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. United considers a loan to be past due when it is 30 days or more past its contractual payment due date. 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 credit 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 (“COVID-19”) COVID-19 As of June 30, 2020, United had TDRs of $77,436 as compared to $58,369 as of December 31, 2019. Of the $77,436 aggregate balance of TDRs at June 30, 2020, $59,916 was on nonaccrual and $544 was 30-89 30-89 , respectively, were advanced to this debtor under a loan that had been previously modified. The following tables sets for the balances of TDRs at June 30, 2020 and December 31, 2019 and the reasons for modification: Reason for modification June 30, 2020 December 31, 2019 Interest rate reduction $ 11,662 $ 1,685 Interest rate reduction and change in terms 3,039 1,733 Forgiveness of principal 252 0 Transfer of asset 121 0 Concession of principal and term 24 0 Extended maturity 4,879 0 Change in terms 57,459 54,951 Total $ 77,436 $ 58,369 The following table sets forth United’s troubled debt restructurings that have been restructured during the three months ended June 30, 2020 and 2019, segregated by class of loans: Troubled Debt Restructurings For the Three Months Ended June 30, 2020 June 30, 2019 Number Pre- Post- Number Pre- Post- Commercial real estate: Owner-occupied 18 $ 10,628 $ 10,586 1 $ 150 $ 150 Nonowner-occupied 6 2,259 2,248 0 0 0 Other commercial 14 3,169 3,090 1 559 559 Residential real estate 19 3,889 3,872 2 1,845 1,832 Construction & land development 9 2,562 2,557 3 2,242 2,202 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 3 69 36 0 0 0 Total 69 $ 22,576 $ 22,389 7 $ 4,796 $ 4,743 The following table sets forth United’s troubled debt restructurings that have been restructured during the six months ended June 30, 2020 and 2019, segregated by class of loans: Troubled Debt Restructurings For the Six Months Ended June 30, 2020 June 30, 2019 Number Pre- Post- Number Pre-Modification Post- Commercial real estate: Owner-occupied 21 $ 18,579 $ 18,345 1 $ 150 $ 150 Nonowner-occupied 6 2,259 2,248 0 0 0 Other commercial 18 3,667 3,322 2 824 811 Residential real estate 19 3,889 3,872 3 2,258 2,234 Construction & land development 12 4,607 4,570 3 2,242 2,202 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 3 69 36 0 0 0 Total 79 $ 33,070 $ 32,393 9 $ 5,474 $ 5,397 The following table sets forth United’s troubled debt restructurings, based on their post-modification outstanding recorded balance, that have been restructured during the three and six months ended June 30, 2020 and 2019, segregated by the reason for modification: Three Months Ended Six Months Ended Reason for modification June 30, June 30, June 30, June 30, Interest rate reduction $ 2,675 $ 0 $ 10,028 $ 251 Interest rate reduction and change in terms 1,326 0 1,326 0 Forgiveness of principal 252 0 252 0 Transfer of asset 121 0 121 0 Concession of principal and term 24 0 24 0 Extended maturity 4,879 0 4,879 0 Change in terms 13,112 4,743 15,763 5,146 Total $ 22,389 $ 4,743 $ 32,393 $ 5,397 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 troubled debt restructurings, by class of loan, that were restructured during the twelve-month period ended June 30, 2020 and had charge-offs during the three and six months ended June 30, 2020. Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 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 0 0 0 0 Residential real estate 0 0 0 0 Construction & land development 1 690 1 690 Consumer: Bankcard 0 0 0 0 Other consumer 0 0 0 0 Total 1 $ 690 1 $ 690 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. Six Months Ended June 30, 2019 Number of Recorded 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 periods ended June 30, 2019 subsequently defaulted, resulting in a principal charge-off 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, 2020 30-89 90 Days or Total Past Current & Total Financing 90 Days Commercial real estate: Owner-occupied $ 4,281 $ 33,199 $ 37,480 $ 1,587,280 $ 1,624,760 $ 1,419 Nonowner-occupied 3,633 23,365 26,998 4,977,792 5,004,790 859 Other commercial 10,781 