Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2013

Loans and Allowance For Loan Losses [Abstract]

Loans and Allowance for Loan Losses

Note 5 – Loans and Allowance for Loan Losses

Major classifications of loans as of June 30, 2013, December 31, 2012 and June 30, 2012, are summarized as follows (in thousands).

	June 30,			December 31,			June 30,
	2013			2012			2012
Commercial (secured by real estate)	$	1,748,145		$	1,813,365		$	1,836,477
Commercial & industrial		436,988			458,246			450,222
Commercial construction		132,562			154,769			169,338
Total commercial		2,317,695			2,426,380			2,456,037
Residential mortgage		1,278,559			1,214,203			1,128,336
Residential construction		331,681			381,677			408,966
Consumer installment		261,433			152,748			125,896
Total loans		4,189,368			4,175,008			4,119,235
Less allowance for loan losses		(81,845	)		(107,137	)		(112,705	)
Loans, net	$	4,107,523		$	4,067,871		$	4,006,530

The Bank makes loans and extends credit to individuals and a variety of firms and corporations located primarily in counties in north Georgia, the Atlanta, Georgia metropolitan statistical area, the Gainesville, Georgia metropolitan statistical area, coastal Georgia, western North Carolina, east Tennessee and the Greenville, South Carolina metropolitan statistical area.  Although the Bank has a diversified loan portfolio, a substantial portion of its loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market.

Changes in the allowance for loan losses for the three and six months ended June 30, 2013 and 2012 are summarized as follows (in thousands).

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Balance beginning of period	$	105,753	$	113,601	$	107,137	$	114,468
Provision for loan losses		48,500		18,000		59,500		33,000
Charge-offs:
Commercial (secured by real estate)		26,740		4,418		32,194		8,346
Commercial & industrial		15,932		888		17,755		1,644
Commercial construction		6,305		88		6,350		452
Residential mortgage		6,718		4,014		9,074		9,781
Residential construction		18,530		9,846		21,512		15,475
Consumer installment		565		408		1,272		1,161
Total loans charged-off		74,790		19,662		88,157		36,859
Recoveries:
Commercial (secured by real estate)		1,274		69		1,485		300
Commercial & industrial		356		113		678		200
Commercial construction		10		-		59		30
Residential mortgage		209		152		418		544
Residential construction		24		283		33		598
Consumer installment		509		149		692		424
Total recoveries		2,382		766		3,365		2,096
Net charge-offs		72,408		18,896		84,792		34,763
Balance end of period	$	81,845	$	112,705	$	81,845	$	112,705

During the second quarter of 2013, United executed a plan to accelerate the disposition of classified assets including performing classified loans, nonperforming loans and foreclosed properties.  The purpose of the accelerated classified asset disposition plan was to clean up legacy credit problems remaining from the recent financial crisis and to accelerate the improvement of United’s credit measures toward pre-crisis levels.  The classified asset sales included individual note and foreclosed property sales and a large bulk sale of classified assets to a single investor.  The bulk sale included performing and nonperforming classified loans and foreclosed properties.  The assets were divided into four separate pools that were bid for separately by potential buyers.  A single purchaser was the high bidder for each of the four pools.  The table below shows the allocation among impaired loans, loans that were not considered impaired and foreclosed properties, including United's recorded investment in those assets, the sales proceeds and the resulting net charge offs of assets sold in the bulk sale transaction (in thousands).

	Recorded Investment		Net Sales Proceeds		Net Charge-Off
Loans considered impaired	$	96,829	$	56,298	$	(40,531	)
Loans not considered impaired		25,687		15,227		(10,460	)
Foreclosed properties		8,398		5,933		(2,465	)
Total assets sold	$	130,914	$	77,458	$	(53,456	)

The loans considered impaired in the table above were assigned specific reserves of $6.86 million in the most recent analysis of the allowance for loan losses prior to the sale. Because the assets were sold at liquidation prices in a bulk transaction with no recourse, the sales price was generally lower than the appraised value of the foreclosed properties and loan collateral.  Although the classified asset sales increased charge-offs during the second quarter of 2013, they accomplished management’s goal of moving classified asset levels toward the pre-crisis range.

