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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the Quarterly Period Ended June 30, 2021

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

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class			Trading Symbol(s)			Name of Each Exchange on Which Registered
Common stock, par value $1 per share			UCBI			Nasdaq Global Select Market
Depositary shares, each representing 1/1000th interest in a share of Series I Non-Cumulative Preferred Stock			UCBIO			Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ☐ No ☒

There were 86,627,703 shares of the registrant’s common stock, par value $1 per share, outstanding as of July 31, 2021.

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UNITED COMMUNITY BANKS, INC.

FORM 10-Q

INDEX

						Glossary of Defined Terms			3
						Forward Looking Statements			4
PART I - Financial Information
			Item 1.			Financial Statements.
						Consolidated Balance Sheets (unaudited) at June 30, 2021 and December 31, 2020			5
						Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			6
						Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			7
						Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			8
						Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2021 and 2020			9
						Notes to Consolidated Financial Statements			10
			Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations.			33
			Item 3.			Quantitative and Qualitative Disclosures About Market Risk.			54
			Item 4.			Controls and Procedures.			54
PART II - Other Information
			Item 1.			Legal Proceedings.			55
			Item 1A.			Risk Factors.			55
			Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds.			55
			Item 6.			Exhibits.			56

2

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Glossary of Defined Terms

The following terms may be used throughout this report, including the consolidated financial statements and related notes.

Term						Definition
2020 10-K						Annual Report on Form 10-K for the year ended December 31, 2020
ACL						Allowance for credit losses
AFS						Available-for-sale
ALCO						Asset/Liability Management Committee
AOCI						Accumulated other comprehensive income (loss)
ASU						Accounting standards update
Bank						United Community Bank
Board						United Community Banks Inc., Board of Directors
BOLI						Bank-owned life insurance
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CECL						Current expected credit loss model
CET1						Common equity tier 1
CME						Chicago Mercantile Exchange
Company						United Community Banks Inc. (interchangeable with "United" below)
CVA						Credit valuation adjustments
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Federal Reserve						Federal Reserve System
FHLB						Federal Home Loan Bank
FTE						Fully taxable equivalent
GAAP						Accounting principles generally accepted in the United States of America
GSE						U.S. government-sponsored enterprise
HELOC						Home equity lines of credit
Holding Company						United Community Banks, Inc. on an unconsolidated basis
HTM						Held-to-maturity
LIBOR						London Interbank Offered Rate
MD&A						Management's Discussion and Analysis of Financial Condition and Results of Operations
MBS						Mortgage-backed securities
NOW						Negotiable order of withdrawal
NPA						Nonperforming asset
OCI						Other comprehensive income (loss)
PCD						Purchased credit deteriorated loans
PPP						Paycheck Protection Program
Report						Quarterly Report on Form 10-Q
SBA						United States Small Business Administration
Seaside						Seaside National Bank & Trust, subsidiary bank of Three Shores Bancorporation, Inc.
SEC						Securities and Exchange Commission
TDR						Troubled debt restructuring
Three Shores						Three Shores Bancorporation, Inc., parent company of Seaside National Bank & Trust
U.S. Treasury						United States Department of the Treasury
United						United Community Banks, Inc. and its direct and indirect subsidiaries
USDA						United States Department of Agriculture

3

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Cautionary Note Regarding Forward-looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither statements of historical or current fact nor are they assurances of future performance and generally can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”, “could”, “should”, “projects”, “plans”, “goal”, “targets”, “potential”, “estimates”, “pro forma”, “seeks”, “intends”, or “anticipates”, or similar expressions. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions or events, and statements about our future performance, operations, products and services, and should be viewed with caution.

Because forward-looking statements relate to the future, they are subject to known and unknown risks, uncertainties, assumptions, and changes in circumstances, many of which are beyond our control, and that are difficult to predict as to timing, extent, likelihood and degree of occurrence, and that could cause actual results to differ materially from the results implied or anticipated by the statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, but are not limited to the following:

•negative economic and political conditions that adversely affect the general economy, housing prices, the real estate market, the job market, consumer confidence, the financial condition of our borrowers and consumer spending habits, which may affect, among other things, the levels of non-performing assets, charge-offs and provision expense;

•changes in loan underwriting, credit review or loss policies associated with economic conditions, examination conclusions or regulatory developments, either as they currently exist or as they may be affected by conditions associated with the COVID-19 pandemic;

•the COVID-19 pandemic and its continuing effects on the economic and business environments in which we operate;

•strategic, market, operational, liquidity and interest rate risks associated with our business;

•continuation of historically low interest rates coupled with other potential fluctuations or unanticipated changes in the interest rate environment, including interest rate changes made by the Federal Reserve, the discontinuation of LIBOR as an interest rate benchmark, and cash flow reassessments, may reduce net interest margin and/or the volumes and values of loans made or held as well as the value of other financial assets;

•our lack of geographic diversification and any unanticipated or greater than anticipated adverse conditions in the national or local economies in which we operate;

•our loan concentration in industries or sectors that may experience unanticipated or anticipated adverse conditions greater than other industries or sectors in the national or local economies in which we operate;

•the risks of expansion into new geographic or product markets;

•risks with respect to pending or future mergers or acquisitions, including our ability to successfully expand and complete acquisitions and integrate businesses and operations that we acquire;

•our ability to attract and retain key employees;

•competition from financial institutions and other financial service providers, including non-bank financial technology providers, and our ability to attract customers from other financial institutions;

•losses due to fraudulent and negligent conduct of our customers, third party service providers or employees;

•cybersecurity risks and the vulnerability of our network and online banking portals, and the systems of parties with whom we contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches that could adversely affect our business and financial performance or reputation;

•our reliance on third parties to provide key components of our business infrastructure and services required to operate our business;

•the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technological changes in the financial services market;

•the availability of and access to capital;

•legislative, regulatory or accounting changes that may adversely affect us;

•volatility in the ACL resulting from the CECL methodology, either alone or as that may be affected by conditions arising out of the COVID-19 pandemic;

•adverse results (including judgments, costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, regulatory proceedings, examinations, investigations, or similar matters, or developments related thereto;

•any matter that would cause us to conclude that there was impairment of any asset, including intangible assets, such as goodwill;

•limitations on our ability to declare and pay dividends and other distributions from the Bank to the Holding Company, which could affect Holding Company liquidity, including the ability to pay dividends to shareholders or undertake other capital initiatives, such as share repurchases; and

•other risks and uncertainties disclosed in documents filed or furnished by us with or to the SEC, any of which could cause actual results to differ materially from future results expressed, implied or otherwise anticipated by such forward-looking statements.

We caution readers that the foregoing list of factors is not exclusive, is not necessarily in order of importance and readers should not place undue reliance on forward-looking statements. Additional factors that may cause actual results to differ materially from those contemplated by any forward-looking statements also may be found in our 2020 10-K (including the “Risk Factor” section of that report), Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the SEC and available at the SEC’s website at http://www.sec.gov. We do not intend to and, except as required by law, hereby disclaim any obligation to update or revise any forward-looking statement contained in this Form 10-Q, which speaks only as of the date hereof, whether as a result of new information, future events, or otherwise. The financial statements and information contained herein have not been reviewed, or confirmed for accuracy or relevance, by the FDIC or any other regulator.

4

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED COMMUNITY BANKS, INC.
Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)

						June 30, 2021						December 31, 2020
ASSETS
Cash and due from banks						$	121,589					$	148,896
Interest-bearing deposits in banks						1,297,808						1,459,723
Cash and cash equivalents						1,419,397						1,608,619
Debt securities available-for-sale						4,075,781						3,224,721
Debt securities held-to-maturity (fair value $861,488 and $437,193, respectively)						852,404						420,361
Loans held for sale at fair value						98,194						105,433
Loans and leases held for investment						11,390,746						11,370,815
Less allowance for credit losses - loans and leases						(111,616)						(137,010)
Loans and leases, net						11,279,130						11,233,805
Premises and equipment, net						224,980						218,489
Bank owned life insurance						203,449						201,969
Accrued interest receivable						43,521						47,672
Net deferred tax asset						32,918						38,411
Derivative financial instruments						58,489						86,666
Goodwill and other intangible assets, net						379,909						381,823
Other assets						227,551						226,405
Total assets						$	18,895,723					$	17,794,374
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand						$	6,260,756					$	5,390,291
Interest-bearing deposits						10,067,011						9,842,067
Total deposits						16,327,767						15,232,358
Long-term debt						261,919						326,956
Derivative financial instruments						27,089						29,003
Accrued expenses and other liabilities						192,662						198,527
Total liabilities						16,809,437						15,786,844
Shareholders' equity:
Preferred stock, $1 par value: 10,000,000 shares authorized; Series I, $25,000 per share liquidation preference; 4,000 shares issued and outstanding						96,422						96,422
Common stock, $1 par value: 200,000,000 and 150,000,000 shares authorized, respectively; 86,664,894 and 86,675,279 shares issued and outstanding, respectively						86,665						86,675
Common stock issuable: 571,580 and 600,834 shares, respectively						10,650						10,855
Capital surplus						1,636,875						1,638,999
Retained earnings						244,006						136,869
Accumulated other comprehensive income						11,668						37,710
Total shareholders' equity						2,086,286						2,007,530
Total liabilities and shareholders' equity						$	18,895,723					$	17,794,374

 

See accompanying notes to consolidated financial statements (unaudited).

5

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UNITED COMMUNITY BANKS, INC.
Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)

									Three Months Ended June 30,												Six Months Ended June 30,
									2021						2020						2021						2020
			Interest revenue:
			Loans, including fees						$	128,058					$	107,862					$	253,784					$	225,925
			Investment securities, including tax exempt of $2,255 and $1,570 and $4,405 and $3,093, respectively						17,542						15,615						32,990						33,009
			Deposits in banks and short-term investments						209						128						577						1,218
			Total interest revenue						145,809						123,605						287,351						260,152
			Interest expense:
			Deposits						3,620						11,271						8,839						26,346
			Short-term borrowings						—						—						2						2
			Long-term debt						3,813						3,030						8,070						5,894
			Total interest expense						7,433						14,301						16,911						32,242
			Net interest revenue						138,376						109,304						270,440						227,910
			(Release of) provision for credit losses						(13,588)						33,543						(25,869)						55,734
			Net interest revenue after provision for credit losses						151,964						75,761						296,309						172,176
			Noninterest income:
			Service charges and fees						8,335						6,995						15,905						15,633
			Mortgage loan gains and other related fees						11,136						23,659						33,708						31,969
			Wealth management fees						3,822						1,324						7,327						2,964
			Gains from sales of other loans, net						4,123						1,040						5,153						2,714
			Securities gains, net						41						—						41						—
			Other						8,384						7,220						18,412						12,772
			Total noninterest income						35,841						40,238						80,546						66,052
			Total revenue						187,805						115,999						376,855						238,228
			Noninterest expenses:
			Salaries and employee benefits						59,414						51,811						119,999						103,169
			Communications and equipment						7,408						6,556						14,611						12,502
			Occupancy						7,078						5,945						14,034						11,659
			Advertising and public relations						1,493						2,260						2,692						3,534
			Postage, printing and supplies						1,618						1,613						3,440						3,283
			Professional fees						4,928						4,823						9,162						8,920
			Lending and loan servicing expense						3,181						3,189						6,058						5,482
			Outside services - electronic banking						2,285						1,796						4,503						3,628
			FDIC assessments and other regulatory charges						1,901						1,558						3,797						3,042
			Amortization of intangibles						929						987						1,914						2,027
			Merger-related and other charges						1,078						397						2,621						1,205
			Other						4,227						3,045						7,903						7,067
			Total noninterest expenses						95,540						83,980						190,734						165,518
			Income before income taxes						92,265						32,019						186,121						72,710
			Income tax expense						22,005						6,923						42,155						15,730
			Net income						$	70,260					$	25,096					$	143,966					$	56,980
			Net income available to common shareholders						$	68,109					$	24,913					$	139,634					$	56,554
			Net income per common share:
			Basic						$	0.78					$	0.32					$	1.60					$	0.71
			Diluted						0.78						0.32						1.60						0.71
			Weighted average common shares outstanding:
			Basic						87,289						78,920						87,306						79,130
			Diluted						87,421						78,924						87,443						79,186

See accompanying notes to consolidated financial statements (unaudited). 

6

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UNITED COMMUNITY BANKS, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)

						Three Months Ended June 30,																		Six Months Ended June 30,
						Before-tax Amount						Tax (Expense) Benefit						Net of Tax Amount						Before-tax Amount						Tax (Expense) Benefit						Net of Tax Amount
2021
Net income						$	92,265					$	(22,005)					$	70,260					$	186,121					$	(42,155)					$	143,966
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period						10,268						(1,470)						8,798						(39,967)						11,080						(28,887)
Reclassification adjustment for gains included in net income						(41)						14						(27)						(41)						14						(27)
Net unrealized gains (losses)						10,227						(1,456)						8,771						(40,008)						11,094						(28,914)
Derivative instruments designated as cash flow hedges:
Unrealized holding gains (losses) on derivatives arising during the period						(2,739)						700						(2,039)						3,044						(777)						2,267
Reclassification of losses on derivative instruments realized in net income						147						(37)						110						291						(74)						217
Net cash flow hedge activity						(2,592)						663						(1,929)						3,335						(851)						2,484
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan						261						(67)						194						522						(134)						388
Total other comprehensive income (loss)						7,896						(860)						7,036						(36,151)						10,109						(26,042)
Comprehensive income						$	100,161					$	(22,865)					$	77,296					$	149,970					$	(32,046)					$	117,924
2020
Net income						$	32,019					$	(6,923)					$	25,096					$	72,710					$	(15,730)					$	56,980
Other comprehensive income:
Unrealized gains on available-for-sale securities						28,985						(6,969)						22,016						42,670						(10,402)						32,268
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity						96						(23)						73						179						(43)						136
Derivative instruments designated as cash flow hedges:
Unrealized holding losses on derivatives arising during the period						(828)						211						(617)						(828)						211						(617)
Reclassification of losses on derivative instruments realized in net income						67						(17)						50						67						(17)						50
Net cash flow hedge activity						(761)						194						(567)						(761)						194						(567)
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan						214						(55)						159						428						(109)						319
Total other comprehensive income						28,534						(6,853)						21,681						42,516						(10,360)						32,156
Comprehensive income						$	60,553					$	(13,776)					$	46,777					$	115,226					$	(26,090)					$	89,136

See accompanying notes to consolidated financial statements (unaudited).

7

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UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
(in thousands except share data)

			Shares of Common Stock						Preferred Stock						Common Stock						Common Stock Issuable						Capital Surplus						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Total
Balance at March 31, 2020			78,283,544						$	—					$	78,284					$	10,534					$	1,478,719					$	54,206					$	18,869					$	1,640,612
Net income																																	25,096												25,096
Other comprehensive income																																							21,681						21,681
Issuance of preferred stock									96,660																																				96,660
Common stock dividends ($0.18 per share)																																	(14,312)												(14,312)
Impact of equity-based compensation awards			38,247												38						11						1,524																		1,573
Impact of other United sponsored equity plans			13,336												13						101						221																		335
Balance at June 30, 2020			78,335,127						$	96,660					$	78,335					$	10,646					$	1,480,464					$	64,990					$	40,550					$	1,771,645
Balance at March 31, 2021			86,776,508						$	96,422					$	86,777					$	10,485					$	1,640,583					$	192,185					$	4,632					$	2,031,084
Net income																																	70,260												70,260
Other comprehensive income																																							7,036						7,036
Preferred stock dividends																																	(1,719)												(1,719)
Common stock dividends ($0.19 per share)																																	(16,720)												(16,720)
Purchases of common stock			(150,000)												(150)												(4,951)																		(5,101)
Impact of equity-based compensation awards			35,675												35						71						1,166																		1,272
Impact of other United sponsored equity plans			2,711												3						94						77																		174
Balance at June 30, 2021			86,664,894						$	96,422					$	86,665					$	10,650					$	1,636,875					$	244,006					$	11,668					$	2,086,286
Balance at December 31, 2019			79,013,729						—						79,014						11,491						1,496,641						40,152						8,394						1,635,692
Net income																																	56,980												56,980
Other comprehensive income																																							32,156						32,156
Issuance of preferred stock									96,660																																				96,660
Purchases of common stock			(826,482)												(827)												(19,955)																		(20,782)
Common stock dividends ($0.36 per share)																																	(28,613)												(28,613)
Impact of equity-based compensation awards			62,252												62						676						2,839																		3,577
Impact of other United sponsored equity plans			85,628												86						(1,521)						939																		(496)
Adoption of new accounting standard																																	(3,529)												(3,529)
Balance at June 30, 2020			78,335,127						$	96,660					$	78,335					$	10,646					$	1,480,464					$	64,990					$	40,550					$	1,771,645
Balance at December 31, 2020			86,675,279						96,422						86,675						10,855						1,638,999						136,869						37,710						2,007,530
Net income																																	143,966												143,966
Other comprehensive loss																																							(26,042)						(26,042)
Purchases of common stock			(150,000)												(150)												(4,951)																		(5,101)
Preferred stock dividends																																	(3,438)												(3,438)
Common stock dividends ($0.38 per share)																																	(33,391)												(33,391)
Impact of equity-based compensation awards			70,845												71						647						1,570																		2,288
Impact of other United sponsored equity plans			68,770												69						(852)						1,257																		474
Balance at June 30, 2021			86,664,894						$	96,422					$	86,665					$	10,650					$	1,636,875					$	244,006					$	11,668					$	2,086,286

See accompanying notes to consolidated financial statements (unaudited).

8

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UNITED COMMUNITY BANKS, INC.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

						Six Months Ended June 30,
						2021						2020
Operating activities:
Net income						$	143,966					$	56,980
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net						(2,961)						5,205
(Release of) provision for credit losses						(25,869)						55,734
Stock based compensation						3,141						4,256
Deferred income tax expense (benefit)						14,621						(2,356)
Securities gains, net						(41)						—
Gains from sales of other loans, net						(5,153)						(2,714)
Changes in assets and liabilities:
Other assets and accrued interest receivable						20,444						(76,407)
Accrued expenses and other liabilities						7,071						15,929
Loans held for sale						7,239						(40,993)
Net cash provided by operating activities						162,458						15,634
Investing activities:
Debt securities held-to-maturity:
Proceeds from maturities and calls						35,590						19,889
Purchases						(468,740)						(43,118)
Debt securities available-for-sale:
Proceeds from sales						78,111						1,000
Proceeds from maturities and calls						456,899						296,744
Purchases						(1,437,481)						(110,481)
Net decrease (increase) in loans						8,861						(1,306,120)
Equity investments, outflows						(8,432)						(8,583)
Equity investments, inflows						5,026						—
Proceeds from sales of premises and equipment						840						102
Purchases of premises and equipment						(14,565)						(3,655)
Proceeds from sale of other real estate						2,042						278
Other investing activities						767						2,730
Net cash used in investing activities						(1,341,082)						(1,151,214)
Financing activities:
Net increase in deposits						1,096,791						1,805,016
Repayment of long-term debt						(65,632)						—
Proceeds from FHLB advances						5,000						5,000
Repayment of FHLB advances						(5,000)						(5,000)
Proceeds from issuance of senior debentures, net of issuance costs						—						98,638
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans						320						426
Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock units						(945)						(1,868)
Proceeds from issuance of Series I preferred stock, net of issuance costs						—						96,660
Repurchase of common stock						(5,101)						(20,782)
Cash dividends on common stock						(32,593)						(28,755)
Cash dividends on preferred stock						(3,438)						—
Net cash provided by financing activities						989,402						1,949,335
Net change in cash and cash equivalents						(189,222)						813,755
Cash and cash equivalents, at beginning of period						1,608,619						515,206
Cash and cash equivalents, at end of period						$	1,419,397					$	1,328,961
Supplemental disclosures of cash flow information:
Significant non-cash investing and financing transactions:
Unsettled government guaranteed loan sales						$	6,435					$	289
Transfers of loans to foreclosed properties						1,333						355

See accompanying notes to consolidated financial statements (unaudited). 

