~~0000857855ucbi:DerivativeLiabilityMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-04-012020-06-30~~0000857855us-gaap:FairValueMeasurementsRecurringMemberucbi:DerivativeAssetMemberus-gaap:FairValueInputsLevel3Member2021-01-012021-06-30

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, ~~2020~~2021

☐

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 ☒

~~Common~~There were 86,627,703 shares of the registrant’s common stock, par value $1 per share, ~~86,472,479 shares~~ outstanding as of July 31, ~~2020.~~2021.

UNITED COMMUNITY BANKS, INC.

FORM 10-Q

INDEX

Glossary of Defined Terms

Forward Looking Statements

PART I - Financial Information

Item 1.

Financial Statements.

Consolidated Balance Sheets (unaudited) at June 30, ~~2020~~2021 and December 31, ~~2019~~2020

Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020

Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020

Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the Three and Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020

Notes to Consolidated Financial Statements

Item 2.

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

4233

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

6454

Item 4.

Controls and Procedures.

6454

PART II - Other Information

Unregistered Sales of Equity Securities and Use of Proceeds.

Item 6.

Exhibits.

6656

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

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. ~~Statements regarding the potential effects~~Forward-looking statements are neither statements of ~~the COVID-19 pandemic on our business, operations, financial performance and prospects are forward-looking statements. Also, any statement that does not describe~~ historical or current ~~facts is a forward-looking statement. These statements~~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 ~~the~~our future performance, operations, products and services, ~~of United Community Banks, Inc. (the “Holding Company”)~~ and ~~its subsidiaries (collectively referred to in this report as “United”).~~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. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements ~~in addition to those described in detail under Part II, Item 1A of this Report - “Risk Factors” -~~ 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 ~~level~~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 ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR as an interest rate benchmark, ~~as well as~~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 ~~greater than~~ 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 ~~allowance for credit losses~~ACL resulting from the ~~Current Expected Credit Loss (“CECL”)~~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;~~assets, such as goodwill;

•limitations on our ability to ~~make~~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 ~~take~~undertake other capital ~~actions;~~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 to 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 ~~Annual Report on Form~~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 ~~Securities and Exchange Commission (the “SEC”)~~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 ~~speak~~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 ~~Federal Deposit Insurance Corporation (the “FDIC”)~~FDIC or any other regulator.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements


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


(in thousands, except share data)		June 30, 2020		December 31, 2019
							June 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	125,255	$	125,844	Cash and due from banks	$	121,589	$	148,896
Interest-bearing deposits in banks	Interest-bearing deposits in banks	1,203,706		389,362		Interest-bearing deposits in banks	1,297,808		1,459,723
Cash and cash equivalents	Cash and cash equivalents	1,328,961		515,206		Cash and cash equivalents	1,419,397		1,608,619
Debt securities available-for-sale	Debt securities available-for-sale	2,125,209		2,274,581		Debt securities available-for-sale	4,075,781		3,224,721
Debt securities held-to-maturity (fair value $320,253 and $287,904)		306,638		283,533
Debt securities held-to-maturity (fair value $861,488 and $437,193, respectively)						Debt securities held-to-maturity (fair value $861,488 and $437,193, respectively)	852,404		420,361
Loans held for sale at fair value	Loans held for sale at fair value	99,477		58,484		Loans held for sale at fair value	98,194		105,433
Loans and leases held for investment	Loans and leases held for investment	10,132,510		8,812,553		Loans and leases held for investment	11,390,746		11,370,815
Less allowance for credit losses - loans and leases	Less allowance for credit losses - loans and leases	(103,669)		(62,089)		Less allowance for credit losses - loans and leases	(111,616)		(137,010)
Loans and leases, net	Loans and leases, net	10,028,841		8,750,464		Loans and leases, net	11,279,130		11,233,805
Premises and equipment, net	Premises and equipment, net	211,972		215,976		Premises and equipment, net	224,980		218,489
Bank owned life insurance	Bank owned life insurance	200,699		202,664		Bank owned life insurance	203,449		201,969
Accrued interest receivable	Accrued interest receivable	37,774		32,660		Accrued interest receivable	43,521		47,672
Net deferred tax asset	Net deferred tax asset	27,362		34,059		Net deferred tax asset	32,918		38,411
Derivative financial instruments	Derivative financial instruments	94,434		35,007		Derivative financial instruments	58,489		86,666
Goodwill and other intangible assets, net	Goodwill and other intangible assets, net	340,220		342,247		Goodwill and other intangible assets, net	379,909		381,823
Other assets	Other assets	203,300		171,135		Other assets	227,551		226,405
Total assets	Total assets	$	15,004,887	$	12,916,016	Total assets	$	18,895,723	$	17,794,374
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Noninterest-bearing demand	Noninterest-bearing demand	$	4,689,545	$	3,477,979	Noninterest-bearing demand	$	6,260,756	$	5,390,291

Interest-bearing deposits	Interest-bearing deposits	8,012,540		7,419,265		Interest-bearing deposits	10,067,011		9,842,067

Total deposits	Total deposits	12,702,085		10,897,244		Total deposits	16,327,767		15,232,358

Long-term debt	Long-term debt	311,631		212,664		Long-term debt	261,919		326,956
Derivative financial instruments	Derivative financial instruments	24,685		15,516		Derivative financial instruments	27,089		29,003
Accrued expenses and other liabilities	Accrued expenses and other liabilities	194,841		154,900		Accrued expenses and other liabilities	192,662		198,527
Total liabilities	Total liabilities	13,233,242		11,280,324		Total liabilities	16,809,437		15,786,844
Shareholders' equity:	Shareholders' equity:					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		96,660		—
Common stock, $1 par value; 150,000,000 shares authorized; 78,335,127 and 79,013,729 shares issued and outstanding		78,335		79,014
Common stock issuable; 596,785 and 664,640 shares		10,646		11,491
Preferred stock, $1 par value: 10,000,000 shares authorized; Series I, $25,000 per share liquidation preference; 4,000 shares issued and outstanding						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						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						Common stock issuable: 571,580 and 600,834 shares, respectively	10,650		10,855
Capital surplus	Capital surplus	1,480,464		1,496,641		Capital surplus	1,636,875		1,638,999
Retained earnings	Retained earnings	64,990		40,152		Retained earnings	244,006		136,869
Accumulated other comprehensive income	Accumulated other comprehensive income	40,550		8,394		Accumulated other comprehensive income	11,668		37,710
Total shareholders' equity	Total shareholders' equity	1,771,645		1,635,692		Total shareholders' equity	2,086,286		2,007,530
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	15,004,887	$	12,916,016	Total liabilities and shareholders' equity	$	18,895,723	$	17,794,374

See accompanying notes to consolidated financial statements (unaudited).


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,
(in thousands, except per share data) 2020 2019 2020 2019
Interest revenue:
Loans, including fees $ 107,862 $ 119,671 $ 225,925 $ 234,930
Investment securities, including tax exempt of $1,570 and $1,122 and $3,093 and $2,291 15,615 19,076 33,009 39,894
Deposits in banks and short-term investments 128 409 1,218 848
Total interest revenue 123,605 139,156 260,152 275,672
Interest expense:
Deposits 11,271 17,115 26,346 33,072
Short-term borrowings — 248 1 409
Federal Home Loan Bank advances — 752 1 2,174
Long-term debt 3,030 3,257 5,894 6,599
Total interest expense 14,301 21,372 32,242 42,254
Net interest revenue 109,304 117,784 227,910 233,418
Provision for credit losses 33,543 3,250 55,734 6,550
Net interest revenue after provision for credit losses 75,761 114,534 172,176 226,868
Noninterest income:
Service charges and fees 6,995 9,060 15,633 17,513
Mortgage loan gains and other related fees 23,659 5,344 31,969 9,092
Brokerage fees 1,324 1,588 2,964 2,925
Gains from sales of other loans, net 1,040 1,470 2,714 2,773
Securities gains (losses), net — 149 — (118)
Other 7,220 6,920 12,772 13,314
Total noninterest income 40,238 24,531 66,052 45,499
Total revenue 115,999 139,065 238,228 272,367
Noninterest expenses:
Salaries and employee benefits 51,811 48,157 103,169 95,660
Communications and equipment 6,556 6,222 12,502 12,010
Occupancy 5,945 5,919 11,659 11,503
Advertising and public relations 2,260 1,596 3,534 2,882
Postage, printing and supplies 1,613 1,529 3,283 3,115
Professional fees 4,823 4,054 8,920 7,215
Lending and loan servicing expense 3,189 2,619 5,482 4,953
Outside services - electronic banking 1,796 1,558 3,628 3,167
FDIC assessments and other regulatory charges 1,558 1,547 3,042 3,257
Amortization of intangibles 987 1,342 2,027 2,635
Merger-related and other charges 397 3,894 1,205 4,440
Other 3,045 3,376 7,067 7,060
Total noninterest expenses 83,980 81,813 165,518 157,897
Net income before income taxes 32,019 57,252 72,710 114,470
Income tax expense 6,923 13,167 15,730 26,123
Net income $ 25,096 $ 44,085 $ 56,980 $ 88,347
Net income available to common shareholders $ 24,913 $ 43,769 $ 56,554 $ 87,716
Net income per common share:
Basic $ 0.32 $ 0.55 $ 0.71 $ 1.10
Diluted 0.32 0.55 0.71 1.10
Weighted average common shares outstanding:
Basic 78,920 79,673 79,130 79,739
Diluted 78,924 79,678 79,186 79,745


	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	0		0		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		0		41		0
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).


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


(in thousands)		Three Months Ended June 30,										Six Months Ended June 30,
															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														2021
Net income														Net income	$	92,265	$	(22,005)	$	70,260	$	186,121	$	(42,155)	$	143,966
Other comprehensive income:														Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities:														Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period														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														Reclassification adjustment for gains included in net income	(41)		14		(27)		(41)		14		(27)
Net unrealized gains (losses)														Net unrealized gains (losses)	10,227		(1,456)		8,771		(40,008)		11,094		(28,914)

Derivative instruments designated as cash flow hedges:														Derivative instruments designated as cash flow hedges:
Unrealized holding gains (losses) on derivatives arising during the period														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														Reclassification of losses on derivative instruments realized in net income	147		(37)		110		291		(74)		217
Net cash flow hedge activity														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														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)														Total other comprehensive income (loss)	7,896		(860)		7,036		(36,151)		10,109		(26,042)
Comprehensive income														Comprehensive income	$	100,161	$	(22,865)	$	77,296	$	149,970	$	(32,046)	$	117,924
		Before-tax Amount		Tax (Expense) Benefit		Net of Tax Amount		Before-tax Amount		Tax (Expense) Benefit		Net of Tax Amount
2020	2020													2020
Net income	Net income	$	32,019	$	(6,923)	$	25,096	$	72,710	$	(15,730)	$	56,980	Net income	$	32,019	$	(6,923)	$	25,096	$	72,710	$	(15,730)	$	56,980
Other comprehensive income:	Other comprehensive income:													Other comprehensive income:

Unrealized gains on available-for-sale securities	Unrealized gains on available-for-sale securities	28,985		(6,969)		22,016		42,670		(10,402)		32,268		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	Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity	96		(23)		73		179		(43)		136		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:	Derivative instruments designated as cash flow hedges:													Derivative instruments designated as cash flow hedges:
Unrealized holding losses on derivatives arising during the period	Unrealized holding losses on derivatives arising during the period	(828)		211		(617)		(828)		211		(617)		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	Reclassification of losses on derivative instruments realized in net income	67		(17)		50		67		(17)		50		Reclassification of losses on derivative instruments realized in net income	67		(17)		50		67		(17)		50
Net cash flow hedge activity	Net cash flow hedge activity	(761)		194		(567)		(761)		194		(567)		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	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		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	Total other comprehensive income	28,534		(6,853)		21,681		42,516		(10,360)		32,156		Total other comprehensive income	28,534		(6,853)		21,681		42,516		(10,360)		32,156
Comprehensive income	Comprehensive income	$	60,553	$	(13,776)	$	46,777	$	115,226	$	(26,090)	$	89,136	Comprehensive income	$	60,553	$	(13,776)	$	46,777	$	115,226	$	(26,090)	$	89,136

2019
Net income		$	57,252	$	(13,167)	$	44,085	$	114,470	$	(26,123)	$	88,347
Other comprehensive income:
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period		29,756		(7,248)		22,508		62,930		(15,297)		47,633
Reclassification adjustment for (gains) losses included in net income		(149)		38		(111)		118		(30)		88
Net unrealized gains		29,607		(7,210)		22,397		63,048		(15,327)		47,721
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity		93		(22)		71		177		(42)		135
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges		235		(60)		175		337		(86)		251

Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan		173		(44)		129		347		(88)		259

Total other comprehensive income		30,108		(7,336)		22,772		63,909		(15,543)		48,366

Comprehensive income		$	87,360	$	(20,503)	$	66,857	$	178,379	$	(41,666)	$	136,713

See accompanying notes to consolidated financial statements (unaudited).


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

Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except share and per share data) Preferred Stock Common Stock Common Stock Issuable Capital Surplus Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Preferred Stock Common Stock Common Stock Issuable Capital Surplus Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total
2020
Balance at beginning of period $ — $ 78,284 $ 10,534 $ 1,478,719 $ 54,206 $ 18,869 $ 1,640,612 $ — $ 79,014 $ 11,491 $ 1,496,641 $ 40,152 $ 8,394 $ 1,635,692
Net income 25,096 25,096 56,980 56,980
Other comprehensive income 21,681 21,681 32,156 32,156
Issuance of preferred stock (4,000 shares), net 96,660 96,660 96,660 96,660
Common stock issued to dividend reinvestment plan and
   employee benefit plans (12,906 and 21,592 shares, respectively)
13 214 227 22 404 426
Amortization of restricted stock unit awards 1,764 1,764 4,256 4,256
Vesting of restricted stock unit awards, net of shares surrendered
   to cover payroll taxes (38,247 and 62,252 shares issued,
   respectively, and 378 and 24,345 shares deferred,
   respectively)
38 11 (240) (191) 62 676 (1,417) (679)
Purchases of common stock (826,482 shares) — (827) (19,955) (20,782)
Deferred compensation plan, net, including dividend
equivalents 111 111 267 267
Shares issued from deferred compensation plan, net of
   shares surrendered to cover payroll taxes (430 and 64,036
   shares, respectively)
— (10) 7 (3) 64 (1,788) 535 (1,189)
Common stock dividends ($0.18 and $0.36 per share,
   respectively)
(14,312) (14,312) (28,613) (28,613)
Adoption of new accounting standard — (3,529) (3,529)
Balance, June 30, 2020 $ 96,660 $ 78,335 $ 10,646 $ 1,480,464 $ 64,990 $ 40,550 $ 1,771,645 $ 96,660 $ 78,335 $ 10,646 $ 1,480,464 $ 64,990 $ 40,550 $ 1,771,645
2019
Balance at beginning of period $ — $ 79,035 $ 10,291 $ 1,494,400 $ (59,573) $ (15,995) $ 1,508,158 $ — $ 79,234 $ 10,744 $ 1,499,584 $ (90,419) $ (41,589) $ 1,457,554
Net income 44,085 44,085 88,347 88,347
Other comprehensive income 22,772 22,772 48,366 48,366
Exercise of stock options (12,000 shares) — 12 185 197
Common stock issued to dividend reinvestment plan and
  employee benefit plans (33,978 and 42,423 shares,
  respectively)
34 871 905 42 1,049 1,091
Amortization of restricted stock unit awards 4,017 4,017 6,002 6,002
Vesting of restricted stock unit awards, net of shares surrendered
   to cover payroll taxes (5,034 and 20,979 shares issued,
   respectively, and 17,211 and 36,661 shares deferred,
   respectively)
5 477 (557) (75) 21 1,009 (1,422) (392)
Purchases of common stock (305,052 shares) — (305) (7,535) (7,840)
Deferred compensation plan, net, including dividend
equivalents 107 107 292 292
Shares issued from deferred compensation plan, net of
  shares surrendered to cover payroll taxes (748 and
  70,792 shares, respectively)
1 (17) 9 (7) 71 (1,187) 877 (239)
Common stock dividends ($0.17 and $0.33 per share,
  respectively)
(13,628) (13,628) (26,495) (26,495)
Adoption of new accounting standard — (549) (549)
Balance, June 30, 2019 $ — $ 79,075 $ 10,858 $ 1,498,740 $ (29,116) $ 6,777 $ 1,566,334 $ — $ 79,075 $ 10,858 $ 1,498,740 $ (29,116) $ 6,777 $ 1,566,334


	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	$	0	$	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	0		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).


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


		Six Months Ended June 30,							Six Months Ended June 30,
(in thousands)		2020		2019
							2021		2020
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	56,980	$	88,347	Net income	$	143,966	$	56,980
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		5,205		12,549
Provision for credit losses		55,734		6,550
Depreciation, amortization and accretion, net						Depreciation, amortization and accretion, net	(2,961)		5,205
(Release of) provision for credit losses						(Release of) provision for credit losses	(25,869)		55,734
Stock based compensation	Stock based compensation	4,256		6,002		Stock based compensation	3,141		4,256
Deferred income tax (benefit) expense		(2,356)		1,341
Securities losses, net		—		118
Gains from sales of other loans		(2,714)		(2,773)
Deferred income tax expense (benefit)						Deferred income tax expense (benefit)	14,621		(2,356)
Securities gains, net						Securities gains, net	(41)		0
Gains from sales of other loans, net						Gains from sales of other loans, net	(5,153)		(2,714)

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Other assets and accrued interest receivable	Other assets and accrued interest receivable	(76,407)		(40,876)		Other assets and accrued interest receivable	20,444		(76,407)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	15,929		4,787		Accrued expenses and other liabilities	7,071		15,929
Loans held for sale	Loans held for sale	(40,993)		(27,350)		Loans held for sale	7,239		(40,993)
Net cash provided by operating activities	Net cash provided by operating activities	15,634		48,695		Net cash provided by operating activities	162,458		15,634

Investing activities:	Investing activities:					Investing activities:
Debt securities held-to-maturity:	Debt securities held-to-maturity:					Debt securities held-to-maturity:
Proceeds from maturities and calls	Proceeds from maturities and calls	19,889		29,453		Proceeds from maturities and calls	35,590		19,889
Purchases	Purchases	(43,118)		(8,499)		Purchases	(468,740)		(43,118)
Debt securities available-for-sale and equity securities:
Debt securities available-for-sale:						Debt securities available-for-sale:
Proceeds from sales	Proceeds from sales	1,000		225,883		Proceeds from sales	78,111		1,000
Proceeds from maturities and calls	Proceeds from maturities and calls	296,744		138,741		Proceeds from maturities and calls	456,899		296,744
Purchases	Purchases	(110,481)		(45,629)		Purchases	(1,437,481)		(110,481)
Net increase in loans		(1,306,120)		(242,584)
Net decrease (increase) in loans						Net decrease (increase) in loans	8,861		(1,306,120)
Equity investments, outflows						Equity investments, outflows	(8,432)		(8,583)
Equity investments, inflows						Equity investments, inflows	5,026		0

Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	102		1,028		Proceeds from sales of premises and equipment	840		102
Purchases of premises and equipment	Purchases of premises and equipment	(3,655)		(13,879)		Purchases of premises and equipment	(14,565)		(3,655)
Net cash paid for acquisition		—		(19,545)

Proceeds from sale of other real estate	Proceeds from sale of other real estate	278		2,260		Proceeds from sale of other real estate	2,042		278
Other investing activities, net		(5,853)		—
Net cash (used in) provided by investing activities		(1,151,214)		67,229
Other investing activities						Other investing activities	767		2,730
Net cash used in investing activities						Net cash used in investing activities	(1,341,082)		(1,151,214)

Financing activities:	Financing activities:					Financing activities:
Net increase (decrease) in deposits		1,805,016		(154,876)
Net increase in short-term borrowings		—		40,000
Net increase in deposits						Net increase in deposits	1,096,791		1,805,016

Repayment of long-term debt	Repayment of long-term debt	—		(19,608)		Repayment of long-term debt	(65,632)		0
Proceeds from FHLB advances	Proceeds from FHLB advances	5,000		1,365,000		Proceeds from FHLB advances	5,000		5,000
Repayment of FHLB advances	Repayment of FHLB advances	(5,000)		(1,365,000)		Repayment of FHLB advances	(5,000)		(5,000)
Proceeds from issuance of senior debentures, net of issuance costs	Proceeds from issuance of senior debentures, net of issuance costs	98,638		—		Proceeds from issuance of senior debentures, net of issuance costs	0		98,638
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans	Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans	426		1,091		Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans	320		426
Proceeds from exercise of stock options		—		197

Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock units	Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock units	(1,868)		(631)		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	Proceeds from issuance of Series I preferred stock, net of issuance costs	96,660		—		Proceeds from issuance of Series I preferred stock, net of issuance costs	0		96,660
Repurchase of common stock	Repurchase of common stock	(20,782)		(7,840)		Repurchase of common stock	(5,101)		(20,782)
Cash dividends on common stock	Cash dividends on common stock	(28,755)		(25,743)		Cash dividends on common stock	(32,593)		(28,755)
Net cash provided by (used in) financing activities		1,949,335		(167,410)
Cash dividends on preferred stock						Cash dividends on preferred stock	(3,438)		0
Net cash provided by financing activities						Net cash provided by financing activities	989,402		1,949,335

Net change in cash and cash equivalents, including restricted cash		813,755		(51,486)
Net change in cash and cash equivalents						Net change in cash and cash equivalents	(189,222)		813,755

Cash and cash equivalents, including restricted cash, at beginning of period		515,206		327,265
Cash and cash equivalents, at beginning of period						Cash and cash equivalents, at beginning of period	1,608,619		515,206

Cash and cash equivalents, including restricted cash, at end of period		$	1,328,961	$	275,779
Cash and cash equivalents, at end of period						Cash and cash equivalents, at end of period	$	1,419,397	$	1,328,961

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:

Significant non-cash investing and financing transactions:	Significant non-cash investing and financing transactions:					Significant non-cash investing and financing transactions:
Unsettled government guaranteed loan sales	Unsettled government guaranteed loan sales	$	289	$	15,331	Unsettled government guaranteed loan sales	$	6,435	$	289
Transfers of loans to foreclosed properties	Transfers of loans to foreclosed properties	355		751		Transfers of loans to foreclosed properties	1,333		355

Acquisitions:
Assets acquired		—		264,937
Liabilities assumed		—		212,844
Net assets acquired		—		52,093

See accompanying notes to consolidated financial statements (unaudited).

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Accounting Policies

~~The~~United’s accounting and financial reporting policies ~~of United Community Banks, Inc. and its subsidiaries (collectively referred to herein as “United”)~~ conform to ~~accounting principles generally accepted in the United States (“GAAP”)~~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. ~~In addition to those items mentioned below, a~~A more detailed description of United’s accounting policies is included in its ~~Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 10-K”).~~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 ~~2019~~2020 10-K. ~~Certain amounts reported in prior periods' consolidated financial statements have been reclassified to conform to the current presentation.~~

~~Debt Securities~~

Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains or losses associated with transfers of securities from available-for-sale to held-to-maturity are included in the balance of accumulated other comprehensive income in the consolidated balance sheets. These unrealized holding gains or losses are amortized into income over the remaining life of the security as an adjustment to the yield in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security.

A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on non-accrual is reversed against interest income.

~~Allowance for Credit Losses (“ACL”) - Held-to-Maturity Securities:~~ Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities totaled $1.00 million at June 30, 2020 and was excluded from the estimate of credit losses.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-maturity portfolio into the following major security types: State and political subdivisions, residential mortgage-backed, agency and commercial mortgage-backed, agency.

All of the residential and commercial mortgage-backed securities held by United are issued by U.S. government agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The state and political subdivision securities are highly rated by major rating agencies. As a result, 0 ACL was recorded on the held-to-maturity portfolio at June 30, 2020.

~~ACL - Available-For-Sale Securities:~~ For available-for-sale debt securities in an unrealized loss position, United first assesses whether it intends to sell, or whether it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, United evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income.

Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At June 30, 2020, there was 0 ACL related to the available-for-sale portfolio.

~~Accrued interest receivable on available-for-sale debt securities totaled $7.72 million at June 30, 2020 and was excluded from the estimate of credit losses.~~

~~Loans and Leases~~

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $28.0 million at June 30, 2020 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. 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.

~~Equipment Financing Lease Receivables:~~ Equipment financing lease receivables, which are classified as sales-type or direct financing leases, are recorded as the sum of the future minimum lease payments, initial deferred costs and estimated or contractual residual values less unearned income and security deposits. The determination of residual value is derived from a variety of sources including equipment valuation services, appraisals, and publicly available market data on recent sales transactions on similar equipment. The length of time until contract termination, the cyclical nature of equipment values and the limited marketplace for re-sale of certain leased assets are important variables considered in making this determination. Interest income, which is included in loan interest revenue in the consolidated statements of income, is recognized as earned using the effective interest method. Direct fees and costs associated with the origination of leases are deferred and included as a component of equipment financing receivables. Net deferred fees or costs are recognized as an adjustment to interest income over the contractual life of the lease using the effective interest method. These lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term. United excludes sales taxes from consideration in these lease contracts.

~~Purchased Credit Deteriorated (“PCD”) Loans:~~ Upon adoption of Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments - Credit Losses (“ASC 326”), loans that were designated as purchased credit impaired (“PCI”) loans under the previous accounting guidance were classified as PCD loans without reassessment.

In future acquisitions, United may purchase loans, some of which have experienced more than insignificant credit deterioration since origination. In those cases, United will consider internal loan grades, delinquency status and other relevant factors in assessing whether purchased loans are PCD. PCD loans are recorded at the amount paid. An initial ACL is determined using the same methodology as other loans held for investment, but with no impact to earnings. The initial ACL determined on a collective basis is allocated to individual loans. The sum of the loan's purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent to initial recognition, PCD loans are subject to the same interest income recognition and impairment model as non-PCD loans, with changes to the ACL recorded through provision expense.

~~ACL - Loans~~

The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

Management determines the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit behaviors along with model judgments provide the basis for the estimation of expected credit losses. Adjustments to modeled loss estimates may be 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 economic conditions, property values, or other relevant factors.

The ACL is measured on a collective basis when similar risk characteristics exist. United has identified the following portfolio segments and calculates the ACL for each using a discounted cash flow methodology at the loan level, with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type:

~~Owner occupied commercial real estate -~~ ~~Loans in this category are susceptible to business failure and general economic conditions.~~

~~Income producing commercial real estate -~~ ~~Common risks for this loan category are declines in general economic conditions, declines in real estate value, declines in occupancy rates, and lack of suitable alternative use for the property.~~

~~Commercial & industrial -~~ Risks to this loan category include the inability to monitor the condition of the collateral which often consists of inventory, accounts receivable and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt.

~~Commercial construction -~~ ~~Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements and declines in real estate values.~~

~~Equipment financing -~~ Risks associated with equipment financing are similar to those described for commercial and industrial loans, including general economic conditions, as well as appropriate lien priority on equipment, equipment obsolescence and the general mobility of the collateral.

~~Residential mortgage -~~ ~~Residential mortgage loans are susceptible to weakening general economic conditions, increases in unemployment rates and declining real estate values.~~

~~Home equity lines of credit -~~ Risks common to home equity lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values which reduce or eliminate the borrower’s home equity.