United considers all loans that are on nonaccrual with a balance of $500,000 or greater and all troubled debt restructurings (“TDRs”) to be impaired.  In addition, United reviews all accruing substandard loans greater than $2 million to determine if the loan is impaired.  A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due, according to the contractual terms of the loan, will not be collected.  All TDRs are considered impaired regardless of accrual status.  Impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.  A specific reserve is established for impaired loans for the amount of calculated impairment.  Interest payments received on impaired nonaccrual loans are applied as a reduction of the outstanding principal balance.  For impaired loans not on nonaccrual status, interest is accrued according to the terms of the loan agreement.  Loans are evaluated for impairment quarterly and specific reserves are established in the allowance for loan losses for any measured impairment.

Each quarter, United’s management prepares an analysis of the allowance for loan losses to determine the appropriate balance that measures and quantifies the amount of loss inherent in the loan portfolio.  The allowance is comprised of specific reserves which are determined as described above, general reserves which are determined based on historical loss experience as adjusted for current trends and economic conditions and an unallocated portion.  United uses eight quarters of historical loss experience weighted toward the most recent quarters to determine the loss factors to be used.  Eight quarters has been determined to be an appropriate time period as it is recent enough to be relevant to current conditions and covers a length of time sufficient to minimize distortions caused by nonrecurring and unusual activity that might otherwise influence a shorter time period.  The weighted average is calculated by multiplying each quarter’s annualized historical net charge-off rate by 1 through 8, with 8 representing the most recent quarter and 1 representing the oldest quarter.  United uses annualized charge-off rates under the broad assumption that losses inherent in the loan portfolio will generally be resolved within twelve months.  Problem loans that are not resolved within twelve months are generally larger loans that are more complex in nature requiring more time to either rehabilitate or work out of the bank.  These credits are subject to impairment testing and specific reserves.

The weighted loss factor results for each quarter are added together and divided by 36 (the sum of 1, 2, 3, 4, 5, 6, 7 and 8) to arrive at the weighted average historical loss factor for each category of loans.  United calculates loss factors for each major category of loans (commercial real estate, commercial & industrial, commercial construction, residential construction and consumer installment) except residential real estate loans which are further divided into home equity first lien, home equity junior lien and all other residential real estate loans and a loss factor is calculated for each category.

Management carefully reviews the resulting loss factors for each category of the loan portfolio and evaluates whether qualitative adjustments are necessary to take into consideration recent credit trends such as increases or decreases in past due, nonaccrual, criticized and classified loans, acceleration or delays in timing of recognition of losses that may render the use of annualized charge-off rates to be inappropriate, and other macro environmental factors such as changes in unemployment rates, lease vacancy rates and trends in property values and absorption rates.

To validate the results, management closely monitors the loan portfolio to determine the range of potential losses based upon probability of default and losses upon default for each major loan category.  The potential range of losses resulting from this analysis is compared to the resulting loss factors for each major loan category to validate the loss factors and determine if qualitative adjustments are necessary.  United’s management believes that its method of determining the balance of the allowance for loan losses provides a reasonable and reliable basis for measuring and reporting losses that are inherent in the loan portfolio as of the reporting date.

The following table presents the balance and activity in the allowance for loan losses by portfolio segment and the recorded investment in loans by portfolio segment based on the impairment method as of June 30, 2013, December 31, 2012 and June 30, 2012 (in thousands).

