Allowance for Credit Losses

6 Months Ended

Jun. 30, 2022

Receivables [Abstract]

Allowance for Credit Losses

6. ALLOWANCE FOR CREDIT LOSSES

United adopted the CECL methodology for measuring credit losses as of January 1, 2020. All disclosures as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021 are presented in accordance with ASC Topic 326.

The allowance for loan losses is an estimate of the expected credit losses on financial assets measured at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset (contractual term). Assets are charged off when United determines that such financial assets are deemed uncollectible or based on regulatory requirements, whichever is earlier. Charge-offs are recognized as a deduction from the allowance for credit losses. Expected recoveries of amounts previously charged-off, not to exceed the aggregate of the amount previously charged-off, are included in determining the necessary reserve at the balance sheet date.

United made a policy election to present the accrued interest receivable balance separately in its consolidated balance sheets from the amortized cost of a loan. Accrued interest receivable was $50,847 (no allowance for credit losses) and $49,029 (net of an allowance for credit losses of $8) at June 30, 2022 and December 31, 2021, respectively, related to loans and leases are included separately in “Accrued interest receivable” in the consolidated balance sheets. Due to loan interest payment deferrals granted by United under the CARES Act, United assessed the collectability of the accrued interest receivables on these deferring loans and leases. As a result of this assessment, United did not record an allowance for credit losses for accrued interest receivables not expected to be collected as of June 30, 2022 as compared to an allowance for credit losses of $8 as of December 31, 2021. For all classes of loans and leases receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due, unless the loan is well secured and in the process of collection. Interest received on nonaccrual loans and leases, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.

The following table represents the accrued interest receivable as of June 30, 2022 and December 31, 2021:

	Accrued Interest Receivable
	At June 30, 2022			At December 31, 2021
Commercial Real Estate:
Owner-occupied	$	3,754		$	4,172
Nonowner-occupied		14,316			14,901
Other Commercial		11,551			9,335
Residential Real Estate		10,091			10,347
Construction		8,251			7,411
Consumer:
Bankcard		0			0
Other consumer		2,884			2,871
	$	50,847		$	49,037
Less: Allowance for credit losses		(0	)		(8	)
Total	$	50,847		$	49,029

The following table represents the accrued interest receivables written off by reversing interest income for the three months and six months ended June 30, 2022 and 2021:

	Accrued Interest Receivables Written Off by Reversing Interest Income
	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Commercial real estate:
Owner-occupied	$	6	$	11	$	6	$	12
Nonowner-occupied		0		4		0		40
Other commercial		22		2		22		8
Residential real estate		55		21		75		49
Construction & land development		0		0		0		0
Consumer:
Bankcard		0		0		0		0
Other consumer		56		42		123		106
Total	$	139	$	80	$	226	$	215

United estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. A reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period.

United pools its loans and leases based on similar risk characteristics in estimating expected credit losses. United has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

• Method: Probability of Default/Loss Given Default (PD/LGD)

• Commercial Real Estate Owner-Occupied

• Commercial Real Estate Nonowner-Occupied

• Commercial Other

• Method: Cohort

• Residential Real Estate

• Construction & Land Development

• Consumer

• Bankcard

Risk characteristics of commercial real estate owner-occupied loans and commercial other loans and leases are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Commercial real estate nonowner-occupied loans differ in that cash flow to service debt is normally dependent on external income from third parties for use of the real estate such as rents, leases and room rates. Residential real estate loans are dependent upon individual borrowers who are affected by changes in general economic conditions, demand for housing and resulting residential real estate valuation. Construction and land development loans are impacted mainly by demand whether for new residential housing or for retail, industrial, office and other types of commercial construction within a given area. Consumer loan pool risk characteristics are influenced by general, regional and local economic conditions.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, but may also include other non-performing loans or TDRs, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans. In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a loan expected to be classified as a TDR.

Expected credit losses are estimated over the contractual term of the loans and leases, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by United.

At the acquisition date, an initial allowance for expected credit losses for non-PCD loans is estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans. For allowance for credit losses under ASC Topic 326 calculation purposes, United includes its acquired loans and leases in their relevant pool unless they meet the criteria for specific review.

