UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2011
OR
| ¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission file number 001-35095
UNITED COMMUNITY BANKS, INC.
(Exact name of registrant as specified in its charter)
| Georgia | 58-1807304 | |
| (State of Incorporation) |
(I.R.S. Employer Identification No.) |
|
|
125 Highway 515 East Blairsville, Georgia |
30512 | |
| Address of Principal Executive Offices | (Zip Code) | |
(706) 781-2265
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
¨ |
Accelerated filer |
x |
|||
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Non-accelerated filer |
¨ (Do not check if a smaller reporting company) |
Smaller reporting company |
¨ |
|||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x
Common stock, par value $1 per share 41,568,707 shares voting and 15,914,209 shares non-voting
outstanding as of July 31, 2011
Explanatory Note
This Amendment No. 2 to the Form 10-Q/A (this “Amendment”) of United Community Banks, Inc. (“United”) amends and restates United’s Form 10-Q/A for the quarter ended June 30, 2011 that was originally filed with the Securities and Exchange Commission on August 9, 2011 (collectively with Amendment, this “Form 10-Q/A”).
This Amendment is filed to reflect United’s establishment of a full deferred tax asset valuation allowance as of December 31, 2010 and the effects thereof on certain related disclosures contained in this Form 10-Q/A, including (i) United’s previously reported income tax expense, other comprehensive income in shareholders’ equity and net loss for the first and second quarter of 2011 and full year 2010, tangible book value, tangible equity and tangible common equity to asset ratios and regulatory capital ratios as of June 30, 2011, March 31, 2011 and December 31, 2010, and (ii) United’s disclosure in Item 4 — Controls and Procedures.
Unless otherwise indicated, this Amendment does not reflect events occurring after August 9, 2011.
1
INDEX
2
Part I – Financial Information
I tem 1 – Financial Statements
Consolidated Statement of Operations (Unaudited)
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (As restated) | (As restated) | |||||||||||||||
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(in thousands, except per share data) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
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Interest revenue: |
||||||||||||||||
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Loans, including fees |
$ | 60,958 | $ | 70,611 | $ | 122,065 | $ | 142,826 | ||||||||
|
Investment securities, including tax exempt of $251, $295, $510 and $606 |
14,792 | 15,829 | 28,396 | 32,032 | ||||||||||||
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Federal funds sold, commercial paper and deposits in banks |
752 | 759 | 1,571 | 1,697 | ||||||||||||
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|
|||||||||
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Total interest revenue |
76,502 | 87,199 | 152,032 | 176,555 | ||||||||||||
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|||||||||
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Interest expense: |
||||||||||||||||
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Deposits: |
||||||||||||||||
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NOW |
1,036 | 1,745 | 2,360 | 3,599 | ||||||||||||
|
Money market |
1,499 | 1,829 | 3,527 | 3,586 | ||||||||||||
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Savings |
64 | 83 | 141 | 167 | ||||||||||||
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Time |
10,995 | 17,718 | 22,727 | 37,916 | ||||||||||||
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|
|||||||||
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Total deposit interest expense |
13,594 | 21,375 | 28,755 | 45,268 | ||||||||||||
|
Federal funds purchased, repurchase agreements and other short-term borrowings |
1,074 | 1,056 | 2,116 | 2,094 | ||||||||||||
|
Federal Home Loan Bank advances |
570 | 974 | 1,160 | 1,951 | ||||||||||||
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Long-term debt |
2,747 | 2,667 | 5,527 | 5,329 | ||||||||||||
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|
|||||||||
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Total interest expense |
17,985 | 26,072 | 37,558 | 54,642 | ||||||||||||
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|
|||||||||
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Net interest revenue |
58,517 | 61,127 | 114,474 | 121,913 | ||||||||||||
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Provision for loan losses |
11,000 | 61,500 | 201,000 | 136,500 | ||||||||||||
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|||||||||
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Net interest revenue after provision for loan losses |
47,517 | (373 | ) | (86,526 | ) | (14,587 | ) | |||||||||
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|||||||||
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Fee revenue: |
||||||||||||||||
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Service charges and fees |
7,608 | 7,993 | 14,328 | 15,440 | ||||||||||||
|
Mortgage loan and other related fees |
952 | 1,601 | 2,446 | 3,080 | ||||||||||||
|
Brokerage fees |
691 | 586 | 1,368 | 1,153 | ||||||||||||
|
Securities gains, net |
783 | — | 838 | 61 | ||||||||||||
|
Loss from prepayment of debt |
(791 | ) | — | (791 | ) | — | ||||||||||
|
Other |
4,662 | 1,399 | 7,554 | 3,511 | ||||||||||||
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|||||||||
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Total fee revenue |
13,905 | 11,579 | 25,743 | 23,245 | ||||||||||||
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|
|||||||||
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Total revenue |
61,422 | 11,206 | (60,783 | ) | 8,658 | |||||||||||
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|
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|
|||||||||
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Operating expenses: |
||||||||||||||||
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Salaries and employee benefits |
26,436 | 23,590 | 51,360 | 47,950 | ||||||||||||
|
Communications and equipment |
3,378 | 3,511 | 6,722 | 6,784 | ||||||||||||
|
Occupancy |
3,805 | 3,836 | 7,879 | 7,650 | ||||||||||||
|
Advertising and public relations |
1,317 | 1,352 | 2,295 | 2,395 | ||||||||||||
|
Postage, printing and supplies |
1,085 | 765 | 2,203 | 1,990 | ||||||||||||
|
Professional fees |
2,350 | 2,178 | 5,680 | 4,121 | ||||||||||||
|
Foreclosed property |
1,891 | 14,540 | 66,790 | 25,353 | ||||||||||||
|
FDIC assessments and other regulatory charges |
3,644 | 3,566 | 9,057 | 7,192 | ||||||||||||
|
Amortization of intangibles |
760 | 794 | 1,522 | 1,596 | ||||||||||||
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Other |
4,062 | 4,176 | 10,491 | 8,097 | ||||||||||||
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Loss on sale of nonperforming assets |
— | 45,349 | — | 45,349 | ||||||||||||
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|||||||||
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Total operating expenses |
48,728 | 103,657 | 163,999 | 158,477 | ||||||||||||
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|||||||||
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Income (loss) from continuing operations before income taxes |
12,694 | (92,451 | ) | (224,782 | ) | (149,819 | ) | |||||||||
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Income tax expense (benefit) |
666 | (32,919 | ) | 526 | (55,829 | ) | ||||||||||
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|||||||||
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Net income (loss) from continuing operations |
12,028 | (59,532 | ) | (225,308 | ) | (93,990 | ) | |||||||||
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Loss from discontinued operations, net of income taxes |
— | — | — | (101 | ) | |||||||||||
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Gain from sale of subsidiary, net of income taxes and selling costs |
— | — | — | 1,266 | ||||||||||||
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Net income (loss) |
12,028 | (59,532 | ) | (225,308 | ) | (92,825 | ) | |||||||||
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Preferred stock dividends and discount accretion |
3,016 | 2,577 | 5,794 | 5,149 | ||||||||||||
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Net income (loss) available to common shareholders |
$ | 9,012 | $ | (62,109 | ) | $ | (231,102 | ) | $ | (97,974 | ) | |||||
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Earnings (loss) from continuing operations per common share—Basic |
$ | .35 | $ | (3.29 | ) | $ | (10.52 | ) | $ | (5.25 | ) | |||||
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Earnings (loss) from continuing operations per common share—Diluted |
.16 | (3.29 | ) | (10.52 | ) | (5.25 | ) | |||||||||
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Earnings (loss) per common share—Basic |
.35 | (3.29 | ) | (10.52 | ) | (5.19 | ) | |||||||||
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Earnings (loss) per common share—Diluted |
.16 | (3.29 | ) | (10.52 | ) | (5.19 | ) | |||||||||
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Weighted average common shares outstanding—Basic |
25,427 | 18,905 | 21,965 | 18,891 | ||||||||||||
|
Weighted average common shares outstanding—Diluted |
57,543 | 18,905 | 21,965 | 18,891 | ||||||||||||
See accompanying notes to consolidated financial statements.
