~~0000857855us-gaap:FairValueInputsLevel3Memberus-gaap:AssetBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-31~~

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 ~~September 30, 2020~~March 31, 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 ☒

There were ~~86,620,219~~86,778,590 shares of the registrant’s common stock, par value $1 per share, outstanding as of ~~October 31, 2020.~~April 30, 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 Se ~~ptember~~ ~~30, 2020~~March 31, 2021 and December 31, ~~2019~~2020

Consolidated Statements of Income (unaudited) for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~

Consolidated Statements of Comprehensive Income (unaudited) for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~

Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~ March 31, 2021 and 2020 ~~and 2019~~

Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Three Months Ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~

Notes to Consolidated Financial Statements

Item 2.

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

4732

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

7050

Item 4.

Controls and Procedures.

7050

PART II - Other Information

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 Incorporated (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
SEC						Securities and Exchange Commission

TDR						Troubled debt restructuring

Three Shores						Three Shores Bancorporation, Inc.
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~~historical fact nor assurance of future 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~~ 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, including United Community Bank (the “Bank”). The Holding Company and the Bank are 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~~referenced 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 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 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 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 10-K, 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 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)	September 30, 2020		December 31, 2019		(in thousands, except share data)	March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	122,048	$	125,844	Cash and due from banks	$	126,164	$	148,896
Interest-bearing deposits in banks	Interest-bearing deposits in banks	923,591		389,362		Interest-bearing deposits in banks	1,207,949		1,459,723
Cash and cash equivalents	Cash and cash equivalents	1,045,639		515,206		Cash and cash equivalents	1,334,113		1,608,619
Debt securities available-for-sale	Debt securities available-for-sale	2,690,448		2,274,581		Debt securities available-for-sale	3,744,280		3,224,721
Debt securities held-to-maturity (fair value $413,820 and $287,904, respectively)		398,373		283,533
Debt securities held-to-maturity (fair value $586,828 and $437,193, respectively)						Debt securities held-to-maturity (fair value $586,828 and $437,193, respectively)	587,696		420,361
Loans held for sale at fair value	Loans held for sale at fair value	128,587		58,484		Loans held for sale at fair value	164,979		105,433
Loans and leases held for investment	Loans and leases held for investment	11,798,910		8,812,553		Loans and leases held for investment	11,678,544		11,370,815
Less allowance for credit losses - loans and leases	Less allowance for credit losses - loans and leases	(134,256)		(62,089)		Less allowance for credit losses - loans and leases	(126,866)		(137,010)
Loans and leases, net	Loans and leases, net	11,664,654		8,750,464		Loans and leases, net	11,551,678		11,233,805
Premises and equipment, net	Premises and equipment, net	211,885		215,976		Premises and equipment, net	216,752		218,489
Bank owned life insurance	Bank owned life insurance	201,515		202,664		Bank owned life insurance	202,817		201,969
Accrued interest receivable	Accrued interest receivable	48,091		32,660		Accrued interest receivable	46,278		47,672
Net deferred tax asset	Net deferred tax asset	39,818		34,059		Net deferred tax asset	39,338		38,411
Derivative financial instruments	Derivative financial instruments	103,388		35,007		Derivative financial instruments	63,897		86,666
Goodwill and other intangible assets, net	Goodwill and other intangible assets, net	384,074		342,247		Goodwill and other intangible assets, net	380,838		381,823
Other assets	Other assets	236,405		171,135		Other assets	224,242		226,405
Total assets	Total assets	$	17,152,877	$	12,916,016	Total assets	$	18,556,908	$	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	$	5,227,170	$	3,477,979	Noninterest-bearing demand	$	6,058,439	$	5,390,291

Interest-bearing deposits	Interest-bearing deposits	9,376,206		7,419,265		Interest-bearing deposits	9,934,781		9,842,067

Total deposits	Total deposits	14,603,376		10,897,244		Total deposits	15,993,220		15,232,358

Long-term debt	Long-term debt	326,703		212,664		Long-term debt	311,591		326,956
Derivative financial instruments	Derivative financial instruments	33,519		15,516		Derivative financial instruments	33,455		29,003
Accrued expenses and other liabilities	Accrued expenses and other liabilities	222,024		154,900		Accrued expenses and other liabilities	187,558		198,527
Total liabilities	Total liabilities	15,185,622		11,280,324		Total liabilities	16,525,824		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 and 0 shares issued and outstanding, respectively		96,422		0
Common stock, $1 par value: 150,000,000 shares authorized; 86,611,114 and 79,013,729 shares issued and outstanding, respectively		86,611		79,014
Common stock issuable: 590,521 and 664,640 shares, respectively		10,632		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: 150,000,000 shares authorized; 86,776,508 and 86,675,279 shares issued and outstanding, respectively						Common stock, $1 par value: 150,000,000 shares authorized; 86,776,508 and 86,675,279 shares issued and outstanding, respectively	86,777		86,675
Common stock issuable: 565,904 and 600,834 shares, respectively						Common stock issuable: 565,904 and 600,834 shares, respectively	10,485		10,855
Capital surplus	Capital surplus	1,637,467		1,496,641		Capital surplus	1,640,583		1,638,999
Retained earnings	Retained earnings	94,938		40,152		Retained earnings	192,185		136,869
Accumulated other comprehensive income	Accumulated other comprehensive income	41,185		8,394		Accumulated other comprehensive income	4,632		37,710
Total shareholders' equity	Total shareholders' equity	1,967,255		1,635,692		Total shareholders' equity	2,031,084		2,007,530
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	17,152,877	$	12,916,016	Total liabilities and shareholders' equity	$	18,556,908	$	17,794,374

See accompanying notes to consolidated financial statements (unaudited).


