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, 2018 and 2017 and for the three-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2017 has been extracted from the audited financial statements included
in Uniteds 2017 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 2017 Annual Report of United on Form
10-K.
To conform to the 2018 presentation, certain reclassifications have been made to prior period amounts, which had no impact on net income, comprehensive income, or stockholders equity. In the opinion of
management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.
The accompanying consolidated interim financial statements include the accounts of United and its wholly owned subsidiaries. United 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 February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments
Overall (Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. ASU
2018-03
clarifies that entities that use the measurement
alternative for equity securities without readily determinable fair values can change its measurement approach to fair value. This election is irrevocable and will apply to all future purchases of identical or similar investments of the same issuer.
The amended guidance also clarifies that adjustments made under the measurement alternative should reflect the fair value of the security as of the date that an observable transaction took place rather than the current reporting date. Entities will
use the prospective transition approach only for securities they elect to measure using the measurement alternative. ASU
No. 2018-03
is effective for interim and annual reporting periods beginning after
December 15, 2017; early adoption is permitted. ASU
No. 2018-03
did not have a material impact on the Companys financial condition or results of operations.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income, to help organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act (the Tax Act). This ASU provides financial statement preparers with
an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded. The amendments are
effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption
or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. United adopted ASU
No. 2018-02
in the first
quarter of 2018 and reclassified $6,353 of stranded income tax effected amounts in AOCI to retained earnings.
10
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 entitys risk
management activities by better aligning the entitys financial reporting for hedging relationships with those risk management activities and reduce the complexity and simplify the application of hedge accounting by preparers. ASU
No. 2017-12
is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. ASU
No. 2017-12
is not
expected to have a material impact on the Companys financial condition or results of operations.
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
is not expected to have a material impact
on the Companys financial condition or results of operations.
In May 2017, the FASB issued ASU
No. 2017-09,
Stock Compensation, Scope of Modification Accounting. This ASU clarifies when changes to the terms of conditions of a share-based payment award must be accounted for as
modifications. Companies will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. The new guidance should reduce diversity in practice and result in fewer changes to the terms of an
award being accounted for as modifications, as the guidance will allow companies to make certain
non-substantive
changes to awards without accounting for them as modifications. It does not change the
accounting for modifications. ASU
No. 2017-09
is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASU
No. 2017-09
did not have a material impact on the Companys financial condition or results of operations.
In March 2017, the FASB issued ASU
2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU
2017-07
amends ASC 715, Compensation - Retirement Benefits and will change how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit
cost in the income statement. Employers will present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the
service cost component will be eligible for capitalization in assets. Employers will present the other components of the net periodic benefit cost separately from the line item that includes the service cost and outside of any subtotal of operating
income, if one is presented. These components will not be eligible for capitalization in assets. ASU
2017-07
was effective for United on January 1, 2018. The adoption of ASU
2017-07
had a slight change in presentation but did not materially impact the Companys financial condition or results of operations. United used amounts previously disclosed in its Employee Benefits Plan
footnote (Note 14) to retrospectively adjust prior period amounts of employee compensation and employee benefits within Uniteds Consolidated Statements of Income.
In January 2017, the FASB issued ASU
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 units 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 Companys
financial condition or results of operations.
11
In January 2017, the FASB issued ASU
2017-01,
Business
Combinations (Topic 805): Clarifying the Definition of a Business. ASU
2017-01
changes the definition of a business to assist entities with evaluation when a set of transferred assets and activities is a
business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The guidance also requires a business
to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASU
2017-01
was effective for United on January 1,
2018 and did not have a material impact on the Companys financial condition or results of operations.
In August 2016, the FASB issued
ASU
2016-15,
Classification of Certain Cash Receipts and Cash Payments. ASU
2016-15
amends ASC topic 230 to add and clarify guidance on the classification of
certain cash receipts and payments in the statement of cash flows as a result of diversity in practice and in certain circumstances, financial statement restatements. Entities should apply ASU
2016-15
using a
retrospective transition method to each period presented. ASU
2016-15
was effective for United on January 1, 2018 and did not have a material impact on the Companys financial condition or results of
operations.
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments Credit
Losses. ASU
2016-13
changes the impairment model for most financial assets and certain other instruments that arent measured at fair value through net income. The standard will replace todays
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
2016-13
also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standards 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
2016-13
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 Companys financial condition or results of operations.
In March 2016, the
FASB issued ASU
2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU
2016-09
will change
certain aspects of accounting for share-based payments to employees. The new guidance will, amongst other things, require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The requirement
to report those income tax effects in earnings was applied to settlements occurring on or after January 1, 2017 and the impact of applying that guidance reduced reporting income tax expense by $1,048 for the year of 2017. ASU
2016-09
also allows an employer to repurchase more of an employees shares than it could previously for tax withholding purposes without triggering liability accounting and make a policy election to account for
forfeitures as they occur. The Company will continue to estimate the number of awards expected to be forfeited and adjust the estimate when it is no longer probable that the employee will fulfill the service condition, as was previously required.
ASU
2016-09
also requires that all income
tax-related
cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows.
Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the
awards vesting period. The adoption of ASU
2016-09
did not have a material impact on the Companys financial condition or results of operations.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842). ASU
2016-02
includes a lessee accounting model that recognizes two types of leases, finance leases and operating leases, while lessor accounting will remain largely unchanged from the current GAAP. ASU
2016-02
requires, amongst other things, that a lessee recognize on the balance sheet a
right-of-use
asset and a lease liability for
leases, which has not yet been quantified, with terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a
12
lease by a lessee will depend on its classification as a finance or operating lease. ASU
2016-02
is effective for United on January 1, 2019. The
Company is currently assessing the impact of the adoption of ASU
2016-02
on the Companys results of operations, financial position and cash flows. Significant implementation matters being addressed by
the Company include gathering, documenting and analyzing all leases to assess the impact on accounting and disclosures, evaluating and implementing a third-party lease accounting software solution, assessing the impact to its internal controls over
financial reporting, and documenting the new lease accounting process.
In January 2016, the FASB issued ASU
2016-01,
Financial Instruments Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU
2016-01
makes changes to the
classification and measurement of investments in equity securities, the presentation of certain fair value changes for financial liabilities measured at fair value under the fair value option and disclosure of fair value of instruments. In addition,
ASU
2016-01
clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on
available-for-sale
debt securities. ASU
2016-01
was adopted by United on January 1, 2018 and did not have a significant impact on the Companys financial
condition or results of operations.
In May 2014, the FASB issued ASU
2014-09,
Revenue from
Contracts with Customers (Topic 606). ASU
2014-09
supersedes the revenue recognition requirements in ASC topic 605, Revenue Recognition, and most industry-specific guidance throughout the
ASC. The amendments require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.
The new revenue recognition standard sets forth a five-step principle-based approach for determining revenue recognition. For United, revenue is comprised of net interest income and noninterest income. As the standard does not apply to revenue
associated with financial instruments, net interest income, gains and losses from securities, income from bank-owned life insurance (BOLI) and income from mortgage banking activities are not impacted by the standard. Based on a review and evaluation
of a number of revenue contracts, Uniteds management determined that ASU
2014-09
impacts certain recurring revenue streams related to noninterest income such as fees from trust and brokerage services.
However, based on an assessment of these revenue streams under the standard, management concluded that ASU
2014-09
does not have a material impact on the Companys financial condition or results of
operations. In addition, in the Companys evaluation of the nature of its contracts with customers, United has determined that further disaggregation of revenue from contracts with customers into more granular categories beyond those presented
in the Consolidated Statements of Income was not necessary. ASU
2014-09
was adopted by United on January 1, 2018 using the modified-retrospective transition method. No cumulative effect adjustment was
made to the opening balance of retained earnings because the amount was considered immaterial. The impact of ASU
2014-09
for the first three months of 2018 were also immaterial to Uniteds consolidated
financial position, results of operations, shareholders equity, cash flows and disclosures.
Descriptions of our revenue-generating
activities that are within the scope of ASC topic 606, which are presented in our Consolidated Statements of Income as components of Other Income are discussed below. There are no significant judgements relating to the amount and timing of revenue
recognition for those revenue streams under the scope of ASC topic 606.
Fees from Trust Services
Revenue from trust services primarily is comprised of fees earned from the management and administration of trusts and other customer assets. Trust
services include custody of assets, investment management, escrow services, and similar fiduciary activities. The Companys performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the
month-end
market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers accounts.
13
Fees from Brokerage Services
Revenue from brokerage services are recorded as the income is earned at the time the related service is performed. In return for such services, the Company charges a commission for the sales of various
securities products primarily consisting of investment company shares, annuity products, and corporate debt and equity securities, for its selling and administrative efforts. For account supervision, advisory, and administrative services, revenue is
recognized over a period of time as earned based on customer account balances and activity.
Fees from Deposit Services
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly
service fees, check orders, ATM activity fees, debit card fees, and other deposit account related fees. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a
transaction has been completed (ATM or debit card activity).
Bankcard Fees and Merchant Discounts
Bankcard fees and merchant discounts are primarily comprised of credit card income and merchant services income. Credit card income is primarily comprised
of interchange fees earned whenever the Companys credit cards are processed through card payment networks such as Visa. Merchant services income mainly represents fees charged to merchants to process their credit card transactions. The
Companys performance obligation for bankcard fees and exchange are largely satisfied, and related revenue recognized at the time services are rendered. Payment is typically received immediately or in the following month.
2. MERGERS AND ACQUISITIONS
Cardinal
Financial Corporation
On April 21, 2017 (Cardinal Acquisition Date), United acquired 100% of the outstanding common stock of Cardinal
Financial Corporation (Cardinal), headquartered in Tysons Corner, Virginia. The acquisition of Cardinal expands Uniteds existing footprint in the Washington, D.C. Metropolitan Statistical Area. At consummation, Cardinal had assets of
$4,136,008, loans of $3,313,033 and deposits of $3,344,740. Cardinal also operated George Mason Mortgage, LLC (George Mason), a residential mortgage lending company based in Fairfax, Virginia with offices located in Virginia, Maryland, North
Carolina, South Carolina and the District of Columbia. As a result of the merger, George Mason became an indirectly-owned subsidiary of United.
The merger was accounted for under the acquisition method of accounting. The results of operations of Cardinal are included in the consolidated results
of operations from the Cardinal Acquisition Date.
The aggregate purchase price was approximately $975,254, including common stock valued at
$972,499, stock options assumed valued at $2,741, and cash paid for fractional shares of $14. The number of shares issued in the transaction was 23,690,589, which were valued based on the closing market price of $41.05 for Uniteds common
shares on April 21, 2017. The preliminary purchase price has been allocated to the identifiable tangible and intangible assets resulting in preliminary additions to goodwill, core deposit intangibles and the George Mason trade name intangible
of $613,486, $28,724 and $1,080, respectively. The core deposit intangibles are expected to be amortized over ten years. The George Mason trade name provides a source of market recognition to attract potential clients and retain existing
relationships. United believes the George Mason trade name provides a competitive advantage and is likely going to be used into perpetuity and thus will not be subject to amortization, but rather be evaluated for impairment.
Because the consideration paid was greater than the net fair value of the acquired assets and liabilities, the Company recorded goodwill as part of the
acquisition. None of the goodwill from the Cardinal acquisition is expected to be
14
deductible for tax purposes. United used an independent third party to help determine the fair values of the assets and liabilities acquired from Cardinal. As a result of the merger, United
recorded preliminary fair value discounts of $144,434 on the loans acquired, $2,281 on leases and $8,738 on trust preferred issuances, respectively, and premiums of $4,408 on land acquired, $5,072 on interest-bearing deposits and $10,740 on
long-term FHLB advances, respectively. The remaining discount and premium amounts are being accreted or amortized on an accelerated or straight-line basis over each assets or liabilitys estimated remaining life at the time of acquisition
except for loans and land. The discount on loans will be accreted into income based on the effective yield method. The premium on land will not be amortized. At March 31, 2018, the discounts on leases and trust preferred issuances had an
average estimated remaining life of 5.5 years and 16.47 years, respectively, and the premiums on the interest-bearing deposits and the FHLB advances each had an average estimated remaining life of 4.5 years and 4.31 years, respectively. United
assumed approximately $1,825 of liabilities to provide severance benefits to terminated employees of Cardinal, which has no remaining balance as of March 31, 2018. The estimated fair values of the acquired assets and assumed liabilities,
including identifiable intangible assets and goodwill are preliminary as of March 31, 2018 and are subject to refinement as additional information relative to closing date fair values becomes available. Any subsequent adjustments to the fair
values of acquired assets and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill within the measurement period following the date of acquisition.
In many cases, determining the estimated fair value of the acquired assets and assumed liabilities required United to estimate cash flows expected to
result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations related to the fair value of acquired loans. The fair value of the acquired loans was based on
the present value of the expected cash flows. Periodic principal and interest cash flows were adjusted for expected losses and prepayments, then discounted to determine the present value and summed to arrive at the estimated fair value. For such
loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows
expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry-over of Cardinals previously established allowance for loan losses.
The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC topic
310-30
(acquired impaired) and loans that do not meet this criteria, which are accounted for under ASC topic
310-20
(acquired performing). Acquired impaired loans have
experienced a deterioration of credit quality from origination to acquisition for which it is probable that United will be unable to collect all contractually required payments receivable, including both principal and interest. Subsequent decreases
in the expected cash flows require United to evaluate the need for additions to the Companys allowance for credit losses. Subsequent improvements in expected cash flows generally result in the recognition of additional interest income over the
then remaining lives of the loans.
In conjunction with the Cardinal merger, the acquired loan portfolio was accounted for at fair value as
follows:
|
|
|
|
|
|
|
April 21, 2017
|
|
Contractually required principal and interest at acquisition
|
|
$
|
4,211,734
|
|
Contractual cash flows not expected to be collected
|
|
|
(56,176
|
)
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
4,155,558
|
|
Interest component of expected cash flows
|
|
|
(986,959
|
)
|
|
|
|
|
|
Basis in acquired loans at acquisition estimated fair value
|
|
$
|
3,168,599
|
|
|
|
|
|
|
Included in the above table is information related to acquired impaired loans. Specifically, contractually required
principal and interest, cash flows expected to be collected and estimated fair value of acquired impaired loans were $132,837, $108,275, and $86,696, respectively.
