Allowance for Credit Losses

3 Months Ended

Mar. 31, 2012

Allowance for Credit Losses [Abstract]

ALLOWANCE FOR CREDIT LOSSES

6. ALLOWANCE FOR CREDIT LOSSES

The allowance for loan losses is management's estimate of the probable credit losses inherent in the loan portfolio. Management's evaluation of the adequacy of the allowance for loan losses and the appropriate provision for credit losses is based upon a quarterly evaluation of the portfolio. This evaluation is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. Allocations are made for specific commercial loans based upon management's estimate of the borrowers' ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loss percentages applied to loan pools that have been segregated by the type of risk. Allocations for loans other than commercial loans are made based upon historical loss experience adjusted for current environmental conditions. The allowance for credit losses includes estimated probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower's financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. In addition, a portion of the allowance accounts for the inherent imprecision in the allowance for credit losses analysis.

For purposes of determining the general allowance, the loan portfolio is segregated by loan product type to recognize differing risk profiles among loan categories. It is further segregated by credit grade for risk-rated loan pools and delinquency for homogeneous loan pools. The outstanding principal balance within each pool is multiplied by historical loss data and certain qualitative factors to derive the general loss allocation per pool. Specific loss allocations are calculated for loans in excess of $250 thousand in accordance with ASC topic 310. Risk characteristics of owner-occupied commercial real estate loans and other commercial loans are similar in that they are normally dependent upon the borrower's internal cash flow from operations to service debt. Nonowner-occupied commercial real estate loans differ in that cash flow to service debt is normally dependent on external income from third parties for use of the real estate such as rents, leases and room rates. Residential real estate loans are dependent upon individual borrowers who are affected by changes in general economic conditions, demand for housing and resulting residential real estate valuation. Construction and land development loans are impacted mainly by demand whether for new residential housing or for retail, industrial, office and other types of commercial construction within a given area. Consumer loan pool risk characteristics are influenced by general, regional and local economic conditions. During the first quarter of 2012, there were no material changes to the accounting policy or methodology related to the allowance for loan losses.

Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. For commercial loans, when a loan or a portion of a loan is identified to contain a loss, a charge-off recommendation is directed to management to charge-off all or a portion of that loan. Generally, any unsecured commercial loan more than six months delinquent in payment of interest must be charged-off in full. If secured, the charge-off is generally made to reduce the loan balance to a level equal to the liquidation value of the collateral when payment of principal and interest is six months delinquent. Any commercial loan, secured or unsecured, on which a principal or interest payment has not been made within 90 days, is reviewed monthly for appropriate action.

For consumer loans, closed-end retail loans that are past due 120 cumulative days delinquent from the contractual due date and open-end loans 180 cumulative days delinquent from the contractual due date are charged-off. Any consumer loan on which a principal or interest payment has not been made within 90 days is reviewed monthly for appropriate action. For a one-to-four family open-end or closed-end residential real estate loan, home equity loan, or high-loan-to-value loan that has reached 180 or more days past due, management evaluates the collateral position and charge-offs any amount that exceeds the value of the collateral. Retail credits for which the borrower is in bankruptcy, all amounts deemed unrecoverable are charged-off within 60 days or before of the receipt of the notification. On retail credits effected by fraud, a loan is charged-off within 90 days of the discovery of the fraud. In the event of the borrower's death and if repayment within the required timeframe is uncertain, the loan is generally charged-off as soon as the amount of the loss is determined.

United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. The reserve for lending-related commitments of $1,735 and $1,853 at March 31, 2012 and December 31, 2011, respectively, is separately classified on the balance sheet and is included in other liabilities. The combined allowance for loan losses and reserve for lending-related commitments are referred to as the allowance for credit losses.