~~Residential construction -~~ Residential construction loans are susceptible to the same risks as residential mortgage loans. Changes in market demand for property lead to longer marketing times resulting in higher carrying costs and declining values.

~~Consumer -~~ ~~Risks common to consumer direct loans include unemployment and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property.~~

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, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

~~When the discounted cash flow method is used to determine the ACL, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.~~

~~Determining the Contractual Term:~~ Expected credit losses are estimated over the contractual term of the loans, 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 cancellable by United.

~~Troubled Debt Restructurings (“TDR”s):~~ A loan for which the terms have been modified resulting in a more than insignificant concession, and for which the borrower is experiencing financial difficulties, is generally considered to be a TDR. The ACL on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring. As discussed in Note 2, in accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), United implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. These loan modifications were not considered TDRs to the extent that the borrower was impacted by the COVID-19 pandemic and was not more than 30 days past due at

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~December 31, 2019, or in certain circumstances, at the time that the COVID-19 loan modification program was implemented, unless the loan was previously classified as a TDR.~~

~~ACL - Off-Balance Sheet Credit Exposures~~

Management estimates expected credit losses on commitments to extend credit over the contractual period during which United is exposed to credit risk on the underlying commitments. The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The ACL is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.

Note 2 –Accounting Standards Updates and Recently Adopted Standards

~~On January 1, 2020, United adopted ASC 326~~, which replaced the incurred loss impairment framework in prior GAAP with a current expected credit loss (“CECL”) framework, which requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an ACL. PCD loans will receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings. Credit losses relating to available-for-sale debt securities will be recorded through an ACL prospectively, with such allowance limited to the amount by which fair value is below amortized cost.

United adopted ASC 326 as of January 1, 2020 using the modified retrospective method for loans, leases and off-balance sheet credit exposures. Adoption of this guidance resulted in an $8.75 million increase in the ACL, comprised of increases in the ACL for loans of $6.88 million and the ACL for unfunded commitments of $1.87 million, with $3.59 million of the increase reclassified from the amortized cost basis of PCD financial assets that were previously classified as PCI. The cumulative effect adjustment to retained earnings was $3.53 million, net of tax. Calculated credit losses on held-to-maturity debt securities were not material and there was no impact to the available-for-sale securities portfolio or other financial instruments. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP (“Incurred Loss”).

The ACL for the majority of loans and leases was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a two-year straight-line reversion period. In connection with the adoption, management has implemented changes to relevant systems, processes and controls where necessary. Model validation was completed during the fourth quarter of 2019 and implementation of the accounting, reporting and governance processes to comply with the new guidance was completed in the first quarter of 2020. United’s CECL allowance will fluctuate over time due to macroeconomic conditions and forecasts as well as the size and composition of the loan portfolios. United has adopted the relief provided by federal banking regulatory agencies for the delay of the adverse capital impact of CECL at adoption and during the subsequent two-year period following adoption. This optional two-year delay is followed by an optional three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. Under the transition provision, the amount of aggregate capital benefit is phased out by 25% each year with the full impact of adoption completely recognized by the beginning of the sixth year.

United adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as PCI. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. As mentioned above, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $3.59 million of the ACL. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at a rate that approximates the effective interest rate as of January 1, 2020.

With regard to PCD assets, because United elected to disaggregate the former PCI pools and no longer considers these pools to be the unit of account, contractually delinquent PCD loans will be reported as nonaccrual loans using the same criteria as other loans. Similarly, although management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption, PCD loans that are restructured and meet the definition of troubled debt restructurings after the adoption of CECL will be reported as such.

United elected not to measure an allowance for credit losses for accrued interest receivable and instead to reverse interest income on those loans that are 90 days past due, to exclude accrued interest receivable from the amortized cost basis of financial instruments subject to CECL and to separately state the balance of accrued interest receivable on the consolidated balance sheet. In addition,

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

United elected to adjust the discount rate used to calculate credit losses for expected prepayments and will include all changes in discounted cash flows as credit loss. As a practical expedient, United has also elected to use the fair value of collateral when determining the ACL for loans if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty (collateral-dependent loans).

~~On March 27, 2020, the CARES Act was signed into law. The CARES Act included a number of provisions that were applicable to United, including the following:~~

•~~Accounting Relief for TDRs~~: The CARES Act provided that modifications under certain forbearance conditions for loans that were not more than 30 days past due at December 31, 2019 will not be considered TDRs for regulatory reporting and GAAP.

•~~Optional Delay and Regulatory Relief for CECL Implementation:~~The CARES Act stipulated that large SEC filers have the option of delaying the adoption of CECL from January 1, 2020 to the earlier of the end of the COVID-19 emergency period or December 31, 2020. Banks that were required to implement CECL by the end of 2020 were granted the option to defer any impact of CECL on regulatory capital for two years before beginning the original three-year regulatory phase-in period, for a total five-year phase-in period. Although United did not elect to delay the adoption of CECL, the Company did elect the five-year phase-in period for regulatory capital purposes, as discussed above.

•Paycheck Protection Program (“PPP”): The CARES Act created the PPP through the Small Business Administration (“SBA”), which allowed United to lend money to small businesses to maintain employee payrolls through the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls or restores payrolls afterwards.Recently Adopted Standards

In ~~March~~October 2020, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. ~~2020-03,~~2020-10, Codification Improvements ~~to Financial Instruments~~. ~~This update clarified certain minor issues within~~In addition to consolidating existing disclosure guidance into a single codification section to reduce the ~~codification, including, among other things, debt securities disclosure for financial institutions and determination of the contractual term~~likelihood of a ~~net investment~~required disclosure being missed, this update clarifies the application of select guidance in ~~a lease. The standard was effective immediately, and did not~~cases where the original guidance may have abeen unclear. United adopted this update as of January 1, 2021, with no material impact on the consolidated financial statements.

In ~~March~~October 2020, the FASB issued ASU No. ~~2020-04,~~2020-08, ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. This update ~~provides expedients for contracts~~clarifies that ~~are modified because~~an entity should reevaluate whether a callable debt security meets the criteria to adjust the amortization period of reference rate reform, including receivables, debt, leases, and certain derivatives. In addition, the update provides a one-time election to sell or transfer debt securities classified as held-to-maturity that reference a rate that is affected by reference rate reform. The update is effective as of March 12, 2020 through December 31, 2022. Adoption of this update did not have a material impact on the consolidated financial statements.

~~In April 2019, the FASB issued ASU No. 2019-04,~~ ~~Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments. In addition to amending guidance~~any related ~~to the new CECL standard, this update clarifies certain aspects of hedge accounting and recognition and measurement of financial instruments.~~premium at each reporting period. United adopted this update as of January 1, ~~2020,~~2021, with no material impact on the consolidated financial statements.

In January ~~2017,~~2020, the FASB issued ASU No. ~~2017-04,~~2020-01, ~~Intangibles - Goodwill~~Investments—Equity Securities (Topic 321), Investments—Equity Method and ~~Other~~Joint Ventures (Topic ~~350): Simplifying~~323), and Derivatives and Hedging (Topic 815)—Clarifying the ~~Test for Goodwill Impairment~~Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force). This update ~~eliminates Step 2 from the goodwill impairment test, which required~~clarifies whether an entity should consider observable transactions that require it to ~~calculate~~either apply or discontinue the ~~implied fair value~~equity method of ~~goodwill by valuing a reporting unit’s assets~~accounting for the purposes of applying the measurement alternative and ~~liabilities using the same process that would be required~~how to ~~value assets~~account for certain forward contracts and liabilities in a business combination. Instead, the amendments require that an entity perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.purchased options to purchase securities. United adopted this update as of January 1, ~~2020,~~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.

1410

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 ~~held-to-maturity~~ as of the dates indicated are as follows (in thousands).

Amortized
Cost Gross Unrealized Gains Gross Unrealized Losses Fair
Value
As of June 30, 2020
State and political subdivisions $ 87,840 $ 4,382 $ 95 $ 92,127
Residential mortgage-backed securities, Agency 137,416 6,051 — 143,467
Residential mortgage-backed securities, Non-agency 15,221 324 54 15,491
Commercial mortgage-backed, Agency 66,161 3,007 — 69,168
Total $ 306,638 $ 13,764 $ 149 $ 320,253
As of December 31, 2019
State and political subdivisions $ 45,479 $ 1,574 $ 9 $ 47,044
Residential mortgage-backed securities, Agency 153,967 2,014 694 155,287
Commercial mortgage-backed, Agency 84,087 1,627 141 85,573
Total $ 283,533 $ 5,215 $ 844 $ 287,904


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
As of June 30, 2021
U.S. Treasuries	$	19,788	$	267	$	0	$	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		0		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 ~~available-for-sale~~ as of the dates indicated are presented below (in thousands).

Amortized
Cost Gross Unrealized
Gains Gross Unrealized
Losses Fair
Value
As of June 30, 2020
U.S. Treasuries $ 123,392 $ 5,474 $ — $ 128,866
U.S. Government agencies 2,754 183 — 2,937
State and political subdivisions 212,767 17,942 — 230,709
Residential mortgage-backed securities, Agency 929,543 34,965 4 964,504
Residential mortgage-backed securities, Non-agency 237,614 9,903 — 247,517
Commercial mortgage-backed, Agency 253,517 8,161 — 261,678
Corporate bonds 172,023 1,659 206 173,476
Asset-backed securities 116,955 1,332 2,765 115,522
Total $ 2,048,565 $ 79,619 $ 2,975 $ 2,125,209
As of December 31, 2019
U.S. Treasuries $ 152,990 $ 1,628 $ — $ 154,618
U.S. Government agencies 2,848 188 1 3,035
State and political subdivisions 214,677 11,813 — 226,490
Residential mortgage-backed securities, Agency 1,030,948 12,022 726 1,042,244
Residential mortgage-backed securities, Non-agency 250,550 6,231 — 256,781
Commercial mortgage-backed, Agency 266,770 2,261 128 268,903
Commercial mortgage-backed, Non-agency 15,395 918 263 16,050
Corporate bonds 202,131 1,178 218 203,091
Asset-backed securities 104,298 743 1,672 103,369
Total $ 2,240,607 $ 36,982 $ 3,008 $ 2,274,581


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
As of June 30, 2021
U.S. Treasuries	$	138,884	$	3,196	$	0	$	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		0		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	$	0	$	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		0		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 ~~$524 million~~$1.15 billion and ~~$918 million~~$1.11 billion were pledged, primarily to secure public deposits, at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

1511

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table summarizes HTM debt securities ~~held-to-maturity~~ 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, 2020
State and political subdivisions $ 4,905 $ 95 $ — $ — $ 4,905 $ 95
Residential mortgage-backed securities, Agency 127 — — — 127 —
Residential mortgage-backed securities, Non-agency 8,995 3 1,384 51 10,379 54
Total unrealized loss position $ 14,027 $ 98 $ 1,384 $ 51 $ 15,411 $ 149
As of December 31, 2019
State and political subdivisions $ 10,117 $ 9 $ — $ — $ 10,117 $ 9
Residential mortgage-backed securities, Agency 16,049 64 48,237 630 64,286 694
Commercial mortgage-backed, Agency 21,841 87 1,685 54 23,526 141
Total unrealized loss position $ 48,007 $ 160 $ 49,922 $ 684 $ 97,929 $ 844


	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	$	0	$	0	$	10,143	$	351
State and political subdivisions	85,484		1,749		0		0		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		0		0		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	$	0	$	0	$	4,677	$	11
State and political subdivisions	14,870		242		0		0		14,870		242
Residential MBS, Agency & GSEs	999		1		0		0		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 ~~available-for-sale~~ 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, 2020
Residential mortgage-backed securities, Agency $ 514 $ 3 $ 1,289 $ 1 $ 1,803 $ 4
Commercial mortgage-backed, Agency 9 — — — 9 —
Corporate bonds 14,794 206 — — 14,794 206
Asset-backed securities 13,967 462 60,859 2,303 74,826 2,765
Total unrealized loss position $ 29,284 $ 671 $ 62,148 $ 2,304 $ 91,432 $ 2,975
As of December 31, 2019
U.S. Government agencies $ 404 $ 1 $ — $ — $ 404 $ 1
Residential mortgage-backed securities, Agency 228,611 576 18,294 150 246,905 726
Commercial mortgage-backed, Agency — — 33,517 128 33,517 128
Commercial mortgage-backed, Non-agency — — 4,864 263 4,864 263
Corporate bonds 19,742 216 998 2 20,740 218
Asset-backed securities 32,294 625 38,990 1,047 71,284 1,672
Total unrealized loss position $ 281,051 $ 1,418 $ 96,663 $ 1,590 $ 377,714 $ 3,008


	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	$	0	$	0	$	78,309	$	1,848
State and political subdivisions	52,132		1,241		0		0		52,132		1,241
Residential MBS, Agency & GSEs	897,499		11,799		847		10		898,346		11,809
Residential MBS, Non-agency	0		0		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		0		0		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		0		0		9,402		49
Residential MBS, Agency & GSEs	232,199		766		0		0		232,199		766
Residential MBS, Non-agency	2,331		128		0		0		2,331		128
Commercial MBS, Agency & GSEs	89,918		597		0		0		89,918		597

Corporate bonds	1,410		1		0		0		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, ~~2020,~~2021, there were 21232 AFS debt securities ~~available-for-sale~~ and 449 HTM debt securities ~~held-to-maturity~~ 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, ~~2020~~2021 were primarily attributable to changes in interest rates.

~~NaN impairment charges were recognized during the three and six months ended~~At June 30, ~~2019. At adoption of CECL on January 1, 2020~~2021 and ~~at June 30,~~December 31, 2020, calculated credit losses and, thus, the related ACL on ~~held-to-maturity~~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, ~~and~~GSEs, high credit quality ~~municipal securities.~~municipalities and supranational entities. As a result, 0 ACL was recorded on the ~~held-to-maturity~~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 0 ACL required related to the ~~available-for-sale portfolio. See Note 1 for additional details on the adoption of CECL as it relates to the securities~~AFS portfolio.

1612

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	$	0	$	0
U.S. Government agencies & GSEs	279		281		0		0
State and political subdivisions	20,000		20,000		1,700		1,718
Corporate bonds	11,534		11,556		0		0

	76,743		77,178		1,700		1,718
1 to 5 years:
U.S. Treasuries	79,030		81,706		0		0
U.S. Government agencies & GSEs	13,835		13,894		0		0
State and political subdivisions	43,350		45,580		14,501		15,763
Corporate bonds	71,166		71,855		0		0

	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		0		0
Supranational entities	0		0		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		0		0

	180,695		190,307		231,546		232,866
Debt securities not due at a single maturity date:
Asset-backed securities	652,093		654,667		0		0
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 ~~available-for-sale~~AFS securities sales activity for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands).

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Proceeds from sales $ — $ 47,279 $ 1,000 $ 225,883
Gross gains on sales $ — $ 489 $ — $ 1,776
Gross losses on sales — (340) — (1,894)
Net gains (losses) on sales of securities $ — $ 149 $ — $ (118)
Income tax expense (benefit) attributable to sales $ — $ 38 $ — $ (30)

~~The amortized cost and fair value of debt securities available-for-sale and held-to-maturity at June 30, 2020, by contractual maturity, are presented in the following table~~ ~~(in thousands)~~.

Available-for-Sale Held-to-Maturity
Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries:
1 to 5 years $ 123,392 $ 128,866 $ — $ —
123,392 128,866 — —
U.S. Government agencies:
1 to 5 years 354 360 — —
More than 10 years 2,400 2,577 — —
2,754 2,937 — —
State and political subdivisions:
Within 1 year — — 1,350 1,350
1 to 5 years 54,483 57,120 14,260 15,226
5 to 10 years 23,810 25,808 10,789 12,244
More than 10 years 134,474 147,781 61,441 63,307
212,767 230,709 87,840 92,127
Corporate bonds:
Within 1 year 140,008 140,217 — —
1 to 5 years 27,515 28,644 — —
5 to 10 years 4,500 4,615 — —
172,023 173,476 — —
Total securities other than asset-backed and
mortgage-backed securities:
Within 1 year 140,008 140,217 1,350 1,350
1 to 5 years 205,744 214,990 14,260 15,226
5 to 10 years 28,310 30,423 10,789 12,244
More than 10 years 136,874 150,358 61,441 63,307
Asset-backed securities 116,955 115,522 — —
Residential mortgage-backed securities 1,167,157 1,212,021 152,637 158,958
Commercial mortgage-backed securities 253,517 261,678 66,161 69,168
$ 2,048,565 $ 2,125,209 $ 306,638 $ 320,253

~~Expected maturities may differ from contractual maturities because issuers and borrowers may have the right to call or prepay obligations.~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Proceeds from sales	$	78,111	$	0	$	78,111	$	1,000

Gross realized gains	$	641	$	0	$	641	$	0
Gross realized losses	(600)		0		(600)		0

Securities gains, net	$	41	$	0	$	41	$	0

Income tax expense attributable to sales	$	14	$	0	$	14	$	0

1713

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, 2020 December 31, 2019
Owner occupied commercial real estate $ 1,759,617 $ 1,720,227
Income producing commercial real estate 2,177,857 2,007,950
Commercial & industrial⁽¹⁾
2,314,169 1,220,657
Commercial construction 945,748 976,215
Equipment financing 778,749 744,544
Total commercial 7,976,140 6,669,593
Residential mortgage 1,151,661 1,117,616
Home equity lines of credit 653,798 660,675
Residential construction 230,231 236,437
Consumer 120,680 128,232
Total loans 10,132,510 8,812,553
Less allowance for credit losses - loans (103,669) (62,089)
Loans, net $ 10,028,841 $ 8,750,464


	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 ~~$1.10 billion~~$472 million and $646 million of PPP ~~loans.~~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, ~~2020~~2021 and December 31, ~~2019, loans totaling $4.12 billion~~2020, the loan portfolio was subject to blanket pledges on certain qualifying loan types with the FHLB and ~~$4.06 billion, respectively, were pledged as collateral~~FRB to secure contingent funding sources. ~~At December 31, 2019, the carrying value and outstanding balance of PCI loans were $58.6 million and $83.1 million, respectively.~~

~~During~~The following table presents loans held for investment that were sold in the second quarter and first six months of 2020, United sold $14.0 million and $18.1 million, respectively, of United States Small Business Administration / United States Department of Agriculture (“SBA/USDA”) guaranteed loans and $1.70 million and $23.9 million, respectively, of equipment financing receivables. During the second quarter and first six months of 2019, United sold $17.1 million and $34.2 million, respectively, of SBA/USDA guaranteed loans. 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, ~~2020~~2021 and December 31, ~~2019,~~2020, equipment financing assets included leases of ~~$37.0~~$37.8 million and ~~$37.4~~$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, 2020 December 31, 2019
Minimum future lease payments receivable $ 39,205 $ 39,709
Estimated residual value of leased equipment 3,476 3,631
Initial direct costs 688 842
Security deposits (857) (989)
Purchase accounting premium 191 273
Unearned income (5,675) (6,088)
Net investment in leases $ 37,028 $ 37,378


	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

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, ~~2020~~2021 were as follows (in thousands):

Year
Remainder of 2020 $ 7,898
2021 13,346
2022 9,590
2023 5,705
2024 2,164
Thereafter 502
Total $ 39,205

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~The following table presents changes in the balance of the accretable yield for PCI loans for the periods indicated~~ ~~(in thousands)~~:

June 30, 2019
Three Months Ended Six Months Ended
Balance at beginning of period $ 26,624 $ 26,868
Additions due to acquisitions 1,300 1,300
Accretion (4,274) (9,087)
Reclassification from nonaccretable difference 1,762 4,468
Changes in expected cash flows that do not affect nonaccretable difference 896 2,759
Balance at end of period $ 26,308 $ 26,308


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 ~~June 30, 2020~~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																														Accruing
		Current Loans		Loans Past Due																								Current Loans				Loans Past Due
						30 - 59 Days			60 - 89 Days			> 90 Days			Nonaccrual Loans			Total Loans			Current Loans			30 - 59 Days						> 90 Days				Nonaccrual Loans				Total Loans
As of June 30, 2021																		As of June 30, 2021
Owner occupied commercial real estate	Owner occupied commercial real estate	$	1,745,613	$	2,829		$	465		$	—		$	10,710		$	1,759,617	Owner occupied commercial real estate	$	2,141,403				$	1,666			$	174			$	0			$	6,128			$	2,149,371
Income producing commercial real estate	Income producing commercial real estate	2,166,238		199			146			—			11,274			2,177,857		Income producing commercial real estate	2,536,332			592				219				0				13,100				2,550,243
Commercial & industrial	Commercial & industrial	2,309,960		664			113			—			3,432			2,314,169		Commercial & industrial	2,225,062			1,004				17				0				8,563				2,234,646
Commercial construction	Commercial construction	943,153		291			14			—			2,290			945,748		Commercial construction	925,376			199				5				0				1,229				926,809
Equipment financing	Equipment financing	773,000		1,202			1,428			—			3,119			778,749		Equipment financing	965,350			911				773				0				1,771				968,805
Total commercial	Total commercial	7,937,964		5,185			2,166			—			30,825			7,976,140		Total commercial	8,793,523			4,372				1,188				0				30,791				8,829,874
Residential mortgage	Residential mortgage	1,136,665		1,585			226			—			13,185			1,151,661		Residential mortgage	1,456,280			2,090				753				0				13,485				1,472,608
Home equity lines of credit		649,309		739			611			1			3,138			653,798
HELOC																		HELOC	658,224			1,015				209				0				1,433				660,881
Residential construction	Residential construction	229,626		53			52			—			500			230,231		Residential construction	288,032			369				0				0				307				288,708
Consumer	Consumer	119,884		291			132			—			373			120,680		Consumer	138,287			247				34				0				107				138,675
Total loans																		Total loans	$	11,334,346		$	8,093			$	2,184			$	0			$	46,123			$	11,390,746

As of December 31, 2020																		As of December 31, 2020
Owner occupied commercial real estate																		Owner occupied commercial real estate	$	2,079,845		$	2,013			$	3			$	0			$	8,582			$	2,090,443
Income producing commercial real estate																		Income producing commercial real estate	2,522,743			1,608				1,250				0				15,149				2,540,750
Commercial & industrial																		Commercial & industrial	2,480,483			1,176				267				0				16,634				2,498,560
Commercial construction																		Commercial construction	964,947			231				382				0				1,745				967,305
Equipment financing																		Equipment financing	856,985			2,431				1,009				0				3,405				863,830
Total commercial																		Total commercial	8,905,003			7,459				2,911				0				45,515				8,960,888
Residential mortgage																		Residential mortgage	1,265,019			5,549				1,494				0				12,858				1,284,920
HELOC																		HELOC	692,504			1,942				184				0				2,487				697,117
Residential construction																		Residential construction	280,551			365				0				0				514				281,430
Consumer																		Consumer	145,770			429				36				0				225				146,460
Total loans	Total loans	$	10,073,448	$	7,853		$	3,187		$	1		$	48,021		$	10,132,510	Total loans	$	11,288,847		$	15,744			$	4,625			$	0			$	61,599			$	11,370,815

~~The following table presents the aging of recorded investment in loans, including accruing and nonaccrual loans, as of December 31, 2019~~ ~~(in thousands).~~

Loans Past Due - Accruing and Nonaccrual
30 - 59 Days 60 - 89 Days
> 90 Days ⁽¹⁾
Total Current Loans PCI Loans Total
Owner occupied commercial real estate $ 2,913 $ 2,007 $ 6,079 $ 10,999 $ 1,700,682 $ 8,546 $ 1,720,227
Income producing commercial real estate 562 706 401 1,669 1,979,053 27,228 2,007,950
Commercial & industrial 2,140 491 2,119 4,750 1,215,581 326 1,220,657
Commercial construction 1,867 557 96 2,520 966,833 6,862 976,215
Equipment financing 2,065 923 3,045 6,033 734,526 3,985 744,544
Total commercial 9,547 4,684 11,740 25,971 6,596,675 46,947 6,669,593
Residential mortgage 5,655 2,212 2,171 10,038 1,097,999 9,579 1,117,616
Home equity lines of credit 1,697 421 1,385 3,503 655,762 1,410 660,675
Residential construction 325 125 402 852 235,211 374 236,437
Consumer 668 181 27 876 127,020 336 128,232
Total loans $ 17,892 $ 7,623 $ 15,725 $ 41,240 $ 8,712,667 $ 58,646 $ 8,812,553

⁽¹⁾~~Excluding PCI loans, substantially all loans more than 90 days past due were on nonaccrual status at December 31, 2019.~~

1915

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).

CECL Incurred Loss
June 30, 2020 December 31, 2019
Nonaccrual loans with no allowance Nonaccrual loans with an allowance Total Nonaccrual Loans Nonaccrual
Loans
Owner occupied commercial real estate $ 6,564 $ 4,146 $ 10,710 $ 10,544
Income producing commercial real estate 10,780 494 11,274 1,996
Commercial & industrial 1,038 2,394 3,432 2,545
Commercial construction 1,824 466 2,290 2,277
Equipment financing 23 3,096 3,119 3,141
Total commercial 20,229 10,596 30,825 20,503
Residential mortgage 2,918 10,267 13,185 10,567
Home equity lines of credit 1,045 2,093 3,138 3,173
Residential construction 149 351 500 939
Consumer 10 363 373 159
Total $ 24,351 $ 23,670 $ 48,021 $ 35,341

The gross additional interest revenue that would have been earned if the loans classified as nonaccrual had performed in accordance with the original terms was approximately $661,000 and $249,000 for the three months ended June 30, 2020 and 2019, respectively, and $1.13 million and $627,000 for the six months ended June 30, 2020 and 2019, respectively.


	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	0		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	0		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, ~~credit documentation,~~ 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.

~~Watch.~~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 ~~the pass / fail grading~~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, ~~of the table below,~~ loans in these categories that are classified as “fail” are reported as substandard and all other loans are reported as pass.

2016

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).