Six Months Ended June 30, 2013	Commercial (Secured by Real Estate)			Commercial & Industrial			Commercial Construction			Residential Mortgage			Residential Construction			Consumer Installment			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	27,847		$	5,537		$	8,389		$	26,642		$	26,662		$	2,747		$	9,313		$	107,137
Charge-offs		(32,194	)		(17,755	)		(6,350	)		(9,074	)		(21,512	)		(1,272	)		-			(88,157	)
Recoveries		1,485			678			59			418			33			692			-			3,365
Provision		25,670			19,594			2,177			2,041			12,139			223			(2,344	)		59,500
Ending balance	$	22,808		$	8,054		$	4,275		$	20,027		$	17,322		$	2,390		$	6,969		$	81,845
Ending allowance attributable to loans:
Individually evaluated for impairment	$	2,862		$	129		$	440		$	1,197		$	417		$	12		$	-		$	5,057
Collectively evaluated for impairment		19,946			7,925			3,835			18,830			16,905			2,378			6,969			76,788
Total ending allowance balance	$	22,808		$	8,054		$	4,275		$	20,027		$	17,322		$	2,390		$	6,969		$	81,845
Loans:
Individually evaluated for impairment	$	52,297		$	5,738		$	12,955		$	18,393		$	14,095		$	337		$	-		$	103,815
Collectively evaluated for impairment		1,695,848			431,250			119,607			1,260,166			317,586			261,096			-			4,085,553
Total loans	$	1,748,145		$	436,988		$	132,562		$	1,278,559		$	331,681		$	261,433		$	-		$	4,189,368
December 31, 2012
Allowance for loan losses:
Ending allowance attributable to loans:
Individually evaluated for impairment	$	6,106		$	490		$	2,239		$	2,165		$	625		$	19		$	-		$	11,644
Collectively evaluated for impairment		21,741			5,047			6,150			24,477			26,037			2,728			9,313			95,493
Total ending allowance balance	$	27,847		$	5,537		$	8,389		$	26,642		$	26,662		$	2,747		$	9,313		$	107,137
Loans:
Individually evaluated for impairment	$	104,409		$	51,501		$	40,168		$	22,247		$	34,055		$	430		$	-		$	252,810
Collectively evaluated for impairment		1,708,956			406,745			114,601			1,191,956			347,622			152,318			-			3,922,198
Total loans	$	1,813,365		$	458,246		$	154,769		$	1,214,203		$	381,677		$	152,748		$	-		$	4,175,008
Six Months Ended June 30, 2012
Beginning balance	$	31,644		$	5,681		$	6,097		$	29,076		$	30,379		$	2,124		$	9,467		$	114,468
Charge-offs		(8,346	)		(1,644	)		(452	)		(9,781	)		(15,475	)		(1,161	)		-			(36,859	)
Recoveries		300			200			30			544			598			424			-			2,096
Provision		6,288			1,061			4,662			6,471			13,712			1,183			(377	)		33,000
Ending balance	$	29,886		$	5,298		$	10,337		$	26,310		$	29,214		$	2,570		$	9,090		$	112,705
Ending allowance attributable to loans:
Individually evaluated for impairment	$	8,544		$	753		$	2,476		$	1,389		$	4,188		$	20		$	-		$	17,370
Collectively evaluated for impairment		21,342			4,545			7,861			24,921			25,026			2,550			9,090			95,335
Total ending allowance balance	$	29,886		$	5,298		$	10,337		$	26,310		$	29,214		$	2,570		$	9,090		$	112,705
Loans:
Individually evaluated for impairment	$	130,838		$	57,747		$	42,833		$	19,844		$	41,906		$	511		$	-		$	293,679
Collectively evaluated for impairment		1,705,639			392,475			126,505			1,108,492			367,060			125,385			-			3,825,556
Total loans	$	1,836,477		$	450,222		$	169,338		$	1,128,336		$	408,966		$	125,896		$	-		$	4,119,235

When a loan officer determines that a loan is uncollectible, he or she is responsible for recommending to the local bank president that the loan be charged off.  Full or partial charge-offs may also be recommended by the Collections Department, the Special Assets Department and the Foreclosure / OREO department.  Nonaccrual real estate loans that are collateral dependent are generally charged down to 80% of the appraised value of the underlying collateral at the time they are placed on nonaccrual status.

A committee consisting of the Chief Risk Officer, Senior Risk Officer and the Senior Credit Officers meets monthly to review charge-offs that have occurred during the previous month.  The 10 largest charge-offs are reported quarterly to the Board of Directors.

