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Section 1: 10-Q (FORM 10-Q)

Form 10-Q
Table of Contents

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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

For the quarterly period ended March 31, 2019

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:    002-86947

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      No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $2.50 per share   UBSI   NASDAQ Global Select Market

As of April 30, 2019, the registrant had 102,095,661 shares of common stock, $2.50 par value per share, outstanding.


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, 2019 and December 31, 2018

     4  

Consolidated Statements of Income (Unaudited) for the Three Months Ended March  31, 2019 and 2018

     5  

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018

     7  

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018

     8  

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018

     9  

Notes to Consolidated Financial Statements

     10  

Item 2.

 

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

     51  

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

     68  

Item 4.

 

Controls and Procedures

     71  

PART II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     73  

Item 1A.

 

Risk Factors

     73  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     73  

Item 3.

 

Defaults Upon Senior Securities

     74  

Item 4.

 

Mine Safety Disclosures

     74  

Item 5.

 

Other Information

     74  

Item 6.

 

Exhibits

     74  

Signatures

     75  

 

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PART I - FINANCIAL INFORMATION

 

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

The March 31, 2019 and December 31, 2018, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income and comprehensive income for the three months ended March 31, 2019 and 2018, the related consolidated statement of changes in shareholders’ equity for the three months ended March 31, 2019 and 2018, the related condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018, 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
2019
    December 31
2018
 
     (Unaudited)     (Note 1)  

Assets

    

Cash and due from banks

   $ 201,777     $ 187,886  

Interest-bearing deposits with other banks

     970,072       831,707  

Federal funds sold

     808       803  
  

 

 

   

 

 

 

Total cash and cash equivalents

     1,172,657       1,020,396  

Securities available for sale at estimated fair value (amortized cost-$2,386,010 at March 31, 2019 and $2,360,884 at December 31, 2018)

     2,384,055       2,337,039  

Securities held to maturity (estimated fair value-$8,549 at March 31, 2019 and $18,655 at December 31, 2018)

     8,491       19,999  

Equity securities at estimated fair value

     9,921       9,734  

Other investment securities

     190,123       176,955  

Loans held for sale (at fair value-$244,501 at March 31, 2019 and $247,104 at December 31, 2018)

     245,763       249,846  

Loans

     13,578,218       13,429,532  

Less: Unearned income

     (5,515     (7,310
  

 

 

   

 

 

 

Loans net of unearned income

     13,572,703       13,422,222  

Less: Allowance for loan losses

     (76,886     (76,703
  

 

 

   

 

 

 

Net loans

     13,495,817       13,345,519  

Bank premises and equipment

     94,545       95,245  

Operating lease right-of-use assets

     63,119       0  

Goodwill

     1,478,014       1,478,014  

Accrued interest receivable

     64,347       60,597  

Other assets

     438,281       457,154  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 19,645,133     $ 19,250,498  
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 4,370,577     $ 4,416,815  

Interest-bearing

     9,788,820       9,577,934  
  

 

 

   

 

 

 

Total deposits

     14,159,397       13,994,749  

Borrowings:

    

Federal funds purchased

     0       23,400  

Securities sold under agreements to repurchase

     127,821       152,927  

Federal Home Loan Bank borrowings

     1,603,615       1,439,198  

Other long-term borrowings

     235,220       234,905  

Reserve for lending-related commitments

     1,461       1,389  

Operating lease liabilities

     66,871       0  

Accrued expenses and other liabilities

     163,857       152,306  
  

 

 

   

 

 

 

TOTAL LIABILITIES

     16,358,242       15,998,874  

Shareholders’ Equity

    

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

     0       0  

Common stock, $2.50 par value; Authorized-200,000,000 shares; issued-105,399,364 and 105,239,121 at March 31, 2019 and December 31, 2018, respectively, including 3,281,335 and 2,915,633 shares in treasury at March 31, 2019 and December 31, 2018, respectively

     263,498       263,098  

Surplus

     2,135,818       2,134,462  

Retained earnings

     1,040,871       1,013,037  

Accumulated other comprehensive loss

     (39,270     (57,019

Treasury stock, at cost

     (114,026     (101,954
  

 

 

   

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     3,286,891       3,251,624  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 19,645,133     $ 19,250,498  
  

 

 

   

 

 

 

See notes to consolidated unaudited financial statements.

 

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Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)

 

     Three Months Ended
March  31
 
     2019     2018  

Interest income

    

Interest and fees on loans

   $ 164,871     $ 148,928  

Interest on federal funds sold and other short-term investments

     5,837       4,917  

Interest and dividends on securities:

    

Taxable

     17,363       11,875  

Tax-exempt

     1,026       1,465  
  

 

 

   

 

 

 

Total interest income

     189,097       167,185  

Interest expense

    

Interest on deposits

     32,638       15,657  

Interest on short-term borrowings

     691       421  

Interest on long-term borrowings

     11,600       7,064  
  

 

 

   

 

 

 

Total interest expense

     44,929       23,142  
  

 

 

   

 

 

 

Net interest income

     144,168       144,043  

Provision for loan losses

     4,996       5,178  
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     139,172       138,865  

Other income

    

Fees from trust services

     3,264       3,091  

Fees from brokerage services

     2,524       2,224  

Fees from deposit services

     8,053       8,230  

Bankcard fees and merchant discounts

     1,156       1,356  

Other service charges, commissions, and fees

     521       509  

Income from bank-owned life insurance

     1,827       1,254  

Income from mortgage banking activities

     13,681       14,570  

Net investment securities losses

     (159     (485

Other income

     356       443  
  

 

 

   

 

 

 

Total other income

     31,223       31,192  

Other expense

    

Employee compensation

     38,949       40,836  

Employee benefits

     9,431       9,571  

Net occupancy expense

     8,751       9,427  

Other real estate owned (OREO) expense

     1,416       946  

Equipment expense

     3,315       3,157  

Data processing expense

     5,162       5,850  

Bankcard processing expense

     480       466  

FDIC insurance expense

     3,300       1,848  

Other expense

     18,621       18,351  
  

 

 

   

 

 

 

Total other expense

     89,425       90,452  
  

 

 

   

 

 

 

Income before income taxes

     80,970       79,605  

Income taxes

     17,328       17,899  
  

 

 

   

 

 

 

Net income

   $ 63,642     $ 61,706  
  

 

 

   

 

 

 

 

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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
 
     2019      2018  

Earnings per common share:

     

Basic

   $ 0.62      $ 0.59  
  

 

 

    

 

 

 

Diluted

   $ 0.62      $ 0.59  
  

 

 

    

 

 

 

Average outstanding shares:

     

Basic

     101,894,786        104,859,427  

Diluted

     102,162,704        105,162,858  

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
 
     2019      2018  

Net income

   $ 63,642      $ 61,706  

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

     16,789        (16,773

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

     0        1  

Change in defined benefit pension plan, net of tax

     910        733  
  

 

 

    

 

 

 

Comprehensive income, net of tax

   $ 81,341      $ 45,667  
  

 

 

    

 

 

 

 

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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, 2019  
                               Accumulated              
     Common Stock                  Other           Total  
            Par            Retained     Comprehensive     Treasury     Shareholders’  
     Shares      Value      Surplus     Earnings     Income (Loss)     Stock     Equity  