	As of June 30, 2020
	Term Loans by Origination Year																									Revolvers				Revolvers converted to term loans				Total				Term Loans by Origination Year																Revolvers	Revolvers converted to term loans	Total
As of June 30, 2021																			As of June 30, 2021		2021		2020					2019				2018				2017		Prior			Revolvers				Revolvers converted to term loans				Total
Pass																			Pass
Owner occupied commercial real estate																			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																			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																			Commercial & industrial		684,472		426,442				195,329				173,366				62,870			103,609			490,906				3,737				2,140,731
Commercial construction																			Commercial construction		175,452		300,989				167,938				124,411				28,142			12,596			8,054				2,030				819,612
Equipment financing																			Equipment financing		293,882		331,475				220,386				92,083				25,113			3,634			0				0				966,573
Total commercial																			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																			Residential mortgage		448,846		416,688				136,631				91,877				88,511			268,040			14				4,883				1,455,490
HELOC																			HELOC		0		0				0				0				0			0			643,249				15,303				658,552
Residential construction																			Residential construction		135,105		128,013				5,196				3,724				3,776			12,244			56				53				288,167
Consumer																			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																			Special Mention
Owner occupied commercial real estate																			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																			Income producing commercial real estate		12,003		28,577				45,452				37,606				19,349			29,947			0				0				172,934
Commercial & industrial																			Commercial & industrial		18,804		13,050				7,400				243				1,208			293			18,944				802				60,744
Commercial construction																			Commercial construction		679		18,763				12,943				17,248				38,377			63			0				0				88,073
Equipment financing																			Equipment financing		0		0				0				0				0			0			0				0				0
Total commercial																			Total commercial		41,799		65,769				81,298				58,936				62,970			38,913			19,191				1,088				369,964
Residential mortgage																			Residential mortgage		0		0				0				0				0			0			0				0				0
HELOC																			HELOC		0		0				0				0				0			0			0				0				0
Residential construction																			Residential construction		0		0				0				0				0			0			0				0				0
Consumer																			Consumer		0		0				0				0				0			0			0				0				0
																					41,799		65,769				81,298				58,936				62,970			38,913			19,191				1,088				369,964
Substandard																			Substandard
Owner occupied commercial real estate																			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																			Income producing commercial real estate		16,656		34,733				2,681				16,799				8,718			31,744			0				90				111,421
Commercial & industrial																			Commercial & industrial		1,238		1,638				4,755				7,122				1,882			7,081			8,989				466				33,171
Commercial construction																			Commercial construction		1,035		432				712				13,496				0			2,444			0				1,005				19,124
Equipment financing																			Equipment financing		248		786				656				472				54			16			0				0				2,232
Total commercial																			Total commercial		29,738		39,225				19,989				46,339				17,525			53,552			10,289				2,082				218,739
Residential mortgage																			Residential mortgage		786		1,653				2,336				3,778				1,440			6,340			0				785				17,118
HELOC																			HELOC		0		0				0				0				0			0			68				2,261				2,329
Residential construction																			Residential construction		0		39				33				52				2			415			0				0				541
Consumer																			Consumer		0		6				42				30				41			120			0				23				262
	2020		2019		2018		2017		2016		Prior								Revolvers	Revolvers converted to term loans		Total			30,524				40,923				22,400				50,199			19,008			60,427				10,357				5,151		238,989

Owner occupied commercial real estate:
Pass	$	291,879	$	389,657	$	246,017	$	220,588	$	211,852	$	256,821	$	48,274	$	11,150	$	1,676,238
Watch	5,123		4,549		3,153		7,334		7,546		4,117		860		65		32,747
Substandard	6,314		8,441		5,970		13,842		3,063		9,438		2,259		1,305		50,632

Total owner occupied commercial real estate	303,316		402,647		255,140		241,764		222,461		270,376		51,393		12,520		1,759,617
Income producing commercial real estate:
Pass	352,274		470,496		441,607		288,448		265,489		229,116		32,460		9,620		2,089,510
Watch	7,022		12,420		14,298		2,231		17,941		3,859		—		1,777		59,548
Substandard	7,753		10,217		2,667		5,731		219		2,109		—		103		28,799

Total income producing commercial real estate	367,049		493,133		458,572		296,410		283,649		235,084		32,460		11,500		2,177,857
Commercial & industrial
Pass	1,267,194		229,358		225,334		108,145		88,314		56,600		269,416		5,660		2,250,021
Watch	1,710		2,785		2,163		592		740		47		11,374		128		19,539
Substandard	7,301		1,419		1,527		2,774		2,083		1,537		27,208		760		44,609

Total commercial & industrial	1,276,205		233,562		229,024		111,511		91,137		58,184		307,998		6,548		2,314,169
Commercial construction
Pass	173,064		222,025		279,580		132,311		90,840		16,941		11,349		7,388		933,498
Watch	538		1,054		973		104		15		248		—		—		2,932
Substandard	3,366		2,059		739		351		977		401		—		1,425		9,318

Total commercial construction	176,968		225,138		281,292		132,766		91,832		17,590		11,349		8,813		945,748
Equipment financing:
Pass	201,088		327,673		168,784		58,013		17,429		2,003		—		—		774,990
Substandard	48		1,157		1,742		570		181		61		—		—		3,759

Total equipment financing	201,136		328,830		170,526		58,583		17,610		2,064		—		—		778,749
Residential mortgage:
Pass	216,923		228,371		163,632		145,081		124,323		248,565		11		7,647		1,134,553
Substandard	1,642		1,901		3,084		1,327		801		7,945		—		408		17,108

Total residential mortgage	218,565		230,272		166,716		146,408		125,124		256,510		11		8,055		1,151,661
Home equity lines of credit
Pass	—		—		—		—		—		—		631,916		17,504		649,420
Substandard	—		—		—		—		—		—		177		4,201		4,378
Total home equity lines of credit	—		—		—		—		—		—		632,093		21,705		653,798
Residential construction
Pass	86,914		107,671		8,236		5,427		4,761		16,430		—		73		229,512
Substandard	—		92		104		30		136		357		—		—		719
Total residential construction	86,914		107,763		8,340		5,457		4,897		16,787		—		73		230,231
Consumer
Pass	30,915		37,957		21,424		8,055		5,595		3,073		12,957		78		120,054

Substandard	23		91		58		113		133		119		89		—		626
Total consumer	30,938		38,048		21,482		8,168		5,728		3,192		13,046		78		120,680

Total loans
Pass	2,620,251		2,013,208		1,554,614		966,068		808,603		829,549		1,006,383		59,120		9,857,796
Watch	14,393		20,808		20,587		10,261		26,242		8,271		12,234		1,970		114,766
Substandard	26,447		25,377		15,891		24,738		7,593		21,967		29,733		8,202		159,948
Total loans	$	2,661,091	$	2,059,393	$	1,591,092	$	1,001,067	$	842,438	$	859,787	$	1,048,350	$	69,292	$	10,132,510

Total																			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

2117

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~Based on the most recent analysis performed, the risk category of loans by class of loans as of the date indicated is as follows~~ ~~(in thousands)~~.


		As of December 31, 2019																			Term Loans by Origination Year																Revolvers	Revolvers converted to term loans	Total
		Pass		Watch		Substandard		Doubtful / Loss		Total

As of December 31, 2020												As of December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolvers				Revolvers converted to term loans				Total
Pass												Pass
Owner occupied commercial real estate	Owner occupied commercial real estate	$	1,638,398	$	24,563	$	48,720	$	—	$	1,711,681	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	Income producing commercial real estate	1,914,524		40,676		25,522		—		1,980,722		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	Commercial & industrial	1,156,366		16,385		47,580		—		1,220,331		Commercial & industrial	1,092,767		287,857		263,439		115,790		92,968		58,359		515,593				3,777				2,430,550
Commercial construction	Commercial construction	960,251		2,298		6,804		—		969,353		Commercial construction	314,154		217,643		226,308		53,708		30,812		21,985		20,278				3,947				888,835
Equipment financing	Equipment financing	737,418		—		3,141		—		740,559		Equipment financing	413,653		270,664		125,869		39,982		9,404		445		0				0				860,017
Total commercial	Total commercial	6,406,957		83,922		131,767		—		6,622,646		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	Residential mortgage	1,093,902		—		14,135		—		1,108,037		Residential mortgage	468,945		195,213		125,492		120,944		122,013		230,771		18				5,393				1,268,789
Home equity lines of credit		654,619		—		4,646		—		659,265
HELOC												HELOC	0		0		0		0		0		0		675,878				17,581				693,459
Residential construction	Residential construction	234,791		—		1,272		—		236,063		Residential construction	225,727		30,646		4,026		4,544		3,172		12,546		0				64				280,725
Consumer	Consumer	127,507		8		381		—		127,896		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
Total loans, excluding PCI loans		8,517,776		83,930		152,201		—		8,753,907

Special Mention												Special Mention
Owner occupied commercial real estate	Owner occupied commercial real estate	3,238		2,797		2,511		—		8,546		Owner occupied commercial real estate	8,759		4,088		4,221		10,025		11,138		4,728		100				0				43,059
Income producing commercial real estate	Income producing commercial real estate	19,648		6,305		1,275		—		27,228		Income producing commercial real estate	35,471		42,831		39,954		13,238		24,164		11,337		0				1,681				168,676
Commercial & industrial	Commercial & industrial	104		81		141		—		326		Commercial & industrial	1,451		16,315		2,176		630		459		17		6,464				0				27,512
Commercial construction	Commercial construction	3,628		590		2,644		—		6,862		Commercial construction	21,366		272		816		23,292		11,775		477		0				0				57,998
Equipment financing	Equipment financing	3,952		—		33		—		3,985		Equipment financing	0		0		0		0		0		0		0				0				0
Total commercial	Total commercial	30,570		9,773		6,604		—		46,947		Total commercial	67,047		63,506		47,167		47,185		47,536		16,559		6,564				1,681				297,245
Residential mortgage	Residential mortgage	8,112		—		1,467		—		9,579		Residential mortgage	0		0		0		0		0		0		0				0				0
Home equity lines of credit		1,350		—		60		—		1,410
HELOC												HELOC	0		0		0		0		0		0		0				0				0
Residential construction	Residential construction	348		—		26		—		374		Residential construction	0		0		0		0		0		0		0				0				0
Consumer	Consumer	303		—		33		—		336		Consumer	0		0		0		0		0		0		0				0				0
													67,047		63,506		47,167		47,185		47,536		16,559		6,564				1,681				297,245
Total PCI loans		40,683		9,773		8,190		—		58,646
Substandard												Substandard
Owner occupied commercial real estate												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												Income producing commercial real estate	45,125		8,940		2,179		5,034		31,211		2,652		0				97				95,238
Commercial & industrial												Commercial & industrial	1,545		5,536		6,193		1,684		1,292		1,485		22,170				593				40,498
Commercial construction												Commercial construction	2,466		735		13,741		340		1,931		250		0				1,009				20,472
Equipment financing												Equipment financing	631		1,392		1,371		306		96		17		0				0				3,813
Total commercial												Total commercial	56,353		27,076		31,080		11,081		41,283		12,877		23,698				2,373				205,821
Residential mortgage												Residential mortgage	2,049		2,106		3,174		1,369		679		5,860		0				894				16,131
HELOC												HELOC	0		0		0		0		0		0		265				3,393				3,658
Residential construction												Residential construction	106		37		54		4		124		380		0				0				705
Consumer												Consumer	0		97		49		60		78		98		0				23				405
													58,508		29,316		34,357		12,514		42,164		19,215		23,963				6,683				226,720
Total loan portfolio		$	8,558,459	$	93,703	$	160,391	$	—	$	8,812,553

Total												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, ~~2020~~2021 and December 31, ~~2019,~~2020, United had TDRs totaling ~~$50.4~~$57.3 million and ~~$54.2~~$61.6 million, ~~respectively. United allocated $881,000 and $2.51 million of allowance for TDRs as of June 30, 2020 and December 31, 2019,~~ respectively. As of June 30, ~~2020~~2021 and December 31, ~~2019, there~~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 ~~0 commitments to lend additional amounts to customers with outstanding loans that are classified as~~not considered new TDRs.

2218

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, ~~2020~~2021 and ~~2019~~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																														New TDRs
			Pre-modification Outstanding Amortized Cost			Post-Modification Outstanding Amortized Cost by Type of Modification															TDRs Modified Within the Previous Twelve Months That Have Subsequently Defaulted										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																	Three Months Ended June 30, 2021
Owner occupied commercial real estate																	Owner occupied commercial real estate			1			$	0	$	543	$	0	$	543	0	$	0
Income producing commercial real estate																	Income producing commercial real estate			1			0		0		378		378		0	0
Commercial & industrial																	Commercial & industrial			2			0		365		0		365		0	0
Commercial construction																	Commercial construction			0			0		0		0		0		0	0
Equipment financing																	Equipment financing			8			0		326		0		326		5	138
Total commercial																	Total commercial			12			0		1,234		378		1,612		5	138
Residential mortgage																	Residential mortgage			5			0		322		0		322		0	0
HELOC																	HELOC			0			0		0		0		0		1	49
Residential construction																	Residential construction			0			0		0		0		0		0	0
Consumer																	Consumer			0			0		0		0		0		0	0
Total loans																	Total loans			17			$	0	$	1,556	$	378	$	1,934	6	$	187

Six Months Ended June 30, 2021																	Six Months Ended June 30, 2021
Owner occupied commercial real estate																	Owner occupied commercial real estate			1			$	0	$	543	$	0	$	543	—	$	0
Income producing commercial real estate																	Income producing commercial real estate			3			0		0		1,697		1,697		0	0
Commercial & industrial																	Commercial & industrial			4			0		365		103		468		1	11
Commercial construction																	Commercial construction			1			0		309		0		309		0	0
Equipment financing																	Equipment financing			36			0		2,462		0		2,462		8	200
Total commercial																	Total commercial			45			0		3,679		1,800		5,479		9	211
Residential mortgage																	Residential mortgage			6			0		391		0		391		3	413
HELOC																	HELOC			0			0		0		0		0		1	49
Residential construction																	Residential construction			0			0		0		0		0		0	0
Consumer																	Consumer			0			0		0		0		0		0	0
Total loans																	Total loans			51			$	0	$	4,070	$	1,800	$	5,870	13	$	673
		Number of Contracts			Pre-modification Outstanding Amortized Cost			Rate Reduction		Structure		Other		Total	Number of Contracts				Amortized Cost
Three Months Ended June 30, 2020	Three Months Ended June 30, 2020																Three Months Ended June 30, 2020
Owner occupied commercial real estate	Owner occupied commercial real estate	2	$	836		$	—	$	—	$	546	$	546	—	$	—	Owner occupied commercial real estate			2			$	0	$	0	$	546	$	546	0	$	0
Income producing commercial real estate	Income producing commercial real estate	—	—			—		—		—		—		1	5,998		Income producing commercial real estate			0			0		0		0		0		1	5,998
Commercial & industrial	Commercial & industrial	1	15			—		—		15		15		1	627		Commercial & industrial			1			0		0		15		15		1	627
Commercial construction	Commercial construction	1	255			—		255		—		255		—	—		Commercial construction			1			0		255		0		255		0	0
Equipment financing	Equipment financing	129	3,471			—		3,471		—		3,471		6	310		Equipment financing			129			0		3,471		0		3,471		6	310
Total commercial	Total commercial	133	4,577			—		3,726		561		4,287		8	6,935		Total commercial			133			0		3,726		561		4,287		8	6,935
Residential mortgage	Residential mortgage	6	644			—		644		—		644		—	—		Residential mortgage			6			0		644		0		644		0	0
Home equity lines of credit		—	—			—		—		—		—		—	—
HELOC																	HELOC			0			0		0		0		0		0	0
Residential construction	Residential construction	—	—			—		—		—		—		—	—		Residential construction			0			0		0		0		0		0	0
Consumer	Consumer	1	7			—		—		7		7		—	—		Consumer			1			0		0		7		7		0	0

Total loans	Total loans	140	$	5,228		$	—	$	4,370	$	568	$	4,938	8	$	6,935	Total loans			140			$	0	$	4,370	$	568	$	4,938	8	$	6,935

Six Months Ended June 30, 2020	Six Months Ended June 30, 2020																Six Months Ended June 30, 2020
Owner occupied commercial real estate	Owner occupied commercial real estate	3	$	1,844		$	—	$	—	$	1,536	$	1,536	—	$	—	Owner occupied commercial real estate			3			$	0	$	0	$	1,536	$	1,536	0	$	0
Income producing commercial real estate	Income producing commercial real estate	3	235			—		67		165		232		1	5,998		Income producing commercial real estate			3			0		67		165		232		1	5,998
Commercial & industrial	Commercial & industrial	1	15			—		—		15		15		2	633		Commercial & industrial			1			0		0		15		15		2	633
Commercial construction	Commercial construction	1	255			—		255		—		255		—	—		Commercial construction			1			0		255		0		255		0	0
Equipment financing	Equipment financing	136	3,905			—		3,905		—		3,905		6	310		Equipment financing			136			0		3,905		0		3,905		6	310
Total commercial	Total commercial	144	6,254			—		4,227		1,716		5,943		9	6,941		Total commercial			144			0		4,227		1,716		5,943		9	6,941
Residential mortgage	Residential mortgage	11	946			—		922		—		922		—	—		Residential mortgage			11			0		922		0		922		0	0
Home equity lines of credit		—	—			—		—		—		—		—	—
HELOC																	HELOC			0			0		0		0		0		0	0
Residential construction	Residential construction	—	—			—		—		—		—		—	—		Residential construction			0			0		0		0		0		0	0
Consumer	Consumer	3	18			—				18		18		1	3		Consumer			3			0		0		18		18		1	3

Total loans	Total loans	158	$	7,218		$	—	$	5,149	$	1,734	$	6,883	10	$	6,944	Total loans			158			$	0	$	5,149	$	1,734	$	6,883	10	$	6,944

Three Months Ended June 30, 2019
Owner occupied commercial real estate		2	$	610		$	—	$	610	$	—	$	610	—	$	—
Income producing commercial real estate		—	—			—		—		—		—		—	—
Commercial & industrial		—	—			—		—		—		—		—	—
Commercial construction		—	—			—		—		—		—		—	—
Equipment financing		1	20			—		20		—		20		—	—
Total commercial		3	630			—		630		—		630		—	—
Residential mortgage		7	831			—		831		—		831		1	135
Home equity lines of credit		1	50			—		50		—		50		—	—
Residential construction		1	22			—		—		21		21		1	13
Consumer direct		—	—			—		—		—		—		—	—
Indirect auto		5	104			—		—		104		104		—	—
Total loans		17	$	1,637		$	—	$	1,511	$	125	$	1,636	2	$	148

Six Months Ended June 30, 2019
Owner occupied commercial real estate		2	$	610		$	—	$	610	$	—	$	610	—	$	—
Income producing commercial real estate		1	169			—		169		—		169		—	—
Commercial & industrial		1	7			—		—		7		7		—	—
Commercial construction		—	—			—		—		—		—		—	—
Equipment financing		1	20			—		20		—		20		—	—
Total commercial		5	806			—		799		7		806		—	—
Residential mortgage		9	1,176			—		1,175		—		1,175		1	135
Home equity lines of credit		1	50			—		50		—		50		—	—
Residential construction		1	22			—		—		21		21		1	13
Consumer direct		—	—			—		—		—		—		—	—
Indirect auto		11	170			—		—		161		161		—	—
Total loans		27	$	2,224		$	—	$	2,024	$	189	$	2,213	2	$	148

2319

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

As of June 30, 2020, United had granted short-term deferrals related to the COVID-19 crisis for $1.76 billion of loans that, pursuant to the CARES Act or interagency guidance, were not considered new TDRs. These short-term deferrals generally represent payment deferrals for up to 90 days. The loans continue to accrue interest and are not reported as past due during the deferral period. The table below presents short-term deferrals related to the COVID-19 crisis that were not considered new TDRs as of June 30, 2020 ~~(in thousands)~~.

June 30, 2020
COVID-19 Deferrals Deferrals as a % of total loans
Owner occupied commercial real estate $ 378,959 22 %
Income producing commercial real estate 715,650 33
Commercial & industrial 106,020 5
Commercial construction 175,463 19
Equipment financing 231,402 30
Total commercial 1,607,494 20
Residential mortgage 122,474 11
Home equity lines of credit 18,594 3
Residential construction 4,995 2
Consumer 2,923 2
Total COVID-19 deferrals $ 1,756,480 17

Allowance for Credit Losses

~~Since the adoption of ASC 326, the~~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,
		CECL																					Incurred Loss																							Three Months Ended June 30,
		2020																					2019																							2021																		2020
		Beginning Balance		Charge-Offs		Recoveries		(Release) Provision		Ending Balance		Beginning Balance		Charge-Offs		Recoveries			(Release) Provision				Ending Balance			Beginning Balance						Charge-Offs				Recoveries				(Release) Provision		Ending Balance				Beginning Balance						Charge-Offs				Recoveries				(Release) Provision		Ending Balance
Owner occupied commercial real estate	Owner occupied commercial real estate	$	11,000	$	—	$	466	$	3,126	$	14,592	$	11,874	$	—	$	58		$	(387)			$	11,545	Owner occupied commercial real estate	$	19,282					$	(1)			$	156			$	(2,145)	$	17,292			$	11,000					$	0			$	466			$	3,126	$	14,592
Income producing commercial real estate	Income producing commercial real estate	16,584		(4,589)		41		9,663		21,699		11,126		(308)		66			136				11,020		Income producing commercial real estate	34,911						(52)				213				(4,105)		30,967				16,584						(4,589)				41				9,663		21,699
Commercial & industrial	Commercial & industrial	10,831		(254)		291		(2,279)		8,589		4,895		(1,416)		275			1,554				5,308		Commercial & industrial	21,750						(857)				797				(5,276)		16,414				10,831						(254)				291				(2,279)		8,589
Commercial construction	Commercial construction	9,556		(239)		117		5,080		14,514		10,275		(1)		163			(119)				10,318		Commercial construction	10,572						(46)				339				(1,685)		9,180				9,556						(239)				117				5,080		14,514
Equipment financing	Equipment financing	14,738		(2,085)		420		7,232		20,305		6,231		(1,010)		121			1,593				6,935		Equipment financing	17,200						(1,188)				887				1,201		18,100				14,738						(2,085)				420				7,232		20,305
Residential mortgage	Residential mortgage	11,063		(50)		56		1,757		12,826		8,345		(108)		234			(181)				8,290		Residential mortgage	14,580						0				194				(3,809)		10,965				11,063						(50)				56				1,757		12,826
Home equity lines of credit		6,887		(98)		196		1,702		8,687		4,797		(29)		140			(114)				4,794
HELOC																		HELOC			6,880							(34)		146				(635)				6,357						6,887				(98)		196				1,702				8,687
Residential construction	Residential construction	816		(32)		37		1,176		1,997		2,390		(246)		47			174				2,365		Residential construction	1,362						0				33				523		1,918				816						(32)				37				1,176		1,997
Consumer	Consumer	430		(712)		286		456		460		837		(529)		239			308				855		Consumer	329						(353)				222				225		423				430						(712)				286				456		460
Indirect auto		—		—		—		—		—		872		(180)		46			36				774
Total allowance for loan losses		81,905		(8,059)		1,910		27,913		103,669		61,642		(3,827)		1,389			3,000				62,204
Allowance for unfunded commitments		6,470		—		—		5,630		12,100		3,141		—		—			250				3,391
Total allowance for credit losses		$	88,375	$	(8,059)	$	1,910	$	33,543	$	115,769	$	64,783	$	(3,827)	$	1,389		$	3,250			$	65,595
ACL - loans																		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																		ACL - unfunded commitments			8,726							—		—				2,118				10,844						6,470				—		—				5,630				12,100
Total ACL																		Total ACL			$	135,592						$	(2,531)	$	2,987			$	(13,588)			$	122,460					$	88,375			$	(8,059)	$	1,910			$	33,543			$	115,769

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


		Six Months Ended June 30,
		CECL																																Incurred Loss
		2020																																2019																															Six Months Ended June 30,
																									2021																		2020
		December 31, 2019 Balance		Adoption of CECL		January 1, 2020 Balance		Charge-Offs		Recoveries		(Release) Provision		Ending Balance		Beginning Balance		Charge- Offs		Recoveries			(Release) Provision				Ending Balance			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	Owner occupied commercial real estate	$	11,404	$	(1,616)	$	9,788	$	(6)	$	1,500	$	3,310	$	14,592	$	12,207	$	(5)	$	127		$	(784)			$	11,545	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	Income producing commercial real estate	12,306		(30)		12,276		(5,000)		182		14,241		21,699		11,073		(505)		86			366				11,020		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	Commercial & industrial	5,266		4,012		9,278		(7,815)		667		6,459		8,589		4,802		(2,935)		438			3,003				5,308		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	Commercial construction	9,668		(2,583)		7,085		(239)		258		7,410		14,514		10,337		(70)		557			(506)				10,318		Commercial construction	10,952							(224)				495				(2,043)				9,180				9,668				(2,583)		7,085						(239)				258				7,410		14,514
Equipment financing	Equipment financing	7,384		5,871		13,255		(3,948)		776		10,222		20,305		5,452		(2,434)		264			3,653				6,935		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	Residential mortgage	8,081		1,569		9,650		(334)		331		3,179		12,826		8,295		(169)		282			(118)				8,290		Residential mortgage	15,341							(215)				317				(4,478)				10,965				8,081				1,569		9,650						(334)				331				3,179		12,826
Home equity lines of credit		4,575		1,919		6,494		(118)		299		2,012		8,687		4,752		(366)		262			146				4,794
HELOC																						HELOC			8,417							(34)			219				(2,245)				6,357				4,575				1,919				6,494						(118)		299				2,012				8,687
Residential construction	Residential construction	2,504		(1,771)		733		(54)		71		1,247		1,997		2,433		(250)		73			109				2,365		Residential construction	764							(10)				103				1,061				1,918				2,504				(1,771)		733						(54)				71				1,247		1,997
Consumer	Consumer	901		(491)		410		(1,350)		517		883		460		853		(1,076)		446			632				855		Consumer	287							(824)				488				472				423				901				(491)		410						(1,350)				517				883		460
Indirect auto		—		—		—		—		—		—		—		999		(377)		84			68				774
Total allowance for credit losses - loans		62,089		6,880		68,969		(18,864)		4,601		48,963		103,669		61,203		(8,187)		2,619			6,569				62,204
Allowance for unfunded commitments		3,458		1,871		5,329		—		—		6,771		12,100		3,410		—		—			(19)				3,391
Total allowance for credit losses		$	65,547	$	8,751	$	74,298	$	(18,864)	$	4,601	$	55,734	$	115,769	$	64,613	$	(8,187)	$	2,619		$	6,550			$	65,595
ACL - loans																						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																						ACL - unfunded commitments			10,558							—			—				286				10,844				3,458				1,871				5,329						—		—				6,771				12,100
Total ACL																						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

~~As of~~At both June 30, 2021 and December 31, 2020, United used a one-year reasonable and supportable forecast period. ~~The changes in loss rates used as the basis for the estimate of~~Expected credit losses ~~during this period~~ were ~~modeled~~estimated using a regression model for each segment based on historical data from peer banks ~~and macroeconomic forecast data obtained from~~combined with a third party ~~vendor, which~~vendor’s economic forecast to predict the change in credit losses. These results were then ~~applied to~~combined with a starting value that was based on United’s recent default experience, ~~as a starting point.~~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, ~~the forecast indicated that the markets in which United operates will experience a decline in economic conditions and an increase in~~including the unemployment rate ~~over~~which has a significant impact on our models and led to the ~~next year, primarily as a result of the COVID-19 pandemic. The increase~~negative provision for loan losses in the ~~ACL compared to January 1, 2020~~second quarter and March 31, 2020 was primarily attributable to the worsening trends in the forecast at June 30, 2020 compared to the earlier forecasts used, with the primary economic forecast driver being the change in the unemployment rate.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.~~losses as the unemployment rate was rising and had the opposite effect as the unemployment rate was improving. In addition, United ~~further adjusted the economic forecast for residential mortgage loans and~~applied qualitative factors to income producing commercial real estate, owner occupied commercial real estate, equipment finance and commercial construction portfolios to ~~moderate losses in those portfolios.~~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

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.~~

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Disaggregation of Incurred Loss Impairment Methodology~~

~~The following tables represent~~SBA and were therefore excluded from the ~~recorded investment in loans by portfolio segment and the balance of the allowance assigned to each segment based on the method of evaluating the loans for impairment as of December 31, 2019~~ ~~(in thousands)~~.