15
The consideration paid for Cardinals common equity and the preliminary amounts of acquired
identifiable assets and liabilities assumed as of the Cardinal Acquisition Date were as follows:
|
|
|
|
|
Purchase price:
|
|
|
|
|
Value of common shares issued (23,690,589 shares)
|
|
$
|
972,499
|
|
Fair value of stock options assumed
|
|
|
2,741
|
|
Cash for fractional shares
|
|
|
14
|
|
|
|
|
|
|
Total purchase price
|
|
|
975,254
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
44,545
|
|
Investment securities
|
|
|
395,829
|
|
Loans held for sale
|
|
|
271,301
|
|
Loans
|
|
|
3,168,599
|
|
Premises and equipment
|
|
|
24,208
|
|
Core deposit intangibles
|
|
|
28,724
|
|
George Mason trade name intangible
|
|
|
1,080
|
|
Other assets
|
|
|
135,383
|
|
|
|
|
|
|
Total identifiable assets
|
|
$
|
4,069,669
|
|
Identifiable liabilities:
|
|
|
|
|
Deposits
|
|
$
|
3,349,812
|
|
Short-term borrowings
|
|
|
96,215
|
|
Long-term borrowings
|
|
|
220,119
|
|
Unfavorable lease liability
|
|
|
2,281
|
|
Other liabilities
|
|
|
39,474
|
|
|
|
|
|
|
Total identifiable liabilities
|
|
|
3,707,901
|
|
|
|
|
|
|
Preliminary fair value of net assets acquired including identifiable intangible assets
|
|
|
361,768
|
|
|
|
|
|
|
Preliminary resulting goodwill
|
|
$
|
613,486
|
|
|
|
|
|
|
The operating results of United for the three months ended March 31, 2018 include operating results of acquired
assets and assumed liabilities subsequent to the Cardinal Acquisition Date. The operations of Uniteds metropolitan Washington D.C. geographic area, which primarily includes the acquired operations of Cardinal, provided $340,632 in total
revenues, which represents net interest income plus other income, and $157,852 in net income from the period from the Cardinal Acquisition Date to March 31, 2018. Cardinals results of operations prior to the Cardinal Acquisition Date are
not included in Uniteds consolidated financial statements.
The following table presents certain unaudited pro forma information for the
results of operations for the three months ended March 31, 2017, as if the Cardinal merger had occurred on January 1, 2017. These results combine the historical results of Cardinal into Uniteds consolidated statement of income and,
while certain adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on the indicated date nor
are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of Cardinals provision for credit losses for the three months ended March 31, 2017 that
may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2017. Additionally, United expects to achieve operating cost savings and other business synergies as a result of the acquisition which are not
reflected in the pro forma amounts.
|
|
|
|
|
|
|
Proforma
Three Months Ended
March 31, 2017
|
|
Total Revenues
(1)
|
|
$
|
191,052
|
|
Net Income
|
|
|
54,710
|
|
(1)
|
Represents net interest income plus other income
|
16
3. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 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
|
|
$
|
163,718
|
|
|
$
|
237
|
|
|
$
|
849
|
|
|
$
|
163,106
|
|
|
$
|
0
|
|
State and political subdivisions
|
|
|
297,481
|
|
|
|
1,300
|
|
|
|
5,069
|
|
|
|
293,712
|
|
|
|
0
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
934,557
|
|
|
|
993
|
|
|
|
20,003
|
|
|
|
915,547
|
|
|
|
0
|
|
Non-agency
|
|
|
4,665
|
|
|
|
501
|
|
|
|
0
|
|
|
|
5,166
|
|
|
|
86
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
485,851
|
|
|
|
281
|
|
|
|
9,353
|
|
|
|
476,779
|
|
|
|
0
|
|
Asset-backed securities
|
|
|
146,774
|
|
|
|
285
|
|
|
|
475
|
|
|
|
146,584
|
|
|
|
0
|
|
Trust preferred collateralized debt obligations
|
|
|
9,192
|
|
|
|
0
|
|
|
|
1,128
|
|
|
|
8,064
|
|
|
|
2,586
|
|
Single issue trust preferred securities
|
|
|
13,433
|
|
|
|
327
|
|
|
|
614
|
|
|
|
13,146
|
|
|
|
0
|
|
Other corporate securities
|
|
|
63,400
|
|
|
|
337
|
|
|
|
730
|
|
|
|
63,007
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,119,071
|
|
|
$
|
4,261
|
|
|
$
|
38,221
|
|
|
$
|
2,085,111
|
|
|
$
|
2,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
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
|
|
$
|
114,735
|
|
|
$
|
385
|
|
|
$
|
362
|
|
|
$
|
114,758
|
|
|
$
|
0
|
|
State and political subdivisions
|
|
|
303,101
|
|
|
|
3,197
|
|
|
|
2,429
|
|
|
|
303,869
|
|
|
|
0
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
821,857
|
|
|
|
2,096
|
|
|
|
9,360
|
|
|
|
814,593
|
|
|
|
0
|
|
Non-agency
|
|
|
4,969
|
|
|
|
543
|
|
|
|
0
|
|
|
|
5,512
|
|
|
|
86
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
457,107
|
|
|
|
1,059
|
|
|
|
3,309
|
|
|
|
454,857
|
|
|
|
0
|
|
Asset-backed securities
|
|
|
109,829
|
|
|
|
148
|
|
|
|
7
|
|
|
|
109,970
|
|
|
|
0
|
|
Trust preferred collateralized debt obligations
|
|
|
37,856
|
|
|
|
542
|
|
|
|
4,129
|
|
|
|
34,269
|
|
|
|
20,770
|
|
Single issue trust preferred securities
|
|
|
13,417
|
|
|
|
368
|
|
|
|
1,225
|
|
|
|
12,560
|
|
|
|
0
|
|
Other corporate securities
|
|
|
28,101
|
|
|
|
407
|
|
|
|
18
|
|
|
|
28,490
|
|
|
|
0
|
|
Marketable equity securities
|
|
|
9,712
|
|
|
|
179
|
|
|
|
13
|
|
|
|
9,878
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,900,684
|
|
|
$
|
8,924
|
|
|
$
|
20,852
|
|
|
$
|
1,888,756
|
|
|
$
|
20,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Non-credit
related other-than-temporary impairment in accumulated other comprehensive income. Amounts are
before-tax.
|
17
The following is a summary of securities
available-for-sale
which were in an unrealized loss position at March 31, 2018 and December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
|
|
$
|
65,919
|
|
|
$
|
722
|
|
|
$
|
22,751
|
|
|
$
|
127
|
|
State and political subdivisions
|
|
|
137,221
|
|
|
|
1,584
|
|
|
|
55,674
|
|
|
|
3,485
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
682,082
|
|
|
|
13,128
|
|
|
|
172,052
|
|
|
|
6,875
|
|
Non-agency
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
391,087
|
|
|
|
7,961
|
|
|
|
60,595
|
|
|
|
1,392
|
|
Asset-backed securities
|
|
|
56,833
|
|
|
|
475
|
|
|
|
0
|
|
|
|
0
|
|
Trust preferred collateralized debt obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
5,049
|
|
|
|
1,128
|
|
Single issue trust preferred securities
|
|
|
0
|
|
|
|
0
|
|
|
|
5,100
|
|
|
|
614
|
|
Other corporate securities
|
|
|
41,634
|
|
|
|
730
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,374,776
|
|
|
$
|
24,600
|
|
|
$
|
321,221
|
|
|
$
|
13,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
|
|
$
|
36,678
|
|
|
$
|
230
|
|
|
$
|
22,920
|
|
|
$
|
132
|
|
State and political subdivisions
|
|
|
82,896
|
|
|
|
566
|
|
|
|
59,432
|
|
|
|
1,863
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
460,414
|
|
|
|
4,621
|
|
|
|
182,482
|
|
|
|
4,739
|
|
Non-agency
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
282,858
|
|
|
|
2,386
|
|
|
|
70,763
|
|
|
|
923
|
|
Asset-backed securities
|
|
|
27,931
|
|
|
|
7
|
|
|
|
0
|
|
|
|
0
|
|
Trust preferred collateralized debt obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
28,629
|
|
|
|
4,129
|
|
Single issue trust preferred securities
|
|
|
0
|
|
|
|
0
|
|
|
|
4,485
|
|
|
|
1,225
|
|
Other corporate securities
|
|
|
6,975
|
|
|
|
18
|
|
|
|
0
|
|
|
|
0
|
|
Marketable equity securities
|
|
|
0
|
|
|
|
0
|
|
|
|
363
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
897,752
|
|
|
$
|
7,828
|
|
|
$
|
369,074
|
|
|
$
|
13,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the proceeds from maturities, sales and calls of available for sale securities and the gross
realized gains and losses on sales and calls of those securities that have been included in earnings as a result of those sales and calls. Gains or losses on sales and calls of available for sale securities were recognized by the specific
identification method. The realized losses relate to sales of securities within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.
18
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March
31
|
|
|
|
2018
|
|
|
2017
|
|
Proceeds from sales and calls
|
|
$
|
99,703
|
|
|
$
|
98,798
|
|
Gross realized gains
|
|
|
1,163
|
|
|
|
214
|
|
Gross realized losses
|
|
|
1,312
|
|
|
|
0
|
|
At March 31, 2018, gross unrealized losses on available for sale securities were $38,221 on 635 securities of a
total portfolio of 870 available for sale securities. Securities in an unrealized loss position at March 31, 2018 consisted primarily of trust preferred collateralized debt obligations (Trup Cdos), single issue trust preferred securities, state
and political subdivision securities, and agency commercial and residential mortgage-backed securities. The Trup Cdos and the single issue trust preferred securities relate to securities of financial institutions. The state and political
subdivisions securities relate to securities issued by various municipalities. 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 Uniteds 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
Uniteds 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 $297,481 at March 31, 2018. As of March 31, 2018, approximately 77% 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, 2018. 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 managements analysis and judgment, it was
determined that none of the state and political subdivision securities were other-than-temporarily impaired at March 31, 2018.
Agency
mortgage-backed securities
Uniteds 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 $1,420,408 at March 31, 2018. Of the $1,420,408 amount, $485,851 was related to agency commercial mortgage-backed securities and $934,557
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 managements analysis and
judgment, it was determined that none of the agency mortgage-backed securities were other-than-temporarily impaired at March 31, 2018.
Non-agency
residential mortgage-backed securities
Uniteds
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 $4,665 at March 31, 2018. Of the $4,665 amount, $473 thousand was rated above investment grade and $4,192 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 managements
analysis and judgment, it was determined that none of the
non-agency
mortgage-backed securities were other-than-temporarily impaired at March 31, 2018.
19
Single issue trust preferred securities
The majority of Uniteds single issue trust preferred portfolio consists of obligations from large cap banks (i.e. banks with market capitalization in excess of $10 billion). Management reviews each
issuers current and projected earnings trends, asset quality, capitalization levels, and other key factors. Upon completing the review for the first quarter of 2018, it was determined that none of the single issue trust preferred securities
were other-than-temporarily impaired. 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, 2018 consisted of
$7,719 in investment grade bonds and $5,714 in unrated bonds. The investment grade bonds were rated either Baa3 or
BBB-.
All of the unrated bonds were in an unrealized loss position for twelve months or longer
as of March 31, 2018.
Trust preferred collateralized debt obligations (Trup Cdos)
The total amortized cost balance of Uniteds Trup Cdo portfolio was $9,192 as of March 31, 2018. Compared to the prior quarter, the total
amortized cost balance declined by $28,664 due mainly to the sale of seven securities totaling $25,315, and the redemption of one security at par in the amount of $3,300. Of the remaining $9,192, one additional security totaling $3,016 was redeemed
at par on April 3, 2018.
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, 2018, 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 managements 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, 2018 is other-than-temporarily
impaired.
Corporate securities
As of March 31, 2018, Uniteds Corporate securities portfolio had a total amortized cost balance of $63,400. The majority of the portfolio consisted of debt issuances of corporations
representing a variety of industries, including financial institutions. Of the $63,400, 67% was investment grade rated and 33% 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 and based on that evaluation, management determined that no corporate securities were other-than-temporarily impaired at March 31, 2018.
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
|
|
|
|
2018
|
|
|
2017
|
|
Balance of cumulative credit losses at beginning of period
|
|
$
|
18,060
|
|
|
$
|
22,162
|
|
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
|
|
|
(14,861
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Balance of cumulative credit losses at end of period
|
|
$
|
3,199
|
|
|
$
|
22,162
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of securities available for sale at March 31, 2018 and December 31,
2017 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.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Due in one year or less
|
|
$
|
52,863
|
|
|
$
|
52,753
|
|
|
$
|
50,311
|
|
|
$
|
50,212
|
|
Due after one year through five years
|
|
|
476,361
|
|
|
|
471,410
|
|
|
|
386,039
|
|
|
|
384,585
|
|
Due after five years through ten years
|
|
|
445,861
|
|
|
|
436,757
|
|
|
|
400,129
|
|
|
|
398,208
|
|
Due after ten years
|
|
|
1,143,986
|
|
|
|
1,124,191
|
|
|
|
1,054,493
|
|
|
|
1,045,873
|
|
Marketable equity securities
|
|
|
0
|
|
|
|
0
|
|
|
|
9,712
|
|
|
|
9,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,119,071
|
|
|
$
|
2,085,111
|
|
|
$
|
1,900,684
|
|
|
$
|
1,888,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
The amortized cost and estimated fair values of securities held to maturity are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 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
|
|
$
|
5,160
|
|
|
$
|
241
|
|
|
$
|
0
|
|
|
$
|
5,401
|
|
State and political subdivisions
|
|
|
5,797
|
|
|
|
9
|
|
|
|
0
|
|
|
|
5,806
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
23
|
|
|
|
3
|
|
|
|
0
|
|
|
|
26
|
|
Single issue trust preferred securities
|
|
|
9,405
|
|
|
|
0
|
|
|
|
652
|
|
|
|
8,753
|
|
Other corporate securities
|
|
|
20
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,405
|
|
|
$
|
253
|
|
|
$
|
652
|
|
|
$
|
20,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
|
|
$
|
5,187
|
|
|
$
|
308
|
|
|
$
|
0
|
|
|
$
|
5,495
|
|
State and political subdivisions
|
|
|
5,797
|
|
|
|
10
|
|
|
|
0
|
|
|
|
5,807
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
23
|
|
|
|
3
|
|
|
|
0
|
|
|
|
26
|
|
Single issue trust preferred securities
|
|
|
9,401
|
|
|
|
0
|
|
|
|
731
|
|
|
|
8,670
|
|
Other corporate securities
|
|
|
20
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,428
|
|
|
$
|
321
|
|
|
$
|
731
|
|
|
$
|
20,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Even though the market value of the
held-to-maturity
investment portfolio is less than its cost, the unrealized loss has no impact on the net worth or regulatory capital requirements of United. As of
March 31, 2018, the Companys largest
held-to-maturity
single-issue trust preferred exposure was to SunTrust Bank ($7,428). The two
held-to-maturity
single-issue trust preferred exposures with at least one rating below investment grade included SunTrust Bank ($7,428) and Royal Bank of Scotland ($976).
