XML 25 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Allowance for Credit Losses
 6 Months Ended
Jun. 30, 2020
Receivables [Abstract]  
Allowance for Credit Losses
6. ALLOWANCE FOR CREDIT LOSSES
United adopted the CECL methodology for measuring credit losses as of January 1, 2020. All disclosures as of and for the three months and six months ended June 30, 2020 are presented in accordance with ASC 326. The Company did not recast comparative financial periods and has presented those disclosures under previously applicable GAAP.
The allowance for loan losses is an estimate of the expected credit losses on financial assets measured at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset (contractual term). Assets are charged off when United determines that such financial assets are deemed uncollectible or based on regulatory requirements, whichever is earlier. Charge-offs are recognized as a deduction from the allowance for credit losses. Expected recoveries of amounts previously
charged-off,
not to exceed the aggregate of the amount previously
charged-off,
are included in determining the necessary reserve at the balance sheet date.
United made a policy election to present the accrued interest receivable balance separately in its consolidated balance sheets from the amortized cost of a loan. Accrued interest receivable was $56,124 and $48,130 at June 30, 2020 and December 31, 2019, respectively, related to loans are included separately in “Accrued interest receivable” in the consolidated balance sheets. United also elected not to measure an allowance for loan losses for accrued interest receivables. For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due, unless the loan is well secured and in the process of collection. Interest received on nonaccrual loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.
The following table represents the accrued interest receivable as of June 30, 2020 and the accrued interest receivables written off by reversing interest income as of June 30, 2020:
 
 
  
Accrued Interest
Receivable
 
  
Accrued Interest Receivables Written Off by
Reversing Interest Income
 
 
 
  
At June 30, 2020
 
  
For the Three Months Ended

June 30, 2020
 
  
For the Six Months
Ended June 30, 2020
 
Commercial Real Estate:
  
  
  
Owner-occupied
  
$
4,910
 
  
$
83
 
  
$
 100
 
Nonowner-occupied
  
 
18,107
 
  
 
38
 
  
 
45
 
Other Commercial
  
 
9,350
 
  
 
33
 
  
 
45
 
Residential Real Estate
  
 
14,085
 
  
 
64
 
  
 
134
 
Construction
  
 
6,825
 
  
 
0
 
  
 
0
 
Consumer:
  
  
  
Bankcard
  
 
0
 
  
 
0
 
  
 
0
 
Other consumer
  
 
2,847
 
  
 
27
 
  
 
67
 
  
 
 
     
 
 
     
 
 
  
Total
  
$
 56,124
 
  
$
 245
 
  
$
391
 
  
 
 
     
 
 
     
 
 
  
United estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. A reversion to historical loss data occurs via a straight-line method during the year following the
one-year
reasonable and supportable forecast period.
United pools its loans based on similar risk characteristics in estimating expected credit losses. United has identified the following portfolio segments and measures the allowance for credit losses using the following methods:
 
 
•
 
Method: Probability of Default/Loss Given Default
 
 
•
 
Commercial Real Estate Owner-Occupied
 
 
•
 
Commercial Real Estate Nonowner-Occupied
 
 
•
 
Commercial Other
 
 
•
 
Method: Cohort
 
 
•
 
Residential Real Estate
 
 
•
 
Construction & Land Development
 
 
•
 
Consumer
 
 
•
 
Bankcard
Risk characteristics of commercial real estate owner-occupied loans and commercial other loans are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Commercial real estate nonowner-occupied 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.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable or when the
borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by United.
For past loans acquired through the completion of a transfer, including loans acquired in a business combination, that had evidence of deterioration of credit quality since origination (“PCI”) and accounted for under ASC Topic 310, an entity did not have to reassess whether any loans previously accounted for as PCI meet the definition of purchased credit deteriorated (“PCD”) loans upon adoption of ASC Topic 326. Any changes in the allowance for credit losses for these loans were accounted for as an adjustment to the loan’s amortized cost basis and not as a cumulative-effect adjustment to United’s beginning retained earnings.
Non-PCI
loans are now classified as
non-PCD
loans with the adoption of ASC Topic 326. In accordance with ASC Topic 326 guidance, United calculated a PCD rate adjustment for all PCD loans at adoption. Such adjustment created a deferred fee balance for any excess amount not deemed to be credit-related between the PCD recorded balance at the adoption date and the contractual principal and interest balances outstanding.
For allowance for credit losses under ASC Topic 326 calculation purposes, all acquired loans will be included in their relevant pool and subject to legacy loss rates for that applicable pool unless they meet the criteria for specific review.
For loans acquired after the adoption of ASC Topic 326, United will likely take several factors into consideration when determining if loans meet the definition of PCD. ASC Topic 326 lists some, but not all, factors for consideration in the bifurcation of PCD versus
non-PCD
assets:
 