A progression of the allowance for loan losses, by loan portfolio segment, for the three months ended March 31, 2012 is summarized as follows:

Allowance for Loan Losses and Carrying Amount of Loans

For the Three Months Ended March 31, 2012

	Commercial Real Estate					Other Commercial			Residential Real Estate		Construction & Land Development		Consumer		Allowance for Estimated Imprecision		Total
	Owner- occupied		Nonowner- occupied
Allowance for Loan Losses:
Beginning balance	$	3,670	$	11,647		$	20,803		$	13,880	$	19,151	$	2,151	$	2,572	$	73,874
Charge-offs		97		900			412			1,867		1,075		383		0		4,734
Recoveries		13		9			265			351		5		96		0		739
Provision		248		(2	)		(1,733	)		2,118		2,557		268		677		4,133
Ending balance	$	3,834	$	10,754		$	18,923		$	14,482	$	20,638	$	2,132	$	3,249	$	74,012
Ending Balance: individually evaluated for impairment	$	266	$	631		$	5,060		$	2,685	$	2,883	$	0	$	0	$	11,525
Ending Balance: collectively evaluated for impairment	$	3,568	$	10,123		$	13,863		$	11,797	$	17,755	$	2,132	$	3,249	$	62,487
Ending Balance: loans acquired with deteriorated credit quality	$	0	$	0		$	0		$	0	$	0	$	0	$	0	$	0
Financing receivables:
Ending balance	$	740,373	$	1,579,814		$	1,180,690		$	1,862,806	$	569,223	$	279,840	$	0	$	6,212,746
Ending Balance: individually evaluated for impairment	$	2,299	$	33,035		$	24,643		$	19,327	$	18,826	$	0	$	0	$	98,130
Ending Balance: collectively evaluated for impairment	$	736,159	$	1,537,231		$	1,153,764		$	1,839,524	$	531,007	$	279,796	$	0	$	6,077,481
Ending Balance: loans acquired with deteriorated credit quality	$	1,915	$	9,548		$	2,283		$	3,955	$	19,390	$	44	$	0	$	37,135

Allowance for Loan Losses and Carrying Amount of Loans

For the Year Ended December 31, 2011

	Commercial Real Estate					Other Commercial			Residential Real Estate		Construction & Land Development		Consumer		Allowance for Estimated Imprecision			Total
	Owner- occupied		Nonowner- occupied
Allowance for Loan Losses:
Beginning balance	$	3,116	$	12,456		$	21,918		$	11,653	$	18,738	$	2,161	$	2,991		$	73,033
Charge-offs		1,230		897			2,765			7,069		6,290		1,354		0			19,605
Recoveries		2		639			1,924			248		136		356		0			3,305
Provision		1,782		(551	)		(274	)		9,048		6,567		988		(419	)		17,141
Ending balance	$	3,670	$	11,647		$	20,803		$	13,880	$	19,151	$	2,151	$	2,572		$	73,874
Ending Balance: individually evaluated for impairment	$	269	$	596		$	5,888		$	1,925	$	2,480	$	0	$	0		$	11,158
Ending Balance: collectively evaluated for impairment	$	3,401	$	11,051		$	14,915		$	11,955	$	16,671	$	2,151	$	2,572		$	62,716
Ending Balance: loans acquired with deteriorated credit quality	$	0	$	0		$	0		$	0	$	0	$	0	$	0		$	0
Financing receivables:
Ending balance	$	743,502	$	1,553,259		$	1,212,205		$	1,897,658	$	549,877	$	283,712	$	0		$	6,240,213
Ending Balance: individually evaluated for impairment	$	2,321	$	29,794		$	25,532		$	18,288	$	20,835	$	0	$	0		$	96,770
Ending Balance: collectively evaluated for impairment	$	738,596	$	1,514,173		$	1,184,565		$	1,877,287	$	508,921	$	280,947	$	0		$	6,104,489
Ending Balance: loans acquired with deteriorated credit quality	$	2,585	$	9,292		$	2,108		$	2,083	$	20,121	$	2,765	$	0		$	38,954