Balance at January 1, 2019

     105,239,121      $ 263,098      $ 2,134,462     $ 1,013,037     ($ 57,019   ($ 101,954   $ 3,251,624  

Cumulative effect of adopting Accounting Standard Update 2016-02

     0        0        0       (1,049     0       0       (1,049

Reclass due to adopting Accounting Standard Update 2017-12

     0        0        0       0       50       0       50  

Comprehensive income:

                

Net income

     0        0        0       63,642       0       0       63,642  

Other comprehensive income, net of tax

     0        0        0       0       17,699       0       17,699  
                

 

 

 

Total comprehensive income, net of tax

                   81,341  

Stock based compensation expense

     0        0        1,113       0       0       0       1,113  

Purchase of treasury stock (365,702 shares)

     0        0        0       0       0       (12,072     (12,072

Cash dividends ($0.34 per share)

     0             (34,759     0       0       (34,759

Grant of restricted stock (126,427 shares)

     126,427        316        (316     0       0       0       0  

Common stock options exercised (33,816 shares)

     33,816        84        559       0       0       0       643  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2019

     105,399,364      $ 263,498      $ 2,135,818     $ 1,040,871     ($ 39,270   ($ 114,026   $ 3,286,891  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended March 31, 2018  
                               Accumulated              
     Common Stock                  Other           Total  
            Par            Retained     Comprehensive     Treasury     Shareholders’  
     Shares      Value      Surplus     Earnings     Income (Loss)     Stock     Equity  

Balance at January 1, 2018

     105,069,821      $ 262,675      $ 2,129,077     $ 891,816     ($ 42,025   ($ 1,013   $ 3,240,530  

Cumulative effect of adopting Accounting Standard Update 2016-01

     0        0        0       136       (136     0       0  

Reclass due to adopting Accounting Standard Update 2018-02

     0        0        0       6,353       (6,353     0       0  

Comprehensive income:

                

Net income

     0        0        0       61,706       0       0       61,706  

Other comprehensive income, net of tax

     0        0        0       0       (16,039     0       (16,039
                

 

 

 

Total comprehensive income, net of tax

                   45,667  

Stock based compensation expense

     0        0        968       0       0       0       968  

Purchase of treasury stock (10,842 shares)

     0        0        0       0       0       (404     (404

Cash dividends ($0.34 per share)

     0             (35,748     0       0       (35,748

Grant of restricted stock (97,004 shares)

     97,004        243        (243     0       0       0       0  

Forfeiture of restricted stock (683 shares)

     0        0        27       0       0       (27     0  

Common stock options exercised (15,043 shares)

     15,043        37        263       0       0       0       300  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2018

     105,181,868      $ 262,955      $ 2,130,092     $ 924,263     ($ 64,553   ($ 1,444   $ 3,251,313  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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
 
     2019     2018  

NET CASH PROVIDED BY OPERATING ACTIVITIES

   $ 93,247     $ 158,484  

INVESTING ACTIVITIES

    

Proceeds from maturities and calls of securities held to maturity

     0       1  

Proceeds from sales of securities available for sale

     133,783       36,850  

Proceeds from maturities and calls of securities available for sale

     62,548       66,067  

Purchases of securities available for sale

     (211,217     (330,031

Proceeds from sales of equity securities

     439       159  

Purchases of equity securities

     (437     (181

Proceeds from sales and redemptions of other investment securities

     27,766       9,046  

Purchases of other investment securities

     (40,934     (3,672

Redemption of bank-owned life insurance policies

     2,147       0  

Purchases of bank premises and equipment

     (1,754     (756

Proceeds from sales of bank premises and equipment

     251       1  

Proceeds from the sales of OREO properties

     1,057       3,433  

Net change in loans

     (149,572     32,091  
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (175,923     (186,992
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Cash dividends paid

     (34,974     (35,713

Acquisition of treasury stock

     (12,072     (404

Proceeds from exercise of stock options

     643       300  

Repayment of long-term Federal Home Loan Bank borrowings

     (960,000     (625,000

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

     1,300,000       615,000  

Repayment of trust preferred issuance

     0       (9,374

Changes in:

    

Deposits

     164,846       (184,097

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

     (223,506     (259,201
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     234,937       (498,489
  

 

 

   

 

 

 

Increase (Decrease) in cash and cash equivalents

     152,261       (526,997

Cash and cash equivalents at beginning of year

     1,020,396       1,666,167  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,172,657     $ 1,139,170  
  

 

 

   

 

 

 

Supplemental information

    

Noncash investing activities:

    

Transfers of loans to OREO

   $ 2,822     $ 527  

Transfer of held to maturity debt securities to available for sale debt securities

     11,544       0  

See notes to consolidated unaudited financial statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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, 2019 and 2018 and for the three-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2018 has been extracted from the audited financial statements included in United’s 2018 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 2018 Annual Report of United on Form 10-K. 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 operates in two business segments: community banking and mortgage banking. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Information is presented in these notes to the unaudited consolidated interim financial statements with dollars expressed in thousands, except per share or unless otherwise noted.

New Accounting Standards

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-14 “Compensation – Retirement Benefits - Defined Benefits – General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” This update amends ASC Topic 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other post retirement plans. The ASU’s changes related to disclosures are part of the FASB’s disclosure framework project, which the FASB launched in 2014 to improve effectiveness of disclosures in notes to financial statements. ASU No. 2018-14 is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2020; early adoption is permitted. ASU No. 2018-14 is not expected to have a material impact on the Company’s financial condition or results of operations.

In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This amendment changes the fair value measurement disclosure requirements of ASC Topic 820 and is the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements, which was finalized in August 2018. ASU No. 2018-13 is effective for all entities for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019; early adoption is permitted for any eliminated or modified disclosure upon issuance of this ASU. ASU No. 2018-13 is not expected to have a material impact on the Company’s financial condition or results of operations.

In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07 “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This update has been

 

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issued as part of a simplification initiative which will expand the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and expands the scope through the amendments to address and improve aspects of the accounting for non-employee share-based payment transactions. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU No. 2018-07 is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018; early adoption is permitted. ASU No. 2018-07 was adopted by United on January 1, 2019. The adoption did not have a material impact on the Company’s financial condition or results of operations.

In August 2017, the FASB issued ASU No. 2017-12, “Targeting Improvement to Accounting for Hedging Activities.” This ASU amends ASC 815 and its objectives are to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and reduce the complexity and simplify the application of hedge accounting by preparers. This ASU makes certain targeted improvements to simplify the application of the hedge accounting, including to derivative instruments as well as allow a one-time election to reclassify fixed-rate, prepayable debt securities from a held to maturity classification to an available for sale classification. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. United adopted the standard on January 1, 2019 using the modified retrospective approach. As part of this adoption, the Company made a one-time election to transfer eligible HTM securities to the AFS category in order to optimize the investment portfolio management for capital and risk management considerations. The Company transferred HTM securities with a carrying amount of $11,544, which resulted in a decrease of $1,098 to AOCI.

