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 process of collection and resolution of collection is expected in the near term (generally less than 90 days), then the loan will not be placed on nonaccrual status. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. United’s method of income recognition for loans that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. Nonaccrual loans will not normally be returned to accrual status unless all past due principal and interest has been paid and the borrower has evidenced their ability to meet the contractual provisions of the note.

A loan is categorized as a troubled debt restructuring (TDR) if a concession is granted and there is deterioration in the financial condition of the borrower. TDRs can take the form of a reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary terms on the other loan, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, the reduction of accrued interest or any other concessionary type of renegotiated debt. As of June 30, 2018, United had TDRs of $60,384 as compared to $50,129 as of December 31, 2017. Of the $60,384 aggregate balance of TDRs at June 30, 2018, $46,652 was on nonaccrual, $84 were 90 days or more past due and $1,148 were 30 to 89 days past due. Of the $50,129 aggregate balance of TDRs at December 31, 2017, $30,868 was on nonaccrual, $95 were 90 days or more past due and $1,254 were 30 to 89 days past due. All these amounts are included in the appropriate categories in the “Age Analysis of Past Due Loans” table on a subsequent page. As of June 30, 2018, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At June 30, 2018, United had restructured loans in the amount of $1,715 that were modified by a reduction in the interest rate, $1,859 that were modified by a combination of a reduction in the interest rate and the principal and $56,810 that were modified by a change in terms.

A loan acquired and accounted for under ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” is reported as an accruing loan and a performing asset unless it does not perform in accordance with its restructured contractual provisions.

The following table sets forth United’s troubled debt restructurings that have been restructured during the three months ended June 30, 2018 and 2017, segregated by class of loans:


	Troubled Debt Restructurings
	For the Three Months Ended
	June 30, 2018						June 30, 2017
	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		1	$	5,333	$	5,333
Nonowner-occupied		0		0		0		0		0		0
Other commercial		4		9,571		9,571		4		21,355		21,355
Residential real estate		2		6,953		6,953		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		6	$	16,524	$	16,524		5	$	26,688	$	26,688

The following table sets forth United’s troubled debt restructurings that have been restructured during the six months ended June 30, 2018 and 2017, segregated by class of loans:


	Troubled Debt Restructurings
	For the Six Months Ended
	June 30, 2018						June 30, 2017
	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		1	$	5,333	$	5,333
Nonowner-occupied		0		0		0		0		0		0
Other commercial		4		9,571		9,571		8		24,107		24,032
Residential real estate		2		6,953		6,953		0		0		0
Construction & land development		0		0		0		1		1,456		1,437
Consumer:
Bankcard		0		0		0		0		0		0
Other consumer		0		0		0		0		0		0

Total		6	$	16,524	$	16,524		10	$	30,896	$	30,802

During both the second quarter and first six months of 2018, $16,524 of restructured loans were modified by a change in loan terms. During the second quarter and first six months of 2017, $26,688 and $30,802, respectively, of restructured loans were modified by a change in loan terms. In some instances, the post-modification balance on the restructured loans is larger than the pre-modification 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.

No loans restructured during the twelve-month periods ended June 30, 2018 and 2017 subsequently defaulted, resulting in a principal charge-off during the first six months of 2018 and 2017, 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 June 30, 2018


	30-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current & Other (1)		Total Financing Receivables		Recorded Investment >90 Days & Accruing
Commercial real estate:
Owner-occupied	$	13,261	$	18,602	$	31,863	$	1,334,951	$	1,366,814	$	1,377
Nonowner-occupied		14,118		16,924		31,042		4,404,868		4,435,910		1,301
Other commercial		9,598		54,562		64,160		2,145,031		2,209,191		2,313
Residential real estate		37,135		28,705		65,840		3,234,632		3,300,472		9,866
Construction & land development		2,910		17,345		20,255		1,376,598		1,396,853		802
Consumer:
Bankcard		427		165		592		9,125		9,717		165
Other consumer		6,618		969		7,587		802,464		810,051		682

Total	$	84,067	$	137,272	$	221,339	$	13,307,669	$	13,529,008	$	16,506

(1)	Other includes loans with a recorded investment of $168,497 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, 2017