3
UNITED COMMUNITY BANKS, INC.
| September 30, | September 30, | September 30, | ||||||||||
| (As restated) | (As restated) | |||||||||||
| June 30, | December 31, | June 30, | ||||||||||
|
(in thousands, except share and per share data) |
2011 | 2010 | 2010 | |||||||||
| (unaudited) | (audited) | (unaudited) | ||||||||||
|
ASSETS |
||||||||||||
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Cash and due from banks |
$ | 163,331 | $ | 95,994 | $ | 115,088 | ||||||
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Interest-bearing deposits in banks |
41,863 | 111,901 | 105,183 | |||||||||
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Federal funds sold, commercial paper and short-term investments |
174,996 | 441,562 | 148,227 | |||||||||
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Cash and cash equivalents |
380,190 | 649,457 | 368,498 | |||||||||
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Securities available for sale |
1,816,613 | 1,224,417 | 1,165,776 | |||||||||
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Securities held to maturity (fair value $379,231, 267,988 and $327,497) |
371,578 | 265,807 | 322,148 | |||||||||
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Mortgage loans held for sale |
19,406 | 35,908 | 22,705 | |||||||||
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Loans, net of unearned income |
4,163,447 | 4,604,126 | 4,873,030 | |||||||||
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Less allowance for loan losses |
127,638 | 174,695 | 174,111 | |||||||||
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Loans, net |
4,035,809 | 4,429,431 | 4,698,919 | |||||||||
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Assets covered by loss sharing agreements with the FDIC |
95,726 | 131,887 | 156,611 | |||||||||
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Premises and equipment, net |
178,208 | 178,239 | 180,125 | |||||||||
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Accrued interest receivable |
21,291 | 24,299 | 29,650 | |||||||||
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Goodwill and other intangible assets |
9,922 | 11,446 | 223,600 | |||||||||
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Foreclosed property |
47,584 | 142,208 | 123,910 | |||||||||
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Net deferred tax asset |
— | — | 111,485 | |||||||||
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Other assets |
175,968 | 183,160 | 249,057 | |||||||||
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Total assets |
$ | 7,152,295 | $ | 7,276,259 | $ | 7,652,484 | ||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Liabilities: |
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Deposits: |
||||||||||||
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Demand |
$ | 899,017 | $ | 793,414 | $ | 779,934 | ||||||
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NOW |
1,306,109 | 1,424,781 | 1,326,861 | |||||||||
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Money market |
989,600 | 891,252 | 756,370 | |||||||||
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Savings |
197,927 | 183,894 | 185,176 | |||||||||
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Time: |
||||||||||||
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Less than $100,000 |
1,508,444 | 1,496,700 | 1,575,211 | |||||||||
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Greater than $100,000 |
981,154 | 1,002,359 | 1,093,975 | |||||||||
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Brokered |
300,964 | 676,772 | 611,985 | |||||||||
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Total deposits |
6,183,215 | 6,469,172 | 6,329,512 | |||||||||
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Federal funds purchased, repurchase agreements, and other short-term borrowings |
103,666 | 101,067 | 104,127 | |||||||||
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Federal Home Loan Bank advances |
40,625 | 55,125 | 104,138 | |||||||||
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Long-term debt |
150,186 | 150,146 | 150,106 | |||||||||
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Unsettled securities purchases |
35,634 | — | 20,941 | |||||||||
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Accrued expenses and other liabilities |
36,368 | 32,171 | 39,243 | |||||||||
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Total liabilities |
6,549,694 | 6,807,681 | 6,748,067 | |||||||||
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Shareholders’ equity: |
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Preferred stock, $1 par value; 10,000,000 shares authorized; |
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Series A; $10 stated value; 21,700 shares issued and outstanding |
217 | 217 | 217 | |||||||||
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Series B; $1,000 stated value; 180,000 shares issued and outstanding |
176,392 | 175,711 | 175,050 | |||||||||
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Series D; $1,000 stated value; 16,613 shares issued and outstanding |
16,613 | — | — | |||||||||
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Common stock, $1 par value; 100,000,000 shares authorized;
|
41,555 | 18,937 | 18,856 | |||||||||
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Common stock, non-voting, $1 par value; 30,000,000 shares authorized;
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15,914 | — | — | |||||||||
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Common stock issuable; 83,575, 67,287 and 56,954 shares |
3,574 | 3,894 | 3,898 | |||||||||
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Capital surplus |
1,052,482 | 741,244 | 739,261 | |||||||||
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Accumulated deficit |
(723,378 | ) | (492,276 | ) | (77,590 | ) | ||||||
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Accumulated other comprehensive income |
19,232 | 20,851 | 44,725 | |||||||||
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Total shareholders’ equity |
602,601 | 468,578 | 904,417 | |||||||||
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Total liabilities and shareholders’ equity |
$ | 7,152,295 | $ | 7,276,259 | $ | 7,652,484 | ||||||
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See accompanying notes to consolidated financial statements.