9

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Accounting Policies

 

United’s accounting and financial reporting policies conform to GAAP and reporting guidelines of banking regulatory authorities. 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 its 2020 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. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in United’s 2020 10-K.

Note 2 –Accounting Standards Updates and Recently Adopted Standards

Recently Adopted Standards

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. In addition to consolidating existing disclosure guidance into a single codification section to reduce the likelihood of a required disclosure being missed, this update clarifies the application of select guidance in cases where the original guidance may have been unclear. United adopted this update as of January 1, 2021, with no material impact on the consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. This update clarifies that an entity should reevaluate whether a callable debt security meets the criteria to adjust the amortization period of any related premium at each reporting period. United adopted this update as of January 1, 2021, with no material impact on the consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force). This update clarifies whether an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative and how to account for certain forward contracts and purchased options to purchase securities. United adopted this update as of January 1, 2021, with no material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update removes several exceptions related to intraperiod tax allocation when there is a loss from continuing operations and income from other items, foreign subsidiaries becoming equity method investments and vice versa, and calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The guidance also amends requirements related to franchise tax that is partially based on income, a step up in the tax basis of goodwill, allocation of consolidated tax expense to a legal entity not subject to tax in its separate financial statements, the effects of enacted changes in tax laws and other minor codification improvements regarding employee stock ownership plans and investments in qualified affordable housing projects. United adopted this update as of January 1, 2021, with no material impact on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The update removes disclosures that are no longer considered cost beneficial, clarifies specific requirements of disclosures, and adds disclosure requirements identified as relevant. United adopted this update as of January 1, 2021, with no material impact on the consolidated financial statements.

Recently Issued Standards

In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. The update amends the lease classification requirements for lessors to align them with practice under the former lease accounting standard. Specifically, lessors should classify a lease with variable lease payments that do not depend on a reference index or rate as an operating lease if certain criteria are met. Adoption of this update, which is effective for United as of January 1, 2022, is not expected to have a material impact on the consolidated financial statements.

10

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 3 – Investment Securities

The amortized cost basis, unrealized gains and losses and fair value of HTM debt securities as of the dates indicated are as follows (in thousands).

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
As of June 30, 2021
U.S. Treasuries			$	19,788					$	267					$	—					$	20,055
U.S. Government agencies & GSEs			59,709						334						351						59,692
State and political subdivisions			248,768						5,742						1,749						252,761
Residential MBS, Agency & GSEs			223,571						3,706						1,079						226,198
Commercial MBS, Agency & GSEs			285,568						4,126						1,950						287,744
Supranational entities			15,000						38						—						15,038
Total			$	852,404					$	14,213					$	5,129					$	861,488
As of December 31, 2020
U.S. Government agencies & GSEs			$	10,575					$	26					$	11					$	10,590
State and political subdivisions			197,723						7,658						242						205,139
Residential MBS, Agency & GSEs			113,400						4,774						1						118,173
Commercial MBS, Agency & GSEs			98,663						4,874						246						103,291
Total			$	420,361					$	17,332					$	500					$	437,193

The amortized cost basis, unrealized gains and losses, and fair value of AFS debt securities as of the dates indicated are presented below (in thousands).

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
As of June 30, 2021
U.S. Treasuries			$	138,884					$	3,196					$	—					$	142,080
U.S. Government agencies & GSEs			153,601						871						1,848						152,624
State and political subdivisions			273,433						17,154						1,241						289,346
Residential MBS, Agency & GSEs			1,831,697						21,089						11,809						1,840,977
Residential MBS, Non-agency			132,100						3,972						4						136,068
Commercial MBS, Agency & GSEs			695,417						4,626						8,676						691,367
Commercial MBS, Non-agency			15,219						1,622						—						16,841
Corporate bonds			150,736						1,329						254						151,811
Asset-backed securities			652,093						2,914						340						654,667
Total			$	4,043,180					$	56,773					$	24,172					$	4,075,781
As of December 31, 2020
U.S. Treasuries			$	123,677					$	4,395					$	—					$	128,072
U.S. Government agencies & GSEs			152,596						701						325						152,972
State and political subdivisions			253,630						20,891						49						274,472
Residential MBS, Agency & GSEs			1,275,551						29,107						766						1,303,892
Residential MBS, Non-agency			174,322						7,499						128						181,693
Commercial MBS, Agency & GSEs			524,852						8,013						597						532,268
Commercial MBS, Non-agency			15,350						1,513						—						16,863
Corporate bonds			70,057						1,711						1						71,767
Asset-backed securities			562,076						1,278						632						562,722
Total			$	3,152,111					$	75,108					$	2,498					$	3,224,721

 

Securities with a carrying value of $1.15 billion and $1.11 billion were pledged, primarily to secure public deposits, at June 30, 2021 and December 31, 2020, respectively.

11

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 The following table summarizes HTM debt securities in an unrealized loss position as of the dates indicated (in thousands).

			Less than 12 Months												12 Months or More												Total
			Fair Value						Unrealized Loss						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss
As of June 30, 2021
U.S. Government agencies & GSEs			$	10,143					$	351					$	—					$	—					$	10,143					$	351
State and political subdivisions			85,484						1,749						—						—						85,484						1,749
Residential MBS, Agency & GSEs			89,888						1,078						120						1						90,008						1,079
Commercial MBS, Agency & GSEs			125,226						1,950						—						—						125,226						1,950
Total unrealized loss position			$	310,741					$	5,128					$	120					$	1					$	310,861					$	5,129
As of December 31, 2020
U.S. Government agencies & GSEs			$	4,677					$	11					$	—					$	—					$	4,677					$	11
State and political subdivisions			14,870						242						—						—						14,870						242
Residential MBS, Agency & GSEs			999						1						—						—						999						1
Commercial MBS, Agency & GSEs			24,956						236						1,352						10						26,308						246
Total unrealized loss position			$	45,502					$	490					$	1,352					$	10					$	46,854					$	500

 

The following table summarizes AFS debt securities in an unrealized loss position as of the dates indicated (in thousands).

			Less than 12 Months												12 Months or More												Total
			Fair Value						Unrealized Loss						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss
As of June 30, 2021
U.S. Government agencies & GSEs			$	78,309					$	1,848					$	—					$	—					$	78,309					$	1,848
State and political subdivisions			52,132						1,241						—						—						52,132						1,241
Residential MBS, Agency & GSEs			897,499						11,799						847						10						898,346						11,809
Residential MBS, Non-agency			—						—						2,455						4						2,455						4
Commercial MBS, Agency & GSEs			457,568						8,633						1,025						43						458,593						8,676
Corporate bonds			56,854						254						—						—						56,854						254
Asset-backed securities			116,960						305						24,710						35						141,670						340
Total unrealized loss position			$	1,659,322					$	24,080					$	29,037					$	92					$	1,688,359					$	24,172
As of December 31, 2020
U.S. Government agencies & GSEs			$	27,952					$	324					$	607					$	1					$	28,559					$	325
State and political subdivisions			9,402						49						—						—						9,402						49
Residential MBS, Agency & GSEs			232,199						766						—						—						232,199						766
Residential MBS, Non-agency			2,331						128						—						—						2,331						128
Commercial MBS, Agency & GSEs			89,918						597						—						—						89,918						597
Corporate bonds			1,410						1						—						—						1,410						1
Asset-backed securities			87,305						28						53,587						604						140,892						632
Total unrealized loss position			$	450,517					$	1,893					$	54,194					$	605					$	504,711					$	2,498

 

At June 30, 2021, there were 232 AFS debt securities and 49 HTM debt securities that were in an unrealized loss position. United does not intend to sell nor does it believe 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, 2021 were primarily attributable to changes in interest rates.

At June 30, 2021 and December 31, 2020, calculated credit losses and, thus, the related ACL on HTM debt securities were not material due to the high credit quality of the portfolio, which included securities issued or guaranteed by U.S. Government agencies, GSEs, high credit quality municipalities and supranational entities. As a result, no ACL was recorded on the HTM portfolio at June 30, 2021 or December 31, 2020. In addition, based on the assessments performed at June 30, 2021 and December 31, 2020, there was no ACL required related to the AFS portfolio.

12

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents accrued interest receivable for the periods indicated on HTM and AFS debt securities (in thousands), which was excluded from the estimate of credit losses.

						Accrued Interest Receivable
						June 30, 2021						December 31, 2020
			HTM			$	2,886					$	1,784
			AFS			9,809						9,114

The amortized cost and fair value of AFS and HTM debt securities at June 30, 2021, by contractual maturity, are presented in the following table (in thousands). Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations. 

			AFS												HTM
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
Within 1 year:
U.S. Treasuries			$	44,930					$	45,341					$	—					$	—
U.S. Government agencies & GSEs			279						281						—						—
State and political subdivisions			20,000						20,000						1,700						1,718
Corporate bonds			11,534						11,556						—						—
			76,743						77,178						1,700						1,718
1 to 5 years:
U.S. Treasuries			79,030						81,706						—						—
U.S. Government agencies & GSEs			13,835						13,894						—						—
State and political subdivisions			43,350						45,580						14,501						15,763
Corporate bonds			71,166						71,855						—						—
			207,381						213,035						14,501						15,763
5 to 10 years:
U.S. Treasuries			14,924						15,033						19,788						20,055
U.S. Government agencies & GSEs			82,724						81,373						29,604						29,879
State and political subdivisions			86,931						91,420						31,126						32,227
Corporate bonds			67,256						67,515						—						—
Supranational entities			—						—						15,000						15,038
			251,835						255,341						95,518						97,199
More than 10 years:
U.S. Government agencies & GSEs			56,763						57,076						30,105						29,813
State and political subdivisions			123,152						132,346						201,441						203,053
Corporate bonds			780						885						—						—
			180,695						190,307						231,546						232,866
Debt securities not due at a single maturity date:
Asset-backed securities			652,093						654,667						—						—
Residential MBS			1,963,797						1,977,045						223,571						226,198
Commercial MBS			710,636						708,208						285,568						287,744
Total			$	4,043,180					$	4,075,781					$	852,404					$	861,488

Realized gains and losses are derived using the specific identification method for determining the cost of securities sold. The following table summarizes AFS securities sales activity for the three and six months ended June 30, 2021 and 2020 (in thousands).

						Three Months Ended June 30,												Six Months Ended June 30,
						2021						2020						2021						2020
			Proceeds from sales			$	78,111					$	—					$	78,111					$	1,000
			Gross realized gains			$	641					$	—					$	641					$	—
			Gross realized losses			(600)						—						(600)						—
			Securities gains, net			$	41					$	—					$	41					$	—
			Income tax expense attributable to sales			$	14					$	—					$	14					$	—

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 4 – Loans and Leases and Allowance for Credit Losses

 

Major classifications of the loan and lease portfolio (collectively referred to as the “loan portfolio” or “loans”) are summarized as of the dates indicated as follows (in thousands).

						June 30, 2021						December 31, 2020
			Owner occupied commercial real estate			$	2,149,371					$	2,090,443
			Income producing commercial real estate			2,550,243						2,540,750
			Commercial & industrial (1)			2,234,646						2,498,560
			Commercial construction			926,809						967,305
			Equipment financing			968,805						863,830
			Total commercial			8,829,874						8,960,888
			Residential mortgage			1,472,608						1,284,920
			HELOC			660,881						697,117
			Residential construction			288,708						281,430
			Consumer			138,675						146,460
			Total loans			11,390,746						11,370,815
			Less allowance for credit losses - loans			(111,616)						(137,010)
			Loans, net			$	11,279,130					$	11,233,805

(1) Commercial and industrial loans as of June 30, 2021 and December 31, 2020 included $472 million and $646 million of PPP loans, respectively.

Accrued interest receivable related to loans totaled $29.7 million and $35.5 million at June 30, 2021 and December 31, 2020, respectively, and was reported in accrued interest receivable on the consolidated balance sheets.

At June 30, 2021 and December 31, 2020, the loan portfolio was subject to blanket pledges on certain qualifying loan types with the FHLB and FRB to secure contingent funding sources.

The following table presents loans held for investment that were sold in the periods indicated (in thousands). The gains and losses on these loan sales were included in noninterest income on the consolidated statements of income.

						Three Months Ended June 30,												Six Months Ended June 30,
						2021						2020						2021						2020
			Guaranteed portion of SBA/USDA loans			$	32,303					$	14,035					$	43,648					$	18,069
			Equipment financing receivables			18,908						1,704						19,967						23,921
			Total			$	51,211					$	15,739					$	63,615					$	41,990

  

At June 30, 2021 and December 31, 2020, equipment financing assets included leases of $37.8 million and $36.8 million, respectively. The components of the net investment in leases, which included both sales-type and direct financing, are presented below (in thousands).

						June 30, 2021						December 31, 2020
			Minimum future lease payments receivable			$	39,948					$	38,934
			Estimated residual value of leased equipment			3,269						3,263
			Initial direct costs			668						672
			Security deposits			(672)						(727)
			Purchase accounting premium			69						117
			Unearned income			(5,525)						(5,457)
			Net investment in leases			$	37,757					$	36,802

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Minimum future lease payments expected to be received from equipment financing lease contracts as of June 30, 2021 were as follows (in thousands): 

			Year
			Remainder of 2021			$	8,161
			2022			13,830
			2023			9,601
			2024			5,161
			2025			2,741
			Thereafter			454
			Total			$	39,948

Nonaccrual and Past Due Loans

The following table presents the aging of the amortized cost basis in loans by aging category and accrual status as of the dates indicated (in thousands). Past due status is based on contractual terms of the loan. The accrual of interest is generally discontinued when a loan becomes 90 days past due. Loans with active COVID-19 deferrals are not reported as past due to the extent they are in compliance with the deferral terms.

						Accruing
						Current Loans						Loans Past Due
												30 - 59 Days						60 - 89 Days						> 90 Days																		Nonaccrual Loans						Total Loans
As of June 30, 2021
Owner occupied commercial real estate						$	2,141,403					$	1,666					$	174					$	—																	$	6,128					$	2,149,371
Income producing commercial real estate						2,536,332						592						219						—																		13,100						2,550,243
Commercial & industrial						2,225,062						1,004						17						—																		8,563						2,234,646
Commercial construction						925,376						199						5						—																		1,229						926,809
Equipment financing						965,350						911						773						—																		1,771						968,805
Total commercial						8,793,523						4,372						1,188						—																		30,791						8,829,874
Residential mortgage						1,456,280						2,090						753						—																		13,485						1,472,608
HELOC						658,224						1,015						209						—																		1,433						660,881
Residential construction						288,032						369						—						—																		307						288,708
Consumer						138,287						247						34						—																		107						138,675
Total loans						$	11,334,346					$	8,093					$	2,184					$	—																	$	46,123					$	11,390,746
As of December 31, 2020
Owner occupied commercial real estate						$	2,079,845					$	2,013					$	3					$	—																	$	8,582					$	2,090,443
Income producing commercial real estate						2,522,743						1,608						1,250						—																		15,149						2,540,750
Commercial & industrial						2,480,483						1,176						267						—																		16,634						2,498,560
Commercial construction						964,947						231						382						—																		1,745						967,305
Equipment financing						856,985						2,431						1,009						—																		3,405						863,830
Total commercial						8,905,003						7,459						2,911						—																		45,515						8,960,888
Residential mortgage						1,265,019						5,549						1,494						—																		12,858						1,284,920
HELOC						692,504						1,942						184						—																		2,487						697,117
Residential construction						280,551						365						—						—																		514						281,430
Consumer						145,770						429						36						—																		225						146,460
Total loans						$	11,288,847					$	15,744					$	4,625					$	—																	$	61,599					$	11,370,815

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents nonaccrual loans by loan class for the periods indicated (in thousands). 

									Nonaccrual Loans
									June 30, 2021																		December 31, 2020
									With no allowance						With an allowance						Total						With no allowance						With an allowance						Total
			Owner occupied commercial real estate						$	3,865					$	2,263					$	6,128					$	6,614					$	1,968					$	8,582
			Income producing commercial real estate						12,515						585						13,100						10,008						5,141						15,149
			Commercial & industrial						7,143						1,420						8,563						2,004						14,630						16,634
			Commercial construction						750						479						1,229						1,339						406						1,745
			Equipment financing						—						1,771						1,771						156						3,249						3,405
			Total commercial						24,273						6,518						30,791						20,121						25,394						45,515
			Residential mortgage						3,279						10,206						13,485						1,855						11,003						12,858
			HELOC						117						1,316						1,433						1,329						1,158						2,487
			Residential construction						—						307						307						274						240						514
			Consumer						1						106						107						181						44						225
			Total						$	27,670					$	18,453					$	46,123					$	23,760					$	37,839					$	61,599

Risk Ratings 

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

Pass. Loans in this category are considered to have a low probability of default and do not meet the criteria of the risk categories below.

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

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

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

 

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

 

Equipment Financing Receivables and Consumer Purpose Loans. United applies a pass / fail grading system to all equipment financing receivables and consumer purpose loans. Under this system, loans that are on nonaccrual status, become past due 90 days, or are in bankruptcy are classified as “fail” and all other loans are classified as “pass”. For reporting purposes, loans in these categories that are classified as “fail” are reported as substandard and all other loans are reported as pass.

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Based on the most recent analysis performed, the amortized cost of loans by risk category by vintage year as of the date indicated is as follows (in thousands).