Loans Outstanding Allowance for Credit Losses
Individually
evaluated
for impairment Collectively
evaluated for
impairment PCI Ending
Balance Individually
evaluated
for impairment Collectively
evaluated for
impairment PCI Ending
Balance
Owner occupied commercial real estate $ 19,233 $ 1,692,448 $ 8,546 $ 1,720,227 $ 816 $ 10,483 $ 105 $ 11,404
Income producing commercial real estate 18,134 1,962,588 27,228 2,007,950 770 11,507 29 12,306
Commercial & industrial 1,449 1,218,882 326 1,220,657 21 5,193 52 5,266
Commercial construction 3,675 965,678 6,862 976,215 55 9,613 — 9,668
Equipment financing 1,027 739,532 3,985 744,544 — 7,240 144 7,384
Residential mortgage 15,991 1,092,046 9,579 1,117,616 782 7,296 3 8,081
Home equity lines of credit 992 658,273 1,410 660,675 16 4,541 18 4,575
Residential construction 1,256 234,807 374 236,437 47 2,456 1 2,504
Consumer 214 127,682 336 128,232 5 885 11 901
Total $ 61,971 $ 8,691,936 $ 58,646 $ 8,812,553 2,512 59,214 363 62,089
Allowance for unfunded commitments — 3,458 — 3,458
Total allowance for credit losses $ 2,512 $ 62,672 $ 363 $ 65,547

~~The following table presents additional detail on loans individually evaluated for impairment under Incurred Loss by class as of December 31, 2019~~ ~~(in thousands)~~.

December 31, 2019
Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated
With no related allowance recorded:
Owner occupied commercial real estate $ 9,527 $ 8,118 $ —
Income producing commercial real estate 5,159 4,956 —
Commercial & industrial 1,144 890 —
Commercial construction 2,458 2,140 —
Equipment financing 1,027 1,027 —
Total commercial 19,315 17,131 —
Residential mortgage 7,362 6,436 —
Home equity lines of credit 1,116 861 —
Residential construction 731 626 —
Consumer 66 53 —
Total with no related allowance recorded 28,590 25,107 —
With an allowance recorded:
Owner occupied commercial real estate 11,136 11,115 816
Income producing commercial real estate 13,591 13,178 770
Commercial & industrial 559 559 21
Commercial construction 1,535 1,535 55
Equipment financing — — —
Total commercial 26,821 26,387 1,662
Residential mortgage 9,624 9,555 782
Home equity lines of credit 146 131 16
Residential construction 643 630 47
Consumer 161 161 5
Total with an allowance recorded 37,395 36,864 2,512
Total $ 65,985 $ 61,971 $ 2,512

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~The average balances of impaired loans and income recognized on impaired loans while they were considered impaired under Incurred Loss are presented below for the period indicated~~ ~~(in thousands)~~.

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Average Balance Interest Revenue
Recognized During Impairment Cash Basis Interest Revenue Received Average Balance Interest Revenue
Recognized During Impairment Cash Basis Interest Revenue Received
Owner occupied commercial real estate $ 18,737 $ 273 $ 308 $ 18,074 $ 558 $ 592
Income producing commercial real estate 13,680 186 169 13,959 379 376
Commercial & industrial 1,914 7 16 1,815 26 35
Commercial construction 3,369 41 42 2,886 75 75
Equipment financing 21 — — 11 — —
Total commercial 37,721 507 535 36,745 1,038 1,078
Residential mortgage 16,230 190 184 15,866 358 358
Home equity lines of credit 304 3 2 281 7 5
Residential construction 1,350 24 24 1,379 48 47
Consumer 181 3 3 193 7 7
Indirect auto 1,104 14 14 1,147 28 28
Total $ 56,890 $ 741 $ 762 $ 55,611 $ 1,486 $ 1,523
calculation.

~~Note 5 – Goodwill~~

Goodwill represents the premium paid for acquired companies above the net fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. At June 30, 2020 and December 31, 2019, the net carrying value of goodwill was $327 million. Goodwill is not amortized but is assessed for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment, referred to as a triggering event. Upon the occurrence of a triggering event, accounting guidance allows for an assessment of qualitative factors to determine whether it is more likely than not, or a greater than 50% likelihood, that the fair value of the entity is less than its carrying amount, including goodwill. When it is more likely than not that impairment has occurred, management is required to perform a quantitative analysis and, if necessary, adjust the carrying amount of goodwill by recording a goodwill impairment loss. During the latter part of the first quarter and the second quarter of 2020, as a result of market concerns about the potential impact of COVID-19, United’s stock price declined such that it traded below book value for much of that time period. As a result of this triggering event, management has qualitatively assessed and concluded that there is not a greater than 50% likelihood that United’s fair value is less than its carrying amount as of June 30, 2020, given the anticipated short duration of the change in macroeconomic conditions and excess of value as of the latest annual test performed as of September 30, 2019. Management will continue to monitor and assess the impact of the pandemic on the Company’s value.

Note 65 – Derivatives and Hedging Activities

~~Risk Management Objective of Using Derivatives~~

United is exposed to certain risks arising from both its business operations and economic conditions. United principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. United manages interest rate risk through a combination of pricing and term structure of deposit product offerings,The table below presents the ~~amount and duration of its investment securities portfolio and wholesale funding and, to a lesser degree, through the use~~fair value of derivative financial ~~instruments. From time to time, United enters into derivative financial~~ instruments ~~to manage interest rate risk exposures that arise from business activities that result in~~as of the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments are used to manage differences in the amount, timing, and duration of known or expected cash receipts and known or expected cash payments principally related to loans, investment securities, wholesale borrowings and deposits.

~~United has master netting agreements with the derivatives dealers with which it does business, but has elected to reflect gross assets and liabilities~~dates indicated as well as their classification on the consolidated balance ~~sheets.~~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	$	0	$	100,000	$	3,378	$	0
Cash flow hedge of trust preferred securities	20,000		0		0		20,000		0		0
Fair value hedge of brokered time deposits	10,000		0		0		20,000		0		0
Total	130,000		5,682		0		140,000		3,378		0

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		0		253,243		10,751		0
Mortgage banking - forward sales commitment	324,474		109		293		325,145		0		1,964
Bifurcated embedded derivatives	51,935		1,695		0		51,935		0		1,449
Dealer offsets to bifurcated embedded derivatives	51,935		0		3,922		51,935		0		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 ~~Chicago Mercantile Exchange (“CME”).~~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

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

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.

~~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)~~:

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

June 30, 2020 December 31, 2019
Derivative Asset Derivative Liability Derivative Asset Derivative Liability
Derivatives designated as hedging instruments:
Fair value hedge of brokered time deposits $ — $ 24 $ — $ 880
Cash flow hedge of subordinated debt 2,990 — — —
Total $ 2,990 $ 24 $ — $ 880
Derivatives not designated as hedging instruments:
Customer derivative positions $ 79,900 $ 3 $ 27,277 $ 446
Dealer offsets to customer derivative positions 3 20,266 394 6,425
Risk participations 7 21 — 12
Mortgage banking - loan commitment 11,517 — 1,970 —
Mortgage banking - forward sales commitment 17 1,847 98 86
Bifurcated embedded derivatives — 1,606 5,268 —
Dealer offsets to bifurcated embedded derivatives — 918 — 7,667
Total $ 91,444 $ 24,661 $ 35,007 $ 14,636
Total derivatives $ 94,434 $ 24,685 $ 35,007 $ 15,516
Total gross derivative instruments $ 94,434 $ 24,685 $ 35,007 $ 15,516
Less: Amounts subject to master netting agreements (313) (313) (401) (401)
Less: Cash collateral received/pledged (2,680) (21,624) — (14,933)
Net amount $ 91,441 $ 2,748 $ 34,606 $ 182
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. ~~During the second quarter~~As of June 30, 2021 and December 31, 2020 United ~~entered into 3 cash flow hedges using~~utilized interest rate caps and swaps ~~with an aggregate notional amount of $120 million~~ 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 ~~other comprehensive income.~~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 ~~$576,000~~$595,000 of losses from ~~accumulated other comprehensive income~~AOCI into earnings related to these agreements.

At December 31, 2019 United had 0 active cash flow hedges. The loss remaining in other comprehensive income from prior hedges that had previously been de-designated was being amortized into earnings over the original term of the swaps as the forecasted transactions that the swaps were originally designated to hedge were still expected to occur. During the second quarter of 2019, United amortized the remaining balance of losses on terminated hedging positions from other comprehensive income, which was the only effect of cash flow hedges on the consolidated statements of income for the three and six months ended June 30, 2019. See Note 11 for further detail.

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.

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, United had ~~3 and 4, respectively,~~ interest rate swaps ~~with an aggregate notional amount of $27.9 million and $37.9 million, respectively,~~ 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 ~~estate puts~~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).

Interest expense
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Total amounts presented in the consolidated statements of income $ 14,301 $ 21,372 $ 32,242 $ 42,254
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements on derivatives 102 (102) 27 (203)
Recognized on derivatives 120 149 1,182 600
Recognized on hedged items (9) (151) (991) (613)
Net income (expense) recognized on fair value hedges 213 (104) 218 (216)
Gains (losses) on active cash flow hedging relationships⁽¹⁾:
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income ⁽²⁾
(67) — (67) —
Net income (expense) recognized on cash flow hedges $ (67) $ — $ (67) $ —



	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⁾ ~~Excludes~~(1) Includes $118,000 and $234,000 of premium amortization expense excluded from the assessment of ~~losses related to de-designated cash flow hedges. See Note 11~~hedge effectiveness for ~~further detail.~~

⁽²⁾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, 2020 December 31, 2019
Balance Sheet Location Carrying amount of Assets (Liabilities) Hedge Accounting Basis Adjustment Carrying amount of Assets (Liabilities) Hedge Accounting Basis Adjustment
Deposits $ (26,985) $ (346) $ (35,880) $ 645


	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 ~~corridors~~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 3 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

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 ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR and therefore provide an economic hedge.

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

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. ~~United accounts for most newly originated mortgage loans at fair value pursuant to the fair value option, and these loans are not reflected in the table above.~~ 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 Derivative	Amount of Gain (Loss) Recognized in Income on Derivative																				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,								Location of Gain (Loss) Recognized in Income on Derivatives			Three Months Ended June 30,				Six Months Ended June 30,
					2020			2019			2020			2019		Location of Gain (Loss) Recognized in Income on Derivatives			2021						2021			2020

Customer derivatives and dealer offsets	Customer derivatives and dealer offsets	Other noninterest income	$	1,168		$	1,224		$	2,592		$	1,727	Customer derivatives and dealer offsets	Other noninterest income		$	162		$	1,168		$	2,059		$	2,592
Bifurcated embedded derivatives and dealer offsets	Bifurcated embedded derivatives and dealer offsets	Other noninterest income	(28)			(74)			(223)			144		Bifurcated embedded derivatives and dealer offsets	Other noninterest income				(42)			(28)			417			(223)

De-designated hedges		Other noninterest income	—			—			—			(193)

Mortgage banking derivatives	Mortgage banking derivatives	Mortgage loan revenue	929			(748)			100			(938)		Mortgage banking derivatives	Mortgage loan revenue		(3,494)			929			342			100
Risk participations	Risk participations	Other noninterest income	14			(6)			(3)			(4)		Risk participations	Other noninterest income		98			14			(107)			(3)
			$	2,083		$	396		$	2,466		$	736				$	(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 ~~derivatives~~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.

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 7 - Long-term Debt~~

~~Long-term debt consisted of the following (in thousands):~~

June 30,
2020 December 31, 2019 Issue
Date Stated
Maturity
Date Earliest
Call
Date Interest Rate
2022 senior debentures $ 50,000 $ 50,000 2015 2022 2020 5.000% through August 13, 2020, 3-month LIBOR plus 3.814% thereafter
2027 senior debentures 35,000 35,000 2015 2027 2025 5.500% through August 13, 2025, 3-month LIBOR plus 3.71% thereafter
2030 senior debentures 100,000 — 2020 2030 2025 5.00% through June 15, 2025, 3-month SOFR plus 4.87% thereafter
Total senior debentures 185,000 85,000
2028 subordinated debentures 100,000 100,000 2018 2028 2023 4.500% through January 30, 2023, 3-month LIBOR plus 2.12% thereafter
2025 subordinated debentures 11,250 11,250 2015 2025 2020 6.250%
Total subordinated debentures 111,250 111,250
Southern Bancorp Capital Trust I 4,382 4,382 2004 2034 2009 Prime + 1.00%
Tidelands Statutory Trust I 8,248 8,248 2006 2036 2011 3-month LIBOR plus 1.38%
Four Oaks Statutory Trust I 12,372 12,372 2006 2036 2011 3-month LIBOR plus 1.35%
Total trust preferred securities 25,002 25,002
Less discount (9,621) (8,588)
Total long-term debt $ 311,631 $ 212,664

~~Interest is currently paid at least semiannually for all senior and subordinated debentures and trust preferred securities.~~

~~Senior Debentures~~

During the second quarter of 2020, United issued the 2030 senior debentures. The 2030 senior debentures are redeemable, in whole or in part, on any interest payment date on or after June 15, 2025 at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest, and will mature on June 15, 2030 if not redeemed prior to that date.

The 2022 senior debentures are redeemable, in whole or in part, on or after August 14, 2020 at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest, and will mature on February 14, 2022 if not redeemed prior to that date.

The 2027 senior debentures are redeemable, in whole or in part, on or after August 14, 2025 at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest, and will mature on February 14, 2027 if not redeemed prior to that date.

~~Subordinated Debentures~~

~~The subordinated debentures qualify as Tier 2 regulatory capital.~~

~~Trust Preferred Securities~~

Trust preferred securities qualify as Tier 1 capital under risk based capital guidelines subject to certain limitations, including an acquisition-triggered asset size limitation, which United is expected to exceed in the third quarter of 2020. The trust preferred securities are mandatorily redeemable upon maturity, or upon earlier redemption as provided in the indentures.

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

Note 86 – 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.

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

~~Debt~~AFS debt securities ~~available-for-sale~~ 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 ~~mortgage-backed securities~~MBS issued by ~~government sponsored entities,~~GSEs, municipal bonds, corporate debt securities, asset-backed securities and ~~asset-backed~~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.~~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, ~~(Level 2).~~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 COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

United incorporates ~~credit valuation adjustments (“CVAs”)~~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. ~~During the second quarter of 2020, certain derivative assets were transferred from Level 2 to Level 3 of the fair value hierarchy due to a change in the assessment of significance of the CVA.~~

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.

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, 2020		Level 1		Level 2		Level 3		Total
June 30, 2021										June 30, 2021	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Debt securities available-for-sale:
AFS debt securities:										AFS debt securities:
U.S. Treasuries	U.S. Treasuries	$	128,866	$	—	$	—	$	128,866	U.S. Treasuries	$	142,080	$	0	$	0	$	142,080
U.S. Government agencies		—		2,937		—		2,937
U.S. Government agencies & GSEs										U.S. Government agencies & GSEs	0		152,624		0		152,624
State and political subdivisions	State and political subdivisions	—		230,709		—		230,709		State and political subdivisions	0		289,346		0		289,346
Residential mortgage-backed securities		—		1,212,021		—		1,212,021
Commercial mortgage-backed securities		—		261,678		—		261,678
Residential MBS										Residential MBS	0		1,977,045		0		1,977,045
Commercial MBS										Commercial MBS	0		708,208		0		708,208
Corporate bonds	Corporate bonds	—		172,476		1,000		173,476		Corporate bonds	0		150,104		1,707		151,811
Asset-backed securities	Asset-backed securities	—		115,522		—		115,522		Asset-backed securities	0		654,667		0		654,667
Equity securities with readily available fair values	Equity securities with readily available fair values	631		725		—		1,356		Equity securities with readily available fair values	1,289		1,268		0		2,557
Mortgage loans held for sale	Mortgage loans held for sale	—		99,477		—		99,477		Mortgage loans held for sale	0		98,194		0		98,194
Deferred compensation plan assets	Deferred compensation plan assets	8,070		—		—		8,070		Deferred compensation plan assets	11,008		0		0		11,008
Servicing rights for SBA/USDA loans	Servicing rights for SBA/USDA loans	—		—		6,034		6,034		Servicing rights for SBA/USDA loans	0		0		6,115		6,115
Residential mortgage servicing rights	Residential mortgage servicing rights	—		—		12,492		12,492		Residential mortgage servicing rights	0		0		21,568		21,568
Derivative financial instruments	Derivative financial instruments	—		82,327		12,107		94,434		Derivative financial instruments	0		51,600		6,889		58,489
Total assets	Total assets	$	137,567	$	2,177,872	$	31,633	$	2,347,072	Total assets	$	154,377	$	4,083,056	$	36,279	$	4,273,712

Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan liability	Deferred compensation plan liability	$	8,082	$	—	$	—	$	8,082	Deferred compensation plan liability	$	11,031	$	0	$	0	$	11,031
Derivative financial instruments	Derivative financial instruments	—		22,116		2,569		24,685		Derivative financial instruments	0		23,145		3,944		27,089
Total liabilities	Total liabilities	$	8,082	$	22,116	$	2,569	$	32,767	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	$	0	$	0	$	128,072
U.S. Government agencies & GSEs	0		152,972		0		152,972
State and political subdivisions	0		274,472		0		274,472
Residential MBS	0		1,485,585		0		1,485,585
Commercial MBS	0		549,131		0		549,131
Corporate bonds	0		70,017		1,750		71,767
Asset-backed securities	0		562,722		0		562,722
Equity securities with readily available fair values	774		913		0		1,687
Mortgage loans held for sale	0		105,433		0		105,433
Deferred compensation plan assets	9,584		0		0		9,584
Servicing rights for SBA/USDA loans	0		0		6,462		6,462
Residential mortgage servicing rights	0		0		16,216		16,216
Derivative financial instruments	0		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	$	0	$	0	$	9,590
Derivative financial instruments	0		26,595		2,408		29,003
Total liabilities	$	9,590	$	26,595	$	2,408	$	38,593

3325

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

December 31, 2019 Level 1 Level 2 Level 3 Total
Assets:
Debt securities available-for-sale
U.S. Treasuries $ 154,618 $ — $ — $ 154,618
U.S. Agencies — 3,035 — 3,035
State and political subdivisions — 226,490 — 226,490
Residential mortgage-backed securities — 1,299,025 — 1,299,025
Commercial mortgage-backed securities — 284,953 — 284,953
Corporate bonds — 202,093 998 203,091
Asset-backed securities — 103,369 — 103,369
Equity securities with readily available fair values 1,973 — — 1,973
Mortgage loans held for sale — 58,484 — 58,484
Deferred compensation plan assets 8,133 — — 8,133
Servicing rights for SBA/USDA loans — — 6,794 6,794
Residential mortgage servicing rights — — 13,565 13,565
Derivative financial instruments — 27,769 7,238 35,007
Total assets $ 164,724 $ 2,205,218 $ 28,595 $ 2,398,537
Liabilities:
Deferred compensation plan liability $ 8,132 $ — $ — $ 8,132
Derivative financial instruments — 6,957 8,559 15,516
Total liabilities $ 8,132 $ 6,957 $ 8,559 $ 23,648

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).


		2020																		2019																			2021				2020
		Derivative Assets		Derivative Liabilities		Servicing rights for SBA/USDA loans		Residential mortgage servicing rights		Debt Securities Available-for-Sale		Derivative Assets		Derivative Liabilities		Servicing rights for SBA/USDA loans		Residential mortgage servicing rights		Debt Securities Available-for-Sale			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,	Three Months Ended June 30,																									Three Months Ended June 30,
Balance at beginning of period	Balance at beginning of period	$	7,361	$	2,717	$	6,290	$	11,059	$	—	$	9,561	$	11,444	$	7,401	$	11,447	$	995	Balance at beginning of period	$	8,308	$	4,606	$	6,226	$	20,728	$	1,750	$	7,361	$	2,717	$	6,290	$	11,059	$	0

Additions	Additions	7		—		303		3,217		1,000		—		—		405		1,228		—		Additions	0		97		610		3,792		0		7		0		303		3,217		1,000
Transfers into Level 3	Transfers into Level 3	583		—		—		—		—		—		—		—		—		—		Transfers into Level 3	0		0		0		0		0		583		0		0		0		0
Sales and settlements	Sales and settlements	—		—		(34)		(682)		—		—		—		(188)		(153)		—		Sales and settlements	0		0		(453)		(1,426)		0		0		0		(34)		(682)		0
Other comprehensive income		—		—		—		—		—		—		—		—		—		—
Amounts included in OCI																						Amounts included in OCI	0		0		0		0		(43)		0		0		0		0		0
Amounts included in earnings - fair value adjustments	Amounts included in earnings - fair value adjustments	4,156		(148)		(525)		(1,102)		—		(1,817)		(2,432)		(238)		(1,843)		—		Amounts included in earnings - fair value adjustments	(1,419)		(759)		(268)		(1,526)		0		4,156		(148)		(525)		(1,102)		0
Balance at end of period	Balance at end of period	$	12,107	$	2,569	$	6,034	$	12,492	$	1,000	$	7,744	$	9,012	$	7,380	$	10,679	$	995	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,	Six Months Ended June 30,																									Six Months Ended June 30,
Balance at beginning of period	Balance at beginning of period	$	7,238	$	8,559	$	6,794	$	13,565	$	998	$	11,841	$	15,732	$	7,510	$	11,877	$	995	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	Additions	7		—		398		5,332		1,000		—		—		780		2,091		—		Additions	175		97		839		6,993		0		7		0		398		5,332		1,000
Transfers into Level 3	Transfers into Level 3	583		—		—		—		—		—		—		—		—		—		Transfers into Level 3	0		0		0		0		0		583		0		0		0		0
Sales and settlements	Sales and settlements	—		—		(341)		(1,175)		(1,000)		(1,135)		(2,330)		(551)		(303)		—		Sales and settlements	0		0		(644)		(2,555)		0		0		0		(341)		(1,175)		(1,000)
Other comprehensive income		—		—		—		—		2		—		—		—		—		—
Amounts included in OCI																						Amounts included in OCI	0		0		0		0		(43)		0		0		0		0		2
Amounts included in earnings - fair value adjustments	Amounts included in earnings - fair value adjustments	4,279		(5,990)		(817)		(5,230)		—		(2,962)		(4,390)		(359)		(2,986)		—		Amounts included in earnings - fair value adjustments	(4,065)		1,439		(542)		914		0		4,279		(5,990)		(817)		(5,230)		0
Balance at end of period	Balance at end of period	$	12,107	$	2,569	$	6,034	$	12,492	$	1,000	$	7,744	$	9,012	$	7,380	$	10,679	$	995	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

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis as of the dates indicated~~ ~~(in thousands)~~.

Weighted Average
Level 3 Assets and Liabilities Valuation Technique June 30,
2020 December 31, 2019
Unobservable Inputs
Servicing rights for SBA/USDA loans Discounted cash flow Discount rate 12.0 % 12.3 %
Prepayment rate 18.2 % 16.5 %
Residential mortgage servicing rights Discounted cash flow Discount rate 10.0 % 10.0 %
Prepayment rate 19.8 % 14.1 %
Corporate bonds Indicative bid provided by a broker Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company N/A N/A
Derivative assets - customer derivative positions Internal model Probability of default rate 36.7 % N/A
Loss given default rate 100 % N/A
Derivative assets - mortgage Internal model Pull through rate 81.2 % 83.6 %
Derivative assets and liabilities- other Dealer priced Dealer priced N/A N/A
Derivative assets and liabilities - risk participations Internal model Probable exposure rate 1.04 % 0.36 %
Probability of default rate 1.86 % 1.80 %

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, 2020 December 31, 2019
Outstanding principal balance $ 94,335 $ 56,613
Fair value 99,477 58,484


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

Amount of Gain (Loss) Recognized on
Mortgage Loans Held for Sale
Location Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Mortgage loan gains and other related fees $ 1,546 $ 569 $ 3,271 $ 875


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 ~~all~~ assets that were still held as of June 30, ~~2020~~2021 and December 31, ~~2019,~~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, 2020
Loans $ — $ — $ 12,654 $ 12,654
December 31, 2019
Loans $ — $ — $ 20,977 $ 20,977

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


	Level 1		Level 2		Level 3		Total
June 30, 2021
Loans	$	0	$	0	$	3,341	$	3,341

December 31, 2020
Loans	$	0	$	0	$	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 ~~80% of appraised~~net realizable value, which ~~considers~~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.

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, 2020
Assets:
Securities held-to-maturity $ 306,638 $ — $ 320,253 $ — $ 320,253
Loans and leases, net 10,028,841 — — 9,944,499 9,944,499
Liabilities:
Deposits 12,702,085 — 12,704,397 — 12,704,397
Long-term debt 311,631 — — 295,910 295,910
December 31, 2019
Assets:
Securities held-to-maturity $ 283,533 $ — $ 287,904 $ — $ 287,904
Loans and leases, net 8,750,464 — — 8,714,592 8,714,592
Liabilities:
Deposits 10,897,244 — 10,897,465 — 10,897,465
Long-term debt 212,664 — — 217,665 217,665

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


			Fair Value Level
	Carrying Amount		Level 1		Level 2		Level 3		Total
June 30, 2021
Assets:
HTM debt securities	$	852,404	$	0	$	861,488	$	0	$	861,488
Loans and leases, net	11,279,130		0		0		11,263,533		11,263,533

Liabilities:
Deposits	16,327,767		0		16,327,024		0		16,327,024

Long-term debt	261,919		0		0		280,049		280,049

December 31, 2020
Assets:
HTM debt securities	$	420,361	$	0	$	437,193	$	0	$	437,193
Loans and leases, net	11,233,805		0		0		11,209,717		11,209,717

Liabilities:
Deposits	15,232,358		0		15,232,274		0		15,232,274

Long-term debt	326,956		0		0		336,763		336,763

Note 97 – Common ~~and Preferred~~ 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 ~~2019,~~2020, United’s Board of Directors ~~authorized an expansion of the existing~~re-authorized a common stock repurchase ~~plan~~program to ~~authorize~~permit the repurchase of ~~its common stock~~ up to $50 ~~million.~~million of its common stock. The program is scheduled to expire on the earlier of ~~United’s~~the repurchase of ~~its~~ common stock having an aggregate purchase price of $50 million or December 31, ~~2020. Under~~2021. During the ~~program,~~three and six months ended June 30, 2021, 150,000 shares ~~may be~~were repurchased. NaN shares were repurchased induring the ~~open market or in privately negotiated transactions, from time to time, subject to market conditions.~~three months ended June 30, 2020. During the six months ended June 30, 2020, ~~and 2019,~~ 826,482 ~~and 305,052 shares, respectively, were repurchased under the program. NaN~~ shares were ~~purchased during the three months ended June 30, 2020 and 2019.~~repurchased. As of June 30, ~~2020,~~2021, United had remaining authorization to repurchase up to ~~$29.2~~$44.9 million of outstanding common stock under the program.