4
UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
For the Six Months Ended June 30,
| September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||||||||||
| (Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Non-Voting | Common | Deficit) | Other | ||||||||||||||||||||||||||||||||||||||||||||
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(in thousands, except share and per
|
Series
A |
Series
B |
Series
D |
Series
F |
Series
G |
Common
Stock |
Common
Stock |
Stock
Issuable |
Capital
Surplus |
Retained
Earnings |
Comprehensive
Income |
Total | ||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009 |
$ | 217 | $ | 174,408 | $ | — | $ | — | $ | — | $ | 18,809 | $ | — | $ | 3,597 | $ | 697,271 | $ | 20,384 | $ | 47,635 | $ | 962,321 | ||||||||||||||||||||||||
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Comprehensive income: |
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Net loss |
(92,825 | ) | (92,825 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Other comprehensive loss: |
||||||||||||||||||||||||||||||||||||||||||||||||
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Unrealized holding gains on available for sale securities, net of deferred tax expense and reclassification adjustment |
2,750 | 2,750 | ||||||||||||||||||||||||||||||||||||||||||||||
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Unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of deferred tax benefit |
(5,660 | ) | (5,660 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Comprehensive loss |
(92,825 | ) | (2,910 | ) | (95,735 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Issuance of equity instruments in private equity transaction |
39,813 | 39,813 | ||||||||||||||||||||||||||||||||||||||||||||||
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Common stock issued to dividend Reinvestment plan and employee benefit plans (41,818 shares) |
42 | 898 | 940 | |||||||||||||||||||||||||||||||||||||||||||||
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Amortization of stock option and restricted stock |
1,428 | 1,428 | ||||||||||||||||||||||||||||||||||||||||||||||
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Vesting of restricted stock (2,112 shares issued, 8,304 shares deferred) |
2 | 607 | (609 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
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Deferred compensation plan, net, including dividend equivalents |
162 | 162 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Shares issued from deferred compensation plan (3,134 shares) |
3 | (468 | ) | 460 | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Dividends on Series A preferred stock |
(7 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Dividends on Series B preferred stock |
642 | (5,142 | ) | (4,500 | ) | |||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||
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Balance, June 30, 2010 |
$ | 217 | $ | 175,050 | $ | — | $ | — | $ | — | $ | 18,856 | $ | — | $ | 3,898 | $ | 739,261 | $ | (77,590 | ) | $ | 44,725 | $ | 904,417 | |||||||||||||||||||||||
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|||||||||||||||||||||||||
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Balance, December 31, 2010 (As restated) |
$ | 217 | $ | 175,711 | $ | — | $ | — | $ | — | $ | 18,937 | $ | — | $ | 3,894 | $ | 741,244 | $ | (492,276 | ) | $ | 20,851 | $ | 468,578 | |||||||||||||||||||||||
|
Comprehensive loss (As restated): |
||||||||||||||||||||||||||||||||||||||||||||||||
|
Net loss (As restated) |
(225,308 | ) | (225,308 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Other comprehensive loss: |
||||||||||||||||||||||||||||||||||||||||||||||||
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Unrealized holding gains on available for sale securities, net of reclassification adjustment |
8,003 | 8,003 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Unrealized losses on derivative financial instruments qualifying as cash flow hedges |
(9,622 | ) | (9,622 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Comprehensive loss (As restated) |
(225,308 | ) | (1,619 | ) | (226,927 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Penalty received on incomplete private equity transaction (As restated) |
|
3,250 | 3,250 | |||||||||||||||||||||||||||||||||||||||||||||
|
Preferred for common equity exchange related to tax benefits preservation plan (1,551,126 common shares) |
16,613 | (1,551 | ) | (15,062 | ) | — | ||||||||||||||||||||||||||||||||||||||||||
|
Conversion of Series F and Series G Preferred Stock (20,618,090 voting and 15,914,209 non-voting common shares) |
(195,872 | ) | (151,185 | ) | 20,618 | 15,914 | 310,525 | — | ||||||||||||||||||||||||||||||||||||||||
|
Common stock issued to dividend reinvestment plan and employee benefit plans (78,584 shares) |
79 | 665 | 744 | |||||||||||||||||||||||||||||||||||||||||||||
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Common and preferred stock issued (3,467,699 common shares) |
195,872 | 151,185 | 3,468 | 11,035 | 361,560 | |||||||||||||||||||||||||||||||||||||||||||
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Amortization of stock options and restricted stock awards |
758 | 758 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Vesting of restricted stock (1,417 shares issued, 6,382 shares deferred) |
1 | 54 | (55 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
|
Deferred compensation plan, net, including dividend equivalents |
127 | 127 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Shares issued from deferred compensation plan (3,209 shares) |
3 | (501 | ) | 498 | — | |||||||||||||||||||||||||||||||||||||||||||
|
Tax on option exercise and restricted stock vesting |
(376 | ) | (376 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
Dividends on Series A preferred stock |
(7 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
Dividends on Series B preferred stock |
681 | (5,200 | ) | (4,519 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
Dividends on Series D preferred stock |
(587 | ) | (587 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
Balance, June 30, 2011 (As restated) |
$ | 217 | $ | 176,392 | $ | 16,613 | $ | — | $ | — | $ | 41,555 | $ | 15,914 | $ | 3,574 | $ | 1,052,482 | $ | (723,378 | ) | $ | 19,232 | $ | 602,601 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Comprehensive income (loss) for the second quarters of 2011 and 2010 was $16,309,000 and $(60,133,000), respectively.
See accompanying notes to consolidated financial statements.
5
UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Cash Flows (Unaudited)
| September 30, | September 30, | |||||||
| Six Months Ended | ||||||||
| June 30, | ||||||||
| (As restated) | ||||||||
|
(in thousands) |
2011 | 2010 | ||||||
|
Operating activities: |
||||||||
|
Net loss |
$ | (225,308 | ) | $ | (92,825 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
|
Depreciation, amortization and accretion |
9,374 | 7,747 | ||||||
|
Provision for loan losses |
201,000 | 136,500 | ||||||
|
Stock based compensation |
758 | 1,428 | ||||||
|
Securities gains, net |
(838 | ) | (61 | ) | ||||
|
Losses and write downs on sales of other real estate owned |
60,505 | 19,289 | ||||||
|
Gain from sale of subsidiary |
— | (2,110 | ) | |||||
|
Loss on sale of nonperforming assets |
— | 45,349 | ||||||
|
Loss on prepayment of borrowings |
791 | — | ||||||
|
Changes in assets and liabilities: |
||||||||
|
Other assets and accrued interest receivable |
41,184 | (55,249 | ) | |||||
|
Accrued expenses and other liabilities |
1,078 | (6,888 | ) | |||||
|
Mortgage loans held for sale |
16,502 | 7,521 | ||||||
|
|
|
|
|
|||||
|
Net cash provided by operating activities |
105,046 | 60,701 | ||||||
|
|
|
|
|
|||||
|
Investing activities: |
||||||||
|
Investment securities held to maturity: |
||||||||
|
Proceeds from maturities and calls |
34,742 | 12,059 | ||||||
|
Purchases |
(141,862 | ) | (19,617 | ) | ||||
|
Investment securities available for sale: |
||||||||
|
Proceeds from sales |
106,603 | 40,817 | ||||||
|
Proceeds from maturities and calls |
220,018 | 432,436 | ||||||
|
Purchases |
(875,250 | ) | (398,877 | ) | ||||
|
Net decrease in loans |
64,778 | 50,600 | ||||||
|
Proceeds from loan sales |
99,298 | 22,331 | ||||||
|
Proceeds from sales of premises and equipment |
534 | 39 | ||||||
|
Purchases of premises and equipment |
(5,276 | ) | (3,601 | ) | ||||
|
Net cash received from sale of subsidiary |
— | 290 | ||||||
|
Net cash received from sale of nonperforming assets |
— | 20,618 | ||||||
|
Proceeds from sale of other real estate |
60,310 | 80,898 | ||||||
|
|
|
|
|
|||||
|
Net cash (used in) provided by investing activities |
(436,105 | ) | 237,993 | |||||
|
|
|
|
|
|||||
|
Financing activities: |
||||||||
|
Net change in deposits |
(285,957 | ) | (295,729 | ) | ||||
|
Net change in federal funds purchased, repurchase agreements, and other short-term borrowings |
2,599 | 2,738 | ||||||
|
Repayments of FHLB advances |
(15,291 | ) | (10,000 | ) | ||||
|
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans |
744 | 935 | ||||||
|
Proceeds from issuance of common and preferred stock, net of offering costs |
361,560 | — | ||||||
|
Proceeds from penalty on incomplete private equity transaction |
3,250 | — | ||||||
|
Cash dividends on preferred stock |
(5,113 | ) | (4,507 | ) | ||||
|
|
|
|
|
|||||
|
Net cash provided by (used in) financing activities |
61,792 | (306,563 | ) | |||||
|
|
|
|
|
|||||
|
Net change in cash and cash equivalents |
(269,267 | ) | (7,869 | ) | ||||
|
Cash and cash equivalents at beginning of period |
649,457 | 376,367 | ||||||
|
|
|
|
|
|||||
|
Cash and cash equivalents at end of period |
$ | 380,190 | $ | 368,498 | ||||
|
|
|
|
|
|||||
|
Supplemental disclosures of cash flow information: |
||||||||
|
Cash paid during the period for: |
||||||||
|
Interest |
$ | 36,703 | $ | 60,083 | ||||
|
Income taxes |
1,527 | 819 | ||||||
|
Unsettled securities purchases |
35,634 | 20,941 | ||||||
See accompanying notes to consolidated financial statements .
