10-Q 1 d152970d10q.htm FORM 10-Q Form 10-Q
Table of Contents

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 0-13322

United Bankshares, Inc.

(Exact name of registrant as specified in its charter)

 

West Virginia   55-0641179

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

300 United Center

500 Virginia Street, East

Charleston, West Virginia

  25301
(Address of principal executive offices)   Zip Code

Registrant’s telephone number, including area code: (304) 424-8716

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class - Common Stock, $2.50 Par Value; 69,712,832 shares outstanding as of April 30, 2016.


Table of Contents

UNITED BANKSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

 

          Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

   Financial Statements   

Consolidated Balance Sheets (Unaudited) March 31, 2016 and December 31, 2015

     4   

Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2016 and 2015

     5   

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2016 and 2015

     7   

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2016

     8   

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2016 and 2015

     9   

Notes to Consolidated Financial Statements

     10   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      48   

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      68   

Item 4.

   Controls and Procedures      71   

PART II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings      72   

Item 1A.

   Risk Factors      72   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      72   

Item 3.

   Defaults Upon Senior Securities      73   

Item 4.

   Mine Safety Disclosures      73   

Item 5.

   Other Information      73   

Item 6.

   Exhibits      73   

Signatures

     74   

Exhibits Index

     75   

 

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PART I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

The March 31, 2016 and December 31, 2015, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income, comprehensive income, consolidated statement of changes in shareholders’ equity and the condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015, and the notes to consolidated financial statements appear on the following pages.

 

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CONSOLIDATED BALANCE SHEETS

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except par value)

 

     March 31     December 31  
     2016     2015  
     (Unaudited)     (Note 1)  

Assets

    

Cash and due from banks

   $ 151,470      $ 136,690   

Interest-bearing deposits with other banks

     752,648        719,923   

Federal funds sold

     723        722   
  

 

 

   

 

 

 

Total cash and cash equivalents

     904,841        857,335   

Securities available for sale at estimated fair value (amortized cost-$1,060,944 at March 31, 2016 and $1,072,340 at December 31, 2015)

     1,068,252        1,066,334   

Securities held to maturity (estimated fair value-$35,567 at March 31, 2016 and $36,319 at December 31, 2015)

     39,058        39,099   

Other investment securities

     100,000        98,749   

Loans held for sale

     5,395        10,681   

Loans

     9,393,200        9,398,952   

Less: Unearned income

     (14,807     (14,872
  

 

 

   

 

 

 

Loans net of unearned income

     9,378,393        9,384,080   

Less: Allowance for loan losses

     (75,490     (75,726
  

 

 

   

 

 

 

Net loans

     9,302,903        9,308,354   

Bank premises and equipment

     72,012        73,089   

Goodwill

     710,252        710,252   

Accrued interest receivable

     36,068        35,801   

Other assets

     368,103        378,250   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 12,606,884      $ 12,577,944   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 2,792,571      $ 2,699,958   

Interest-bearing

     6,531,997        6,641,569   
  

 

 

   

 

 

 

Total deposits

     9,324,568        9,341,527   

Borrowings:

    

Federal funds purchased

     27,100        22,230   

Securities sold under agreements to repurchase

     315,475        341,661   

Federal Home Loan Bank borrowings

     885,855        850,880   

Other long-term borrowings

     223,723        223,506   

Reserve for lending-related commitments

     1,193        936   

Accrued expenses and other liabilities

     93,933        84,569   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     10,871,847        10,865,309   

Shareholders’ Equity

    

Preferred stock, $1.00 par value; Authorized-50,000,000 shares, none issued

     —          —     

Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-69,733,465 and 69,626,932 at March 31, 2016 and December 31, 2015, respectively, including 27,124 and 23,835 shares in treasury at March 31, 2016 and December 31, 2015, respectively

     174,334        174,067   

Surplus

     754,317        752,997   

Retained earnings

     836,308        824,603   

Accumulated other comprehensive loss

     (28,989     (38,212

Treasury stock, at cost

     (933     (820
  

 

 

   

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     1,735,037        1,712,635   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 12,606,884      $ 12,577,944   
  

 

 

   

 

 

 

See notes to consolidated unaudited financial statements.

 

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)

 

     Three Months Ended  
     March 31  
     2016      2015  

Interest income

     

Interest and fees on loans

   $ 99,334       $ 95,149   

Interest on federal funds sold and other short-term investments

     622         331   

Interest and dividends on securities:

     

Taxable

     7,707         8,189   

Tax-exempt

     833         880   
  

 

 

    

 

 

 

Total interest income

     108,496         104,549   

Interest expense

     

Interest on deposits

     6,885         6,885   

Interest on short-term borrowings

     214         231   

Interest on long-term borrowings

     3,113         2,684   
  

 

 

    

 

 

 

Total interest expense

     10,212         9,800   
  

 

 

    

 

 

 

Net interest income

     98,284         94,749   

Provision for loan losses

     4,035         5,354   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     94,249         89,395   

Other income

     

Fees from trust and brokerage services

     4,869         4,892   

Fees from deposit services

     7,973         9,773   

Bankcard fees and merchant discounts

     838         814   

Other service charges, commissions, and fees

     429         478   

Income from bank-owned life insurance

     1,180         1,273   

Income from mortgage banking

     728         545   

Other income

     371         404   

Total other-than-temporary impairments

     0         (100

Portion of loss recognized in other comprehensive income

     0         66   
  

 

 

    

 

 

 

Net other-than-temporary impairment losses

     0         (34

Net gains on sales/calls of investment securities

     4         46   
  

 

 

    

 

 

 

Net investment securities gains

     4         12   
  

 

 

    

 

 

 

Total other income

     16,392         18,191   

Other expense

     

Employee compensation

     22,279         20,268   

Employee benefits

     6,603         6,803   

Net occupancy expense

     6,253         6,529   

Other real estate owned (OREO) expense

     649         1,113   

Equipment expense

     2,007         2,124   

Data processing expense

     3,551         3,743   

Bankcard processing expense

     368         349   

FDIC insurance expense

     2,120         2,094   

Other expense

     14,226         14,632   
  

 

 

    

 

 

 

Total other expense

     58,056         57,655   
  

 

 

    

 

 

 

Income before income taxes

     52,585         49,931   

Income taxes

     17,879         15,304   
  

 

 

    

 

 

 

Net income

   $ 34,706       $ 34,627   
  

 

 

    

 

 

 

 

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited) — continued

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)

 

     Three Months Ended  
     March 31  
     2016      2015  

Earnings per common share:

     

Basic

   $ 0.50       $ 0.50   
  

 

 

    

 

 

 

Diluted

   $ 0.50       $ 0.50   
  

 

 

    

 

 

 

Dividends per common share

   $ 0.33       $ 0.32   
  

 

 

    

 

 

 

Average outstanding shares:

     

Basic

     69,497,489         69,207,508   

Diluted

     69,714,121         69,476,844   

See notes to consolidated unaudited financial statements

 

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands)

 

     Three Months Ended  
     March 31  
     2016      2015  

Net income

   $ 34,706       $ 34,627   

Change in net unrealized gain on available-for-sale (AFS) securities, net of tax

     8,493         5,334   

Accretion of the net unrealized loss on the transfer of AFS securities to held-to-maturity (HTM) securities, net of tax

     1         1   

Change in defined benefit pension plan, net of tax

     729         768   
  

 

 

    

 

 

 

Comprehensive income, net of tax

   $ 43,929       $ 40,730   
  

 

 

    

 

 

 

See notes to consolidated unaudited financial statements

 

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)

 

     Three Months Ended March 31, 2016  
                               Accumulated              
     Common Stock                  Other           Total  
            Par            Retained     Comprehensive     Treasury     Shareholders’  
     Shares      Value      Surplus     Earnings     Income (Loss)     Stock     Equity  

Balance at January 1, 2016

     69,626,932       $ 174,067       $ 752,997      $ 824,603      ($ 38,212   ($ 820   $ 1,712,635   

Comprehensive income:

                

Net income

     0         0         0        34,706        0        0        34,706   

Other comprehensive income, net of tax:

     0         0         0        0        9,223        0        9,223   
                

 

 

 

Total comprehensive income, net of tax

                   43,929   

Stock based compensation expense

     0         0         658        0        0        0        658   

Purchase of treasury stock (4 shares)

     0         0         0        0        0        0        0   

Cash dividends ($0.33 per share)

     0            0        (23,001     0        0        (23,001

Grant of restricted stock (64,092 shares)

     64,092         161         (161     0        0        0        0   

Forfeiture of restricted stock (3,288 shares)

     0         0         113        0        0        (113     0   

Common stock options exercised (42,441 shares)

     42,441         106         710        0        0        0        816   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2016

     69,733,465       $ 174,334       $ 754,317      $ 836,308      ($ 28,989   ($ 933   $ 1,735,037   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated unaudited financial statements

 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands)

 

     Three Months Ended  
     March 31  
     2016     2015  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 57,934      $ 53,891   

INVESTING ACTIVITIES

    

Proceeds from maturities and calls of securities held to maturity

     2        182   

Proceeds from sales of securities available for sale

     33        1,721   

Proceeds from maturities and calls of securities available for sale

     34,966        34,366   

Purchases of securities available for sale

     (23,813     (12,514

Purchases of bank premises and equipment

     (789     (1,500

Proceeds from sales and redemptions of other investment securities

     6,519        11,578   

Purchases of other investment securities

     (7,770     (5,371

Net change in loans

     4,671        58,360   
  

 

 

   

 

 

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

     13,819        86,822   
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Cash dividends paid

     (22,968     (22,166

Excess tax benefits from stock-based compensation arrangements

     831        214   

Proceeds from exercise of stock options

     820        2,799   

Repayment of long-term Federal Home Loan Bank borrowings

     (705,025     (615,335

Proceeds from issuance of long-term Federal Home Loan Bank borrowings

     725,000        490,000   

Changes in:

    

Deposits

     (16,959     31,877   

Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings

     (5,946     (113,672
  

 

 

   

 

 

 

NET USED IN PROVIDED BY FINANCING ACTIVITIES

     (24,247     (226,283
  

 

 

   

 

 

 

Increase (Decrease) in cash and cash equivalents

     47,506        (85,570

Cash and cash equivalents at beginning of year

     857,335        753,064   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 904,841      $ 667,494   
  

 

 

   

 

 

 

See notes to consolidated unaudited financial statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

1. GENERAL

The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries (“United” or “the Company”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States (GAAP) and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of March 31, 2016 and 2015 and for the three-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2015 has been extracted from the audited financial statements included in United’s 2015 Annual Report to Shareholders. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 2015 Annual Report of United on Form 10-K. To conform to the 2016 presentation, certain reclassifications have been made to prior period amounts, which had no impact on net income, comprehensive income, or stockholders’ equity. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.