During the second quarter of 2020, United issued $100 million, or 4,000 shares, of Series I perpetual non-cumulative preferred stock (“Preferred Stock”) with a dividend rate of 6.875% per annum for net proceeds of $96.7 million and corresponding depositary shares each representing a 1/1,000th interest in one share of Preferred Stock. If declared, dividends will be payable quarterly in arrears beginning on September 15, 2020. The Preferred Stock has no stated maturity and redemption is solely at the option of United in whole, but not in part, upon the occurrence of a regulatory capital treatment event, as defined. In addition, the Preferred Stock may be redeemed on or after September 15, 2025 at a cash redemption price equal to $25,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends. As of June 30, 2020, the Preferred Stock had a carrying amount of $96.7 million.

Note 108 – Stock-Based Compensation

United has an equity compensation plan that allows for grants of various share-based compensation. ~~Options granted under the plan have an exercise price no less than the fair market value of the underlying stock at the date of grant.~~ The general terms of the plan include a vesting period (usually four years) with an exercisable period not to exceed ten years. Certain ~~options and~~ 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, ~~2020, 1.28 million~~2021, 884,343 additional awards could be granted under the plan.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~The following table shows stock option activity for the first six months of June 30, 2020.~~

Options Shares Weighted-
Average
Exercise Price Weighted-
Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic
Value ($000)
Outstanding at December 31, 2019 1,500 $ 27.95
Expired (1,500) 27.95
Outstanding at June 30, 2020 — — 0.00 $ —
Exercisable at June 30, 2020 — — 0.00 —

The fair value of each option is estimated on the date of grant using the Black-Scholes model. NaN stock options were granted during the six months ended June 30, 2020 and 2019. United recognized 0 compensation expense related to stock options during the six months ended June 30, 2020 and 2019.

The table below presents restricted stock unit activity for the ~~first~~ six months ofended June 30, ~~2020.~~2021.


Restricted Stock Unit Awards	Restricted Stock Unit Awards	Shares	Weighted- Average Grant- Date Fair Value		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)		Restricted Stock Unit Awards	Shares	Weighted- Average Grant- Date Fair Value		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2019		808,424	$	27.94
Outstanding at December 31, 2020								Outstanding at December 31, 2020	893,431	$	23.75
Granted	Granted	62,055	23.20					Granted	71,378	30.94
Vested	Vested	(113,748)	27.83			$	2,798	Vested	(119,680)	29.19		$	4,008
Cancelled	Cancelled	(18,754)	26.45					Cancelled	(47,231)	24.96
Outstanding at June 30, 2020		737,977	27.47		3.6	14,848
Outstanding at June 30, 2021								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

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

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, ~~2020~~2021 and ~~2019,~~2020, expense of ~~$4.04~~$2.91 million and ~~$5.83~~$4.04 million, respectively, was recognized related to restricted stock unit and performance stock unit awards granted to United employees. Of the expense related to restricted stock unit awards during the six months ended June 30, 2019, $1.38 million related to the modification of existing awards resulting from an acceleration of vesting of awards due to retirement and $740,000 related to awards granted in conjunction with an acquisition, both ofemployees, which ~~were recognized in merger-related and other charges in the consolidated statement of income. The remaining expense of $3.71 million for the six months ended June 30, 2019~~ was ~~recognized~~included in salaries and employee benefits ~~expense, as was the entire amount for the six months ended June 30, 2020.~~expense. In addition, for the six months ended June 30, 2021 and 2020, $235,000 and ~~2019,~~ $217,000, ~~and $169,000,~~ respectively, was recognized in other ~~operating~~ 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 ~~$1.09 million~~$802,000 and ~~$1.53~~$1.09 million was included in the determination of income tax expense for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. As of June 30, ~~2020,~~2021, there was ~~$11.4~~$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 ~~2.2~~2.3 years. ~~As of June 30, 2020, there was 0 unrecognized expense related to non-vested stock options granted under the plan.~~

~~Note 11 – Reclassifications Out of Accumulated Other Comprehensive Income~~

~~The following table presents the details regarding amounts reclassified out of accumulated other comprehensive income for the periods indicated~~ ~~(in thousands)~~.

Details about Accumulated Other Comprehensive Income Components Three Months Ended
June 30, Six Months Ended
June 30, Affected Line Item in the Statement Where Net Income is Presented
2020 2019 2020 2019
Realized (gains) losses on available-for-sale securities:
$ — $ 149 $ — $ (118) Securities (gains) losses, net
— (38) — 30 Income tax (expense) benefit
$ — $ 111 $ — $ (88) Net of tax
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity:
$ (96) $ (93) $ (179) $ (177) Investment securities interest revenue
23 22 43 42 Income tax benefit
$ (73) $ (71) $ (136) $ (135) Net of tax
Reclassifications related to derivative financial instruments accounted for as cash flow hedges:
Interest rate contracts $ (67) $ — $ (67) $ — Long-term debt interest expense
Amortization of losses on
de-designated positions — — — (102) Deposit interest expense
Amortization of losses on
de-designated positions — (235) — (235) Other expense
(67) (235) (67) (337) Total before tax
17 60 17 86 Income tax benefit
$ (50) $ (175) $ (50) $ (251) Net of tax
Reclassifications related to defined benefit pension plan activity:
Prior service cost $ (132) $ (159) $ (265) $ (318) Salaries and employee benefits expense
Actuarial losses (82) (14) (163) (29) Other expense
(214) (173) (428) (347) Total before tax
55 44 109 88 Income tax benefit
$ (159) $ (129) $ (319) $ (259) Net of tax
Total reclassifications for the period $ (282) $ (264) $ (505) $ (733) Net of tax

~~Amounts shown above in parentheses reduce earnings.~~

3829

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	$	0	$	41	$	0	Securities gains, net
	(14)		0		(14)		0		Income tax expense
	$	27	$	0	$	27	$	0	Net of tax

Amortization of losses included in net income on AFS securities transferred to HTM:
	$	0	$	(96)	$	0	$	(179)	Investment securities interest revenue
	0		23		0		43		Income tax benefit
	$	0	$	(73)	$	0	$	(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 1210 – 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,
2020 2019 2020 2019
Net income $ 25,096 $ 44,085 $ 56,980 $ 88,347
Dividends and undistributed earnings allocated to unvested shares (183) (316) (426) (631)
Net income available to common shareholders $ 24,913 $ 43,769 $ 56,554 $ 87,716
Weighted average shares outstanding:
Basic 78,920 79,673 79,130 79,739
Effect of dilutive securities
Stock options — 1 — 2
Restricted stock units 4 4 56 4
Diluted 78,924 79,678 79,186 79,745
Net income per common share:
Basic $ 0.32 $ 0.55 $ 0.71 $ 1.10
Diluted $ 0.32 $ 0.55 $ 0.71 $ 1.10


	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)		0		(3,438)		0
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

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

At June 30, 2021, United had 0 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 ~~restricted~~restrictive stock ~~unit awards.~~units.

At June 30, 2019, United excluded 1,000 potentially dilutive shares of common stock issuable upon exercise of stock options with a weighted average exercise price of $30.45 from the computation of diluted earnings per share because of their antidilutive effect.

Note 1311 – Regulatory Matters

As of June 30, ~~2020,~~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, ~~2020,~~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, ~~2020,~~2021, and there have been no conditions or events since ~~year-end~~quarter-end that would change the status of well-capitalized.

Pursuant to the CARES Act, United has adopted relief provided by federal banking regulatory agencies for the delay of the adverse capital impact of CECL at adoption and during the subsequent two-year period after adoption. This optional two-year delay is followed by an optional three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. Under the transition provision, the amount of aggregate capital benefit is phased out by 25% each year with the full impact of adoption completely recognized by the beginning of the sixth year.

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

Regulatory capital ratios at June 30, ~~2020~~2021 and December 31, ~~2019,~~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):


		Basel III Guidelines							United Community Banks, Inc. (Consolidated)										United Community Bank														United Community Banks, Inc. (Consolidated)			United Community Bank
		Minimum ⁽¹⁾		Well Capitalized		June 30, 2020			December 31, 2019			June 30, 2020			December 31, 2019					Minimum (1)		Well- Capitalized		June 30, 2021			December 31, 2020			June 30, 2021			December 31, 2020
Risk-based ratios:	Risk-based ratios:																	Risk-based ratios:
Common equity tier 1 capital		4.5	%	6.5	%	12.85		%	12.97		%	13.70		%	14.87		%
CET1 capital																		CET1 capital		4.5	%	6.5	%	12.59		%	12.31		%	13.21		%	13.31		%
Tier 1 capital	Tier 1 capital	6.0		8.0		14.05			13.21			13.70			14.87			Tier 1 capital		6.0		8.0		13.34			13.10			13.21			13.31
Total capital	Total capital	8.0		10.0		16.07			15.01			14.63			15.54			Total capital		8.0		10.0		15.09			15.15			14.03			14.28
Leverage ratio	Leverage ratio	4.0		5.0		10.31			10.34			10.05			11.63			Leverage ratio		4.0		5.0		9.26			9.28			9.16			9.42

Common equity tier 1 capital						$	1,300,627		$	1,275,148		$	1,382,891		$	1,458,720
CET1 capital																		CET1 capital						$	1,604,725		$	1,506,750		$	1,679,004		$	1,625,292
Tier 1 capital	Tier 1 capital					1,421,537			1,299,398			1,382,891			1,458,720			Tier 1 capital						1,701,147			1,603,172			1,679,004			1,625,292
Total capital	Total capital					1,625,967			1,476,302			1,475,970			1,524,267			Total capital						1,924,680			1,854,368			1,782,537			1,743,045
Risk-weighted assets	Risk-weighted assets					10,118,998			9,834,051			10,091,674			9,810,477			Risk-weighted assets						12,750,755			12,240,440			12,705,960			12,207,940
Average total assets for the leverage ratio	Average total assets for the leverage ratio					13,784,914			12,568,563			13,755,117			12,545,254			Average total assets for the leverage ratio						18,369,878			17,276,853			18,334,952			17,246,878

⁽¹⁾As of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 the additional capital conservation buffer in effect was 2.50%

Note 1412 – 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, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Financial instruments whose contract amounts represent credit risk:	Financial instruments whose contract amounts represent credit risk:					Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	Commitments to extend credit	$	2,291,128	$	2,126,275	Commitments to extend credit	$	3,259,470	$	3,052,657
Letters of credit	Letters of credit	26,554		22,533		Letters of credit	27,674		31,748

United holds minor investments in certain limited partnerships for Community Reinvestment Act purposes. As of June 30, ~~2020,~~2021, United had committed to fund an additional ~~$10.1~~$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

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 1513 – Acquisitions

~~Acquisition of Three Shores Bancorporation, Inc.~~

Subsequent to quarter-end, on July ~~1, 2020,~~6, 2021, United completed ~~its previously announced~~the acquisition of ~~Three Shores Bancorporation, Inc. (“Three Shores”), including~~FinTrust Capital Partners, LLC, and its ~~wholly-owned subsidiary, Seaside National Bank & Trust (“Seaside”),~~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 ~~Orlando, Florida. Seaside operated a 14 branch network located~~Greenville, South Carolina, with additional locations in ~~key Florida metropolitan~~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, ~~2020, Three Shores~~2021, FinTrust had ~~total~~ assets under management of ~~$2.16~~$2.09 billion ~~loans of $1.47 billion~~across its advisory, retirement planning and ~~deposits of $1.79 billion. Seaside has merged into the Bank, but will operate under the brand name Seaside Bank and Trust.~~

~~UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

brokerage businesses.

Under the terms of the merger agreement, ~~Three Shores~~FinTrust shareholders received ~~$188~~$22.0 million in total consideration, of which ~~$164~~$4.40 million was United common stock, ~~and $24.1~~$9.90 million was ~~cash.~~cash and $7.70 million was contingent consideration. United issued ~~8.13 million~~132,299 shares of common stock to ~~Three Shores~~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.

~~Acquisition of First Madison Bank and Trust~~

On May ~~1, 2019,~~27, 2021, United ~~completed~~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 9 branches primarily located in the ~~acquisition~~Charlotte metropolitan area in addition to locations in Wilmington and Raleigh, North Carolina, as well as Greenville and Charleston, South Carolina. As of First Madison Bank & Trust (“FMBT”). Information related to the fair value of assets acquired and liabilities assumed is included in United’s 2019 10-K. The following table discloses the impact of the acquisition of FMBT since the acquisition date through June 30, ~~2019,~~2021, Aquesta reported total assets of $736 million, total loans of $524 million and ~~certain pro forma information as if FMBT had been acquired on January 1, 2018. These results combine~~total deposits of $641 million. The merger, which is subject to regulatory approval, the ~~historical results~~approval of ~~FMBT with United’s consolidated statement of income and, while adjustments were made for the estimated impact of certain fair value adjustments~~Aquesta shareholders, and other ~~acquisition-related activity, they are not necessarily indicative~~customary conditions, is expected to close in the fourth quarter of ~~what would have occurred had~~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 ~~acquisitions taken place~~Nashville area, as well as branches in ~~earlier years.~~

~~Merger-related costs from~~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 ~~FMBT acquisition~~approval of ~~$924,000~~Reliant shareholders, and ~~$1.02 million, respectively, have been excluded from~~other customary conditions, is expected to close in the ~~three and six months 2019 pro forma information presented below. The actual results and pro forma information were as follows~~ ~~(in thousands)~~:

Three Months Ended
June 30, Six Months Ended
June 30,
Revenue Net Income Revenue Net Income
2019
Actual FMBT results included in statement of income since acquisition date $ 2,327 $ 1,187 $ 2,327 $ 1,187
Supplemental consolidated pro forma as if FMBT had been acquired January 1, 2018 139,489 43,913 275,991 89,504
first quarter of 2022.

Note 1614 - Subsequent Events

OnEffective 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, ~~2020, United’s Board~~2021, United repurchased 309,599 shares of Directors approved a regular quarterly cash dividend of $0.18 per common share and a preferred stock dividend of $453.559 per preferred share (equivalent to $0.453559 per depositary share, or 1/1000 interest per share). The common stock ~~dividend is payable October 5, 2020, to shareholders of record on September 15, 2020. The preferred~~for $9.00 million in accordance with its common stock ~~dividend is payable September 15, 2020 to shareholders of record on August 31, 2020.~~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, ~~2020~~2021 and December 31, ~~2019~~2020 and our results of operations for the three and six months ended June 30, ~~2020~~2021 and ~~June 30, 2019.~~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. Unless the context otherwise requires, the terms “we,” “our,” “us” or “United” refer to United Community Banks, Inc. and its direct and indirect subsidiaries, including United Community Bank, which we sometimes refer to as “the Bank,” “our bank subsidiary” or “our bank.” References to the “Holding Company” refer to United Community Banks, Inc. on an unconsolidated basis. 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 ~~Quarterly~~ Report, ~~on Form 10-Q,~~ “Cautionary Note Regarding Forward-Looking Statements” and the risk factors discussed in our ~~Annual Report on Form~~2020 10-K, ~~for the fiscal year ended December 31, 2019 (the “2019 10-K”), as supplemented by those incorporated by reference in Part II, Item 1A of this Quarterly Report on Form 10-Q,~~ and the other reports we have filed with the SEC after we filed the ~~2019~~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 ~~149-branch~~162 branch network throughout Georgia, South Carolina, North Carolina, Tennessee and ~~Tennessee.~~Florida. We have grown organically as well as through strategic acquisitions. ~~On May 1, 2019,~~At June 30, 2021, we ~~acquired First Madison Bank & Trust (“FMBT”), which operated four branches in the Athens-Clarke County, Georgia MSA. We acquired $245 million~~had consolidated total assets of ~~assets~~$18.9 billion and ~~assumed $213 million of liabilities in the acquisition. Also, subsequent to quarter-end, on~~2,440 full-time equivalent employees.

Recent Developments

Mergers and Acquisitions

•On July 1, 2020, we ~~completed the previously announced acquisition of~~acquired Three Shores ~~Bancorporation, Inc. (“Three Shores”)~~ including its wholly-owned banking subsidiary, Seaside, ~~National Bank & Trust (“Seaside”)~~ headquartered in Orlando, Florida. Seaside iswas a premier commercial lender with a strong wealth management platform and ~~operates~~operated a ~~14 branch~~14-branch network located in key Florida metropolitan markets. AsWe acquired $2.13 billion of ~~June 30, 2020, Three Shores had total~~ assets and assumed $1.99 billion of ~~$2.16 billion, loans of $1.47 billion and deposits of $1.79 billion. Three Shores and Seaside will be included in our financial results beginning July 1, 2020.~~

~~Recent Developments~~

During the first six months of 2020, global financial markets experienced significant volatility resulting from the spread of a novel coronavirus known as COVID-19. In March of 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has materially restricted the level of economic activity in our markets. In response to the pandemic, the governments of the states in which we have branches and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. These measures have dramatically increased unemploymentliabilities in the ~~United States and have negatively impacted many businesses, and thereby threatened the repayment ability of some of our borrowers.~~

acquisition.

To address the economic impact in the United States, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act included a number of provisions that affected us, including accounting relief for troubled debt restructurings (“TDRs”) and relief for the effect of current expected credit losses accounting standard (“CECL”) implementation on regulatory capital. The CARES Act also established the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”), which allowed us to lend money to small businesses to maintain employee payrolls through the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls and meet certain other requirements.

~~The Federal Reserve also took additional steps to bolster the economy by, among other things, reducing the federal funds rate and the discount-window borrowing rate to near zero.~~

~~In response to the pandemic, we have implemented protocols and processes to help protect our employees, customers and communities. These measures have included:~~

•~~Operating~~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 ~~branches~~Advisory Services division. As of June 30, 2021, FinTrust had assets under ~~a drive-through model with appointment-only lobby service, leveraging our business continuity plans~~management of $2.09 billion across its advisory, retirement planning and ~~capabilities that include critical operations teams being divided and dispersed to separate locations and, when possible, having employees work from home.~~brokerage businesses.

•~~Offering~~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 ~~the COVID-19 pandemic, which includes~~its economic effects, through payment deferrals ~~waiving certain fees, suspending property foreclosures,~~ and ~~participating~~participation in the CARES Act and ~~lending programs for businesses, including the SBA PPP.~~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.

•~~Temporarily suspending common stock repurchases to maximize capital and liquidity resources.~~

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•~~Issuing $100 million of non-cumulative perpetual preferred stock~~Other

Effective July 1, 2021, the Bank moved its headquarters from Blairsville, Georgia to Greenville, South Carolina and ~~$100 million of senior debentures~~became a South Carolina state-chartered bank subject to ~~ensure our capital ratios~~examination and ~~liquidity remain strong throughout the rapidly changing economic conditions.~~

~~In connection with reviewing our financial condition in light~~reporting requirements of the ~~pandemic, we evaluated certain assets, including goodwill~~South Carolina Board of Financial Institutions. Prior to that, the Bank was a Georgia state-chartered bank subject to examination and ~~other intangibles, for potential impairment. Based upon our review as~~reporting requirements of ~~June 30, 2020, no impairments have occurred. We have also~~the Georgia Department of Banking and Finance. Also effective July 1, 2021, the Holding Company, which remains headquartered in Blairsville, Georgia, elected to ~~delay for two years the phase-in~~become a financial holding company, which allows us to engage in a broader range of ~~the capital impact from our adoption~~financial activities. Neither of ~~the new accounting standard on credit losses. For more information, see Capital Resources and Dividends.~~

We have implemented various consumer and commercial loan modification programs to provide our borrowers relief from the economic impacts of COVID-19. Based on guidance in the CARES Act, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from TDR classification under accounting principles generally accepted in the United States of America (“GAAP”). In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., payment deferrals of six months or less) granted to loans that were current as of the loan modification program implementation date are not new TDRs. For more information, see Note 4 - Loans and Leases and Allowance for Credit Losses to the consolidated financial statements.

~~Given the unprecedented uncertainty and rapidly evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect~~these changes had a material impact on our ~~business, results~~operations.

Results of operations and financial condition are highly uncertain. Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued adverse effect on our business and results of operations, which could include, but not be limited to: decreased demand for our products and services, protracted periods of lower interest rates, increased noninterest expenses, including operational losses, and increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining asset and collateral values, which may continue to increase our provision for credit losses and net charge-offs.Operations

~~LIBOR and Other Benchmark Rates~~

As previously disclosed, to facilitate an orderly transition from Interbank Offered Rates (“IBORs”) and other benchmark rates to alternative reference rates (“ARRs”), we have established an enterprise-wide program to identify, assess and monitor risks associated with the expected discontinuation or unavailability of benchmarks, including the London InterBank Offered Rate (“LIBOR”). As part of this program, we continue to identify, assess and monitor risks associated with the expected discontinuation or unavailability of LIBOR and other benchmarks, and evaluate and address documentation and contractual mechanics of outstanding IBOR-based products and contracts that mature after 2021 and new and potential future ARR-based products and contracts to achieve operational readiness. This program includes active involvement of senior management and regular reports to the Enterprise Risk Committee. The program is structured to address the industry and regulatory engagement, client and financial contract changes, internal and external communications, technology and operations modifications, introduction of new products, migration of existing clients, and program strategy and governance. As the markets for ARRs continue to grow, we continue to monitor the development and usage of ARRs, including the Secured Overnight Financing Rate (“SOFR”). Additionally, any prolonged economic and market disruptions resulting from COVID-19 may have an adverse impact on the market and industry transition to ARRs, including the readiness of other market participants and third-party vendors, and our engagement with impacted clients and their operational readiness to transition to ARRs. For more information on the expected replacement of LIBOR and other benchmark rates, see Item 1A. Risk Factors – Market Risks of the 2019 10-K.

~~Financial Highlights~~

~~At June 30, 2020, we had total consolidated assets of $15.0 billion, total loans of $10.1 billion, total deposits of $12.7 billion, and shareholders’ equity of $1.77 billion.~~ We reported net income and diluted earnings per common share of ~~$25.1~~$70.3 million ~~or $0.32 per diluted share,~~and $0.78, respectively, for the second quarter of ~~2020,~~2021 compared to $25.1 million and $0.32, respectively, for the same period in 2020. Operating net income ~~of $44.1~~(non-GAAP), which excludes merger-related and other charges, was $71.1 million ~~or $0.55 per diluted share,~~ for the second quarter of ~~2019. For~~2021, compared to $25.4 million for the ~~six months ended June 30, 2020, we reported~~same period in 2020. The increase in net income and operating net income was driven by increased net interest revenue and a release of ~~$57.0 million, or $0.71 per diluted share, compared to $88.3 million, or $1.10 per diluted share,~~provision for credit losses partly offset by a decrease in noninterest income and an increase in noninterest expense during the ~~first six months~~second quarter of ~~2019.~~

2021.

Net interest revenue ~~decreased~~increased to $138 million for the second quarter of 2021, compared to $109 million for the second quarter of 2020, ~~compared~~due to ~~$118 million for~~several factors including loan growth, much of which resulted from the ~~second quarter~~addition of ~~2019.~~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 ~~3.42%~~3.19% for the three months ended June 30, ~~2020~~2021 from ~~4.12%~~3.42% for the same period in ~~2019. For the six months ended June 30,~~ 2020 net interest revenue was $228 million and the net interest margin was 3.73% compared to net interest revenue of $233 million and net interest margin of 4.11% for the same period in 2019. The decreases in net interest revenue and net interest margin were primarily due to the effect of falling interest rates on our asset sensitive balance sheet ~~which more than offset~~and a change in the ~~positive impact~~composition of ~~continued growth of~~interest-earning assets as we strategically increased our ~~loan~~securities portfolio ~~and the reduction of borrowed funds since June 30, 2019.~~to deploy excess liquidity from strong deposit growth.

~~The~~We recorded a negative provision for credit losses ~~was $33.5~~of $13.6 million for the second quarter of ~~2020,~~2021, compared to ~~$3.25~~$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 ~~2019. For the six months ended June 30, 2020, the provision for credit losses~~2021 was $55.7 million, compared to $6.55 million for the same period in 2019. The increase in provision expense for the second quarter and first six months of 2020 reflected higher expected losses resulting primarily from the adoption of CECL and the macroeconomic effects of the COVID-19 pandemic on our CECL

~~calculation. As a result, as of June 30, 2020, our allowance for credit losses (“ACL”) on loans was $104~~down $4.40 million, or 1.02% of loans, compared to $62.1 million, or 0.70% of loans, at December 31, 2019. Net charge-offs for the second quarter of 2020 were $6.15 million compared to $2.44 million for the same period in 2019. The increase in charge-offs for the quarter was mostly attributable to a few large credits that have been deteriorating over the past several quarters. At June 30, 2020 and December 31, 2019, nonperforming assets of $48.5 million and $35.8 million, respectively, were 0.32% and 0.28% of total assets, respectively.

~~Noninterest income of $40.2 million for the second quarter of 2020 was up $15.7 million, or 64%~~11%, from the second quarter of ~~2019. The increase was primarily attributable to an increase in mortgage origination activity which resulted in a $18.3 million increase in mortgage fees. We closed $562 million in~~2020. Gains on sales of mortgage loans inand related fees drove most of the second quarter of 2020 compared with $260 million a year ago. These increases were partially offset by decreases in service charges and fees driven mostly by a reduction in overdraft transaction volume. For the first six months of 2020, total noninterest income was up $20.6decrease, down $12.5 million compared to the same period of ~~2019 mostly~~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 ~~same factors affecting the quarter.~~addition of Three Shores’ wealth management business.

For the second quarter ~~and first six months~~ of ~~2020,~~2021, noninterest expenses of ~~$84.0~~$95.5 million ~~and $166~~increased $11.6 million, ~~respectively, increased $2.17 million and $7.62 million, respectively, from~~or 14%, compared to the same ~~periods~~period of ~~2019.~~2020. The ~~increases were~~increase was primarily attributable to ~~increases~~a $7.60 million increase in salaries and employee benefits, ~~professional fees, and advertising and public relations partially offset by decreases in merger-related and other charges. Increases in salaries and employee benefits were~~which was driven by several factors, including the inclusion of Three Shores employees, higher mortgage commissions, incentives and ~~incentives~~bonus accruals as a result of ~~increased mortgage~~strong production ~~annual merit-based salary increases awarded~~ during the ~~second quarter~~period and annual merit increases effective in April of 2021.

For the six months ended June 30, 2021 and 2020, ~~increased overtime wages~~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 ~~connection with~~2020. Results of operations for the ~~processing of PPP loans during~~six months ended June 30, 2021 were largely driven by the ~~second quarter of 2020, and investments in new staff for key areas of~~same factors affecting the bank. The increase in professional fees was primarily a result of increased legal and consulting fees related to various projects in process. The increase in advertising and public relations expense was primarily attributable to a $1.00 million contribution to our private foundation, United Community Bank Foundation, made during the second quarter of 2020. The decrease in merger-related and other charges was a result of elevated merger-related costs during the second quarter and ~~first six months~~are discussed in further detail throughout the following sections of ~~2019 due to the completion of the acquisition of FMBT on May 1, 2019.~~MD&A.