						Term Loans by Origination Year																																				Revolvers						Revolvers converted to term loans						Total
As of June 30, 2021						2021						2020						2019						2018						2017						Prior
Pass
Owner occupied commercial real estate						$	348,878					$	692,889					$	300,165					$	173,797					$	163,854					$	309,564					$	48,247					$	10,973					$	2,048,367
Income producing commercial real estate						349,737						772,304						338,003						272,816						214,741						273,090						33,109						12,088						2,265,888
Commercial & industrial						684,472						426,442						195,329						173,366						62,870						103,609						490,906						3,737						2,140,731
Commercial construction						175,452						300,989						167,938						124,411						28,142						12,596						8,054						2,030						819,612
Equipment financing						293,882						331,475						220,386						92,083						25,113						3,634						—						—						966,573
Total commercial						1,852,421						2,524,099						1,221,821						836,473						494,720						702,493						580,316						28,828						8,241,171
Residential mortgage						448,846						416,688						136,631						91,877						88,511						268,040						14						4,883						1,455,490
HELOC						—						—						—						—						—						—						643,249						15,303						658,552
Residential construction						135,105						128,013						5,196						3,724						3,776						12,244						56						53						288,167
Consumer						33,625						37,841						16,905						8,636						2,515						2,633						36,126						132						138,413
						2,469,997						3,106,641						1,380,553						940,710						589,522						985,410						1,259,761						49,199						10,781,793
Special Mention
Owner occupied commercial real estate						10,313						5,379						15,503						3,839						4,036						8,610						247						286						48,213
Income producing commercial real estate						12,003						28,577						45,452						37,606						19,349						29,947						—						—						172,934
Commercial & industrial						18,804						13,050						7,400						243						1,208						293						18,944						802						60,744
Commercial construction						679						18,763						12,943						17,248						38,377						63						—						—						88,073
Equipment financing						—						—						—						—						—						—						—						—						—
Total commercial						41,799						65,769						81,298						58,936						62,970						38,913						19,191						1,088						369,964
Residential mortgage						—						—						—						—						—						—						—						—						—
HELOC						—						—						—						—						—						—						—						—						—
Residential construction						—						—						—						—						—						—						—						—						—
Consumer						—						—						—						—						—						—						—						—						—
						41,799						65,769						81,298						58,936						62,970						38,913						19,191						1,088						369,964
Substandard
Owner occupied commercial real estate						10,561						1,636						11,185						8,450						6,871						12,267						1,300						521						52,791
Income producing commercial real estate						16,656						34,733						2,681						16,799						8,718						31,744						—						90						111,421
Commercial & industrial						1,238						1,638						4,755						7,122						1,882						7,081						8,989						466						33,171
Commercial construction						1,035						432						712						13,496						—						2,444						—						1,005						19,124
Equipment financing						248						786						656						472						54						16						—						—						2,232
Total commercial						29,738						39,225						19,989						46,339						17,525						53,552						10,289						2,082						218,739
Residential mortgage						786						1,653						2,336						3,778						1,440						6,340						—						785						17,118
HELOC						—						—						—						—						—						—						68						2,261						2,329
Residential construction						—						39						33						52						2						415						—						—						541
Consumer						—						6						42						30						41						120						—						23						262
						30,524						40,923						22,400						50,199						19,008						60,427						10,357						5,151						238,989
Total						$	2,542,320					$	3,213,333					$	1,484,251					$	1,049,845					$	671,500					$	1,084,750					$	1,289,309					$	55,438					$	11,390,746

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

						Term Loans by Origination Year																																				Revolvers						Revolvers converted to term loans						Total
As of December 31, 2020						2020						2019						2018						2017						2016						Prior
Pass
Owner occupied commercial real estate						$	707,501					$	368,615					$	231,316					$	197,778					$	201,362					$	229,667					$	56,273					$	9,072					$	2,001,584
Income producing commercial real estate						815,799						376,911						361,539						277,769						206,068						198,080						28,542						12,128						2,276,836
Commercial & industrial						1,092,767						287,857						263,439						115,790						92,968						58,359						515,593						3,777						2,430,550
Commercial construction						314,154						217,643						226,308						53,708						30,812						21,985						20,278						3,947						888,835
Equipment financing						413,653						270,664						125,869						39,982						9,404						445						—						—						860,017
Total commercial						3,343,874						1,521,690						1,208,471						685,027						540,614						508,536						620,686						28,924						8,457,822
Residential mortgage						468,945						195,213						125,492						120,944						122,013						230,771						18						5,393						1,268,789
HELOC						—						—						—						—						—						—						675,878						17,581						693,459
Residential construction						225,727						30,646						4,026						4,544						3,172						12,546						—						64						280,725
Consumer						54,997						25,528						14,206						4,531						3,595						1,677						41,445						76						146,055
						4,093,543						1,773,077						1,352,195						815,046						669,394						753,530						1,338,027						52,038						10,846,850
Special Mention
Owner occupied commercial real estate						8,759						4,088						4,221						10,025						11,138						4,728						100						—						43,059
Income producing commercial real estate						35,471						42,831						39,954						13,238						24,164						11,337						—						1,681						168,676
Commercial & industrial						1,451						16,315						2,176						630						459						17						6,464						—						27,512
Commercial construction						21,366						272						816						23,292						11,775						477						—						—						57,998
Equipment financing						—						—						—						—						—						—						—						—						—
Total commercial						67,047						63,506						47,167						47,185						47,536						16,559						6,564						1,681						297,245
Residential mortgage						—						—						—						—						—						—						—						—						—
HELOC						—						—						—						—						—						—						—						—						—
Residential construction						—						—						—						—						—						—						—						—						—
Consumer						—						—						—						—						—						—						—						—						—
						67,047						63,506						47,167						47,185						47,536						16,559						6,564						1,681						297,245
Substandard
Owner occupied commercial real estate						6,586						10,473						7,596						3,717						6,753						8,473						1,528						674						45,800
Income producing commercial real estate						45,125						8,940						2,179						5,034						31,211						2,652						—						97						95,238
Commercial & industrial						1,545						5,536						6,193						1,684						1,292						1,485						22,170						593						40,498
Commercial construction						2,466						735						13,741						340						1,931						250						—						1,009						20,472
Equipment financing						631						1,392						1,371						306						96						17						—						—						3,813
Total commercial						56,353						27,076						31,080						11,081						41,283						12,877						23,698						2,373						205,821
Residential mortgage						2,049						2,106						3,174						1,369						679						5,860						—						894						16,131
HELOC						—						—						—						—						—						—						265						3,393						3,658
Residential construction						106						37						54						4						124						380						—						—						705
Consumer						—						97						49						60						78						98						—						23						405
						58,508						29,316						34,357						12,514						42,164						19,215						23,963						6,683						226,720
Total						$	4,219,098					$	1,865,899					$	1,433,719					$	874,745					$	759,094					$	789,304					$	1,368,554					$	60,402					$	11,370,815

Troubled Debt Restructurings and Other Modifications

As of June 30, 2021 and December 31, 2020, United had TDRs totaling $57.3 million and $61.6 million, respectively. As of June 30, 2021 and December 31, 2020, United had remaining deferrals related to the COVID-19 pandemic of approximately $17.8 million and $70.7 million, respectively, which generally represented payment deferrals for up to 90 days. To the extent that these deferrals qualified under either the CARES Act or interagency guidance, they were not considered new TDRs.

18

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Loans modified under the terms of a TDR during the three and six months ended June 30, 2021 and 2020 are presented in the following table. In addition, the table presents loans modified under the terms of a TDR that defaulted (became 90 days or more delinquent or otherwise in default of modified terms) during the periods presented and were initially restructured within one year prior to default (dollars in thousands).

						New TDRs
																		Post-Modification Amortized Cost by Type of Modification																								TDRs Modified Within the Previous Twelve Months That Have Subsequently Defaulted
						Number of  Contracts									Rate   Reduction						Structure						Other						Total						Number of   Contracts						Amortized Cost
Three Months Ended June 30, 2021
Owner occupied commercial real estate						1												$	—					$	543					$	—					$	543					—						$	—
Income producing commercial real estate						1												—						—						378						378						—						—
Commercial & industrial						2												—						365						—						365						—						—
Commercial construction						—												—						—						—						—						—						—
Equipment financing						8												—						326						—						326						5						138
Total commercial						12												—						1,234						378						1,612						5						138
Residential mortgage						5												—						322						—						322						—						—
HELOC						—												—						—						—						—						1						49
Residential construction						—												—						—						—						—						—						—
Consumer						—												—						—						—						—						—						—
Total loans						17												$	—					$	1,556					$	378					$	1,934					6						$	187
Six Months Ended June 30, 2021
Owner occupied commercial real estate						1												$	—					$	543					$	—					$	543					—						$	—
Income producing commercial real estate						3												—						—						1,697						1,697						—						—
Commercial & industrial						4												—						365						103						468						1						11
Commercial construction						1												—						309						—						309						—						—
Equipment financing						36												—						2,462						—						2,462						8						200
Total commercial						45												—						3,679						1,800						5,479						9						211
Residential mortgage						6												—						391						—						391						3						413
HELOC						—												—						—						—						—						1						49
Residential construction						—												—						—						—						—						—						—
Consumer						—												—						—						—						—						—						—
Total loans						51												$	—					$	4,070					$	1,800					$	5,870					13						$	673
Three Months Ended June 30, 2020
Owner occupied commercial real estate						2												$	—					$	—					$	546					$	546					—						$	—
Income producing commercial real estate						—												—						—						—						—						1						5,998
Commercial & industrial						1												—						—						15						15						1						627
Commercial construction						1												—						255						—						255						—						—
Equipment financing						129												—						3,471						—						3,471						6						310
Total commercial						133												—						3,726						561						4,287						8						6,935
Residential mortgage						6												—						644						—						644						—						—
HELOC						—												—						—						—						—						—						—
Residential construction						—												—						—						—						—						—						—
Consumer						1												—						—						7						7						—						—
Total loans						140												$	—					$	4,370					$	568					$	4,938					8						$	6,935
Six Months Ended June 30, 2020
Owner occupied commercial real estate						3												$	—					$	—					$	1,536					$	1,536					—						$	—
Income producing commercial real estate						3												—						67						165						232						1						5,998
Commercial & industrial						1												—						—						15						15						2						633
Commercial construction						1												—						255						—						255						—						—
Equipment financing						136												—						3,905						—						3,905						6						310
Total commercial						144												—						4,227						1,716						5,943						9						6,941
Residential mortgage						11												—						922						—						922						—						—
HELOC						—												—						—						—						—						—						—
Residential construction						—												—						—						—						—						—						—
Consumer						3												—						—						18						18						1						3
Total loans						158												$	—					$	5,149					$	1,734					$	6,883					10						$	6,944

19

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Allowance for Credit Losses

The ACL for loans represents management’s estimate of life of loan credit losses in the portfolio as of the end of the period. The ACL related to unfunded commitments is included in other liabilities in the consolidated balance sheet.

The following table presents the balance and activity in the ACL by portfolio segment for the periods indicated (in thousands).

						Three Months Ended June 30,
						2021																																										2020
						Beginning Balance												Charge-Offs						Recoveries						(Release) Provision						Ending Balance																		Beginning Balance												Charge-Offs						Recoveries						(Release) Provision						Ending Balance
Owner occupied commercial real estate						$	19,282											$	(1)					$	156					$	(2,145)					$	17,292																	$	11,000											$	—					$	466					$	3,126					$	14,592
Income producing commercial real estate						34,911												(52)						213						(4,105)						30,967																		16,584												(4,589)						41						9,663						21,699
Commercial & industrial						21,750												(857)						797						(5,276)						16,414																		10,831												(254)						291						(2,279)						8,589
Commercial construction						10,572												(46)						339						(1,685)						9,180																		9,556												(239)						117						5,080						14,514
Equipment financing						17,200												(1,188)						887						1,201						18,100																		14,738												(2,085)						420						7,232						20,305
Residential mortgage						14,580												—						194						(3,809)						10,965																		11,063												(50)						56						1,757						12,826
HELOC						6,880												(34)						146						(635)						6,357																		6,887												(98)						196						1,702						8,687
Residential construction						1,362												—						33						523						1,918																		816												(32)						37						1,176						1,997
Consumer						329												(353)						222						225						423																		430												(712)						286						456						460
ACL - loans						126,866												(2,531)						2,987						(15,706)						111,616																		81,905												(8,059)						1,910						27,913						103,669
ACL - unfunded commitments						8,726												—						—						2,118						10,844																		6,470												—						—						5,630						12,100
Total ACL						$	135,592											$	(2,531)					$	2,987					$	(13,588)					$	122,460																	$	88,375											$	(8,059)					$	1,910					$	33,543					$	115,769

						Six Months Ended June 30,
						2021																														2020
						Beginning Balance												Charge-Offs						Recoveries						(Release) Provision						Ending Balance						Dec. 31, 2019 Balance						Adoption of CECL						Beginning Balance												Charge- Offs						Recoveries						(Release) Provision						Ending Balance
Owner occupied commercial real estate						$	20,673											$	(1)					$	396					$	(3,776)					$	17,292					$	11,404					$	(1,616)					$	9,788											$	(6)					$	1,500					$	3,310					$	14,592
Income producing commercial real estate						41,737												(1,059)						229						(9,940)						30,967						12,306						(30)						12,276												(5,000)						182						14,241						21,699
Commercial & industrial						22,019												(3,751)						6,444						(8,298)						16,414						5,266						4,012						9,278												(7,815)						667						6,459						8,589
Commercial construction						10,952												(224)						495						(2,043)						9,180						9,668						(2,583)						7,085												(239)						258						7,410						14,514
Equipment financing						16,820												(3,246)						1,434						3,092						18,100						7,384						5,871						13,255												(3,948)						776						10,222						20,305
Residential mortgage						15,341												(215)						317						(4,478)						10,965						8,081						1,569						9,650												(334)						331						3,179						12,826
HELOC						8,417												(34)						219						(2,245)						6,357						4,575						1,919						6,494												(118)						299						2,012						8,687
Residential construction						764												(10)						103						1,061						1,918						2,504						(1,771)						733												(54)						71						1,247						1,997
Consumer						287												(824)						488						472						423						901						(491)						410												(1,350)						517						883						460
ACL - loans						137,010												(9,364)						10,125						(26,155)						111,616						62,089						6,880						68,969												(18,864)						4,601						48,963						103,669
ACL - unfunded commitments						10,558												—						—						286						10,844						3,458						1,871						5,329												—						—						6,771						12,100
Total ACL						$	147,568											$	(9,364)					$	10,125					$	(25,869)					$	122,460					$	65,547					$	8,751					$	74,298											$	(18,864)					$	4,601					$	55,734					$	115,769

At both June 30, 2021 and December 31, 2020, United used a one-year reasonable and supportable forecast period. Expected credit losses were estimated using a regression model for each segment based on historical data from peer banks combined with a third party vendor’s economic forecast to predict the change in credit losses. These results were then combined with a starting value that was based on United’s recent default experience, which was adjusted for select portfolios based on expectations of future performance. At June 30, 2021, the third party vendor’s forecast, which was representative of a baseline scenario, improved significantly from December 31, 2020, including the unemployment rate which has a significant impact on our models and led to the negative provision for loan losses in the second quarter and year-to-date. United adjusted the economic forecast by eliminating the initial spike in unemployment to account for the impact of government stimulus programs, which mitigated some of the negative impact on forecasted losses as the unemployment rate was rising and had the opposite effect as the unemployment rate was improving. In addition, United applied qualitative factors to income producing commercial real estate, owner occupied commercial real estate, equipment finance and commercial construction portfolios to compensate for elevated special mention and substandard loan levels.

For periods beyond the reasonable and supportable forecast period of one year, United reverted to historical credit loss information on a straight line basis over two years. For all collateral types excluding residential mortgage, United reverted to through-the-cycle

20

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

average default rates using peer data from 2000 to 2017. For loans secured by residential mortgages, the peer data was adjusted for changes in lending practices designed to prevent the magnitude of losses observed during the mortgage crisis.

PPP loans were considered low risk assets due to the related 100% guarantee by the SBA and were therefore excluded from the calculation.

Note 5 – Derivatives and Hedging Activities

The table below presents the fair value of derivative financial instruments as of the dates indicated as well as their classification on the consolidated balance sheets (in thousands):

			June 30, 2021																		December 31, 2020
			Notional Amount						Fair Value												Notional Amount						Fair Value
									Derivative Asset						Derivative Liability												Derivative Asset						Derivative Liability
Derivatives designated as hedging instruments:
Cash flow hedge of subordinated debt			$	100,000					$	5,682					$	—					$	100,000					$	3,378					$	—
Cash flow hedge of trust preferred securities			20,000						—						—						20,000						—						—
Fair value hedge of brokered time deposits			10,000						—						—						20,000						—						—
Total			130,000						5,682						—						140,000						3,378						—
Derivatives not designated as hedging instruments:
Customer derivative positions			1,276,926						45,358						6,758						1,329,271						72,508						17
Dealer offsets to customer derivative positions			1,276,926						451						16,094						1,329,271						1						24,614
Risk participations			61,673						3						22						48,843						28						12
Mortgage banking - loan commitment			160,535						5,191						—						253,243						10,751						—
Mortgage banking - forward sales commitment			324,474						109						293						325,145						—						1,964
Bifurcated embedded derivatives			51,935						1,695						—						51,935						—						1,449
Dealer offsets to bifurcated embedded derivatives			51,935						—						3,922						51,935						—						947
Total			3,204,404						52,807						27,089						3,389,643						83,288						29,003
Total derivatives			$	3,334,404					$	58,489					$	27,089					$	3,529,643					$	86,666					$	29,003
Total gross derivative instruments									$	58,489					$	27,089											$	86,666					$	29,003
Less: Amounts subject to master netting agreements									(480)						(480)												(114)						(114)
Less: Cash collateral received/pledged									(5,827)						(20,295)												(3,200)						(27,092)
Net amount									$	52,182					$	6,314											$	83,352					$	1,797

United clears certain derivatives centrally through the CME. CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives’ exposure rather than as collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero.

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Hedging Derivatives

Cash Flow Hedges of Interest Rate Risk 

United enters into cash flow hedges to mitigate exposure to the variability of future cash flows or other forecasted transactions. As of June 30, 2021 and December 31, 2020 United utilized interest rate caps and swaps to hedge the variability of cash flows due to changes in interest rates on certain of its variable-rate subordinated debt and trust preferred securities. United considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest rates. Therefore, changes in the fair value of these derivative instruments are recognized in OCI. Gains and losses related to changes in fair value are reclassified into earnings in the periods the hedged forecasted transactions occur. Losses representing amortization of the premium recorded on cash flow hedges, which is a component excluded from the assessment of effectiveness, are recognized in earnings on a straight-line basis in the same caption as the hedged item over the term of the hedge. Over the next twelve months, United expects to reclassify $595,000 of losses from AOCI into earnings related to these agreements.

Fair Value Hedges of Interest Rate Risk 

United is exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in interest rates. United uses interest rate derivatives to manage its exposure to changes in fair value on these instruments attributable to changes in interest rates. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. United includes the gain or loss on the hedged items in the same income statement line item as the offsetting loss or gain on the related derivatives.

At June 30, 2021 and December 31, 2020, United had interest rate swaps that were designated as fair value hedges of fixed-rate brokered time deposits. The swaps involved the receipt of fixed-rate amounts from a counterparty in exchange for United making variable rate payments over the life of the agreements.

In certain cases, the estate of deceased brokered certificate of deposit holders may put the certificate of deposit back to United at par upon the death of the holder. When these events (estate puts) occur, a gain or loss is recognized for the difference between the fair value and the par amount of the deposits put back. The change in the fair value of brokered time deposits that are being hedged in fair value hedging relationships reported in the table above includes gains and losses from estate puts.

The table below presents the effect of derivatives in hedging relationships, all of which are interest rate contracts, on the consolidated statement of income for the periods indicated (in thousands). 

						Three Months Ended June 30,												Six Months Ended June 30,
						2021						2020						2021						2020
Total interest expense presented in the consolidated statements of income						$	(7,433)					$	(14,301)					$	(16,911)					$	(32,242)
Effect of hedging relationships on interest expense:
Net income recognized on fair value hedges						46						213						124						218
Net expense recognized on cash flow hedges (1)						(147)						(67)						(291)						(67)

 (1) Includes $118,000 and $234,000 of premium amortization expense excluded from the assessment of hedge effectiveness for the three and six months ended June 30, 2021, respectively. Includes $92,000 of premium amortization expense excluded from the assessment of hedge effectiveness for the three and six months ended June 30, 2020.

The table below presents the carrying amount of hedged fixed-rate brokered time deposits and cumulative fair value hedging adjustments included in the carrying amount of the hedged liability for the periods presented (in thousands).