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

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except per share data) 2020 2019 2020 2019
Interest revenue:
Loans, including fees $ 126,936 $ 122,645 $ 352,861 $ 357,575
Investment securities, including tax exempt of $1,895, $1,118, $4,988 and $3,409,
respectively
14,558 17,744 47,567 57,638
Deposits in banks and short-term investments 279 226 1,497 1,074
Total interest revenue 141,773 140,615 401,925 416,287
Interest expense:
Deposits 8,998 17,113 35,344 50,185
Short-term borrowings 2 429 3 838
Federal Home Loan Bank advances 27 521 28 2,695
Long-term debt 4,292 3,214 10,186 9,813
Total interest expense 13,319 21,277 45,561 63,531
Net interest revenue 128,454 119,338 356,364 352,756
Provision for credit losses 21,793 3,100 77,527 9,650
Net interest revenue after provision for credit losses 106,661 116,238 278,837 343,106
Noninterest income:
Service charges and fees 8,260 9,916 23,893 27,429
Mortgage loan gains and other related fees 25,144 8,658 57,113 17,750
Brokerage and wealth management fees 3,055 1,699 6,019 4,624
Gains from sales of other loans, net 1,175 1,639 3,889 4,412
Securities gains (losses), net 746 0 746 (118)
Other 10,302 7,119 23,074 20,433
Total noninterest income 48,682 29,031 114,734 74,530
Total revenue 155,343 145,269 393,571 417,636
Noninterest expenses:
Salaries and employee benefits 59,067 50,501 162,236 146,161
Communications and equipment 6,960 6,223 19,462 18,233
Occupancy 7,050 5,921 18,709 17,424
Advertising and public relations 1,778 1,374 5,312 4,256
Postage, printing and supplies 1,703 1,618 4,986 4,733
Professional fees 5,083 4,715 14,003 11,930
Lending and loan servicing expense 3,043 2,556 8,525 7,509
Outside services - electronic banking 1,888 1,934 5,516 5,101
FDIC assessments and other regulatory charges 1,346 314 4,388 3,571
Amortization of intangibles 1,099 1,210 3,126 3,845
Merger-related and other charges 3,361 2,541 4,566 6,981
Other 3,603 4,017 10,670 11,077
Total noninterest expenses 95,981 82,924 261,499 240,821
Net income before income taxes 59,362 62,345 132,072 176,815
Income tax expense 11,755 13,983 27,485 40,106
Net income $ 47,607 $ 48,362 $ 104,587 $ 136,709
Net income available to common shareholders $ 45,437 $ 48,011 $ 101,994 $ 135,727
Net income per common share:
Basic $ 0.52 $ 0.60 $ 1.25 $ 1.70
Diluted 0.52 0.60 1.25 1.70
Weighted average common shares outstanding:
Basic 87,129 79,663 81,815 79,714
Diluted 87,205 79,667 81,876 79,718


	Three Months Ended March 31,
(in thousands, except per share data)		2021		2020

Interest revenue:
Loans, including fees		$	125,726	$	118,063
Investment securities, including tax exempt of $2,150 and $1,523, respectively		15,448		17,394
Deposits in banks and short-term investments		368		1,090
Total interest revenue		141,542		136,547

Interest expense:






Deposits		5,219		15,075
Short-term borrowings		0		1
Federal Home Loan Bank advances		2		1
Long-term debt		4,257		2,864
Total interest expense		9,478		17,941
Net interest revenue		132,064		118,606
(Release of) provision for credit losses		(12,281)		22,191
Net interest revenue after provision for credit losses		144,345		96,415

Noninterest income:
Service charges and fees		7,570		8,638
Mortgage loan gains and other related fees		22,572		8,310
Wealth management fees		3,505		1,640
Gains from sales of other loans, net		1,030		1,674

Other		10,028		5,552
Total noninterest income		44,705		25,814
Total revenue		189,050		122,229

Noninterest expenses:
Salaries and employee benefits		60,585		51,358
Communications and equipment		7,203		5,946
Occupancy		6,956		5,714
Advertising and public relations		1,199		1,274
Postage, printing and supplies		1,822		1,670
Professional fees		4,234		4,097
Lending and loan servicing expense		2,877		2,293
Outside services - electronic banking		2,218		1,832
FDIC assessments and other regulatory charges		1,896		1,484
Amortization of intangibles		985		1,040
Merger-related and other charges		1,543		808
Other		3,676��		4,022
Total noninterest expenses		95,194		81,538
Net income before income taxes		93,856		40,691
Income tax expense		20,150		8,807
Net income		$	73,706	$	31,884

Net income available to common shareholders		$	71,525	$	31,641

Net income per common share:
Basic		$	0.82	$	0.40
Diluted		0.82		0.40
Weighted average common shares outstanding:
Basic		87,322		79,340
Diluted		87,466		79,446

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 September 30,						Nine Months Ended September 30,						(in thousands)	Three Months Ended March 31,
		Before-tax Amount		Tax (Expense) Benefit		Net of Tax Amount		Before-tax Amount		Tax (Expense) Benefit		Net of Tax Amount				Before-tax Amount		Tax (Expense) Benefit		Net of Tax Amount
2020
2021														2021
Net income	Net income	$	59,362	$	(11,755)	$	47,607	$	132,072	$	(27,485)	$	104,587	Net income		$	93,856	$	(20,150)	$	73,706
Other comprehensive income:	Other comprehensive income:													Other comprehensive income:
Unrealized gains on available-for-sale securities:
Unrealized gains on available-for-sale securities		941		(181)		760		43,611		(10,583)		33,028
Reclassification adjustment for gains included in net income		(746)		191		(555)		(746)		191		(555)
Net unrealized gains		195		10		205		42,865		(10,392)		32,473
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity		544		(130)		414		723		(173)		550

Unrealized losses on available-for-sale securities														Unrealized losses on available-for-sale securities		(50,235)		12,550		(37,685)