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 $42,579 and $31,442 at June 30, 2022 and December 31, 2021, 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 is considered the allowance for credit losses.

United continuously evaluates any risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then any qualitative adjustments are applied to account for the Company’s view of the future. If current conditions underlying any qualitative adjustment factor were deemed to be materially different than historical conditions, then an adjustment was made for that factor.

The second quarter of 2022 qualitative adjustments include analyses of the following:

• Past events – This includes portfolio trends related to economic and business conditions; past due, nonaccrual, and adversely classified loans and leases; and concentrations of credit.

• Current conditions – United considered the impact of inflation, supply chain disruptions, rising interest rates, increased oil and gas prices and the conflict in eastern Europe when making determinations related to factor adjustments, such as changes in economic and business conditions, collateral values and external factors.

• Reasonable and supportable forecasts – The forecast is determined on a portfolio-by-portfolio basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following:

• The forecast for real GDP shifted downward in the second quarter, from a projection of 2.80% for 2022 as of mid-March 2022 to 1.70% for 2022 as of mid-June with a level future trendline as compared to the first quarter of 2022. The unemployment rate forecast shifted upward compared to the first quarter of 2022 with an increasing trend expected throughout 2024.

• Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period.

A progression of the allowance for loan and lease losses, by portfolio segment, for the periods indicated is summarized as follows:

Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases
For the Three Months Ended June 30, 2022
	Commercial Real Estate						Other Commercial			Residential Real Estate			Construction & Land Development			Bankcard						Total
	Owner- occupied			Nonowner- occupied															Other Consumer
Allowance for Loan and Lease Losses:
Beginning balance	$	13,359		$	36,665		$	80,487		$	27,109		$	41,579		$	321		$	15,074		$	214,594
Charge-offs		0			0			(521	)		(778	)		0			(102	)		(718	)		(2,119	)
Recoveries		459			40			1,189			179			1,077			2			114			3,060
Provision		(880	)		(3,872	)		(2,112	)		1,613			1,183			127			2,135			(1,806	)
Ending balance	$	12,938		$	32,833		$	79,043		$	28,123		$	43,839		$	348		$	16,605		$	213,729
Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases
For the Six Months Ended June 30, 2022
	Commercial Real Estate						Other Commercial			Residential Real Estate			Construction & Land Development			Bankcard						Total
	Owner- occupied			Nonowner- occupied															Other Consumer
Allowance for Loan and Lease Losses:
Beginning balance	$	14,443		$	42,156		$	78,432		$	26,404		$	39,395		$	317		$	14,869		$	216,016
Charge-offs		(31	)		0			(794	)		(1,272	)		(2	)		(245	)		(1,251	)		(3,595	)
Recoveries		465			115			3,338			1,059			1,261			3			275			6,516
Provision		(1,939	)		(9,438	)		(1,933	)		1,932			3,185			273			2,712			(5,208	)
Ending balance	$	12,938		$	32,833		$	79,043		$	28,123		$	43,839		$	348		$	16,605		$	213,729

Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases
For the Year Ended December 31, 2021
	Commercial Real Estate						Other Commercial			Residential Real Estate			Construction & Land Development			Bankcard						Total
	Owner- occupied			Nonowner- occupied															Other Consumer
Allowance for Loan and Lease Losses:
Beginning balance	$	23,354		$	49,150		$	78,138		$	29,125		$	39,077		$	322		$	16,664		$	235,830
Allowance for PCD loans (acquired during the period)		1,241			4,363			5,009			1,192			823			0			1			12,629
Charge-offs		(414	)		(3,531	)		(6,182	)		(6,016	)		(560	)		(190	)		(2,404	)		(19,297	)
Recoveries		869			1,907			4,307			2,400			604			42			449			10,578
Provision		(10,607	)		(9,733	)		(2,840	)		(297	)		(549	)		143			159			(23,724	)
Ending balance	$	14,443		$	42,156		$	78,432		$	26,404		$	39,395		$	317		$	14,869		$	216,016