6
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 – Accounting Policies
The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in the 2010 annual report filed on Form 10-K.
In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.
Foreclosed property is initially recorded at fair value, less estimated costs to sell. If the fair value, less estimated costs to sell at the time of foreclosure, is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the fair value, less cost to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to operating expenses. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property. Financed sales of foreclosed property are accounted for in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 360, Subtopic 20, Real Estate Sales (“ASC 360-20”) .
Note 2 – Restatement of Consolidated Financial Statements
Subsequent to filing United’s quarterly report on Form 10-Q, for the period ended June 30, 2011, United determined that a full valuation allowance on its deferred tax asset should be recognized as of December 31, 2010. Management decided to establish a valuation allowance against the net deferred tax asset after reconsidering the positive and negative evidence regarding the ultimate realization of the net deferred tax asset. Realization of the net deferred tax asset is dependent upon United’s ability to generate future taxable income. Management has concluded that the objective and verifiable negative evidence represented by United’s recent losses outweighs the more subjective positive evidence. As a result of this conclusion, United has established a full valuation allowance against its deferred tax asset.
On June 17, 2011, United completed a 1-for-5 reverse stock split, whereby each 5 shares of United’s common stock was reclassified into one share of common stock, and each 5 shares of United’s non-voting common stock was reclassified into one share of non-voting common stock. All share and per share amounts for all periods presented have been adjusted to reflect the reverse split as though it had occurred prior to the earliest period presented.
7
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accordingly, the June 30, 2011 consolidated financial statements have been restated to account for this determination. The effect of this change in the consolidated financial statements was as follows (in thousands except per share amounts).
| September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||
| Three Months Ended June 30, 2011 | Six Months Ended June 30, 2011 | |||||||||||||||||||||||
|
As
Reported |
Adjustment |
As
Restated |
As
Reported |
Adjustment | As Restated | |||||||||||||||||||
|
Consolidated Statement of Operations |
||||||||||||||||||||||||
|
Income tax expense (benefit) |
$ | 5,077 | $ | (4,411 | ) | $ | 666 | $ | (89,913 | ) | $ | 90,439 | $ | 526 | ||||||||||
|
Net income (loss) from continuing operations |
7,617 | 4,411 | 12,028 | (134,869 | ) | (90,439 | ) | (225,308 | ) | |||||||||||||||
|
Net income (loss) |
7,617 | 4,411 | 12,028 | (134,869 | ) | (90,439 | ) | (225,308 | ) | |||||||||||||||
|
Net income (loss) available to common shareholders |
4,601 | 4,411 | 9,012 | (140,663 | ) | (90,439 | ) | (231,102 | ) | |||||||||||||||
|
Income (loss) from continuing operations per common share—basic |
0.18 | 0.17 | 0.35 | (6.40 | ) | (4.12 | ) | (10.52 | ) | |||||||||||||||
|
Income (loss) from continuing operations per common share—diluted |
0.08 | 0.08 | 0.16 | (6.40 | ) | (4.12 | ) | (10.52 | ) | |||||||||||||||
|
Income (loss) per common share—basic |
0.18 | 0.17 | 0.35 | (6.40 | ) | (4.12 | ) | (10.52 | ) | |||||||||||||||
|
Income (loss) per common share—diluted |
0.08 | 0.08 | 0.16 | (6.40 | ) | (4.12 | ) | (10.52 | ) | |||||||||||||||
|
Consolidated Statement of Changes in Shareholders’ Equity |
||||||||||||||||||||||||
|
Net loss |
$ | (134,869 | ) | $ | (90,439 | ) | $ | (225,308 | ) | |||||||||||||||
|
Unrealized holding losses on available for sale securities |
5,133 | 2,870 | 8,003 | |||||||||||||||||||||
|
Unrealized losses on derivative financial instrument qualifying as cash flow hedges |
(5,879 | ) | (3,743 | ) | (9,622 | ) | ||||||||||||||||||
|
Comprehensive loss |
(135,615 | ) | (91,312 | ) | (226,927 | ) | ||||||||||||||||||
|
Consolidated Statement of Cash Flows |
||||||||||||||||||||||||
|
Operating activities: |
||||||||||||||||||||||||
|
Net loss |
$ | (134,869 | ) | $ | (90,439 | ) | $ | (225,308 | ) | |||||||||||||||
|
Net change in other assets and accrued interest receivable |
(49,255 | ) | 90,439 | 41,184 | ||||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||
| As of June 30, 2011 | As of December 31, 2010 | |||||||||||||||||||||||
| As Reported | Adjustment | As Restated | As Reported | Adjustment | As Restated | |||||||||||||||||||
|
Consolidated Balance Sheet |
||||||||||||||||||||||||
|
Net deferred tax asset |
$ | 261,268 | $ | (261,268 | ) | $ | — | $ | 166,937 | $ | (166,937 | ) | $ | — | ||||||||||
|
Other assets |
172,074 | 3,894 | 175,968 | 183,160 | — | 183,160 | ||||||||||||||||||
|
Total assets |
7,409,669 | (257,374 | ) | 7,152,295 | 7,443,196 | (166,937 | ) | 7,276,259 | ||||||||||||||||
|
Capital surplus |
1,051,607 | 875 | 1,052,482 | 741,244 | — | 741,244 | ||||||||||||||||||
|
(Accumulated deficit) retained earnings |
(476,230 | ) | (247,148 | ) | (723,378 | ) | (335,567 | ) | (156,709 | ) | (492,276 | ) | ||||||||||||
|
Accumulated other comprehensive income |
30,333 | (11,101 | ) | 19,232 | 31,079 | (10,228 | ) | 20,851 | ||||||||||||||||
|
Total shareholders’ equity |
859,975 | (257,374 | ) | 602,601 | 635,515 | (166,937 | ) | 468,578 | ||||||||||||||||
|
Total liabilities and shareholders’ equity |
7,409,669 | (257,374 | ) | 7,152,295 | 7,443,196 | (166,937 | ) | 7,276,259 | ||||||||||||||||
Note 3 – Accounting Standards Updates
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU No. 2011-04”). ASU No. 2011-04 primarily represents clarification to existing guidance. It does change the concepts of the valuation premise and highest and best use, stating that they are only relevant for nonfinancial assets. The guidance also changes the application of premiums and discounts and includes new disclosures. ASU No. 2011-04 is effective for United in the first quarter of 2012. Although evaluation of the impact is not complete, it is not expected to have a material impact on United’s results of operations, financial position, or disclosures.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU No. 2011-05”). ASU No. 2011-05 requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. The guidance is effective for United for the first quarter of 2012, and will not have a material impact on United’s results of operations or financial position. It will result in a change of disclosure, as United currently presents other comprehensive income in the statement of changes in shareholders’ equity. United will apply these disclosure changes retrospectively as required by the standard.