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		(324)		83		(241)		(1,152)		294		(858)
Unrealized holding gains on derivatives arising during the period														Unrealized holding gains on derivatives arising during the period		5,783		(1,477)		4,306
Reclassification of losses on derivative instruments realized in net income	Reclassification of losses on derivative instruments realized in net income	130		(33)		97		197		(50)		147		Reclassification of losses on derivative instruments realized in net income		144		(37)		107
Net cash flow hedge activity	Net cash flow hedge activity	(194)		50		(144)		(955)		244		(711)		Net cash flow hedge activity		5,927		(1,514)		4,413

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	215		(55)		160		643		(164)		479		Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan		261		(67)		194

Total other comprehensive income		760		(125)		635		43,276		(10,485)		32,791
Total other comprehensive loss														Total other comprehensive loss		(44,047)		10,969		(33,078)
Comprehensive income	Comprehensive income	$	60,122	$	(11,880)	$	48,242	$	175,348	$	(37,970)	$	137,378	Comprehensive income		$	49,809	$	(9,181)	$	40,628

2019
2020														2020
Net income	Net income	$	62,345	$	(13,983)	$	48,362	$	176,815	$	(40,106)	$	136,709	Net income		$	40,691	$	(8,807)	$	31,884
Other comprehensive income:	Other comprehensive income:													Other comprehensive income:
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period		8,014		(1,897)		6,117		70,944		(17,194)		53,750
Reclassification adjustment for losses included in net income		0		0		0		118		(30)		88
Net unrealized gains		8,014		(1,897)		6,117		71,062		(17,224)		53,838
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity		105		(25)		80		282		(67)		215
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges		0		0		0		337		(86)		251

Unrealized gains on available-for-sale securities														Unrealized gains on available-for-sale securities		13,685		(3,433)		10,252

Defined benefit pension plan activity:
Termination of defined benefit pension plan		1,558		(398)		1,160		1,558		(398)		1,160
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		83		(20)		63

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	174		(45)		129		521		(133)		388		Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan		214		(54)		160
Net defined benefit pension plan activity		1,732		(443)		1,289		2,079		(531)		1,548

Total other comprehensive income	Total other comprehensive income	9,851		(2,365)		7,486		73,760		(17,908)		55,852		Total other comprehensive income		13,982		(3,507)		10,475
Comprehensive income	Comprehensive income	$	72,196	$	(16,348)	$	55,848	$	250,575	$	(58,014)	$	192,561	Comprehensive income		$	54,673	$	(12,314)	$	42,359

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 September 30, Nine Months Ended September 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 $ 96,660 $ 78,335 $ 10,646 $ 1,480,464 $ 64,990 $ 40,550 $ 1,771,645 $ 0 $ 79,014 $ 11,491 $ 1,496,641 $ 40,152 $ 8,394 $ 1,635,692
Net income 47,607 47,607 104,587 104,587
Other comprehensive income 635 635 32,791 32,791
Issuance of preferred stock (4,000 shares), net (238) (238) 96,422 96,422
Common stock issued to dividend reinvestment plan and
   employee benefit plans (37,863 and 59,455 shares, respectively)
38 614 652 60 1,018 1,078
Common stock issued for acquisition (8,130,633 shares) 8,131 155,458 163,589 8,131 155,458 163,589
Amortization of restricted stock unit awards 1,683 1,683 5,939 5,939
Vesting of restricted stock unit awards, net of shares surrendered
   to cover payroll taxes (89,095 and 151,347 shares issued,
   respectively, and 13,164 and 37,509 shares deferred,
   respectively)
89 332 (1,064) (643) 151 1,008 (2,481) (1,322)
Purchases of common stock (826,482 shares) 0 (827) (19,955) (20,782)
Deferred compensation plan, net, including dividend
equivalents 113 113 380 380
Common stock issued from deferred compensation plan, net of
   shares surrendered to cover payroll taxes (18,396 and 82,432
   shares, respectively)
18 (459) 312 (129) 82 (2,247) 847 (1,318)
Preferred stock dividends (1,814) (1,814) (1,814) (1,814)
Common stock dividends ($0.18 and $0.54 per share,
   respectively)
(15,845) (15,845) (44,458) (44,458)
Adoption of new accounting standard — (3,529) (3,529)
Balance, September 30, 2020 $ 96,422 $ 86,611 $ 10,632 $ 1,637,467 $ 94,938 $ 41,185 $ 1,967,255 $ 96,422 $ 86,611 $ 10,632 $ 1,637,467 $ 94,938 $ 41,185 $ 1,967,255
2019
Balance at beginning of period $ 0 $ 79,075 $ 10,858 $ 1,498,740 $ (29,116) $ 6,777 $ 1,566,334 $ 0 $ 79,234 $ 10,744 $ 1,499,584 $ (90,419) $ (41,589) $ 1,457,554
Net income 48,362 48,362 136,709 136,709
Other comprehensive income 7,486 7,486 55,852 55,852
Exercise of stock options (12,000 shares) 0 12 185 197
Common stock issued to dividend reinvestment plan and
  employee benefit plans (34,190 and 76,613 shares,
  respectively)
34 879 913 76 1,928 2,004
Amortization of restricted stock unit awards 1,678 1,678 7,680 7,680
Vesting of restricted stock unit awards, net of shares surrendered
   to cover payroll taxes (60,199 and 81,178 shares issued,
   respectively, and 14,919 and 51,580 shares deferred,
   respectively)
60 356 (1,046) (630) 81 1,365 (2,468) (1,022)
Purchases of common stock (195,443 and 500,495 shares,
  respectively)
(195) (4,985) (5,180) (500) (12,520) (13,020)
Deferred compensation plan, net, including dividend
equivalents 114 114 406 406
Common stock issued from deferred compensation plan, net of
  shares surrendered to cover payroll taxes (34 and
  70,826 shares, respectively)
(1) 1 0 71 (1,188) 878 (239)
Common stock dividends ($0.17 and $0.50 per share,
  respectively)
(13,652) (13,652) (40,147) (40,147)
Adoption of new accounting standard — (549) (549)
Balance, September 30, 2019 $ 0 $ 78,974 $ 11,327 $ 1,495,267 $ 5,594 $ 14,263 $ 1,605,425 $ 0 $ 78,974 $ 11,327 $ 1,495,267 $ 5,594 $ 14,263 $ 1,605,425