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
2018 and 2017.
21
The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2018 and
December 31, 2017 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, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Due in one year or less
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Due after one year through five years
|
|
|
9,318
|
|
|
|
9,566
|
|
|
|
9,344
|
|
|
|
9,660
|
|
Due after five years through ten years
|
|
|
8,091
|
|
|
|
7,618
|
|
|
|
5,663
|
|
|
|
5,343
|
|
Due after ten years
|
|
|
2,996
|
|
|
|
2,822
|
|
|
|
5,421
|
|
|
|
5,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,405
|
|
|
$
|
20,006
|
|
|
$
|
20,428
|
|
|
$
|
20,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Uniteds equity securities was $11,160 at March 31, 2018. Prior to March 31, 2018 and the adoption of ASU 2016-01, equity securities were included in available for sale securities.
|
|
|
|
|
|
|
Three Months
Ended
March
31, 2018
|
|
Net gains (losses) recognized during the period
|
|
$
|
(36
|
)
|
Net gains (losses) recognized during the period on equity securities sold
|
|
|
2
|
|
Unrealized gains recognized during the period on equity securities still held at period end
|
|
|
39
|
|
Unrealized losses recognized during the period on equity securities still held at period end
|
|
|
77
|
|
Other investment securities
During the first quarter of 2018, United evaluated all of its cost method investments to determine if certain events or changes in circumstances during the first quarter of 2018 had a significant adverse
effect on the fair value of any of its cost method securities. United determined that there was one security that experienced an adverse event during the first quarter. Total impairment of $300 was recognized on this security. With the
exception of this one security, 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 $1,612,649 and $1,403,565 at March 31, 2018 and December 31, 2017, respectively.
22
4. LOANS
Major classes of loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Commercial, financial and agricultural:
|
|
|
|
|
|
|
|
|
Owner-occupied commercial real estate
|
|
$
|
1,366,980
|
|
|
$
|
1,361,629
|
|
Nonowner-occupied commercial real estate
|
|
|
4,426,776
|
|
|
|
4,451,298
|
|
Other commercial loans
|
|
|
1,952,322
|
|
|
|
1,998,979
|
|
|
|
|
|
|
|
|
|
|
Total commercial, financial & agricultural
|
|
|
7,746,078
|
|
|
|
7,811,906
|
|
Residential real estate
|
|
|
3,065,990
|
|
|
|
2,996,171
|
|
Construction & land development
|
|
|
1,433,125
|
|
|
|
1,504,907
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
9,372
|
|
|
|
10,314
|
|
Other consumer
|
|
|
743,870
|
|
|
|
704,039
|
|
|
|
|
|
|
|
|
|
|
Total gross loans
|
|
$
|
12,998,435
|
|
|
$
|
13,027,337
|
|
|
|
|
|
|
|
|
|
|
The table above does not include loans held for sale of $193,915 and $265,955 at March 31, 2018 and
December 31, 2017, 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 $189,675 or 1.46% of total gross loans at March 31, 2018 and $210,521 or 1.62% of
total gross loans at December 31, 2017. The contractual principal in these acquired impaired loans was $253,827 and $285,964 at March 31, 2018 and December 31, 2017, respectively. The balances above do not include future accretable
net interest (i.e. the difference between the undiscounted expected cash flows and the recorded investment in the loan) on the acquired impaired loans.
Activity for the accretable yield for the first three months of 2018 follows:
|
|
|
|
|
Accretable yield at the beginning of the period
|
|
$
|
39,098
|
|
Accretion (including cash recoveries)
|
|
|
(4,053
|
)
|
Additions
|
|
|
0
|
|
Net reclassifications to accretable from
non-accretable
|
|
|
4,493
|
|
Disposals (including maturities, foreclosures, and charge-offs)
|
|
|
(1,948
|
)
|
|
|
|
|
|
Accretable yield at the end of the period
|
|
$
|
37,590
|
|
|
|
|
|
|
Uniteds 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 $35,777 and $36,360 at March 31, 2018 and December 31, 2017, respectively.
5. CREDIT QUALITY
Management monitors
the credit quality of its loans on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.
For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is
placed on nonaccrual status. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. However, regardless of delinquency status, if a loan
is fully secured and in the 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
23
income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. Uniteds 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, 2018, United had TDRs of $48,271 as compared to $50,129 as of December 31, 2017. Of the $48,271 aggregate balance of TDRs at March 31, 2018, $33,592 was on nonaccrual and $85 were 30 to 89 days past due. Of the
$50,129 aggregate balance of TDRs at December 31, 2017, $30,868 was on nonaccrual, $95 were 90 days or more past due and $1,254 were 30 to 89 days past due. All these amounts are included in the appropriate categories in the Age Analysis
of Past Due Loans table on a subsequent page. As of March 31, 2018, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At March 31, 2018, United had restructured
loans in the amount of $1,760 that were modified by a reduction in the interest rate, $1,891 that were modified by a combination of a reduction in the interest rate and the principal and $44,620 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.
No loans were restructured during the first quarter of 2018. The following table sets forth Uniteds troubled debt restructurings that were restructured during the three months ended March 31,
2017, segregated by class of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
|
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
|
|
|
4
|
|
|
|
2,752
|
|
|
|
2,741
|
|
Residential real estate
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Construction & land development
|
|
|
1
|
|
|
|
1,456
|
|
|
|
1,450
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
$
|
4,208
|
|
|
$
|
4,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2017, $4,191 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 Uniteds allowance for loan losses. The modifications had an immaterial impact on the financial condition and results of operations for United.
24
No loans restructured during the twelve-month periods ended March 31, 2018 and 2017 subsequently
defaulted, resulting in a principal
charge-off
during the first quarters of 2018 and 2017.
The
following table sets forth Uniteds age analysis of its past due loans, segregated by class of loans:
Age Analysis of Past Due Loans
As of March 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
|
|
$
|
13,303
|
|
|
$
|
18,862
|
|
|
$
|
32,165
|
|
|
$
|
1,334,815
|
|
|
$
|
1,366,980
|
|
|
$
|
847
|
|
Nonowner-occupied
|
|
|
7,248
|
|
|
|
19,294
|
|
|
|
26,542
|
|
|
|
4,400,234
|
|
|
|
4,426,776
|
|
|
|
139
|
|
Other commercial
|
|
|
35,269
|
|
|
|
59,412
|
|
|
|
94,681
|
|
|
|
1,857,641
|
|
|
|
1,952,322
|
|
|
|
962
|
|
Residential real estate
|
|
|
30,344
|
|
|
|
25,641
|
|
|
|
55,985
|
|
|
|
3,010,005
|
|
|
|
3,065,990
|
|
|
|
6,027
|
|
Construction & land development
|
|
|
3,138
|
|
|
|
18,403
|
|
|
|
21,541
|
|
|
|
1,411,584
|
|
|
|
1,433,125
|
|
|
|
152
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
185
|
|
|
|
121
|
|
|
|
306
|
|
|
|
9,066
|
|
|
|
9,372
|
|
|
|
121
|
|
Other consumer
|
|
|
6,417
|
|
|
|
1,196
|
|
|
|
7,613
|
|
|
|
736,257
|
|
|
|
743,870
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
95,904
|
|
|
$
|
142,929
|
|
|
$
|
238,833
|
|
|
$
|
12,759,602
|
|
|
$
|
12,998,435
|
|
|
$
|
9,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other includes loans with a recorded investment of $189,675 acquired and accounted for under ASC topic
310-30
Loans and
Debt Securities Acquired with Deteriorated Credit Quality.
|
Age Analysis of Past Due Loans
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89
Days
Past Due
|
|
|
90 Days or
more
Past
Due
|
|
|
Total Past
Due
|
|
|
Current &
Other (1)
|
|
|
Total
Financing
Receivables
|
|
|
Recorded
Investment
>90
Days
& Accruing
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
7,968
|
|
|
$
|
13,663
|
|
|
$
|
21,631
|
|
|
$
|
1,339,998
|
|
|
$
|
1,361,629
|
|
|
$
|
458
|
|
Nonowner-occupied
|
|
|
10,398
|
|
|
|
20,448
|
|
|
|
30,846
|
|
|
|
4,420,452
|
|
|
|
4,451,298
|
|
|
|
634
|
|
Other commercial
|
|
|
11,533
|
|
|
|
68,476
|
|
|
|
80,009
|
|
|
|
1,918,970
|
|
|
|
1,998,979
|
|
|
|
940
|
|
Residential real estate
|
|
|
35,300
|
|
|
|
28,637
|
|
|
|
63,937
|
|
|
|
2,932,234
|
|
|
|
2,996,171
|
|
|
|
6,519
|
|
Construction & land development
|
|
|
1,615
|
|
|
|
17,190
|
|
|
|
18,805
|
|
|
|
1,486,102
|
|
|
|
1,504,907
|
|
|
|
385
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
449
|
|
|
|
186
|
|
|
|
635
|
|
|
|
9,679
|
|
|
|
10,314
|
|
|
|
186
|
|
Other consumer
|
|
|
9,288
|
|
|
|
968
|
|
|
|
10,256
|
|
|
|
693,783
|
|
|
|
704,039
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,551
|
|
|
$
|
149,568
|
|
|
$
|
226,119
|
|
|
$
|
12,801,218
|
|
|
$
|
13,027,337
|
|
|
$
|
9,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other includes loans with a recorded investment of $210,521 acquired and accounted for under ASC topic
310-30
Loans and
Debt Securities Acquired with Deteriorated Credit Quality.
|
25
The following table sets forth Uniteds nonaccrual loans, segregated by class of loans:
Loans on Nonaccrual Status
|
|
|
|
|
|
|
|
|
|
|
March
31,
2018
|
|
|
December 31,
2017
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
18,015
|
|
|
$
|
13,205
|
|
Nonowner-occupied
|
|
|
19,155
|
|
|
|
19,814
|
|
Other commercial
|
|
|
58,450
|
|
|
|
67,536
|
|
Residential real estate
|
|
|
19,614
|
|
|
|
22,118
|
|
Construction & land development
|
|
|
18,251
|
|
|
|
16,805
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
279
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,764
|
|
|
$
|
139,671
|
|
|
|
|
|
|
|
|
|
|
United assigns credit quality indicators of pass, special mention, substandard and doubtful to its loans. For
Uniteds 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 loans
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 managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Companys credit position
at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse
economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending
litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. For loans with a consumer credit exposure, loans that are past due
30-89
days are generally considered special mention.
A substandard loan with a corporate credit
exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by
the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. Substandard loans are generally characterized by
current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full
collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard.
A loan with corporate credit exposure is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added
characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of
specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending
events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, there are not any loans with a consumer credit exposure that are
classified as doubtful. Usually, they are
charged-off
prior to such a classification. Loans classified as doubtful are also considered impaired.