Critical Accounting Policies

Our accounting and reporting policies are in accordance with ~~accounting principles generally accepted in the United States (“GAAP”)~~GAAP and conform to general practices within the banking industry. ~~Except as described below, there~~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 ~~the Critical Accounting Policies as described in~~ our ~~2019 10-K.~~

~~Allowance for Credit Losses~~

Since the adoption of CECL on January 1, 2020, the allowance for credit losses represents management’s estimate of credit losses for the remaining estimated life of financial instruments, with particular applicability on our balance sheet to loans and unfunded loan commitments. Estimating the amount of the allowance for credit losses requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Loan losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

There are many factors affecting the allowance for credit losses; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

Additional information on the loan portfolio and allowance for credit losses can be found in the sections of Management’s Discussion and Analysis titled “Asset Quality and Risk Elements” and “Nonperforming Assets.” Note 1 to the consolidated financial statements includes additional information oncritical accounting policies ~~related to the allowance for credit losses.~~in 2021.

4434

Non-GAAP Reconciliation and Explanation

This ~~Form 10-Q~~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~~Audit Committee of our Board ~~of Directors~~ 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 ~~Management’s Discussion and Analysis.~~

~~Results of Operations~~

We reported net income and diluted earnings per common share of $25.1 million and $0.32, respectively, for the second quarter of 2020. This compared to net income and diluted earnings per common share of $44.1 million and $0.55, respectively, for the same period in 2019. For the six months ended June 30, 2020, we reported net income and diluted earnings per share of $57.0 million and $0.71, respectively, compared to net income and diluted earnings per share of $88.3 million and $1.10, respectively, for the same period in 2019.

We reported net income - operating (non-GAAP) of $25.4 million and $57.9 million for the second quarter and first six months of 2020, compared to $47.2 million and $92.1 million for the same periods in 2019. For the second quarter and first six months of 2020, net income - operating (non-GAAP) excludes merger-related and branch closure charges, which net of tax, totaled $310,000 and $936,000, respectively. For the second quarter and first six months of 2019, net income - operating (non-GAAP) excludes merger-related and branch closure charges and executive retirement charges, which net of tax, totaled $3.15 million and $3.71 million, respectively.MD&A.

4535


UNITED COMMUNITY BANKS, INC.	UNITED COMMUNITY BANKS, INC.																										UNITED COMMUNITY BANKS, INC.
Table 1 - Financial Highlights	Table 1 - Financial Highlights																										Table 1 - Financial Highlights
Selected Financial Information	Selected Financial Information																										Selected Financial Information
(in thousands, except per share data)																											(in thousands, except per share data)
		2020									2019														2nd Quarter 2020 - 2019 Change			For the Six Months Ended June 30,										YTD 2020 - 2019 Change				2021						2020									Second Quarter 2021 - 2020 Change	For the Six Months Ended June 30,	YTD Change
(in thousands, except per share data)		Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter					2020			2019						YTD 2020 - 2019 Change
																														Second Quarter		First Quarter			Fourth Quarter					Third Quarter			Second Quarter			Second Quarter 2021 - 2020 Change			2021			2020			YTD Change
INCOME SUMMARY	INCOME SUMMARY																										INCOME SUMMARY
Interest revenue	Interest revenue	$	123,605		$	136,547		$	136,419		$	140,615		$	139,156				$	260,152		$	275,672				Interest revenue		$	145,809		$	141,542		$	156,071			$	141,773		$	123,605					$	287,351		$	260,152
Interest expense	Interest expense	14,301			17,941			19,781			21,277			21,372					32,242			42,254					Interest expense		7,433			9,478			10,676				13,319			14,301						16,911			32,242
Net interest revenue	Net interest revenue	109,304			118,606			116,638			119,338			117,784			(7)	%	227,910			233,418			(2)	%	Net interest revenue		138,376			132,064			145,395				128,454			109,304			27		%		270,440			227,910			19	%
Provision for credit losses		33,543			22,191			3,500			3,100			3,250					55,734			6,550			751
(Release of) provision for credit losses																											(Release of) provision for credit losses		(13,588)			(12,281)			2,907				21,793			33,543						(25,869)			55,734
Noninterest income	Noninterest income	40,238			25,814			30,183			29,031			24,531			64		66,052			45,499			45		Noninterest income		35,841			44,705			41,375				48,682			40,238			(11)			80,546			66,052			22
Total revenue	Total revenue	115,999			122,229			143,321			145,269			139,065			(17)		238,228			272,367			(13)		Total revenue		187,805			189,050			183,863				155,343			115,999			62			376,855			238,228			58
Expenses	Expenses	83,980			81,538			81,424			82,924			81,813			3		165,518			157,897			5		Expenses		95,540			95,194			106,490				95,981			83,980			14			190,734			165,518			15
Income before income tax expense	Income before income tax expense	32,019			40,691			61,897			62,345			57,252			(44)		72,710			114,470			(36)		Income before income tax expense		92,265			93,856			77,373				59,362			32,019			188			186,121			72,710			156
Income tax expense	Income tax expense	6,923			8,807			12,885			13,983			13,167			(47)		15,730			26,123			(40)		Income tax expense		22,005			20,150			17,871				11,755			6,923			218			42,155			15,730			168
Net income	Net income	25,096			31,884			49,012			48,362			44,085			(43)		56,980			88,347			(36)		Net income		70,260			73,706			59,502				47,607			25,096			180			143,966			56,980			153
Merger-related and other charges	Merger-related and other charges	397			808			(74)			2,605			4,087					1,205			4,826					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	Income tax benefit of merger-related and other charges	(87)			(182)			17			(600)			(940)					(269)			(1,112)					Income tax benefit of merger-related and other charges		(246)			(335)			(552)				(519)			(87)						(581)			(269)

Net income - operating ⁽¹⁾	Net income - operating ⁽¹⁾	$	25,406		$	32,510		$	48,955		$	50,367		$	47,232		(46)		$	57,916		$	92,061		(37)		Net income - operating (1)		$	71,092		$	74,914		$	61,402			$	50,449		$	25,406		180			$	146,006		$	57,916		152

PERFORMANCE MEASURES	PERFORMANCE MEASURES																										PERFORMANCE MEASURES
Per common share:	Per common share:																										Per common share:
Diluted net income - GAAP	Diluted net income - GAAP	$	0.32		$	0.40		$	0.61		$	0.60		$	0.55		(42)		$	0.71		$	1.10		(35)		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⁾	Diluted net income - operating ⁽¹⁾	0.32			0.41			0.61			0.63			0.59			(46)		0.73			1.15			(37)		Diluted net income - operating (1)		0.79			0.83			0.68				0.55			0.32			147			1.62			0.73			122
Cash dividends declared	Cash dividends declared	0.18			0.18			0.18			0.17			0.17			6		0.36			0.33			9		Cash dividends declared		0.19			0.19			0.18				0.18			0.18			6			0.38			0.36			6
Book value	Book value	21.22			20.80			20.53			20.16			19.65			8		21.22			19.65			8		Book value		22.81			22.15			21.90				21.45			21.22			7			22.81			21.22			7
Tangible book value ⁽³⁾	Tangible book value ⁽³⁾	16.95			16.52			16.28			15.90			15.38			10		16.95			15.38			10		Tangible book value (3)		18.49			17.83			17.56				17.09			16.95			9			18.49			16.95			9
Key performance ratios:	Key performance ratios:																										Key performance ratios:
Return on common equity - GAAP ⁽²⁾⁽⁴⁾	Return on common equity - GAAP ⁽²⁾⁽⁴⁾	6.17		%	7.85		%	12.07		%	12.16		%	11.45		%			7.01		%	11.65		%			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)	Return on common equity - operating ^(1)(2)(4)	6.25			8.01			12.06			12.67			12.27					7.13			12.14					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)	Return on tangible common equity - operating^(1)(2)(3)(4)	8.09			10.57			15.49			16.38			15.88					9.20			15.67					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⁾	Return on assets - GAAP ⁽⁴⁾	0.71			0.99			1.50			1.51			1.40					0.85			1.42					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⁾	Return on assets - operating ⁽¹⁾⁽⁴⁾	0.72			1.01			1.50			1.58			1.50					0.86			1.48					Return on assets - operating (1)(4)		1.48			1.65			1.34				1.14			0.72						1.56			0.86
Dividend payout ratio - GAAP	Dividend payout ratio - GAAP	56.25			45.00			29.51			28.33			30.91					50.70			30.00					Dividend payout ratio - GAAP		24.36			23.17			27.27				34.62			56.25						23.75			50.70
Dividend payout ratio - operating ⁽¹⁾	Dividend payout ratio - operating ⁽¹⁾	56.25			43.90			29.51			26.98			28.81					49.32			28.70					Dividend payout ratio - operating (1)		24.05			22.89			26.47				32.73			56.25						23.46			49.32
Net interest margin (fully taxable equivalent) ⁽⁴⁾		3.42			4.07			3.93			4.12			4.12					3.73			4.11
Net interest margin (FTE) (4)																											Net interest margin (FTE) (4)		3.19			3.22			3.55				3.27			3.42						3.20			3.73
Efficiency ratio - GAAP	Efficiency ratio - GAAP	55.86			56.15			54.87			55.64			57.28					56.00			56.32					Efficiency ratio - GAAP		54.53			53.55			56.73				54.14			55.86						54.04			56.00
Efficiency ratio - operating ⁽¹⁾	Efficiency ratio - operating ⁽¹⁾	55.59			55.59			54.92			53.90			54.42					55.59			54.60					Efficiency ratio - operating (1)		53.92			52.68			55.42				52.24			55.59						53.30			55.59
Equity to total assets	Equity to total assets	11.81			12.54			12.66			12.53			12.25					11.81			12.25					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⁾	Tangible common equity to tangible assets ⁽³⁾	9.12			10.22			10.32			10.16			9.86					9.12			9.86					Tangible common equity to tangible assets (3)		8.71			8.57			8.81				8.89			9.12						8.71			9.12

ASSET QUALITY	ASSET QUALITY																										ASSET QUALITY
Nonperforming loans	Nonperforming loans	$	48,021		$	36,208		$	35,341		$	30,832		$	26,597		81		$	48,021		$	26,597		81		Nonperforming loans		$	46,123		$	55,900		$	61,599			$	49,084		$	48,021		(4)			$	46,123		$	48,021		(4)
Foreclosed properties	Foreclosed properties	477			475			476			102			75			536		477			75			536		Foreclosed properties		224			596			647				953			477						224			477
Total nonperforming assets ("NPAs")		48,498			36,683			35,817			30,934			26,672			82		48,498			26,672			82
Allowance for credit losses - loans		103,669			81,905			62,089			62,514			62,204			67		103,669			62,204			67
Total NPAs																											Total NPAs		46,347			56,496			62,246				50,037			48,498			(4)			46,347			48,498			(4)
ACL - loans																											ACL - loans		111,616			126,866			137,010				134,256			103,669			8			111,616			103,669			8
Net charge-offs	Net charge-offs	6,149			8,114			3,925			2,723			2,438			152		14,263			5,568			156		Net charge-offs		(456)			(305)			1,515				2,538			6,149						(761)			14,263			(105)
Allowance for credit losses - loans to loans		1.02		%	0.92		%	0.70		%	0.70		%	0.70		%			1.02		%	0.70		%
ACL - loans to loans																											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⁾	Net charge-offs to average loans ⁽⁴⁾	0.25			0.37			0.18			0.12			0.11					0.31			0.13					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	NPAs to loans and foreclosed properties	0.48			0.41			0.41			0.35			0.30					0.48			0.30					NPAs to loans and foreclosed properties		0.41			0.48			0.55				0.42			0.48						0.41			0.48
NPAs to total assets	NPAs to total assets	0.32			0.28			0.28			0.24			0.21					0.32			0.21					NPAs to total assets		0.25			0.30			0.35				0.29			0.32						0.25			0.32

AVERAGE BALANCES ($ in millions)	AVERAGE BALANCES ($ in millions)																										AVERAGE BALANCES ($ in millions)
Loans	Loans	$	9,773		$	8,829		$	8,890		$	8,836		$	8,670		13		$	9,301		$	8,551		9		Loans		$	11,617		$	11,433		$	11,595			$	11,644		$	9,773		19			$	11,525		$	9,301		24
Investment securities	Investment securities	2,408			2,520			2,486			2,550			2,674			(10)		2,464			2,778			(11)		Investment securities		4,631			3,991			3,326				2,750			2,408			92			4,313			2,464			75
Earning assets	Earning assets	12,958			11,798			11,832			11,568			11,534			12		12,378			11,516			7		Earning assets		17,540			16,782			16,394				15,715			12,958			35			17,163			12,378			39
Total assets	Total assets	14,173			12,944			12,946			12,681			12,608			12		13,558			12,559			8		Total assets		18,792			18,023			17,698				17,013			14,173			33			18,410			13,558			36
Deposits	Deposits	12,071			10,915			10,924			10,531			10,493			15		11,493			10,427			10		Deposits		16,132			15,366			15,057				14,460			12,071			34			15,751			11,493			37
Shareholders’ equity	Shareholders’ equity	1,686			1,653			1,623			1,588			1,531			10		1,670			1,505			11		Shareholders’ equity		2,060			2,025			1,994				1,948			1,686			22			2,042			1,670			22
Common shares - basic (thousands)	Common shares - basic (thousands)	78,920			79,340			79,659			79,663			79,673			(1)		79,130			79,739			(1)		Common shares - basic (thousands)		87,289			87,322			87,258				87,129			78,920			11			87,306			79,130			10
Common shares - diluted (thousands)	Common shares - diluted (thousands)	78,924			79,446			79,669			79,667			79,678			(1)		79,186			79,745			(1)		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)	AT PERIOD END ($ in millions)																										AT PERIOD END ($ in millions)
Loans	Loans	$	10,133		$	8,935		$	8,813		$	8,903		$	8,838		15		$	10,133		$	8,838		15		Loans		$	11,391		$	11,679		$	11,371			$	11,799		$	10,133		12			$	11,391		$	10,133		12
Investment securities	Investment securities	2,432			2,540			2,559			2,515			2,620			(7)		2,432			2,620			(7)		Investment securities		4,928			4,332			3,645				3,089			2,432			103			4,928			2,432			103
Total assets	Total assets	15,005			13,086			12,916			12,809			12,779			17		15,005			12,779			17		Total assets		18,896			18,557			17,794				17,153			15,005			26			18,896			15,005			26
Deposits	Deposits	12,702			11,035			10,897			10,757			10,591			20		12,702			10,591			20		Deposits		16,328			15,993			15,232				14,603			12,702			29			16,328			12,702			29
Shareholders’ equity	Shareholders’ equity	1,772			1,641			1,636			1,605			1,566			13		1,772			1,566			13		Shareholders’ equity		2,086			2,031			2,008				1,967			1,772			18			2,086			1,772			18
Common shares outstanding (thousands)	Common shares outstanding (thousands)	78,335			78,284			79,014			78,974			79,075			(1)		78,335			79,075			(1)		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 which includes termination of pension plan in the third quarter of 2019, executive retirement charges in the second quarter of 2019 and amortization of certain executive change of control benefits.charges. ⁽²⁾ Net income less preferred stock dividends, divided by average realized common equity, which excludes ~~accumulated other comprehensive income (loss).~~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
2020 2019 For the Six Months Ended June 30,
Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter 2020 2019
(in thousands, except per share data)
Expense reconciliation
Expenses (GAAP) $ 83,980 $ 81,538 $ 81,424 $ 82,924 $ 81,813 $ 165,518 $ 157,897
Merger-related and other charges (397) (808) 74 (2,605) (4,087) (1,205) (4,826)
Expenses - operating $ 83,583 $ 80,730 $ 81,498 $ 80,319 $ 77,726 $ 164,313 $ 153,071
Net income reconciliation
Net income (GAAP) $ 25,096 $ 31,884 $ 49,012 $ 48,362 $ 44,085 $ 56,980 $ 88,347
Merger-related and other charges 397 808 (74) 2,605 4,087 1,205 4,826
Income tax benefit of merger-related and other charges (87) (182) 17 (600) (940) (269) (1,112)
Net income - operating $ 25,406 $ 32,510 $ 48,955 $ 50,367 $ 47,232 $ 57,916 $ 92,061
Diluted income per common share reconciliation
Diluted income per common share (GAAP) $ 0.32 $ 0.40 $ 0.61 $ 0.60 $ 0.55 $ 0.71 $ 1.10
Merger-related and other charges, net of tax — 0.01 — 0.03 0.04 0.02 0.05
Diluted income per common share - operating $ 0.32 $ 0.41 $ 0.61 $ 0.63 $ 0.59 $ 0.73 $ 1.15
Book value per common share reconciliation
Book value per common share (GAAP) $ 21.22 $ 20.80 $ 20.53 $ 20.16 $ 19.65 $ 21.22 $ 19.65
Effect of goodwill and other intangibles (4.27) (4.28) (4.25) (4.26) (4.27) (4.27) (4.27)
Tangible book value per common share $ 16.95 $ 16.52 $ 16.28 $ 15.90 $ 15.38 $ 16.95 $ 15.38
Return on tangible common equity reconciliation
Return on common equity (GAAP) 6.17 % 7.85 % 12.07 % 12.16 % 11.45 % 7.01 % 11.65 %
Merger-related and other charges, net of tax 0.08 0.16 (0.01) 0.51 0.82 0.12 0.49
Return on common equity - operating 6.25 8.01 12.06 12.67 12.27 7.13 12.14
Effect of goodwill and other intangibles 1.84 2.56 3.43 3.71 3.61 2.07 3.53
Return on tangible common equity - operating 8.09 % 10.57 % 15.49 % 16.38 % 15.88 % 9.20 % 15.67 %
Return on assets reconciliation
Return on assets (GAAP) 0.71 % 0.99 % 1.50 % 1.51 % 1.40 % 0.85 % 1.42 %
Merger-related and other charges, net of tax 0.01 0.02 — 0.07 0.10 0.01 0.06
Return on assets - operating 0.72 % 1.01 % 1.50 % 1.58 % 1.50 % 0.86 % 1.48 %
Dividend payout ratio reconciliation
Dividend payout ratio (GAAP) 56.25 % 45.00 % 29.51 % 28.33 % 30.91 % 50.70 % 30.00 %
Merger-related and other charges, net of tax — (1.10) — (1.35) (2.10) (1.38) (1.30)
Dividend payout ratio - operating 56.25 % 43.90 % 29.51 % 26.98 % 28.81 % 49.32 % 28.70 %
Efficiency ratio reconciliation
Efficiency ratio (GAAP) 55.86 % 56.15 % 54.87 % 55.64 % 57.28 % 56.00 % 56.32 %
Merger-related and other charges (0.27) (0.56) 0.05 (1.74) (2.86) (0.41) (1.72)
Efficiency ratio - operating 55.59 % 55.59 % 54.92 % 53.90 % 54.42 % 55.59 % 54.60 %
Tangible common equity to tangible assets reconciliation
Equity to total assets (GAAP) 11.81 % 12.54 % 12.66 % 12.53 % 12.25 % 11.81 % 12.25 %
Effect of goodwill and other intangibles (2.05) (2.32) (2.34) (2.37) (2.39) (2.05) (2.39)
Effect of preferred equity (0.64) — — — — (0.64) —
Tangible common equity to tangible assets 9.12 % 10.22 % 10.32 % 10.16 % 9.86 % 9.12 % 9.86 %


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		%

4737

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.

Net interest revenue for the second quarters of 2020 and 2019 was $109 million and $118 million, respectively. As set forth in the following tables, fully taxable equivalent net interest revenue for the second quarter of 2020 was $110 million, representing a decrease of $8.33 million, or 7%, from the same period in 2019. The net interest spread and net interest margin for the second quarter of 2020 of 3.14% and 3.42%, respectively, decreased 58 basis points and 70 basis points, respectively, from the second quarter of 2019. For the first six months of 2020 and 2019, net interest revenue was $228 million and $233 million, respectively. Fully taxable equivalent net interest revenue for the first six months of 2020 was $230 million, a decrease of $5.23 million, or 2%, from the first six months of 2019.

The following tables ~~also~~ 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, ~~2020~~2021 increased compared to the same periods of ~~2019. For the second quarter of 2020, the~~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 ~~loans of $1.10 billion, or 13%, from the second quarter of 2019, which reflects the PPP loans originated during the second quarter of 2020~~interest-bearing and noninterest-bearing deposits. In addition to organic growth, the ~~combination~~increases in average loans and deposits reflect those acquired from Three Shores and the addition of ~~which more than offset~~PPP loans to our loan portfolio. PPP loans also contributed to deposit growth, since in many cases the ~~impact~~proceeds of PPP loans remained in United customer deposit accounts during the ~~sale~~first half of 2021. Approximately $1.93 billion of the ~~indirect auto portfolio on December 31, 2019. The~~ increase in average loans ~~was offset by an intentional decrease in average taxable securities. The increase in average assets~~ 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 ~~period~~periods of ~~2019 was funded primarily through an increase in average noninterest-bearing customer deposits.~~

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, ~~2020,~~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 asset sensitive balance sheet as loan yields fell faster than we could lower deposit rates. In March of 2020, the Federal Reserve’s Federal Open Market Committee (“FOMC”) lowered interest rates twice for a total reduction of 150 basis points in response to the COVID-19 pandemic, which was the most aggressive action taken by the FOMC since the financial crisis in 2008. This followed three other federal funds rate reductions since second quarter 2019 of 25 basis points each on July 31, September 18 and October 30. Although the earning asset mix generally improved as growth in the loan portfolio replaced an intentionally shrinking investment portfolio, lower-yielding PPP loans and cash balances exerted downward pressure on the margin. The negative impact of falling interest rates and the introduction of lower-yielding PPP loans and higher cash balancesinterest-earning assets was partially mitigated by a more favorable ~~funding~~interest-bearing deposit mix. InFor the ~~second quarter and first six~~three months ended June 30, 2021, 84% of ~~2020, noninterest-bearing~~interest-bearing deposits ~~funded 34% and 32%, respectively,~~consisted of ~~our interest-earning assets~~lower-cost transaction deposits compared ~~with 29% and 28%, respectively,~~to 75% for the same ~~periods~~period of ~~2019. Since~~2020, representing a shift from higher-cost time deposits. The shift in the ~~first quarter of 2019, we substantially reduced our use of wholesale funding sources, with nearly all of our balance sheet funded with customer deposits as of~~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.

4838


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


		2020										2019											2021				2020
(dollars in thousands, fully taxable equivalent (FTE))		Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
(dollars in thousands, FTE)														(dollars in thousands, FTE)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Assets:	Assets:													Assets:
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans, net of unearned income (FTE) ⁽¹⁾⁽²⁾	Loans, net of unearned income (FTE) ⁽¹⁾⁽²⁾	$	9,772,703	$	107,398	4.42	%	$	8,669,847	$	119,668	5.54	%	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⁾	Taxable securities⁽³⁾	2,229,371		14,045		2.52		2,506,942		17,954		2.86		Taxable securities (3)	4,242,297		15,287		1.44		2,229,371		14,045		2.52
Tax-exempt securities (FTE) ⁽¹⁾⁽³⁾	Tax-exempt securities (FTE) ⁽¹⁾⁽³⁾	178,903		2,110		4.72		166,628		1,507		3.62		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	Federal funds sold and other interest-earning assets	776,776		857		0.44		190,678		679		1.42		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)	Total interest-earning assets (FTE)	12,957,753		124,410		3.86		11,534,095		139,808		4.86		Total interest-earning assets (FTE)	17,539,734		146,830		3.36		12,957,753		124,410		3.86

Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Allowance for credit losses	Allowance for credit losses	(89,992)						(62,716)						Allowance for credit losses	(128,073)						(89,992)
Cash and due from banks	Cash and due from banks	138,842						125,021						Cash and due from banks	152,443						138,842
Premises and equipment	Premises and equipment	217,096						224,018						Premises and equipment	225,017						217,096
Other assets ⁽³⁾	Other assets ⁽³⁾	949,201						787,859						Other assets (3)	1,002,634						949,201
Total assets	Total assets	$	14,172,900					$	12,608,277					Total assets	$	18,791,755					$	14,172,900

Liabilities and Shareholders' Equity:	Liabilities and Shareholders' Equity:													Liabilities and Shareholders' Equity:
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
NOW and interest-bearing demand⁽⁵⁾	NOW and interest-bearing demand⁽⁵⁾	$	2,444,895	1,628		0.27		$	2,190,080	3,460		0.63		NOW and interest-bearing demand⁽⁵⁾	$	3,428,009	1,382		0.16		$	2,444,895	1,628		0.27
Money market⁽⁵⁾	Money market⁽⁵⁾	2,541,805		3,421		0.54		2,186,282		4,842		0.89		Money market⁽⁵⁾	3,814,960		1,355		0.14		2,541,805		3,421		0.54
Savings	Savings	788,247		39		0.02		687,753		42		0.02		Savings	1,080,267		53		0.02		788,247		39		0.02
Time	Time	1,805,671		6,058		1.35		1,773,968		6,949		1.57		Time	1,548,487		899		0.23		1,805,671		6,058		1.35
Brokered time deposits	Brokered time deposits	130,556		125		0.39		298,553		1,822		2.45		Brokered time deposits	64,332		(69)		(0.43)		130,556		125		0.39
Total interest-bearing deposits	Total interest-bearing deposits	7,711,174		11,271		0.59		7,136,636		17,115		0.96		Total interest-bearing deposits	9,936,055		3,620		0.15		7,711,174		11,271		0.59

Federal funds purchased and other borrowings	Federal funds purchased and other borrowings	1		—		—		38,838		248		2.56		Federal funds purchased and other borrowings	111		—		—		1		—		—
Federal Home Loan Bank advances	Federal Home Loan Bank advances	—		—		—		117,912		752		2.56		Federal Home Loan Bank advances	—		—		—		—		—		—
Long-term debt	Long-term debt	228,096		3,030		5.34		252,351		3,257		5.18		Long-term debt	285,389		3,813		5.36		228,096		3,030		5.34
Total borrowed funds	Total borrowed funds	228,097		3,030		5.34		409,101		4,257		4.17		Total borrowed funds	285,500		3,813		5.36		228,097		3,030		5.34
Total interest-bearing liabilities	Total interest-bearing liabilities	7,939,271		14,301		0.72		7,545,737		21,372		1.14		Total interest-bearing liabilities	10,221,555		7,433		0.29		7,939,271		14,301		0.72

Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Noninterest-bearing deposits	Noninterest-bearing deposits	4,360,095						3,355,930						Noninterest-bearing deposits	6,196,045						4,360,095
Other liabilities	Other liabilities	187,375						175,806						Other liabilities	314,130						187,375
Total liabilities	Total liabilities	12,486,741						11,077,473						Total liabilities	16,731,730						12,486,741
Shareholders' equity	Shareholders' equity	1,686,159						1,530,804						Shareholders' equity	2,060,025						1,686,159
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	14,172,900					$	12,608,277					Total liabilities and shareholders' equity	$	18,791,755					$	14,172,900

Net interest revenue (FTE)	Net interest revenue (FTE)			$	110,109					$	118,436			Net interest revenue (FTE)			$	139,397					$	110,109
Net interest-rate spread (FTE)	Net interest-rate spread (FTE)					3.14	%					3.72	%	Net interest-rate spread (FTE)					3.07	%					3.14	%
Net interest margin (FTE) ⁽⁴⁾	Net interest margin (FTE) ⁽⁴⁾					3.42	%					4.12	%	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⁾~~Securities available-for-sale~~AFS securities are shown at amortized cost. Pretax unrealized gains of $28.6 million and $66.3 million in 2021 and 2020, ~~and unrealized gains of $5.00 million in 2019~~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.