	Shares of Common Stock	Preferred Stock		Common Stock		Common Stock Issuable		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total

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										73,706				73,706
Other comprehensive loss												(33,078)		(33,078)

Preferred stock dividends										(1,719)				(1,719)
Common stock dividends ($0.19 per share)										(16,671)				(16,671)

Impact of equity-based compensation awards	35,170			36		576		404						1,016
Impact of other United sponsored equity plans	66,059			66		(946)		1,180						300
Balance at March 31, 2021	86,776,508	$	96,422	$	86,777	$	10,485	$	1,640,583	$	192,185	$	4,632	$	2,031,084

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										31,884				31,884
Other comprehensive income												10,475		10,475
Purchases of common stock	(826,482)			(827)				(19,955)						(20,782)
Common stock dividends ($0.18 per share)										(14,301)				(14,301)
Impact of equity-based compensation awards	24,005			24		665		1,315						2,004
Impact of other United sponsored equity plans	72,292			73		(1,622)		718						(831)
Adoption of new accounting standard										(3,529)				(3,529)
Balance at March 31, 2020	78,283,544	$	0	$	78,284	$	10,534	$	1,478,719	$	54,206	$	18,869	$	1,640,612

See accompanying notes to consolidated financial statements (unaudited).


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


		Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	104,587	$	136,709	Net income	$	73,706	$	31,884
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		5,332		18,009
Provision for credit losses		77,527		9,650
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net						Depreciation, amortization and accretion, net	(681)		1,894
(Release of) provision for credit losses						(Release of) provision for credit losses	(12,281)		22,191
Stock based compensation	Stock based compensation	5,939		7,680		Stock based compensation	1,507		2,492
Deferred income tax expense	Deferred income tax expense	189		12,149		Deferred income tax expense	9,172		1,292
Securities (gains) losses, net		(746)		118
Gains from sales of other loans		(3,889)		(4,783)

Gains from sales of other loans, net						Gains from sales of other loans, net	(1,030)		(1,674)

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	(44,570)		(47,543)		Other assets and accrued interest receivable	15,165		(45,851)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(20,869)		(188)		Accrued expenses and other liabilities	8,652		8,456
Loans held for sale	Loans held for sale	(69,875)		(35,690)		Loans held for sale	(59,546)		(31,475)
Net cash provided by operating activities		53,625		96,111
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	34,664		(10,791)

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	45,171		39,787		Proceeds from maturities and calls	24,629		9,085
Purchases	Purchases	(105,622)		(8,499)		Purchases	(192,541)		(15,989)
Debt securities available-for-sale and equity securities:
Debt securities available-for-sale:						Debt securities available-for-sale:
Proceeds from sales	Proceeds from sales	40,365		225,883		Proceeds from sales	0		1,000
Proceeds from maturities and calls	Proceeds from maturities and calls	604,180		238,514		Proceeds from maturities and calls	184,352		105,247
Purchases	Purchases	(668,484)		(45,629)		Purchases	(759,874)		(70,075)
Net increase in loans	Net increase in loans	(1,523,516)		(296,076)		Net increase in loans	(292,603)		(110,222)
Equity investments, outflows						Equity investments, outflows	(5,753)		(4,330)
Equity investments, inflows						Equity investments, inflows	4,984		0

Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	641		5,870		Proceeds from sales of premises and equipment	287		102
Purchases of premises and equipment	Purchases of premises and equipment	(5,991)		(16,532)		Purchases of premises and equipment	(2,490)		(2,596)
Net cash received in (paid for) acquisition		194,606		(19,545)

Proceeds from sale of other real estate	Proceeds from sale of other real estate	466		2,344		Proceeds from sale of other real estate	1,308		63
Other investing activities, net		(8,185)		0
Net cash (used in) provided by investing activities		(1,426,369)		126,117
Other investing activities						Other investing activities	430		2,730
Net cash used in investing activities						Net cash used in investing activities	(1,037,271)		(84,985)

Financing activities:	Financing activities:					Financing activities:
Net increase in deposits	Net increase in deposits	1,904,549		10,538		Net increase in deposits	761,630		137,783

Repayment of long-term debt	Repayment of long-term debt	0		(27,500)		Repayment of long-term debt	(15,632)		0
Proceeds from FHLB advances	Proceeds from FHLB advances	5,000		1,625,000		Proceeds from FHLB advances	5,000		5,000
Repayment of FHLB advances	Repayment of FHLB advances	(134,121)		(1,745,000)		Repayment of FHLB advances	(5,000)		(5,000)
Proceeds from issuance of senior debentures, net of issuance costs		98,552		0

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	1,078		2,004		Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans	248		199
Proceeds from exercise of stock options		0		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	(2,640)		(1,261)		Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock units	(574)		(1,674)
Proceeds from issuance of Series I preferred stock, net of issuance costs		96,422		0

Repurchase of common stock	Repurchase of common stock	(20,782)		(13,020)		Repurchase of common stock	0		(20,782)
Cash dividends on common stock	Cash dividends on common stock	(43,067)		(39,392)		Cash dividends on common stock	(15,852)		(14,454)
Cash dividends on preferred stock	Cash dividends on preferred stock	(1,814)		0		Cash dividends on preferred stock	(1,719)		0
Net cash provided by (used in) financing activities		1,903,177		(188,434)
Net cash provided by financing activities						Net cash provided by financing activities	728,101		101,072