26
The following tables set forth Uniteds credit quality indicators information, by class of loans:
Credit Quality Indicators
Corporate Credit Exposure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
|
Commercial Real Estate
|
|
|
Other
Commercial
|
|
|
Construction
&
Land
Development
|
|
|
|
Owner-
occupied
|
|
|
Nonowner-
occupied
|
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,291,287
|
|
|
$
|
4,250,743
|
|
|
$
|
1,820,513
|
|
|
$
|
1,349,638
|
|
Special mention
|
|
|
14,448
|
|
|
|
72,997
|
|
|
|
51,165
|
|
|
|
3,779
|
|
Substandard
|
|
|
61,245
|
|
|
|
103,036
|
|
|
|
77,848
|
|
|
|
79,708
|
|
Doubtful
|
|
|
0
|
|
|
|
0
|
|
|
|
2,796
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,366,980
|
|
|
$
|
4,426,776
|
|
|
$
|
1,952,322
|
|
|
$
|
1,433,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2017
|
|
|
|
Commercial Real Estate
|
|
|
Other
Commercial
|
|
|
Construction
&
Land
Development
|
|
|
|
Owner-
occupied
|
|
|
Nonowner-
occupied
|
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,276,088
|
|
|
$
|
4,312,985
|
|
|
$
|
1,848,868
|
|
|
$
|
1,413,706
|
|
Special mention
|
|
|
20,165
|
|
|
|
57,618
|
|
|
|
55,564
|
|
|
|
5,196
|
|
Substandard
|
|
|
65,376
|
|
|
|
80,695
|
|
|
|
90,625
|
|
|
|
86,005
|
|
Doubtful
|
|
|
0
|
|
|
|
0
|
|
|
|
3,922
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,361,629
|
|
|
$
|
4,451,298
|
|
|
$
|
1,998,979
|
|
|
$
|
1,504,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators
Consumer Credit Exposure
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
|
Residential
Real Estate
|
|
|
Bankcard
|
|
|
Other
Consumer
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
3,011,824
|
|
|
$
|
9,066
|
|
|
$
|
736,184
|
|
Special mention
|
|
|
20,738
|
|
|
|
185
|
|
|
|
6,460
|
|
Substandard
|
|
|
33,428
|
|
|
|
121
|
|
|
|
1,226
|
|
Doubtful
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,065,990
|
|
|
$
|
9,372
|
|
|
$
|
743,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
Residential
Real Estate
|
|
|
Bankcard
|
|
|
Other
Consumer
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
2,945,266
|
|
|
$
|
9,679
|
|
|
$
|
693,727
|
|
Special mention
|
|
|
18,025
|
|
|
|
449
|
|
|
|
9,334
|
|
Substandard
|
|
|
32,880
|
|
|
|
186
|
|
|
|
978
|
|
Doubtful
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,996,171
|
|
|
$
|
10,314
|
|
|
$
|
704,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans are designated as impaired when, in the opinion of management, based on current information and events, the
collection of principal and interest in accordance with the loan contract is doubtful. Typically, United does not consider loans for impairment unless a sustained period of delinquency (i.e. 90 days or more) is noted or there are subsequent events
that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent
27
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 Uniteds
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 Uniteds impaired loans information, by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
75,776
|
|
|
$
|
75,941
|
|
|
$
|
0
|
|
|
$
|
78,117
|
|
|
$
|
78,419
|
|
|
$
|
0
|
|
Nonowner-occupied
|
|
|
117,589
|
|
|
|
117,648
|
|
|
|
0
|
|
|
|
134,136
|
|
|
|
134,195
|
|
|
|
0
|
|
Other commercial
|
|
|
52,394
|
|
|
|
54,953
|
|
|
|
0
|
|
|
|
46,993
|
|
|
|
49,552
|
|
|
|
0
|
|
Residential real estate
|
|
|
24,125
|
|
|
|
24,787
|
|
|
|
0
|
|
|
|
26,751
|
|
|
|
28,202
|
|
|
|
0
|
|
Construction & land development
|
|
|
48,320
|
|
|
|
53,084
|
|
|
|
0
|
|
|
|
52,279
|
|
|
|
59,691
|
|
|
|
0
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
42
|
|
|
|
42
|
|
|
|
0
|
|
|
|
15
|
|
|
|
15
|
|
|
|
0
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
5,873
|
|
|
$
|
5,873
|
|
|
$
|
1,075
|
|
|
$
|
9,132
|
|
|
$
|
9,132
|
|
|
$
|
2,251
|
|
Nonowner-occupied
|
|
|
8,543
|
|
|
|
8,543
|
|
|
|
1,471
|
|
|
|
7,797
|
|
|
|
7,797
|
|
|
|
1,592
|
|
Other commercial
|
|
|
48,082
|
|
|
|
55,905
|
|
|
|
16,180
|
|
|
|
60,512
|
|
|
|
70,396
|
|
|
|
16,721
|
|
Residential real estate
|
|
|
11,887
|
|
|
|
13,438
|
|
|
|
1,742
|
|
|
|
9,813
|
|
|
|
10,418
|
|
|
|
1,552
|
|
Construction & land development
|
|
|
2,015
|
|
|
|
4,664
|
|
|
|
217
|
|
|
|
1,383
|
|
|
|
1,383
|
|
|
|
229
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
81,649
|
|
|
$
|
81,814
|
|
|
$
|
1,075
|
|
|
$
|
87,249
|
|
|
$
|
87,551
|
|
|
$
|
2,251
|
|
Nonowner-occupied
|
|
|
126,132
|
|
|
|
126,191
|
|
|
|
1,471
|
|
|
|
141,933
|
|
|
|
141,992
|
|
|
|
1,592
|
|
Other commercial
|
|
|
100,476
|
|
|
|
110,858
|
|
|
|
16,180
|
|
|
|
107,505
|
|
|
|
119,948
|
|
|
|
16,721
|
|
Residential real estate
|
|
|
36,012
|
|
|
|
38,225
|
|
|
|
1,742
|
|
|
|
36,564
|
|
|
|
38,620
|
|
|
|
1,552
|
|
Construction & land development
|
|
|
50,335
|
|
|
|
57,748
|
|
|
|
217
|
|
|
|
53,662
|
|
|
|
61,074
|
|
|
|
229
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
42
|
|
|
|
42
|
|
|
|
0
|
|
|
|
15
|
|
|
|
15
|
|
|
|
0
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
76,947
|
|
|
$
|
377
|
|
|
$
|
55,857
|
|
|
$
|
421
|
|
Nonowner-occupied
|
|
|
125,863
|
|
|
|
120
|
|
|
|
82,528
|
|
|
|
117
|
|
Other commercial
|
|
|
49,693
|
|
|
|
206
|
|
|
|
49,286
|
|
|
|
220
|
|
Residential real estate
|
|
|
25,437
|
|
|
|
83
|
|
|
|
21,814
|
|
|
|
41
|
|
Construction & land development
|
|
|
50,300
|
|
|
|
103
|
|
|
|
35,949
|
|
|
|
76
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
28
|
|
|
|
0
|
|
|
|
36
|
|
|
|
0
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
7,502
|
|
|
$
|
25
|
|
|
$
|
7,663
|
|
|
$
|
137
|
|
Nonowner-occupied
|
|
|
8,170
|
|
|
|
59
|
|
|
|
16,096
|
|
|
|
83
|
|
Other commercial
|
|
|
54,297
|
|
|
|
19
|
|
|
|
58,824
|
|
|
|
370
|
|
Residential real estate
|
|
|
10,850
|
|
|
|
0
|
|
|
|
13,113
|
|
|
|
8
|
|
Construction & land development
|
|
|
1,699
|
|
|
|
20
|
|
|
|
4,161
|
|
|
|
21
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
84,449
|
|
|
$
|
402
|
|
|
$
|
63,520
|
|
|
$
|
558
|
|
Nonowner-occupied
|
|
|
134,033
|
|
|
|
179
|
|
|
|
98,624
|
|
|
|
200
|
|
Other commercial
|
|
|
103,990
|
|
|
|
225
|
|
|
|
108,110
|
|
|
|
590
|
|
Residential real estate
|
|
|
36,287
|
|
|
|
83
|
|
|
|
34,927
|
|
|
|
49
|
|
Construction & land development
|
|
|
51,999
|
|
|
|
123
|
|
|
|
40,110
|
|
|
|
97
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankcard
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other consumer
|
|
|
28
|
|
|
|
0
|
|
|
|
36
|
|
|
|
0
|
|
At March 31, 2018 and December 31, 2017, other real estate owned (OREO)
included in other assets in the Consolidated Balance Sheets was $22,778 and $24,348, respectively. OREO consists of real estate acquired in foreclosure or
other settlement of loans. Such assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Any adjustment to the fair value at the date of transfer is charged against the allowance
for loan losses. Any subsequent valuation adjustments as well as any costs relating to operating, holding or disposing of the property are recorded in other expense in the period incurred. At March 31, 2018 and December 31, 2017, the
recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $377 and $873, respectively.
6. ALLOWANCE FOR CREDIT LOSSES
The allowance for loan losses is managements 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 borrowers internal cash flow
from operations to service debt.
29
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 borrowers 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 payments receivable are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at
acquisition and the investment in the loan, or the accretable yield, is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the
undiscounted cash flows expected at acquisition, or the nonaccretable difference, are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial
investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred
after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received). For the three months ended March 31, 2018 and 2017, the
re-estimation
of
the expected cash flows related to loans acquired that have evidence of deterioration of credit quality resulted in provision for loan losses expense of $1,279 and $367, 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 $755 and
$679 at March 31, 2018 and December 31, 2017, 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.
30
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, 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
|
|
|
1,015
|
|
|
|
0
|
|
|
|
2,868
|
|
|
|
910
|
|
|
|
460
|
|
|
|
605
|
|
|
|
0
|
|
|
|
5,858
|
|
Recoveries
|
|
|
55
|
|
|
|
136
|
|
|
|
106
|
|
|
|
264
|
|
|
|
2
|
|
|
|
143
|
|
|
|
0
|
|
|
|
706
|
|
Provision
|
|
|
(722
|
)
|
|
|
269
|
|
|
|
4,490
|
|
|
|
972
|
|
|
|
(300
|
)
|
|
|
372
|
|
|
|
97
|
|
|
|
5,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,719
|
|
|
$
|
6,774
|
|
|
$
|
46,917
|
|
|
$
|
10,253
|
|
|
$
|
6,429
|
|
|
$
|
2,391
|
|
|
$
|
170
|
|
|
$
|
76,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
1,075
|
|
|
$
|
1,471
|
|
|
$
|
16,180
|
|
|
$
|
1,742
|
|
|
$
|
217
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
20,685
|
|
Ending Balance: collectively evaluated for impairment
|
|
$
|
2,644
|
|
|
$
|
5,303
|
|
|
$
|
30,737
|
|
|
$
|
8,511
|
|
|
$
|
6,212
|
|
|
$
|
2,391
|
|
|
$
|
170
|
|
|
$
|
55,968
|
|
Ending Balance: loans acquired with deteriorated credit quality
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Financing receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,366,980
|
|
|
$
|
4,426,776
|
|
|
$
|
1,952,322
|
|
|
$
|
3,065,990
|
|
|
$
|
1,433,125
|
|
|
$
|
753,242
|
|
|
$
|
0
|
|
|
$
|
12,998,435
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
33,438
|
|
|
$
|
22,868
|
|
|
$
|
71,478
|
|
|
$
|
13,856
|
|
|
$
|
16,909
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
158,549
|
|
Ending Balance: collectively evaluated for impairment
|
|
$
|
1,301,725
|
|
|
$
|
4,310,587
|
|
|
$
|
1,853,603
|
|
|
$
|
3,039,123
|
|
|
$
|
1,391,948
|
|
|
$
|
753,225
|
|
|
$
|
0
|
|
|
$
|
12,650,211
|
|
Ending Balance: loans acquired with deteriorated credit quality
|
|
$
|
31,817
|
|
|
$
|
93,321
|
|
|
$
|
27,241
|
|
|
$
|
13,011
|
|
|
$
|
24,268
|
|
|
$
|
17
|
|
|
$
|
0
|
|
|
$
|
189,675
|
|
31
Allowance for Loan Losses and Carrying Amount of Loans
For the Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
5,273
|
|
|
$
|
6,883
|
|
|
$
|
33,087
|
|
|
$
|
13,770
|
|
|
$
|
10,606
|
|
|
$
|
2,805
|
|
|
$
|
347
|
|
|
$
|
72,771
|
|
Charge-offs
|
|
|
2,246
|
|
|
|
296
|
|
|
|
21,189
|
|
|
|
2,973
|
|
|
|
3,337
|
|
|
|
2,822
|
|
|
|
0
|
|
|
|
32,863
|
|
Recoveries
|
|
|
2,599
|
|
|
|
244
|
|
|
|
3,395
|
|
|
|
601
|
|
|
|
726
|
|
|
|
748
|
|
|
|
0
|
|
|
|
8,313
|
|
Provision
|
|
|
(225
|
)
|
|
|
(462
|
)
|
|
|
29,896
|
|
|
|
(1,471
|
)
|
|
|
(808
|
)
|
|
|
1,750
|
|
|
|
(274
|
)
|
|
|
28,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,401
|
|
|
$
|
6,369
|
|
|
$
|
45,189
|
|
|
$
|
9,927
|
|
|
$
|
7,187
|
|
|
$
|
2,481
|
|
|
$
|
73
|
|
|
$
|
76,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
2,251
|
|
|
$
|
1,592
|
|
|
$
|
16,721
|
|
|
$
|
1,552
|
|
|
$
|
229
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
22,345
|
|
Ending Balance: collectively evaluated for impairment
|
|
$
|
3,150
|
|
|
$
|
4,777
|
|
|
$
|
28,468
|
|
|
$
|
8,375
|
|
|
$
|
6,958
|
|
|
$
|
2,481
|
|
|
$
|
73
|
|
|
$
|
54,282
|
|
Ending Balance: loans acquired with deteriorated credit quality
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Financing receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,361,629
|
|
|
$
|
4,451,298
|
|
|
$
|
1,998,979
|
|
|
$
|
2,996,171
|
|
|
$
|
1,504,907
|
|
|
$
|
714,353
|
|
|
$
|
0
|
|
|
$
|
13,027,337
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
36,721
|
|
|
$
|
21,851
|
|
|
$
|
78,715
|
|
|
$
|
14,316
|
|
|
$
|
16,921
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
168,524
|
|
Ending Balance: collectively evaluated for impairment
|
|
$
|
1,291,379
|
|
|
$
|
4,320,997
|
|
|
$
|
1,892,706
|
|
|
$
|
2,967,666
|
|
|
$
|
1,461,206
|
|
|
$
|
714,338
|
|
|
$
|
0
|
|
|
$
|
12,648,292
|
|
Ending Balance: loans acquired with deteriorated credit quality
|
|
$
|
33,529
|
|
|
$
|
108,450
|
|
|
$
|
27,558
|
|
|
$
|
14,189
|
|
|
$
|
26,780
|
|
|
$
|
15
|
|
|
$
|
0
|
|
|
$
|
210,521
|
|
7. INTANGIBLE ASSETS
The following is a summary of intangible assets subject to amortization and those not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 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
|
|
|
($
|
56,463
|
)
|
|
$
|
0
|
|
|
($
|
0
|
)
|
|
$
|
98,359
|
|
|
($
|
56,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Mason trade name
|
|
$
|
0
|
|
|
|
|
|
|
$
|
1,080
|
|
|
|
|
|
|
$
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill not subject to amortization
|
|
$
|
1,473,265
|
|
|
|
|
|
|
$
|
5,315
|
|
|
|
|
|
|
$
|
1,478,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
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
|
|
|
($
|
54,453
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
98,359
|
|
|
($
|
54,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Mason trade name
|
|
$
|
0
|
|
|
|
|
|
|
$
|
1,080
|
|
|
|
|
|
|
$
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill not subject to amortization
|
|
$
|
1,473,265
|
|
|
|
|
|
|
$
|
5,115
|
|
|
|
|
|
|
$
|
1,478,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community
Banking
|
|
|
Mortgage
Banking
|
|
|
Total
|
|
Goodwill at December 31, 2017
|
|
$
|
1,473,265
|
|
|
$
|
5,115
|
|
|
$
|
1,478,380
|
|
Preliminary addition to goodwill from Cardinal acquisition
|
|
|
0
|
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at March 31, 2018
|
|
$
|
1,473,265
|
|
|
$
|
5,315
|
|
|
$
|
1,478,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United incurred amortization expense of $2,010 and $1,048 for the quarters ended March 31, 2018 and 2017,
respectively.