In July 2017, the FASB issued ASU No. 2017-11, “Part I, Accounting for Certain Financial Instruments with Down Round Features and Part II, Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling interests with a Scope Exception.” Part I of this ASU simplifies the accounting for financial instruments that include down round features while the amendments in Part II, which do not have an accounting effect, address the difficulty of navigating the guidance in ASC 480, “Distinguishing Liabilities from Equity”, due to the existence of extensive pending content in the Codification. ASU No. 2017-11 is effective for interim and annual reporting periods beginning after December 15, 2018. ASU No. 2017-11 was adopted by United on January 1, 2019. The adoption did not have a material impact on the Company’s financial condition or results of operations.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This update amends the amortization period for certain purchased callable debt securities held at a premium. FASB is shortening the amortization period for the premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. Concerns were raised that current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. There is diversity in practice (1) in the amortization period for premiums of callable debt securities and (2) in how the potential for exercise of a call is factored into current impairment assessments. The amendments in this update became effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. ASU No. 2017-08 was adopted by United on January 1, 2019. The adoption did not have a material impact on the Company’s financial condition or results of operations.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350).” ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 is effective for United on January 1, 2020, with early adoption permitted, and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.

 

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In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.” ASU No. 2016-13 changes the impairment model for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available for sale debt securities rather than reduce the carrying amount under the current other-than-temporary impairment (OTTI) model. ASU No. 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU No. 2016-13 is effective for United on January 1, 2020, with early adoption permitted. United has completed an initial data gap assessment and loan segmentation procedures, and is currently evaluating the various forecasting and modeling assumptions that will be used to estimate the initial current expected credit loss allowance. United has engaged a third-party service provider to assist with the implementation of the new accounting standard. 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 No. 2016-02, “Leases (Topic 842)”. ASU No. 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 No. 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 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. In July 2018, the FASB issued ASU No. 2018-11 “Leases (Topic 842), Targeted Improvements.” This update creates an additional transition method, and a lessor practical expedient to not separate lease and non-lease components if specified criteria are met. The new transition method allows companies to use the effective date of the new leases standard as the date of initial application transition. Companies that elect this transition option will not adjust their comparative period financial information for the effect of ASC Topic 842, nor will they make the new required lease disclosure for periods before the effective date. In addition, these companies will carry forward their ASC Topic 840 disclosures for comparative periods. The practical expedient permits lessors to make an accounting policy election by class of underlying asset to not separate lease and non-lease components if specified criteria are met. In July 2018, the FASB issued ASU No. 2018-10 “Codification Improvements to ASC Topic 842, Leases.” This update includes narrow amendments to clarify how to apply certain aspects of the new leases standard. The amendments address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. ASU 2018-10 does not make any substantive changes to the core provisions or principals of the new leases standard. United adopted the standard using the modified retrospective transition method on January 1, 2019. The Company evaluated and elected the package of practical expedients, which allows for existing leases to be accounted for consistent with current guidance, with the exception of the balance sheet recognition for lessees. The Company has also elected the practical expedient on not separating lease and nonlease components and instead treating them as a single lease component. Adoption of the standard resulted in the recognition of additional net lease assets and lease liabilities of $67,040 and $70,692, respectively, as of January 1, 2019. Of the difference between these two amounts, $1,049 was recorded as an adjustment to retained earnings.

2. INVESTMENT SECURITIES

Securities Available for Sale

Securities held for indefinite periods of time 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.

 

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     March 31, 2019  
            Gross      Gross      Estimated      Cumulative  
     Amortized      Unrealized      Unrealized      Fair      OTTI in  
     Cost      Gains      Losses      Value      AOCI (1)  

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

   $ 73,348      $ 281      $ 85      $ 73,544      $ 0  

State and political subdivisions

     194,595        1,802        1,585        194,812        0  

Residential mortgage-backed securities

              

Agency

     971,182        5,787        7,453        969,516        0  

Non-agency

     3,782        325        0        4,107        86  

Commercial mortgage-backed securities

              

Agency

     579,896        3,200        2,758        580,338        0  

Asset-backed securities

     272,473        25        1,821        270,677        0  

Trust preferred collateralized debt obligations

     6,176        91        250        6,017        2,586  

Single issue trust preferred securities

     18,173        174        1,506        16,841        0  

Other corporate securities

     266,385        1,920        102        268,203        0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,386,010      $ 13,605      $ 15,560      $ 2,384,055      $ 2,672  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2018  
            Gross      Gross      Estimated      Cumulative  
     Amortized      Unrealized      Unrealized      Fair      OTTI in  
     Cost      Gains      Losses      Value      AOCI (1)  

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

   $ 86,285      $ 35      $ 430      $ 85,890      $ 0  

State and political subdivisions

     212,670        439        4,121        208,988        0  

Residential mortgage-backed securities

              

Agency

     1,047,345        3,235        14,930        1,035,650        0  

Non-agency

     3,927        332        0        4,259        86  

Commercial mortgage-backed securities

              

Agency

     560,634        996        7,030        554,600        0  

Asset-backed securities

     272,459        450        939        271,970        0  

Trust preferred collateralized debt obligations

     6,176        91        350        5,917        2,586  

Single issue trust preferred securities

     8,754        169        561        8,362        0  

Other corporate securities

     162,634        118        1,349        161,403        0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,360,884      $ 5,865      $ 29,710      $ 2,337,039      $ 2,672  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Non-credit related other-than-temporary impairment in accumulated other comprehensive income. Amounts are before-tax.

The following is a summary of securities available for sale which were in an unrealized loss position at March 31, 2019 and December 31, 2018.

 

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

March 31, 2019

           

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

   $ 2,486      $ 1      $ 11,304      $ 84  

State and political subdivisions

     611        1        82,395        1,584  

Residential mortgage-backed securities

           

Agency

     16,753        22        564,012        7,431  

Non-agency

     0        0        0        0  

Commercial mortgage-backed securities

           

Agency

     44,978        51        317,211        2,707  

Asset-backed securities

     256,733        1,763        7,480        58  

Trust preferred collateralized debt obligations

     0        0        2,250        250  

Single issue trust preferred securities

     0        0        13,634        1,506  

Other corporate securities

     23,404        68        11,949        34  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 344,965      $ 1,906      $ 1,010,235      $ 13,654  
  

 

 

    

 

 

    

 

 

    

 

 

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

December 31, 2018

           

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

   $ 66,072      $ 250      $ 7,374      $ 180  

State and political subdivisions

     53,421        544        94,337        3,577  

Residential mortgage-backed securities

           

Agency

     195,009        1,597        508,041        13,333  

Non-agency

     0        0        0        0  

Commercial mortgage-backed securities

           

Agency

     107,443        1,124        294,129        5,906  

Asset-backed securities

     151,427        939        0        0  

Trust preferred collateralized debt obligations

     0        0        2,150        350  

Single issue trust preferred securities

     0        0        5,163        561  

Other corporate securities

     129,709        1,233        6,879        116  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 703,081      $ 5,687      $ 918,073      $ 24,023  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 any 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 and its subsidiaries.

 

     Three Months Ended
March  31
 
     2019      2018  

Proceeds from sales and calls

   $ 196,331      $ 99,703  

Gross realized gains

     15        1,163  

Gross realized losses

     364        1,312  

 

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At March 31, 2019, gross unrealized losses on available for sale securities were $15,560 on 456 securities of a total portfolio of 842 available for sale securities. Securities in an unrealized loss position at March 31, 2019 consisted primarily of agency commercial and residential mortgage-backed securities. The agency commercial and residential mortgage-backed securities relate to commercial and residential properties and provide a guaranty of full and timely payments of principal and interest by the issuing agency.