									June 30, 2021												December 31, 2020
			Balance Sheet Location						Carrying amount of Assets (Liabilities)						Hedge Accounting Basis Adjustment						Carrying amount of Assets (Liabilities)						Hedge Accounting Basis Adjustment
			Deposits						$	(10,103)					$	(112)					$	(20,216)					$	(235)

Derivatives Not Designated as Hedging Instruments 

Customer derivative positions include swaps, caps, and collars between United and certain commercial loan customers with offsetting positions to dealers under a back-to-back program. In addition, United occasionally enters into credit risk participation agreements with counterparty banks to accept or transfer a portion of the credit risk related to interest rate swaps. The agreements, which are typically executed in conjunction with a participation in a loan with the same customer, allow customers to execute an interest rate swap with one bank while allowing for the distribution of the credit risk among participating members.

United also has three interest rate swap contracts that are not designated as hedging instruments but are economic hedges of market-linked brokered certificates of deposit. The market-linked brokered certificates of deposit contain embedded derivatives that are

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

bifurcated from the host instruments and are marked to market through earnings. The fair value marks on the market-linked swaps and the bifurcated embedded derivatives tend to move in opposite directions with changes in 90-day LIBOR and therefore provide an economic hedge.

  

In addition, United originates certain residential mortgage loans with the intention of selling these loans. Between the time United enters into an interest-rate lock commitment to originate a residential mortgage loan that is to be held for sale and the time the loan is funded and eventually sold, United is subject to the risk of variability in market prices. United enters into forward sale agreements to mitigate risk and to protect the expected gain on the eventual loan sale. The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments. Fair value adjustments on these derivative instruments are recorded within mortgage loan gains and other related fee income in the consolidated statements of income. 

The table below presents the gains and losses recognized in income on derivatives not designated as hedging instruments for the periods indicated (in thousands). 

						Location of Gain (Loss) Recognized in Income on Derivatives						Amount of Gain (Loss) Recognized in Income on Derivatives
												Three Months Ended June 30,												Six Months Ended June 30,
												2021						2020						2021						2020
Customer derivatives and dealer offsets						Other noninterest income						$	162					$	1,168					$	2,059					$	2,592
Bifurcated embedded derivatives and dealer offsets						Other noninterest income						(42)						(28)						417						(223)
Mortgage banking derivatives						Mortgage loan revenue						(3,494)						929						342						100
Risk participations						Other noninterest income						98						14						(107)						(3)
												$	(3,276)					$	2,083					$	2,711					$	2,466

 

Credit-Risk-Related Contingent Features 

United manages its credit exposure on derivatives transactions by entering into a bilateral credit support agreement with each non-customer counterparty. The credit support agreements require collateralization of exposures beyond specified minimum threshold amounts. The details of these agreements, including the minimum thresholds, vary by counterparty.

 

United’s agreements with each of its derivative counterparties provide that if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivative counterparties also include provisions that if not met, could result in United being declared in default. United has agreements with certain of its derivative counterparties that provide that if United fails to maintain its status as a well-capitalized institution or is subject to a prompt corrective action directive, the counterparty could terminate the derivative positions and United would be required to settle its obligations under the agreements. Derivatives that are centrally cleared do not have credit-risk-related features that would require additional collateral if United’s credit rating were downgraded.

 

Note 6 – Assets and Liabilities Measured at Fair Value

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, United uses a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). United has processes in place to review the significant valuation inputs and to reassess how the instruments are classified in the valuation framework.

Fair Value Hierarchy

Level 1 Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that United has the ability to access.

Level 2 Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Level 3 Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

In instances when the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The following is a description of the valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities

AFS debt securities and equity securities with readily determinable fair values are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include MBS issued by GSEs, municipal bonds, corporate debt securities, asset-backed securities and supranational entity securities and are valued based on observable inputs that include: quoted market prices for similar assets, quoted market prices that are not in an active market, or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the securities. Securities classified as Level 3 include those traded in less liquid markets and are valued based on estimates obtained from broker-dealers that are not directly observable or models which incorporate unobservable inputs.

 

Deferred Compensation Plan Assets and Liabilities

Included in other assets in the consolidated balance sheet are assets related to employee deferred compensation plans. The assets associated with these plans are invested in mutual funds and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which mirrors the fair value of the invested assets and is included in other liabilities in the consolidated balance sheet.

 

Mortgage Loans Held for Sale

United has elected the fair value option for most of its newly originated mortgage loans held for sale in order to reduce certain timing differences and better match changes in fair values of the loans with changes in the value of derivative instruments used to economically hedge them. The fair value of mortgage loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan, and are classified as Level 2.

 

Derivative Financial Instruments

United uses derivatives to manage interest rate risk. The valuation of these instruments is typically determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. United also uses best effort and mandatory delivery forward loan sale commitments to hedge risk in its mortgage lending business.

 

United incorporates CVAs as necessary to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, United has considered the effect of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees.

 

Management has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. However, the CVAs associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. Generally, management’s assessment of the significance of the CVAs has indicated that they are not a significant input to the overall valuation of the derivatives. In cases where management’s assessment indicates that the CVA is a significant input, the related derivative is disclosed as a Level 3 value.

Other derivatives classified as Level 3 include structured derivatives for which broker quotes, used as a key valuation input, were not observable. Risk participation agreements are classified as Level 3 instruments due to the incorporation of significant Level 3 inputs used to evaluate the probability of funding and the likelihood of customer default. Interest rate lock commitments, which relate to mortgage loan commitments, are categorized as Level 3 instruments as the fair value of these instruments is based on unobservable inputs for commitments that United does not expect to fund.

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Servicing Rights for Residential and SBA/USDA Loans

United recognizes servicing rights upon the sale of residential and SBA/USDA loans sold with servicing retained. Management has elected to carry these assets at fair value. Given the nature of these assets, the key valuation inputs are unobservable and management classifies these assets as Level 3.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents United’s assets and liabilities measured at fair value on a recurring basis as of the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

June 30, 2021						Level 1						Level 2						Level 3						Total
Assets:
AFS debt securities:
U.S. Treasuries						$	142,080					$	—					$	—					$	142,080
U.S. Government agencies & GSEs						—						152,624						—						152,624
State and political subdivisions						—						289,346						—						289,346
Residential MBS						—						1,977,045						—						1,977,045
Commercial MBS						—						708,208						—						708,208
Corporate bonds						—						150,104						1,707						151,811
Asset-backed securities						—						654,667						—						654,667
Equity securities with readily available fair values						1,289						1,268						—						2,557
Mortgage loans held for sale						—						98,194						—						98,194
Deferred compensation plan assets						11,008						—						—						11,008
Servicing rights for SBA/USDA loans						—						—						6,115						6,115
Residential mortgage servicing rights						—						—						21,568						21,568
Derivative financial instruments						—						51,600						6,889						58,489
Total assets						$	154,377					$	4,083,056					$	36,279					$	4,273,712
Liabilities:
Deferred compensation plan liability						$	11,031					$	—					$	—					$	11,031
Derivative financial instruments						—						23,145						3,944						27,089
Total liabilities						$	11,031					$	23,145					$	3,944					$	38,120

December 31, 2020						Level 1						Level 2						Level 3						Total
Assets:
AFS debt securities:
U.S. Treasuries						$	128,072					$	—					$	—					$	128,072
U.S. Government agencies & GSEs						—						152,972						—						152,972
State and political subdivisions						—						274,472						—						274,472
Residential MBS						—						1,485,585						—						1,485,585
Commercial MBS						—						549,131						—						549,131
Corporate bonds						—						70,017						1,750						71,767
Asset-backed securities						—						562,722						—						562,722
Equity securities with readily available fair values						774						913						—						1,687
Mortgage loans held for sale						—						105,433						—						105,433
Deferred compensation plan assets						9,584						—						—						9,584
Servicing rights for SBA/USDA loans						—						—						6,462						6,462
Residential mortgage servicing rights						—						—						16,216						16,216
Derivative financial instruments						—						75,887						10,779						86,666
Total assets						$	138,430					$	3,277,132					$	35,207					$	3,450,769
Liabilities:
Deferred compensation plan liability						$	9,590					$	—					$	—					$	9,590
Derivative financial instruments						—						26,595						2,408						29,003
Total liabilities						$	9,590					$	26,595					$	2,408					$	38,593

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table shows a reconciliation of the beginning and ending balances for the periods indicated for assets measured at fair value on a recurring basis using significant unobservable inputs that are classified as Level 3 values (in thousands).

			2021																														2020
			Derivative Assets						Derivative Liabilities						SBA/USDA loan servicing rights						Residential mortgage servicing rights						Corporate Bonds						Derivative Assets						Derivative Liabilities						SBA/USDA loan servicing rights						Residential mortgage servicing rights						Corporate Bonds
Three Months Ended June 30,
Balance at beginning of period			$	8,308					$	4,606					$	6,226					$	20,728					$	1,750					$	7,361					$	2,717					$	6,290					$	11,059					$	—
Additions			—						97						610						3,792						—						7						—						303						3,217						1,000
Transfers into Level 3			—						—						—						—						—						583						—						—						—						—
Sales and settlements			—						—						(453)						(1,426)						—						—						—						(34)						(682)						—
Amounts included in OCI			—						—						—						—						(43)						—						—						—						—						—
Amounts included in earnings - fair value adjustments			(1,419)						(759)						(268)						(1,526)						—						4,156						(148)						(525)						(1,102)						—
Balance at end of period			$	6,889					$	3,944					$	6,115					$	21,568					$	1,707					$	12,107					$	2,569					$	6,034					$	12,492					$	1,000
Six Months Ended June 30,
Balance at beginning of period			$	10,779					$	2,408					$	6,462					$	16,216					$	1,750					$	7,238					$	8,559					$	6,794					$	13,565					$	998
Additions			175						97						839						6,993						—						7						—						398						5,332						1,000
Transfers into Level 3			—						—						—						—						—						583						—						—						—						—
Sales and settlements			—						—						(644)						(2,555)						—						—						—						(341)						(1,175)						(1,000)
Amounts included in OCI			—						—												—						(43)						—						—						—						—						2
Amounts included in earnings - fair value adjustments			(4,065)						1,439						(542)						914						—						4,279						(5,990)						(817)						(5,230)						—
Balance at end of period			$	6,889					$	3,944					$	6,115					$	21,568					$	1,707					$	12,107					$	2,569					$	6,034					$	12,492					$	1,000

The following table presents quantitative information about significant Level 3 inputs for fair value on a recurring basis as of the dates indicated. 

Level 3 Assets and Liabilities						Valuation Technique						Significant Unobservable Inputs						June 30, 2021												December 31, 2020
																		Range						Weighted Average						Range						Weighted Average
SBA/USDA loan servicing rights						Discounted cash flow						Discount rate						0.0% - 31.1%						9.3		%				1.6% - 44.1%						8.9		%
												Prepayment rate						3.0 - 34.3						17.9						2.7 - 33.6						17.8
Residential mortgage servicing rights						Discounted cash flow						Discount rate						10.0 - 11.0						10.0						10.0 - 11.0						10.0
												Prepayment rate						10.3 - 18.0						13.7						8.7 - 19.5						17.7
Corporate bonds						Indicative bid provided by a broker						Multiple factors, including but not limited to, current operations, financial condition, cash flows, and similar financing transactions executed in the market																		N/A						N/A
						Discounted cash flow						Discount rate						6.7 - 6.9						6.8
Derivative assets - mortgage						Internal model						Pull through rate						49.8 - 100						85.2						65.6 - 100						83.9
Derivative assets and liabilities - other						Dealer priced						Dealer priced						N/A						N/A						N/A						N/A

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Fair Value Option

United records mortgage loans held for sale at fair value under the fair value option. Interest income on these loans is calculated based on the note rate of the loan and is recorded in interest revenue. The following tables present the fair value and outstanding principal balance of these loans, as well as the gain or loss recognized resulting from the change in fair value for the periods indicated (in thousands).

			Mortgage Loans Held for Sale
						June 30, 2021						December 31, 2020
			Outstanding principal balance			$	94,229					$	99,746
			Fair value			98,194						105,433

			Gain (Loss) Recognized on Mortgage Loans Held for Sale
			Location			Three Months Ended June 30,												Six Months Ended June 30,
						2020						2019						2021						2020
			Mortgage loan gains and other related fees			$	521					$	1,546					$	(1,721)					$	3,271

Changes in fair value were mostly offset by hedging activities. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

United may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of the lower of the amortized cost or fair value accounting or write-downs of individual assets due to impairment. The following table presents the fair value hierarchy and carrying value of assets that were still held as of June 30, 2021 and December 31, 2020, for which a nonrecurring fair value adjustment was recorded during the year-to-date periods presented (in thousands).

									Level 1						Level 2						Level 3						Total
			June 30, 2021
			Loans						$	—					$	—					$	3,341					$	3,341
			December 31, 2020
			Loans						$	—					$	—					$	29,404					$	29,404

Loans that are reported above as being measured at fair value on a nonrecurring basis are generally impaired loans that have either been partially charged off or have specific reserves assigned to them. Nonaccrual loans that are collateral dependent are generally written down to net realizable value, which reflects fair value less the estimated costs to sell. Specific reserves that are established based on appraised value of collateral are considered nonrecurring fair value adjustments as well. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, United records the impaired loan as nonrecurring Level 3.

Assets and Liabilities Not Measured at Fair Value  

For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates reported book value, after taking into consideration any applicable credit risk. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. For off-balance sheet derivative instruments, fair value is estimated as the amount that United would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.

 

Cash and cash equivalents and repurchase agreements have short maturities and therefore the carrying value approximates fair value. Due to the short-term settlement of accrued interest receivable and payable, the carrying amount closely approximates fair value.

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of United’s entire holdings. All estimates are inherently subjective in nature. Changes in assumptions could significantly affect the estimates.

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include the mortgage banking operation, brokerage network, deferred income taxes, premises and equipment and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

 

Off-balance sheet instruments (commitments to extend credit and standby letters of credit) for which draws can be reasonably predicted are generally short-term in maturity and are priced at variable rates. Therefore, the estimated fair value associated with these instruments is immaterial.

The carrying amount and fair values as of the dates indicated for other financial instruments that are not measured at fair value on a recurring basis are as follows (in thousands).

												Fair Value Level
						Carrying Amount						Level 1						Level 2						Level 3						Total
June 30, 2021
Assets:
HTM debt securities						$	852,404					$	—					$	861,488					$	—					$	861,488
Loans and leases, net						11,279,130						—						—						11,263,533						11,263,533
Liabilities:
Deposits						16,327,767						—						16,327,024						—						16,327,024
Long-term debt						261,919						—						—						280,049						280,049
December 31, 2020
Assets:
HTM debt securities						$	420,361					$	—					$	437,193					$	—					$	437,193
Loans and leases, net						11,233,805						—						—						11,209,717						11,209,717
Liabilities:
Deposits						15,232,358						—						15,232,274						—						15,232,274
Long-term debt						326,956						—						—						336,763						336,763

 

Note 7 – Common Stock

In the second quarter of 2021, United amended its articles of incorporation to increase the number of authorized shares of common stock from 150 million to 200 million.

In November of 2020, United’s Board of Directors re-authorized a common stock repurchase program to permit the repurchase of up to $50 million of its common stock. The program is scheduled to expire on the earlier of the repurchase of common stock having an aggregate purchase price of $50 million or December 31, 2021. During the three and six months ended June 30, 2021, 150,000 shares were repurchased. No shares were repurchased during the three months ended June 30, 2020. During the six months ended June 30, 2020, 826,482 shares were repurchased. As of June 30, 2021, United had remaining authorization to repurchase up to $44.9 million of outstanding common stock under the program.

Note 8 – Stock-Based Compensation

 

United has an equity compensation plan that allows for grants of various share-based compensation. The general terms of the plan include a vesting period (usually four years) with an exercisable period not to exceed ten years. Certain restricted stock unit awards provide for accelerated vesting if there is a change in control (as defined in the plan document). As of June 30, 2021, 884,343 additional awards could be granted under the plan.

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The table below presents restricted stock unit activity for the six months ended June 30, 2021.

Restricted Stock Unit Awards						Shares						Weighted- Average Grant- Date Fair Value												Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2020						893,431						$	23.75
Granted						71,378						30.94
Vested						(119,680)						29.19												$	4,008
Cancelled						(47,231)						24.96
Outstanding at June 30, 2021						797,898						23.51												25,541

 

Compensation expense for restricted stock units and performance stock units without market conditions is based on the market value of United’s common stock on the date of grant. Compensation expense for performance stock units with market conditions is based on the grant date per share fair market value, which was estimated using the Monte Carlo Simulation valuation model. United recognizes the impact of forfeitures as they occur. The value of restricted stock unit and performance stock unit awards is amortized into expense over the service period.

For the six months ended June 30, 2021 and 2020, expense of $2.91 million and $4.04 million, respectively, was recognized related to restricted stock unit and performance stock unit awards granted to United employees, which was included in salaries and employee benefits expense. In addition, for the six months ended June 30, 2021 and 2020, $235,000 and $217,000, respectively, was recognized in other expense for restricted stock unit awards granted to members of United’s Board of Directors.

A deferred income tax benefit related to stock-based compensation expense of $802,000 and $1.09 million was included in the determination of income tax expense for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, there was $12.2 million of unrecognized expense related to non-vested restricted stock unit and performance stock unit awards granted under the plan. That cost is expected to be recognized over a weighted-average period of 2.3 years.

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 9 – Reclassifications Out of AOCI

The following table presents the details regarding amounts reclassified out of AOCI for the periods indicated (in thousands). Amounts shown in parentheses reduce earnings.

			Details about AOCI Components						Three Months Ended June 30,												Six Months Ended June 30,												Affected Line Item in the Statement Where Net Income is Presented
									2021						2020						2021						2020
			Realized gains on AFS securities:
									$	41					$	—					$	41					$	—					Securities gains, net
									(14)						—						(14)						—						Income tax expense
									$	27					$	—					$	27					$	—					Net of tax
			Amortization of losses included in net income on AFS securities transferred to HTM:
									$	—					$	(96)					$	—					$	(179)					Investment securities interest revenue
									—						23						—						43						Income tax benefit
									$	—					$	(73)					$	—					$	(136)					Net of tax
			Reclassifications related to derivative financial instruments accounted for as cash flow hedges:
			Interest rate contracts						$	(147)					$	(67)					$	(291)					$	(67)					Long-term debt interest expense
									37						17						74						17						Income tax benefit
									$	(110)					$	(50)					$	(217)					$	(50)					Net of tax
			Reclassifications related to defined benefit pension plan activity:
			Prior service cost						$	(117)					$	(132)					$	(234)					$	(265)					Salaries and employee benefits expense
			Actuarial losses						(144)						(82)						(288)						(163)						Other expense
									(261)						(214)						(522)						(428)						Total before tax
									67						55						134						109						Income tax benefit
									$	(194)					$	(159)					$	(388)					$	(319)					Net of tax
			Total reclassifications for the period						$	(277)					$	(282)					$	(578)					$	(505)					Net of tax

Note 10 – Earnings Per Share

 

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data).