The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2017:
|
|
|
|
|
Year
|
|
Amount
|
|
2018
|
|
$
|
8,039
|
|
2019
|
|
|
7,016
|
|
2020
|
|
|
6,309
|
|
2021
|
|
|
5,369
|
|
2022 and thereafter
|
|
|
17,173
|
|
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
33
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, 2018, federal funds purchased were $17,615 while total securities sold under agreements to repurchase (REPOs) were $250,771. Included in the $250,771 of total REPOs is a wholesale REPOs of $50,000, assumed in the
Virginia Commerce merger. This wholesale REPO is scheduled to mature in May of 2018. The securities sold under agreements to repurchase were accounted for as collateralized financial transactions. They were recorded at the amounts at which the
securities were acquired or sold plus accrued interest.
United has a $20,000 line of credit with an unrelated financial institution to
provide for general liquidity needs. The line is an unsecured, revolving line of credit. The line will be renewable on a
360-day
basis and will carry an indexed, floating-rate of interest. The line requires
compliance with various financial and nonfinancial covenants. At March 31, 2018, United had no outstanding balance under this line of credit.
9. LONG-TERM BORROWINGS
Uniteds 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, 2018, United had an unused borrowing amount of approximately $4,213,640 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, 2018, $1,060,948 of FHLB advances with a weighted-average interest rate of 1.84% are
scheduled to mature within the next seven years.
The scheduled maturities of these FHLB borrowings are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
2018
|
|
$
|
746,863
|
|
2019
|
|
|
187,516
|
|
2020
|
|
|
42,013
|
|
2021
|
|
|
52,693
|
|
2022 and thereafter
|
|
|
31,863
|
|
|
|
|
|
|
Total
|
|
$
|
1,060,948
|
|
|
|
|
|
|
At March 31, 2018, 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 Uniteds payment under the Debentures is the sole source of revenue for the
trusts. At March 31, 2018 and December 31, 2017, the outstanding balance of the Debentures was $233,961 and $242,446, 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 trusts 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.
34
For reporting periods prior to June 30, 2017, the Trust Preferred Securities qualified as Tier 1
regulatory capital under the Basel III Capital Rules as published by Uniteds primary federal regulator, the Federal Reserve, in July of 2013. The Basel III Capital Rules established a new comprehensive capital framework
for U.S. banking organizations. Because United was less than $15 billion in total consolidated assets, the Basel III Capital Rules grandfathered Uniteds Trust Preferred Securities as Tier 1 capital under the limitations for restricted
capital elements in the general risk-based capital rules. As a result, beginning in 2015 (the adoption date), Uniteds Trust Preferred Securities was subject to a limit of 25 percent of Tier 1 capital elements excluding any
non-qualifying
capital instruments and after all regulatory capital deductions and adjustments applied to Tier 1 capital, which is substantially similar to the limit in the general risk-based capital rules. Trust
preferred securities no longer included in Uniteds Tier 1 capital could be included as a component of Tier 2 capital on a permanent basis without
phase-out.
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.
Uniteds 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 managements 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 managements credit evaluation of the counterparty. United had
approximately $4,001,212 and $4,224,719 of loan commitments outstanding as of March 31, 2018 and December 31, 2017, respectively, the majority of which contractually expire within one year. Included in the March 31, 2018 amount are
commitments to extend credit of $400,836 related to George Masons mortgage loan funding commitments and are of a short-term nature.
Commercial and standby letters of credit are agreements used by Uniteds 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, 2018 and December 31, 2017, 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 $142,532 and $147,017 as of March 31, 2018
and December 31, 2017, 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 $516 as of March 31, 2018.
35
United has derivative counter-party risk that may arise from the possible inability of George Masons
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
Uniteds 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 the Derivatives and Hedging topic of the FASB Accounting
Standards Codification (ASC topic 815). The Derivatives and Hedging topic require all derivative instruments to be carried at fair value on the balance sheet. United has designated certain derivative instruments used to manage interest rate risk as
hedge relationships with certain assets, liabilities or cash flows being hedged. Certain derivatives used for interest rate risk management are not designated in a hedge relationship.
Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest
rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or
liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings. For a cash flow hedge,
the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to other comprehensive income within shareholders equity, net of tax. Subsequent
adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to other comprehensive income, net of tax. The portion of a hedge that is ineffective is recognized immediately in earnings.
At inception of a hedge relationship, United formally documents the hedged item, the particular risk management objective, the nature of the risk being
hedged, the derivative being used, how effectiveness of the hedge will be assessed and how the ineffectiveness of the hedge will be measured. United also assesses hedge effectiveness at inception and on an ongoing basis using regression analysis.
Hedge ineffectiveness is measured by using the change in fair value method. The change in fair value method compares the change in the fair value of the hedging derivative to the change in the fair value of the hedged exposure, attributable to
changes in the benchmark rate. The portion of a hedge that is ineffective is recognized immediately in earnings.
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
36
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.
The following tables disclose the derivative instruments location on the Companys Consolidated Balance Sheets and the notional amount and fair value of those instruments at March 31, 2018
and December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
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
|
|
|
$
|
88,679
|
|
|
$
|
2,514
|
|
|
|
Other assets
|
|
|
$
|
71,831
|
|
|
$
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
88,679
|
|
|
$
|
2,514
|
|
|
|
|
|
|
$
|
71,831
|
|
|
$
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward loan sales commitments
|
|
|
Other assets
|
|
|
$
|
15,712
|
|
|
$
|
73
|
|
|
|
Other assets
|
|
|
$
|
31,024
|
|
|
$
|
2
|
|
Interest rate lock commitments
|
|
|
Other assets
|
|
|
|
195,330
|
|
|
|
5,610
|
|
|
|
Other assets
|
|
|
|
148,866
|
|
|
|
4,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
$
|
211,042
|
|
|
$
|
5,683
|
|
|
|
|
|
|
$
|
179,890
|
|
|
$
|
4,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
|
|
$
|
299,721
|
|
|
$
|
8,197
|
|
|
|
|
|
|
$
|
251,721
|
|
|
$
|
5,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
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
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Other liabilities
|
|
$
|
18,795
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
$
|
18,795
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA mortgage-backed securities
|
|
|
Other liabilities
|
|
|
$
|
258,000
|
|
|
$
|
762
|
|
|
Other liabilities
|
|
$
|
236,500
|
|
|
$
|
312
|
|
Interest rate lock commitments
|
|
|
Other liabilities
|
|
|
|
0
|
|
|
|
0
|
|
|
Other liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
$
|
258,000
|
|
|
$
|
762
|
|
|
|
|
$
|
236,500
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
|
|
|
|
$
|
258,000
|
|
|
$
|
762
|
|
|
|
|
$
|
255,295
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Uniteds exposure is limited to the replacement value of the contracts rather than the notional
amount of the contract. The Companys 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 Uniteds derivative financial instruments on its unaudited Consolidated Statements of Income
for the three months ended March 31, 2018 and 2017 are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Income
Statement
Location
|
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
Derivatives in hedging relationships Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
|
Interest income/(expense)
|
|
|
$
|
(42
|
)
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives in hedging relationships
|
|
|
|
|
|
$
|
(42
|
)
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward loan sales commitments
|
|
|
Income from Mortgage
Banking Activities
|
|
|
$
|
73
|
|
|
$
|
0
|
|
TBA mortgage-backed securities
|
|
|
Income from Mortgage
Banking Activities
|
|
|
|
(450
|
)
|
|
|
0
|
|
Interest rate lock commitments
|
|
|
Income from Mortgage
Banking Activities
|
|
|
|
(1,269
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
$
|
(1,646
|
)
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
(1,688
|
)
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
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 Uniteds market assumptions.
The three levels
of the fair value hierarchy, based on these two types of inputs, are as follows:
|
|
|
|
|
Level 1
|
|
-
|
|
Valuation is based on quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2
|
|
-
|
|
Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities
in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
|
|
|
|
Level 3
|
|
-
|
|
Valuation is based on 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 assumptions are derived primarily from or corroborated by observable market data. Using a market approach valuation methodology, third party
vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2). Management internally reviews the fair values provided by third
party vendors on a monthly basis. Managements review consists of comparing fair values assigned by third party vendors to trades and offerings observed by management. The review requires some degree of judgment as to the number or percentage
of securities to review on the part of management which could fluctuate based on results of past reviews and in comparison to current expectations. Exceptions that are deemed to be material are reviewed by management. Additionally, to assess the
reliability of the information received from third party vendors, management obtains documentation from third party vendors related to the sources, methodologies, and inputs utilized in valuing securities classified as Level 2.
39
Management analyzes this information to ensure the underlying assumptions appear reasonable. Management also obtains an independent service auditors report from third party vendors to
provide reasonable assurance that appropriate controls are in place over the valuation process. Upon completing its review of the pricing from third party vendors at March 31, 2018, management determined that the prices provided by its third
party pricing source were reasonable and in line with managements expectations for the market values of these securities. Therefore, prices obtained from third party vendors that did not reflect forced liquidation or distressed sales were not
adjusted by management at March 31, 2018. Management utilizes a number of factors to determine if a market is inactive, all of which may require a significant level of judgment. Factors that management considers include: a significant widening
of the
bid-ask
spread, a considerable decline in the volume and level of trading activity in the instrument, a significant variance in prices among market participants, and a significant reduction in the level
of observable inputs. Any securities available for sale not valued based upon quoted market prices or third party pricing models that consider observable market data are considered Level 3. Currently, United considers its valuation of
available-for-sale
Trup Cdos as Level 3. The Fair Value Measurements and Disclosures topic assumes that fair values of financial assets are determined in an orderly
transaction and not a forced liquidation or distressed sale at the measurement date. Based on financial market conditions, United feels that the fair values obtained from its third party vendor reflect forced liquidation or distressed sales for
these Trup Cdos due to decreased volume and trading activity. Additionally, management held discussions with institutional traders to identify trends in the number and type of transactions related to the Trup Cdos sector. Based upon
managements review of the market conditions for Trup Cdos, it was determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable
inputs is more representative of fair value than the valuation technique used by Uniteds third party vendor. The present value technique discounts expected future cash flows of a security to arrive at a present value. Management considers the
following items when calculating the appropriate discount rate: the implied rate of return when the market was last active, changes in the implied rate of return as markets moved from very active to inactive, recent changes in credit ratings, and
recent activity showing that the market has built in increased liquidity and credit premiums. Managements internal credit review of each security was also factored in to determine the appropriate discount rate. The credit review considered
each securitys collateral, subordination, excess spread, priority of claims, principal and interest
Loans held for sale
: For
residential mortgage loans sold in the mortgage banking segment, the loans closed are recorded at fair value using the fair value option which is measured using valuations from investors for loans with similar characteristics adjusted for the
Companys actual sales experience versus the investors indicated pricing. These valuations fall into the Level 3 category. The unobservable input is the Companys historical sales prices. The range of historical sales prices
increased the investors indicated pricing by a range of 0.19% to 0.68% with a weighted average increase of 0.36%.
Derivatives
:
United utilizes interest rate swaps to hedge exposure to interest rate risk and variability of cash flows associated to changes in the underlying interest rate of the hedged item. These hedging interest rate swaps are classified as either a fair
value hedge or a cash flow hedge. Uniteds derivative portfolio also includes derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps used for interest rate management purposes and
derivatives executed with commercial banking customers to facilitate their interest rate management strategies. United utilizes third-party vendors for derivative valuation purposes. These vendors determine the appropriate fair value based on a net
present value calculation of the cash flows related to the interest rate swaps using primarily observable market inputs such as interest rate yield curves (Level 2). Valuation adjustments to derivative fair values for liquidity and credit risk are
also taken into consideration, as well as the likelihood of default by United and derivative counterparties, the net counterparty exposure and the remaining maturities of the positions. Values obtained from third party vendors are typically not
adjusted by management. Management internally reviews the derivative values provided by third party vendors on a quarterly basis. All derivative values are tested for reasonableness by management utilizing a net present value calculation.
40
For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as
either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period
earnings either in interest income or interest expense depending on the nature of the hedged financial instrument. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or
liability with a corresponding adjustment to other comprehensive income within shareholders equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to other
comprehensive income, net of tax. The portion of a hedge that is ineffective is recognized immediately in earnings.
The Company records its
interest rate lock commitments and forward loan sales commitments at fair value determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business,
George Mason enters into contractual interest rate lock commitments to extend credit to borrowers with fixed expiration dates. The commitments become effective when the borrowers
lock-in
a
specified interest rate within the timeframes established by the mortgage companies. All borrowers are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of
the interest rate lock by the borrower and the sale date of the loan to the investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, George Mason enters into either a forward sales contract
to sell loans to investors when using best efforts or a TBA mortgage-backed security under mandatory delivery. As TBA mortgage-backed securities are actively traded in an open market, TBA mortgage-backed securities fall into a Level 1 category.
The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. Under the Companys best efforts model, the rate lock commitments to borrowers and the forward sales contracts
to investors through to the date the loan closes are undesignated derivatives and accordingly, are marked to fair value through earnings. These valuations fall into a Level 2 category. For residential mortgage loans sold in the mortgage banking
segment, the interest rate lock commitments are recorded at fair value which is measured using valuations from investors for loans with similar characteristics adjusted for the Companys actual sales experience versus the investors
indicated pricing. These valuations fall into the Level 3 category. The unobservable input is the Companys historical sales prices. The range of historical sales prices increased the investors indicated pricing by a range of 0.19%
to 0.68% with a weighted average increase of 0.36%.
For interest rate swap derivatives that are not designated in a hedge relationship,
changes in the fair value of the derivatives are recognized in earnings in the same period as the change in the fair value. Unrealized gains and losses due to changes in the fair value of other derivative financial instruments not in hedge
relationship are included in noninterest income and noninterest expense, respectively.