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.

State and political subdivisions

United’s state and political subdivisions portfolio relates to securities issued by various municipalities located throughout the United States. The total amortized cost of available for sale state and political subdivision securities was $194,595 at March 31, 2019. As of March 31, 2019, approximately 78% of the portfolio was supported by the general obligation of the issuing municipality, which allows for the securities to be repaid by any means available to the municipality. The majority of the portfolio was rated AA or higher, and less than one percent of the portfolio was rated below investment grade as of March 31, 2019. In addition to monitoring the credit ratings of these securities, management also evaluates the financial performance of the underlying issuers on an ongoing basis. Based upon management’s analysis and judgment, it was determined that none of the state and political subdivision securities were other-than-temporarily impaired at March 31, 2019.

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 $1,551,078 at March 31, 2019. Of the $1,551,078 amount, $579,896 was related to agency commercial mortgage-backed securities and $971,182 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, 2019.

Non-agency residential mortgage-backed securities

United’s non-agency residential mortgage-backed securities portfolio relates to securities of various private label issuers. The total amortized cost of available for sale non-agency residential mortgage-backed securities was $3,782 at March 31, 2019. Of the $3,782 amount, $45 was rated above investment grade and $3,737 was rated below investment grade. The entire portfolio of the non-agency residential mortgage-backed securities are either the senior or super-senior tranches of their respective structure. Based upon management’s analysis and judgment, it was determined that none of the non-agency mortgage-backed securities were other-than-temporarily impaired at March 31, 2019.

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). All single issue trust preferred securities are currently receiving interest payments. The amortized cost of available for sale single issue trust preferred securities as of March 31, 2019 consisted of $4,033 in investment grade bonds, $5,934 in split rated bonds, $2,479 in below investment grade rated bonds, and $5,727 in unrated bonds. 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 2019, it was determined that none of the single issue trust preferred securities were other-than-temporarily impaired.

 

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Trust preferred collateralized debt obligations (Trup Cdos)

The total amortized cost balance of United’s Trup Cdo portfolio was $6,176 as of March 31, 2019. For any securities in an unrealized loss position, 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, 2019, the Company has determined that it does not intend to sell any Trup Cdo 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. 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, 2019 is other-than-temporarily impaired.

Corporate securities

As of March 31, 2019, United’s Corporate securities portfolio had a total amortized cost balance of $266,385. The majority of the portfolio consisted of debt issuances of corporations representing a variety of industries, including financial institutions. Of the $266,385, 92% was investment grade rated and 8% was unrated. For corporate securities, management has evaluated the near-term prospects of the investment in relation to the severity and duration of any impairment. Based upon management’s analysis and judgment, it was determined that none of the other corporate securities were other-than-temporarily impaired at March 31, 2019.

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
 
     2019      2018  

Balance of cumulative credit losses at beginning of period

   $ 3,138      $ 18,060  

Additions for credit losses recognized in earnings during the period:

     

Additional credit losses on securities for which OTTI was previously recognized

     0        0  

Reductions for securities sold or paid off during the period

     0        (14,861
  

 

 

    

 

 

 

Balance of cumulative credit losses at end of period

   $ 3,138      $ 3,199  
  

 

 

    

 

 

 

The amortized cost and estimated fair value of securities available for sale at March 31, 2019 and December 31, 2018 by contractual maturity are shown as follows. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.

 

     March 31, 2019      December 31, 2018  
            Estimated             Estimated  
     Amortized      Fair      Amortized      Fair  
     Cost      Value      Cost      Value  

Due in one year or less

   $ 112,605      $ 112,304      $ 77,534      $ 77,266  

Due after one year through five years

     582,295        583,701        518,975        514,734  

Due after five years through ten years

     513,457        512,919        483,567        477,135  

Due after ten years

     1,177,653        1,175,131        1,280,808        1,267,904  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,386,010      $ 2,384,055      $ 2,360,884      $ 2,337,039  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Securities Held to Maturity

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

 

     March 31, 2019  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  

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

   $ 5,045      $ 58      $ 0      $ 5,103  

State and political subdivisions

     3,426        0        0        3,426  

Residential mortgage-backed securities

           

Agency

     0        0        0        0  

Single issue trust preferred securities

     0        0        0        0  

Other corporate securities

     20        0        0        20  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,491      $ 58      $ 0      $ 8,549  
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2018  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  

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

   $ 5,074      $ 90      $ 0      $ 5,164  

State and political subdivisions

     5,473        7        1        5,479  

Residential mortgage-backed securities

           

Agency

     20        2        0        22  

Single issue trust preferred securities

     9,412        0        1,442        7,970  

Other corporate securities

     20        0        0        20  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,999      $ 99      $ 1,443      $ 18,655  
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

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 2019 and 2018.

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2019 and December 31, 2018 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, 2019      December 31, 2018  
            Estimated             Estimated  
     Amortized      Fair      Amortized      Fair  
     Cost      Value      Cost      Value  

Due in one year or less

   $ 7,255      $ 7,312      $ 7,913      $ 8,005  

Due after one year through five years

     216        217        1,059        1,061  

Due after five years through ten years

     0        0        8,030        7,134  

Due after ten years

     1,020        1,020        2,997        2,455  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,491      $ 8,549      $ 19,999      $ 18,655  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Equity securities at fair value

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 fair value of United’s equity securities was $9,921 at March 31, 2019 and $9,734 at December 31, 2018.

 

     Three Months
Ended

March  31, 2019
     Three Months
Ended

March  31, 2018
 

Net gains (losses) recognized during the period

   $ 189      $ (36

Net gains (losses) recognized during the period on equity securities sold

     132        2  

Unrealized gains recognized during the period on equity securities still held at period end

     58        39  

Unrealized losses recognized during the period on equity securities still held at period end

     1        77  

Other investment securities

During the first quarter of 2019, United evaluated all of its cost method investments to determine if certain events or changes in circumstances during the first quarter of 2019 had a significant adverse effect on the fair value of any of its cost method securities. United determined that there was no individual security that experienced an adverse event during the first quarter. There were no other events or changes in circumstances during the first quarter which would have an adverse effect on the fair value of its cost method securities.

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 $1,697,239 and $1,887,176 at March 31, 2019 and December 31, 2018, respectively.

3. LOANS

Major classes of loans are as follows:

 

     March 31,
2019
     December 31,
2018
 

Commercial, financial and agricultural:

     

Owner-occupied commercial real estate

   $ 1,275,340      $ 1,291,790  

Nonowner-occupied commercial real estate

     4,266,613        4,303,613  

Other commercial loans

     1,996,482        1,957,641  
  

 

 

    

 

 

 

Total commercial, financial & agricultural

     7,538,435        7,553,044  

Residential real estate

     3,550,037        3,501,393  

Construction & land development

     1,487,453        1,410,468  

Consumer:

     

Bankcard

     9,247        10,203  

Other consumer

     993,046        954,424  
  

 

 

    

 

 

 

Total gross loans

   $ 13,578,218      $ 13,429,532  
  

 

 

    

 

 

 

The table above does not include loans held for sale of $245,763 and $249,846 at March 31, 2019 and December 31, 2018, 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 previously acquired impaired loans with a recorded investment of $144,391 or 1.06% of total gross loans at March 31, 2019 and $149,737 or 1.12% of total gross loans at December 31, 2018. The contractual principal in these acquired impaired loans was $186,540 and $195,706 at March 31, 2019 and December 31, 2018, 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.