The accompanying consolidated interim financial statements include the accounts of United and its wholly owned subsidiaries. United considers all of its principal business activities to be bank related. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Dollars are in thousands, except per share or unless otherwise noted.

New Accounting Standards

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 will change certain aspects of accounting for share-based payments to employees. The new guidance, amongst other things, will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for United on January 1, 2017, and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 includes a lessee accounting model that recognizes two types of leases, finance leases and operating leases, while lessor accounting will remain largely unchanged from the current GAAP. ASU 2016-02 requires, amongst other things, that a lessee recognize on the balance sheet a right-of-use asset and a lease liability for leases with lease terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. ASU 2016-02 is effective for United on January 1, 2019 and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 makes changes to the classification and measurement of investments in equity securities, the presentation of certain fair value changes for financial liabilities measured at fair value under the fair value option and disclosure of fair value of instruments. In addition, ASU 2016-01 clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for United on January 1, 2018 and is not expected to have a significant impact on the Company’s financial condition or results of operations.

 

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In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” associated with a business combination, as part of its simplification initiative. ASU 2015-16 requires an acquirer to “recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.” In addition, the acquirer must record, in the financial statements for the same period, “the effect on earnings of changes in depreciation, amortization, or other income effect, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.” Entities must also “present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in the current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amount had been recognized as of the acquisition date.” ASU 2015-16 was effective for United on January 1, 2016 and did not have a significant impact on the Company’s financial condition or results of operations.

In May 2015, the FASB issued ASU 2015-07, “Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), a consensus of the FASB Emerging Issues Task Force.” ASU 2015-07 modifies certain provisions of FASB Accounting Standards Codification Topic 820, Fair Value Measurement (ASC 820). ASU 2015-07 eliminates the requirement to categorize investments in the fair value hierarchy if an investment’s fair value is measured based on net asset value (NAV) per share (or its equivalent) using the practical expedient. The reporting entities will no longer be required to provide the related fair value disclosures for these securities but instead, will be required to disclose information to help users understand the nature of the investments as well as risks, including whether it is probable that the amount realized on the sale of the investments would differ from net asset value. ASU 2015-07 was effective for United on January 1, 2016 and did not have a significant impact on the Company’s financial condition or results of operations.

In April 2015, the FASB issued ASU 2015-04, “Compensation – Retirement Benefits: Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.” ASU 2015-04 gives an employer whose fiscal year-end does not coincide with a calendar month-end the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. ASU 2015-04 also provides guidance on accounting for contributions to the plan and significant events that require a remeasurement that occur during the period between a month-end measurement and the employer’s fiscal year-end. ASU 2015-04 was effective for United on January 1, 2016 and did not have a significant impact on the Company’s financial condition or results of operations.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” Under ASU 2015-03, debt issuance costs are required to be presented as a direct deduction of debt balances on the statement of financial condition, similar to the presentation of debt discounts. ASU 2015-03 is limited to simplifying the presentation of debt issuance costs and does not change the recognition and measurement guidance for debt issuance costs. ASU 2015-03 was effective for United on January 1, 2016 and did not have a significant impact on the Company’s financial condition or results of operations.

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis.” ASU 2015-02 improves targeted areas of the consolidation guidance and reduces the number of consolidation models. The new consolidation standard eliminates the deferral of FAS 167 and makes changes to both the variable interest model and the voting model in ASC 810. ASU 2015-02 affects all entities, could change consolidation conclusions and may trigger additional disclosures. ASU 2015-02 was effective for United on January 1, 2016 and did not have a significant impact on the Company’s financial condition or results of operations.

 

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In January 2015, the FASB issued ASU 2015-01, “Income Statement, Extraordinary and Unusual Items (Subtopic 225-20).”ASU 2015-01 eliminates the separate presentation of extraordinary items but does not change the requirement to disclose material items that are unusual or infrequent in nature. Eliminating the concept of extraordinary items will allow entities to no longer have to assess whether a particular event or transaction is both unusual in nature and infrequent in occurrence. ASU 2015-01 was effective for United on January 1, 2016 and did not have a significant impact on the Company’s financial condition or results of operations.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU 2014-12 amends the guidance in FASB ASC 718, “Compensation-Stock Compensation”, to bring consistency to the accounting for share-based payment awards that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. The amendments affect all entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. ASU 2014-12 was effective for United on January 1, 2016 and did not have a significant impact on the Company’s financial condition or results of operations.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”, and most industry-specific guidance throughout the Accounting Standards Codification. The amendments require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new revenue recognition standard sets forth a five step principle-based approach for determining revenue recognition. In April 2015, the FASB voted to defer the effective date of ASU 2014-09 by one-year for both public and private companies, and gave both public and private companies the option to “early” adopt using the original effective dates. ASU 2014-09 now will be effective for United on January 1, 2018 with early adoption permitted on January 1, 2017. Management is currently evaluating this guidance to determine the impact on the Company’s financial condition or results of operations.

2. MERGERS AND ACQUISITIONS

On November 9, 2015, United announced the signing of a definite merger agreement with Bank of Georgetown, a privately held community bank headquartered in Washington, D.C. Bank of Georgetown had $1.3 billion in assets as of March 31, 2016. With this transaction, United continues to strengthen its franchise and enhance its existing footprint in the D.C. Metro Region. United will acquire 100% of the outstanding shares of Bank of Georgetown in exchange for common shares of United. The exchange ratio will be fixed at 0.9313 of United’s shares for each share of Bank of Georgetown which equates to $37.00 per share, based on the 15-day average price of $39.73 for United’s stock prior to the announcement.

United has received all regulatory approvals for the merger. In addition, Bank of Georgetown’s shareholders have approved the merger. The transaction is expected to close on June 3, 2016.

 

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3. INVESTMENT SECURITIES

Securities held for indefinite periods of time and all marketable equity securities are classified as available for sale and carried at estimated fair value. The amortized cost and estimated fair values of securities available for sale are summarized as follows:

 

      March 31, 2016  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair

Value
     Cumulative
OTTI in
AOCI (1)
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

   $ 70,152       $ 3,204       $ 0       $ 73,356       $ 0   

State and political subdivisions

     131,953         3,909         33         135,829         0   

Residential mortgage-backed securities

              

Agency

     465,513         11,840         61         477,292         0   

Non-agency

     8,585         176         7         8,754         458   

Commercial mortgage-backed securities

              

Agency

     299,095         6,729         22         305,802         0   

Asset-backed securities

     2,640         0         3         2,637         0   

Trust preferred collateralized debt obligations

     49,342         686         17,435         32,593         25,952   

Single issue trust preferred securities

     13,325         234         2,599         10,960         0   

Other corporate securities

     14,994         87         0         15,081         0   

Marketable equity securities

     5,345         614         11         5,948         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,060,944       $ 27,479       $ 20,171       $ 1,068,252       $ 26,410   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      December 31, 2015  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair

Value
     Cumulative
OTTI in
AOCI (1)
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

   $ 71,993       $ 1,793       $ 0       $ 73,786       $ 0   

State and political subdivisions

     130,685         3,144         51         133,778         0   

Residential mortgage-backed securities

              

Agency

     473,109         5,580         707         477,982         0   

Non-agency

     9,119         457         5         9,571         458   

Commercial mortgage-backed securities

              

Agency

     305,990         1,843         1,898         305,935         0   

Asset-backed securities

     3,404         0         5         3,399         0   

Trust preferred collateralized debt obligations

     49,386         635         15,335         34,686         25,952   

Single issue trust preferred securities

     13,811         249         2,367         11,693         0   

Other corporate securities

     9,999         50         0         10,049         0   

Marketable equity securities

     4,844         637         26         5,455         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,072,340       $ 14,388       $ 20,394       $ 1,066,334       $ 26,410   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Other-than-temporary impairment in accumulated other comprehensive income. Amounts are before tax.

 

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The following is a summary of securities available-for-sale which were in an unrealized loss position at March 31, 2016 and December 31, 2015.