(In thousands)	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	$	7,968	$	13,663	$	21,631	$	1,339,998	$	1,361,629	$	458
Nonowner-occupied		10,398		20,448		30,846		4,420,452		4,451,298		634
Other commercial		11,533		68,476		80,009		1,918,970		1,998,979		940
Residential real estate		35,300		28,637		63,937		2,932,234		2,996,171		6,519
Construction & land development		1,615		17,190		18,805		1,486,102		1,504,907		385
Consumer:
Bankcard		449		186		635		9,679		10,314		186
Other consumer		9,288		968		10,256		693,783		704,039		775

Total	$	76,551	$	149,568	$	226,119	$	12,801,218	$	13,027,337	$	9,897

(1)	Other includes loans with a recorded investment of $210,521 acquired and accounted for under ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.

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

Loans on Nonaccrual Status


	June 30, 2018		December 31, 2017
Commercial real estate:
Owner-occupied	$	17,225	$	13,205
Nonowner-occupied		15,623		19,814
Other commercial		52,249		67,536
Residential real estate		18,839		22,118
Construction & land development		16,543		16,805
Consumer:
Bankcard		0		0
Other consumer		287		193

Total	$	120,766	$	139,671

United assigns credit quality indicators of pass, special mention, substandard and doubtful to its loans. For United’s loans with a corporate credit exposure, United internally assigns a grade based on the creditworthiness of the borrower. For loans with a consumer credit exposure, United internally assigns a grade based upon an individual loan’s delinquency status. United reviews and updates, as necessary, these grades on a quarterly basis.

Special mention loans, with a corporate credit exposure, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company’s credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. For loans with a consumer credit exposure, loans that are past due 30-89 days are generally considered special mention.

A substandard loan with a corporate credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard.

A loan with corporate credit exposure is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, there are not any loans with a consumer credit exposure that are classified as doubtful. Usually, they are charged-off prior to such a classification. Loans classified as doubtful are also considered impaired.

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

Credit Quality Indicators

Corporate Credit Exposure


As of June 30, 2018
	Commercial Real Estate				Other Commercial		Construction & Land Development
	Owner- occupied		Nonowner- occupied		Other Commercial		Construction & Land Development
Grade:
Pass	$	1,279,444	$	4,282,361	$	2,100,084	$	1,312,907
Special mention		31,737		56,404		16,523		4,402
Substandard		55,633		97,145		89,566		79,544
Doubtful		0		0		3,018		0

Total	$	1,366,814	$	4,435,910	$	2,209,191	$	1,396,853


As of December 31, 2017
	Commercial Real Estate				Other Commercial		Construction & Land Development
	Owner- occupied		Nonowner- occupied		Other Commercial		Construction & Land Development
Grade:
Pass	$	1,276,088	$	4,312,985	$	1,848,868	$	1,413,706
Special mention		20,165		57,618		55,564		5,196
Substandard		65,376		80,695		90,625		86,005
Doubtful		0		0		3,922		0

Total	$	1,361,629	$	4,451,298	$	1,998,979	$	1,504,907

Credit Quality Indicators

Consumer Credit Exposure


As of June 30, 2018
	Residential Real Estate		Bankcard		Other Consumer
Grade:
Pass	$	3,239,999	$	9,125	$	802,394
Special mention		25,077		427		6,671
Substandard		35,396		165		986
Doubtful		0		0		0

Total	$	3,300,472	$	9,717	$	810,051


As of December 31, 2017
	Residential Real Estate		Bankcard		Other Consumer
Grade:
Pass	$	2,945,266	$	9,679	$	693,727
Special mention		18,025		449		9,334
Substandard		32,880		186		978
Doubtful		0		0		0

Total	$	2,996,171	$	10,314	$	704,039

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, United does not consider loans for impairment unless a sustained period of delinquency (i.e. 90 days or more) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent foreclosure proceedings, etc.). Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Consistent with United’s existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

The following table sets forth United’s impaired loans information, by class of loans:


	Impaired Loans
	June 30, 2018						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate:
Owner-occupied	$	72,883	$	73,343	$	0	$	78,117	$	78,419	$	0
Nonowner-occupied		99,098		99,159		0		134,136		134,195		0
Other commercial		52,375		61,377		0		46,993		49,552		0
Residential real estate		24,315		25,078		0		26,751		28,202		0
Construction & land development		45,497		50,132		0		52,279		59,691		0
Consumer:
Bankcard		0		0		0		0		0		0
Other consumer		23		23		0		15		15		0
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	4,766	$	4,766	$	978	$	9,132	$	9,132	$	2,251
Nonowner-occupied		10,463		10,463		1,693		7,797		7,797		1,592
Other commercial		44,671		50,278		14,676		60,512		70,396		16,721
Residential real estate		12,097		13,539		1,460		9,813		10,418		1,552
Construction & land development		2,001		4,654		277		1,383		1,383		229
Consumer:
Bankcard		0		0		0		0		0		0
Other consumer		0		0		0		0		0		0
Total:
Commercial real estate:
Owner-occupied	$	77,649	$	78,109	$	978	$	87,249	$	87,551	$	2,251
Nonowner-occupied		109,561		109,622		1,693		141,933		141,992		1,592
Other commercial		97,046		111,655		14,676		107,505		119,948		16,721
Residential real estate		36,412		38,617		1,460		36,564		38,620		1,552
Construction & land development		47,498		54,786		277		53,662		61,074		229
Consumer:
Bankcard		0		0		0		0		0		0
Other consumer		23		23		0		15		15		0


	Impaired Loans
	For the Three Months Ended
	June 30, 2018				June 30, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Owner-occupied	$	74,330	$	354	$	69,670	$	412
Nonowner-occupied		108,343		159		109,003		168
Other commercial		52,384		246		58,597		226
Residential real estate		24,220		85		20,713		54
Construction & land development		46,909		98		36,182		83
Consumer:
Bankcard		0		0		0		0
Other consumer		32		0		36		0
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	5,319	$	6	$	14,102	$	159
Nonowner-occupied		9,503		60		14,147		12
Other commercial		46,376		10		72,568		157
Residential real estate		11,992		11		15,485		34
Construction & land development		2,008		20		2,587		21
Consumer:
Bankcard		0		0		0		0
Other consumer		0		0		0		0
Total:
Commercial real estate:
Owner-occupied	$	79,649	$	360	$	83,772	$	571
Nonowner-occupied		117,846		219		123,150		180
Other commercial		98,760		256		131,165		383
Residential real estate		36,212		96		36,198		88
Construction & land development		48,917		118		38,769		104
Consumer:
Bankcard		0		0		0		0
Other consumer		32		0		36		0


	Impaired Loans
	For the Six Months Ended
	June 30, 2018				June 30, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Owner-occupied	$	75,592	$	739	$	62,615	$	837
Nonowner-occupied		116,941		328		105,045		347
Other commercial		50,587		470		53,076		496
Residential real estate		25,064		180		21,468		103
Construction & land development		48,699		197		35,903		164
Consumer:
Bankcard		0		0		0		0
Other consumer		26		0		36		0
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	6,590	$	31	$	9,997	$	318
Nonowner-occupied		8,934		119		15,411		87
Other commercial		51,088		28		63,783		622
Residential real estate		11,266		21		14,345		83
Construction & land development		1,800		40		3,372		42
Consumer:
Bankcard		0		0		0		0
Other consumer		0		0		0		0
Total:
Commercial real estate:
Owner-occupied	$	82,182	$	770	$	72,612	$	1,155
Nonowner-occupied		125,875		447		120,456		434
Other commercial		101,675		498		116,859		1,118
Residential real estate		36,330		201		35,813		186
Construction & land development		50,499		237		39,275		206
Consumer:
Bankcard		0		0		0		0
Other consumer		26		0		36		0

At June 30, 2018 and December 31, 2017, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $21,926 and $24,348, respectively. OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Any adjustment to the fair value at the date of transfer is charged against the allowance for loan losses. Any subsequent valuation adjustments as well as any costs relating to operating, holding or disposing of the property are recorded in other expense in the period incurred. At June 30, 2018 and December 31, 2017, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $1,587 and $873, respectively.