The following tables present the balances of financial
assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at March 31, 2018 Using
|
|
Description
|
|
Balance as of
March
31,
2018
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
|
|
$
|
163,106
|
|
|
$
|
0
|
|
|
$
|
163,106
|
|
|
$
|
0
|
|
State and political subdivisions
|
|
|
293,712
|
|
|
|
0
|
|
|
|
293,712
|
|
|
|
0
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at March 31, 2018 Using
|
|
Description
|
|
Balance as of
March
31,
2018
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Agency
|
|
|
915,547
|
|
|
|
0
|
|
|
|
915,547
|
|
|
|
0
|
|
Non-agency
|
|
|
5,166
|
|
|
|
0
|
|
|
|
5,166
|
|
|
|
0
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
476,779
|
|
|
|
0
|
|
|
|
476,779
|
|
|
|
0
|
|
Asset-backed securities
|
|
|
146,584
|
|
|
|
0
|
|
|
|
146,584
|
|
|
|
0
|
|
Trust preferred collateralized debt obligations
|
|
|
8,064
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,064
|
|
Single issue trust preferred securities
|
|
|
13,146
|
|
|
|
0
|
|
|
|
13,146
|
|
|
|
0
|
|
Other corporate securities
|
|
|
63,007
|
|
|
|
7,036
|
|
|
|
55,971
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities
|
|
|
2,085,111
|
|
|
|
7,036
|
|
|
|
2,070,011
|
|
|
|
8,064
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry
|
|
|
485
|
|
|
|
485
|
|
|
|
0
|
|
|
|
0
|
|
Equity mutual funds (1)
|
|
|
6,007
|
|
|
|
6,007
|
|
|
|
0
|
|
|
|
0
|
|
Other equity securities
|
|
|
4,668
|
|
|
|
4,668
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
11,160
|
|
|
|
11,160
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
192,673
|
|
|
|
0
|
|
|
|
0
|
|
|
|
192,673
|
|
Derivative financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
|
2,514
|
|
|
|
0
|
|
|
|
2,514
|
|
|
|
0
|
|
Forward sales commitments
|
|
|
73
|
|
|
|
0
|
|
|
|
73
|
|
|
|
0
|
|
Interest rate lock commitments
|
|
|
5,610
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial assets
|
|
|
8,197
|
|
|
|
0
|
|
|
|
2,587
|
|
|
|
5,610
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA mortgage-backed securities
|
|
|
762
|
|
|
|
0
|
|
|
|
762
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial liabilities
|
|
|
762
|
|
|
|
0
|
|
|
|
762
|
|
|
|
0
|
|
(1)
|
The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2017 Using
|
|
Description
|
|
Balance as of
December
31,
2017
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
|
|
$
|
114,758
|
|
|
$
|
0
|
|
|
$
|
114,758
|
|
|
$
|
0
|
|
State and political subdivisions
|
|
|
303,869
|
|
|
|
0
|
|
|
|
303,869
|
|
|
|
0
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
814,593
|
|
|
|
0
|
|
|
|
814,593
|
|
|
|
0
|
|
Non-agency
|
|
|
5,512
|
|
|
|
0
|
|
|
|
5,512
|
|
|
|
0
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
454,857
|
|
|
|
0
|
|
|
|
454,857
|
|
|
|
0
|
|
Asset-backed securities
|
|
|
109,970
|
|
|
|
0
|
|
|
|
109,970
|
|
|
|
0
|
|
Trust preferred collateralized debt obligations
|
|
|
34,269
|
|
|
|
0
|
|
|
|
0
|
|
|
|
34,269
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2017 Using
|
|
Description
|
|
Balance as of
December
31,
2017
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Single issue trust preferred securities
|
|
|
12,560
|
|
|
|
0
|
|
|
|
12,560
|
|
|
|
0
|
|
Other corporate securities
|
|
|
28,490
|
|
|
|
0
|
|
|
|
28,490
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale debt securities
|
|
|
1,878,878
|
|
|
|
0
|
|
|
|
1,844,609
|
|
|
|
34,269
|
|
Available for sale equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry
|
|
|
3,545
|
|
|
|
331
|
|
|
|
3,214
|
|
|
|
0
|
|
Equity mutual funds (1)
|
|
|
6,332
|
|
|
|
6,332
|
|
|
|
0
|
|
|
|
0
|
|
Other equity securities
|
|
|
1
|
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale equity securities
|
|
|
9,878
|
|
|
|
6,664
|
|
|
|
3,214
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities
|
|
|
1,888,756
|
|
|
|
6,664
|
|
|
|
1,847,823
|
|
|
|
34,269
|
|
Loans held for sale
|
|
|
263,308
|
|
|
|
0
|
|
|
|
0
|
|
|
|
263,308
|
|
Derivative financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
|
538
|
|
|
|
0
|
|
|
|
538
|
|
|
|
0
|
|
Interest rate lock commitments
|
|
|
4,561
|
|
|
|
0
|
|
|
|
2
|
|
|
|
4,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial assets
|
|
|
5,099
|
|
|
|
0
|
|
|
|
540
|
|
|
|
4,559
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
|
165
|
|
|
|
0
|
|
|
|
165
|
|
|
|
0
|
|
TBA mortgage-backed securities
|
|
|
312
|
|
|
|
0
|
|
|
|
312
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial liabilities
|
|
|
477
|
|
|
|
0
|
|
|
|
477
|
|
|
|
0
|
|
(1)
|
The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.
|
There were no transfers between Level 1 and Level 2 for financial assets and liabilities measured at fair value on a
recurring basis during the three months ended March 31, 2018 and the year ended December 31, 2017.
The following table presents
additional information about financial assets and liabilities measured at fair value at March 31, 2018 and December 31, 2017 on a recurring basis and for which United has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
Securities
|
|
|
|
Trust preferred
collateralized
debt obligations
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Balance, beginning of period
|
|
$
|
34,269
|
|
|
$
|
33,552
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
Included in earnings (or changes in net assets)
|
|
|
28
|
|
|
|
9
|
|
Included in other comprehensive income
|
|
|
217
|
|
|
|
8,757
|
|
Purchases, issuances, and settlements
|
|
|
0
|
|
|
|
0
|
|
Sales
|
|
|
(26,450
|
)
|
|
|
(8,049
|
)
|
Transfers in and/or out of Level 3
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
8,064
|
|
|
$
|
34,269
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in
unrealized gains or losses relating to assets still held at reporting date
|
|
$
|
0
|
|
|
$
|
0
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Balance, beginning of period
|
|
$
|
263,308
|
|
|
$
|
0
|
|
Acquired in Cardinal merger
|
|
|
0
|
|
|
|
271,301
|
|
Originations
|
|
|
573,732
|
|
|
|
2,333,927
|
|
Sales
|
|
|
(631,834
|
)
|
|
|
(2,408,945
|
)
|
Total gains or losses during the period recognized in earnings
|
|
|
14,883
|
|
|
|
58,132
|
|
Transfers in and/or out of Level 3
|
|
|
(27,416
|
)
|
|
|
8,893
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
192,673
|
|
|
$
|
263,308
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in
unrealized gains or losses relating to assets still held at reporting date
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial
Assets
Interest Rate Lock Commitments
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Balance, beginning of period
|
|
$
|
4,559
|
|
|
$
|
0
|
|
Acquired in Cardinal merger
|
|
|
0
|
|
|
|
10,393
|
|
Transfers other
|
|
|
1,051
|
|
|
|
(5,834
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
5,610
|
|
|
$
|
4,559
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in
unrealized gains or losses relating to assets still held at reporting date
|
|
$
|
0
|
|
|
$
|
0
|
|
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the
fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
Fair Value Option
United elected the
fair value option for the loans held for sale in its mortgage banking segment to mitigate a divergence between accounting losses and economic exposure.
44
The following table reflects the change in fair value included in earnings of financial instruments for
which the fair value option has been elected:
|
|
|
|
|
|
|
|
|
Description
|
|
Three Months
Ended
March 31, 2018
|
|
|
Three Months
Ended
March 31, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
|
|
|
|
|
|
Income from mortgage banking activities
|
|
$
|
(1,719
|
)
|
|
$
|
0
|
|
The following table reflects the difference between the aggregate fair value and the remaining contractual principal
outstanding for financial instruments for which the fair value option has been elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Description
|
|
Unpaid
Principal
Balance
|
|
|
Fair
Value
|
|
|
Fair Value
Over/(Under)
Unpaid
Principal
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Fair
Value
|
|
|
Fair Value
Over/(Under)
Unpaid
Principal
Balance
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
188,998
|
|
|
$
|
192,673
|
|
|
$
|
3,675
|
|
|
$
|
257,674
|
|
|
$
|
263,308
|
|
|
$
|
5,634
|
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following describes the valuation techniques used by United to measure certain financial assets recorded at fair value on a nonrecurring basis in the
financial statements.
Loans held for sale
: Loans held for sale within the community banking segment that are delivered on a best
efforts basis are carried at the lower of cost or fair value. The fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short
duration between origination and sale (Level 2). As such, United records any fair value adjustments for these loans held for sale on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the three
months ended March 31, 2018. Gains and losses on sale of loans are recorded within income from mortgage banking activities on the Consolidated Statements of Income.
Impaired Loans
: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms
of the loan agreement will not be collected. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loans effective rate and the loans observable market price or the fair value
of collateral, if the loan is collateral dependent. Fair value is measured using a market approach based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment,
inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an appraisal conducted by an independent, licensed appraiser outside of the Company using comparable
property sales (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business
equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts
receivables collateral are based on financial statement balances or aging reports (Level 3). For impaired loans, a specific reserve is established through the Allowance for Loan Losses, if necessary, by estimating the fair value of the underlying
collateral on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses expense on the Consolidated Statements of Income.
45
OREO
: OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets
are carried on the balance sheet at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Fair value is determined by one of two market approach methods depending on whether the property has been
vacated and an appraisal can be conducted. If the property has yet to be vacated and thus an appraisal cannot be performed, a Brokers Price Opinion (i.e. BPO), is obtained. A BPO represents a best estimate valuation performed by a realtor based on
knowledge of current property values and a visual examination of the exterior condition of the property. Once the property is subsequently vacated, a formal appraisal is obtained and the recorded asset value appropriately adjusted. On the other
hand, if the OREO property has been vacated and an appraisal can be conducted, the fair value of the property is determined based upon the appraisal using a market approach. An authorized independent appraiser conducts appraisals for United.
Appraisals for property other than ongoing construction are based on consideration of comparable property sales (Level 2). In contrast, valuation of ongoing construction assets requires some degree of professional judgment. In conducting an
appraisal for ongoing construction property, the appraiser develops two appraised amounts: an as is appraised value and a completed value. Based on professional judgment and their knowledge of the particular situation,
management determines the appropriate fair value to be utilized for such property (Level 3). As a matter of policy, valuations are reviewed at least annually and appraisals are generally updated on a
bi-annual
basis with values lowered as necessary.
Intangible Assets:
For United, intangible assets consist of goodwill and core deposit
intangibles. Goodwill is tested for impairment at least annually or sooner if indicators of impairment exist. Goodwill impairment would be defined as the difference between the recorded value of goodwill (i.e. book value) and the implied fair value
of goodwill. In determining the implied fair value of goodwill for purposes of evaluating goodwill impairment, United determines the fair value of the reporting unit using a market approach and compares the fair value to its carrying value. If the
carrying value exceeds the fair value, a step two test is performed whereby the implied fair value is computed by deducting the fair value of all tangible and intangible net assets from the fair value of the reporting unit. Core deposit intangibles
relate to the estimated value of the deposit base of acquired institutions. Management reviews core deposit intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may
indicate impairment in the carrying value. No other fair value measurement of intangible assets was made during the first three months of 2018 and 2017.
The following table summarizes Uniteds financial assets that were measured at fair value on a nonrecurring basis during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at March 31, 2018
|
|
|
|
|
Description
|
|
Balance as of
March
31,
2018
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
YTD
Losses
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
1,242
|
|
|
$
|
0
|
|
|
$
|
1,242
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Impaired Loans
|
|
|
76,400
|
|
|
|
0
|
|
|
|
56,632
|
|
|
|
19,768
|
|
|
|
1,376
|
|
OREO
|
|
|
22,778
|
|
|
|
0
|
|
|
|
22,702
|
|
|
|
76
|
|
|
|
585
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2017
|
|
|
|
|
Description
|
|
Balance
as of
December 31,
2017
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
YTD
Losses
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
2,647
|
|
|
$
|
0
|
|
|
$
|
2,647
|
|
|
$
|
0
|
|
|
$
|
14
|
|
Impaired Loans
|
|
|
88,637
|
|
|
|
0
|
|
|
|
70,950
|
|
|
|
17,687
|
|
|
|
12,291
|
|
OREO
|
|
|
24,348
|
|
|
|
0
|
|
|
|
24,151
|
|
|
|
197
|
|
|
|
4,200
|
|
46
Fair Value of Other Financial Instruments
The following methods and assumptions were used by United in estimating its fair value disclosures for other financial instruments:
Cash and Cash Equivalents:
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets fair values.
Securities held to maturity and other securities
: The estimated fair values of securities held to maturity are based on quoted market prices,
where available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by
observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data. Any securities held to maturity, not
valued based upon the methods above, are valued based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Other securities consist mainly of shares of Federal Home Loan
Bank and Federal Reserve Bank stock that do not have readily determinable fair values and are carried at cost.
Loans:
For
March 31, 2018, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. This is not comparable with the fair values disclosed for December 31, 2017, which were
based on an entrance price basis. For that date, the fair values of certain mortgage loans (e.g.,
one-to-four
family residential), credit card loans, and other consumer
loans were based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values of other loans (e.g., commercial real estate and rental property
mortgage loans, commercial and industrial loans, financial institution loans and agricultural loans) were estimated using discounted cash flow analyses, using market interest rates being offered at that time for loans with similar terms to borrowers
of similar creditworthiness, which included adjustments for liquidity concerns. For acquired impaired loans, fair value was assumed to equal Uniteds carrying value, which represented the present value of expected future principal and interest
cash flows, as adjusted for any Allowance for Loan Losses recorded for these loans.