 

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Activity for the accretable yield for the first three months of 2019 follows:

 

Accretable yield at the beginning of the period

   $  26,289  

Accretion (including cash recoveries)

     (3,052

Additions

     0  

Net reclassifications to accretable from non-accretable

     4,223  

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

     (1,471
  

 

 

 

Accretable yield at the end of the period

   $ 25,989  
  

 

 

 

United’s subsidiary bank has made loans to the directors and officers of United and its subsidiaries, and to their affiliates. The aggregate dollar amount of these loans was $90,485 and $93,282 at March 31, 2019 and December 31, 2018, respectively.

4. 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 March 31, 2019, United had TDRs of $56,778 as compared to $59,425 as of December 31, 2018. Of the $56,778 aggregate balance of TDRs at March 31, 2019, $47,459 was on nonaccrual and $265 were 90 days or more past due. Of the $59,425 aggregate balance of TDRs at December 31, 2018, $48,899 were on nonaccrual and $690 were 90 days or more 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 March 31, 2019, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At March 31, 2019, United had restructured loans in the amount of $1,846 that were modified by a reduction in the interest rate, $1,809 that were modified by a combination of a reduction in the interest rate and the principal and $53,123 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.

 

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The following table sets forth United’s troubled debt restructurings that were restructured during the three months ended March 31, 2019, segregated by class of loans. No loans were restructured during the first quarter of 2018.

 

     Troubled Debt  Restructurings
For the Three Months Ended
 
     March 31, 2019  
     Number of
Contracts
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 

Commercial real estate:

        

Owner-occupied

     0      $ 0      $ 0  

Nonowner-occupied

     0        0        0  

Other commercial

     1        265        265  

Residential real estate

     1        413        409  

Construction & land development

     0        0        0  

Consumer:

        

Bankcard

     0        0        0  

Other consumer

     0        0        0  
  

 

 

    

 

 

    

 

 

 

Total

     2      $ 678      $ 674  
  

 

 

    

 

 

    

 

 

 

During the first quarter of 2019, $265 of restructured loans were modified by a reduction in the interest rate and $409 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.

No loans restructured during the twelve-month periods ended March 31, 2019 and 2018 subsequently defaulted, resulting in a principal charge-off during the first quarters of 2019 and 2018.

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, 2019

 

 

     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

   $ 8,246      $ 16,477      $ 24,723      $ 1,250,617      $ 1,275,340      $ 0  

Nonowner-occupied

     16,642        20,073        36,715        4,229,898        4,266,613        3,433  

Other commercial

     5,292        44,467        49,759        1,946,723        1,996,482        1,238  

Residential real estate

     38,179        27,389        65,568        3,484,469        3,550,037        9,735  

Construction & land development

     5,986        17,373        23,359        1,464,094        1,487,453        861  

Consumer:

                 

Bankcard

     377        118        495        8,752        9,247        118  

Other consumer

     6,987        801        7,788        985,258        993,046        452  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 81,709      $ 126,698      $ 208,407      $ 13,369,811      $ 13,578,218      $ 15,837  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Other includes loans with a recorded investment of $144,391 acquired and accounted for under ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.

 

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Age Analysis of Past Due Loans

As of December 31, 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

   $ 9,224      $ 17,742      $ 26,966      $ 1,264,824      $ 1,291,790      $ 629  

Nonowner-occupied

     16,108        18,092        34,200        4,269,413        4,303,613        1,171  

Other commercial

     13,556        46,040        59,596        1,898,045        1,957,641        2,850  

Residential real estate

     37,111        30,278        67,389        3,434,004        3,501,393        9,141  

Construction & land development

     8,462        19,412        27,874        1,382,594        1,410,468        680  

Consumer:

                 

Bankcard

     657        177        834        9,369        10,203        177  

Other consumer

     8,909        1,243        10,152        944,272        954,424        893  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 94,027      $ 132,984      $ 227,011      $ 13,202,521      $ 13,429,532      $ 15,541  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Other includes loans with a recorded investment of $149,737 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

 

      March  31,
2019
     December 31,
2018
 

Commercial real estate:

     

Owner-occupied

   $ 16,477    $ 17,113

Nonowner-occupied

     16,640      16,921

Other commercial

     43,229      43,190

Residential real estate

     17,654      21,137

Construction & land development

     16,512      18,732

Consumer:

     

Bankcard

     0      0

Other consumer

     349      350
  

 

 

    

 

 

 

Total

   $ 110,861    $ 117,443
  

 

 

    

 

 

 

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

 

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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 March 31, 2019

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

Grade:

           

Pass

   $ 1,186,841      $ 4,143,459      $ 1,899,853      $ 1,408,268  

Special mention

     35,025        37,068        18,688        6,350  

Substandard

     53,474        86,086        77,130        72,835  

Doubtful

     0        0        811        0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,275,340      $ 4,266,613      $ 1,996,482      $ 1,487,453  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2018

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

Grade:

           

Pass

   $ 1,201,387      $ 4,161,149      $ 1,858,821      $ 1,330,899  

Special mention

     34,487        46,442        14,424        28,629  

Substandard

     55,916        96,022        81,946        50,940  

Doubtful

     0        0        2,450        0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,291,790      $ 4,303,613      $ 1,957,641      $ 1,410,468  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Credit Quality Indicators

Consumer Credit Exposure

 

As of March 31, 2019

 
     Residential
Real Estate
     Bankcard      Other
Consumer
 

Grade:

        

Pass

   $ 3,492,494      $ 8,752      $ 985,222  

Special mention

     12,234        377        6,993  

Substandard

     45,309        118        831  

Doubtful

     0        0        0  
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,550,037      $ 9,247      $ 993,046  
  

 

 

    

 

 

    

 

 

 

As of December 31, 2018

 
     Residential
Real Estate
     Bankcard      Other
Consumer
 

Grade:

        

Pass

   $ 3,436,584      $ 9,369      $ 944,241  

Special mention

     19,051        657        8,914  

Substandard

     45,758        177        1.269  

Doubtful

     0        0        0  
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,501,393      $ 10,203      $ 954,424  
  

 

 

    

 

 

    

 

 

 

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  
     March 31, 2019      December 31, 2018  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

With no related allowance recorded:

                 

Commercial real estate:

                 

Owner-occupied

   $ 68,153      $ 69,637      $ 0      $ 63,633      $ 63,798    $ 0  

Nonowner-occupied

     86,515        86,574        0        98,845      98,904      0  

Other commercial

     42,198        44,656        0        40,291      50,459      0  

Residential real estate

     29,603        29,712        0        28,207      29,279      0  

Construction & land development

     36,440        40,249        0        37,174      40,459      0  

Consumer:

                 