Generally, closed-end retail loans (installment and residential mortgage loans) past due 120 cumulative days are charged-off unless the loan is well secured and in process of collection (within the next 90 days).  Open-end (revolving) retail loans which are past due 180 cumulative days from their contractual due date are generally charged-off.

At June 30, 2013, December 31, 2012 and June 30, 2012, loans with a carrying value of $2.00 billion, $1.90 billion and $1.61 billion, respectively, were pledged as collateral to secure FHLB advances and other contingent funding sources.

The average balances of impaired loans and income recognized on impaired loans while they were considered impaired is presented below for the three and six months ended June 30, 2013 and 2012 (in thousands).

	2013						2012
Three Months Ended June 30,	Average Balance		Interest Revenue Recognized During Impairment		Cash Basis Interest Revenue Received		Average Balance		Interest Revenue Recognized During Impairment		Cash Basis Interest Revenue Received
Commercial (secured by real estate)	$	52,191	$	631	$	665	$	125,419	$	1,414	$	1,476
Commercial & industrial		5,804		63		70		48,984		191		700
Commercial construction		13,034		114		115		41,242		217		304
Total commercial		71,029		808		850		215,645		1,822		2,480
Residential mortgage		18,950		205		193		19,645		255		297
Residential construction		14,058		178		147		51,596		336		431
Consumer installment		246		4		4		450		8		8
Total	$	104,283	$	1,195	$	1,194	$	287,336	$	2,421	$	3,216
Six Months Ended June 30,
Commercial (secured by real estate)	$	74,233	$	1,577	$	1,665	$	112,633	$	2,665	$	2,817
Commercial & industrial		27,277		219		699		49,922		309		1,310
Commercial construction		27,983		265		347		36,109		484		761
Total commercial		129,493		2,061		2,711		198,664		3,458		4,888
Residential mortgage		20,179		446		416		25,060		480		558
Residential construction		29,374		504		575		59,866		737		949
Consumer installment		263		10		10		391		13		13
Total	$	179,309	$	3,021	$	3,712	$	283,981	$	4,688	$	6,408

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2013, December 31, 2012 and June 30, 2012 (in thousands).

	June 30, 2013						December 31, 2012						June 30, 2012
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial (secured by real estate)	$	27,851	$	17,640	$	-	$	74,066	$	62,609	$	-	$	105,788	$	95,453	$	-
Commercial & industrial		3,809		3,809		-		74,572		49,572		-		81,036		56,036		-
Commercial construction		809		659		-		23,938		17,305		-		22,491		21,372		-
Total commercial		32,469		22,108		-		172,576		129,486		-		209,315		172,861		-
Residential mortgage		8,676		6,843		-		10,336		8,383		-		13,994		11,578		-
Residential construction		8,476		4,992		-		35,439		19,093		-		46,589		30,094		-
Consumer installment		203		102		-		-		-		-		185		185		-
Total with no related allowance recorded		49,824		34,045		-		218,351		156,962		-		270,083		214,718		-
With an allowance recorded:
Commercial (secured by real estate)		34,741		34,657		2,862		44,395		41,800		6,106		35,348		35,295		8,544
Commercial & industrial		2,091		1,929		129		2,170		1,929		490		1,711		1,711		753
Commercial construction		12,376		12,296		440		23,746		22,863		2,239		21,461		21,461		2,476
Total commercial		49,208		48,882		3,431		70,311		66,592		8,835		58,520		58,467		11,773
Residential mortgage		11,794		11,550		1,197		14,267		13,864		2,165		8,458		8,266		1,389
Residential construction		9,411		9,103		417		15,412		14,962		625		11,886		11,812		4,188
Consumer installment		244		235		12		441		430		19		335		326		20
Total with an allowance recorded		70,657		69,770		5,057		100,431		95,848		11,644		79,199		78,871		17,370
Total	$	120,481	$	103,815	$	5,057	$	318,782	$	252,810	$	11,644	$	349,282	$	293,589	$	17,370

There were no loans more than 90 days past due and still accruing interest at June 30, 2013, December 31, 2012 or June 30, 2012.  Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans.  United’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in accordance with the loan terms or when the loan becomes 90 days past due and is not well secured and in the process of collection.  When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue.  Principal and interest payments received on a nonaccrual loan are applied to reduce outstanding principal.