 

     Less than 12 months      12 months or longer  
     Fair      Unrealized      Fair      Unrealized  
     Value      Losses      Value      Losses  

March 31, 2016

           

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

   $ 0       $ 0       $ 0       $ 0   

State and political subdivisions

     13,041         33         0         0   

Residential mortgage-backed securities

           

Agency

     12,246         47         10,025         14   

Non-agency

     299         7         0         0   

Commercial mortgage-backed securities

           

Agency

     0         0         9,424         22   

Asset-backed securities

     2,637         3         0         0   

Trust preferred collateralized debt obligations

     1,029         276         26,628         17,159   

Single issue trust preferred securities

     3,900         736         3,824         1,863   

Marketable equity securities

     1,377         11         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 34,529       $ 1,113       $ 49,901       $ 19,058   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 months      12 months or longer  
     Fair      Unrealized      Fair      Unrealized  
     Value      Losses      Value      Losses  

December 31, 2015

           

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

   $ 0       $ 0       $ 0       $ 0   

State and political subdivisions

     15,550         51         0         0   

Residential mortgage-backed securities

           

Agency

     90,004         707         0         0   

Non-agency

     348         5         0         0   

Commercial mortgage-backed securities

           

Agency

     170,340         1,650         9,255         248   

Asset-backed securities

     3,399         5         0         0   

Trust preferred collateralized debt obligations

     3,304         135         28,633         15,200   

Single issue trust preferred securities

     4,225         404         3,720         1,963   

Marketable equity securities

     986         26         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 288,156       $ 2,983       $ 41,608       $ 17,411   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Marketable equity securities consist mainly of equity securities of financial institutions and mutual funds within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. The following table shows the proceeds from maturities, sales and calls of available for sale securities and the gross realized gains and losses on sales and calls of those securities that have been included in earnings as a result of those sales and calls. Gains or losses on sales and calls of available for sale securities were recognized by the specific identification method. The realized losses relate to sales of securities within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.

 

     Three Months Ended
March 31
 
     2016      2015  

Proceeds from sales and calls

   $ 34,999       $ 36,087   

Gross realized gains

     6         50   

Gross realized losses

     2         4   

At March 31, 2016, gross unrealized losses on available for sale securities were $20,171 on 49 securities of a total portfolio of 453 available for sale securities. Securities in an unrealized loss position at March 31, 2016 consisted primarily of pooled trust preferred collateralized debt obligations (Trup Cdos) and single issue trust preferred securities. The Trup Cdos and the single issue trust preferred securities relate mainly to securities of financial institutions. In determining whether or not a security is other-than-temporarily impaired (OTTI), management considered the severity and the duration of the loss in conjunction with United’s positive intent and the more likely than not ability to hold these securities to recovery of their cost basis or maturity.

Agency mortgage-backed securities

United’s agency mortgage-backed securities portfolio relates to securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. The total amortized cost of available for sale agency mortgage-backed securities was $764,608 at March 31, 2016. Of the $764,608, $299,095 was related to agency commercial mortgage-backed securities and $465,513 was related to agency residential mortgage-backed securities. Each of the agency mortgage-backed securities provides a guarantee of full and timely payments of principal and interest by the issuing agency. Based upon management’s analysis and judgment, it was determined that none of the agency mortgage-backed securities were other-than-temporarily impaired at March 31, 2016.

Non-agency residential mortgage-backed securities

United’s non-agency residential mortgage-backed securities portfolio relates to securities of various private label issuers. The Company has no exposure to real estate investment trusts (REITS) in its investment portfolio. The total amortized cost of available for sale non-agency residential mortgage-backed securities was $8,585 at March 31, 2016. Of the $8,585, $1,633 was rated above investment grade and $6,952 was rated below investment grade. Approximately 27% of the portfolio includes collateral that was originated during the year of 2005 or before. The remaining 73% includes collateral that was originated in the years of 2006 and 2007. The entire portfolio of the non-agency residential mortgage-backed securities is either the senior or super-senior tranches of their respective structure. In determining whether or not the non-agency mortgage-backed securities are other-than-temporarily impaired, management performs an in-depth analysis on each non-agency residential mortgage-backed security on a quarterly basis. The analysis includes a review of the following factors: weighted average loan to value, weighted average maturity, average FICO scores, historical collateral performance, geographic concentration, credit subordination, cross-collateralization, coverage ratios, origination year, full documentation percentage, event risk (repricing), and collateral type. Management completes a quarterly stress test to determine the level of loss protection remaining in each individual security and compares the protection remaining to the future expected performance of the underlying collateral. Additionally, management utilizes a third-party cash flow model to perform a cash flow test for each bond below investment grade. The model produces a bond specific set of cash flows based upon assumptions input by management. The input assumptions that are incorporated include the projected constant default rate (CDR) of the underlying mortgages, the loss severity upon default, and the prepayment rate on the underlying mortgage collateral. CDR and loss severities are forecasted by management after full evaluation of the underlying collateral including recent performance statistics. Therefore, based upon management’s analysis and judgment, there was no additional credit-related or noncredit-related other-than-temporary impairment recognized on the non-agency residential mortgage-backed securities at March 31, 2016.

 

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Table of Contents

Single issue trust preferred securities

The majority of United’s single-issue trust preferred portfolio consists of obligations from large cap banks (i.e. banks with market capitalization in excess of $10 billion). Management reviews each issuer’s current and projected earnings trends, asset quality, capitalization levels, and other key factors. Upon completing the review for the first quarter of 2016, it was determined that none of the single issue securities were other-than-temporarily impaired. All single-issue trust preferred securities are currently receiving interest payments. The available for sale single issue trust preferred securities’ ratings ranged from a low of B+ to a high of BBB-. The amortized cost of available for sale single issue trust preferred securities as of March 31, 2016 consisted of $3,002 in investment grade bonds, $4,636 in split-rated bonds and $5,687 in below investment grade bonds. All of the below investment grade bonds were in an unrealized loss position for twelve months or longer as of March 31, 2016.

Trust preferred collateralized debt obligations (Trup Cdos)

In order to determine how and when the Company recognizes OTTI, the Company first assesses its intentions regarding any sale of securities as well as the likelihood that it would be required to sell prior to recovery of the amortized cost. As of March 31, 2016, the Company has determined that it does not intend to sell any pooled trust preferred security and that it is not more likely than not that the Company will be required to sell such securities before recovery of their amortized cost.

To determine a net realizable value and assess whether other-than-temporary impairment existed, management performed detailed cash flow analysis to determine whether, in management’s judgment, it was more likely that United would not recover the entire amortized cost basis of the security. The Company discounts the security-specific cash flow projection at the security-specific interest rate and compares the present value to the amortized cost. Management’s cash flow analysis was performed for each security and considered the current deferrals and defaults within the underlying collateral, the likelihood that current deferrals would cure or ultimately default, potential future deferrals and defaults, potential prepayments, cash reserves, excess interest spread, credit analysis of the underlying collateral and the priority of payments in the cash flow structure. The underlying collateral analysis for each issuer took into consideration multiple factors including capital adequacy, earnings trends and asset quality. After completing its analysis of estimated cash flows, management determined that none of the Trup Cdos experienced an adverse change in cash flows during the first quarter of 2016, as the expected discounted cash flows from these particular securities were greater than or equal to the discounted cash flows originally expected at purchase or from the previous date of other-than-temporary impairment (cash flows are discounted at the contractual coupon rate for purposes of assessing OTTI).

There was no credit-related other-than-temporary impairment recognized in earnings for the first quarter of 2016 related to these securities. The total credit-related other-than-temporary impairment recognized in earnings during 2015 related to these securities was $34. The balance of noncredit-related other-than-temporary impairment recognized on United’s Trup Cdo portfolio was $25,952 at March 31, 2016 and December 31, 2015.

The amortized cost of available for sale Trup Cdos in an unrealized loss position for twelve months or longer as of March 31, 2016 consisted of $4,527 in investment grade bonds and $39,260 in below investment grade bonds.

 

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Table of Contents

The following is a summary of the available for sale Trup Cdos as of March 31, 2016:

 

                          Amortized Cost  

Class

   Amortized
Cost
     Fair
Value
     Unrealized
Loss
     Investment
Grade
     Split
Rated
     Below
Investment
Grade
 

Senior – Bank

   $ 6,668       $ 5,917       $ 751       $ 4,527       $ 0       $ 2,141   

Mezzanine – Bank (now in senior position)

     11,383         8,263         3,120         0         0         11,383   

Mezzanine – Bank

     26,091         15,285         10,806         0         0         26,091   

Mezzanine – Bank & Insurance (combination)

     5,200         3,128         2,072         0         0         5,200   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 49,342       $ 32,593       $ 16,749       $ 4,527       $ 0       $ 44,815   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

While a large difference remains between the fair value and amortized cost, the Company believes the remaining unrealized losses are related to the illiquid market for Trup Cdos rather than an adverse change in expected cash flows. The expected future cash flow substantiates the return of the remaining amortized cost of the security. The Company believes the following evidence supports the position that the remaining unrealized loss is related to the illiquid market for Trup Cdos:

 

   

The market for new issuance of Trup Cdos was robust from 2000 to 2007 with an estimated $60 billion in new issuance. The new market issuances came to an abrupt halt in 2007.

 

   

The secondary market for Trup Cdos ultimately became illiquid and although the market has improved, trading activity remains limited on these securities. In making this determination, the Company holds discussions with institutional traders to identify trends in the number and type of transactions related to the Trup Cdos.

 

   

The presence of a below-investment grade rating severely limits the pool of available buyers and contributes to the illiquidity of the market.

 

   

Trup Cdos have a more complex structure than most debt instruments, making projections of tranche returns difficult for non-specialists in the product. Deferral features available to the underlying issuers within each pool are unique to these securities. Additionally, it can be difficult for market participants to predict whether deferrals will ultimately cure or ultimately default. Due to the lack of transparency, market participants will require a higher risk premium, thus resulting in higher required discount rates.

 

   

The variability of cash flows at the time the securities were originated was expected to be very limited. Due to the financial crisis, Trup Cdos have experienced more substantive variability of cash flows compared to expectations, resulting in a higher risk premium when evaluating discount rates.