Bankcard

     0        0        0        0      0      0  

Other consumer

     27        27        0        27      27      0  

With an allowance recorded:

                 

Commercial real estate:

                 

Owner-occupied

   $ 5,482      $ 5,482      $ 1,485      $ 10,004    $ 10,004    $ 2,542  

Nonowner-occupied

     14,050        14,050        2,571        15,720      15,720      2,715  

Other commercial

     48,117        50,327        14,699        61,266      62,812      17,581  

Residential real estate

     16,889        19,440        3,694        19,623      22,064      3,265  

Construction & land development

     14,740        19,444        2,225        14,742      19,446      2,254  

 

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Table of Contents
     Impaired Loans  
     March 31, 2019      December 31, 2018  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

Consumer:

                 

Bankcard

     0        0        0        0      0      0

Other consumer

     0        0        0        0      0      0

Total:

                 

Commercial real estate:

                 

Owner-occupied

   $ 73,635      $ 75,119      $ 1,485      $ 73,637      $ 73,802    $ 2,542  

Nonowner-occupied

     100,565        100,624        2,571        114,565      114,624      2,715  

Other commercial

     90,315        94,983        14,699        101,557      113,271      17,581  

Residential real estate

     46,492        49,152        3,694        47,830      51,343      3,265  

Construction & land development

     51,180        59,693        2,225        51,916      59,905      2,254  

Consumer:

                 

Bankcard

     0        0        0        0      0      0  

Other consumer

     27        27        0        27      27      0  

 

     Impaired Loans  
     For the Three Months Ended  
     March 31, 2019      March 31, 2018  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

           

Commercial real estate:

           

Owner-occupied

   $ 65,893      $ 363      $ 76,947      $ 377  

Nonowner-occupied

     92,680        250        125,863        120  

Other commercial

     41,244        139        49,693        206  

Residential real estate

     28,905        182        25,437        83  

Construction & land development

     36,807        217        50,300        103  

Consumer:

           

Bankcard

     0        0        0        0  

Other consumer

     27        0        28        0  

With an allowance recorded:

           

Commercial real estate:

           

Owner-occupied

   $ 7,743      $ 6      $ 7,502      $ 25  

Nonowner-occupied

     14,885        91        8,170      59  

Other commercial

     54,692        153        54,297      19  

Residential real estate

     18,256        92        10,850      0  

Construction & land development

     14,741        20        1,699      20  

Consumer:

           

Bankcard

     0        0        0      0  

Other consumer

     0        0        0      0  

Total:

           

Commercial real estate:

           

Owner-occupied

   $ 73,636      $ 369      $ 84,449      $ 402  

Nonowner-occupied

     107,565        341        134,033      179  

Other commercial

     95,936        292        103,990      225  

Residential real estate

     47,161        274        36,287      83  

Construction & land development

     51,548        237        51,999      123  

Consumer:

           

Bankcard

     0        0        0      0  

Other consumer

     27        0        28      0  

At March 31, 2019 and December 31, 2018, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $17,465 and $16,865, 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,

 

24


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holding or disposing of the property are recorded in other expense in the period incurred. At March 31, 2019 and December 31, 2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $263 and $520, respectively.

5. ALLOWANCE FOR CREDIT LOSSES

The allowance for loan losses is management’s estimate of the probable credit losses inherent in the loan portfolio. For purposes of determining the general allowance, the loan portfolio is segregated by product type to recognize differing risk profiles among categories. It is further segregated by credit grade for non-homogenous loan pools and delinquency for homogeneous loan pools. The outstanding principal balance within each pool is multiplied by historical loss data, the loss emergence period (which is the period of time between the event that triggers a loss and the confirmation and/or charge off of that loss) and certain qualitative factors to derive the general loss allocation per pool. Specific loss allocations are calculated for commercial loans in excess of $500,000 in accordance with ASC Topic 310. Risk characteristics of owner-occupied 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.

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 charges-off 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

 

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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, 2019 and 2018, the amount of provision for loan losses related to loans acquired that have evidence of deterioration of credit quality resulted in provision for loan losses expense of $1,637 and $1,279, respectively.

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 $1,461 and $1,389 at March 31, 2019 and December 31, 2018, 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.

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 March 31, 2019

 

 

    Commercial Real Estate                 Construction          

Allowance

for

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

Allowance for Loan Losses:

               

Beginning balance

  $ 5,063     $ 6,919     $ 41,341     $ 12,448     $ 7,992     $ 2,695     $ 245   $ 76,703

Charge-offs

    3,737       0       934       441       565       737       0     6,414

Recoveries

    904       19       297       85       113       183       0     1,601

Provision

    3,934       (220     (40     930       (354     607       139       4,996
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 6,164     $ 6,718     $ 40,664     $ 13,022     $ 7,186     $ 2,748     $ 384   $ 76,886
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

  $ 1,485     $ 2,571     $ 14,699     $ 3,694     $ 2,225     $ 0     $ 0     $ 24,674  

Ending Balance: collectively evaluated for impairment

  $ 4,679     $ 4,147     $ 25,965     $ 9,328     $ 4,961     $ 2,748     $
 
 
384
 
 
  $ 52,212  

Ending Balance: loans acquired with deteriorated credit quality

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

Financing receivables:

               

Ending balance

  $ 1,275,340   $ 4,266,613   $ 1,996,482   $ 3,550,037   $ 1,487,453   $ 1,002,293   $ 0   $ 13,578,218  

Ending Balance: individually evaluated for impairment

  $ 26,820   $ 25,300   $ 60,451   $ 20,355   $ 14,740   $ 0   $ 0   $ 147,666  

Ending Balance: collectively evaluated for impairment

  $ 1,219,621   $ 4,181,511   $ 1,911,199   $ 3,518,699   $ 1,452,865   $ 1,002,266   $ 0   $
 
 
13,286,161
 
 

Ending Balance: loans acquired with deteriorated credit quality

  $ 28,899   $ 59,802   $ 24,832   $ 10,983   $ 19,848   $ 27   $ 0   $ 144,391  

 

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Table of Contents

Allowance for Loan Losses and Carrying Amount of Loans

For the Year Ended December 31, 2018

 

 

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

Allowance for Loan Losses:

               

Beginning balance

  $ 5,401     $ 6,369   $ 45,189   $ 9,927   $ 7,187   $ 2,481   $ 73   $ 76,627

Charge-offs

    3,225       314     16,424     3,162     2,731     2,750     0     28,606

Recoveries

    1,189       563       2,944     1,114     197     662     0     6,669

Provision

    1,698       301     9,632     4,569     3,339     2,302     172     22,013
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 5,063     $ 6,919   $ 41,341   $ 12,448   $ 7,992   $ 2,695   $ 245   $ 76,703
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance: individually evaluated for impairment

  $ 2,543     $ 2,715     $ 17,581     $ 3,265     $ 2,254     $ 0     $ 0     $ 28,358  

Ending Balance: collectively evaluated for impairment

  $ 2,520     $ 4,204     $ 23,760     $ 9,183     $ 5,738     $ 2,695     $ 245     $ 48,345  

Ending Balance: loans acquired with deteriorated credit quality

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

Financing receivables:

               

Ending balance

  $ 1,291,790   $ 4,303,613   $ 1,957,641   $ 3,501,393   $ 1,410,468   $ 964,627   $ 0   $ 13,429,532  