Deposits:
The fair values of demand deposits
(e.g., interest and noninterest checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of
variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Short-term Borrowings:
The carrying amounts of federal funds purchased, borrowings under repurchase agreements and any other short-term borrowings
approximate their fair values.
Long-term Borrowings:
The fair values of Uniteds Federal Home Loan Bank borrowings and trust
preferred securities are estimated using discounted cash flow analyses, based on Uniteds current incremental borrowing rates for similar types of borrowing arrangements.
47
Summary of Fair Values for All Financial Instruments
The estimated fair values of Uniteds financial instruments, including those measured at amortized cost on the balance sheet, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,139,170
|
|
|
$
|
1,139,170
|
|
|
$
|
0
|
|
|
$
|
1,139,170
|
|
|
$
|
0
|
|
Securities available for sale
|
|
|
2,085,111
|
|
|
|
2,085,111
|
|
|
|
7,036
|
|
|
|
2,070,011
|
|
|
|
8,064
|
|
Securities held to maturity
|
|
|
20,405
|
|
|
|
20,006
|
|
|
|
0
|
|
|
|
16,986
|
|
|
|
3,020
|
|
Equity securities
|
|
|
11,160
|
|
|
|
11,160
|
|
|
|
11,160
|
|
|
|
0
|
|
|
|
0
|
|
Other securities
|
|
|
152,287
|
|
|
|
144,673
|
|
|
|
0
|
|
|
|
0
|
|
|
|
144,673
|
|
Loans held for sale
|
|
|
193,915
|
|
|
|
193,915
|
|
|
|
0
|
|
|
|
1,242
|
|
|
|
192,673
|
|
Loans
|
|
|
12,907,764
|
|
|
|
12,207,257
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12,207,257
|
|
Derivative financial assets
|
|
|
8,197
|
|
|
|
8,197
|
|
|
|
0
|
|
|
|
2,587
|
|
|
|
5,610
|
|
Deposits
|
|
|
13,646,168
|
|
|
|
13,611,626
|
|
|
|
0
|
|
|
|
13,611,626
|
|
|
|
0
|
|
Short-term borrowings
|
|
|
218,386
|
|
|
|
218,386
|
|
|
|
0
|
|
|
|
218,386
|
|
|
|
0
|
|
Long-term borrowings
|
|
|
1,344,909
|
|
|
|
1,317,352
|
|
|
|
0
|
|
|
|
1,317,352
|
|
|
|
0
|
|
Derivative financial liabilities
|
|
|
762
|
|
|
|
762
|
|
|
|
0
|
|
|
|
762
|
|
|
|
0
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,666,167
|
|
|
$
|
1,666,167
|
|
|
$
|
0
|
|
|
$
|
1,666,167
|
|
|
$
|
0
|
|
Securities available for sale
|
|
|
1,888,756
|
|
|
|
1,888,756
|
|
|
|
6,664
|
|
|
|
1,847,823
|
|
|
|
34,269
|
|
Securities held to maturity
|
|
|
20,428
|
|
|
|
20,018
|
|
|
|
0
|
|
|
|
16,998
|
|
|
|
3,020
|
|
Other securities
|
|
|
162,461
|
|
|
|
154,338
|
|
|
|
0
|
|
|
|
0
|
|
|
|
154,338
|
|
Loans held for sale
|
|
|
265,955
|
|
|
|
265,955
|
|
|
|
0
|
|
|
|
2,647
|
|
|
|
263,308
|
|
Loans
|
|
|
12,934,794
|
|
|
|
12,437,797
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12,437,797
|
|
Derivative financial assets
|
|
|
5,099
|
|
|
|
5,099
|
|
|
|
0
|
|
|
|
540
|
|
|
|
4,559
|
|
Deposits
|
|
|
13,830,591
|
|
|
|
14,024,720
|
|
|
|
0
|
|
|
|
14,024,720
|
|
|
|
0
|
|
Short-term borrowings
|
|
|
477,587
|
|
|
|
477,587
|
|
|
|
0
|
|
|
|
477,587
|
|
|
|
0
|
|
Long-term borrowings
|
|
|
1,363,977
|
|
|
|
1,338,754
|
|
|
|
0
|
|
|
|
1,338,754
|
|
|
|
0
|
|
Derivative financial liabilities
|
|
|
477
|
|
|
|
477
|
|
|
|
0
|
|
|
|
477
|
|
|
|
0
|
|
13. STOCK BASED COMPENSATION
On May 18, 2016, Uniteds shareholders approved the 2016 Long-Term Incentive Plan (2016 LTI Plan). The 2016 LTI Plan became effective as of May 18, 2016. An award granted under the 2016 LTI
Plan may consist of any
non-qualified
stock options or incentive stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, performance units or other-stock-based award. These
awards all relate to the common stock of United. The maximum number of shares of United common stock which may be issued under the 2016 LTI Plan is 1,700,000. The 2016 LTI Plan will be administered by a board committee appointed by Uniteds
Board of Directors (the Board). Unless otherwise determined by the Board, the Compensation Committee of the Board (the Committee) shall administer the 2016 LTI Plan. Any and all shares may be issued in respect of any of the types of Awards, provided
that (1) the aggregate number of shares that may be issued in respect of restricted stock awards, and restricted stock unit awards which are settled in shares is 500,000, and (2) the aggregate number of shares that may be issued pursuant
to stock options is 1,200,000. The shares to be offered under the 2016 LTI Plan may be authorized and unissued shares or treasury shares. The maximum number of options and SARs, in the aggregate, which may be awarded to any
48
individual key employee during any calendar year is 100,000. The maximum number of stock options and SARs, in the aggregate, which may be awarded to any
non-employee
director during any calendar year is 10,000. The maximum number of shares of restricted stock or shares subject to a restricted stock units award that may be granted during any calendar year is
50,000 shares to any individual key employee and 5,000 shares to any individual
non-employee
director. Subject to certain change in control provisions, the 2016 LTI Plan provides that awards of restricted
stock and restricted stock units will vest as the Committee determines in the award agreement, provided that no awards will vest sooner than 1/3 per year over the first three anniversaries of the award. Awards granted to executive officers of United
typically will have performance based vesting conditions. A Form
S-8
was filed on July 29, 2016 with the Securities and Exchange Commission to register all the shares which were available for the 2016 LTI
Plan. During the first three months of 2018, a total of 276,192
non-qualified
stock options and 97,004 shares of restricted stock were granted under the 2016 LTI Plan.
Compensation expense of $968 and $682 related to the nonvested awards under Uniteds Long-Term Incentive Plans was incurred for the first quarter of
2018 and 2017, respectively. Compensation expense was included in employee compensation in the unaudited Consolidated Statements of Income.
Stock Options
United currently has
options outstanding from various option plans other than the 2016 LTI Plan (the Prior Plans); however, no common shares of United stock are available for grants under the Prior Plans as these plans have expired. Awards outstanding under the Prior
Plans will remain in effect in accordance with their respective terms. The maximum term for options granted under the plans is ten (10) years.
A summary of activity under Uniteds stock option plans as of March 31, 2018, and the changes during the first three months of 2018 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Remaining
Contractual
Term (Yrs.)
|
|
|
Exercise
Price
|
|
Outstanding at January 1, 2018
|
|
|
1,558,438
|
|
|
|
|
|
|
|
|
|
|
$
|
31.09
|
|
Granted
|
|
|
276,192
|
|
|
|
|
|
|
|
|
|
|
|
37.60
|
|
Exercised
|
|
|
(15,043
|
)
|
|
|
|
|
|
|
|
|
|
|
19.97
|
|
Forfeited or expired
|
|
|
(2,438
|
)
|
|
|
|
|
|
|
|
|
|
|
39.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2018
|
|
|
1,817,149
|
|
|
$
|
9,046,231
|
|
|
|
6.3
|
|
|
$
|
32.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2018
|
|
|
1,222,889
|
|
|
$
|
9,027,432
|
|
|
|
4.9
|
|
|
$
|
28.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the status of Uniteds nonvested stock option awards during the first three months of
2018:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-Average
Grant Date Fair Value
Per Share
|
|
Nonvested at January 1, 2018
|
|
|
507,871
|
|
|
$
|
7.89
|
|
Granted
|
|
|
276,192
|
|
|
|
7.56
|
|
Vested
|
|
|
(187,365
|
)
|
|
|
7.52
|
|
Forfeited or expired
|
|
|
(2,438
|
)
|
|
|
7.75
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2018
|
|
|
594,260
|
|
|
$
|
7.85
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2018 and 2017, 15,043 and 22,523 shares, respectively, were issued in
connection with stock option exercises. All shares issued in connection with stock option exercises for the three months ended March 31, 2018 and 2017 were issued from authorized and unissued stock. The total intrinsic value of options
exercised under the Plans during the three months ended March 31, 2018 and 2017 was $246 and $452 respectively.
49
Restricted Stock
Under the 2011 LTI Plan, United may award restricted common shares to key employees and
non-employee
directors. Restricted shares granted to participants have a
four-year time-based vesting period. Recipients of restricted shares do not pay any consideration to United for the shares, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not
the shares have vested. Presently, these nonvested participating securities have an immaterial impact on diluted earnings per share.
The
following summarizes the changes to Uniteds restricted common shares for the period ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-Average
Grant Date Fair Value
Per Share
|
|
Outstanding at January 1, 2018
|
|
|
170,496
|
|
|
$
|
40.05
|
|
Granted
|
|
|
97,004
|
|
|
|
37.60
|
|
Vested
|
|
|
(62,285
|
)
|
|
|
37.59
|
|
Forfeited
|
|
|
(683
|
)
|
|
|
39.15
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2018
|
|
|
204,532
|
|
|
$
|
39.64
|
|
|
|
|
|
|
|
|
|
|
14. EMPLOYEE BENEFIT PLANS
United has a defined benefit retirement plan covering a majority of all employees. Pension benefits are based on years of service and the average of the employees highest five consecutive plan years
of basic compensation paid during the ten plan years preceding the date of determination. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. During the
first quarter of 2018, United made a discretionary contribution of $7,000 to the Plan.
In September of 2007, after a recommendation by
Uniteds Pension Committee and approval by Uniteds Board of Directors, the United Bankshares, Inc. Pension Plan (the Plan) was amended to change the participation rules. The decision to change the participation rules for the Plan followed
current industry trends, as many large and medium size companies had taken similar steps. The amendment provides that employees hired on or after October 1, 2007, will not be eligible to participate in the Plan. However, new employees will be
eligible to participate in Uniteds Savings and Stock Investment 401(k) plan. This change had no impact on current employees hired prior to October 1, 2007 as they will continue to participate in the Plan, with no change in benefit
provisions, and will continue to be eligible to participate in Uniteds Savings and Stock Investment 401(k) plan.
Included in
accumulated other comprehensive income at December 31, 2017 are unrecognized actuarial losses of $56,222 ($35,420 net of tax) that have not yet been recognized in net periodic pension cost. The amortization of this item expected to be
recognized in net periodic pension cost during the fiscal year ended December 31, 2018 is $4,653 ($2,932 net of tax).
Net periodic
pension cost for the three months ended March 31, 2018 and 2017 included the following components:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2018
|
|
|
2017
|
|
Service cost
|
|
$
|
658
|
|
|
$
|
562
|
|
Interest cost
|
|
|
1,295
|
|
|
|
1,265
|
|
Expected return on plan assets
|
|
|
(2,522
|
)
|
|
|
(2,027
|
)
|
Amortization of transition asset
|
|
|
0
|
|
|
|
0
|
|
Recognized net actuarial loss
|
|
|
1,149
|
|
|
|
1,087
|
|
Amortization of prior service cost
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension (benefit) cost
|
|
$
|
580
|
|
|
$
|
887
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.83
|
%
|
|
|
4.49
|
%
|
Expected return on assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Rate of compensation increase (prior to age 45)
|
|
|
3.50
|
%
|
|
|
3.50
|
%
|
Rate of compensation increase
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
50
15. INCOME TAXES
United records a liability for uncertain income tax positions based on a recognition threshold of
more-likely-than-not,
and a measurement attribute for all tax
positions taken on a tax return, in order for those tax positions to be recognized in the financial statements.
As of March 31, 2018 and
2017, the total amount of accrued interest related to uncertain tax positions was $695 and $589, respectively. United accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.
United is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31,
2014, 2015 and 2016 and certain State Taxing authorities for the years ended December 31, 2014 through 2016.
On December 22, 2017,
the Tax Cuts and Jobs Act (the Tax Act) was signed into law. The Tax Act lowered the Federal corporate tax rate from 35% to 21% effective January 1, 2018 and made numerous other tax law changes. U.S. generally accepted accounting
principles (GAAP) requires companies to recognize the effect of tax law changes in the period of enactment. As a result of the Tax Act, United was required to remeasure deferred tax assets and liabilities at the new tax rate and as a result,
recorded deferred tax expense of $37,732 in the fourth quarter of 2017. Reasonable estimates were made based on the Companys analysis of the Tax Act. This provisional amount may be adjusted in future periods during 2018 when additional
information is obtained as provided for under Staff Accounting Bulletin (SAB 118). Additional information that may affect our provisional amount would include further clarification and guidance on how the IRS will implement tax
reform, further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Companys state income tax returns, completion of Uniteds 2017 tax return filings, and the potential for
additional guidance from the SEC or the FASB related to the Tax Act. Management continues to evaluate other potential impacts of the Tax Act. The Company did not identify items for which the income tax effects of the Tax Act have not been completed
and a reasonable estimate could not be determined as of March 31, 2018.
Uniteds effective tax rate was 22.48% for the first
quarter of 2018 and 34.25% for the first quarter of 2017. The lower effective tax rate for the first quarter of 2018 was due mainly to the Tax Act.