									Three Months Ended June 30,															Six Months Ended June 30,
									2021						2020									2021						2020
						Net income			$	70,260					$	25,096								$	143,966					$	56,980
						Dividends on preferred stock			(1,719)						—									(3,438)						—
						Undistributed earnings allocated to participating securities			(432)						(183)									(894)						(426)
						Net income available to common shareholders			$	68,109					$	24,913								$	139,634					$	56,554
						Weighted average shares outstanding:
						Basic			87,289						78,920									87,306						79,130
						Effect of dilutive securities:
						Restricted stock units			132						4									137						56
						Diluted			87,421						78,924									87,443						79,186
						Net income per common share:
						Basic			$	0.78					$	0.32								$	1.60					$	0.71
						Diluted			$	0.78					$	0.32								$	1.60					$	0.71

 

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

At June 30, 2021, United had no potentially dilutive instruments outstanding that were not included in the above analysis. At June 30, 2020, United had potentially dilutive instruments outstanding in the form of 154,795 shares of common stock issuable upon vesting of restrictive stock units.

Note 11 – Regulatory Matters

As of June 30, 2021, United and the Bank were categorized as well-capitalized under the regulatory framework for prompt corrective action in effect at such time. To be categorized as well-capitalized at June 30, 2021, United and the Bank must have exceeded the well-capitalized guideline ratios in effect at such time, as set forth in the table below, and have met certain other requirements. Management believes that United and the Bank exceeded all well-capitalized requirements at June 30, 2021, and there have been no conditions or events since quarter-end that would change the status of well-capitalized.

Regulatory capital ratios at June 30, 2021 and December 31, 2020, along with the minimum amounts required for capital adequacy purposes and to be well-capitalized under prompt corrective action provisions in effect at such times are presented below for United and the Bank (dollars in thousands):

																		United Community Banks, Inc. (Consolidated)												United Community Bank
						Minimum (1)						Well- Capitalized						June 30, 2021						December 31, 2020						June 30, 2021						December 31, 2020
Risk-based ratios:
CET1 capital						4.5		%				6.5		%				12.59		%				12.31		%				13.21		%				13.31		%
Tier 1 capital						6.0						8.0						13.34						13.10						13.21						13.31
Total capital						8.0						10.0						15.09						15.15						14.03						14.28
Leverage ratio						4.0						5.0						9.26						9.28						9.16						9.42
CET1 capital																		$	1,604,725					$	1,506,750					$	1,679,004					$	1,625,292
Tier 1 capital																		1,701,147						1,603,172						1,679,004						1,625,292
Total capital																		1,924,680						1,854,368						1,782,537						1,743,045
Risk-weighted assets																		12,750,755						12,240,440						12,705,960						12,207,940
Average total assets for the leverage ratio																		18,369,878						17,276,853						18,334,952						17,246,878

(1) As of June 30, 2021 and December 31, 2020 the additional capital conservation buffer in effect was 2.50%

Note 12 – Commitments and Contingencies

 

United is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of these instruments reflect the extent of involvement United has in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. United uses the same credit policies in making commitments and conditional obligations as it uses for underwriting on-balance sheet instruments. In most cases, collateral or other security is required to support financial instruments with credit risk.

 

The following table summarizes the contractual amount of off-balance sheet instruments as of the dates indicated (in thousands).

			June 30, 2021						December 31, 2020
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit			$	3,259,470					$	3,052,657
Letters of credit			27,674						31,748

 

United holds minor investments in certain limited partnerships for Community Reinvestment Act purposes. As of June 30, 2021, United had committed to fund an additional $8.43 million related to future capital calls that are not reflected in the consolidated balance sheet.

 

United, in the normal course of business, is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible to predict the outcome of these lawsuits, or the range of any possible loss, management, after

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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on United’s financial position or results of operations.

 

Note 13 – Acquisitions

Subsequent to quarter-end, on July 6, 2021, United completed the acquisition of FinTrust Capital Partners, LLC, and its operating subsidiaries, FinTrust Capital Advisors, LLC, FinTrust Capital Benefit Group, LLC and FinTrust Brokerage Services, LLC, collectively referred to as “FinTrust”. FinTrust is an investment advisory firm headquartered in Greenville, South Carolina, with additional locations in Anderson, South Carolina, and Athens and Macon, Georgia. The firm provides wealth and investment management services to individuals and institutions within its markets. As of June 30, 2021, FinTrust had assets under management of $2.09 billion across its advisory, retirement planning and brokerage businesses.

Under the terms of the merger agreement, FinTrust shareholders received $22.0 million in total consideration, of which $4.40 million was United common stock, $9.90 million was cash and $7.70 million was contingent consideration. United issued 132,299 shares of common stock to FinTrust shareholders in the acquisition. The acquisition will be accounted for as a business combination. Due to the timing of the acquisition, United is currently in the process of completing the purchase accounting and has not made all of the remaining required disclosures, such as the fair value of assets acquired and supplemental pro forma information, which will be disclosed in subsequent filings.

On May 27, 2021, United announced an agreement to acquire Aquesta Financial Holdings, Inc. and its wholly-owned subsidiary, Aquesta Bank, collectively referred to as “Aquesta”. Aquesta is headquartered in Cornelius, North Carolina and operates a network of nine branches primarily located in the Charlotte metropolitan area in addition to locations in Wilmington and Raleigh, North Carolina, as well as Greenville and Charleston, South Carolina. As of June 30, 2021, Aquesta reported total assets of $736 million, total loans of $524 million and total deposits of $641 million. The merger, which is subject to regulatory approval, the approval of Aquesta shareholders, and other customary conditions, is expected to close in the fourth quarter of 2021.

Subsequent to quarter-end, on July 14, 2021, United announced an agreement to acquire Reliant Bancorp, Inc. and its wholly-owned subsidiary, Reliant Bank, collectively referred to as “Reliant”. Reliant is headquartered in Brentwood, Tennessee, a suburb of Nashville, Tennessee and operates a 25 branch network in Tennessee, located primarily in the Nashville area, as well as branches in Clarksville and Chattanooga. It also has a manufactured housing finance group based in Knoxville. As of June 30, 2021, Reliant reported total assets of $3.10 billion, total loans of $2.32 billion, and total deposits of $2.63 billion. The merger, which is subject to regulatory approval, the approval of Reliant shareholders, and other customary conditions, is expected to close in the first quarter of 2022.

Note 14 - Subsequent Events

Effective July 1, 2021, the Bank moved its headquarters from Blairsville, Georgia to Greenville, South Carolina and became a South Carolina state-chartered bank subject to examination and reporting requirements of the South Carolina Board of Financial Institutions. Prior to that date, the Bank was a Georgia state-chartered bank subject to examination and reporting requirements of the Georgia Department of Banking and Finance. Also effective July 1, 2021, the Holding Company elected to become a financial holding company, which allows for engagement in a broader range of financial activities.

During the third quarter of 2021, through August 5, 2021, United repurchased 309,599 shares of common stock for $9.00 million in accordance with its common stock repurchase program.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our financial condition at June 30, 2021 and December 31, 2020 and our results of operations for the three and six months ended June 30, 2021 and 2020. The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from our consolidated financial statements and is intended to provide insight into our results of operations and financial condition. The following discussion and analysis should be read along with our consolidated financial statements and related notes included in Part I - Item 1 of this Report, “Cautionary Note Regarding Forward-Looking Statements” and the risk factors discussed in our 2020 10-K, and the other reports we have filed with the SEC after we filed the 2020 10-K.

Unless the context otherwise requires, the terms “we,” “our,” “us” refer to United on a consolidated basis. References to the Holding Company refer to United Community Banks, Inc. on an unconsolidated basis.

 

Overview

 

We offer a wide array of commercial and consumer banking services and investment advisory services through a 162 branch network throughout Georgia, South Carolina, North Carolina, Tennessee and Florida. We have grown organically as well as through strategic acquisitions. At June 30, 2021, we had consolidated total assets of $18.9 billion and 2,440 full-time equivalent employees.

Recent Developments

Mergers and Acquisitions

•On July 1, 2020, we acquired Three Shores including its wholly-owned banking subsidiary, Seaside, headquartered in Orlando, Florida. Seaside was a premier commercial lender with a strong wealth management platform and operated a 14-branch network located in key Florida metropolitan markets. We acquired $2.13 billion of assets and assumed $1.99 billion of liabilities in the acquisition.

•Subsequent to quarter-end, on July 6, 2021, we acquired FinTrust Capital Partners, LLC, and its operating subsidiaries FinTrust Capital Advisors, LLC, FinTrust Capital Benefit Group, LLC and FinTrust Brokerage Services, LLC, collectively referred to as “FinTrust”. FinTrust is an investment advisory firm headquartered in Greenville, South Carolina, with additional locations in Anderson, South Carolina, and Athens and Macon, Georgia. The firm provides wealth and investment management services to individuals and institutions within its markets, which expands our Advisory Services division. As of June 30, 2021, FinTrust had assets under management of $2.09 billion across its advisory, retirement planning and brokerage businesses.

•On May 27, 2021, we announced an agreement to acquire Aquesta Financial Holdings, Inc. and its wholly-owned subsidiary, Aquesta Bank, collectively referred to as “Aquesta”, which we plan to complete in October of 2021. Aquesta is headquartered in Cornelius, North Carolina. The bank’s high-touch customer service is delivered to retail and business customers through a network of nine branches primarily located in the Charlotte metropolitan area in addition to locations in Wilmington and Raleigh, North Carolina, as well as Greenville and Charleston, South Carolina. As of June 30, 2021, Aquesta reported total assets of $736 million, total loans of $524 million and total deposits of $641 million.

•On July 14, 2021, we announced an agreement to acquire Reliant Bancorp, Inc. and its wholly-owned subsidiary, Reliant Bank, collectively referred to as “Reliant”, which we plan to complete in the first quarter of 2022. Reliant is headquartered in Brentwood, Tennessee, a suburb of Nashville, Tennessee and operates a 25 branch network in Tennessee, located primarily in some of the Nashville area’s most attractive markets, as well as in Clarksville and Chattanooga. It also has a manufactured housing finance group based in Knoxville. As of June 30, 2021, Reliant reported total assets of $3.10 billion, total loans of $2.32 billion, and total deposits of $2.63 billion.

COVID-19

During the second quarter of 2021, as a result of the widespread distribution of COVID-19 vaccinations and reduction in COVID-19 cases nationally and within our markets, we substantially returned to normal retail operations by reopening the majority of our branch lobbies. We continue to monitor the impact of the COVID-19 pandemic on our business and to offer assistance to our customers affected by its economic effects, through payment deferrals and participation in the CARES Act and PPP loan program. Loans with active COVID-19 payment deferrals have declined dramatically, with $17.8 million outstanding at June 30, 2021, a 75% reduction since December 31, 2020.

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Other

Effective July 1, 2021, the Bank moved its headquarters from Blairsville, Georgia to Greenville, South Carolina and became a South Carolina state-chartered bank subject to examination and reporting requirements of the South Carolina Board of Financial Institutions. Prior to that, the Bank was a Georgia state-chartered bank subject to examination and reporting requirements of the Georgia Department of Banking and Finance. Also effective July 1, 2021, the Holding Company, which remains headquartered in Blairsville, Georgia, elected to become a financial holding company, which allows us to engage in a broader range of financial activities. Neither of these changes had a material impact on our operations.

Results of Operations

We reported net income and diluted earnings per common share of $70.3 million and $0.78, respectively, for the second quarter of 2021 compared to $25.1 million and $0.32, respectively, for the same period in 2020. Operating net income (non-GAAP), which excludes merger-related and other charges, was $71.1 million for the second quarter of 2021, compared to $25.4 million for the same period in 2020. The increase in net income and operating net income was driven by increased net interest revenue and a release of provision for credit losses partly offset by a decrease in noninterest income and an increase in noninterest expense during the second quarter of 2021.

Net interest revenue increased to $138 million for the second quarter of 2021, compared to $109 million for the second quarter of 2020, due to several factors including loan growth, much of which resulted from the addition of PPP loans and loans acquired from Three Shores, accelerated recognition of net deferred fees on forgiven and repaid PPP loans and a more favorable deposit mix. The net interest margin decreased to 3.19% for the three months ended June 30, 2021 from 3.42% for the same period in 2020 primarily due to the effect of falling interest rates on our asset sensitive balance sheet and a change in the composition of interest-earning assets as we strategically increased our securities portfolio to deploy excess liquidity from strong deposit growth.

 

We recorded a negative provision for credit losses of $13.6 million for the second quarter of 2021, compared to $33.5 million of provision expense for the second quarter of 2020. The negative provision in 2021 resulted from a downward adjustment to the ACL, reflecting an improved economic forecast. The provision for credit losses for the second quarter of 2020 reflected the expected macroeconomic effects of the COVID-19 pandemic and associated increase in charge-offs. We recognized net recoveries for the second quarter of 2021 of $456,000 compared to $6.15 million of net charge-offs for the same period in 2020.

Noninterest income of $35.8 million for the second quarter of 2021 was down $4.40 million, or 11%, from the second quarter of 2020. Gains on sales of mortgage loans and related fees drove most of the decrease, down $12.5 million compared to the same period of 2020. The decrease reflects the demand in the real estate mortgage market, which, while still strong, has started to level out after the initial surge in response to falling interest rates in early 2020. This decrease was partially offset by increases in gains on sales of other loans, driven by higher sales volume of SBA/USDA and equipment financing receivables, and wealth management fees, which reflects the addition of Three Shores’ wealth management business.

For the second quarter of 2021, noninterest expenses of $95.5 million increased $11.6 million, or 14%, compared to the same period of 2020. The increase was primarily attributable to a $7.60 million increase in salaries and employee benefits, which was driven by several factors, including the inclusion of Three Shores employees, higher mortgage commissions, incentives and bonus accruals as a result of strong production during the period and annual merit increases effective in April of 2021.

For the six months ended June 30, 2021 and 2020, we reported net income of $144 million and $57.0 million, respectively, and diluted earnings per common share of $1.60 and $0.71, respectively. Operating net income (non-GAAP) for the six months ended June 30, 2021 and 2020, of $146 million and $57.9 million, respectively, excluded merger-related charges for both periods. Net interest revenue and net interest margin for the six months ended June 30, 2021 were $270 million and 3.20%, respectively, compared to $228 million and 3.73%, respectively, for the same period in 2020. Results of operations for the six months ended June 30, 2021 were largely driven by the same factors affecting the quarter and are discussed in further detail throughout the following sections of MD&A.

Critical Accounting Policies

 

Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Our more critical accounting and reporting policies include accounting for the ACL and fair value measurements, both of which involve the use of estimates and require significant judgments by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Our critical accounting policies are discussed in MD&A in our 2020 10-K. There have been no significant changes to our critical accounting policies in 2021.

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Non-GAAP Reconciliation and Explanation

This Report contains financial information determined by methods other than in accordance with GAAP. Such non-GAAP financial information includes the following measures: “tangible book value per common share,” and “tangible common equity to tangible assets.” In addition, management presents non-GAAP operating performance measures, which exclude merger-related and other items that are not part of our ongoing business operations. Operating performance measures include “expenses – operating,” “net income – operating,” “diluted income per common share – operating,” “return on common equity – operating,” “return on tangible common equity – operating,” “return on assets – operating,” “dividend payout ratio – operating” and “efficiency ratio – operating.” Management has developed internal policies and procedures to accurately capture and account for merger-related and other charges and those charges are reviewed with the Audit Committee of our Board each quarter. Management uses these non-GAAP measures because it believes they provide useful supplemental information for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP measures may also provide users of our financial information with a meaningful measure for assessing our financial results and credit trends, as well as a comparison to financial results for prior periods. Nevertheless, non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. These non-GAAP measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP. In addition, because non-GAAP measures are not standardized, it may not be possible to compare our non-GAAP measures to similarly titled measures used by other companies. To the extent applicable, reconciliations of these non-GAAP measures to the most directly comparable measures as reported in accordance with GAAP are included in Table 1 of MD&A.

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UNITED COMMUNITY BANKS, INC.
Table 1 - Financial Highlights
Selected Financial Information
(in thousands, except per share data)
						2021												2020																		Second Quarter 2021 - 2020 Change						For the Six Months Ended June 30,												YTD Change
						Second Quarter						First Quarter						Fourth Quarter						Third Quarter						Second Quarter												2021						2020
INCOME SUMMARY
Interest revenue						$	145,809					$	141,542					$	156,071					$	141,773					$	123,605											$	287,351					$	260,152
Interest expense						7,433						9,478						10,676						13,319						14,301												16,911						32,242
Net interest revenue						138,376						132,064						145,395						128,454						109,304						27		%				270,440						227,910						19		%
(Release of) provision for credit losses						(13,588)						(12,281)						2,907						21,793						33,543												(25,869)						55,734
Noninterest income						35,841						44,705						41,375						48,682						40,238						(11)						80,546						66,052						22
Total revenue						187,805						189,050						183,863						155,343						115,999						62						376,855						238,228						58
Expenses						95,540						95,194						106,490						95,981						83,980						14						190,734						165,518						15
Income before income tax expense						92,265						93,856						77,373						59,362						32,019						188						186,121						72,710						156
Income tax expense						22,005						20,150						17,871						11,755						6,923						218						42,155						15,730						168
Net income						70,260						73,706						59,502						47,607						25,096						180						143,966						56,980						153
Merger-related and other charges						1,078						1,543						2,452						3,361						397												2,621						1,205
Income tax benefit of merger-related and other charges						(246)						(335)						(552)						(519)						(87)												(581)						(269)
Net income - operating (1)						$	71,092					$	74,914					$	61,402					$	50,449					$	25,406					180						$	146,006					$	57,916					152
PERFORMANCE MEASURES
Per common share:
Diluted net income - GAAP						$	0.78					$	0.82					$	0.66					$	0.52					$	0.32					144						$	1.60					$	0.71					125
Diluted net income - operating (1)						0.79						0.83						0.68						0.55						0.32						147						1.62						0.73						122
Cash dividends declared						0.19						0.19						0.18						0.18						0.18						6						0.38						0.36						6
Book value						22.81						22.15						21.90						21.45						21.22						7						22.81						21.22						7
Tangible book value (3)						18.49						17.83						17.56						17.09						16.95						9						18.49						16.95						9
Key performance ratios:
Return on common equity - GAAP (2)(4)						14.08		%				15.37		%				12.36		%				10.06		%				6.17		%										14.71		%				7.01		%
Return on common equity - operating (1)(2)(4)						14.25						15.63						12.77						10.69						6.25												14.92						7.13
Return on tangible common equity - operating (1)(2)(3)(4)						17.81						19.68						16.23						13.52						8.09												18.72						9.20
Return on assets - GAAP (4)						1.46						1.62						1.30						1.07						0.71												1.54						0.85
Return on assets - operating (1)(4)						1.48						1.65						1.34						1.14						0.72												1.56						0.86
Dividend payout ratio - GAAP						24.36						23.17						27.27						34.62						56.25												23.75						50.70
Dividend payout ratio - operating (1)						24.05						22.89						26.47						32.73						56.25												23.46						49.32
Net interest margin (FTE) (4)						3.19						3.22						3.55						3.27						3.42												3.20						3.73
Efficiency ratio - GAAP						54.53						53.55						56.73						54.14						55.86												54.04						56.00
Efficiency ratio - operating (1)						53.92						52.68						55.42						52.24						55.59												53.30						55.59
Equity to total assets						11.04						10.95						11.29						11.47						11.81												11.04						11.81
Tangible common equity to tangible assets (3)						8.71						8.57						8.81						8.89						9.12												8.71						9.12
ASSET QUALITY
Nonperforming loans						$	46,123					$	55,900					$	61,599					$	49,084					$	48,021					(4)						$	46,123					$	48,021					(4)
Foreclosed properties						224						596						647						953						477												224						477
Total NPAs						46,347						56,496						62,246						50,037						48,498						(4)						46,347						48,498						(4)
ACL - loans						111,616						126,866						137,010						134,256						103,669						8						111,616						103,669						8
Net charge-offs						(456)						(305)						1,515						2,538						6,149												(761)						14,263						(105)
ACL - loans to loans						0.98		%				1.09		%				1.20		%				1.14		%				1.02		%										0.98		%				1.02		%
Net charge-offs to average loans (4)						(0.02)						(0.01)						0.05						0.09						0.25												(0.01)						0.31
NPAs to loans and foreclosed properties						0.41						0.48						0.55						0.42						0.48												0.41						0.48
NPAs to total assets						0.25						0.30						0.35						0.29						0.32												0.25						0.32
AVERAGE BALANCES ($ in millions)
Loans						$	11,617					$	11,433					$	11,595					$	11,644					$	9,773					19						$	11,525					$	9,301					24
Investment securities						4,631						3,991						3,326						2,750						2,408						92						4,313						2,464						75
Earning assets						17,540						16,782						16,394						15,715						12,958						35						17,163						12,378						39
Total assets						18,792						18,023						17,698						17,013						14,173						33						18,410						13,558						36
Deposits						16,132						15,366						15,057						14,460						12,071						34						15,751						11,493						37
Shareholders’ equity						2,060						2,025						1,994						1,948						1,686						22						2,042						1,670						22
Common shares - basic (thousands)						87,289						87,322						87,258						87,129						78,920						11						87,306						79,130						10
Common shares - diluted (thousands)						87,421						87,466						87,333						87,205						78,924						11						87,443						79,186						10
AT PERIOD END ($ in millions)
Loans						$	11,391					$	11,679					$	11,371					$	11,799					$	10,133					12						$	11,391					$	10,133					12
Investment securities						4,928						4,332						3,645						3,089						2,432						103						4,928						2,432						103
Total assets						18,896						18,557						17,794						17,153						15,005						26						18,896						15,005						26
Deposits						16,328						15,993						15,232						14,603						12,702						29						16,328						12,702						29
Shareholders’ equity						2,086						2,031						2,008						1,967						1,772						18						2,086						1,772						18
Common shares outstanding (thousands)						86,665						86,777						86,675						86,611						78,335						11						86,665						78,335						11

(1) Excludes merger-related and other charges. (2) Net income less preferred stock dividends, divided by average realized common equity, which excludes AOCI. (3) Excludes effect of acquisition related intangibles and associated amortization. (4) Annualized.