43,456 54,237 4,059,268 4,113,505 777 Residential real estate 34,510 29,883 64,393 4,245,763 4,310,156 6,234 Construction & land development 5,427 6,888 12,315 1,763,413 1,775,728 84 Consumer: Bankcard 173 160 333 8,132 8,465 160 Other consumer 7,814 2,023 9,837 1,185,313 1,195,150 1,617 Total $ 66,619 $ 138,974 $ 205,593 $ 17,826,961 $ 18,032,554 $ 11,150 Age Analysis of Past Due Loans As of December 31, 2019 30-89 90 Days or Total Past Current & Total Financing 90 Days &Accruing Commercial real estate: Owner-occupied $ 8,878 $ 11,209 $ 20,087 $ 1,181,565 $ 1,201,652 $ 544 Nonowner-occupied 6,318 16,129 22,447 3,943,513 3,965,960 471 Other commercial 5,238 51,541 56,779 2,228,258 2,285,037 668 Residential real estate 31,727 24,343 56,070 3,630,331 3,686,401 6,256 Construction & land development 2,219 16,043 18,262 1,389,943 1,408,205 0 Consumer: Bankcard 445 218 663 9,411 10,074 218 Other consumer 10,991 1,607 12,598 1,143,621 1,156,219 1,337 Total $ 65,816 $ 121,090 $ 186,906 $ 13,526,642 $ 13,713,548 $ 9,494 (1) Other includes loans with a recorded investment of $96,004 acquired and accounted for under ASC Topic 310-30 The following table sets forth United’s nonaccrual loans, segregated by class of loans: At June 30, 2020 At December 31, Interest Income Nonaccruals With No 90 Days Nonaccruals For The For The Commercial Real Estate: Owner-occupied $ 31,780 $ 26,723 $ 1,419 $ 10,665 $ 17 $ 32 Nonowner-occupied 22,506 19,882 859 15,658 1 1 Other Commercial 42,679 18,909 777 50,873 1 1 Residential Real Estate 23,649 22,022 6,234 18,087 3 3 Construction 6,804 6,759 84 16,043 0 0 Consumer: Bankcard 0 0 160 0 0 0 Other consumer 406 406 1,617 270 0 0 Total $ 127,824 $ 94,701 $ 11,150 $ 111,596 $ 22 $ 37 For the adoption of ASU 2016-13, Collateral Dependent Loans At June 30, 2020 Residential Business Land Commercial Other Total Commercial real estate: Owner-occupied $ 2,084 $ 84 $ 0 $ 19,246 $ 28,719 $ 50,133 Nonowner-occupied 12,806 0 2,981 15,550 17,076 48,413 Other commercial 6,037 47,707 0 0 49 53,793 Residential real estate 25,104 229 255 0 0 25,588 Construction & land development 9,939 0 9,869 0 746 20,554 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total $ 55,970 $ 48,020 $ 13,105 $ 34,796 $ 46,590 $ 198,481 United categorizes loans into risk categories based United uses the following definitions for risk ratings: • Pass • Special Mention • Substandard • Doubtful For United’s loans with a corporate credit exposure, United analyzes loans individually to classify the loans as to credit risk. Review and analysis of criticized (special mention-rated loans in the amount of $1,000 or greater) and classified (substandard-rated and worse in the amount of $500 and greater) loans is completed once per quarter. Review of notes with committed exposure of $2,000 or greater is completed at least annually. 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 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. 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 Based on the most recent analysis performed, the risk category of loans by class of loans is as follows: Commercial Real Estate – Owner-occupied Term Loans Revolving Revolving loans converted Total Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Internal Risk Grade: Pass $ 107,784 $ 163,097 $ 133,255 $ 244,528 $ 304,759 $ 565,627 $ 23,576 $ 0 $ 1,542,626 Special 0 1,225 6,995 781 2,100 9,634 0 468 21,203 Substandard 1,831 72 0 2,235 4,542 50,394 1,364 149 60,587 Doubtful 0 0 0 0 0 344 0 0 344 Total $ 109,615 $ 164,394 $ 140,250 $ 247,544 $ 311,401 $ 625,999 $ 24,940 $ 617 $ 1,624,760 YTD 0 0 0 0 0 (535 ) 0 0 (535 ) YTD 0 0 0 0 0 310 0 0 310 YTD net charge-offs $ 0 $ 0 $ 0 $ 0 $ 0 $ (225 ) $ 0 $ 0 $ (225 ) Commercial Real Estate – Nonowner-occupied Term Loans Revolving Revolving converted to term loans Total Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Internal Risk Grade: Pass $ 297,474 $ 748,897 $ 685,228 $ 620,528 $ 582,809 $ 1,844,405 $ 115,345 $ 2,145 $ 4,896,831 Special Mention 0 347 0 977 10,645 27,024 0 0 38,993 Substandard 73 964 8,618 1,702 13,245 44,364 0 0 68,966 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 