8
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 – Mergers and Acquisitions
On June 19, 2009, United Community Bank (“UCB” or the “Bank”) purchased substantially all the assets and assumed substantially all the liabilities of Southern Community Bank (“SCB”) from the Federal Deposit Insurance Corporation (“FDIC”), as Receiver of SCB. UCB and the FDIC entered loss sharing agreements regarding future losses incurred on loans and foreclosed loan collateral existing at June 19, 2009. Under the terms of the loss sharing agreements, the FDIC will absorb 80 percent of losses and share 80 percent of loss recoveries on the first $109 million of losses and, absorb 95 percent of losses and share in 95 percent of loss recoveries on losses exceeding $109 million. The term for loss sharing on 1-4 Family loans is ten years, while the term for loss sharing on all other loans is five years.
Under the loss sharing agreement, the portion of the losses expected to be indemnified by FDIC is considered an indemnification asset in accordance with ASC 805 Business Combinations . The indemnification asset, referred to as “estimated loss reimbursement from the FDIC” is included in the balance of Assets covered by loss sharing agreements with the FDIC on the Consolidated Balance Sheet. The indemnification asset was recognized at fair value, which was estimated at the acquisition date based on the terms of the loss sharing agreement. The indemnification asset is expected to be collected over a four-year average life. No valuation allowance was required.
Loans, foreclosed property and the estimated FDIC reimbursement resulting from the loss sharing agreements with the FDIC are reported as “assets covered by loss sharing agreements with the FDIC” in the consolidated balance sheet.
The table below shows the components of covered assets at June 30, 2011 (in thousands) .
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| Purchased | Other | |||||||||||||||
| Impaired | Purchased | |||||||||||||||
|
(in thousands) |
Loans | Loans | Other | Total | ||||||||||||
|
Commercial (secured by real estate) |
$ | — | $ | 43,179 | $ | — | $ | 43,179 | ||||||||
|
Commercial (commercial and industrial) |
— | 3,133 | — | 3,133 | ||||||||||||
|
Construction and land development |
1,729 | 13,505 | — | 15,234 | ||||||||||||
|
Residential mortgage |
186 | 8,913 | — | 9,099 | ||||||||||||
|
Installment |
6 | 188 | — | 194 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total covered loans |
1,921 | 68,918 | — | 70,839 | ||||||||||||
|
Covered forclosed property |
— | — | 8,270 | 8,270 | ||||||||||||
|
Estimated loss reimbursement from the FDIC |
— | — | 16,617 | 16,617 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total covered assets |
$ | 1,921 | $ | 68,918 | $ | 24,887 | $ | 95,726 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
9
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Securities
During the second quarter of 2010, securities available for sale with a fair value of $315 million were transferred to held to maturity. The securities were transferred at their fair value on the date of transfer. The unrealized gain of $7.1 million on the transferred securities on the date of transfer is being amortized into interest revenue as an adjustment to the yield on those securities over the remaining life of the transferred securities. Securities are classified as held to maturity when management has the positive intent and ability to hold them until maturity. Securities held to maturity are carried at amortized cost.
The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at June 30, 2011, December 31, 2010 and June 30, 2010 are as follows (in thousands) .
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
|
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||||||
| As of June 30, 2011 | ||||||||||||||||
|
U.S. Government agencies |
$ | 5,000 | $ | — | $ | — | $ | 5,000 | ||||||||
|
State and political subdivisions |
49,122 | 1,823 | 292 | 50,653 | ||||||||||||
|
Mortgage-backed securities (1) |
317,456 | 6,184 | 62 | 323,578 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 371,578 | $ | 8,007 | $ | 354 | $ | 379,231 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
As of December 31, 2010 |
||||||||||||||||
|
U.S. Government agencies |
$ | 11,939 | $ | 79 | $ | — | $ | 12,018 | ||||||||
|
State and political subdivisions |
47,007 | 416 | 1,005 | 46,418 | ||||||||||||
|
Mortgage-backed securities (1) |
206,861 | 2,700 | 9 | 209,552 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 265,807 | $ | 3,195 | $ | 1,014 | $ | 267,988 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
As of June 30, 2010 |
||||||||||||||||
|
U.S. Government agencies |
$ | 70,284 | $ | 1,076 | $ | — | $ | 71,360 | ||||||||
|
State and political subdivisions |
26,246 | 252 | 7 | 26,491 | ||||||||||||
|
Mortgage-backed securities (1) |
225,618 | 4,046 | 18 | 229,646 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 322,148 | $ | 5,374 | $ | 25 | $ | 327,497 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) |
All are residential type mortgage-backed securities |
10
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The cost basis, unrealized gains and losses, and fair value of securities available for sale at June 30, 2011, December 31, 2010 and June 30, 2010 are presented below (in thousands) .