 

   

The limited, yet relevant, observable inputs indicate that market yield requirements for Trup Cdos, on a credit-adjusted basis, remained very high relative to discount rates at purchase and compared to other similarly rated debt securities.

Management also considered the ratings of the Company’s bonds in its portfolio and the extent of downgrades in United’s impairment analysis. However, management considered it imperative to independently perform its own credit analysis based on cash flows as described. The ratings of the investment grade Trup Cdos in the table above range from a low of AA to a high of Aaa. The below investment grade Trup Cdos range from a low of C to a high of Ba1.

On the Trup Cdos that have not been deemed to be other-than-temporarily impaired, the collateralization ratios range from a low of 98.4% to a high of 308.4%, with a median of 156.9%, and a weighted average of 211.5%. The collateralization ratio is defined as the current performing collateral in a security, divided by the current balance of the specific tranche the Company owns, plus any debt which is senior or pari passu with the Company’s security’s priority level. Performing collateral excludes the balance of any issuer that has either defaulted or has deferred its interest payment. It is not uncommon for the collateralization of a security that is not other-than-temporarily impaired to be less than 100% due to the excess spread built into the securitization structure.

 

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Table of Contents

Except for the debt securities that have already been deemed to be other-than-temporarily impaired, management does not believe any other individual security with an unrealized loss as of March 31, 2016 is other-than-temporarily impaired. For these securities, United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not a change in the expected contractual cash flows. Based on a review of each of the securities in the investment portfolio, management concluded that it expected to recover the amortized cost basis of the investment in such securities.

Equity securities

The amortized cost of United’s equity securities was $5,345 at March 31, 2016. For equity securities, management has evaluated the near-term prospects of the investment in relation to the severity and duration of any impairment and based on that evaluation, management determined that no equity securities were other-than-temporarily impaired at March 31, 2016.

Other investment securities (cost method)

During the first quarter of 2016, United also evaluated all of its cost method investments to determine if certain events or changes in circumstances during the first quarter of 2016 had a significant adverse effect on the fair value of any of its cost method securities. United determined that there were no events or changes in circumstances during the first quarter which would have an adverse effect on the fair value of any of its cost method securities. Therefore, no impairment was recorded.

Below is a progression of the credit losses on securities which United has recorded other-than-temporary charges. These charges were recorded through earnings and other comprehensive income.

 

     Three Months Ended
March 31
 
     2016      2015  

Balance of cumulative credit losses at beginning of period

   $ 23,773       $ 23,739   

Additions for credit losses recognized in earnings during the period:

     

Additional credit losses on securities for which OTTI was previously recognized

     0         34   

Reductions for securities sold or paid off during the period

     0         0   
  

 

 

    

 

 

 

Balance of cumulative credit losses at end of period

   $ 23,773       $ 23,773   
  

 

 

    

 

 

 

The amortized cost and estimated fair value of securities available for sale at March 31, 2016 and December 31, 2015 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.

 

     March 31, 2016      December 31, 2015  
            Estimated             Estimated  
     Amortized      Fair      Amortized      Fair  
     Cost      Value      Cost      Value  

Due in one year or less

   $ 11,741       $ 11,815       $ 10,448       $ 10,515   

Due after one year through five years

     268,067         272,458         273,469         274,158   

Due after five years through ten years

     214,787         223,693         213,274         216,636   

Due after ten years

     561,004         554,338         570,305         559,570   

Marketable equity securities

     5,345         5,948         4,844         5,455   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,060,944       $ 1,068,252       $ 1,072,340       $ 1,066,334   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The amortized cost and estimated fair values of securities held-to-maturity are summarized as follows:

 

     March 31, 2016  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

   $ 10,381       $ 849       $ 0       $ 11,230   

State and political subdivisions

     9,321         20         226         9,115   

Residential mortgage-backed securities

           

Agency

     34         7         0         41   

Single issue trust preferred securities

     19,302         0         4,141         15,161   

Other corporate securities

     20         0         0         20   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,058       $ 876       $ 4,367       $ 35,567   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2015  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

   $ 10,425       $ 860       $ 0       $ 11,285   

State and political subdivisions

     9,321         21         253         9,089   

Residential mortgage-backed securities

           

Agency

     35         6         0         41   

Single issue trust preferred securities

     19,298         0         3,414         15,884   

Other corporate securities

     20         0         0         20   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,099       $ 887       $ 3,667       $ 36,319   
  

 

 

    

 

 

    

 

 

    

 

 

 

Even though the market value of the held-to-maturity investment portfolio is less than its cost, the unrealized loss has no impact on the net worth or regulatory capital requirements of United. As of March 31, 2016, the Company’s two largest held-to-maturity single-issue trust preferred exposures were to Wells Fargo ($9,917) and SunTrust Bank ($7,411). The two held-to-maturity single-issue trust preferred exposures with at least one rating below investment grade included SunTrust Bank ($7,411) and Royal Bank of Scotland ($975). Other corporate securities consist mainly of bonds of corporations.

There were no gross realized gains or losses on calls and sales of held to maturity securities included in earnings for the first quarter of 2016 and 2015.

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2016 and December 31, 2015 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.

 

     March 31, 2016      December 31, 2015  
     Amortized
Cost
     Estimated
Fair
Value
     Amortized
Cost
     Estimated
Fair
Value
 

Due in one year or less

   $ 5,009       $ 5,042       $ 5,029       $ 5,121   

Due after one year through five years

     9,648         10,481         9,672         10,458   

Due after five years through ten years

     4,045         3,822         4,045         3,794   

Due after ten years

     20,356         16,222         20,353         16,946   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,058       $ 35,567       $ 39,099       $ 36,319   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $1,000,586 and $986,982 at March 31, 2016 and December 31, 2015, respectively.

4. LOANS

Major classes of loans are as follows:

 

     March 31,
2016
     December 31,
2015
 

Commercial, financial and agricultural:

     

Owner-occupied commercial real estate

   $ 918,334       $ 927,746   

Nonowner-occupied commercial real estate

     2,944,573         2,896,367   

Other commercial loans

     1,572,060         1,602,222   
  

 

 

    

 

 

 

Total commercial, financial & agricultural

     5,434,967         5,426,335   

Residential real estate

     2,272,589         2,268,685   

Construction & land development

     1,222,119         1,273,054   

Consumer:

     

Bankcard

     12,038         11,653   

Other consumer

     451,487         419,225   
  

 

 

    

 

 

 

Total gross loans

   $ 9,393,200       $ 9,398,952   
  

 

 

    

 

 

 

The table above does not include loans held for sale of $5,395 and $10,681 at March 31, 2016 and December 31, 2015, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.

The outstanding balances in the table above include acquired impaired loans with a recorded investment of $130,734 or 1.39% of total gross loans at March 31, 2016 and $148,197 or 1.58% of total gross loans at December 31, 2015. The contractual principal in these acquired impaired loans was $185,985 and $208,765 at March 31, 2016 and December 31, 2015, respectively. The balances above do not include future accretable net interest (i.e. the difference between the undiscounted expected cash flows and the recorded investment in the loan) on the acquired impaired loans.

Activity for the accretable yield for the first quarter of 2016 follows:

 

Accretable yield at the beginning of the period

   $ 12,156   

Accretion (including cash recoveries)

     (2,781

Net reclassifications to accretable from non-accretable

     3,582   

Disposals (including maturities, foreclosures, and charge-offs)

     (705
  

 

 

 

Accretable yield at the end of the period

   $ 12,252   
  

 

 

 

United’s subsidiary banks have made loans to the directors and officers of United and its subsidiaries, and to their affiliates. The aggregate dollar amount of these loans was $267,448 and $241,000 at March 31, 2016 and December 31, 2015, respectively.

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

 

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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 March 31, 2016, United had TDRs of $24,156 as compared to $23,890 as of December 31, 2015. Of the $24,156 aggregate balance of TDRs at March 31, 2016, $11,450 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 March 31, 2016, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At March 31, 2016, United had restructured loans in the amount of $2,747 that were modified by a reduction in the interest rate, $8,776 that were modified by a combination of a reduction in the interest rate and the principal and $12,633 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 were restructured during the three months ended March 31, 2016 and 2015, segregated by class of loans.

 

     Troubled Debt Restructurings  
     For the Three Months Ended  
     March 31, 2016      March 31, 2015  
     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

     0       $ 0       $ 0         0       $ 0       $ 0   

Nonowner-occupied

     0         0         0         0         0         0   

Other commercial

     3         1,441         1,438         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

     4       $ 2,841       $ 2,838         1       $ 240       $ 240   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the first quarter of 2016, $1,438 of restructured loans were modified by a change in terms and $1,400 were modified by a combination of a reduction in the interest rate and the principal. During the first quarter of 2015, $240 of restructured loans were modified by a change in terms. 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.

 

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No loans restructured during the twelve-month periods ended March 31, 2016 and 2015 subsequently defaulted, resulting in a principal charge-off during the first quarters 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 March 31, 2016

 

 

     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

   $ 9,144       $ 8,851       $ 17,995       $ 900,339       $ 918,334       $ 39   

Nonowner-occupied

     11,872         20,252         32,124         2,912,449         2,944,573         1,530   

Other commercial

     19,216         43,819         63,035         1,509,025         1,572,060         361   

Residential real estate

     45,049         22,899         67,948         2,204,641         2,272,589         4,565   

Construction & land development

     4,537         15,000         19,537         1,202,582         1,222,119         178   

Consumer:

                 

Bankcard

     274         170         444         11,594         12,038         170   

Other consumer

     7,246         1,251         8,497         442,990         451,487         1,048   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 97,338       $ 112,242       $ 209,580       $ 9,183,620       $ 9,393,200       $ 7,891   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Other includes loans with a recorded investment of $130,734 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
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

   $ 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”.