Net change in cash and cash equivalents, including restricted cash		530,433		33,794
Net change in cash and cash equivalents						Net change in cash and cash equivalents	(274,506)		5,296

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		$	1,045,639	$	361,059
Cash and cash equivalents, at end of period						Cash and cash equivalents, at end of period	$	1,334,113	$	520,502

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	$	328	$	6,850	Unsettled government guaranteed loan sales	$	0	$	485
Transfers of loans to foreclosed properties	Transfers of loans to foreclosed properties	586		853		Transfers of loans to foreclosed properties	1,059		127
Unsettled securities purchases		30,045		0

Acquisitions:
Assets acquired		2,174,723		264,937
Liabilities assumed		1,987,026		212,844
Net assets acquired		187,697		52,093
Common stock issued in acquisition		163,589		0

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, including United Community Bank (the “Bank”), (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 nonaccrual 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 $1.52 million at September 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 September 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

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

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

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 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 uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2020, there was 0 ACL related to the available-for-sale portfolio.

~~Accrued interest receivable on available-for-sale debt securities totaled $8.93 million at September 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 $36.5 million at September 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 generally discontinued when a loan becomes 90 days past due or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectable in the normal course of business. A loan may continue to accrue interest after 90 days if it is well collateralized and in the process of collection. Past due status is based on contractual terms of the loan. Loans where United has granted payment deferrals for borrowers experiencing temporary cash flow shortages as a result of the COVID-19 pandemic are not considered past due.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for using 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 acquisitions, United may acquire 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 uncollectability 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 that 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

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

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

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 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

Recently Adopted Standards

~~On January 1, 2020, United adopted ASC 326~~, which replaced the incurred loss impairment framework in prior GAAP (“Incurred Loss”) with a current expected credit loss (“CECL”) framework. The CECL framework 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 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 to 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 TDR after the adoption of CECL will be reported as such.

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

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

United elected not to measure an ACL 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 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 includes a number of provisions that were applicable to United, including the following:~~

•~~Accounting Relief for TDRs~~: The CARES Act provides 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. This exemption period ends on the earlier of December 31, 2020 or the date that is 60 days after the termination date of the national emergency.

•~~Optional Delay and Regulatory Relief for CECL Implementation~~:The CARES Act stipulates 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 elected the five-year phase-in period for regulatory capital purposes, as discussed above.

•~~Paycheck Protection Program (“PPP”)~~: The CARES Act creates the PPP through the Small Business Administration (“SBA”), which allowed United to lend money to small businesses to maintain employee payrolls and pay other qualified expenses during the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the proceeds are used for payroll and other permitted expenses in accordance with the requirements of the PPP.

~~In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-03,~~ ~~Codification Improvements to Financial Instruments~~. This update clarified certain minor issues within the codification, including, among other things, debt securities disclosure for financial institutions and determination of the contractual term of a net investment in a lease. The standard was effective immediately, and did not have a material impact on the consolidated financial statements.

~~In March~~October 2020, the FASB issued ASU No. ~~2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~. This update provides expedients for contracts that are modified because 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,~~2020-10, Codification Improvements ~~to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments~~. In addition to ~~amending~~consolidating existing disclosure guidance ~~related~~into a single codification section to reduce the ~~new CECL standard,~~likelihood of a required disclosure being missed, this update clarifies ~~certain aspects~~the application of ~~hedge accounting and recognition and measurement of financial instruments.~~select guidance in cases where the original guidance may have been unclear. United adopted this update as of January 1, ~~2020,~~2021, with no material impact on the consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. This update eliminates Step 2 from the goodwill impairment test, which required an entity to calculate the implied fair value of goodwill by valuing a reporting unit’s assets and liabilities using the same process that would be required to value assets 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. United adopted this update as of January 1, 2020, with no material impact on the consolidated financial statements.

~~Accounting Standards Updates Not Yet Adopted~~

In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. This update clarifies that an entity should reevaluate whether a callable debt security meets the criteria to adjust the amortization period of any related premium at each reporting period. ~~Adoption of~~United adopted this update ~~which is effective for United~~ as of January 1, 2021, ~~is not expected to have a~~with no material impact on the consolidated financial statements.

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

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

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

1410

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 3 – ~~Acquisitions~~

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

On July 1, 2020, United completed the acquisition of Three Shores Bancorporation, Inc. (“Three Shores”), including its wholly-owned subsidiary, Seaside National Bank & Trust (“Seaside”), headquartered in Orlando, Florida. Seaside operated a 14-branch network located in key Florida metropolitan markets. In connection with the acquisition, United acquired $2.13 billion of assets and assumed $1.99 billion of liabilities. Under the terms of the merger agreement, Three Shores shareholders received $188 million in total consideration, of which $164 million was United common stock and $24.1 million was cash. United issued 8.13 million shares of common stock to Three Shores shareholders in the acquisition. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of $41.6 million, representing the intangible value of Three Shores’ business and reputation within the markets it served. NaN of the goodwill is expected to be deductible for income tax purposes. United will amortize the related core deposit intangible of $3.36 million using the sum-of-the-years-digits method over 10 years, which represents the expected useful life of the asset.

United’s operating results for the three and nine months ended September 30, 2020 include the operating results of the acquired business for the period subsequent to the acquisition date of July 1, 2020.

~~The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below~~ ~~(in thousands)~~.