Ending Balance: individually evaluated for impairment

  $ 27,599   $ 25,231   $ 72,300   $ 21,998   $ 14,807   $ 0   $ 0   $ 161,935  

Ending Balance: collectively evaluated for impairment

  $ 1,234,919   $ 4,215,060   $ 1,860,085   $ 3,468,356   $ 1,374,840   $    964,600   $ 0   $ 13,117,860  

Ending Balance: loans acquired with deteriorated credit quality

  $ 29,272   $ 63,322   $ 25,256   $ 11,039   $ 20,821   $ 27   $ 0   $ 149,737  

 

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Table of Contents

6. INTANGIBLE ASSETS

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

 

     March 31, 2019  
     Community Banking     Mortgage Banking     Total  
     Gross
Carrying
Amount
     Accumulated
Amortization
    Gross
Carrying
Amount
     Accumulated
Amortization
    Gross
Carrying
Amount
     Accumulated
Amortization
 

Amortized intangible assets:

               

Core deposit intangible assets

   $ 98,359      ($ 64,246   $ 0      ($ 0   $ 98,359      ($ 64,246
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Non-amortized intangible assets:

               

George Mason trade name

   $ 0        $ 1,080        $ 1,080     
  

 

 

      

 

 

      

 

 

    

Goodwill not subject to amortization

   $ 1,472,699        $ 5,315        $ 1,478,014     
  

 

 

      

 

 

      

 

 

    
     December 31, 2018  
     Community Banking     Mortgage Banking     Total  
     Gross
Carrying
Amount
     Accumulated
Amortization
    Gross
Carrying
Amount
     Accumulated
Amortization
    Gross
Carrying
Amount
     Accumulated
Amortization
 

Amortized intangible assets:

               

Core deposit intangible assets

   $ 98,359      ($ 62,492   $ 0      $ 0     $ 98,359      ($ 62,492
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Non-amortized intangible assets:

               

George Mason trade name

   $ 0        $ 1,080        $ 1,080     
  

 

 

      

 

 

      

 

 

    

Goodwill not subject to amortization

   $ 1,472,699        $ 5,315        $ 1,478,014     
  

 

 

      

 

 

      

 

 

    

The following table provides a reconciliation of goodwill:

 

     Community
Banking
     Mortgage
Banking
     Total  

Goodwill at December 31, 2018

   $ 1,472,699      $ 5,315      $ 1,478,014  

Addition to goodwill

     0        0        0  
  

 

 

    

 

 

    

 

 

 

Goodwill at March 31, 2019

   $ 1,472,699      $ 5,315      $ 1,478,014  
  

 

 

    

 

 

    

 

 

 

United incurred amortization expense of $1,754 and $2,010 for the quarters ended March 31, 2019 and 2018, respectively.

 

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The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2018:

 

Year

   Amount  

2019

   $ 7,016  

2020

     6,309  

2021

     5,369  

2022

     4,581  

2023 and thereafter

     12,592  

7. LEASES

United determines if an arrangement is a lease at inception. United and certain subsidiaries have entered into various noncancelable-operating leases for branch and loan production offices as well as operating facilities. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Consolidated Balance Sheets. Operating leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. Presently, United does not have any finance leases.

United’s operating leases are subject to renewal options under various terms. United’s operating leases have remaining terms of 1 to 14 years, some of which include options to extend leases generally for periods of 5 years. United rents or subleases certain real estate to third parties. Our sublease portfolio consists of operating leases to other organizations for former branch offices.

ROU assets represent United’s right to use an underlying asset for the lease term and lease liabilities represent United’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of United’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend the lease when it is reasonably certain that United will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The components of lease expense were as follows:

 

           Three Months Ended  
    Classification      March 31, 2019  

Operating lease cost

    Net occupancy expense              $ 4,821  

Sublease income

    Net occupancy expense        (276
    

 

 

 

Net lease cost

     $ 4,545  
    

 

 

 

Supplemental balance sheet information related to leases was as follows:

 

    Classification    March 31, 2019  

Operating lease right-of-use assets

  Operating lease right-of-use assets    $ 63,119  

Operating lease liabilities

  Operating lease liabilities    $ 66,871  

Other information related to leases was as follows:

 

     March 31, 2019  

Weighted-average remaining lease term:

  

Operating leases

     5.1 years  

Weighted-average discount rate:

  

Operating leases

     3.29

 

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Table of Contents

Supplemental cash flow information related to leases was as follows:

 

     Three Months Ended  
     March 31, 2019  

Cash paid for amounts in the measurement of lease liabilities:

  

Operating cash flows from operating leases

   $ 4,718  

ROU assets obtained in the exchange for lease liabilties

     202  

Maturities of lease liabilities by year and in the aggregate, under operating leases with initial or remaining terms of one year or more, for years subsequent to December 31, 2018, consists of the following as of March 31, 2019 and December 31, 2018:

 

     Amount  

Year

   As of
March 31, 2019
     As of
December 31, 2018
 

2019

   $ 14,049      $ 18,590  

2020

     16,402        16,359  

2021

     13,894        13,850  

2022

     10,313        10,269  

2023

     7,644        7,600  

Thereafter

     10,654        10,640  

Total lease payments

     72,956        77,308  
  

 

 

    

 

 

 

Less: imputed interest

     (6,085      (0
  

 

 

    

 

 

 

Total

   $ 66,871      $ 77,308  
  

 

 

    

 

 

 

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 $230,000. 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, 2019, United did not have any federal funds purchased while total securities sold under agreements to repurchase (REPOs) were $127,821. 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, 2019, United had no outstanding balance under this line of credit.

9. LONG-TERM BORROWINGS    

United’s subsidiary bank is a member 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, 2019, United had an unused borrowing amount of approximately $3,696,123 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, 2019, $1,603,615 of FHLB advances with a weighted-average interest rate of 2.41% are scheduled to mature within the next six years.

 

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Table of Contents

The scheduled maturities of these FHLB borrowings are as follows:

 

Year

   Amount  

2019

   $ 1,227,181  

2020

     41,745  

2021

     302,581  

2022

     20,873  

2023 and thereafter

     11,235  
  

 

 

 

Total

   $ 1,603,615  
  

 

 

 

At March 31, 2019, United had a total of fourteen 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, 2019 and December 31, 2018, the outstanding balance of the Debentures was $235,220 and $234,905, 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 accordance with the fully-phased in “Basel III Capital Rules” as published by United’s primary federal regulator, the Federal Reserve, United is unable to consider the Capital Securities as Tier 1 capital, but rather the Capital Securities are included as a component of United’s Tier 2 capital. United can include the Capital Securities in its Tier 2 capital on a permanent basis.

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 $4,041,076 and $3,826,370 of loan commitments outstanding as of March 31, 2019 and December 31, 2018, respectively, the majority of which contractually expire within one year. Included in the March 31, 2019 amount are commitments to extend credit of $422,953 related to George Mason’s mortgage loan funding commitments and are of a short-term nature.

 

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Table of Contents

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, 2019, United had $5,092 of commercial letters of credit outstanding. As of December 31, 2018, United had no outstanding commercial letters of credit. A standby letter of credit is generally contingent upon the 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 $131,536 and $141,032 as of March 31, 2019 and December 31, 2018, 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.