 

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The following table sets forth United’s nonaccrual loans, segregated by class of loans:

Loans on Nonaccrual Status

 

      March 31,
2016
     December 31,
2015
 

Commercial real estate:

     

Owner-occupied

   $ 8,812       $ 9,431   

Nonowner-occupied

     18,722         25,574   

Other commercial

     43,458         29,654   

Residential real estate

     18,334         24,038   

Construction & land development

     14,822         14,069   

Consumer:

     

Bankcard

     0         0   

Other consumer

     203         372   
  

 

 

    

 

 

 

Total

   $ 104,351       $ 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.

 

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The following tables set forth United’s credit quality indicators information, by class of loans:

Credit Quality Indicators

Corporate Credit Exposure

 

As of March 31, 2016

 
     Commercial Real Estate      Other
Commercial
     Construction
& Land
Development
 
     Owner-
occupied
     Nonowner-
occupied
       

Grade:

           

Pass

   $ 831,867       $ 2,785,394       $ 1,412,459       $ 1,053,524   

Special mention

     21,056         29,385         28,849         57,897   

Substandard

     65,411         129,794         129,287         110,152   

Doubtful

     0         0         1,465         546   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 918,334       $ 2,944,573       $ 1,572,060       $ 1,222,119   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2015

 
     Commercial Real Estate      Other
Commercial
     Construction
& Land
Development
 
     Owner-
occupied
     Nonowner-
occupied
       

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 March 31, 2016

 
     Residential
Real Estate
     Bankcard      Other
Consumer
 

Grade:

        

Pass

   $ 2,203,207       $ 11,594       $ 442,714   

Special mention

     16,881         274         7,356   

Substandard

     52,056         170         1,379   

Doubtful

     445         0         38   
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,272,589       $ 12,038       $ 451,487   
  

 

 

    

 

 

    

 

 

 

 

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

 

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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  
     March 31, 2016      December 31, 2015  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

With no related allowance recorded:

                 

Commercial real estate:

                 

Owner-occupied

   $ 27,976       $ 28,508       $ 0       $ 36,615       $ 36,828       $ 0   

Nonowner-occupied

     65,019         65,469         0         69,053         69,517         0   

Other commercial

     28,977         30,870         0         30,433         32,158         0   

Residential real estate

     28,315         29,902         0         21,431         22,329         0   

Construction & land development

     23,785         25,844         0         28,245         29,953         0   

Consumer:

                 

Bankcard

     0         0         0         0         0         0   

Other consumer

     27         27         0         32         32         0   

With an allowance recorded:

                 

Commercial real estate:

                 

Owner-occupied

   $ 4,189       $ 4,189       $ 1,505       $ 4,555       $ 4,555       $ 1,253   

Nonowner-occupied

     6,431         6,431         1,293         7,890         7,890         1,362   

Other commercial

     39,682         44,623         20,638         29,486         33,127         18,269   

Residential real estate

     12,313         13,048         2,324         13,305         14,625         2,118   

Construction & land

development

     12,565         18,217         4,721         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

   $ 32,165       $ 32,697       $ 1,505       $ 41,170       $ 41,383       $ 1,253   

Nonowner-occupied

     71,450         71,900         1,293         76,943         77,407         1,362   

Other commercial

     68,659         75,493         20,638         59,919         65,285         18,269   

Residential real estate

     40,628         42,950         2,324         34,736         36,954         2,118   

Construction & land

development

     36,350         44,061         4,721         42,377         50,088         4,789   

Consumer:

                 

Bankcard

     0         0         0         0         0         0   

Other consumer

     27         27         0         32         32         0   

 

     Impaired Loans  
     For the Three Months Ended  
     March 31, 2016      March 31, 2015  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

           

Commercial real estate:

           

Owner-occupied

   $ 32,295       $ 59       $ 40,843       $ 62   

Nonowner-occupied

     67,036         207         55,463         163   

Other commercial

     29,705         100         37,081         100   

Residential real estate

     24,873         140         30,814         49   

Construction & land development

     26,015         27         52,445         79   

Consumer:

           

Bankcard

     0         0         0         0   

Other consumer

     29         0         40         0   

 

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Table of Contents
     Impaired Loans  
     For the Three Months Ended  
     March 31, 2016      March 31, 2015  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With an allowance recorded:

           

Commercial real estate:

           

Owner-occupied

   $ 4,372       $ 27       $ 4,988       $ 38   

Nonowner-occupied

     7,160         43         6,981         39   

Other commercial

     34,583         130         18,695         64   

Residential real estate

     12,809         6         6,359         11   

Construction & land development

     13,349         42         10,287         35   

Consumer:

           

Bankcard

     0         0         0         0   

Other consumer

     0         0         0         0   

Total:

           

Commercial real estate:

           

Owner-occupied

   $ 36,667       $ 86       $ 45,831       $ 100   

Nonowner-occupied

     74,196         250         62,444         202   

Other commercial

     64,288         230         55,776         164   

Residential real estate

     37,682         146         37,173         60   

Construction & land development

     39,364         69         62,732         114   

Consumer:

           

Bankcard

     0         0         0         0   

Other consumer

     29         0         40         0   

At March 31, 2016 and December 31, 2015, other real estate owned (OREO) included in other assets in the Consolidated Balance Sheets was $28,981 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 March 31, 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 $1,542 and $234, respectively.

6. ALLOWANCE FOR CREDIT LOSSES

The allowance for loan losses is management’s estimate of the probable credit losses inherent in the loan portfolio. Management’s evaluation of the adequacy of the allowance for loan losses and the appropriate provision for credit losses is based upon a quarterly evaluation of the portfolio. This evaluation is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. The amounts allocated to specific credits and loan pools grouped by similar risk characteristics are reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. In determining the components of the allowance for credit losses, management considers the risk arising in part from, but not limited to, charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses.

For purposes of determining the general allowance, the loan portfolio is segregated by loan product type to recognize differing risk profiles among loan categories. It is further segregated by credit grade for risk-rated loan pools and delinquency for homogeneous loan pools. The outstanding principal balance within each pool is multiplied by historical loss data and certain qualitative factors to derive the general loss allocation per pool. Specific loss allocations are calculated for loans in excess of $500 thousand in accordance with ASC topic 310. Risk characteristics of owner-occupied

 

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commercial real estate loans and other commercial loans are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Nonowner-occupied commercial real estate loans differ in that cash flow to service debt is normally dependent on external income from third parties for use of the real estate such as rents, leases and room rates. Residential real estate loans are dependent upon individual borrowers who are affected by changes in general economic conditions, demand for housing and resulting residential real estate valuation. Construction and land development loans are impacted mainly by demand whether for new residential housing or for retail, industrial, office and other types of commercial construction within a given area. Consumer loan pool risk characteristics are influenced by general, regional and local economic conditions. During the first quarter of 2016, there were no material changes to the accounting policy or methodology related to the allowance for loan losses.

Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. For commercial loans, when a loan or a portion of a loan is identified to contain a loss, a charge-off recommendation is directed to management to charge-off all or a portion of that loan. Generally, any unsecured commercial loan more than six months delinquent in payment of interest must be charged-off in full. If secured, the charge-off is generally made to reduce the loan balance to a level equal to the liquidation value of the collateral when payment of principal and interest is six months delinquent. Any commercial loan, secured or unsecured, on which a principal or interest payment has not been made within 90 days, is reviewed monthly for appropriate action.

For consumer loans, closed-end retail loans that are past due 120 cumulative days delinquent from the contractual due date and open-end loans 180 cumulative days delinquent from the contractual due date are charged-off. Any consumer loan on which a principal or interest payment has not been made within 90 days is reviewed monthly for appropriate action. For a one-to-four family open-end or closed-end residential real estate loan, home equity loan, or high-loan-to-value loan that has reached 180 or more days past due, management evaluates the collateral position and charge-offs any amount that exceeds the value of the collateral. On retail credits for which the borrower is in bankruptcy, all amounts deemed unrecoverable are charged off within 60 days of the receipt of the notification. On retail credits effected by fraud, a loan is charged-off within 90 days of the discovery of the fraud. In the event of the borrower’s death and if repayment within the required timeframe is uncertain, the loan is generally charged-off as soon as the amount of the loss is determined.

For loans acquired through the completion of a transfer, including loans acquired in a business combination, that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that United will be unable to collect all contractually required payment receivable are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received). For the three months ended March 31, 2016, the re-estimation of the expected cash flows related to loans acquired that have evidence of deterioration of credit quality resulted in negative provision for loan losses expense of $437 as compared to provision for loan losses expense of $3,364 for the three months ended March 31, 2015.

United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. The reserve for lending-related commitments of $1,193 and $936 at March 31, 2016 and December 31, 2015, respectively, is separately classified on the balance sheet and is included in other liabilities. The combined allowance for loan losses and reserve for lending-related commitments are referred to as the allowance for credit losses.