 
•
 
Financial assets that are delinquent as of the acquisition date
 
 
•
 
Financial assets that have been downgraded since origination
 
 
•
 
Financial assets that have been placed on nonaccrual status
 
 
•
 
Financial assets for which, after origination, credit spreads have widened beyond the threshold specified in its policy
United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. United estimates expected credit losses over the contractual period in which United is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by United. The reserve for lending-related commitments on
off-balance
sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Methodology is based on a loss rate approach that starts with the probability of funding based on historical experience. Similar to methodology discussed above related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecast. The reserve for lending-related commitments of $11,946 and $1,733 at June 30, 2020 and December 31, 2019, 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 is considered the allowance for credit losses.
For the six months ended June 30, 2020 the allowance for credit losses increased significantly from the year ended December 31, 2019 primarily due to the adoption of the current expected credit loss (CECL) model under ASC 326 on January 1, 2020 and the macroeconomic factors surrounding the
COVID-19
pandemic considered in the determination of the allowance for loan losses at June 30, 2020.
The first six months of 2020 qualitative adjustments include analyses of the following:
 
 
•
 
Past events
– This includes portfolio trends related to business conditions; past due, nonaccrual, and graded loans; and concentrations.
 
 
•
 
Current conditions
– United considered the impact of
COVID-19
(negative) as well as the CARES Act (positive) when making determinations related to factor adjustments, such as collateral values and past due loans, and the reasonable and supportable forecast. This is in contrast with the CECL adoption date (January 1, 2020) estimate as neither of these items were relevant for United’s footprint at the beginning of the year. Additional considerations were made for the Carolina Financial acquisition, such as the experience of lending management and staff and the nature and volume of the portfolio.
 
 
•
 
Reasonable and supportable forecasts
– The forecast is determined on a
portfolio-by-portfolio
basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. Assumptions for the economic variables were the following:
 
 
•
 
Following the historic drop in GDP in the second quarter of 2020, the forecast projects a large increase in GDP in the third quarter of 2020 with growth rates returning to normal levels by mid-2022.
 
 
•
 
The forecast also projects continued high levels of
unemployment with a gradual recovery that stretches 
beyond
2022.
 
 
•
 
Forecasts account for United’s best estimate of economic impact from government stimulus.
 
 
•
 
Reversion to historical loss data occurs via a straight-line method during the year following the
one-year
reasonable and supportable forecast period.
A progression of the allowance for loan losses, by portfolio segment, for the periods indicated is summarized as follows:
 
Allowance for Loan Losses and Carrying Amount of Loans
 
For the Three Months Ended June 30, 2020
 
 
 
  
Commercial Real Estate
 
 
 
 
 
 
 
 
Construction
 
 
 
 
 
 
 
 
Allowance
for
 
  
 
 
 
  
Owner-
occupied
 
 
Nonowner-
occupied
 
 
Other
Commercial
 
 
Residential
Real Estate
 
 
& Land
Development
 
 
Bankcard
 
 
Other
Consumer
 
 
Estimated
Imprecision
 
  
Total
 
Allowance for Loan Losses:
  
 
 
 
 
 
 
 
  
Beginning balance
  
$
 19,495
 
 
$
 17,569
 
 
$
 53,827
 
 
$
 30,624
 
 
$
 18,792
 
 
$
 226
 
 
$
 14,390
 
 
$
 0
  
$
 154,923
 
Initial allowance for PCD loans (acquired during the period)
  
 
1,955
 
 
 
6,418
 
 
 
7,032
 
 
 
652
 
 
 
2,570
 
 
 
0
 
 
 
8
 
 
 
0
 
  
 
18,635
 
Charge-offs
  
 
(356
) 
 
 
(1,937
) 
 
 
(1,340
) 
 
 
(523
) 
 
 
(225
) 
 
 
(82
) 
 
 
(1,171
) 
 
 
0
 
  
 
(5,634
) 
Recoveries
  
 
244
 
 
 
137
 
 
 
131
 
 
 
160
 
 
 
517
 
 
 
6
 
 
 
95
 
 
 
0
 
  
 
1,290
 
Provision
  
 
1,400
 
 
 
3,590
 
 
 
19,754
 
 
 
7,970
 
 
 
10,649
 
 
 
130
 
 
 
2,414
 
 
 
0
 
  
 
45,907
 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
     
 
 
  
Ending balance
  
$
22,738
 
 
$
25,777
 
 
$
79,404
 
 
$
38,883
 
 
$
32,303
 
 
$
280
 
 
$
15,736
 
 
$
0
 
  
$
215,121
 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
     
 
 
  
Allowance for Loan Losses and Carrying Amount of Loans
 
For the Six Months Ended June 30, 2020
 
 
 
  
Commercial Real Estate
 
 
 
 
 
 
 
 
Construction
 
 
 
 
 
 
 
 
Allowance
for
 
 
 
 
 