George Mason provides for its estimated exposure to repurchase loans previously sold to investors for which borrowers failed to provide full and accurate information on their loan application or for which appraisals have not been acceptable or where the loan was not underwritten in accordance with the loan program specified by the loan investor, and for other exposure to its investors related to loan sales activities. United evaluates the merits of each claim and estimates its reserve based on actual and expected claims received and considers the historical amounts paid to settle such claims. George Mason has a reserve of $636 as of March 31, 2019.

United has derivative counter-party risk that may arise from the possible inability of George Mason’s third party investors to meet the terms of their forward sales contracts. George Mason works with third-party investors that are generally well-capitalized, are investment grade and exhibit strong financial performance to mitigate this risk. United does not expect any third-party investor to fail to meet its obligation.

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 aid against adverse price changes 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 ASC Topic 815 which requires 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.

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

 

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Table of Contents

adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are recorded in income in the same period and in the same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). 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 recorded as a component of other comprehensive income, net of deferred taxes, and reclassified to earnings when the hedged transaction affects earnings.    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.

United through George Mason enters into interest rate lock commitments to finance residential mortgage loans with its customers. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by United. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Market risk on interest rate lock commitments and mortgage loans held for sale is managed using corresponding forward mortgage loan sales contracts. United is a party to these forward mortgage loan sales contracts to sell loans servicing released and short sales of mortgage-backed securities. When the interest rate is locked with the borrower, the rate lock commitment, forward sale agreement, and mortgage-backed security position are undesignated derivatives and marked to fair value through earnings. The fair value of the rate lock derivative includes the servicing premium and the interest spread for the difference between retail and wholesale mortgage rates. Income from mortgage banking activities includes the gain recognized for the period presented and associated elements of fair value.

United sells mortgage loans on either a best efforts or mandatory delivery basis. For loans sold on a mandatory delivery basis, United enters into forward mortgage-backed securities (the “residual hedge”) to mitigate the effect of interest rate risk. Both the rate lock commitment under mandatory delivery and the residual hedge are recorded at fair value through earnings and are not designated as accounting hedges. At the closing of the loan, the loan commitment derivative expires and United records a loan held for sale at fair value and continues to mark these assets to market under the election of fair value option. United closes out of the trading mortgage-backed securities assigned within the residual hedge and replaces the securities with a forward sales contract once a price has been accepted by an investor and recorded at fair value. For those loans selected to be sold under best efforts delivery, at the closing of the loan, the rate lock commitment derivative expires and the Company records a loan held for sale at fair value under the election of fair value option and continues to be obligated under the same forward loan sales contract entered into at inception of the rate lock commitment.

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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Table of Contents

The following tables disclose the derivative instruments’ location on the Company’s Consolidated Balance Sheets and the notional amount and fair value of those instruments at March 31, 2019 and December 31, 2018.

 

     Asset Derivatives  
     March 31, 2019      December 31, 2018  
     Balance
Sheet
Location
     Notional
Amount
     Fair
Value
     Balance
Sheet
Location
     Notional
Amount
     Fair
Value
 

Derivatives designated as hedging instruments Fair Value Hedges:

                 

Interest rate swap contracts (hedging commercial loans)

     Other assets      $ 67,961      $ 431        Other assets      $ 85,623      $ 1,859  
     

 

 

    

 

 

       

 

 

    

 

 

 

Total derivatives designated as hedging instruments

      $ 67,961      $ 431         $ 85,623      $ 1,859  
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivatives not designated as hedging instruments

                 

Interest rate swap contracts

     Other assets      $ 0      $ 0        Other assets      $ 0      $ 0  

Forward loan sales commitments

     Other assets        24,608        380        Other assets        21,604        542  

Interest rate lock commitments

     Other assets        181,585        6,684        Other assets        93,955        4,103  
     

 

 

    

 

 

       

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

      $ 206,193      $ 7,064         $ 115,559      $ 4,645  
     

 

 

    

 

 

       

 

 

    

 

 

 

Total asset derivatives

      $ 274,154      $ 7,495         $ 201,182      $ 6,504  
     

 

 

    

 

 

       

 

 

    

 

 

 
     Liability Derivatives  
     March 31, 2019      December 31, 2018  
     Balance
Sheet
Location
     Notional
Amount
     Fair
Value
     Balance
Sheet
Location
     Notional
Amount
     Fair
Value
 

Derivatives designated as hedging instruments Fair Value Hedges:

                 

Interest rate swap contracts (hedging commercial loans)

     Other liabilities      $ 17,494      $ 146        Other liabilities      $ 0      $ 0  
     

 

 

    

 

 

       

 

 

    

 

 

 

Total derivatives designated as hedging instruments

      $ 17,494      $ 146         $ 0      $ 0  
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivatives not designated as hedging instruments

                 

Interest rate swap contracts

     Other liabilities      $ 0      $ 0        Other liabilities      $ 0      $ 0  

TBA mortgage-backed securities

     Other liabilities        250,510        2,515        Other liabilities        200,281        3,002  

Interest rate lock commitments

     Other liabilities        0        0        Other liabilities        0        0  
     

 

 

    

 

 

       

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

      $ 250,510      $ 2,515         $ 200,281      $ 3,002  
     

 

 

    

 

 

       

 

 

    

 

 

 

Total liability derivatives

      $ 268,004      $ 2,661         $ 200,281      $ 3,002  
     

 

 

    

 

 

       

 

 

    

 

 

 

The following table represents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value accounting relationship as of March 31, 2019.

 

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Table of Contents

Derivatives in Fair Value

Hedging Relationships

   Location in the Statement
of Condition
   March 31, 2019  
   Carrying Amount
of the Hedged
Assets/(Liabilities)
     Cumulative Amount
of Fair Value
Hedging Adjustment
Included in the
Carrying Amount of
the Hedged
Assets/(Liabilities)
     Cumulative Amount  of
Fair Value Hedging
Adjustment Remaining
for any Hedged Assets/
(Liabilities) for which
Hedge Accounting has
been Discontinued
 

Interest rate swaps

   Loans, net of unearned
income
   $ 84,574      $ 285      $ 0  

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 its unaudited Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 are presented as follows:

 

          Three Months Ended  
    

Income Statement

Location

   March 31,
2019
    March 31,
2018
 

Derivatives in hedging relationships Fair Value Hedges:

       

Interest rate swap contracts

   Interest and fees on loans    $ (30   $ (42
     

 

 

   

 

 

 

Total derivatives in hedging relationships

      $ (30   $ (42
     

 

 

   

 

 

 

Derivatives not designated as hedging instruments

       

Forward loan sales commitments

   Income from Mortgage Banking Activities    $ 380     $ 73  

TBA mortgage-backed securities

   Income from Mortgage Banking Activities      488       (450

Interest rate lock commitments

   Income from Mortgage Banking Activities      2,037       (1,269
     

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

      $ 2,905     $ (1,646
     

 

 

   

 

 

 

Total derivatives

      $ 2,875     $ (1,688
     

 

 

   

 

 

 

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.

 

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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 prices, inputs and model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

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 and equity securities: Securities available for sale and equity securities 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 assump