 

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Table of Contents

A progression of the allowance for loan losses, by loan portfolio segment, for the three months ended March 31, 2016 and year ended December 31, 2015 are summarized as follows:

Allowance for Loan Losses and Carrying Amount of Loans

For the Three Months Ended March 31, 2016

 

      Commercial Real Estate     Other
Commercial
    Residential
Real

Estate
    Construction
& Land
Development
    Consumer     Allowance
for
Estimated
Imprecision
    Total  
   Owner-
occupied
    Nonowner-
occupied
             

Allowance for Loan Losses:

                

Beginning balance

   $ 3,637      $ 5,309      $ 31,328      $ 15,148      $ 18,205      $ 1,995      $ 104      $ 75,726   

Charge-offs

     (1,345     (363     (3,754     (709     (0     (775     (0     (6,946

Recoveries

     781        504        980        211        59        140        0        2,675   

Provision

     2,275        751        4,086        (1,103     (2,998     913        111        4,035   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 5,348      $ 6,201      $ 32,640      $ 13,547      $ 15,266      $ 2,273      $ 215      $ 75,490   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

   $ 1,505      $ 1,293      $ 20,638      $ 2,325      $ 4,722      $ 0      $ 0      $ 30,483   

Ending Balance: collectively evaluated for impairment

   $ 3,843      $ 4,908      $ 12,002      $ 11,222      $ 10,544      $ 2,273      $ 215      $ 45,007   

Ending Balance: loans acquired with deteriorated credit quality

   $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ 0   

Financing receivables:

                

Ending balance

   $ 918,334      $ 2,944,573      $ 1,572,060      $ 2,272,589      $ 1,222,119      $ 463,525      $ 0      $ 9,393,200   

Ending Balance: individually evaluated for impairment

   $ 11,796      $ 20,744      $ 45,253      $ 14,603      $ 15,456      $ 0      $ 0      $ 107,852   

Ending Balance: collectively evaluated for impairment

   $ 888,869      $ 2,872,875      $ 1,505,804      $ 2,245,904      $ 1,177,673      $ 463,489      $ 0      $ 9,154,614   

Ending Balance: loans acquired with deteriorated credit quality

   $ 17,669      $ 50,954      $ 21,003      $ 12,082      $ 28,990      $ 36      $ 0      $ 130,734   

Allowance for Loan Losses and Carrying Amount of Loans

For the Year Ended December 31, 2015

 

      Commercial Real Estate     Other
Commercial
    Residential
Real
Estate
    Construction
& Land
Development
    Consumer     Allowance
for
Estimated
Imprecision
    Total  
   Owner-
occupied
    Nonowner-
occupied
             

Allowance for Loan Losses:

                

Beginning balance

   $ 4,041      $ 8,167      $ 26,931      $ 13,835      $ 19,402      $ 3,083      $ 70      $ 75,529   

Charge-offs

     (4,755     (1,120     (10,042     (6,411     (862     (2,309     (0     (25,499

Recoveries

     829        74        714        495        511        499        0        3,122   

Provision

     3,522        (1,812     13,725        7,229        (846     722        34        22,574   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Allowance for Loan Losses and Carrying Amount of Loans

For the Year Ended December 31, 2015

 

      Commercial Real Estate      Other
Commercial
     Residential
Real Estate
     Construction
& Land
Development
     Consumer      Allowance
for
Estimated
Imprecision
     Total  
   Owner-
occupied
     Nonowner-
occupied
                   

Ending balance

   $ 3,637       $ 5,309       $ 31,328       $ 15,148       $ 18,205       $ 1,995       $ 104       $ 75,726   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance: individually evaluated for impairment

   $ 1,253       $ 1,362       $ 18,269       $ 2,119       $ 4,789       $ 0       $ 0       $ 27,792   

Ending Balance: collectively evaluated for impairment

   $ 2,384       $ 3,947       $ 13,059       $ 13,029       $ 13,416       $ 1,995       $ 104       $ 47,934   

Ending Balance: loans acquired with deteriorated credit quality

   $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0   

Financing receivables:

                       

Ending balance

   $ 927,746       $ 2,896,367       $ 1,602,222       $ 2,268,685       $ 1,273,054       $ 430,878       $ 0       $ 9,398,952   

Ending Balance: individually evaluated for impairment

   $ 12,670       $ 26,152       $ 35,342       $ 17,782       $ 15,779       $ 0       $ 0       $ 107,725   

Ending Balance: collectively evaluated for impairment

   $ 888,802       $ 2,817,748       $ 1,546,018       $ 2,237,865       $ 1,221,760       $ 430,837       $ 0       $ 9,143,030   

Ending Balance: loans acquired with deteriorated credit quality

   $ 26,274       $ 52,467       $ 20,862       $ 13,038       $ 35,515       $ 41       $ 0       $ 148,197   

7. INTANGIBLE ASSETS

The following is a summary of intangible assets subject to amortization and those not subject to amortization:

 

     As of March 31, 2016  
     Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Amortized intangible assets:

        

Core deposit intangible assets

   $ 60,577       ($ 43,482    $ 17,095   
  

 

 

    

 

 

    

 

 

 

Goodwill not subject to amortization

         $ 710,252   
        

 

 

 
     As of December 31, 2015  
     Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Amortized intangible assets:

        

Core deposit intangible assets

   $ 60,577       ($ 42,737    $ 17,840   
  

 

 

    

 

 

    

 

 

 

Goodwill not subject to amortization

         $ 710,252   
        

 

 

 

United incurred amortization expense of $745 and $855 for the quarters ended March 31, 2016 and 2015, respectively.

 

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The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2015:

 

Year

   Amount  

2016

   $ 2,981   

2017

     2,767   

2018

     2,574   

2019

     2,476   

2020 and thereafter

     7,042   

8. SHORT-TERM BORROWINGS

Federal funds purchased and securities sold under agreements to repurchase are a significant source of funds for the Company. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $264,000. These lines of credit, which bear interest at prevailing market rates, permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions. At March 31, 2016, federal funds purchased were $27,100 while total securities sold under agreements to repurchase (REPOs) were $315,475. Included in the $315,475 of total REPOs is a wholesale REPOs of $50,493, including purchase accounting amounts, assumed in the Virginia Commerce merger. This wholesale REPO is scheduled to mature in May of 2018. The securities sold under agreements to repurchase were accounted for as collateralized financial transactions. They were recorded at the amounts at which the securities were acquired or sold plus accrued interest.

United has a $20,000 line of credit with an unrelated financial institution to provide for general liquidity needs. The line is an unsecured, revolving line of credit. The line will be renewable on a 360-day basis and will carry an indexed, floating-rate of interest. The line requires compliance with various financial and nonfinancial covenants. At March 31, 2016, United had no outstanding balance under this line of credit.

9. LONG-TERM BORROWINGS

United’s subsidiary banks are members of the Federal Home Loan Bank (FHLB). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a mix of single-family residential mortgage loans, commercial loans and investment securities. At March 31, 2016, United had an unused borrowing amount of approximately $2,368,741 available subject to delivery of collateral after certain trigger points. Advances may be called by the FHLB or redeemed by United based on predefined factors and penalties.

At March 31, 2016, $885,855 of FHLB advances with a weighted-average interest rate of 0.52% are scheduled to mature within the next five years. Overnight funds of $125,000 with an interest rate of 0.44% are included in the $885,855 above at March 31, 2016. The scheduled maturities of these FHLB borrowings are as follows:

 

Year

   Amount  

2016

   $ 850,599   

2017

     256   

2018

     0   

2019

     35,000   

2020 and thereafter

     0   
  

 

 

 

Total

   $ 885,855   
  

 

 

 

At March 31, 2016, United had a total of thirteen statutory business trusts that were formed for the purpose of issuing or participating in pools of trust preferred capital securities (Capital Securities) with the proceeds invested in junior subordinated debt securities (Debentures) of United. The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of United, are the sole assets of the trusts and United’s payment under the Debentures is the sole source of revenue for the trusts. At March 31,

 

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2016 and December 31, 2015, the outstanding balance of the Debentures was $223,723 and $223,506, respectively, and was included in the category of long-term debt on the Consolidated Balance Sheets entitled “Other long-term borrowings.” The Capital Securities are not included as a component of shareholders’ equity in the Consolidated Balance Sheets. United fully and unconditionally guarantees each individual trust’s obligations under the Capital Securities.

Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the subordinated debt is cumulative.

In July of 2013, United’s primary federal regulator, the Federal Reserve, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations which were effective for United on January 1, 2015. The Basel III Capital Rules permit bank holding companies such as United with less than $15 billion in total consolidated assets as of December 31, 2009 to include in additional Tier 1 Capital trust preferred securities and cumulative perpetual preferred stock issued and included in Tier 1 Capital prior to May 19, 2010 on a permanent basis, without any phase-out. However, United’s Trust Preferred Securities are subject to a limit of 25 percent of Tier 1 capital elements excluding any non-qualifying capital instruments and after all regulatory capital deductions and adjustments applied to Tier 1 capital. Trust Preferred Securities no longer included in United’s Tier 1 capital may be included as a component of Tier 2 capital on a permanent basis without phase-out. As of March 31, 2016, all of United’s Trust Preferred Securities qualify as Tier 1 Capital.

10. COMMITMENTS AND CONTINGENT LIABILITIES

United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, and interest rate swap agreements. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.

United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral may be obtained, if deemed necessary, based on management’s credit evaluation of the counterparty.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily, and historically do not, represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation of the counterparty. United had approximately $2,550,476 and $2,587,957 of loan commitments outstanding as of March 31, 2016 and December 31, 2015, respectively, approximately half of which expire within one year.

Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. A commercial letter of credit is issued specifically to facilitate trade or commerce. Typically, under the terms of a commercial letter of credit, a commitment is drawn upon when the underlying transaction is consummated as intended between the customer and a third party. As of March 31, 2016 and December 31, 2015, United had $226 of outstanding commercial letters of credit. A standby letter of credit is generally contingent upon the

 

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failure of a customer to perform according to the terms of an underlying contract with a third party. United has issued standby letters of credit of $124,936 and $135,146 as of March 31, 2016 and December 31, 2015, respectively. In accordance with the Contingencies Topic of the FASB Accounting Standards Codification, United has determined that substantially all of its letters of credit are renewed on an annual basis and the fees associated with these letters of credit are immaterial.

United and its subsidiaries are currently involved in various legal proceedings in the normal course of business. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United’s financial position.