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
|
As of June 30, 2011 |
||||||||||||||||
|
U.S. Government agencies |
$ | 77,930 | $ | 61 | $ | 514 | $ | 77,477 | ||||||||
|
State and political subdivisions |
25,569 | 1,207 | 4 | 26,772 | ||||||||||||
|
Mortgage-backed securities (1) |
1,556,910 | 35,991 | 283 | 1,592,618 | ||||||||||||
|
Other |
121,473 | 100 | 1,827 | 119,746 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 1,781,882 | $ | 37,359 | $ | 2,628 | $ | 1,816,613 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
As of December 31, 2010 |
||||||||||||||||
|
U.S. Government agencies |
$ | 99,969 | $ | 67 | $ | 1,556 | $ | 98,480 | ||||||||
|
State and political subdivisions |
27,600 | 878 | 36 | 28,442 | ||||||||||||
|
Mortgage-backed securities (1) |
963,475 | 29,204 | 1,671 | 991,008 | ||||||||||||
|
Other |
107,811 | 192 | 1,516 | 106,487 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 1,198,855 | $ | 30,341 | $ | 4,779 | $ | 1,224,417 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
As of June 30, 2010 |
||||||||||||||||
|
U.S. Government agencies |
$ | 216,759 | $ | 936 | $ | — | $ | 217,695 | ||||||||
|
State and political subdivisions |
32,998 | 1,001 | 14 | 33,985 | ||||||||||||
|
Mortgage-backed securities (1) |
864,141 | 37,730 | 1,103 | 900,768 | ||||||||||||
|
Other |
13,160 | 168 | — | 13,328 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 1,127,058 | $ | 39,835 | $ | 1,117 | $ | 1,165,776 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) |
All are residential type mortgage-backed securities |
The following table summarizes held to maturity securities in an unrealized loss position as of June 30, 2011, December 31, 2010 and June 30, 2010 (in thousands) .
| September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
| Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
|
As of June 30, 2011 |
||||||||||||||||||||||||
|
State and political subdivisions |
$ | 10,160 | $ | 292 | $ | — | $ | — | $ | 10,160 | $ | 292 | ||||||||||||
|
Mortgage-backed securities |
25,160 | 60 | 1,937 | 2 | 27,097 | 62 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total unrealized loss position |
$ | 35,320 | $ | 352 | $ | 1,937 | $ | 2 | $ | 37,257 | $ | 354 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
As of December 31, 2010 |
||||||||||||||||||||||||
|
State and political subdivisions |
$ | 28,949 | $ | 1,005 | $ | — | $ | — | $ | 28,949 | $ | 1,005 | ||||||||||||
|
Mortgage-backed securities |
1,951 | 9 | — | — | 1,951 | 9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total unrealized loss position |
$ | 30,900 | $ | 1,014 | $ | — | $ | — | $ | 30,900 | $ | 1,014 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
As of June 30, 2010 |
||||||||||||||||||||||||
|
State and political subdivisions |
$ | 1,145 | $ | 7 | $ | — | $ | — | $ | 1,145 | $ | 7 | ||||||||||||
|
Mortgage-backed securities |
1,963 | 18 | — | — | 1,963 | 18 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total unrealized loss position |
$ | 3,108 | $ | 25 | $ | — | $ | — | $ | 3,108 | $ | 25 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
11
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes available for sale securities in an unrealized loss position as of June 30, 2011, December 31, 2010 and June 30, 2010 (in thousands) .
| September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
| Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
|
As of June 30, 2011 |
||||||||||||||||||||||||
|
U.S. Government agencies |
$ | 54,482 | $ | 514 | $ | — | $ | — | $ | 54,482 | $ | 514 | ||||||||||||
|
State and political subdivisions |
301 | — | 10 | 4 | 311 | 4 | ||||||||||||||||||
|
Mortgage-backed securities |
169,907 | 283 | — | — | 169,907 | 283 | ||||||||||||||||||
|
Other |
97,145 | 1,827 | — | — | 97,145 | 1,827 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total unrealized loss position |
$ | 321,835 | $ | 2,624 | $ | 10 | $ | 4 | $ | 321,845 | $ | 2,628 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
As of December 31, 2010 |
||||||||||||||||||||||||
|
U.S. Government agencies |
$ | 68,412 | $ | 1,556 | $ | — | $ | — | $ | 68,412 | $ | 1,556 | ||||||||||||
|
State and political subdivisions |
1,082 | 30 | 12 | 6 | 1,094 | 36 | ||||||||||||||||||
|
Mortgage-backed securities |
59,505 | 1,630 | 2,799 | 41 | 62,304 | 1,671 | ||||||||||||||||||
|
Other |
69,985 | 1,516 | — | — | 69,985 | 1,516 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total unrealized loss position |
$ | 198,984 | $ | 4,732 | $ | 2,811 | $ | 47 | $ | 201,795 | $ | 4,779 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
As of June 30, 2010 |
||||||||||||||||||||||||
|
State and political subdivisions |
$ | 300 | $ | 2 | $ | 401 | $ | 12 | $ | 701 | $ | 14 | ||||||||||||
|
Mortgage-backed securities |
19,499 | 456 | 25,639 | 647 | 45,138 | 1,103 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total unrealized loss position |
$ | 19,799 | $ | 458 | $ | 26,040 | $ | 659 | $ | 45,839 | $ | 1,117 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At June 30, 2011, there were 28 available for sale securities and 13 held to maturity securities that were in an unrealized loss position. United does not intend to sell nor believes it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at June 30, 2011 were primarily attributable to changes in interest rates.
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analyst’s reports. During the six months ended June 30, 2010, United recorded impairment losses of $950,000 on investments in financial institutions that showed evidence of other-than-temporary impairment. No impairment losses were identified in the first six months of 2011.
Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes securities sales activity for the three and six month periods ended June 30, 2011 and 2010 (in thousands) .
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Proceeds from sales |
$ | 55,363 | $ | — | $ | 106,603 | $ | 40,817 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Gross gains on sales |
$ | 838 | $ | — | $ | 1,169 | $ | 1,260 | ||||||||
|
Gross losses on sales |
55 | — | 331 | 249 | ||||||||||||
|
Impairment losses |
— | — | — | 950 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net gains on sales of securities |
$ | 783 | $ | — | $ | 838 | $ | 61 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Income tax expense attributable to sales |
$ | 305 | $ | — | $ | 326 | $ | 24 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
12
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Securities with a carrying value of $2.11 billion, $1.43 billion, and $1.12 billion were pledged to secure public deposits, FHLB advances and other secured borrowings at June 30, 2011, December 31, 2010 and June 30, 2010.
The amortized cost and fair value of held to maturity and available for sale securities at June 30, 2011, by contractual maturity, are presented in the following table (in thousands) .
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| Available for Sale | Held to Maturity | |||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
|
U.S. Government agencies: |
||||||||||||||||
|
5 to 10 years |
$ | 64,350 | $ | 64,034 | $ | — | $ | — | ||||||||
|
More than 10 years |
13,580 | 13,443 | 5,000 | 5,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 77,930 | 77,477 | 5,000 | 5,000 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
State and political subdivisions: |
||||||||||||||||
|
Within 1 year |
4,715 | 4,781 | — | — | ||||||||||||
|
1 to 5 years |
14,682 | 15,485 | 2,025 | 2,078 | ||||||||||||
|
5 to 10 years |
5,324 | 5,627 | 21,273 | 22,336 | ||||||||||||
|
More than 10 years |
848 | 879 | 25,824 | 26,239 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 25,569 | 26,772 | 49,122 | 50,653 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Other: |
||||||||||||||||
|
1 to 5 years |
18,475 | 17,962 | — | — | ||||||||||||
|
5 to 10 years |
99,546 | 99,033 | — | — | ||||||||||||
|
More than 10 years |
3,452 | 2,751 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 121,473 | 119,746 | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total securities other than mortgage-backed securities: |
||||||||||||||||
|
Within 1 year |
4,715 | 4,781 | — | — | ||||||||||||
|
1 to 5 years |
33,157 | 33,447 | 2,025 | 2,078 | ||||||||||||
|
5 to 10 years |
169,220 | 168,694 | 21,273 | 22,336 | ||||||||||||
|
More than 10 years |
17,880 | 17,073 | 30,824 | 31,239 | ||||||||||||
|
Mortgage-backed securities |
1,556,910 | 1,592,618 | 317,456 | 323,578 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 1,781,882 | $ | 1,816,613 | $ | 371,578 | $ | 379,231 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
13
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 – Loans and Allowance for Loan Losses
Major classifications of loans as of June 30, 2011, December 31, 2010 and June 30, 2010, are summarized as follows (in thousands) .