As Recorded by
Three Shores
Fair Value
Adjustments (1)
As Recorded by
United
Assets
Cash and cash equivalents $ 218,714 $ 0 $ 218,714
Debt securities 374,237 7,503 381,740
Loans, net 1,463,567 (35,601) 1,427,966
Premises and equipment, net 1,892 (308) 1,584
Accrued interest receivable 8,849 (1,284) 7,565
Derivative assets 12,165 (365) 11,800
Net deferred tax asset 3,837 11,224 15,061
Core deposit intangible 0 3,360 3,360
Other assets 71,984 (6,644) 65,340
Total assets acquired $ 2,155,245 $ (22,115) $ 2,133,130
Liabilities
Deposits $ 1,796,739 $ 5,955 $ 1,802,694
FHLB advances and long-term debt 136,000 8,121 144,121
Derivative liabilities 12,165 0 12,165
Other liabilities 30,857 (2,811) 28,046
Total liabilities assumed 1,975,761 11,265 1,987,026
Excess of assets acquired over liabilities assumed $ 179,484
Aggregate fair value adjustments $ (33,380)
Total identifiable net assets 146,104
Consideration transferred
Cash consideration transferred 24,108
Common stock issued (8,130,633 shares) 163,589
Total fair value of consideration transferred 187,697
Goodwill $ 41,593

~~(1)~~ Fair values are preliminary and are subject to refinement for a period not to exceed one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

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

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

~~The following table presents additional information related to the acquired loan portfolio at the acquisition date~~ ~~(in thousands)~~.


	~~July 1, 2020~~
~~PCD loans:~~
~~Par value~~	$	~~283,137~~
~~ACL at acquisition~~	~~(11,152)~~
~~Non-credit discount~~	~~(8,694)~~
~~Purchase price~~	$	~~263,291~~

~~Non-PCD loans:~~
~~Fair value~~	$	~~1,164,675~~
~~Gross contractual amounts receivable~~	~~1,358,793~~
~~Estimate of contractual cash flows not expected to be collected~~	~~76,503~~

~~Pro forma information~~

The following table discloses the impact of the acquisitions of Three Shores and First Madison Bank & Trust (“FMBT”), which United acquired on May 1, 2019, since the respective acquisition dates through September 30 in the year of acquisition. The table also presents certain pro forma information as if Three Shores and FMBT had been acquired on January 1, 2019 and January 1, 2018, respectively. These results combine the historical results of the acquired entity with United’s consolidated statement of income. Adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity; however pro forma financial results presented are not necessarily indicative of what would have occurred had the acquisitions taken place in earlier years.

Merger-related costs from the Three Shores acquisition of $3.36 million and $3.86 million, respectively, have been excluded from the three and nine months ended September 30, 2020 pro forma information presented below and included in the three and nine months ended September 30, 2019 pro forma information presented below. Merger-related costs from the FMBT acquisition of $756,000 and $1.78 million, respectively, have been excluded from the three and nine months ended September 30, 2019 pro forma information presented below. The actual results and pro forma information were as follows ~~(in thousands)~~:

Three Months Ended
September 30, Nine Months Ended
September 30,
Revenue Net Income (Loss) Revenue Net Income (Loss)
2020
Actual Three Shores results included in statement of income since acquisition date $ 7,486 $ (129) $ 7,486 $ (129)
Supplemental consolidated pro forma as if Three Shores had been acquired January 1, 2019 152,257 47,827 418,950 112,103
2019
Actual FMBT results included in statement of income since acquisition date $ 2,697 $ 1,403 $ 5,024 $ 2,590
Supplemental consolidated pro forma as if Three Shores had been acquired on January 1, 2019 and FMBT had been acquired January 1, 2018 163,430 53,118 473,556 153,675

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

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

~~Note 4 –~~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 September 30, 2020
U.S. Government agencies $ 10,616 $ 146 $ 0 $ 10,762
State and political subdivisions 163,180 6,200 28 169,352
Residential mortgage-backed securities, Agency 125,011 5,149 0 130,160
Commercial mortgage-backed, Agency 99,566 4,104 124 103,546
Total $ 398,373 $ 15,599 $ 152 $ 413,820
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 March 31, 2021
U.S. Government agencies & GSEs	$	10,535	$	0	$	590	$	9,945
State and political subdivisions	238,813		4,670		5,655		237,828
Residential MBS, Agency & GSEs	135,156		3,923		1,231		137,848

Commercial MBS, Agency & GSEs	188,192		2,566		4,412		186,346

Supranational entities	15,000		0		139		14,861
Total	$	587,696	$	11,159	$	12,027	$	586,828

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 September 30, 2020
U.S. Treasuries $ 123,534 $ 5,000 $ 0 $ 128,534
U.S. Government agencies 51,312 491 58 51,745
State and political subdivisions 239,190 19,999 13 259,176
Residential mortgage-backed securities, Agency 1,038,637 31,772 276 1,070,133
Residential mortgage-backed securities, Non-agency 218,097 11,574 0 229,671
Commercial mortgage-backed, Agency 386,340 8,254 77 394,517
Corporate bonds 97,758 1,537 25 99,270
Asset-backed securities 458,741 509 1,848 457,402
Total $ 2,613,609 $ 79,136 $ 2,297 $ 2,690,448
As of December 31, 2019
U.S. Treasuries $ 152,990 $ 1,628 $ 0 $ 154,618
U.S. Government agencies 2,848 188 1 3,035
State and political subdivisions 214,677 11,813 0 226,490
Residential mortgage-backed securities, Agency 1,030,948 12,022 726 1,042,244
Residential mortgage-backed securities, Non-agency 250,550 6,231 0 256,781
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 March 31, 2021
U.S. Treasuries	$	123,817	$	3,752	$	0	$	127,569
U.S. Government agencies & GSEs	176,847		642		3,967		173,522
State and political subdivisions	280,171		16,782		2,559		294,394
Residential MBS, Agency & GSEs	1,493,149		24,604		15,928		1,501,825
Residential MBS, Non-agency	155,370		5,446		6		160,810
Commercial MBS, Agency & GSEs	728,584		5,265		15,555		718,294
Commercial MBS, Non-agency	15,337		1,427		0		16,764
Corporate bonds	69,828		1,076		294		70,610
Asset-backed securities	678,802		2,313		623		680,492
Total	$	3,721,905	$	61,307	$	38,932	$	3,744,280

