 33,864 0 28,207 29,279 0 Construction & land development 29,900 35,825 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 $ 1,066 $ 1,066 $ 25 $ 10,004 $ 10,004 $ 2,542 Nonowner-occupied 13,515 13,623 1,900 15,720 15,720 2,715 Other commercial 40,866 43,250 10,491 61,266 62,812 17,581 Residential real estate 6,080 6,081 433 19,623 22,064 3,265 Construction & land development 14,877 16,927 1,937 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 $ 69,607 $ 71,691 $ 25 $ 73,637 $ 73,802 $ 2,542 Nonowner-occupied 58,554 58,855 1,900 114,565 114,624 2,715 Other commercial 100,721 110,691 10,491 101,557 113,271 17,581 Residential real estate 38,072 39,945 433 47,830 51,343 3,265 Construction & land development 44,777 52,752 1,937 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 September 30, 2019 September 30, 2018 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 70,245 $ 425 $ 65,625 $ 365 Nonowner-occupied 47,633 261 99,005 311 Other commercial 61,488 257 56,489 313 Residential real estate 33,482 146 28,753 144 Construction & land development 33,384 193 41,036 278 Consumer: Bankcard 0 0 0 0 Other consumer 31 0 23 0 Impaired Loans For the Three Months Ended September 30, 2019 September 30, 2018 Average Interest Average Interest With an allowance recorded: Commercial real estate: Owner-occupied $ 3,004 $ 0 $ 7,378 $ 6 Nonowner-occupied 11,943 63 12,465 189 Other commercial 38,016 11 47,563 305 Residential real estate 9,047 9 14,975 57 Construction & land development 14,481 32 9,408 20 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 73,249 $ 425 $ 73,003 $ 371 Nonowner-occupied 59,576 324 111,470 500 Other commercial 99,504 268 104,052 618 Residential real estate 42,529 155 43,728 201 Construction & land development 47,865 225 50,444 298 Consumer: Bankcard 0 0 0 0 Other consumer 31 0 23 0 Impaired Loans For the Nine Months Ended September 30, 2019 September 30, 2018 Average Interest Average Interest With no related allowance recorded: Commercial real estate: Owner-occupied $ 69,547 $ 1,354 $ 69,009 $ 1,101 Nonowner-occupied 60,594 914 105,199 928 Other commercial 55,058 790 55,124 1,020 Residential real estate 32,189 479 27,210 501 Construction & land development 34,403 602 43,464 707 Consumer: Bankcard 0 0 0 0 Other consumer 30 0 29 0 With an allowance recorded: Commercial real estate: Owner-occupied $ 3,830 $ 0 $ 6,876 $ 18 Nonowner-occupied 12,645 192 11,158 251 Other commercial 41,383 139 47,736 380 Residential real estate 11,661 73 13,946 247 Construction & land development 14,567 87 6,944 60 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total: Commercial real estate: Owner-occupied $ 73,377 $ 1,354 $ 75,885 $ 1,119 Nonowner-occupied 73,239 1,106 116,357 1,179 Other commercial 96,441 929 102,860 1,400 Residential real estate 43,850 552 41,156 748 Construction & land development 48,970 689 50,408 767 Consumer: Bankcard 0 0 0 0 Other consumer 30 0 29 0 At September 30, 2019 and December 31, 2018, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $ 18,367 16,865 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 September 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 $1,454 and $520, respectively. |