  
Owner-
occupied
 
 
Nonowner-
occupied
 
 
Other
Commercial
 
 
Residential
Real Estate
 
 
& Land
Development
 
 
Bankcard
 
 
Other
Consumer
 
 
Estimated
Imprecision
 
 
Total
 
Allowance for Loan Losses:
  
 
 
 
 
 
 
 
 
Beginning balance
  
$
 5,554
 
 
$
 8,524
 
 
$
 47,325
 
 
$
 8,997
 
 
$
 3,353
 
 
$
 74
 
 
$
 2,933
 
 
$
 297
 
$
 77,057
 
Impact of the adoption of ASU
2016-13
on January 1, 2020
  
 
9,737
 
 
 
9,023
 
 
 
(4,829
) 
 
 
13,097
 
 
 
14,817
 
 
 
28
 
 
 
10,745
 
 
 
(297
) 
 
 
52,321
 
Impact of the adoption of ASU
2016-13
for PCD loans on January 1, 2020
  
 
1,843
 
 
 
121
 
 
 
938
 
 
 
174
 
 
 
2,045
 
 
 
0
 
 
 
0
 
 
 
0
 
 
 
5,121
 
Initial allowance for PCD loans (acquired during the period)
  
 
1,955
 
 
 
6,418
 
 
 
7,032
 
 
 
652
 
 
 
2,570
 
 
 
0
 
 
 
8
 
 
 
0
 
 
 
18,635
 
Charge-offs
  
 
(535
) 
 
 
(1,937
) 
 
 
(7,028
) 
 
 
(890
) 
 
 
(1,969
) 
 
 
(128
) 
 
 
(1,908
) 
 
 
0
 
 
 
(14,395
) 
Recoveries
  
 
310
 
 
 
722
 
 
 
446
 
 
 
302
 
 
 
1,361
 
 
 
12
 
 
 
210
 
 
 
0
 
 
 
3,363
 
Provision
  
 
3,874
 
 
 
2,906
 
 
 
35,520
 
 
 
16,551
 
 
 
10,126
 
 
 
294
 
 
 
3,748
 
 
 
0
 
 
 
73,019
 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending balance
  
$
 22,738
 
 
$
 25,777
 
 
$
79,404
 
 
$
 38,883
 
 
$
 32,303
 
 
$
280
 
 
$
 15,736
 
 
$
0
 
 
$
 215,121
 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
Allowance for Loan Losses and Carrying Amount of Loans
 
For the Year Ended December 31, 2019
 
 
  
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
  
$
5,063
 
$
6,919
 
$
41,341
 
$
12,448
 
$
7,992
 
$
2,695
 
$
 245
  
$
76,703
Charge-offs
  
 
(7,905
) 
 
 
(1,093
) 
 
 
(12,975
) 
 
 
(2,967
) 
 
 
(1,303
) 
 
 
(2,867
) 
 
 
0
  
 
(29,110
) 
Recoveries
  
 
3,733
 
 
80
 
 
2,599
 
 
858
 
 
175
 
 
706
 
 
0
  
 
8,151
Provision
  
 
4,663
 
 
2,618
 
 
16,360
 
 
(1,342
) 
 
 
(3,511
) 
 
 
2,473
 
 
52
  
 
21,313
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
     
 
 
  
Ending balance
  
$
5,554
 
$
8,524
 
$
47,325
 
$
8,997
 
$
3,353
 
$
3,007
 
$
 297
  
$
77,057
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
     
 
 
  
Ending Balance: individually evaluated for impairment
  
$
973
 
 
$
2,979
 
 
$
11,931
 
 
$
354
 
 
$
262
 
 
$
0
 
 
$
0
 
  
$
16,499
 
Ending Balance: collectively evaluated for impairment
  
$
4,581
 
 
$
5,545
 
 
$
35,394
 
 
$
8,643
 
 
$
3,091
 
 
$
3,007
 
 
$
297
 
  
$
60,558
 
Ending Balance: loans acquired with deteriorated credit quality
  
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
  
$
0
Financing receivables:
  
 
 
 
 
 
 
  
Ending balance
  
$
1,201,652
 
$
3,965,960
 
$
2,285,037
 
$
3,686,401
 
$
1,408,205
 
$
1,166,293
 
 
$
0
  
$
13,713,548
 
Ending Balance: individually evaluated for impairment
  
$
16,703
 
$
27,121
 
$
54,108
 
$
11,526
 
$
14,047
 
$
0
 
$
0
  
$
123,505
 
Ending Balance: collectively evaluated for impairment
  
$
1,160,556
 
$
3,925,249
 
$
2,194,432
 
$
3,665,140
 
$
1,382,369
 
$
1,166,293
 
 
$
0
  
$
13,494,039
 
Ending Balance: loans acquired with deteriorated credit quality
 
$
24,393
  
 
$
13,590
  
 
$
36,497
  
 
$
9,735
  
 
$
11,789
  
 
$
0
  
 
$
0
  
 
$
96,004