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 ~~$903 million~~$1.23 billion and ~~$918 million~~$1.11 billion were pledged, primarily to secure public deposits, at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

1711

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 September 30, 2020
State and political subdivisions $ 4,972 $ 28 $ 0 $ 0 $ 4,972 $ 28
Residential mortgage-backed securities, Agency 124 0 0 0 124 0
Commercial mortgage-backed, Agency 3,462 124 0 0 3,462 124
Total unrealized loss position $ 8,558 $ 152 $ 0 $ 0 $ 8,558 $ 152
As of December 31, 2019
State and political subdivisions $ 10,117 $ 9 $ 0 $ 0 $ 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 March 31, 2021
U.S. Government agencies & GSEs	$	9,945	$	590	$	0	$	0	$	9,945	$	590
State and political subdivisions	152,811		5,655		0		0		152,811		5,655
Residential MBS, Agency & GSEs	39,628		1,231		0		0		39,628		1,231

Commercial MBS, Agency & GSEs	104,848		4,412		0		0		104,848		4,412

Supranational entities	14,861		139		0		0		14,861		139
Total unrealized loss position	$	322,093	$	12,027	$	0	$	0	$	322,093	$	12,027

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 September 30, 2020
U.S. Government agencies $ 7,442 $ 58 $ 0 $ 0 $ 7,442 $ 58
State and political subdivisions 6,182 13 0 0 6,182 13
Residential mortgage-backed securities, Agency 111,540 274 749 2 112,289 276
Commercial mortgage-backed, Agency 29,604 77 0 0 29,604 77
Corporate bonds 4,653 25 0 0 4,653 25
Asset-backed securities 110,018 266 58,305 1,582 168,323 1,848
Total unrealized loss position $ 269,439 $ 713 $ 59,054 $ 1,584 $ 328,493 $ 2,297
As of December 31, 2019
U.S. Government agencies $ 404 $ 1 $ 0 $ 0 $ 404 $ 1
Residential mortgage-backed securities, Agency 228,611 576 18,294 150 246,905 726
Commercial mortgage-backed, Agency 0 0 33,517 128 33,517 128
Commercial mortgage-backed, Non-agency 0 0 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 March 31, 2021

U.S. Government agencies & GSEs	$	116,612	$	3,967	$	0	$	0	$	116,612	$	3,967
State and political subdivisions	57,585		2,559		0		0		57,585		2,559
Residential MBS, Agency & GSEs	699,029		15,928		0		0		699,029		15,928
Residential MBS, Non-agency	841		1		2,454		5		3,295		6
Commercial MBS, Agency & GSEs	434,542		15,555		0		0		434,542		15,555

Corporate bonds	19,554		294		0		0		19,554		294
Asset-backed securities	153,436		293		48,142		330		201,578		623
Total unrealized loss position	$	1,481,599	$	38,597	$	50,596	$	335	$	1,532,195	$	38,932

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 ~~September 30, 2020,~~March 31, 2021, there were 57213 AFS debt securities ~~available-for-sale~~ and 460 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 ~~September 30, 2020~~March 31, 2021 were primarily attributable to changes in interest rates.

~~NaN impairment charges were recognized during the three~~At March 31, 2021 and ~~nine months ended September 30, 2019. At adoption of CECL on January 1, 2020 and at September 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 ~~September 30,~~March 31, 2021 or December 31, 2020. In addition, based on the assessments performed at ~~September 30,~~March 31, 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.

1812

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~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 securities sales activity~~presents accrued interest receivable for the ~~three~~periods indicated on HTM and ~~nine months ended September 30, 2020 and 2019~~AFS debt securities (in thousands)., which was excluded from the estimate of credit losses.

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Proceeds from sales $ 39,365 $ 0 $ 40,365 $ 225,883
Gross gains on sales $ 746 $ 0 $ 746 $ 1,776
Gross losses on sales — 0 0 (1,894)
Net gains (losses) on sales of securities $ 746 $ 0 $ 746 $ (118)
Income tax expense (benefit) attributable to sales $ 191 $ 0 $ 191 $ (30)


	Accrued Interest Receivable
Debt Securities:	March 31, 2021		December 31, 2020
HTM	$	2,242	$	1,784
AFS	9,524		9,114

The amortized cost and fair value of AFS and HTM debt securities ~~available-for-sale and held-to-maturity~~ at ~~September 30, 2020,~~March 31, 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.

Available-for-Sale Held-to-Maturity
Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries:
1 to 5 years $ 123,534 $ 128,534 $ 0 $ 0
123,534 128,534 0 0
U.S. Government agencies:
1 to 5 years 277 281 0 0
5 to 10 years 26,263 26,561 0 0
More than 10 years 24,772 24,903 10,616 10,762
51,312 51,745 10,616 10,762
State and political subdivisions:
Within 1 year 20,029 20,368 200 206
1 to 5 years 39,638 42,296 13,509 14,722
5 to 10 years 51,119 55,609 9,557 10,942
More than 10 years 128,404 140,903 139,914 143,482
239,190 259,176 163,180 169,352
Corporate bonds:
Within 1 year 37,498 37,759 0 0
1 to 5 years 36,373 37,316 0 0
5 to 10 years 20,111 20,380 0 0
More than 10 years 3,776 3,815 0 0
97,758 99,270 0 0
Debt securities not due at a single maturity date:
Asset-backed securities 458,741 457,402 0 0
Residential mortgage-backed securities 1,256,734 1,299,804 125,011 130,160
Commercial mortgage-backed securities 386,340 394,517 99,566 103,546
Total $ 2,613,609 $ 2,690,448 $ 398,373 $ 413,820