| September 30, | September 30, | September 30, | ||||||||||
| June 30, | December 31, | June 30, | ||||||||||
| 2011 | 2010 | 2010 | ||||||||||
|
Commercial (secured by real estate) |
$ | 1,741,754 | $ | 1,761,424 | $ | 1,780,142 | ||||||
|
Commercial construction |
195,190 | 296,582 | 342,140 | |||||||||
|
Commercial (commercial and industrial) |
428,058 | 441,518 | 441,097 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total commercial |
2,365,002 | 2,499,524 | 2,563,379 | |||||||||
|
Residential construction |
501,909 | 695,166 | 819,930 | |||||||||
|
Residential mortgage |
1,177,226 | 1,278,780 | 1,355,582 | |||||||||
|
Consumer installment |
119,310 | 130,656 | 134,139 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total loans |
4,163,447 | 4,604,126 | 4,873,030 | |||||||||
|
Less allowance for loan losses |
127,638 | 174,695 | 174,111 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Loans, net |
$ | 4,035,809 | $ | 4,429,431 | $ | 4,698,919 | ||||||
|
|
|
|
|
|
|
|||||||
The Bank makes loans and extensions of credit to individuals and a variety of firms and corporations located primarily in counties in north Georgia, the Atlanta, Georgia MSA, the Gainesville, Georgia MSA, coastal Georgia, western North Carolina and east Tennessee. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market.
Changes in the allowance for loan losses for the three and six months ended June 30, 2011 and 2010 are summarized as follows (in thousands) .
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Balance beginning of period |
$ | 133,121 | $ | 173,934 | $ | 174,695 | $ | 155,602 | ||||||||
|
Provision for loan losses |
11,000 | 61,500 | 201,000 | 136,500 | ||||||||||||
|
Charge-offs: |
||||||||||||||||
|
Commercial (secured by real estate) |
3,433 | 9,791 | 52,140 | 12,727 | ||||||||||||
|
Commercial construction |
980 | 1,460 | 50,695 | 3,671 | ||||||||||||
|
Commercial (commercial and industrial) |
604 | 1,764 | 4,966 | 6,318 | ||||||||||||
|
Residential construction |
6,769 | 41,781 | 99,024 | 85,971 | ||||||||||||
|
Residential mortgage |
4,667 | 6,752 | 41,343 | 11,392 | ||||||||||||
|
Consumer installment |
883 | 1,417 | 1,979 | 2,546 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total loans charged-off |
17,336 | 62,965 | 250,147 | 122,625 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Recoveries: |
||||||||||||||||
|
Commercial (secured by real estate) |
174 | 34 | 274 | 1,006 | ||||||||||||
|
Commercial construction |
111 | — | 111 | 5 | ||||||||||||
|
Commercial (commercial and industrial) |
81 | 897 | 403 | 1,341 | ||||||||||||
|
Residential construction |
140 | 266 | 257 | 1,356 | ||||||||||||
|
Residential mortgage |
78 | 235 | 371 | 324 | ||||||||||||
|
Consumer installment |
269 | 210 | 674 | 602 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total recoveries |
853 | 1,642 | 2,090 | 4,634 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net charge-offs |
16,483 | 61,323 | 248,057 | 117,991 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance end of period |
$ | 127,638 | $ | 174,111 | $ | 127,638 | $ | 174,111 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
14
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At June 30, 2011, December 31, 2010 and June 30, 2010, loans with a carrying value of $991 million, $1.02 billion and $1.50 billion were pledged as collateral to secure FHLB advances and other contingent funding sources.
The following table presents the balance and activity in the allowance for loan losses by portfolio segment and the recorded investment in loans by portfolio segment based on impairment method as of June 30, 2011, December 31, 2010 and June 30, 2010 ( in thousands) .
| 00000 | 00000 | 00000 | 00000 | 00000 | 00000 | 00000 | 00000 | |||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Commercial | (Commercial | |||||||||||||||||||||||||||||||
| (Secured by | Commercial | and | Residential | Residential | Consumer | |||||||||||||||||||||||||||
| Real Estate) | Construction | Industrial) | Construction | Mortgage | Installment | Unallocated | Total | |||||||||||||||||||||||||
|
Six Months Ended June 30, 2011 |
||||||||||||||||||||||||||||||||
|
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
|
Beginning balance |
$ | 31,191 | $ | 6,780 | $ | 7,580 | $ | 92,571 | $ | 22,305 | $ | 3,030 | $ | 11,238 | $ | 174,695 | ||||||||||||||||
|
Charge-offs |
(52,140 | ) | (50,695 | ) | (4,966 | ) | (99,024 | ) | (41,343 | ) | (1,979 | ) | — | (250,147 | ) | |||||||||||||||||
|
Recoveries |
274 | 111 | 403 | 257 | 371 | 674 | — | 2,090 | ||||||||||||||||||||||||
|
Provision |
42,671 | 51,256 | 4,016 | 55,249 | 49,063 | 498 | (1,753 | ) | 201,000 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Ending balance |
$ | 21,996 | $ | 7,452 | $ | 7,033 | $ | 49,053 | $ | 30,396 | $ | 2,223 | $ | 9,485 | $ | 127,638 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Ending allowance attributable to loans: |
||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | 78 | $ | 450 | $ | — | $ | — | $ | 639 | $ | — | $ | — | $ | 1,167 | ||||||||||||||||
|
Collectively evaluated for impairment |
21,918 | 7,002 | 7,033 | 49,053 | 29,757 | 2,223 | 9,485 | 126,471 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total ending allowance balance |
$ | 21,996 | $ | 7,452 | $ | 7,033 | $ | 49,053 | $ | 30,396 | $ | 2,223 | $ | 9,485 | $ | 127,638 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Loans: |
||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | 14,780 | $ | 1,015 | $ | — | $ | 12,611 | $ | 7,247 | $ | — | $ | — | $ | 35,653 | ||||||||||||||||
|
Collectively evaluated for impairment |
1,726,974 | 194,175 | 428,058 | 489,298 | 1,169,979 | 119,310 | — | 4,127,794 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans |
$ | 1,741,754 | $ | 195,190 | $ | 428,058 | $ | 501,909 | $ | 1,177,226 | $ | 119,310 | $ | — | $ | 4,163,447 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
December 31, 2010 |
||||||||||||||||||||||||||||||||
|
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
|
Ending allowance attributable to loans: |
||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | 268 | $ | — | $ | — | $ | 644 | $ | 137 | $ | — | $ | — | $ | 1,049 | ||||||||||||||||
|
Collectively evaluated for impairment |
30,923 | 6,780 | 7,580 | 91,927 | 22,168 | 3,030 | 11,238 | 173,646 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total ending allowance balance |
$ | 31,191 | $ | 6,780 | $ | 7,580 | $ | 92,571 | $ | 22,305 | $ | 3,030 | $ | 11,238 | $ | 174,695 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Loans: |
||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | 41,818 | $ | 20,311 | $ | 5,874 | $ | 39,505 | $ | 15,468 | $ | — | $ | — | $ | 122,976 | ||||||||||||||||
|
Collectively evaluated for impairment |