51
16. COMPREHENSIVE INCOME
The components of total comprehensive income for the three months ended March 31, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31
|
|
|
|
2018
|
|
|
2017
|
|
Net Income
|
|
$
|
61,706
|
|
|
$
|
38,809
|
|
Available for sale (AFS) securities:
|
|
|
|
|
|
|
|
|
AFS securities with OTTI charges during the period
|
|
|
0
|
|
|
|
(44
|
)
|
Related income tax effect
|
|
|
0
|
|
|
|
16
|
|
Less : OTTI charges recognized in net income
|
|
|
0
|
|
|
|
44
|
|
Related income tax benefit
|
|
|
0
|
|
|
|
(16
|
)
|
Reclassification of previous noncredit OTTI to credit OTTI
|
|
|
0
|
|
|
|
0
|
|
Related income tax benefit
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on AFS securities with OTTI
|
|
|
0
|
|
|
|
0
|
|
AFS securities all other:
|
|
|
|
|
|
|
|
|
Change in net unrealized gain on AFS securities arising during the period
|
|
|
(22,017
|
)
|
|
|
5,576
|
|
Related income tax effect
|
|
|
5,130
|
|
|
|
(2,063
|
)
|
Net reclassification adjustment for losses (gains) included in net income
|
|
|
149
|
|
|
|
(214
|
)
|
Related income tax (benefit) expense
|
|
|
(35
|
)
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,773
|
)
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
Net effect of AFS securities on other comprehensive income
|
|
|
(16,773
|
)
|
|
|
3,378
|
|
Held to maturity (HTM) securities:
|
|
|
|
|
|
|
|
|
Accretion on the unrealized loss for securities transferred from AFS to the HTM investment portfolio prior to call or
maturity
|
|
|
2
|
|
|
|
2
|
|
Related income tax expense
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net effect of HTM securities on other comprehensive income
|
|
|
1
|
|
|
|
1
|
|
Pension plan:
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
1,149
|
|
|
|
1,087
|
|
Related income tax benefit
|
|
|
(416
|
)
|
|
|
(392
|
)
|
|
|
|
|
|
|
|
|
|
Net effect of change in pension plan asset on other comprehensive income
|
|
|
733
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
Total change in other comprehensive income
|
|
|
(16,039
|
)
|
|
|
4,074
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
$
|
45,667
|
|
|
$
|
42,883
|
|
|
|
|
|
|
|
|
|
|
52
The components of accumulated other comprehensive income for the three months ended March 31, 2018 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (AOCI) by Component
(a)
|
For the Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains/Losses
on AFS
Securities
|
|
|
Accretion on
the
unrealized
loss for
securities
transferred
from AFS to
the HTM
|
|
|
Defined
Benefit
Pension
Items
|
|
|
Total
|
|
Balance at January 1, 2018
|
|
($
|
6,204
|
)
|
|
($
|
46
|
)
|
|
($
|
35,775
|
)
|
|
($
|
42,025
|
)
|
Cumulative effect of adopting Accounting Standard Update
2016-01
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
(136
|
)
|
Reclass due to adopting Accounting Standard Update
2018-02
|
|
|
(1,632
|
)
|
|
|
|
|
|
|
(4,721
|
)
|
|
|
(6,353
|
)
|
Other comprehensive income before reclassification
|
|
|
(16,887
|
)
|
|
|
1
|
|
|
|
0
|
|
|
|
(16,886
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
114
|
|
|
|
0
|
|
|
|
733
|
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income, net of tax
|
|
|
(16,773
|
)
|
|
|
1
|
|
|
|
733
|
|
|
|
(16,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018
|
|
($
|
24,745
|
)
|
|
($
|
45
|
)
|
|
($
|
39,763
|
)
|
|
($
|
64,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
All amounts are
net-of-tax.
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications out of Accumulated Other Comprehensive Income (AOCI)
|
For the Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
Details about AOCI Components
|
|
Amount
Reclassified
from AOCI
|
|
|
Affected Line Item in the Statement Where
Net Income is Presented
|
Available for sale (AFS) securities:
|
|
|
|
|
|
|
Reclassification of previous noncredit OTTI
to credit OTTI
|
|
$
|
0
|
|
|
Net investment securities (losses) gains
|
Net reclassification adjustment for losses
(gains) included in net income
|
|
|
149
|
|
|
Net investment securities (losses) gains
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
Total before tax
|
Related income tax effect
|
|
|
(35
|
)
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
Net of tax
|
Pension plan:
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
1,149
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149
|
|
|
Total before tax
|
Related income tax effect
|
|
|
(416
|
)
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
733
|
|
|
Net of tax
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
847
|
|
|
|
|
|
|
|
|
|
|
(a)
|
This AOCI component is included in the computation of net periodic pension cost (see Note 14, Employee Benefit Plans)
|
17. EARNINGS PER SHARE
The
reconciliation of the numerator and denominator of basic earnings per share with that of diluted earnings per share is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2018
|
|
|
2017
|
|
Distributed earnings allocated to common stock
|
|
$
|
35,679
|
|
|
$
|
26,722
|
|
Undistributed earnings allocated to common stock
|
|
|
25,919
|
|
|
|
12,014
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocated to common shareholders
|
|
$
|
61,598
|
|
|
$
|
38,736
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2018
|
|
|
2017
|
|
Average common shares outstanding
|
|
|
104,859,427
|
|
|
|
80,902,368
|
|
Common stock equivalents
|
|
|
303,431
|
|
|
|
404,172
|
|
|
|
|
|
|
|
|
|
|
Average diluted shares outstanding
|
|
|
105,162,858
|
|
|
|
81,306,540
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share
|
|
$
|
0.59
|
|
|
$
|
0.48
|
|
Earnings per diluted common share
|
|
$
|
0.59
|
|
|
$
|
0.48
|
|
18. VARIABLE INTEREST ENTITIES
Variable interest entities (VIEs) are entities that either have a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial
support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions, through voting rights, right to receive the expected residual returns of the entity, and
obligation to absorb the expected losses of the entity). VIEs can be structured as corporations, trusts, partnerships, or other legal entities. Uniteds business practices include relationships with certain VIEs. For United, the business
purpose of these relationships primarily consists of funding activities in the form of issuing trust preferred securities.
United
currently sponsors fourteen statutory business trusts that were created for the purpose of raising funds that originally qualified for Tier I regulatory capital. As previously discussed, with the acquisition of Cardinal, these trusts now are
considered Tier II regulatory capital. These trusts, of which several were acquired through bank acquisitions, issued or participated in pools of trust preferred capital securities to third-party investors with the proceeds invested in junior
subordinated debt securities of United. The Company, through a small capital contribution, owns 100% of the voting equity shares of each trust. The assets, liabilities, operations, and cash flows of each trust are solely related to the
issuance, administration, and repayment of the preferred equity securities held by third-party investors. United fully and unconditionally guarantees the obligations of each trust and is obligated to redeem the junior subordinated
debentures upon maturity.
United does not consolidate these trusts as it is not the primary beneficiary of these entities because
Uniteds wholly owned and indirect wholly owned statutory trust subsidiaries do not have a controlling financial interest in the VIEs. A controlling financial interest is present when an enterprise has both the power to direct the activities of
the VIE that most significantly impact the VIEs economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest,
known as the primary beneficiary, consolidates the VIE.
Information related to Uniteds statutory trusts is presented in the table
below:
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Issuance Date
|
|
Amount of
Capital
Securities Issued
|
|
|
Interest Rate
|
|
Maturity Date
|
United Statutory Trust III
|
|
December 17, 2003
|
|
$
|
20,000
|
|
|
3-month
LIBOR + 2.85%
|
|
December 17, 2033
|
United Statutory Trust IV
|
|
December 19, 2003
|
|
$
|
25,000
|
|
|
3-month
LIBOR + 2.85%
|
|
January 23, 2034
|
United Statutory Trust V
|
|
July 12, 2007
|
|
$
|
50,000
|
|
|
3-month
LIBOR + 1.55%
|
|
October 1, 2037
|
United Statutory Trust VI
|
|
September 20, 2007
|
|
$
|
30,000
|
|
|
3-month
LIBOR + 1.30%
|
|
December 15, 2037
|
Premier Statutory Trust II
|
|
September 25, 2003
|
|
$
|
6,000
|
|
|
3-month
LIBOR + 3.10%
|
|
October 8, 2033
|
Premier Statutory Trust III
|
|
May 16, 2005
|
|
$
|
8,000
|
|
|
3-month
LIBOR + 1.74%
|
|
June 15, 2035
|
Premier Statutory Trust IV
|
|
June 20, 2006
|
|
$
|
14,000
|
|
|
3-month
LIBOR + 1.55%
|
|
September 23, 2036
|
Premier Statutory Trust V
|
|
December 14, 2006
|
|
$
|
10,000
|
|
|
3-month
LIBOR + 1.61%
|
|
March 1, 2037
|
Centra Statutory Trust I
|
|
September 20, 2004
|
|
$
|
10,000
|
|
|
3-month
LIBOR + 2.29%
|
|
September 20, 2034
|
Centra Statutory Trust II
|
|
June 15, 2006
|
|
$
|
10,000
|
|
|
3-month
LIBOR + 1.65%
|
|
July 7, 2036
|
Virginia Commerce Trust II
|
|
December 19, 2002
|
|
$
|
15,000
|
|
|
6-month
LIBOR + 3.30%
|
|
December 19, 2032
|
Virginia Commerce Trust III
|
|
December 20, 2005
|
|
$
|
25,000
|
|
|
3-month
LIBOR + 1.42%
|
|
February 23, 2036
|
Cardinal Statutory Trust I
|
|
July 27, 2004
|
|
$
|
20,000
|
|
|
3-month
LIBOR + 2.40%
|
|
September 15, 2034
|
UFBC Capital Trust I
|
|
December 30, 2004
|
|
$
|
5,000
|
|
|
3-month
LIBOR + 2.10%
|
|
March 15, 2035
|
54
United, through its banking subsidiary, also makes limited partner equity investments in various low income
housing and community development partnerships sponsored by independent third-parties. United invests in these partnerships to either realize tax credits on its consolidated federal income tax return or for purposes of earning a return on
its investment. These partnerships are considered VIEs as the limited partners lack a controlling financial interest in the entities through their inability to make decisions that have a significant effect on the operations and success of
the partnerships. Uniteds limited partner interests in these entities is immaterial, however; these partnerships are not consolidated as United is not deemed to be the primary beneficiary.
The following table summarizes quantitative information about Uniteds significant involvement in unconsolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Aggregate
Assets
|
|
|
Aggregate
Liabilities
|
|
|
Risk Of
Loss
(1)
|
|
|
Aggregate
Assets
|
|
|
Aggregate
Liabilities
|
|
|
Risk Of
Loss
(1)
|
|
Trust preferred securities
|
|
$
|
257,527
|
|
|
$
|
248,700
|
|
|
$
|
8,827
|
|
|
$
|
266,669
|
|
|
$
|
257,674
|
|
|
$
|
8,995
|
|
(1)
|
Represents investment in VIEs.
|
19. SEGMENT
INFORMATION
As a result of the Cardinal acquisition in April 2017, United now operates in two business segments: community banking and
mortgage banking. Prior to the Cardinal acquisition, Uniteds business activities were confined to just one reportable segment of community banking.
Through its community banking segment, United offers a full range of products and services through various delivery channels. In particular, the community banking segment includes both commercial and
consumer lending and provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. In addition, this segment provides customers with several choices of deposit products including demand deposit
accounts, savings accounts and certificates of deposit as well as investment and financial advisory services to businesses and individuals, including financial planning, retirement/estate planning, and investment management. The mortgage banking
segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market though George Mason.
The community banking segment provides the mortgage banking segment (George Mason) with short-term funds to originate mortgage loans through a warehouse
line of credit and charges the mortgage banking segment interest based on the prime rate. These transactions are eliminated in the consolidation process.
The Company does not have any operating segments other than those reported. The Other category consists of financial information not directly attributable to a specific segment, including
interest income from investments and net securities gains or losses of parent companies and their
non-banking
subsidiaries, interest expense related to subordinated notes of unconsolidated subsidiaries as well
as the elimination of
non-segment
related intercompany transactions such as management fees. The Other represents an overhead function rather than an operating segment.
55
Information about the reportable segments and reconciliation of this information to the consolidated
financial statements at and for the three months ended March 31, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and For the Three Months Ended March 31,
2018
|
|
|
|
Community
Banking
|
|
|
Mortgage
Banking
|
|
|
Other
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
146,261
|
|
|
$
|
376
|
|
|
$
|
(2,594
|
)
|
|
$
|
144,043
|
|
Provision for loans losses
|
|
|
5,178
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,178
|
|
Other income
|
|
|
17,131
|
|
|
|
14,883
|
|
|
|
(822
|
)
|
|
|
31,192
|
|
Other expense
|
|
|
72,491
|
|
|
|
18,384
|
|
|
|
(423
|
)
|
|
|
90,452
|
|
Income taxes
|
|
|
19,276
|
|
|
|
(703
|
)
|
|
|
(674
|
)
|
|
|
17,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
66,447
|
|
|
$
|
(2,422
|
)
|
|
$
|
(2,319
|
)
|
|
$
|
61,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (liabilities)
|
|
$
|
18,319,946
|
|
|
$
|
289,925
|
|
|
$
|
9,831
|
|
|
$
|
18,619,702
|
|
Average assets (liabilities)
|
|
|
18,318,613
|
|
|
|
210,172
|
|
|
|
15,012
|
|
|
|
18,543,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and For the Three Months Ended March 31,
2017
|
|
|
|
Community
Banking
|
|
|
Other
|
|
|
Consolidated
|
|
Net interest income
|
|
$
|
109,660
|
|
|
$
|
(2,040
|
)
|
|
$
|
107,620
|
|
Provision for loans losses
|
|
|
5,899
|
|
|
|
0
|
|
|
|
5,899
|
|
Other income
|
|
|
16,813
|
|
|
|
3,333
|
|
|
|
20,146
|
|
Other expense
|
|
|
62,752
|
|
|
|
90
|
|
|
|
62,842
|
|
Income taxes
|
|
|
19,804
|
|
|
|
412
|
|
|
|
20,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
38,018
|
|
|
$
|
791
|
|
|
$
|
38,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (liabilities)
|
|
$
|
14,779,983
|
|
|
$
|
(17,668
|
)
|
|
$
|
14,762,315
|
|
Average assets (liabilities)
|
|
|
14,433,409
|
|
|
|
(27,676
|
)
|
|
|
14,405,733
|
|