The following table presents the recorded investment (unpaid principal less amounts charged-off) in nonaccrual loans by loan class as of June 30, 2013, December 31, 2012 and June 30, 2102 (in thousands).

	Nonaccrual Loans
	June 30, 2013		December 31, 2012		June 30, 2012
Commercial (secured by real estate)	$	7,237	$	22,148	$	19,115
Commercial & industrial		548		31,817		34,982
Commercial construction		504		23,843		18,175
Total commercial		8,289		77,808		72,272
Residential mortgage		14,338		12,589		16,631
Residential construction		4,838		18,702		25,530
Consumer installment		399		795		907
Total	$	27,864	$	109,894	$	115,340
Balance as a percentage of unpaid principal		62.6%		69.5%		68.8%

The following table presents the aging of the recorded investment in past due loans as of June 30, 2013, December 31, 2012 and June 30, 2012 by class of loans (in thousands).

	Loans Past Due								Loans Not
As of June 30, 2013	30 - 59 Days		60 - 89 Days		> 90 Days		Total		Past Due		Total
Commercial (secured by real estate)	$	3,541	$	696	$	2,136	$	6,373	$	1,741,772	$	1,748,145
Commercial & industrial		1,123		500		145		1,768		435,220		436,988
Commercial construction		1,128		235		196		1,559		131,003		132,562
Total commercial		5,792		1,431		2,477		9,700		2,307,995		2,317,695
Residential mortgage		10,543		3,993		5,639		20,175		1,258,384		1,278,559
Residential construction		2,037		335		1,261		3,633		328,048		331,681
Consumer installment		893		183		30		1,106		260,327		261,433
Total loans	$	19,265	$	5,942	$	9,407	$	34,614	$	4,154,754	$	4,189,368
As of December 31, 2012
Commercial (secured by real estate)	$	8,106	$	3,232	$	7,476	$	18,814	$	1,794,551	$	1,813,365
Commercial & industrial		1,565		429		867		2,861		455,385		458,246
Commercial construction		2,216		-		4,490		6,706		148,063		154,769
Total commercial		11,887		3,661		12,833		28,381		2,397,999		2,426,380
Residential mortgage		12,292		2,426		4,848		19,566		1,194,637		1,214,203
Residential construction		2,233		1,934		5,159		9,326		372,351		381,677
Consumer installment		1,320		245		289		1,854		150,894		152,748
Total loans	$	27,732	$	8,266	$	23,129	$	59,127	$	4,115,881	$	4,175,008
As of June 30, 2012
Commercial (secured by real estate)	$	7,053	$	1,342	$	11,996	$	20,391	$	1,816,086	$	1,836,477
Commercial & industrial		663		1,496		389		2,548		447,674		450,222
Commercial construction		3,555		133		950		4,638		164,700		169,338
Total commercial		11,271		2,971		13,335		27,577		2,428,460		2,456,037
Residential mortgage		12,636		2,980		6,756		22,372		1,105,964		1,128,336
Residential construction		4,781		1,189		11,096		17,066		391,900		408,966
Consumer installment		971		325		398		1,694		124,202		125,896
Total loans	$	29,659	$	7,465	$	31,585	$	68,709	$	4,050,526	$	4,119,235

As of June 30, 2013, December 31, 2012, and June 30, 2012, $4.34 million, $9.50 million and $10.3 million of specific reserves were allocated to customers whose loan terms have been modified in TDRs.  United committed to lend additional amounts totaling up to $35,000, $689,000 and $490,000 as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively, to customers with outstanding loans that are classified as TDRs.

The modification of the terms of the TDRs included one or a combination of the following:  a reduction of the stated interest rate of the loan or an extension of the amortization period that would not otherwise be considered in the current market for new debt with similar risk characteristics; a permanent reduction of the principal amount; a restructuring of the borrower’s debt into an A/B note structure where the A note would fall within the borrower’s ability to pay and the remainder would be included in the B note, or a mandated bankruptcy restructuring.