11. DERIVATIVE FINANCIAL INSTRUMENTS

United uses derivative instruments to help manage adverse prices or interest rate movements on the value of certain assets or liabilities and on future cash flows. These derivatives may consist of interest rate swaps, caps, floors, collars, futures, forward contracts, written and purchased options. United also executes derivative instruments with its commercial banking customers to facilitate its risk management strategies.

United accounts for its derivative financial instruments in accordance with the Derivatives and Hedging topic of the FASB Accounting Standards Codification. The Derivatives and Hedging topic require all derivative instruments to be carried at fair value on the balance sheet. United has designated certain derivative instruments used to manage interest rate risk as hedge relationships with certain assets, liabilities or cash flows being hedged. Certain derivatives used for interest rate risk management are not designated in a hedge relationship.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. As of March 31, 2016, United has only fair value hedges.

For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to other comprehensive income, net of tax. The portion of a hedge that is ineffective is recognized immediately in earnings.

At inception of a hedge relationship, United formally documents the hedged item, the particular risk management objective, the nature of the risk being hedged, the derivative being used, how effectiveness of the hedge will be assessed and how the ineffectiveness of the hedge will be measured. United also assesses hedge effectiveness at inception and on an ongoing basis using regression analysis. Hedge ineffectiveness is measured by using the change in fair value method. The change in fair value method compares the change in the fair value of the hedging derivative to the change in the fair value of the hedged exposure, attributable to changes in the benchmark rate. The portion of a hedge that is ineffective is recognized immediately in earnings.

The derivative portfolio also includes derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. For derivatives that are not designated in a hedge relationship, changes in the fair value of the derivatives are recognized in earnings in the same period as the change in fair value. Gains and losses on other derivative financial instruments are included in noninterest income and noninterest expense, respectively.

 

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The following table sets forth certain information regarding the interest rate derivatives portfolio used for interest-rate risk management purposes and designated as accounting hedges under the Derivatives and Hedging topic at March 31, 2016.

 

Derivative Classifications and Hedging Relationships

March 31, 2016

 

  

  

      Notional
Amount
     Average
Pay Rate
 

Fair Value Hedges:

     

Pay Fixed Swaps (Hedging Commercial Loans)

   $ 96,830         3.64
  

 

 

    

 

 

 

Total Derivatives Used in Fair Value Hedges

   $ 96,830      
  

 

 

    

Total Derivatives Used for Interest Rate Risk Management and Designated as Hedges

   $ 96,930      
  

 

 

    

The following tables summarize the fair value of United’s derivative financial instruments.

 

     Asset Derivatives  
     March 31, 2016      December 31, 2015  
     Balance
Sheet
Location
     Fair
Value
     Balance
Sheet
Location
     Fair
Value
 

Derivatives designated as hedging instruments

           

Interest rate contracts

     Other assets       $ 0         Other assets       $ 0   
     

 

 

       

 

 

 

Total derivatives designated as hedging instruments

      $ 0          $ 0   
     

 

 

       

 

 

 

Derivatives not designated as hedging instruments

           

Interest rate contracts

     Other assets       $ 3,164         Other assets       $ 2,942   
     

 

 

       

 

 

 

Total derivatives not designated as hedging instruments

      $ 3,164          $ 2,942   
     

 

 

       

 

 

 

Total asset derivatives

      $ 3,164          $ 2,942   
     

 

 

       

 

 

 
     Liability Derivatives  
     March 31, 2016      December 31, 2015  
     Balance
Sheet
Location
     Fair
Value
     Balance
Sheet
Location
     Fair
Value
 

Derivatives designated as hedging instruments

           

Interest rate contracts

     Other liabilities       $ 4,807         Other liabilities       $ 1,179   
     

 

 

       

 

 

 

Total derivatives designated as hedging instruments

      $ 4,807          $ 1,179   
     

 

 

       

 

 

 

Derivatives not designated as hedging instruments

           

Interest rate contracts

     Other liabilities       $ 3,164         Other liabilities       $ 2,942   
     

 

 

       

 

 

 

Total derivatives not designated as hedging instruments

      $ 3,164          $ 2,942   
     

 

 

       

 

 

 

Total liability derivatives

      $ 7,971          $ 4,121   
     

 

 

       

 

 

 

 

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Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. United’s exposure is limited to the replacement value of the contracts rather than the notional amount of the contract. The Company’s agreements generally contain provisions that limit the unsecured exposure up to an agreed upon threshold. Additionally, the Company attempts to minimize credit risk through certain approval processes established by management.

The effect of United’s derivative financial instruments on it Consolidated Statement of Income for the first three months ended March 31, 2016 and 2015 is presented below:

 

           Three Months Ended  
     Income  Statement
Location
    March 31,
2016
     March 31,
2015
 

Derivatives in fair value hedging relationships

       

Interest rate contracts

     Interest income/  (expense)    $ 281       $ (424
    

 

 

    

 

 

 

Total derivatives in fair value hedging relationships

     $ 281       $ (424
    

 

 

    

 

 

 

Derivatives not designated as hedging instruments

       

Interest rate contracts (1)

     Other income      $ 0       $ 0   
    

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

     $ 0       $ 0   
    

 

 

    

 

 

 

Total derivatives

     $ 281       $ (424
    

 

 

    

 

 

 

 

(1) Represents net gains and net losses from derivative assets not designated as hedging instruments.

For the first three months ended March 31, 2016 and 2015, changes in the fair value of any interest rate swaps attributed to hedge ineffectiveness were recorded, but were not significant to United’s Consolidated Statements of Income.

12. FAIR VALUE MEASUREMENTS

United determines the fair values of its financial instruments based on the fair value hierarchy established by ASC topic 820, which also clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The Fair Value Measurements and Disclosures topic specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect United’s market assumptions.

The three levels of the fair value hierarchy, based on these two types of inputs, are as follows:

 

Level 1

     -       Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2

     -       Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level 3

     -       Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

 

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When determining the fair value measurements for assets and liabilities, United looks to active and observable markets to price identical assets or liabilities whenever possible and classifies such items in Level 1. When identical assets and liabilities are not traded in active markets, United looks to market observable data for similar assets and liabilities and classifies such items as Level 2. Nevertheless, certain assets and liabilities are not actively traded in observable markets and United must use alternative valuation techniques using unobservable inputs to determine a fair value and classifies such items as Level 3. For assets and liabilities that are not actively traded, the fair value measurement is based primarily upon estimates that require significant judgment. Therefore, the results may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there are inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.

In accordance with ASC topic 820, the following describes the valuation techniques used by United to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Using a market approach valuation methodology, third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2). Management internally reviews the fair values provided by third party vendors on a monthly basis. Management’s review consists of comparing fair values assigned by third party vendors to trades and offerings observed by management. The review requires some degree of judgment as to the number or percentage of securities to review on the part of management which could fluctuate based on results of past reviews and in comparison to current expectations. Exceptions that are deemed to be material are reviewed by management. Additionally, to assess the reliability of the information received from third party vendors, management obtains documentation from third party vendors related to the sources, methodologies, and inputs utilized in valuing securities classified as Level 2. Management analyzes this information to ensure the underlying assumptions appear reasonable. Management also obtains an independent service auditor’s report from third party vendors to provide reasonable assurance that appropriate controls are in place over the valuation process. Upon completing its review of the pricing from third party vendors at March 31, 2016, management determined that the prices provided by its third party pricing source were reasonable and in line with management’s expectations for the market values of these securities. Therefore, prices obtained from third party vendors that did not reflect forced liquidation or distressed sales were not adjusted by management at March 31, 2016. Management utilizes a number of factors to determine if a market is inactive, all of which may require a significant level of judgment. Factors that management considers include: a significant widening of the bid-ask spread, a considerable decline in the volume and level of trading activity in the instrument, a significant variance in prices among market participants, and a significant reduction in the level of observable inputs. Any securities available for sale not valued based upon quoted market prices or third party pricing models that consider observable market data are considered Level 3. Currently, United considers its valuation of available-for-sale Trup Cdos as Level 3. The Fair Value Measurements and Disclosures topic assumes that fair values of financial assets are determined in an orderly transaction and not a forced liquidation or distressed sale at the measurement date. Based on financial market conditions, United feels that the fair values obtained from its third party vendor reflect forced liquidation or distressed sales for these Trup Cdos due to decreased volume and trading activity. Additionally, management held discussions with institutional traders to identify trends in the number and type of transactions related to the Trup Cdos sector. Based upon management’s review of the market conditions for Trup Cdos, it was determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is more representative of fair value than the valuation technique used by United’s third party vendor. The present value technique discounts expected future cash flows of a security to arrive at a present value. Management considers the following items when calculating the appropriate discount rate: the implied rate of return when the market was last

 

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active, changes in the implied rate of return as markets moved from very active to inactive, recent changes in credit ratings, and recent activity showing that the market has built in increased liquidity and credit premiums. Management’s internal credit review of each security was also factored in to determine the appropriate discount rate. The credit review considered each security’s collateral, subordination, excess spread, priority of claims, principal and interest. Discount margins used in the valuation at March 31, 2016 ranged from LIBOR plus 3.75% to LIBOR plus 12.50%. Management completed a sensitivity analysis on the fair value of its Trup Cdos. Given a comprehensive 200 basis point increase in the discount rates, the total fair value of these securities would decline by approximately 17%, or $5,697.

