Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Receivables [Abstract]

Allowance for Credit Losses

NOTE E—ALLOWANCE FOR CREDIT LOSSES

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 $88,963,000 and $70,332,000 at December 31, 2023 and December 31, 2022, respectively, related to loans and leases are included separately in “Accrued interest receivable” in the consolidated balance sheets. 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 December 31, 2023 and December 31, 2022:

	Accrued Interest Receivable
(In thousands)	At December 31, 2023		At December 31, 2022
Commercial Real Estate:
Owner-occupied	$	4,751	$	4,855
Nonowner-occupied		27,507		19,801
Other Commercial		14,562		10,904
Residential Real Estate		20,718		16,117
Construction		18,504		15,195
Consumer:
Bankcard		0		0
Other consumer		2,921		3,460
Total	$	88,963	$	70,332

The following table represents the accrued interest receivables written off by reversing interest income for the year ended December 31, 2023 and December 31, 2022:

	Accrued Interest Receivables Written Off by Reversing Interest Income
(In thousands)	Year Ended
	2023		2022
Commercial Real Estate:
Owner-occupied	$	31	$	20
Nonowner-occupied		85		4
Other Commercial		39		77
Residential Real Estate		214		105
Construction		285		0
Consumer:
Bankcard		0		0
Other consumer		371		304
Total	$	1,025	$	510

United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. For a detailed discussion of the methodology used to estimate the reserve for lending-related commitments, see Note A, “Summary of Significant Accounting Policies.” The reserve for lending-related commitments of $44,706,000 and $46,189,000 at December 31, 2023 and December 31, 2022, 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 and other factors. 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.

United’s allowance for loan and lease losses at December 31, 2023 increased $24,491,000 or 10.43% from December 31, 2022. The overall increase in the allowance was driven primarily by increases in outstanding loan balances and in allocations established for individually assessed loans as well as the impact of changes in the reasonable and supportable forecasts of future macroeconomic conditions.

The year of 2023 qualitative adjustments include analyses of the following:

• Current conditions – United considered the impact of inflation, interest rates, the potential impact of the geopolitical situation, the banking regulatory environment and a potential government shutdown when making determinations related to factor adjustments, such as changes in economic and business conditions; collateral values for dependent loans; past due, nonaccrual and adversely classified loans and leases; concentrations of credit 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 slightly in the fourth quarter, from a projection of 1.50% for 2024 as of mid-September 2023 to 1.40% for 2024 as of mid-December with projection of 1.80% for 2025. The unemployment rate forecast for 2024 and 2025 remained the same at 4.10%.

• Greater risk of loss in the office portfolio due to continued hybrid and remote work that may be exacerbated by future economic conditions and in the commercial other and construction portfolios due to weakened economic conditions.

• 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 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 Year Ended December 31, 2023
(In thousands)	Commercial Real Estate						Other Commercial			Residential Real Estate			Construction & Land Development			Bankcard			Other Consumer			Total
	Owner- occupied			Nonowner- occupied
Allowance for Loan and Lease Losses:
Beginning balance	$	13,945		$	38,543		$	79,706		$	36,227		$	48,390		$	561		$	17,374		$	234,746
Charge-offs		(855	)		(24	)		(2,007	)		(785	)		(14	)		(263	)		(7,356	)		(11,304	)
Recoveries		187			1,233			1,729			697			80			28			687			4,641
Provision		(1,382	)		18,183			(4,421	)		5,028			11,457			484			1,805			31,154
Ending balance	$	11,895		$	57,935		$	75,007		$	41,167		$	59,913		$	810		$	12,510		$	259,237
	Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases For the Year Ended December 31, 2022
	Commercial Real Estate						Other Commercial			Residential Real Estate			Construction & Land Development			Bankcard			Other Consumer			Total
(In thousands)	Owner- occupied			Nonowner- occupied
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		(68	)		0			(4,308	)		(1,546	)		(2	)		(355	)		(3,371	)		(9,650	)
Recoveries		489			234			5,367			1,507			1,414			9			529			9,549
Provision		(919	)		(3,847	)		215			9,862			7,583			590			5,347			18,831
Ending balance	$	13,945		$	38,543		$	79,706		$	36,227		$	48,390		$	561		$	17,374		$	234,746

A progression of the allowance for credit losses, which includes the allowance for loan losses and the reserve for lending-related commitments, for the periods presented is summarized as follows:

	Year Ended December 31
(In thousands)	2023			2022			2021
Balance of allowance for loan and lease losses at beginning of period	$	234,746		$	216,016		$	235,830
Initial allowance for acquired PCD loans		0			0			12,629
Gross charge-offs		(11,304	)		(9,650	)		(19,297	)
Recoveries		4,641			9,549			10,578
Net charge-offs		(6,663	)		(101	)		(8,719	)
Provision for loan and lease losses		31,154			18,831			(23,724	)
Balance of allowance for loan and lease losses at end of period	$	259,237		$	234,746		$	216,016
Reserve for lending-related commitments		44,706			46,189			31,442
Balance of allowance for credit losses at end of period	$	303,943		$	280,935		$	247,458