1,719,606 | 276,271 | 435,644 | 655,661 | 1,263,312 | 130,656 | — | 4,481,150 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans |
$ | 1,761,424 | $ | 296,582 | $ | 441,518 | $ | 695,166 | $ | 1,278,780 | $ | 130,656 | $ | — | $ | 4,604,126 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Six Months Ended June 30, 2010 |
||||||||||||||||||||||||||||||||
|
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
|
Beginning balance |
$ | 19,208 | $ | 5,861 | $ | 6,892 | $ | 93,585 | $ | 17,266 | $ | 2,545 | $ | 10,245 | $ | 155,602 | ||||||||||||||||
|
Charge-offs |
(12,727 | ) | (3,671 | ) | (6,318 | ) | (85,971 | ) | (11,392 | ) | (2,546 | ) | — | (122,625 | ) | |||||||||||||||||
|
Recoveries |
1,006 | 5 | 1,341 | 1,356 | 324 | 602 | — | 4,634 | ||||||||||||||||||||||||
|
Provision |
11,726 | 6,209 | 7,365 | 95,794 | 13,005 | 2,171 | 230 | 136,500 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Ending balance |
$ | 19,213 | $ | 8,404 | $ | 9,280 | $ | 104,764 | $ | 19,203 | $ | 2,772 | $ | 10,475 | $ | 174,111 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Ending allowance attributable to loans: |
||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | — | $ | 203 | $ | 30 | $ | 685 | $ | 222 | $ | — | $ | — | $ | 1,140 | ||||||||||||||||
|
Collectively evaluated for impairment |
19,213 | 8,201 | 9,250 | 104,079 | 18,981 | 2,772 | 10,475 | 172,971 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total ending allowance balance |
$ | 19,213 | $ | 8,404 | $ | 9,280 | $ | 104,764 | $ | 19,203 | $ | 2,772 | $ | 10,475 | $ | 174,111 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Loans: |
||||||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | 48,018 | $ | 16,917 | $ | 7,909 | $ | 65,622 | $ | 24,106 | $ | — | $ | — | $ | 162,572 | ||||||||||||||||
|
Collectively evaluated for impairment |
1,732,124 | 325,223 | 433,188 | 754,308 | 1,331,476 | 134,139 | — | 4,710,458 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans |
$ | 1,780,142 | $ | 342,140 | $ | 441,097 | $ | 819,930 | $ | 1,355,582 | $ | 134,139 | $ | — | $ | 4,873,030 | ||||||||||||||||
|
|
|
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United reviews all loans that are on nonaccrual with a balance of $500,000 or greater for impairment. A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due, according to the contractual terms of the loan, will not be collected. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Interest payments received on impaired loans are applied as a reduction of the outstanding principal balance.
In the first quarter 2011, United’s Board of Directors adopted an accelerated problem asset disposition plan which included the bulk sale of $267 million in classified loans. Those loans were classified as held for sale at the end of the first quarter and were written down to the expected proceeds from the sale. The charge-offs on the loans transferred to held for sale in anticipation of the bulk loan sale which closed on April 18, 2011, increased first quarter 2011 loan charge-offs by $186 million. The actual loss on the bulk loan sale at closing was less than the amount charged-off in the first quarter, resulting in a $7.27 million reduction of second quarter 2011 charge-offs.
15
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The recorded investments in individually evaluated impaired loans at June 30, 2011, December 31, 2010 and June 30, 2010 were as follows ( in thousands) .
| September 30, | September 30, | September 30, | ||||||||||
| June 30, | December 31, | June 30, | ||||||||||
| 2011 | 2010 | 2010 | ||||||||||
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Period-end loans with no allocated allowance for loan losses |
$ | 32,791 | $ | 115,338 | $ | 150,083 | ||||||
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Period-end loans with allocated allowance for loan losses |
2,862 | 7,638 | 12,489 | |||||||||
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Total |
$ | 35,653 | $ | 122,976 | $ | 162,572 | ||||||
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Amount of allowance for loan losses allocated |
$ | 1,167 | $ | 1,049 | $ | 1,140 | ||||||
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The average balances of impaired loans and income recognized on impaired loans while they were considered impaired is presented below for the three and six months ended June 30, 2011 and 2010 ( in thousands) .
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
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Average balance of individually evaluated impaired loans during period |
$ | 42,099 | $ | 171,469 | $ | 68,631 | $ | 191,161 | ||||||||
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Interest income recognized during impairment |
— | — | — | — | ||||||||||||
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Cash-basis interest income recognized |
— | — | — | — | ||||||||||||
The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011, December 31, 2010 and June 30, 2010 (in thousands) .
| 00000 | 00000 | 00000 | 00000 | 00000 | 00000 | 00000 | 00000 | 00000 | ||||||||||||||||||||||||||||
| June 30, 2011 | December 31, 2010 | June 30, 2010 | ||||||||||||||||||||||||||||||||||
| Allowance | Allowance | Allowance | ||||||||||||||||||||||||||||||||||
| Unpaid | for Loan | Unpaid | for Loan | Unpaid | for Loan | |||||||||||||||||||||||||||||||
| Principal | Recorded | Losses | Principal | Recorded | Losses | Principal | Recorded | Losses | ||||||||||||||||||||||||||||
| Balance | Investment | Allocated | Balance | Investment | Allocated | Balance | Investment | Allocated | ||||||||||||||||||||||||||||
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With no related allowance recorded: |
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Commercial (secured by real estate) |
$ | 19,653 | $ | 13,572 | $ | — | $ | 60,238 | $ | 39,588 | $ | — | $ | 63,663 | $ | 48,018 | $ | — | ||||||||||||||||||
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Commercial construction |
— | — | — | 33,898 | 20,311 | — | 21,563 | 11,810 | — | |||||||||||||||||||||||||||
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Commercial (commercial and industrial) |
— | — | — | 10,115 | 5,874 | — | 9,212 | 7,172 | — | |||||||||||||||||||||||||||
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Total commercial |
19,653 | 13,572 | — | 104,251 | 65,773 | — | 94,438 | 67,000 | — | |||||||||||||||||||||||||||
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Residential construction |
27,441 | 12,611 | — | 59,502 | 34,597 | — | 128,082 | 62,595 | — | |||||||||||||||||||||||||||
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Residential mortgage |
10,006 | 6,608 | — | 21,528 | 14,968 | — | 28,026 | 20,488 | — | |||||||||||||||||||||||||||
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Consumer installment |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||