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			UNITED COMMUNITY BANKS, INC.
			Table 1 (Continued) - Non-GAAP Performance Measures Reconciliation
			Selected Financial Information
			(in thousands, except per share data)
									2021												2020																		For the Six Months Ended June 30,
									Second Quarter						First Quarter						Fourth Quarter						Third Quarter						Second Quarter						2021						2020
			Expense reconciliation
			Expenses (GAAP)						$	95,540					$	95,194					$	106,490					$	95,981					$	83,980					$	190,734					$	165,518
			Merger-related and other charges						(1,078)						(1,543)						(2,452)						(3,361)						(397)						(2,621)						(1,205)
			Expenses - operating						$	94,462					$	93,651					$	104,038					$	92,620					$	83,583					$	188,113					$	164,313
			Net income reconciliation
			Net income (GAAP)						$	70,260					$	73,706					$	59,502					$	47,607					$	25,096					$	143,966					$	56,980
			Merger-related and other charges						1,078						1,543						2,452						3,361						397						2,621						1,205
			Income tax benefit of merger-related and other charges						(246)						(335)						(552)						(519)						(87)						(581)						(269)
			Net income - operating						$	71,092					$	74,914					$	61,402					$	50,449					$	25,406					$	146,006					$	57,916
			Diluted income per common share reconciliation
			Diluted income per common share (GAAP)						$	0.78					$	0.82					$	0.66					$	0.52					$	0.32					$	1.60					$	0.71
			Merger-related and other charges, net of tax						0.01						0.01						0.02						0.03						—						0.02						0.02
			Diluted income per common share - operating						$	0.79					$	0.83					$	0.68					$	0.55					$	0.32					$	1.62					$	0.73
			Book value per common share reconciliation
			Book value per common share (GAAP)						$	22.81					$	22.15					$	21.90					$	21.45					$	21.22					$	22.81					$	21.22
			Effect of goodwill and other intangibles						(4.32)						(4.32)						(4.34)						(4.36)						(4.27)						(4.32)						(4.27)
			Tangible book value per common share						$	18.49					$	17.83					$	17.56					$	17.09					$	16.95					$	18.49					$	16.95
			Return on tangible common equity reconciliation
			Return on common equity (GAAP)						14.08		%				15.37		%				12.36		%				10.06		%				6.17		%				14.71		%				7.01		%
			Merger-related and other charges, net of tax						0.17						0.26						0.41						0.63						0.08						0.21						0.12
			Return on common equity - operating						14.25						15.63						12.77						10.69						6.25						14.92						7.13
			Effect of goodwill and other intangibles						3.56						4.05						3.46						2.83						1.84						3.80						2.07
			Return on tangible common equity - operating						17.81		%				19.68		%				16.23		%				13.52		%				8.09		%				18.72		%				9.20		%
			Return on assets reconciliation
			Return on assets (GAAP)						1.46		%				1.62		%				1.30		%				1.07		%				0.71		%				1.54		%				0.85		%
			Merger-related and other charges, net of tax						0.02						0.03						0.04						0.07						0.01						0.02						0.01
			Return on assets - operating						1.48		%				1.65		%				1.34		%				1.14		%				0.72		%				1.56		%				0.86		%
			Dividend payout ratio reconciliation
			Dividend payout ratio (GAAP)						24.36		%				23.17		%				27.27		%				34.62		%				56.25		%				23.75		%				50.70		%
			Merger-related and other charges, net of tax						(0.31)						(0.28)						(0.80)						(1.89)						—						(0.29)						(1.38)
			Dividend payout ratio - operating						24.05		%				22.89		%				26.47		%				32.73		%				56.25		%				23.46		%				49.32		%
			Efficiency ratio reconciliation
			Efficiency ratio (GAAP)						54.53		%				53.55		%				56.73		%				54.14		%				55.86		%				54.04		%				56.00		%
			Merger-related and other charges						(0.61)						(0.87)						(1.31)						(1.90)						(0.27)						(0.74)						(0.41)
			Efficiency ratio - operating						53.92		%				52.68		%				55.42		%				52.24		%				55.59		%				53.30		%				55.59		%
			Tangible common equity to tangible assets reconciliation
			Equity to total assets (GAAP)						11.04		%				10.95		%				11.29		%				11.47		%				11.81		%				11.04		%				11.81		%
			Effect of goodwill and other intangibles						(1.82)						(1.86)						(1.94)						(2.02)						(2.05)						(1.82)						(2.05)
			Effect of preferred equity						(0.51)						(0.52)						(0.54)						(0.56)						(0.64)						(0.51)						(0.64)
			Tangible common equity to tangible assets						8.71		%				8.57		%				8.81		%				8.89		%				9.12		%				8.71		%				9.12		%

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Net Interest Revenue

Net interest revenue, which is the difference between the interest earned on assets and the interest paid on deposits and borrowed funds, is the single largest component of total revenue. Management seeks to optimize this revenue while balancing interest rate, credit and liquidity risks.

The banking industry uses two ratios to measure the relative profitability of net interest revenue. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread eliminates the effect of noninterest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company’s balance sheet and is defined as net interest revenue as a percent of average total interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and stockholders’ equity.

The following tables indicate the relationship between interest revenue and expense and the average amounts of assets and liabilities, which provides further insight into net interest spread and net interest margin for the periods indicated. As shown in the tables, both average assets and average liabilities for the three and six months ended June 30, 2021 increased compared to the same periods of 2020. The increase in average assets was primarily in average interest-earning assets including average loans, securities and interest-earning deposits in banks. The increase in average liabilities was driven by the increase in both average interest-bearing and noninterest-bearing deposits. In addition to organic growth, the increases in average loans and deposits reflect those acquired from Three Shores and the addition of PPP loans to our loan portfolio. PPP loans also contributed to deposit growth, since in many cases the proceeds of PPP loans remained in United customer deposit accounts during the first half of 2021. Approximately $1.93 billion of the increase in average loans for the three months ended June 30, 2021 can be attributed to the Three Shores and PPP loan portfolios. The forgiveness of PPP loans and strong growth in deposits generated additional liquidity, which we deployed into our investment portfolio and was also reflected in our cash balances.

Net interest revenue for the second quarter and first six months of 2021 was $138 million and $270 million, respectively. As set forth in the following tables, FTE net interest revenue for the second quarter and first six months of 2021 was $139 million and $272 million, representing 27% and 19% increases, respectively, from the second quarter and first six months of 2020. The increase in net interest revenue for the three and six months ended June 30, 2021 compared to the same periods of 2020 was primarily driven by the loan growth discussed above and accelerated recognition of net deferred PPP loan fees upon forgiveness or repayment, partially offset by the impact of historically low interest rates on our asset sensitive balance sheet.

The net interest spread for the second quarter and first six months of 2021 decreased 7 and 36 basis points, respectively, from the same periods of 2020. The net interest margin for the second quarter and first six months of 2021 decreased 23 basis points and 53 basis points, respectively, from the same periods of 2020. The decrease in the net interest margin and net interest spread during the three and six months ended June 30, 2021 was primarily attributable to the impact of falling interest rates as the decreases in loan and securities yields exceeded the decrease in deposit rates. Also, strong deposit growth led to a changing mix of interest-earning assets, which contributed to the net interest margin and net interest spread compression as average cash balances increased and the average balance of the lower-yielding investment securities portfolio as a percentage of total assets was 25% for the second quarter of 2021 compared with 17% for the same period of 2020. The impact of the falling yield on our interest-earning assets was partially mitigated by a more favorable interest-bearing deposit mix. For the three months ended June 30, 2021, 84% of interest-bearing deposits consisted of lower-cost transaction deposits compared to 75% for the same period of 2020, representing a shift from higher-cost time deposits. The shift in the interest-bearing deposit mix was also evident when comparing the six months ended June 30, 2021 and 2020. The decrease in the net interest margin was also partially offset by continued growth in noninterest-bearing deposits.

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Table 2 - Average Consolidated Balance Sheets and Net Interest Analysis
For the Three Months Ended June 30,

						2021																		2020
(dollars in thousands, FTE)						Average Balance						Interest						Average Rate						Average Balance						Interest						Average Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (FTE) (1)(2)						$	11,616,802					$	127,458					4.40		%				$	9,772,703					$	107,398					4.42		%
Taxable securities (3)						4,242,297						15,287						1.44						2,229,371						14,045						2.52
Tax-exempt securities (FTE) (1)(3)						388,609						3,030						3.12						178,903						2,110						4.72
Federal funds sold and other interest-earning assets						1,292,026						1,055						0.33						776,776						857						0.44
Total interest-earning assets (FTE)						17,539,734						146,830						3.36						12,957,753						124,410						3.86
Noninterest-earning assets:
Allowance for credit losses						(128,073)																		(89,992)
Cash and due from banks						152,443																		138,842
Premises and equipment						225,017																		217,096
Other assets (3)						1,002,634																		949,201
Total assets						$	18,791,755																	$	14,172,900
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and interest-bearing demand						$	3,428,009					1,382						0.16						$	2,444,895					1,628						0.27
Money market						3,814,960						1,355						0.14						2,541,805						3,421						0.54
Savings						1,080,267						53						0.02						788,247						39						0.02
Time						1,548,487						899						0.23						1,805,671						6,058						1.35
Brokered time deposits						64,332						(69)						(0.43)						130,556						125						0.39
Total interest-bearing deposits						9,936,055						3,620						0.15						7,711,174						11,271						0.59
Federal funds purchased and other borrowings						111						—						—						1						—						—
Federal Home Loan Bank advances						—						—						—						—						—						—
Long-term debt						285,389						3,813						5.36						228,096						3,030						5.34
Total borrowed funds						285,500						3,813						5.36						228,097						3,030						5.34
Total interest-bearing liabilities						10,221,555						7,433						0.29						7,939,271						14,301						0.72
Noninterest-bearing liabilities:
Noninterest-bearing deposits						6,196,045																		4,360,095
Other liabilities						314,130																		187,375
Total liabilities						16,731,730																		12,486,741
Shareholders' equity						2,060,025																		1,686,159
Total liabilities and shareholders' equity						$	18,791,755																	$	14,172,900
Net interest revenue (FTE)												$	139,397																	$	110,109
Net interest-rate spread (FTE)																		3.07		%																3.14		%
Net interest margin (FTE) (4)																		3.19		%																3.42		%

 

(1)Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans. The rate used was 26%, reflecting the statutory federal income tax rate and the federal tax adjusted state income tax rate.

(2)Included in the average balance of loans outstanding are loans on which the accrual of interest has been discontinued and loans that are held for sale.

(3)AFS securities are shown at amortized cost. Pretax unrealized gains of $28.6 million and $66.3 million in 2021 and 2020, respectively, are included in other assets for purposes of this presentation.

(4)Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets.

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Table 3 - Average Consolidated Balance Sheets and Net Interest Analysis
For the Six Months Ended June 30,

						2021																		2020
(dollars in thousands, fully taxable equivalent (FTE))						Average Balance						Interest						Average Rate						Average Balance						Interest						Average Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (FTE) (1)(2)						$	11,525,363					$	252,580					4.42		%				$	9,300,792					$	225,194					4.87		%
Taxable securities (3)						3,932,545						28,585						1.45						2,293,502						29,916						2.61
Tax-exempt securities (FTE) (1)(3)						380,370						5,918						3.11						170,578						4,155						4.87
Federal funds sold and other interest-earning assets						1,324,776						2,277						0.34						612,776						2,489						0.81
Total interest-earning assets (FTE)						17,163,054						289,360						3.40						12,377,648						261,754						4.25
Non-interest-earning assets:
Allowance for loan losses						(135,845)																		(79,885)
Cash and due from banks						146,401																		133,548
Premises and equipment						223,224																		218,170
Other assets (3)						1,012,896																		908,828
Total assets						$	18,409,730																	$	13,558,309
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and interest-bearing demand						$	3,379,794					2,868						0.17						$	2,428,815					4,606						0.38
Money market						3,774,201						3,159						0.17						2,441,264						7,952						0.66
Savings						1,035,176						102						0.02						750,179						74						0.02
Time						1,595,196						2,487						0.31						1,823,612						13,308						1.47
Brokered time deposits						69,765						223						0.64						105,689						406						0.77
Total interest-bearing deposits						9,854,132						8,839						0.18						7,549,559						26,346						0.70
Federal funds purchased and other borrowings						62						—						—						199						1						1.01
Federal Home Loan Bank advances						1,657						2						0.24						83						1						2.42
Long-term debt						301,193						8,070						5.40						220,429						5,894						5.38
Total borrowed funds						302,912						8,072						5.37						220,711						5,896						5.37
Total interest-bearing liabilities						10,157,044						16,911						0.34						7,770,270						32,242						0.83
Noninterest-bearing liabilities:
Noninterest-bearing deposits						5,896,882																		3,943,740
Other liabilities						313,374																		174,781
Total liabilities						16,367,300																		11,888,791
Shareholders' equity						2,042,430																		1,669,518
Total liabilities and shareholders' equity						$	18,409,730																	$	13,558,309
Net interest revenue (FTE)												$	272,449																	$	229,512
Net interest-rate spread (FTE)																		3.06		%																3.42		%
Net interest margin (FTE) (4)																		3.20		%																3.73		%

 

(1)Interest revenue on tax-exempt securities and loans has been increased to reflect comparable interest on taxable securities and loans. The rate used was 26%, reflecting the statutory federal income tax rate and the federal tax adjusted state income tax rate.

(2)Included in the average balance of loans outstanding are loans on which the accrual of interest has been discontinued and loans that are held for sale.

(3)Securities AFS are shown at amortized cost. Pretax unrealized gains of $43.4 million and $59.6 million in 2021 and 2020, respectively, are included in other assets for purposes of this presentation.

(4)Net interest margin is taxable equivalent net-interest revenue divided by average interest-earning assets.

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The following table shows the relative effect on net interest revenue for changes in the average outstanding amounts (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities (rate). Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.

 

Table 4 - Change in Interest Revenue and Expense on a Taxable Equivalent Basis
(in thousands)

												Three Months Ended June 30, 2021																					Six Months Ended June 30, 2021
												Compared to 2020 Increase (Decrease) Due to Changes in
												Volume						Rate						Total									Volume						Rate						Total
						Interest-earning assets:
						Loans (FTE)						$	20,233					$	(173)					$	20,060								$	50,203					$	(22,817)					$	27,386
						Taxable securities						8,999						(7,757)						1,242									15,535						(16,866)						(1,331)
						Tax-exempt securities (FTE)						1,823						(903)						920									3,683						(1,920)						1,763
						Federal funds sold and other interest-earning assets						462						(264)						198									1,777						(1,989)						(212)
						Total interest-earning assets (FTE)						31,517						(9,097)						22,420									71,198						(43,592)						27,606
						Interest-bearing liabilities:
						NOW and interest-bearing demand accounts						524						(770)						(246)									1,390						(3,128)						(1,738)
						Money market accounts						1,203						(3,269)						(2,066)									2,975						(7,768)						(4,793)
						Savings deposits						14						—						14									28						—						28
						Time deposits						(758)						(4,401)						(5,159)									(1,487)						(9,334)						(10,821)
						Brokered deposits						(37)						(157)						(194)									(122)						(61)						(183)
						Total interest-bearing deposits						946						(8,597)						(7,651)									2,784						(20,291)						(17,507)
						Federal funds purchased & other borrowings						—						—						—									—						(1)						(1)
						FHLB advances						—						—						—									3						(2)						1
						Long-term debt						765						18						783									2,164						12						2,176
						Total borrowed funds						765						18						783									2,167						9						2,176
						Total interest-bearing liabilities						1,711						(8,579)						(6,868)									4,951						(20,282)						(15,331)
						Increase in net interest revenue (FTE)						$	29,806					$	(518)					$	29,288								$	66,247					$	(23,310)					$	42,937

Provision for Credit Losses

 

The ACL represents management’s estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments. Management’s estimate of credit losses under CECL is determined using a model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and resulting provision for credit losses.

We recorded negative provisions for credit losses of $13.6 million and $25.9 million for the three and six months ended June 30, 2021, respectively, compared to $33.5 million and $55.7 million in provision expense for the same periods in 2020, respectively. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined by management reflecting expected life of loan losses. The negative provision expense for the three and six months ended June 30, 2021 compared to the same periods of 2020 was primarily a result of an improved economic forecast combined with net recoveries recognized during the second quarter and first half of 2021. The provision for credit losses for the second quarter and first half of 2020 was elevated due to a less optimistic economic forecast amidst the COVID-19 pandemic.

For the six months ended June 30, 2021, net loan charge-offs (recoveries) as an annualized percentage of average outstanding loans were (0.01)% compared to 0.31% for the same period in 2020. The net recoveries amount recorded during the first six months of 2021 was mostly attributable to one large commercial credit recovery during the first quarter, strong recoveries from a number of other credits and lower charge-offs during the second quarter.