⁽⁵⁾~~Reflects reclassification of certain sweep deposits from money market to NOW and interest bearing demand during the third quarter of 2019.~~

4939


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


		2020										2019											2021				2020
(dollars in thousands, fully taxable equivalent (FTE))	(dollars in thousands, fully taxable equivalent (FTE))	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate		(dollars in thousands, fully taxable equivalent (FTE))	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Assets:	Assets:													Assets:
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans, net of unearned income (FTE) ⁽¹⁾⁽²⁾	Loans, net of unearned income (FTE) ⁽¹⁾⁽²⁾	$	9,300,792	$	225,194	4.87	%	$	8,550,574	$	235,015	5.54	%	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⁾	Taxable securities ⁽³⁾	2,293,502		29,916		2.61		2,609,400		37,603		2.88		Taxable securities (3)	3,932,545		28,585		1.45		2,293,502		29,916		2.61
Tax-exempt securities (FTE)⁽¹⁾⁽³⁾	Tax-exempt securities (FTE)⁽¹⁾⁽³⁾	170,578		4,155		4.87		168,156		3,077		3.66		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	Federal funds sold and other interest-earning assets	612,776		2,489		0.81		188,165		1,297		1.38		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)	Total interest-earning assets (FTE)	12,377,648		261,754		4.25		11,516,295		276,992		4.84		Total interest-earning assets (FTE)	17,163,054		289,360		3.40		12,377,648		261,754		4.25

Non-interest-earning assets:	Non-interest-earning assets:													Non-interest-earning assets:
Allowance for loan losses	Allowance for loan losses	(79,885)						(62,253)						Allowance for loan losses	(135,845)						(79,885)
Cash and due from banks	Cash and due from banks	133,548						124,414						Cash and due from banks	146,401						133,548
Premises and equipment	Premises and equipment	218,170						220,335						Premises and equipment	223,224						218,170
Other assets ⁽³⁾	Other assets ⁽³⁾	908,828						759,899						Other assets (3)	1,012,896						908,828
Total assets	Total assets	$	13,558,309					$	12,558,690					Total assets	$	18,409,730					$	13,558,309

Liabilities and Shareholders' Equity:	Liabilities and Shareholders' Equity:													Liabilities and Shareholders' Equity:
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:
NOW and interest-bearing demand ⁽⁵⁾	NOW and interest-bearing demand ⁽⁵⁾	$	2,428,815	4,606		0.38		$	2,238,083	7,069		0.64		NOW and interest-bearing demand ⁽⁵⁾	$	3,379,794	2,868		0.17		$	2,428,815	4,606		0.38
Money market ⁽⁵⁾	Money market ⁽⁵⁾	2,441,264		7,952		0.66		2,142,411		8,974		0.84		Money market ⁽⁵⁾	3,774,201		3,159		0.17		2,441,264		7,952		0.66
Savings	Savings	750,179		74		0.02		680,018		74		0.02		Savings	1,035,176		102		0.02		750,179		74		0.02
Time	Time	1,823,612		13,308		1.47		1,701,181		12,285		1.46		Time	1,595,196		2,487		0.31		1,823,612		13,308		1.47
Brokered time deposits	Brokered time deposits	105,689		406		0.77		389,794		4,670		2.42		Brokered time deposits	69,765		223		0.64		105,689		406		0.77
Total interest-bearing deposits	Total interest-bearing deposits	7,549,559		26,346		0.70		7,151,487		33,072		0.93		Total interest-bearing deposits	9,854,132		8,839		0.18		7,549,559		26,346		0.70
Federal funds purchased and other borrowings	Federal funds purchased and other borrowings	199		1		1.01		30,241		409		2.73		Federal funds purchased and other borrowings	62		—		—		199		1		1.01
Federal Home Loan Bank advances	Federal Home Loan Bank advances	83		1		2.42		170,636		2,174		2.57		Federal Home Loan Bank advances	1,657		2		0.24		83		1		2.42
Long-term debt	Long-term debt	220,429		5,894		5.38		257,134		6,599		5.18		Long-term debt	301,193		8,070		5.40		220,429		5,894		5.38
Total borrowed funds	Total borrowed funds	220,711		5,896		5.37		458,011		9,182		4.04		Total borrowed funds	302,912		8,072		5.37		220,711		5,896		5.37
Total interest-bearing liabilities	Total interest-bearing liabilities	7,770,270		32,242		0.83		7,609,498		42,254		1.12		Total interest-bearing liabilities	10,157,044		16,911		0.34		7,770,270		32,242		0.83

Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Noninterest-bearing deposits	Noninterest-bearing deposits	3,943,740						3,275,612						Noninterest-bearing deposits	5,896,882						3,943,740
Other liabilities	Other liabilities	174,781						169,048						Other liabilities	313,374						174,781
Total liabilities	Total liabilities	11,888,791						11,054,158						Total liabilities	16,367,300						11,888,791
Shareholders' equity	Shareholders' equity	1,669,518						1,504,532						Shareholders' equity	2,042,430						1,669,518
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	13,558,309					$	12,558,690					Total liabilities and shareholders' equity	$	18,409,730					$	13,558,309

Net interest revenue (FTE)	Net interest revenue (FTE)			$	229,512					$	234,738			Net interest revenue (FTE)			$	272,449					$	229,512
Net interest-rate spread (FTE)	Net interest-rate spread (FTE)					3.42	%					3.72	%	Net interest-rate spread (FTE)					3.06	%					3.42	%
Net interest margin (FTE) ⁽⁴⁾	Net interest margin (FTE) ⁽⁴⁾					3.73	%					4.11	%	Net interest margin (FTE) (4)					3.20	%					3.73	%

⁽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 ~~available-for-sale~~AFS are shown at amortized cost. Pretax unrealized gains of $43.4 million and $59.6 million in 2021 and 2020, ~~and unrealized losses of $10.4 million in 2019~~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.

⁽⁵⁾~~Reflects reclassification of certain sweep deposits from money market to NOW and interest bearing demand during the third quarter of 2019.~~

5040

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, 2020 Six Months Ended June 30, 2020
Compared to 2019
Increase (Decrease) Due to Changes in
Volume Rate Total Volume Rate Total
Interest-earning assets:
Loans (FTE) $ 14,030 $ (26,300) $ (12,270) $ 19,578 $ (29,399) $ (9,821)
Taxable securities (1,873) �� (2,036) (3,909) (4,310) (3,377) (7,687)
Tax-exempt securities (FTE) 118 485 603 45 1,033 1,078
Federal funds sold and other interest-earning assets 911 (733) 178 1,910 (718) 1,192
Total interest-earning assets (FTE) 13,186 (28,584) (15,398) 17,223 (32,461) (15,238)
Interest-bearing liabilities:
NOW and interest-bearing demand accounts ⁽¹⁾
364 (2,196) (1,832) 560 (3,023) (2,463)
Money market accounts ⁽¹⁾
697 (2,118) (1,421) 1,145 (2,167) (1,022)
Savings deposits 6 (9) (3) 7 (7) —
Time deposits 122 (1,013) (891) 892 131 1,023
Brokered deposits (679) (1,018) (1,697) (2,207) (2,057) (4,264)
Total interest-bearing deposits 510 (6,354) (5,844) 397 (7,123) (6,726)
Federal funds purchased & other borrowings (124) (124) (248) (250) (158) (408)
Federal Home Loan Bank advances (376) (376) (752) (2,061) (112) (2,173)
Long-term debt (320) 93 (227) (972) 267 (705)
Total borrowed funds (820) (407) (1,227) (3,283) (3) (3,286)
Total interest-bearing liabilities (310) (6,761) (7,071) (2,886) (7,126) (10,012)
Increase in net interest revenue (FTE) $ 13,496 $ (21,823) $ (8,327) $ 20,109 $ (25,335) $ (5,226)

⁽¹⁾ ~~Reflects reclassification of certain sweep deposits from money market to NOW and interest bearing demand during the third quarter of 2019.~~


	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

Prior to January 1, 2020, the provision for credit losses was based on the then-applicable incurred loss model and represented an estimate of probable incurred losses in the loan portfolio and unfunded commitments at the end of each reporting period. Since the adoption of CECL on January 1, 2020, the provision for credit lossesThe ACL represents management’s estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments. The allowance for unfunded commitments, which is included in other liabilities in the consolidated balance sheets, represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances. Management’s estimate of credit losses under CECL is determined using a ~~complex~~ 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.

~~The provision~~We recorded negative provisions for credit losses ~~was $33.5~~of $13.6 million and ~~$55.7~~$25.9 million ~~respectively,~~ for the three and six months ended June 30, ~~2020,~~2021, respectively, compared to ~~$3.25~~$33.5 million and ~~$6.55~~$55.7 million ~~respectively,~~in provision expense for the same periods in ~~2019.~~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 ~~under the applicable accounting standards in effect at each balance sheet date.~~by management reflecting expected life of loan losses. The ~~increase in~~negative provision expense for the three and six months ended June 30, ~~2020~~2021 compared to the same periods of ~~2019~~2020 was primarily a result of ~~higher expected credit losses mostly resulting from~~an improved economic forecast combined with net recoveries recognized during the ~~adoption~~second quarter and first half of ~~CECL and the macroeconomic effects of the COVID-19 pandemic on our CECL calculation. Loan growth also contributed to the higher~~2021. The provision for credit ~~losses.~~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, ~~2020,~~2021, net loan charge-offs (recoveries) as an annualized percentage of average outstanding loans were ~~0.31%~~(0.01)% compared to ~~0.13%~~0.31% for the same period in ~~2019.~~2020. The ~~increase in charge-offs~~net recoveries amount recorded during the first six months of ~~2020~~2021 was mostly attributable to one large commercial credit recovery during the first quarter, strong recoveries from a ~~few large~~number of other credits ~~that have been deteriorating over~~and lower charge-offs during the ~~past several quarters.~~second quarter.

Additional discussion on credit quality and the ACL is included in the “Asset Quality and Risk Elements” section of ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~MD&A in this ~~Quarterly Report on Form 10-Q.~~Report.

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
2020 2019 Amount Percent 2020 2019 Amount Percent
Overdraft fees $ 1,997 $ 3,473 $ (1,476) (42) % $ 5,516 $ 6,928 $ (1,412) (20) %
ATM and debit card fees 3,199 3,330 (131) (4) 6,268 6,208 60 1
Other service charges and fees 1,799 2,257 (458) (20) 3,849 4,377 (528) (12)
Total service charges and fees 6,995 9,060 (2,065) (23) 15,633 17,513 (1,880) (11)
Mortgage loan gains and related fees 23,659 5,344 18,315 343 31,969 9,092 22,877 252
Brokerage fees 1,324 1,588 (264) (17) 2,964 2,925 39 1
Gains on sales of other loans 1,040 1,470 (430) (29) 2,714 2,773 (59) (2)
Securities gains (losses), net — 149 (149) — (118) 118
Other noninterest income:
Bank owned life insurance ("BOLI") 2,032 957 1,075 112 2,877 1,830 1,047 57
Customer derivatives 1,181 1,218 (37) (3) 2,588 1,723 865 50
Other 4,007 4,745 (738) (16) 7,307 9,761 (2,454) (25)
Total other noninterest income 7,220 6,920 300 4 12,772 13,314 (542) (4)
Total noninterest income $ 40,238 $ 24,531 $ 15,707 64 $ 66,052 $ 45,499 $ 20,553 45


	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 ~~first six months of 2020 noninterest income~~fees increased ~~$15.7~~$1.34 million ~~and $20.6 million, respectively,~~ compared to the ~~same periods~~respective period of ~~2019. The increase~~2020, which was ~~primarily~~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 ~~increases~~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 ~~BOLI income, partially offset by~~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 ~~service charges and fees, gains on sales~~the volume of ~~other loans, and other noninterest income.~~

~~Service charges and fees decreased $2.07 million and $1.88 million~~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 ~~respectively, in comparison~~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 ~~same periods~~mortgage servicing rights asset of ~~2019, which is mostly attributable to a decrease in overdraft fees. Lower customer transaction volume due to the economic shutdown during~~$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 ~~and first half~~ of ~~2020, combined with government stimulus payments during~~2021 of 3.86% decreased compared to 4.24% for the second quarter of 2020 ~~increased~~contributing to the ~~balances of customer deposit accounts, which~~decrease in ~~turn reduced the number of overdraft transactions.~~mortgage loan gains.

~~Mortgage loan and related fees~~


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 ~~2020 reflected an increase in fees on mortgage rate locks and mortgage closings~~2021 were up significantly compared to the same periods of last year. The increase was driven by both higher demand due to a historically low interest rate environment and the organic growth of our mortgage business in existing and new markets. The low rate environment was partially attributable to the 150 basis point decrease in the national federal funds rate during the first quarter of 2020 in response to the COVID-19 pandemic. For the first six months of 2020, the increase in rate locks and closings was partially offset by negative fair value adjustments on the mortgage servicing rights assetmostly due to the ~~decrease in mortgage interest rates that resulted in an acceleration~~sale of ~~prepayments.~~

~~Mortgage rate locks during the second quarter of 2020 increased 106% to $802 million compared to $390 million~~equipment financing loans and leases and USDA renewable energy loans in the second quarter of 2019. Mortgage production in the second quarter of 2020 also increased compared to the same period of 2019. We closed 2,095 mortgage loans totaling $562 million in the second quarter of 2020 compared with 1,082 mortgage loans totaling $260 million in the second quarter of 2019. We had $243 million in home purchase mortgage originations in the second quarter of 2020, which accounted for 43% of mortgage production volume, compared to $209 million, or 80% of production volume for the same period a year ago.

Mortgage rate locks during the first six months of 2020 increased 128% to $1.60 billion in 2020 compared to $702 million for the same period of 2019. During the first six months of 2020, we closed 3,565 mortgage loans totaling $950 million compared to 1,845 loans totaling $440 million for the same period of last year. We had $462 million in home purchase mortgage originations in the first six months of 2020, which accounted for 49% of mortgage production volume. During the first six months of 2019, we had $325 million in home purchase originations, or 74%, of production volume.

During the second quarter and first six months of 2020, we realized net gains on the sale of other loans of $1.04 million and $2.71 million, respectively, which included the sale of the guaranteed portion of SBA loans and the sale of certain equipment financing loans. During the second quarter and first six months of 2020, we sold $1.70 million and $23.9 million, respectively, of equipment financing loans, which resulted in gains of $20,000 and $1.28 million, respectively.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. ~~During~~From time to time, we also sell certain equipment financing receivables based on market conditions. The following table presents loans sold and the ~~first quarter of 2020, less-favorable pricing~~corresponding gains or losses recognized on the sale for ~~these loans driven by COVID-19 related market disruption led to our decision to hold more of our production~~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 ~~portfolio, rather than sell to the secondary market until market conditions improved~~brokerage and wealth management fees during ~~the second quarter of 2020. In~~ the second quarter and first six months of 2020, we sold the guaranteed portion of SBA loans in the amount of $14.0 million and $18.1 million, respectively, which resulted in gains of $1.02 million and $1.43 million, respectively. In the second quarter and first six months of 2019, we sold the guaranteed portion of SBA loans in the amount of $17.1 million and $34.2 million, respectively, which resulted in gains of $1.47 million and $2.77 million, respectively.

~~During the second quarter of 2020, we recognized a death benefit gain of $1.10 million, resulting in an increase in BOLI income for the second quarter and first six months of 2020 compared to~~2021 from the same periods of ~~2019. Income from customer derivatives during~~2020 was primarily a result of the ~~first six months~~addition of ~~2020 increased $865,000 compared to~~ the same period of 2019 due to increased demand for fixed rates during the current low rate environment. During the second quarter of 2020, the demand-driven increase in customer derivative income was offset by an increase to the credit valuation adjustment on customer derivative positions resulting in a nominal reduction in income compared to the same period of 2019. Three Shores wealth management business.

Other noninterest income for the ~~second quarter~~for the three and ~~first~~ six months ~~of 2020 decreased~~ended June 30, 2021 increased from the same periods of ~~2019~~2020 primarily due to ~~negative~~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 ~~other fee income.~~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.

Noninterest Expenses

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


Table 68 - Noninterest Expenses
(in thousands)

Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2020 2019 Amount Percent 2020 2019 Amount Percent
Salaries and employee benefits $ 51,811 $ 48,157 $ 3,654 8 % $ 103,169 $ 95,660 $ 7,509 8 %
Communications and equipment 6,556 6,222 334 5 12,502 12,010 492 4
Occupancy 5,945 5,919 26 — 11,659 11,503 156 1
Advertising and public relations 2,260 1,596 664 42 3,534 2,882 652 23
Postage, printing and supplies 1,613 1,529 84 5 3,283 3,115 168 5
Professional fees 4,823 4,054 769 19 8,920 7,215 1,705 24
Lending and loan servicing expense 3,189 2,619 570 22 5,482 4,953 529 11
Outside services - electronic banking 1,796 1,558 238 15 3,628 3,167 461 15
FDIC assessments and other regulatory charges 1,558 1,547 11 1 3,042 3,257 (215) (7)
Amortization of core deposit intangibles 987 1,149 (162) (14) 2,027 2,249 (222) (10)
Other 3,045 3,376 (331) (10) 7,067 7,060 7 —
Total excluding merger-related and other charges 83,583 77,726 5,857 8 164,313 153,071 11,242 7
Merger-related and other charges 397 3,894 (3,497) 1,205 4,440 (3,235)
Amortization of noncompete agreements — 193 (193) — 386 (386)
Total noninterest expenses $ 83,980 $ 81,813 $ 2,167 3 $ 165,518 $ 157,897 $ 7,621 5


	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

Noninterest expenses for the second quarter and first six months of 2020 totaled $84.0 million and $166 million, respectively, up 3% and 5%, respectively, from the same periods of 2019. Increases in salaries and employee benefits, professional fees, advertising and public relations, and lending and loan servicing expense partially offset by a decrease in merger-related and other charges and amortization of noncompete agreements accounted for much of the change in noninterest expense for the periods presented.

Salaries and employee benefits for the second quarter and first six months of ~~2020~~2021 increased 8% from the same periods of ~~2019. The increase was~~2020 as a result of several ~~contributing~~ 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 ~~2020, increased mortgage commissions and incentives resulting from increased production, and an increase in overtime pay related to the~~

~~processing of PPP loans.~~2021. These increases in expense were partially offset by ~~a decrease in bonus expense driven by the expectation of a lower payout based on financial results and~~ higher deferred loan origination costs related to ~~recording PPP loans~~increases in ~~the second quarter of 2020. Full time~~loan production. Full-time equivalent headcount totaled 2,440 at June 30, 2021, up from 2,297 at June 30, ~~2020, down from 2,316 at June 30, 2019.~~2020.

~~The increase in professional fees~~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 ~~increases in legal and consulting fees related to various projects in process.~~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, ~~2020, increased~~2021 decreased relative to the same periods ~~in 2019 resulting from a $1.00 million contribution~~of 2020 as 2020 included contributions to ~~our newly formed private foundation,~~the United Community Bank Foundation ~~during the second quarter of 2020. Lending and loan servicing expense increased mostly due to the~~in its inaugural year. The increase in ~~mortgage origination volume.~~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 ~~2020~~2021 primarily consisted ~~primarily~~ of ~~merger-related~~ expenses associated with the ~~acquisition~~acquisitions of Three ~~Shores. The six months ended June 30, 2020 also included merger-related expenses associated with the acquisition of FMBT, severance,~~Shores and ~~branch closure costs.~~FinTrust. Merger-related and other charges for the three and six months ended June 30, 2020 were mostly related to the acquisition of ~~2019 included FMBT merger-related expenses, branch closure costs, and executive retirement charges.~~

~~The reduction of amortization of noncompete agreements was a result of the expiration of certain of these agreements since the second quarter of 2019.~~Three Shores.

Balance Sheet Review

Total assets at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~$15.0~~$18.9 billion and ~~$12.9~~$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 ~~attributable~~evident in our investment portfolio, which we have strategically grown by $1.28 billion during 2021 to deploy excess liquidity provided by PPP loan ~~originations~~forgiveness and ~~other loan~~ growth ~~during the quarter. Much of the increase~~ in our customer deposits was directly attributable to the increase in PPP loans as many of the balances remained deposited in customer accounts through the end of the quarter. Average total assets for the second quarter of 2020 were $14.2 billion, up from $12.6 billion for the same period of 2019. Average total assets for the first six months of 2020 were $13.6 billion, up from $12.6 billion for the same period of 2019.deposits.

54Loans

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 ~~68%~~71% was secured by real estate at June 30, ~~2020.~~2021.


Table 79 - Loans Outstanding
(in thousands)

June 30, 2020 December 31, 2019
By Loan Type
Owner occupied commercial real estate $ 1,759,617 $ 1,720,227
Income producing commercial real estate 2,177,857 2,007,950
Commercial & industrial⁽¹⁾
2,314,169 1,220,657
Commercial construction 945,748 976,215
Equipment financing 778,749 �� 744,544
Total commercial 7,976,140 6,669,593
Residential mortgage 1,151,661 1,117,616
Home equity lines of credit 653,798 660,675
Residential construction 230,231 236,437
Consumer 120,680 128,232
Total loans $ 10,132,510 $ 8,812,553
As a percentage of total loans:
Owner occupied commercial real estate 17 % 20 %
Income producing commercial real estate 22 23
Commercial & industrial⁽¹⁾
23 14
Commercial construction 9 11
Equipment financing 8 8
Total commercial 79 76
Residential mortgage 11 13
Home equity lines of credit 7 7
Residential construction 2 3
Consumer 1 1
Total 100 % 100 %


	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 ~~$1.10 billion~~$472 million and $646 million of PPP ~~loans.~~ 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 ~~administration~~risk management function is responsible for monitoring asset quality and Board ~~of Directors~~ 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 ~~2019~~2020 10-K.

We classify loans as “substandard” when there is a well-defined weakness or weaknesses that jeopardizes the repayment by the borrower and there is a distinct possibility that we could sustain some loss if the deficiency is not corrected. Performing substandard loans, which are substandard loans that are still accruing interest, totaled $112 million and $125 million at June 30, 2020 and December 31, 2019, respectively.

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~~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 ~~at June 30, 2020~~ 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~~Critical Accounting ~~Policies”~~Policies section of MD&A in our 2020 10-K for additional information on the allowance for credit losses.

The total ACL, which includes a portion related to unfunded commitments, totaled $116 million at June 30, 2020, compared with $65.5 million at December 31, 2019. At June 30, 2020, the ACL for loans was $104 million, or 1.02% of loans, compared with $62.1 million, or 0.70% of total loans, at December 31, 2019. The adoption of CECL on January 1, 2020 added $6.88 million to the ACL for loans and $1.87 million to the reserve for unfunded commitments resulting in a total ACL of $74.3 million at the time of adoption. The increase since adoption primarily reflects higher expected credit losses resulting from the COVID-19 pandemic as well as the impact of loan growth during 2020. The impact of loan growth on the ACL was partially mitigated by the fact that PPP loans were considered low risk assets due to the related 100% guarantee by the SBA.

5645

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


Table 810 - ACL
(in thousands)

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
ACL - loans, beginning of period $ 81,905 $ 61,642 $ 62,089 $ 61,203
Adoption of CECL — — 6,880 —
ACL - loans, adjusted beginning balance 81,905 61,642 68,969 61,203
Charge-offs:
Owner occupied commercial real estate — — 6 5
Income producing commercial real estate 4,589 308 5,000 505
Commercial & industrial 254 1,416 7,815 2,935
Commercial construction 239 1 239 70
Equipment financing 2,085 1,010 3,948 2,434
Residential mortgage 50 108 334 169
Home equity lines of credit 98 29 118 366
Residential construction 32 246 54 250
Consumer direct 712 529 1,350 1,076
Indirect auto — 180 — 377
Total loans charged-off 8,059 3,827 18,864 8,187
Recoveries:
Owner occupied commercial real estate 466 58 1,500 127
Income producing commercial real estate 41 66 182 86
Commercial & industrial 291 275 667 438
Commercial construction 117 163 258 557
Equipment financing 420 121 776 264
Residential mortgage 56 234 331 282
Home equity lines of credit 196 140 299 262
Residential construction 37 47 71 73
Consumer direct 286 239 517 446
Indirect auto — 46 — 84
Total recoveries 1,910 1,389 4,601 2,619
Net charge-offs 6,149 2,438 14,263 5,568
Provision for credit losses - loans 27,913 3,000 48,963 6,569
ACL - loans, end of period 103,669 62,204 103,669 62,204
ACL - unfunded commitments, beginning of period 6,470 3,141 3,458 3,410
Adoption of CECL — — 1,871 —
ACL - unfunded commitments, adjusted beginning balance 6,470 3,141 5,329 3,410
Provision for credit losses - unfunded commitments 5,630 250 6,771 (19)
ACL - unfunded commitments, end of period 12,100 3,391 12,100 3,391
Total ACL $ 115,769 $ 65,595 $ 115,769 $ 65,595
Total loans:
At period-end $ 10,132,510 $ 8,838,218 $ 10,132,510 $ 8,838,218
Average 9,772,703 8,669,847 9,300,792 8,550,574
ACL - loans, as a percentage of period-end loans 1.02 % 0.70 % 1.02 % 0.70 %
As a percentage of average loans (annualized):
Net charge-offs 0.25 0.11 0.31 0.13
Provision for credit losses - loans 1.15 0.14 1.06 0.15


	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.

5746

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

~~Nonperforming assets (“NPAs”),~~NPAs, which include nonaccrual loans and foreclosed properties, totaled ~~$48.5~~$46.3 million at June 30, ~~2020,~~2021, compared with ~~$35.8~~$62.2 million at December 31, ~~2019.~~2020. The ~~increase~~decrease in NPAs since December 31, ~~2019~~2020 is primarily a result of ~~an increase in~~paydowns and payoffs of nonaccrual loans. Specifically, there were a few large substandard credits that reached nonaccrual status during the second quarter of 2020. In addition, when we adopted CECL on January 1, 2020, we elected to disaggregate the former Purchased Credit Impaired (“PCI”) pools and no longer consider the loan pool to be the unit of account. Reporting these contractually delinquent Purchased Credit Deteriorated (“PCD”) loans as nonaccrual loans using the same criteria as other loans contributed $2.54 million to the increase in nonaccrual loans since December 31, 2019.

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~~due. A loan may continue on accrual after 90 days, however, if it is well collateralized and ~~is not well-collateralized or~~ 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.

The table below summarizes NPAs.