297,547 $ 750,208 $ 693,846 $ 623,207 $ 606,699 $ 1,915,793 $ 115,345 $ 2,145 $ 5,004,790 YTD 0 0 0 0 (690 ) (1,247 ) 0 0 (1,937 ) YTD 0 0 0 0 0 722 0 0 722 YTD $ 0 $ 0 $ 0 $ 0 $ (690 ) $ (525 ) $ 0 $ 0 $ (1,215 ) Other commercial Term Loans Revolving Revolving converted to temr loans Total Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Internal Risk Grade: Pass $ 1,509,244 $ 451,574 $ 212,881 $ 150,587 $ 150,389 $ 311,422 $ 1,213,494 $ 3,071 $ 4,002,662 Special Mention 99 313 430 2,044 202 20,072 4,053 423 27,636 Substandard 0 895 2,635 2,535 11,386 48,486 16,794 404 83,135 Doubtful 0 0 0 0 0 72 0 0 72 Total $ 1,509,343 $ 452,782 $ 215,946 $ 155,166 $ 161,977 $ 380,052 $ 1,234,341 $ 3,898 $ 4,113,505 YTD 0 (11 ) (964 ) (365 ) (6 ) (5,682 ) 0 0 (7,028 ) YTD 0 42 16 3 21 332 32 0 446 YTD $ 0 $ 31 $ (948 ) $ (362 ) $ 15 $ (5,350 ) $ 32 $ 0 $ (6,582 ) Residential Real Estate Revolving Revolving converted to te rm Total Term Loans Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Internal Risk Grade: Pass $ 324,682 $ 750,044 $ 857,069 $ 393,030 $ 347,781 $ 1,111,476 $ 476,577 $ 4,332 $ 4,264,991 Special Mention 0 271 0 226 2,349 7,014 435 0 10,295 Substandard 0 226 459 3,800 5,333 24,252 437 234 34,741 Doubtful 0 0 0 0 0 129 0 0 129 Total $ 324,682 $ 750,541 $ 857,528 $ 397,056 $ 355,463 $ 1,142,871 $ 477,449 $ 4,566 $ 4,310,156 YTD 0 0 0 0 (1 ) (889 ) 0 0 (890 ) YTD 0 0 0 101 0 201 0 0 302 YTD $ 0 $ 0 $ 0 $ 101 $ (1 ) $ (688 ) $ 0 $ 0 $ (588 ) Construction and Land Development Revolving loans converted Term Loans Revolving Total Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Internal Risk Grade: Pass $ 163,253 $ 706,921 $ 375,025 $ 173,269 $ 133,679 $ 70,466 $ 102,752 $ 143 $ 1,725,510 Special Mention 0 0 1,506 0 561 2,681 995 0 5,743 Substandard 0 156 1,553 25 0 20,443 22,298 0 44,475 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 163,253 $ 707,077 $ 378,084 $ 173,294 $ 134,240 $ 93,590 $ 126,045 $ 143 $ 1,775,728 YTD 0 0 0 0 0 (1,969 ) 0 0 (1,969 ) YTD 0 0 0 0 0 1,361 0 0 1,361 YTD $ 0 $ 0 $ 0 $ 0 $ 0 $ (608 ) $ 0 $ 0 $ (608 ) Bankcard Revolving loans converted Term Loans Revolving Total Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Internal Risk Grade: Pass $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,133 $ 8,133 Special Mention 0 0 0 0 0 0 0 172 172 Substandard 0 0 0 0 0 0 0 160 160 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,465 $ 8,465 YTD 0 0 0 0 0 0 0 (128 ) (128 ) YTD 0 0 0 0 0 0 0 12 12 YTD $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ (116 ) $ (116 ) Other Consumer Revolving loans converted Term Loans Revolving Total Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Internal Risk Grade: Pass $ 220,924 $ 494,700 $ 298,460 $ 104,779 $ 54,766 $ 14,247 $ 7,095 $ 0 $ 1,194,971 Special Mention 0 0 11 0 0 152 4 0 167 Substandard 3 0 0 0 0 9 0 0 12 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 220,927 $ 494,700 $ 298,471 $ 104,779 $ 54,766 $ 14,408 $ 7,099 $ 0 $ 1,195,150 YTD (16 ) (589 ) (652 ) (272 ) (152 ) (225 ) (2 ) 0 (1,908 ) YTD 0 24 33 11 18 124 0 0 210 YTD $ (16 ) $ (565 ) $ (619 ) $ (261 ) $ (134 ) $ (101 ) $ (2 ) $ 0 $ (1,698 ) The following tables set forth United’s credit quality indicators information, by class of loans, as of December 31, 2019: Credit Quality Indicators Corporate Credit Exposure As of December 31, 2019 Commercial Real Estate Other Construction & Owner- Nonowner- Grade: Pass $ 1,136,589 $ 3,850,886 $ 2,136,266 $ 1,334,950 Special mention 14,449 44,134 75,511 4,614 Substandard 50,346 70,940 72,451 68,641 Doubtful 268 0 809 0 Total $ 1,201,652 $ 3,965,960 $ 2,285,037 $ 1,408,205 Credit Quality Indicators Consumer Credit Exposure As of December 31, 2019 Residential Bankcard Other Grade: Pass $ 3,645,654 $ 9,411 $ 1,143,608 Special mention 12,038 445 10,993 Substandard 28,572 218 1,618 Doubtful 137 0 0 Total $ 3,686,401 $ 10,074 $ 1,156,219 At June 30, 2020 and December 31, 2019, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $29,947 and $15,515, 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, 2020 and December 31, 2019, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $1,738 and $890, respectively. |