 

Additional discussion on credit quality and the ACL is included in the “Asset Quality and Risk Elements” section of MD&A in this Report.

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Noninterest income

 

The following table presents the components of noninterest income for the periods indicated.

Table 5 - Noninterest Income
(in thousands)

						Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
						2021						2020						Amount						Percent						2021						2020						Amount						Percent
			Overdraft fees			$	2,274					$	1,997					$	277					14		%				$	4,616					$	5,516					$	(900)					(16)		%
			ATM and debit card fees			3,306						3,199						107						3						6,396						6,268						128						2
			Other service charges and fees			2,755						1,799						956						53						4,893						3,849						1,044						27
			Total service charges and fees			8,335						6,995						1,340						19						15,905						15,633						272						2
			Mortgage loan gains and related fees			11,136						23,659						(12,523)						(53)						33,708						31,969						1,739						5
			Wealth management fees			3,822						1,324						2,498						189						7,327						2,964						4,363						147
			Gains on sales of other loans			4,123						1,040						3,083						296						5,153						2,714						2,439						90
			Securities gains, net			41						—						41												41						—						41
			Other noninterest income:
			Other lending and loan servicing fees			2,085						1,298						787						61						4,245						2,963						1,282						43
			Customer derivatives			260						1,181						(921)						(78)						1,952						2,588						(636)						(25)
			Other investment gains (losses)			1,648						18						1,630												3,154						(1,139)						4,293
			BOLI			972						2,032						(1,060)						(52)						1,829						2,877						(1,048)						(36)
			Treasury management income			710						462						248						54						1,355						971						384						40
			Other			2,709						2,229						480						22						5,877						4,512						1,365						30
			Total other noninterest income			8,384						7,220						1,164						16						18,412						12,772						5,640						44
			Total noninterest income			$	35,841					$	40,238					$	(4,397)					(11)						$	80,546					$	66,052					$	14,494					22

Total service charges and fees for the first half of 2021 were flat compared to the same period of 2020, reflecting an increase in other service charges and fees that was mostly offset by a decrease in overdraft fees. During the second quarter of 2021, total service charges and fees increased $1.34 million compared to the respective period of 2020, which was mostly driven by the receipt of larger vendor rebates reflected in other service charges and fees for the three and six months ended 2021. Overdraft fees have remained at relatively low levels since the onset of the COVID-19 pandemic. During the first half of 2020, the decrease in overdraft fees was attributable to lower transaction volume due to widespread economic shutdowns combined with government stimulus payments disbursed during the second quarter, both of which increased transaction deposit account balances. During the first half of 2021, transaction deposit account balances remained elevated due to government stimulus payments and customer preferences to allocate more funds to transaction deposit accounts rather than time deposits in the current low interest rate environment.

Mortgage loan gains and related fees consists primarily of fees earned on mortgage originations, gains on the sale of mortgages in the secondary market and fair value adjustments to our mortgage servicing asset. We recognize the majority of gains on mortgages at the point customers enter into mortgage rate lock commitments, making our mortgage pipeline a significant driver of mortgage gains in any given period. The change in mortgage loan gains and related fees is strongly tied to the interest rate environment. Customer demand, also primarily driven by interest rates, as well as the market-driven gain on sale spread are also primary drivers of mortgage income. From the second quarter of 2020 through the first quarter of 2021, we experienced a strong demand for mortgage refinances and home purchases following the drop in interest rates in early 2020. During the second quarter of 2021, the demand for refinances began to decrease as rates increased, resulting in a decrease in the volume of mortgage rate locks compared to the same period of 2020. Overall mortgage originations for the three and six months ended June 30, 2021 surpassed that of the respective periods of 2020 as the demand for home purchases remained strong. Offsetting strong mortgage origination demand, during the three months ended June 30, 2021 and 2020, we recorded negative fair value adjustments to the mortgage servicing rights asset of $2.58 million and $1.78 million, respectively, as projected mortgage prepayments accelerated as interest rates decreased. Additionally, our gain on sale spread for the second quarter of 2021 of 3.86% decreased compared to 4.24% for the second quarter of 2020 contributing to the decrease in mortgage loan gains.

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Table 6 - Selected Mortgage Metrics
(dollars in thousands)
			Three Months Ended June 30,																		Six Months Ended June 30,
			2021						2020						% Change						2021						2020						% Change
Mortgage rate locks			$	701,666					$	801,836					(12)		%				$	1,695,005					$	1,602,493					6		%
# of mortgage rate locks			2,090						2,981						(30)						5,072						5,877						(14)
Mortgage loans sold			$	407,468					$	395,406					3						$	743,141					$	654,518					14
# of mortgage loans sold			1,704						1,712						—						3,109						2,870						8
Mortgage loans originated:
Purchases			$	406,552					$	242,920					67						$	699,471					$	461,498					52
Refinances			271,850						318,868						(15)						635,403						488,149						30
Total			$	678,402					$	561,788					21						$	1,334,874					$	949,647					41
# of mortgage loans originated			1,992						2,095						(5)						4,134						3,565						16

 

Gains on the sale of other loans for the second quarter and first six months of 2021 were up significantly compared to the same periods of 2020 mostly due to the sale of equipment financing loans and leases and USDA renewable energy loans in the second quarter of 2021. Our SBA/USDA lending strategy includes selling a portion of the loan production each quarter. The amount of loans sold depends on several variables including the current lending environment and balance sheet management activities. From time to time, we also sell certain equipment financing receivables based on market conditions. The following table presents loans sold and the corresponding gains or losses recognized on the sale for the periods indicated.

Table 7 - Other Loan Sales
(in thousands)
			Three Months Ended June 30,																								Six Months Ended June 30,
			2021												2020												2021												2020
			Loans Sold						Gain (Loss)						Loans Sold						Gain (Loss)						Loans Sold						Gain (Loss)						Loans Sold						Gain (Loss)
Guaranteed portion of SBA/USDA loans			$	32,303					$	3,320					$	14,035					$	1,021					$	43,648					$	4,343					$	18,069					$	1,436
Equipment financing receivables			18,908						803						1,704						19						19,967						810						23,921						1,278
Total			$	51,211					$	4,123					$	15,739					$	1,040					$	63,615					$	5,153					$	41,990					$	2,714

The increase in brokerage and wealth management fees during the second quarter and first six months of 2021 from the same periods of 2020 was primarily a result of the addition of the Three Shores wealth management business.

Other noninterest income for the for the three and six months ended June 30, 2021 increased from the same periods of 2020 primarily due to positive fair value adjustments on deferred compensation plan assets and other investments compared to negative fair value adjustments during the first half of 2020 resulting from the COVID-19 pandemic related market disruption. The increase in lending and loan servicing fees also contributed to the increase in other income, which was mostly attributable to volume driven fee income from our equipment finance business. These increases were offset by a decrease in BOLI income compared to three and six months ended June 30, 2020, which included a death benefit gain of $1.10 million. Customer derivative income also decreased for the three and six months ended June 30, 2021 compared to the same periods of 2020 due to increases in interest rates negatively impacting the demand for customer derivative products.

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Noninterest Expenses 

The following table presents the components of noninterest expenses for the periods indicated. 

Table 8 - Noninterest Expenses
(in thousands)

						Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
						2021						2020						Amount						Percent						2021						2020						Amount						Percent
			Salaries and employee benefits			$	59,414					$	51,811					$	7,603					15		%				$	119,999					$	103,169					$	16,830					16		%
			Communications and equipment			7,408						6,556						852						13						14,611						12,502						2,109						17
			Occupancy			7,078						5,945						1,133						19						14,034						11,659						2,375						20
			Advertising and public relations			1,493						2,260						(767)						(34)						2,692						3,534						(842)						(24)
			Postage, printing and supplies			1,618						1,613						5						—						3,440						3,283						157						5
			Professional fees			4,928						4,823						105						2						9,162						8,920						242						3
			Lending and loan servicing expense			3,181						3,189						(8)						—						6,058						5,482						576						11
			Outside services - electronic banking			2,285						1,796						489						27						4,503						3,628						875						24
			FDIC assessments and other regulatory charges			1,901						1,558						343						22						3,797						3,042						755						25
			Amortization of intangibles			929						987						(58)						(6)						1,914						2,027						(113)						(6)
			Other			4,227						3,045						1,182						39						7,903						7,067						836						12
			Total excluding merger-related and other charges			94,462						83,583						10,879						13						188,113						164,313						23,800						14
			Merger-related and other charges			1,078						397						681												2,621						1,205						1,416
			Total noninterest expenses			$	95,540					$	83,980					$	11,560					14						$	190,734					$	165,518					$	25,216					15

Salaries and employee benefits for the second quarter and first six months of 2021 increased from the same periods of 2020 as a result of several factors including growth in our employee base from the acquisition of Three Shores as well as increased mortgage commissions and other incentives resulting from increased production and strong performance. The increase also reflected our merit-based salary increases awarded during the second quarter of 2021. These increases in expense were partially offset by higher deferred loan origination costs related to increases in loan production. Full-time equivalent headcount totaled 2,440 at June 30, 2021, up from 2,297 at June 30, 2020.

Communications and equipment expense increased for the second quarter and first six months of 2021 compared to the same periods of 2020 primarily due to incremental software contract costs. The increase in occupancy costs was mostly attributable to the addition of operating lease costs associated with the acquired Three Shores’ locations. Advertising and public relations expense for the three and six months ended June 30, 2021 decreased relative to the same periods of 2020 as 2020 included contributions to the United Community Bank Foundation in its inaugural year. The increase in outside services - electronic banking primarily related to increased internet banking costs.

Merger-related and other charges for the second quarter and first six months of 2021 primarily consisted of expenses associated with the acquisitions of Three Shores and FinTrust. Merger-related and other charges for the three and six months ended June 30, 2020 were mostly related to the acquisition of Three Shores.

Balance Sheet Review

 

Total assets at June 30, 2021 and December 31, 2020 were $18.9 billion and $17.8 billion, respectively. Total liabilities at June 30, 2021 and December 31, 2020 were $16.8 billion and $15.8 billion, respectively. Shareholders’ equity totaled $2.09 billion and $2.01 billion at June 30, 2021 and December 31, 2020, respectively. The increase in assets was primarily evident in our investment portfolio, which we have strategically grown by $1.28 billion during 2021 to deploy excess liquidity provided by PPP loan forgiveness and growth in our customer deposits.

Loans

Our loan portfolio is our largest category of interest-earning assets. The following table presents a summary by loan type of the loan portfolio, of which approximately 71% was secured by real estate at June 30, 2021.

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Table 9 - Loans Outstanding
(in thousands)

			June 30, 2021												December 31, 2020
			Amortized Cost						% of total loans						Amortized Cost						% of total loans
Owner occupied commercial real estate			$	2,149,371					19		%				$	2,090,443					18		%
Income producing commercial real estate			2,550,243						22						2,540,750						22
Commercial & industrial (1)			2,234,646						20						2,498,560						22
Commercial construction			926,809						8						967,305						9
Equipment financing			968,805						8						863,830						8
Total commercial			8,829,874						77						8,960,888						79
Residential mortgage			1,472,608						13						1,284,920						11
HELOC			660,881						6						697,117						6
Residential construction			288,708						3						281,430						3
Consumer			138,675						1						146,460						1
Total loans			$	11,390,746					100		%				$	11,370,815					100		%

(1) Commercial and industrial loans as of June 30, 2021 and December 31, 2020 included $472 million and $646 million of PPP loans, respectively.

Asset Quality and Risk Elements

 

We manage asset quality and control credit risk through review and oversight of the loan portfolio as well as adherence to policies designed to promote sound underwriting and loan monitoring practices. Our credit risk management function is responsible for monitoring asset quality and Board approved portfolio concentration limits, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures. Additional information on our credit administration function is included in Part I, Item 1 under the heading Lending Activities in our 2020 10-K.

 

We conduct reviews of classified performing and non-performing loans, TDRs, past due loans and portfolio concentrations on a regular basis to identify risk migration and potential charges to the ACL. These items are discussed in a series of meetings attended by credit risk management leadership and leadership from various lending groups. In addition to the reviews mentioned above, an independent loan review team reviews the portfolio to ensure consistent application of risk rating policies and procedures.

The ACL reflects management’s assessment of the life of loan expected credit losses in the loan portfolio and unfunded loan commitments. This assessment involves uncertainty and judgment and is subject to change in future periods. The amount of any changes could be significant if management’s assessment of loan quality or collateral values changes substantially with respect to one or more loan relationships or portfolios. The allocation of the ACL is based on reasonable and supportable forecasts, historical data, subjective judgment and estimates and therefore, is not necessarily indicative of the specific amounts or loan categories in which charge-offs may ultimately occur. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for credit losses in future periods if, in their opinion, the results of their review warrant such additions. See the Critical Accounting Policies section of MD&A in our 2020 10-K for additional information on the allowance for credit losses.

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The following table presents a summary of the changes in the ACL for the periods indicated.

Table 10 - ACL
(in thousands)

						Three Months Ended June 30,												Six Months Ended June 30,
						2021						2020						2021						2020
			ACL - loans, beginning of period			$	126,866					$	81,905					$	137,010					$	62,089
			Adoption of CECL			—						—						—						6,880
			ACL - loans, adjusted beginning balance			126,866						81,905						137,010						68,969
			Charge-offs:
			Owner occupied commercial real estate			1						—						1						6
			Income producing commercial real estate			52						4,589						1,059						5,000
			Commercial & industrial			857						254						3,751						7,815
			Commercial construction			46						239						224						239
			Equipment financing			1,188						2,085						3,246						3,948
			Residential mortgage			—						50						215						334
			HELOC			34						98						34						118
			Residential construction			—						32						10						54
			Consumer			353						712						824						1,350
			Total charge-offs			2,531						8,059						9,364						18,864
			Recoveries:
			Owner occupied commercial real estate			156						466						396						1,500
			Income producing commercial real estate			213						41						229						182
			Commercial & industrial			797						291						6,444						667
			Commercial construction			339						117						495						258
			Equipment financing			887						420						1,434						776
			Residential mortgage			194						56						317						331
			HELOC			146						196						219						299
			Residential construction			33						37						103						71
			Consumer			222						286						488						517
			Total recoveries			2,987						1,910						10,125						4,601
			Net (recoveries) charge-offs			(456)						6,149						(761)						14,263
			(Release of) provision for credit losses - loans			(15,706)						27,913						(26,155)						48,963
			ACL - loans, end of period			111,616						103,669						111,616						103,669
			ACL - unfunded commitments, beginning of period			8,726						6,470						10,558						3,458
			Adoption of CECL			—						—						—						1,871
			ACL - unfunded commitments, adjusted beginning balance			8,726						6,470						10,558						5,329
			Provision for credit losses - unfunded commitments			2,118						5,630						286						6,771
			ACL - unfunded commitments, end of period			10,844						12,100						10,844						12,100
			Total ACL			$	122,460					$	115,769					$	122,460					$	115,769
			Total loans:
			At period-end			$	11,390,746					$	10,132,510					$	11,390,746					$	10,132,510
			Average			11,616,802						9,772,703						11,525,363						9,300,792
			ACL - loans, as a percentage of period-end loans			0.98		%				1.02		%				0.98		%				1.02		%
			As a percentage of average loans (annualized):
			Net charge-offs			(0.02)						0.25						(0.01)						0.31
			Provision for credit losses - loans			(0.54)						1.15						(0.46)						1.06

The reduction in the ACL since December 31, 2020 reflects an improved economic forecast, which includes an improved COVID-19 pandemic outlook, government stimulus spending, projected GDP growth and a continued low interest rate environment. Qualitative factors were used to moderate the improvement in the economic forecast for certain portfolios in recognition of the increase in special mention and substandard assets at June 30, 2021.

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The following table presents a summary of loans by risk category for the dates indicated. See Note 4 to the consolidated financial statements in this Report for detailed descriptions of the risk categories.

Table 11 - Risk Categories
(in thousands)
						June 30, 2021												December 31, 2020												Change
						Amortized Cost						% of total loans						Amortized Cost						% of total loans						Amount						Percent
			Pass			$	10,781,793					95		%				$	10,846,850					95		%				$	(65,057)					(1)		%
			Special mention			369,964						3						297,245						3						72,719						24
			Substandard			238,989						2						226,720						2						12,269						5
			Total loans			$	11,390,746					100		%				$	11,370,815					100		%				$	19,931					—

The increase in special mention and substandard loans since December 31, 2020 mostly reflects downgrades made during the first quarter of 2021 that remained in place as of June 30, 2021. Downgrades primarily consisted of borrowers in industries with potentially higher risk of being impacted by the social and economic effects of the COVID-19 pandemic, such as senior care and hotels. We anticipate these borrowers’ financial position to strengthen in the second half of 2021 as the economic outlook of the pandemic continues to improve.

We classify loans as substandard when there is one or more well-defined weaknesses that jeopardize the repayment by the borrower and there is a distinct possibility that we could sustain some loss if the deficiency is not corrected. At June 30, 2021, substandard loans included accrual and nonaccrual loans of $193 million and $46.1 million, respectively. Special mention loans continue to accrue interest.

Nonperforming Assets

NPAs, which include nonaccrual loans and foreclosed properties, totaled $46.3 million at June 30, 2021, compared with $62.2 million at December 31, 2020. The decrease in NPAs since December 31, 2020 is primarily a result of paydowns and payoffs of nonaccrual loans.

 

Our policy is to place loans on nonaccrual status when, in the opinion of management, the full principal and interest on a loan is not likely to be collected or when the loan becomes 90 days past due. A loan may continue on accrual after 90 days, however, if it is well collateralized and in the process of collection. When a loan is placed on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Interest payments received on nonaccrual loans are applied to reduce the loan’s amortized cost. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance and future payments are reasonably assured.

 

Generally, we do not commit to lend additional funds to customers whose loans are on nonaccrual status, although in certain isolated cases, we execute forbearance agreements whereby we agree to continue to fund construction loans to completion or other lines of credit as long as the borrower meets the conditions of the forbearance agreement. We may also fund other amounts necessary to protect collateral such as amounts to pay past due property taxes and insurance coverage.

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 lesser of fair value, less estimated costs to sell, or the listed selling price, less the costs to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to foreclosed property expense. 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.

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The table below summarizes NPAs.

Table 12 - NPAs
(in thousands)

						June 30, 2021						December 31, 2020
			Nonaccrual loans:
			Owner occupied commercial real estate			6,128						8,582
			Income producing commercial real estate			13,100						15,149
			Commercial & industrial			8,563						16,634
			Commercial construction			1,229						1,745
			Equipment financing			1,771						3,405
			Total commercial			30,791						45,515
			Residential mortgage			13,485						12,858
			HELOC			1,433						2,487
			Residential construction			307						514
			Consumer			107						225
			Total nonaccrual loans			46,123						61,599
			Foreclosed properties			224						647
			Total NPAs			$	46,347					$	62,246
			Nonaccrual loans as a percentage of total loans			0.40		%				0.54		%
			NPAs as a percentage of total loans and foreclosed properties			0.41						0.55
			NPAs as a percentage of total assets			0.25						0.35

At June 30, 2021 and December 31, 2020, we had $57.3 million and $61.6 million, respectively, in loans with terms that have been modified in TDRs. Included therein were $16.7 million and $20.6 million, respectively, of TDRs that were classified as nonaccrual and were included in nonperforming loans. The remaining TDRs with an aggregate balance of $40.6 million and $41.0 million, respectively, were performing according to their modified terms and were therefore not considered to be nonperforming assets.