The following table presents additional information on TDRs including the number of loan contracts restructured and the pre- and post-modification recorded investment as of June 30, 2013, December 31, 2012 and June 30, 2012 (dollars in thousands).

	June 30, 2013						December 31, 2012						June 30, 2012
	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		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial (sec by RE)		77	$	45,874	$	42,366		96	$	80,261	$	75,340		96	$	87,104	$	82,325
Commercial & industrial		34		3,091		2,929		32		7,492		7,250		29		3,972		3,972
Commercial construction		14		13,185		12,956		25		37,537		33,809		23		42,796		41,677
Total commercial		125		62,150		58,251		153		125,290		116,399		148		133,872		127,974
Residential mortgage		110		17,772		16,381		117		20,323		19,296		110		17,613		16,950
Residential construction		51		11,895		9,908		67		25,822		23,786		72		25,123		22,178
Consumer installment		42		447		337		51		1,292		1,282		47		521		511
Total loans		328	$	92,264	$	84,877		388	$	172,727	$	160,763		377	$	177,129	$	167,613

Loans modified under the terms of a TDR during the three and six months ended June 30, 2013 and 2012 are presented in the table below.  In addition, the following table presents loans modified under the terms of a TDR that became 90 days or more delinquent during the three and six months ended June 30, 2013 and 2012 that were initially restructured within one year prior to the three and six months ended June 30, 2013 and 2012 (dollars in thousands).

New Troubled Debt Restructurings for the Three Months Ended June 30, 2013	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Modified Within the Previous Twelve Months that Have Subsequently Defaulted During the Three Months Ended June 30, 2013
							Number of Contracts		Recorded Investment
Commercial (secured by real estate)		9	$	6,523	$	6,523	$	-	$	-
Commercial & industrial		-		-		-		-		-
Commercial construction		-		-		-		-		-
Total commercial		9		6,523		6,523		-		-
Residential mortgage		2		649		505		1		40
Residential construction		2		339		339		-		-
Consumer installment		-		-		-		-		-
Total loans		13	$	7,511	$	7,367		1	$	40

New Troubled Debt Restructurings for the Six Months Ended June 30, 2013	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Modified Within the Previous Twelve Months that Have Subsequently Defaulted During the Six Months Ended June 30, 2013
							Number of Contracts		Recorded Investment
Commercial (secured by real estate)		17	$	10,091	$	10,091	$	1	$	432
Commercial & industrial		9		815		709		1		35
Commercial construction		-		-		-		2		1,454
Total commercial		26		10,906		10,800		4		1,921
Residential mortgage		13		2,764		2,620		2		108
Residential construction		7		1,123		994		2		117
Consumer installment		4		21		21		3		20
Total loans		50	$	14,814	$	14,435		11	$	2,166

New Troubled Debt Restructurings for the Three Months Ended June 30, 2012	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Modified Within the Previous Twelve Months that Have Subsequently Defaulted During the Three Months Ended June 30, 2012
							Number of Contracts		Recorded Investment
Commercial (secured by real estate)		10	$	7,815	$	7,728	$	3	$	2,307
Commercial & industrial		7		598		598		1		5
Commercial construction		7		7,702		7,702		-		-
Total commercial		24		16,115		16,028		4		2,312
Residential mortgage		20		5,288		5,112		1		27
Residential construction		20		7,638		6,361		1		121
Consumer installment		8		210		210		1		6
Total loans		72	$	29,251	$	27,711		7	$	2,466

New Troubled Debt Restructurings for the Six Months Ended June 30, 2012	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Modified Within the Previous Twelve Months that Have Subsequently Defaulted During the Six Months Ended June 30, 2012
							Number of Contracts		Recorded Investment
Commercial (secured by real estate)		34	$	22,914	$	21,469	$	3	$	2,307
Commercial & industrial		17		3,322		3,322		2		48
Commercial construction		14		28,483		28,483		2		4,174
Total commercial		65		54,719		53,274		7		6,529
Residential mortgage		44		10,567		10,385		4		400
Residential construction		34		11,389		9,550		4		1,597
Consumer installment		15		270		265		1		6
Total loans		158	$	76,945	$	73,474		16	$	8,532

Collateral dependent TDRs that subsequently default and are placed on nonaccrual are charged down to the fair value of the collateral consistent with United’s policy for nonaccrual loans.  Impairment on TDRs that are not collateral dependent continues to be measured on discounted cash flows regardless of whether the loan has subsequently defaulted.