Table 912 - NPAs
(in thousands)

June 30,
2020 December 31, 2019
Nonaccrual loans:
Owner occupied commercial real estate 10,710 10,544
Income producing commercial real estate 11,274 1,996
Commercial & industrial 3,432 2,545
Commercial construction 2,290 2,277
Equipment financing 3,119 3,141
Total commercial 30,825 20,503
Residential mortgage 13,185 10,567
Home equity lines of credit 3,138 3,173
Residential construction 500 939
Consumer 373 159
Total nonaccrual loans 48,021 35,341
Foreclosed properties/other real estate owned ("OREO") 477 476
Total NPAs $ 48,498 $ 35,817
Nonaccrual loans as a percentage of total loans 0.47 % 0.40 %
NPAs as a percentage of total loans and OREO 0.48 0.41
NPAs as a percentage of total assets 0.32 0.28


	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, ~~2020~~2021 and December 31, ~~2019,~~2020, we had ~~$50.4~~$57.3 million and ~~$54.2~~$61.6 million, respectively, in loans with terms that have been modified in TDRs. Included therein were ~~$15.4~~$16.7 million and ~~$8.25~~$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 ~~$35.0~~$40.6 million and ~~$46.0~~$41.0 million, respectively, were performing according to their modified terms and were therefore not considered to be nonperforming assets. ~~As previously mentioned, the~~

The CARES Act and interagency guidance granted temporary relief from TDR classification for certain loans restructured as a result of

COVID-19. During ~~the first and second quarters of~~ 2020, we ~~received~~granted a significant ~~amount~~number of payment deferral requests ~~from~~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 ~~most of which are exempt from TDR classification in~~related deferrals that, to the ~~short term. As~~extent they qualified for exemption, were not considered TDRs as of June 30, ~~2020, we had granted short-term deferrals on loans that were not reported as new TDRs of $1.76 billion. For more information, see Note 4 - Loans~~2021 and ~~Leases and Allowance for Credit Losses in the consolidated financial statements.~~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

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, ~~2020~~2021 and December 31, ~~2019,~~2020, we had HTM debt securities ~~held-to-maturity~~ with a carrying amount of ~~$307~~$852 million and ~~$284~~$420 million, respectively, and AFS debt securities ~~available-for-sale~~ totaling ~~$2.13~~$4.08 billion and ~~$2.27~~$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, ~~2020~~2021 and December 31, ~~2019,~~2020, the securities portfolio represented approximately ~~16%~~26% and 20%, respectively, of total assets.

The investment securities portfolio primarily consists of Treasury securities, U.S. government agency securities, U.S. government sponsored agency mortgage-backed securities, non-agency mortgage-backed securities, corporate securities, municipal securities and asset-backed securities. Mortgage-backed securities and asset-backed securities rely on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will usually differ from contractual maturities because loans underlying the securities can prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining or prolonged low interest rate environment, we may not be able to reinvest the proceeds from these prepayments in assets that have comparable yields. In a rising rate environment, the opposite occurs - prepayments tend to slow and the weighted average life extends. This is referred to as extension risk which can lead to lower levels of liquidity due to the delay of cash receipts and can result in the holding of a below market yielding asset for a longer period of time.

In accordance with CECL, our ~~held-to-maturity~~HTM debt securities portfolio ~~was~~is evaluated quarterly to assess whether an ACL ~~was~~is required. We measure expected credit losses on ~~held-to-maturity~~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 ~~adoption on January 1, 2020~~June 30, 2021 and ~~at June 30,~~December 31, 2020, calculated credit losses on ~~held-to-maturity~~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, ~~and~~GSEs, high credit quality ~~municipal securities.~~municipalities and supranational entities. As a result, ~~we did not record an~~no ACL for ~~held-to-maturity~~HTM debt securities ~~at adoption or at June 30, 2020.~~was recorded.

For ~~available-for-sale~~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 ~~other comprehensive income.~~OCI. At June 30, 2021 and December 31, 2020, there was no ACL related to the ~~available-for-sale~~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.

~~Goodwill and Other Intangibles~~

Goodwill represents the premium paid for acquired companies above the net fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets. At June 30, 2020 and December 31, 2019, the net carrying amount of goodwill was $327 million. Goodwill is not amortized but is assessed for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment, referred to as a triggering event. Upon the occurrence of a triggering event, accounting guidance allows for an assessment of qualitative factors to determine whether it is more likely than not, or a greater than 50% likelihood, that the fair value of the entity is less than its carrying amount, including goodwill. When it is more likely than not that impairment has occurred, management is required to perform a quantitative analysis and, if necessary, adjust the carrying amount of goodwill by recording a goodwill impairment loss. During the latter part of the first quarter and the second quarter of 2020, as a result of market concerns about the potential impact of COVID-19, our stock price declined such that it traded below book value. As a result of this triggering event, we have qualitatively assessed and concluded that there is not a greater than 50% likelihood that our fair value is less than our carrying amount as of June 30, 2020, given the anticipated short duration of the change in macroeconomic conditions and excess of value as of the latest annual test performed as of September 30, 2019. We will continue to monitor and assess the impact of the pandemic on our value and, should conditions be more severe and/or recovery extend for a longer period than currently anticipated, our assessment may change, which could necessitate the write-down or write-off of goodwill or other intangible assets.

Core deposit intangibles, representing the value of acquired deposit relationships, are amortizing intangible assets that are required to be tested for impairment only when events or circumstances indicate that impairment may exist. There were no events or circumstances that led us to believe that any impairment existed on core deposit intangible assets.

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. AtIn addition to organic growth, at June 30, ~~2020,~~2021, the increase in core transaction deposits was ~~partly~~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 1014 - Deposits

(in thousands)

June 30, 2020 December 31, 2019
Noninterest-bearing demand $ 4,689,545 $ 3,477,979
NOW and interest-bearing demand 2,582,831 2,461,895
Money market and savings 3,453,687 2,937,095
Time 1,751,091 1,859,574
Total customer deposits 12,477,154 10,736,543
Brokered deposits 224,931 160,701
Total deposits $ 12,702,085 $ 10,897,244


	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, ~~2020~~2021 and December 31, ~~2019,~~2020, we had long-term debt outstanding of ~~$312~~$262 million and ~~$213~~$327 million, respectively, which includes senior debentures, subordinated debentures, and trust preferred securities. ~~During~~The reduction in long-term debt since December 31, 2020 was a result of the ~~second quarter~~repayment of ~~2020 we issued $100 million of 5% fixed-to-floating rate~~the 2025 subordinated debentures, the Southern Bancorp Capital Trust I trust preferred securities and the 2022 senior debentures ~~with a maturity date~~ of June 15, 2030. The proceeds generated from the issuance of these debentures will be used for general business purposes. See Note 7 to the consolidated financial statements for additional information regarding long-term debt.$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, ~~2019.~~2020.

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 2122 to the

consolidated financial statements included in our ~~2019~~2020 10-K and Note 1412 to the consolidated financial statements in this ~~Form 10-Q~~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 ~~Asset/Liability Management Committee (“ALCO”)~~ALCO and approved by the ~~Board of Directors.~~Board. The ALCO meets periodically and has responsibility for formulating and recommending asset/liability management policies to the Board, ~~of Directors,~~ 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, to 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 ~~cannot~~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.

Table 1115 - Interest Sensitivity

Increase (Decrease) in Net Interest Revenue from Base Scenario at
June 30, 2020 December 31, 2019
Change in Rates Shock Ramp Shock Ramp
100 basis point increase 3.95 % 3.05 % 2.91 % 2.22 %
100 basis point decrease (0.73) (0.72) (4.86) (3.92)


	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 ~~other comprehensive income.~~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.

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, ~~2020,~~2021, we had sufficient qualifying collateral to provide borrowing capacity for FHLB advances of ~~$1.40 billion and Federal Reserve discount window borrowing capacity of $1.42~~$1.26 billion, as well as unpledged investment securities of ~~$1.91~~$3.78 billion that could be used as collateral for additional borrowings. In addition, ~~to these wholesale sources,~~ we have the ability to attract retail deposits by competing more aggressively on pricing. In

Significant uses and sources of cash during the second quarter of 2020, we originated a significant amount of PPP loans, for which funding is available through the Paycheck Protection Program Lending Facility (“PPPLF”) announced by the Federal Reserve in April of 2020. As ofsix months ended June 30, ~~2020 we had outstanding PPP loans of $1.10 billion and no balance outstanding under the PPPLF as we have been able to self-fund the majority of our PPP loans through growth in deposits.~~

~~As disclosed in~~2021 are summarized below. See the consolidated statement of cash flows ~~net~~in this Report for further detail.

•Net cash provided by operating activities ~~was $15.6~~of $162 million ~~for the six months ended June 30, 2020. Net~~reflects net income of ~~$57.0~~$144 million adjusted for ~~the six-month period included~~ non-cash ~~expense~~transactions, gains on sales of securities and ~~income items consisting of the following: provision expense of $55.7 million, stock-based compensation expense of $4.26 million, depreciation, amortization~~other loans and ~~accretion of $5.21 million, and a deferred income tax benefit of $2.36 million. Uses of cash from operating activities included an increase~~changes in other assets and ~~accrued interest receivable~~liabilities. Significant non-cash transactions for the period included a $25.9 million release of ~~$76.4 million~~provision for credit losses and ~~an increase in loans held for sale~~deferred income tax expense of ~~$41.0 million, partially offset by an increase in accrued expenses and other liabilities of $15.9~~$14.6 million.

•Net cash used in investing activities of ~~$1.15~~$1.34 billion ~~included a $1.31 billion net increase in loans, $110 million in~~primarily consisted of purchases of AFS and HTM debt securities ~~available-for-sale and equity securities, purchases~~ of ~~debt securities held-to-maturity of $43.1 million, and $3.66 million in purchases of premises and equipment. These uses of cash were~~$1.91 billion, partially offset by ~~$297 million in~~ proceeds from securities sales, maturities and calls, ~~of debt~~reflecting our strategic decision to deploy excess liquidity into the securities ~~available-for-sale and equity securities and $19.9 million in proceeds from maturities and calls of debt securities held-to-maturity.~~ portfolio.

•Net cash provided by

financing activities of ~~$1.95 billion consisted primarily of a~~$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 ~~$1.81 billion, net proceeds from the issuance~~long-term debt of ~~senior debentures of $98.6~~$65.6 million and ~~net proceeds from the issuance of~~dividends on common and preferred stock of ~~$96.7~~$36.0 million. ~~These sources of cash were partially offset by the payment of cash dividends of $28.8 million and the repurchases of our common stock of $20.8 million.~~

In the opinion of management, our liquidity position at June 30, ~~2020,~~2021 was sufficient to meet our expected cash flow requirements.

Capital Resources and Dividends

Shareholders’ equity at June 30, ~~2020~~2021 was ~~$1.77~~$2.09 billion, an increase of ~~$136~~$78.8 million from December 31, ~~2019~~2020 primarily due ~~primarily~~ to ~~the second quarter issuance of $100 million in non-cumulative perpetual preferred stock,~~ year-to-date earnings ~~less~~partially offset by dividends declared and ~~an increase~~a decrease in the value of ~~available-for-sale securities, partially offset by $20.8 million in share repurchases.~~

Pursuant to the CARES Act, we have adopted relief provided by federal banking regulatory agencies for the delay of the adverse capital impact of CECL for the two-year period after adoption. This optional two-year delay is followed by an optional three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. Under the transition provision, the amount of aggregate capital benefit is phased out by 25% each year with the full impact of adoption completely recognized by the beginning of the sixth year.AFS debt securities.

The following table shows capital ratios, as calculated under applicable regulatory guidelines, at June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. As of June 30, ~~2020,~~2021, capital levels remained characterized as “well-capitalized” under ~~the Basel III Capital Rules~~prompt corrective action provisions in effect at the time. ~~The increase in the consolidated ratios as of June 30, 2020 was primarily attributable to the issuance of preferred stock.~~

Additional information related to capital ratios, as calculated under regulatory guidelines, as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, is provided in Note 1311 to the consolidated financial ~~statements.~~statements in this Report.

Table 1216 – Capital Ratios

~~(dollars in thousands)~~


										United Community Banks, Inc. (Consolidated)							United Community Bank													United Community Banks, Inc. (Consolidated)		United Community Bank
		Minimum		Well Capitalized		Minimum Capital Plus Capital Conservation Buffer		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019				Minimum		Well- Capitalized		Minimum Capital Plus Capital Conservation Buffer		June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Risk-based ratios:	Risk-based ratios:															Risk-based ratios:
Common equity tier 1 capital		4.5	%	6.5	%	7.0	%	12.85	%	12.97	%	13.70	%	14.87	%
CET1 capital																CET1 capital		4.5	%	6.5	%	7.0	%	12.59	%	12.31	%	13.21	%	13.31	%
Tier 1 capital	Tier 1 capital	6.0		8.0		8.5		14.05		13.21		13.70		14.87		Tier 1 capital		6.0		8.0		8.5		13.34		13.10		13.21		13.31
Total capital	Total capital	8.0		10.0		10.5		16.07		15.01		14.63		15.54		Total capital		8.0		10.0		10.5		15.09		15.15		14.03		14.28
Leverage ratio	Leverage ratio	4.0		5.0		N/A		10.31		10.34		10.05		11.63		Leverage ratio		4.0		5.0		N/A		9.26		9.28		9.16		9.42

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.

6353

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in our market risk as of June 30, ~~2020~~2021 from that presented in our ~~2019~~2020 10-K. Our interest rate sensitivity position at June 30, ~~2020~~2021 is set forth in Table 1015 in ~~Part I - Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations”~~MD&A of this ~~Quarterly~~ Report ~~on Form 10-Q~~ 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, ~~2020.~~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, ~~2020~~2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

Except as set forth in Part II, Item 1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and filed with the SEC on May 7, 2020, which is incorporated herein by this reference, thereThere 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 ~~27, 2020.~~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.

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 ~~March 9, 2020~~May 26, 2021, by and between United Community Banks, Inc. and ~~Three Shores Bancorporation,~~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 ~~March 9, 2020~~July 14, 2021 and filed with the SEC on ~~March 10, 2020)~~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 ~~date.~~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).

~~4.1~~

Deposit Agreement, dated as of June 10, 2020, between United Community Banks, Inc. and Continental Stock Transfer & Trust Company as depositary (incorporated herein by reference to Exhibit 4.2 to United Community Banks, Inc.’s Current Report on Form 8-K dated June 5, 2020 and filed with the SEC on June 10, 2020).

~~4.2~~

~~Form of Depositary Receipt (included as part of Exhibit 4.1).~~

~~4.3~~

Indenture, dated as of June 17, 2020, between United Community Banks and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to United Community Banks, Inc.’s Current Report on Form 8-K dated and filed with the SEC on June 17, 2020).

~~4.4~~

Supplemental Indenture, dated as of June 17, 2020, between United Community Banks and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to United Community Banks, Inc.’s Current Report on Form 8-K dated June 17, 2020 and filed with the SEC on June 17, 2020).

~~4.5~~

~~Form of 5.000% Fixed-to-Floating Senior Notes due 2030 (included as Exhibit A to Exhibit 4.4)~~

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).

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, ~~2020,~~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, ~~2020~~2021 (formatted in Inline XBRL and included in Exhibit 101)

6656

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, ~~2020~~2021

6757


	Three Months Ended June 30,																										Six Months Ended June 30,
(in thousands, except share and per share data)	Preferred Stock		Common Stock		Common Stock Issuable		Capital Surplus		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total		Preferred Stock		Common Stock		Common Stock Issuable		Capital Surplus		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total
2020
Balance at beginning of period	$	—	$	78,284	$	10,534	$	1,478,719	$	54,206	$	18,869	$	1,640,612	$	—	$	79,014	$	11,491	$	1,496,641	$	40,152	$	8,394	$	1,635,692
Net income									25,096				25,096										56,980				56,980
Other comprehensive income											21,681		21,681												32,156		32,156

Issuance of preferred stock (4,000 shares), net	96,660												96,660		96,660												96,660
Common stock issued to dividend reinvestment plan and employee benefit plans (12,906 and 21,592 shares, respectively)			13				214						227				22				404						426

Amortization of restricted stock unit awards							1,764						1,764								4,256						4,256
Vesting of restricted stock unit awards, net of shares surrendered to cover payroll taxes (38,247 and 62,252 shares issued, respectively, and 378 and 24,345 shares deferred, respectively)			38		11		(240)						(191)				62		676		(1,417)						(679)
Purchases of common stock (826,482 shares)													—				(827)				(19,955)						(20,782)
Deferred compensation plan, net, including dividend equivalents					111								111						267								267
Shares issued from deferred compensation plan, net of shares surrendered to cover payroll taxes (430 and 64,036 shares, respectively)			—		(10)		7						(3)				64		(1,788)		535						(1,189)
Common stock dividends ($0.18 and $0.36 per share, respectively)									(14,312)				(14,312)										(28,613)				(28,613)
Adoption of new accounting standard													—										(3,529)				(3,529)
Balance, June 30, 2020	$	96,660	$	78,335	$	10,646	$	1,480,464	$	64,990	$	40,550	$	1,771,645	$	96,660	$	78,335	$	10,646	$	1,480,464	$	64,990	$	40,550	$	1,771,645

2019
Balance at beginning of period	$	—	$	79,035	$	10,291	$	1,494,400	$	(59,573)	$	(15,995)	$	1,508,158	$	—	$	79,234	$	10,744	$	1,499,584	$	(90,419)	$	(41,589)	$	1,457,554
Net income									44,085				44,085										88,347				88,347
Other comprehensive income											22,772		22,772												48,366		48,366
Exercise of stock options (12,000 shares)													—				12				185						197
Common stock issued to dividend reinvestment plan and employee benefit plans (33,978 and 42,423 shares, respectively)			34				871						905				42				1,049						1,091

Amortization of restricted stock unit awards							4,017						4,017								6,002						6,002
Vesting of restricted stock unit awards, net of shares surrendered to cover payroll taxes (5,034 and 20,979 shares issued, respectively, and 17,211 and 36,661 shares deferred, respectively)			5		477		(557)						(75)				21		1,009		(1,422)						(392)
Purchases of common stock (305,052 shares)													—				(305)				(7,535)						(7,840)
Deferred compensation plan, net, including dividend equivalents					107								107						292								292
Shares issued from deferred compensation plan, net of shares surrendered to cover payroll taxes (748 and 70,792 shares, respectively)			1		(17)		9						(7)				71		(1,187)		877						(239)
Common stock dividends ($0.17 and $0.33 per share, respectively)									(13,628)				(13,628)										(26,495)				(26,495)
Adoption of new accounting standard													—										(549)				(549)
Balance, June 30, 2019	$	—	$	79,075	$	10,858	$	1,498,740	$	(29,116)	$	6,777	$	1,566,334	$	—	$	79,075	$	10,858	$	1,498,740	$	(29,116)	$	6,777	$	1,566,334


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
As of June 30, 2020

State and political subdivisions	$	87,840	$	4,382	$	95	$	92,127
Residential mortgage-backed securities, Agency	137,416		6,051		—		143,467
Residential mortgage-backed securities, Non-agency	15,221		324		54		15,491
Commercial mortgage-backed, Agency	66,161		3,007		—		69,168

Total	$	306,638	$	13,764	$	149	$	320,253

As of December 31, 2019

State and political subdivisions	$	45,479	$	1,574	$	9	$	47,044
Residential mortgage-backed securities, Agency	153,967		2,014		694		155,287

Commercial mortgage-backed, Agency	84,087		1,627		141		85,573

Total	$	283,533	$	5,215	$	844	$	287,904


Year
Remainder of 2020	$	7,898
2021	13,346
2022	9,590
2023	5,705
2024	2,164
Thereafter	502
Total	$	39,205


	June 30, 2019
	Three Months Ended		Six Months Ended
Balance at beginning of period	$	26,624	$	26,868
Additions due to acquisitions	1,300		1,300
Accretion	(4,274)		(9,087)
Reclassification from nonaccretable difference	1,762		4,468
Changes in expected cash flows that do not affect nonaccretable difference	896		2,759
Balance at end of period	$	26,308	$	26,308


	June 30, 2020
	COVID-19 Deferrals		Deferrals as a % of total loans
Owner occupied commercial real estate	$	378,959	22	%
Income producing commercial real estate	715,650		33
Commercial & industrial	106,020		5
Commercial construction	175,463		19
Equipment financing	231,402		30
Total commercial	1,607,494		20
Residential mortgage	122,474		11
Home equity lines of credit	18,594		3
Residential construction	4,995		2
Consumer	2,923		2
Total COVID-19 deferrals	$	1,756,480	17




	Loans Outstanding														Allowance for Credit Losses
	Individually evaluated for impairment		Collectively evaluated for impairment		PCI		Ending Balance		Individually evaluated for impairment		Collectively evaluated for impairment		PCI		Ending Balance
Owner occupied commercial real estate	$	19,233	$	1,692,448	$	8,546	$	1,720,227	$	816	$	10,483	$	105	$	11,404
Income producing commercial real estate	18,134		1,962,588		27,228		2,007,950		770		11,507		29		12,306
Commercial & industrial	1,449		1,218,882		326		1,220,657		21		5,193		52		5,266
Commercial construction	3,675		965,678		6,862		976,215		55		9,613		—		9,668
Equipment financing	1,027		739,532		3,985		744,544		—		7,240		144		7,384
Residential mortgage	15,991		1,092,046		9,579		1,117,616		782		7,296		3		8,081
Home equity lines of credit	992		658,273		1,410		660,675		16		4,541		18		4,575
Residential construction	1,256		234,807		374		236,437		47		2,456		1		2,504
Consumer	214		127,682		336		128,232		5		885		11		901

Total	$	61,971	$	8,691,936	$	58,646	$	8,812,553	2,512		59,214		363		62,089
Allowance for unfunded commitments									—		3,458		—		3,458
Total allowance for credit losses									$	2,512	$	62,672	$	363	$	65,547


	December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Owner occupied commercial real estate	$	9,527	$	8,118	$	—
Income producing commercial real estate	5,159		4,956		—
Commercial & industrial	1,144		890		—
Commercial construction	2,458		2,140		—
Equipment financing	1,027		1,027		—
Total commercial	19,315		17,131		—
Residential mortgage	7,362		6,436		—
Home equity lines of credit	1,116		861		—
Residential construction	731		626		—
Consumer	66		53		—

Total with no related allowance recorded	28,590		25,107		—

With an allowance recorded:
Owner occupied commercial real estate	11,136		11,115		816
Income producing commercial real estate	13,591		13,178		770
Commercial & industrial	559		559		21
Commercial construction	1,535		1,535		55
Equipment financing	—		—		—
Total commercial	26,821		26,387		1,662
Residential mortgage	9,624		9,555		782
Home equity lines of credit	146		131		16
Residential construction	643		630		47
Consumer	161		161		5

Total with an allowance recorded	37,395		36,864		2,512
Total	$	65,985	$	61,971	$	2,512


	June 30, 2020		December 31, 2019		Issue Date	Stated Maturity Date	Earliest Call Date	Interest Rate

2022 senior debentures	$	50,000	$	50,000	2015	2022	2020	5.000% through August 13, 2020, 3-month LIBOR plus 3.814% thereafter
2027 senior debentures	35,000		35,000		2015	2027	2025	5.500% through August 13, 2025, 3-month LIBOR plus 3.71% thereafter
2030 senior debentures	100,000		—		2020	2030	2025	5.00% through June 15, 2025, 3-month SOFR plus 4.87% thereafter
Total senior debentures	185,000		85,000

2028 subordinated debentures	100,000		100,000		2018	2028	2023	4.500% through January 30, 2023, 3-month LIBOR plus 2.12% thereafter
2025 subordinated debentures	11,250		11,250		2015	2025	2020	6.250%
Total subordinated debentures	111,250		111,250

Southern Bancorp Capital Trust I	4,382		4,382		2004	2034	2009	Prime + 1.00%
Tidelands Statutory Trust I	8,248		8,248		2006	2036	2011	3-month LIBOR plus 1.38%
Four Oaks Statutory Trust I	12,372		12,372		2006	2036	2011	3-month LIBOR plus 1.35%
Total trust preferred securities	25,002		25,002
Less discount	(9,621)		(8,588)
Total long-term debt	$	311,631	$	212,664


Options	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2019	1,500	$	27.95


Expired	(1,500)	27.95
Outstanding at June 30, 2020	—	—		0.00	$	—

Exercisable at June 30, 2020	—	—		0.00	—


	Three Months Ended June 30,						Six Months Ended June 30,
	Revenue		Net Income		Revenue		Net Income




2019
Actual FMBT results included in statement of income since acquisition date	$	2,327	$	1,187	$	2,327	$	1,187
Supplemental consolidated pro forma as if FMBT had been acquired January 1, 2018	139,489		43,913		275,991		89,504


	Three Months Ended June 30, 2020											Six Months Ended June 30, 2020
	Compared to 2019 Increase (Decrease) Due to Changes in
	Volume			Rate		Total		Volume		Rate		Total
Interest-earning assets:
Loans (FTE)	$	14,030		$	(26,300)	$	(12,270)	$	19,578	$	(29,399)	$	(9,821)
Taxable securities	(1,873)		��	(2,036)		(3,909)		(4,310)		(3,377)		(7,687)
Tax-exempt securities (FTE)	118			485		603		45		1,033		1,078
Federal funds sold and other interest-earning assets	911			(733)		178		1,910		(718)		1,192
Total interest-earning assets (FTE)	13,186			(28,584)		(15,398)		17,223		(32,461)		(15,238)

Interest-bearing liabilities:
NOW and interest-bearing demand accounts ⁽¹⁾	364			(2,196)		(1,832)		560		(3,023)		(2,463)
Money market accounts ⁽¹⁾	697			(2,118)		(1,421)		1,145		(2,167)		(1,022)
Savings deposits	6			(9)		(3)		7		(7)		—
Time deposits	122			(1,013)		(891)		892		131		1,023
Brokered deposits	(679)			(1,018)		(1,697)		(2,207)		(2,057)		(4,264)
Total interest-bearing deposits	510			(6,354)		(5,844)		397		(7,123)		(6,726)
Federal funds purchased & other borrowings	(124)			(124)		(248)		(250)		(158)		(408)
Federal Home Loan Bank advances	(376)			(376)		(752)		(2,061)		(112)		(2,173)
Long-term debt	(320)			93		(227)		(972)		267		(705)
Total borrowed funds	(820)			(407)		(1,227)		(3,283)		(3)		(3,286)
Total interest-bearing liabilities	(310)			(6,761)		(7,071)		(2,886)		(7,126)		(10,012)

Increase in net interest revenue (FTE)	$	13,496		$	(21,823)	$	(8,327)	$	20,109	$	(25,335)	$	(5,226)


	June 30, 2020			December 31, 2019
By Loan Type
Owner occupied commercial real estate	$	1,759,617		$	1,720,227
Income producing commercial real estate	2,177,857			2,007,950
Commercial & industrial⁽¹⁾	2,314,169			1,220,657
Commercial construction	945,748			976,215
Equipment financing	778,749		��	744,544
Total commercial	7,976,140			6,669,593
Residential mortgage	1,151,661			1,117,616
Home equity lines of credit	653,798			660,675
Residential construction	230,231			236,437
Consumer	120,680			128,232

Total loans	$	10,132,510		$	8,812,553

As a percentage of total loans:
Owner occupied commercial real estate	17		%	20		%
Income producing commercial real estate	22			23
Commercial & industrial⁽¹⁾	23			14
Commercial construction	9			11
Equipment financing	8			8
Total commercial	79			76
Residential mortgage	11			13
Home equity lines of credit	7			7
Residential construction	2			3
Consumer	1			1

Total	100		%	100		%