Derivatives: United utilizes interest rate swaps to hedge exposure to interest rate risk and variability of cash flows associated to changes in the underlying interest rate of the hedged item. These hedging interest rate swaps are classified as either a fair value hedge or a cash flow hedge. United’s derivative portfolio also includes derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. United utilizes third-party vendors for derivative valuation purposes. These vendors determine the appropriate fair value based on a net present value calculation of the cash flows related to the interest rate swaps using primarily observable market inputs such as interest rate yield curves (Level 2). Valuation adjustments to derivative fair values for liquidity and credit risk are also taken into consideration, as well as the likelihood of default by United and derivative counterparties, the net counterparty exposure and the remaining maturities of the positions. Values obtained from third party vendors are typically not adjusted by management. Management internally reviews the derivative values provided by third party vendors on a quarterly basis. All derivative values are tested for reasonableness by management utilizing a net present value calculation.

For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings either in interest income or interest expense depending on the nature of the hedged financial instrument. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to other comprehensive income, net of tax. The portion of a hedge that is ineffective is recognized immediately in earnings.

For derivatives that are not designated in a hedge relationship, changes in the fair value of the derivatives are recognized in earnings in the same period as the change in the fair value. Unrealized gains and losses due to changes in the fair value of other derivative financial instruments not in hedge relationship are included in noninterest income and noninterest expense, respectively.

 

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The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, segregated by the level of the valuation inputs within the fair value hierarchy.

 

            Fair Value at March 31, 2016 Using  

Description

   Balance as of
March 31,
2016
     Quoted Prices
in  Active
Markets  for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets

           

Available for sale debt securities:

           

U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies

   $ 73,356       $ 0       $ 73,356       $ 0   

State and political subdivisions

     135,829         0         135,829         0   

Residential mortgage-backed securities

           

Agency

     477,292         0         477,292         0   

Non-agency

     8,754         0         8,754         0   

Asset-backed securities

     2,637         0         2,637         0   

Commercial mortgage-backed securities

           

Agency

     305,802         0         305,802         0   

Trust preferred collateralized debt obligations

     32,593         0         0         32,593   

Single issue trust preferred securities

     10,960         0         10,960         0   

Other corporate securities

     15,081         0         15,081         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale debt securities

     1,062,304         0         1,029,711         32,593   

Available for sale equity securities:

           

Financial services industry

     3,186         757         2,429         0   

Equity mutual funds (1)

     1,623         1,623         0         0   

Other equity securities

     1,139         1,139         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale equity securities

     5,948         3,519         2,429         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     1,068,252         3,519         1,032,140         32,593   

Derivative financial assets:

           

Interest rate contracts

     3,164         0         3,164         0   

Liabilities

           

Derivative financial liabilities:

           

Interest rate contracts

     7,971         0         7,971         0   

 

(1) The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.

 

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Table of Contents
            Fair Value at December 31, 2015 Using  

 

Description

   Balance as  of
December 31,
2015
     Quoted Prices
in  Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets

           

Available for sale debt securities:

           

U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies

   $ 73,786       $ 0       $ 73,786       $ 0   

State and political subdivisions

     133,778         0         133,778         0   

Residential mortgage-backed securities

           

Agency

     477,982         0         477,982         0   

Non-agency

     9,571         0         9,571         0   

Asset-backed securities

     3,399         0         3,399         0   

Commercial mortgage-backed securities

           

Agency

     305,935         0         305,935         0   

Trust preferred collateralized debt obligations

     34,686         0         0         34,686   

Single issue trust preferred securities

     11,693         0         11,693         0   

Other corporate securities

     10,049         0         10,049         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale debt securities

     1,060,879         0         1,026,193         34,686   

Available for sale equity securities:

           

Financial services industry

     2,723         800         1,923         0   

Equity mutual funds (1)

     1,596         1,596         0         0   

Other equity securities

     1,136         1,136         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale equity securities

     5,455         3,532         1,923         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     1,066,334         3,532         1,028,116         34,686   

Derivative financial assets:

           

Interest rate contracts

     2,942         0         2,942         0   

Liabilities

           

Derivative financial liabilities:

           

Interest rate contracts

     4,121         0         4,121         0   

 

(1) The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.

There were no transfers between Level 1 and Level 2 for financial assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2016 and the year ended December 31, 2015. The following table presents additional information about financial assets and liabilities measured at fair value at March 31, 2016 and December 31, 2015 on a recurring basis and for which United has utilized Level 3 inputs to determine fair value:

 

     Available-for-sale
Securities
 
     Trust preferred
collateralized debt obligations
 
     March 31,
2016
    December 31,
2015
 

Balance, beginning of period

   $ 34,686      $ 39,558   

Total gains or losses (realized/unrealized):

    

Included in earnings (or changes in net assets)

     0        (34

Included in other comprehensive income

     (2,093     (4,838

Purchases, issuances, and settlements

     0        0   

Transfers in and/or out of Level 3

     0        0   
  

 

 

   

 

 

 

Balance, end of period

   $ 32,593      $ 34,686   
  

 

 

   

 

 

 

The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date

     0        0   

 

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Table of Contents

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by United to measure certain financial assets recorded at fair value on a non-recurring basis in the financial statements.

Loans held for sale: Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, United records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the quarter ended March 31, 2016. Gains and losses on sale of loans are recorded within income from mortgage banking on the Consolidated Statements of Income.

Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate and the loan’s observable market price or the fair value of collateral, if the loan is collateral dependent. Fair value is measured using a market approach based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an appraisal conducted by an independent, licensed appraiser outside of the Company using comparable property sales (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). For impaired loans, a specific reserve is established through the Allowance for Loan Losses, if necessary, by estimating the fair value of the underlying collateral on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses expense on the Consolidated Statements of Income.

OREO: OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried on the balance sheet at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Fair value is determined by one of two market approach methods depending on whether the property has been vacated and an appraisal can be conducted. If the property has yet to be vacated and thus an appraisal cannot be performed, a Brokers Price Opinion (i.e. BPO), is obtained. A BPO represents a best estimate valuation performed by a realtor based on knowledge of current property values and a visual examination of the exterior condition of the property. Once the property is subsequently vacated, a formal appraisal is obtained and the recorded asset value appropriately adjusted. On the other hand, if the OREO property has been vacated and an appraisal can be conducted, the fair value of the property is determined based upon the appraisal using a market approach. An authorized independent appraiser conducts appraisals for United. Appraisals for property other than ongoing construction are based on consideration of comparable property sales (Level 2). In contrast, valuation of ongoing construction assets requires some degree of professional judgment. In conducting an appraisal for ongoing construction property, the appraiser develops two appraised amounts: an “as is” appraised value and a “completed” value. Based on professional judgment and their knowledge of the particular situation, management determines the appropriate fair value to be utilized for such property (Level 3). As a matter of policy, valuations are reviewed at least annually and appraisals are generally updated on a bi-annual basis with values lowered as necessary.

 

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Table of Contents

Intangible Assets: For United, intangible assets consist of goodwill and core deposit intangibles. Goodwill is tested for impairment at least annually or sooner if indicators of impairment exist. Goodwill impairment would be defined as the difference between the recorded value of goodwill (i.e. book value) and the implied fair value of goodwill. In determining the implied fair value of goodwill for purposes of evaluating goodwill impairment, United determines the fair value of the reporting unit using a market approach and compares the fair value to its carrying value. If the carrying value exceeds the fair value, a step two test is performed whereby the implied fair value is computed by deducting the fair value of all tangible and intangible net assets from the fair value of the reporting unit. Core deposit intangibles relate to the estimated value of the deposit base of acquired institutions. Management reviews core deposit intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. No fair value measurement of intangible assets was made during the first quarter of 2016 and 2015.

The following table summarizes United’s financial assets that were measured at fair value on a nonrecurring basis during the period.

 

Description

   Balance as  of
March 31,
2016
     Carrying value at March 31, 2016      YTD
Losses
 
      Quoted Prices
in  Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
    

Assets

              

Impaired Loans

   $ 75,180       $ 0       $ 34,171       $ 41,009       $ 2,504   

OREO

     28,981         0         27,266         1,715         338   

Description

   Balance as of
December 31,
2015
     Carrying value at December 31, 2015      YTD
Losses
 
      Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
    

Assets

              

Impaired Loans

   $ 69,368       $ 0       $ 29,186       $ 40,182       $ 8,485   

OREO

     32,228         0         32,228         0         1,141   

The following methods and assumptions were used by United in estimating its fair value disclosures for other financial instruments:

Cash and Cash Equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Securities held to maturity and other securities: The estimated fair values of held to maturity are based on quoted market prices, where available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data. Any securities held to maturity, not valued based upon the methods above, are valued based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Other securities consist mainly of shares of Federal Home Loan Bank and Federal Reserve Bank stock that do not have readily determinable fair values and are carried at cost.

Loans: The fair values of certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions,

 

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Table of Contents

adjusted for differences in loan characteristics. The fair values of other loans (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans and agricultural loans) are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar creditworthiness, which include adjustments for liquidity concerns. For acquired impaired loans, fair value is assumed to equal United’s carrying value, which represents the present value of expected future principal and interest cash flows, as adjusted for any Allowance for Loan Losses recorded for these loans.

Deposits: The fair values of demand deposits (e.g., interest and noninterest checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and any other short-term borrowings approximate their fair values.

Long-term Borrowings: The fair values of United’s Federal Home Loan Bank borrowings and trust preferred securities are estimated using discounted cash flow analyses, based on United’s current incremental borrowing rates for similar types of borrowing arrangements.

The estimated fair values of United’s financial instruments are summarized below:

 

                   Fair Value Measurements  
      Carrying
Amount
     Fair Value      Quoted Prices
in Active
Markets  for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

March 31, 2016

              

Cash and cash equivalents

   $ 904,841       $ 904,841       $ 0       $ 904,841       $ 0   

Securities available for sale

     1,068,252         1,068,252         3,519         1,032,140