The CARES Act and interagency guidance granted temporary relief from TDR classification for certain loans restructured as a result of COVID-19. During 2020, we granted a significant number of payment deferral requests to our borrowers related to the economic disruption created by COVID-19. We continued to grant payment deferral requests in 2021 to certain borrowers. The following table presents remaining COVID-19 related deferrals that, to the extent they qualified for exemption, were not considered TDRs as of June 30, 2021 and December 31, 2020.

Table 13 - COVID-19 Deferrals
(in thousands)

						June 30, 2021						December 31, 2020
			Owner occupied commercial real estate			$	1,460					$	4,774
			Income producing commercial real estate			7,791						45,190
			Commercial & industrial			1,024						5,682
			Commercial construction			170						1,745
			Equipment financing			5,512						3,474
			Total commercial			15,957						60,865
			Residential mortgage			1,655						8,731
			HELOC			—						1,012
			Residential construction			140						55
			Consumer			61						46
			Total COVID-19 deferrals			$	17,813					$	70,709

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Investment Securities

The composition of the investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits and borrowings.

At June 30, 2021 and December 31, 2020, we had HTM debt securities with a carrying amount of $852 million and $420 million, respectively, and AFS debt securities totaling $4.08 billion and $3.22 billion, respectively. The increased balances at June 30, 2021 reflect our decision to deploy liquidity generated through strong deposit growth by purchasing additional investment securities. At June 30, 2021 and December 31, 2020, the securities portfolio represented approximately 26% and 20%, respectively, of total assets.

In accordance with CECL, our HTM debt securities portfolio is evaluated quarterly to assess whether an ACL is required. We measure expected credit losses on HTM debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At June 30, 2021 and December 31, 2020, calculated credit losses on HTM debt securities were not material due to the high credit quality of the portfolio, which included securities issued or guaranteed by U.S. Government agencies, GSEs, high credit quality municipalities and supranational entities. As a result, no ACL for HTM debt securities was recorded.

For AFS debt securities in an unrealized loss position, if we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, the security's amortized cost basis is written down to fair value through income. Absent an intent or more than likely requirement to sell, we evaluate whether the decline in fair value has resulted from credit losses or other factors. The evaluation considers factors such as the extent to which fair value is less than amortized cost, changes to the security’s rating, and adverse conditions specific to the security. If the evaluation indicates a credit loss exists, an ACL may be recorded, with such allowance limited to the amount by which fair value is below amortized cost. Any impairment unrelated to credit factors is recognized in OCI. At June 30, 2021 and December 31, 2020, there was no ACL related to the AFS debt securities portfolio. Losses on fixed income securities at June 30, 2021 and December 31, 2020 primarily reflected the effect of changes in interest rates.

Deposits

Customer deposits are the primary source of funds for the continued growth of our earning assets. Our high level of service, as evidenced by our strong customer satisfaction scores, has been instrumental in attracting and retaining customer deposit accounts. In addition to organic growth, at June 30, 2021, the increase in core transaction deposits was also attributable to PPP-related deposits. The growth in customer deposits has allowed us to reduce our usage of brokered deposits, which is reflected in the decrease since December 31, 2020. The decline in time deposits is mostly driven by customer preference to allocate funds to transaction deposits in the current low rate environment. The following table sets forth the deposit composition for the periods indicated.

Table 14 - Deposits

(in thousands) 

						June 30, 2021						December 31, 2020
			Noninterest-bearing demand			$	6,260,756					$	5,390,291
			NOW and interest-bearing demand			3,518,686						3,346,490
			Money market and savings			4,864,308						4,501,189
			Time			1,500,049						1,704,290
			Total customer deposits			16,143,799						14,942,260
			Brokered deposits			183,968						290,098
			Total deposits			$	16,327,767					$	15,232,358

Borrowing Activities

 

At June 30, 2021 and December 31, 2020, we had long-term debt outstanding of $262 million and $327 million, respectively, which includes senior debentures, subordinated debentures, and trust preferred securities. The reduction in long-term debt since December 31, 2020 was a result of the repayment of the 2025 subordinated debentures, the Southern Bancorp Capital Trust I trust preferred securities and the 2022 senior debentures of $11.3 million, $4.38 million and $50.0 million, respectively.

Contractual Obligations

 

There have not been any material changes to our contractual obligations since December 31, 2020.

 

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Off-Balance Sheet Arrangements

 

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments include commitments to extend credit, letters of credit and financial guarantees.

 

A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Letters of credit and financial guarantees are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as extending loan facilities to customers. Those commitments are primarily issued to local businesses.

 

The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, letters of credit and financial guarantees is represented by the contractual amount of these instruments. We use the same credit underwriting procedures for making commitments, letters of credit and financial guarantees, as we use for underwriting on-balance sheet instruments. Management evaluates each customer’s creditworthiness on a case-by-case basis and the amount of the collateral, if deemed necessary, is based on the credit evaluation. Collateral held varies, but may include unimproved and improved real estate, certificates of deposit, personal property or other acceptable collateral.

 

All of these instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The total amount of these instruments does not necessarily represent future cash requirements because a significant portion of these instruments expire without being used. We are not involved in off-balance sheet contractual relationships, other than those disclosed in this report, that could result in liquidity needs or other commitments, or that could significantly affect earnings. See Note 22 to the consolidated financial statements included in our 2020 10-K and Note 12 to the consolidated financial statements in this Report for additional information on off-balance sheet arrangements.

Interest Rate Sensitivity Management

The absolute level and volatility of interest rates can have a significant effect on profitability. The objective of interest rate risk management is to identify and manage the sensitivity of net interest revenue to changing interest rates, consistent with our overall financial goals. Based on economic conditions, asset quality and various other considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges. 

Net interest revenue and the fair value of financial instruments are influenced by changes in the level of interest rates. We limit our exposure to fluctuations in interest rates through policies established by our ALCO and approved by the Board. The ALCO meets periodically and has responsibility for formulating and recommending asset/liability management policies to the Board, formulating and implementing strategies to improve balance sheet positioning and/or earnings, and reviewing interest rate sensitivity. 

One of the tools management uses to estimate and manage the sensitivity of net interest revenue to changes in interest rates is an asset/liability simulation model. Resulting estimates are based upon several assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments. The ALCO periodically reviews the assumptions for reasonableness based on historical data and future expectations; however, actual net interest revenue may differ from model results. The primary objective of the simulation model is to measure the potential change in net interest revenue over time using multiple interest rate scenarios. The base scenario assumes rates remain flat and is the scenario to which all others are compared, in order to measure the change in net interest revenue. Policy limits are based on immediate rate shock scenarios, as well as gradually rising and falling rate scenarios, which are all compared to the base scenario. Our assumptions include floors such that market rates and discount rates do not go below zero. Other scenarios analyzed may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements. While the primary policy scenarios focus on a 12-month time frame, longer time horizons are also modeled. 

Our policy is based on the 12-month impact on net interest revenue of interest rate shocks and ramps that increase from 100 to 400 basis points or decrease 100 to 200 basis points from the base scenario. In the shock scenarios, rates immediately change the full amount at the scenario onset. In the ramp scenarios, rates change by 25 basis points per month. Our policy limits the projected change in net interest revenue over the first 12 months to an 8% decrease for each 100 basis point change in the increasing and decreasing rate ramp and shock scenarios. The following table presents our interest sensitivity position at the dates indicated.

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Table 15 - Interest Sensitivity

									Increase (Decrease) in Net Interest Revenue from Base Scenario at
									June 30, 2021												December 31, 2020
			Change in Rates						Shock						Ramp						Shock						Ramp
			100 basis point increase						3.58		%				2.63		%				3.80		%				2.88		%
			100 basis point decrease						(3.53)						(3.20)						(1.89)						(1.82)

 

Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-earning assets and interest-bearing liabilities are subject to change in interest rates either at replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates. Effective interest rate sensitivity management seeks to ensure that both assets and liabilities respond to changes in interest rates on a net basis within an acceptable timeframe, thereby minimizing the potentially adverse effect of interest rate changes on net interest revenue.

 

We have discretion in the extent and timing of deposit repricing depending upon the competitive pressures in the markets in which we operate. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. The interest rate spread between an asset and its supporting liability can vary significantly even when the timing of repricing for both the asset and the liability remains the same, due to the two instruments repricing according to different indices. This is commonly referred to as basis risk.

 

Derivative financial instruments are used to manage interest rate sensitivity. These contracts generally consist of interest rate swaps under which we pay a variable rate (or fixed rate, as the case may be) and receive a fixed rate (or variable rate, as the case may be). In addition, investment securities and wholesale funding strategies are used to manage interest rate risk.

Derivative financial instruments that are designated as accounting hedges are classified as either cash flow or fair value hedges. The change in fair value of cash flow hedges is recognized in OCI. Fair value hedges recognize in earnings both the effect of the change in the fair value of the derivative financial instrument and the offsetting effect of the change in fair value of the hedged asset or liability associated with the particular risk of that asset or liability being hedged. We have other derivative financial instruments that are not designated as accounting hedges, but are used for interest rate risk management purposes and as effective economic hedges. Derivative financial instruments that are not accounted for as accounting hedges are marked to market through earnings.

Our policy requires all non-customer derivative financial instruments be used only for asset/liability management through the hedging of specific transactions, positions or risks, and not for trading or speculative purposes. Management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is appropriately monitored and controlled and will not have any material adverse effect on financial condition or results of operations. In order to mitigate potential credit risk, from time to time we may require the counterparties to derivative contracts to pledge cash and/or securities as collateral to cover the net exposure. 

Liquidity Management 

Liquidity is defined as the ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the ability to meet the daily cash flow requirements of customers, both depositors and borrowers. The primary objective is to ensure that sufficient funding is available, at a reasonable cost, to meet ongoing operational cash needs and to take advantage of revenue producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, our primary goal is to maintain a sufficient level of liquidity in all expected economic environments. To assist in determining the adequacy of our liquidity, we perform a variety of liquidity stress tests. We maintain an unencumbered liquid asset reserve to help ensure our ability to meet our obligations under normal conditions for at least a 12-month period and under severely adverse liquidity conditions for a minimum of 30 days.

An important part of the Bank’s liquidity resides in the asset portion of the balance sheet, which provides liquidity primarily through loan interest and principal repayments and the maturities and sales of securities, as well as the ability to use these assets as collateral for borrowings on a secured basis.

The Bank’s main source of liquidity is customer interest-bearing and noninterest-bearing deposit accounts. Liquidity is also available from wholesale funding sources consisting primarily of Federal funds purchased, FHLB advances, and brokered deposits. These sources of liquidity are generally short-term in nature and are used as necessary to fund asset growth and meet other short-term liquidity needs. 

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In addition, because the Holding Company is a separate entity and apart from the Bank, it must provide for its own liquidity. The Holding Company is responsible for the payment of dividends declared for its common and preferred shareholders, and interest and principal on any outstanding debt or trust preferred securities. The Holding Company currently has internal capital resources to meet these obligations. While the Holding Company has access to the capital markets and maintains a line of credit as a contingent funding source, the ultimate sources of its liquidity are subsidiary service fees and dividends from the Bank, which are limited by applicable law and regulations. Effective July 1, 2021, the Bank became a South Carolina state-chartered bank, which permits the Bank to pay a dividend of up to 100% of its current year earnings without requesting approval of the South Carolina Board of Financial Institutions, provided certain conditions are met. Prior to the conversion to a South Carolina state-chartered bank, Georgia law generally limited the payment of dividends by the Bank from retained earnings of up to 50% of its prior year earnings without requesting approval of the Georgia Department of Banking and Finance. Holding Company liquidity is managed to a minimum of 15-months of positive cash flow after considering all of its liquidity needs over this period.

At June 30, 2021, we had sufficient qualifying collateral to provide borrowing capacity for FHLB advances of $1.26 billion, as well as unpledged investment securities of $3.78 billion that could be used as collateral for additional borrowings. In addition, we have the ability to attract retail deposits by competing more aggressively on pricing.

Significant uses and sources of cash during the six months ended June 30, 2021 are summarized below. See the consolidated statement of cash flows in this Report for further detail.

•Net cash provided by operating activities of $162 million reflects net income of $144 million adjusted for non-cash transactions, gains on sales of securities and other loans and changes in other assets and liabilities. Significant non-cash transactions for the period included a $25.9 million release of provision for credit losses and deferred income tax expense of $14.6 million.

•Net cash used in investing activities of $1.34 billion primarily consisted of purchases of AFS and HTM debt securities of $1.91 billion, partially offset by proceeds from securities sales, maturities and calls, reflecting our strategic decision to deploy excess liquidity into the securities portfolio.

•Net cash provided by financing activities of $989 million was driven by our strong deposit growth as our net increase in deposits totaled $1.10 billion, which was partially offset by our repayment of long-term debt of $65.6 million and dividends on common and preferred stock of $36.0 million.

In the opinion of management, our liquidity position at June 30, 2021 was sufficient to meet our expected cash flow requirements.

Capital Resources and Dividends

 

Shareholders’ equity at June 30, 2021 was $2.09 billion, an increase of $78.8 million from December 31, 2020 primarily due to year-to-date earnings partially offset by dividends declared and a decrease in the value of AFS debt securities.

The following table shows capital ratios, as calculated under applicable regulatory guidelines, at June 30, 2021 and December 31, 2020. As of June 30, 2021, capital levels remained characterized as “well-capitalized” under prompt corrective action provisions in effect at the time.

Additional information related to capital ratios, as calculated under regulatory guidelines, as of June 30, 2021 and December 31, 2020, is provided in Note 11 to the consolidated financial statements in this Report.

Table 16 – Capital Ratios

																								United Community Banks, Inc. (Consolidated)												United Community Bank
						Minimum						Well- Capitalized						Minimum Capital Plus Capital Conservation Buffer						June 30, 2021						December 31, 2020						June 30, 2021						December 31, 2020
Risk-based ratios:
CET1 capital						4.5		%				6.5		%				7.0		%				12.59		%				12.31		%				13.21		%				13.31		%
Tier 1 capital						6.0						8.0						8.5						13.34						13.10						13.21						13.31
Total capital						8.0						10.0						10.5						15.09						15.15						14.03						14.28
Leverage ratio						4.0						5.0						N/A						9.26						9.28						9.16						9.42

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Effect of Inflation and Changing Prices

 

A bank’s asset and liability structure is substantially different from that of an industrial firm in that primarily all assets and liabilities of a bank are monetary in nature with relatively little investment in fixed assets or inventories. Inflation has an important effect on the growth of total assets and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio.

 

Management believes the effect of inflation on financial results depends on our ability to react to changes in interest rates, and by such reaction, reduce the inflationary effect on performance. We have an asset/liability management program to manage interest rate sensitivity. In addition, periodic reviews of banking services and products are conducted to adjust pricing in view of current and expected costs.

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Item 3.    Quantitative and Qualitative Disclosure About Market Risk

 

There have been no material changes in our market risk as of June 30, 2021 from that presented in our 2020 10-K. Our interest rate sensitivity position at June 30, 2021 is set forth in Table 15 in MD&A of this Report and incorporated herein by this reference.

 

Item 4.    Controls and Procedures

    (a) Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)) as of June 30, 2021. Based on that evaluation, our principal executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

    (b) Changes in Internal Control Over Financial Reporting. No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended June 30, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION 

Item 1. Legal Proceedings

 

In the ordinary course of business, the Holding Company and the Bank are parties to various legal proceedings. Additionally, in the ordinary course of business, the Holding Company and the Bank are subject to regulatory examinations and investigations. Based on our current knowledge and advice of counsel, in the opinion of management there is no such pending or threatened legal matter which would result in a material adverse effect upon our consolidated financial condition or results of operations.

Items 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table contains information regarding purchases of our common stock made during the quarter ended June 30, 2021 by or on behalf of United or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act:

(Dollars in thousands, except for per share amounts)						Total Number of Shares Purchased						Average Price Paid per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1, 2021 - April 30, 2021						—						$	—					—						$	50,000
May 1, 2021 - May 31, 2021						150,000						34.01						150,000						44,899
June 1, 2021 - June 30, 2021						—						—						—						44,899
Total						150,000						$	34.01					150,000						$	44,899

 

(1) In November of 2020, United’s Board re-authorized its common stock repurchase program to permit the repurchase of up to $50.0 million of its common stock. The program is scheduled to expire on the earlier of the repurchase of our common stock having an aggregate purchase price of $50 million or December 31, 2021. Under the program, shares may be repurchased in open market transactions or in privately negotiated transactions, from time to time, subject to market conditions, including transactions outside the safe harbor provided by Exchange Act Rule 10b-18. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares.

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Item 6. Exhibits

(d)     Exhibits. See Exhibit Index below.

EXHIBIT INDEX
Exhibit No.						Description
2.1						Agreement and Plan of Merger and Reorganization, dated as of May 26, 2021, by and between United Community Banks, Inc. and Aquesta Financial Holdings, Inc. (incorporated by reference from Annex A to the proxy statement/prospectus contained in United Community Banks, Inc.’s Registration Statement on Form S-4 filed with the SEC on July 29, 2021).
2.2						Agreement and Plan of Merger, dated as of July 14, 2021, by and between United Community Banks, Inc. and Reliant Bancorp, Inc. (incorporated herein by reference to Exhibit 2.1 to United Community Banks, Inc.’s Current Report on Form 8-K dated July 14, 2021 and filed with the SEC on July 15, 2021).
3.1						Composite Restated Articles of Incorporation of United Community Banks, Inc. as amended through June 30, 2021 (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Registration Statement on Form S-4 filed with the SEC on July 29, 2021).
3.2						Amended and Restated Bylaws of United Community Banks, Inc., as amended (incorporated herein by reference to Exhibit 3.2 to United Community Banks, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2015, filed with the SEC on May 11, 2015).
31.1						Certification by H. Lynn Harton, President and Chief Executive Officer of United Community Banks, Inc., pursuant to Exchange Act Rule 13a-14(a).
31.2						Certification by Jefferson L. Harralson, Executive Vice President and Chief Financial Officer of United Community Banks, Inc., pursuant to Exchange Act Rule 13a-14(a).
32						Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.
101						Interactive data files for United Community Bank, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL: (i) the Consolidated Balance Sheets (unaudited); (ii) the Consolidated Statements of Income (unaudited); (iii) the Consolidated Statements of Comprehensive Income (unaudited); (iv) the Consolidated Statements in Shareholders’ Equity (unaudited); (v) the Consolidated Statements of Cash Flows (unaudited); and (vi) the Notes to Consolidated Financial Statements (unaudited).
104						The cover page from United Community Bank’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (formatted in Inline XBRL and included in Exhibit 101)

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Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

			UNITED COMMUNITY BANKS, INC.
			/s/ H. Lynn Harton
			H. Lynn Harton
			President and Chief Executive Officer
			(Principal Executive Officer)
			/s/ Jefferson L. Harralson
			Jefferson L. Harralson
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)
			/s/ Alan H. Kumler
			Alan H. Kumler
			Senior Vice President and Chief Accounting Officer
			(Principal Accounting Officer)
			Date: August 6, 2021

 

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