As of June 30, 2013, December 31, 2012 and June 30, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands).

					Substandard				Doubtful /
As of June 30, 2013	Pass		Watch		Performing		Nonaccrual		Loss		Not Rated		Total
Commercial (secured by real estate)	$	1,595,141	$	67,017	$	78,750	$	7,237	$	-	$	-	$	1,748,145
Commercial & industrial		418,354		5,716		11,458		548		-		912		436,988
Commercial construction		104,185		12,107		15,766		504		-		-		132,562
Total commercial		2,117,680		84,840		105,974		8,289		-		912		2,317,695
Residential mortgage		1,185,658		27,341		51,222		14,338		-		-		1,278,559
Residential construction		292,116		18,096		16,631		4,838		-		-		331,681
Consumer installment		257,563		966		2,505		399		-		-		261,433
Total loans	$	3,853,017	$	131,243	$	176,332	$	27,864	$	-	$	912	$	4,189,368
As of December 31, 2012
Commercial (secured by real estate)	$	1,592,677	$	80,997	$	117,543	$	22,148	$	-	$	-	$	1,813,365
Commercial & industrial		401,606		5,404		18,477		31,817		-		942		458,246
Commercial construction		104,296		7,345		19,285		23,843		-		-		154,769
Total commercial		2,098,579		93,746		155,305		77,808		-		942		2,426,380
Residential mortgage		1,102,746		33,689		65,179		12,589		-		-		1,214,203
Residential construction		292,264		32,907		37,804		18,702		-		-		381,677
Consumer installment		147,214		1,086		3,653		795		-		-		152,748
Total loans	$	3,640,803	$	161,428	$	261,941	$	109,894	$	-	$	942	$	4,175,008
As of June 30, 2012
Commercial (secured by real estate)	$	1,596,876	$	72,067	$	148,419	$	19,115	$	-	$	-	$	1,836,477
Commercial & industrial		393,894		4,652		15,916		34,982		-		778		450,222
Commercial construction		107,199		6,088		37,876		18,175		-		-		169,338
Total commercial		2,097,969		82,807		202,211		72,272		-		778		2,456,037
Residential mortgage		999,323		39,105		73,277		16,631		-		-		1,128,336
Residential construction		290,804		47,182		45,450		25,530		-		-		408,966
Consumer installment		121,166		1,117		2,706		907		-		-		125,896
Total loans	$	3,509,262	$	170,211	$	323,644	$	115,340	$	-	$	778	$	4,119,235

Risk Ratings

United categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current industry and economic trends, among other factors.  United analyzes loans individually by classifying the loans as to credit risk.  This analysis is performed on a continuous basis.  United uses the following definitions for its risk ratings:

Watch.  Loans in this category are presently protected from apparent loss; however, weaknesses exist that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities.  These loans require more than the ordinary amount of supervision. Collateral values generally afford adequate coverage, but may not be immediately marketable.

Substandard.  These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged.  Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios.  The loan may be past due and related deposit accounts experiencing overdrafts.  There is the distinct possibility that United will sustain some loss if deficiencies are not corrected. If possible, immediate corrective action is taken.

Doubtful.  Specific weaknesses characterized as Substandard that are severe enough to make collection in full highly questionable and improbable.  There is no reliable secondary source of full repayment.

Loss.  Loans categorized as Loss have the same characteristics as Doubtful; however, probability of loss is certain.  Loans classified as Loss are charged-off.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are generally deposit account overdrafts that have not been assigned a grade.