	AFS				HTM
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year:
U.S. Treasuries	$	44,901	$	45,525	$	0	$	0
U.S. Government agencies & GSEs	281		281		0		0
State and political subdivisions	20,010		20,120		1,700		1,732
Corporate bonds	11,633		11,722		0		0

	76,825		77,648		1,700		1,732
1 to 5 years:
U.S. Treasuries	78,916		82,044		0		0
U.S. Government agencies & GSEs	13,986		13,969		0		0
State and political subdivisions	41,787		44,194		14,504		15,899
Corporate bonds	41,532		42,211		0		0

	176,221		182,418		14,504		15,899
5 to 10 years:

U.S. Government agencies & GSEs	103,975		101,071		0		0
State and political subdivisions	90,926		94,548		18,964		19,654
Corporate bonds	15,886		15,794		0		0
Supranational entities	0		0		15,000		14,861
	210,787		211,413		33,964		34,515
More than 10 years:
U.S. Government agencies & GSEs	58,605		58,201		10,535		9,945
State and political subdivisions	127,448		135,532		203,645		200,543
Corporate bonds	777		883		0		0

	186,830		194,616		214,180		210,488
Debt securities not due at a single maturity date:
Asset-backed securities	678,802		680,492		0		0
Residential MBS	1,648,519		1,662,635		135,156		137,848
Commercial MBS	743,921		735,058		188,192		186,346

Total	$	3,721,905	$	3,744,280	$	587,696	$	586,828

1913

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 54 – 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).

September 30, 2020 December 31, 2019
Owner occupied commercial real estate $ 2,008,674 $ 1,720,227
Income producing commercial real estate 2,493,625 2,007,950
Commercial & industrial (1)
3,104,868 1,220,657
Commercial construction 981,371 976,215
Equipment financing 823,022 744,544
Total commercial 9,411,560 6,669,593
Residential mortgage 1,269,548 1,117,616
Home equity lines of credit 706,877 660,675
Residential construction 263,266 236,437
Consumer 147,659 128,232
Total loans 11,798,910 8,812,553
Less allowance for credit losses - loans (134,256) (62,089)
Loans, net $ 11,664,654 $ 8,750,464


	March 31, 2021		December 31, 2020
Owner occupied commercial real estate	$	2,107,153	$	2,090,443
Income producing commercial real estate	2,598,482		2,540,750
Commercial & industrial (1)	2,643,279		2,498,560
Commercial construction	960,153		967,305
Equipment financing	912,650		863,830
Total commercial	9,221,717		8,960,888
Residential mortgage	1,362,088		1,284,920
HELOC	679,094		697,117
Residential construction	271,600		281,430
Consumer	144,045		146,460


Total loans	11,678,544		11,370,815

Less allowance for credit losses - loans	(126,866)		(137,010)

Loans, net	$	11,551,678	$	11,233,805

(1) Commercial and industrial loans as of ~~September 30,~~March 31, 2021 and December 31, 2020 included ~~$1.32 billion~~$883 million and $646 million of PPP ~~loans.~~loans, respectively.

Accrued interest receivable related to loans totaled $33.3 million and $35.5 million at March 31, 2021 and December 31, 2020, respectively, and was reported in accrued interest receivable on the consolidated balance sheets.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, loans totaling $4.05 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 sold for the third quarter and first nine months of 2020, United sold $13.5 million and $31.5 million, respectively, of United States Small Business Administration / United States Department of Agriculture (“SBA/USDA”) guaranteed loans and $950,000 and $24.9 million, respectively, of equipment financing receivables. During the third quarter and first nine months of 2019, United sold $21.0 million and $55.2 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 March 31,
	2021		2020
Guaranteed portion of SBA/USDA loans	$	11,345	$	4,034
Equipment financing receivables	1,059		22,217
Total	$	12,404	$	26,251

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, equipment financing assets included leases of ~~$36.6~~$37.6 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).

September 30, 2020 December 31, 2019
Minimum future lease payments receivable $ 38,769 $ 39,709
Estimated residual value of leased equipment 3,361 3,631
Initial direct costs 678 842
Security deposits (782) (989)
Purchase accounting premium 149 273
Unearned income (5,531) (6,088)
Net investment in leases $ 36,644 $ 37,378

~~Minimum future lease payments expected to be received from equipment financing lease contracts as of September 30, 2020 were as follows~~ ~~(in thousands)~~:

Year
Remainder of 2020 $ 3,986
2021 14,203
2022 10,461
2023 6,495
2024 2,760
Thereafter 864
Total $ 38,769


	March 31, 2021		December 31, 2020
Minimum future lease payments receivable	$	39,720	$	38,934
Estimated residual value of leased equipment	3,433		3,263
Initial direct costs	686		672
Security deposits	(739)		(727)
Purchase accounting premium	93		117
Unearned income	(5,575)		(5,457)
Net investment in leases	$	37,618	$	36,802

2014

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~The following table presents changes in the balance~~

Minimum future lease payments expected to be received from equipment financing lease contracts as of ~~the accretable yield for PCI loans for the periods indicated~~March 31, 2021 were as follows (in thousands):

September 30, 2019
Three Months Ended Nine Months Ended
Balance at beginning of period $ 26,308 $ 26,868
Additions due to acquisitions 0 1,300
Accretion (4,950) (14,037)
Reclassification from nonaccretable difference 1,159 5,627
Changes in expected cash flows that do not affect nonaccretable difference 329 3,088
Balance at end of period $ 22,846 $ 22,846


Year
Remainder of 2021	$	11,794
2022	12,744
2023	8,597
2024	4,311
2025	2,091
Thereafter	183
Total	$	39,720

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 ~~September 30, 2020~~the dates indicated (in thousands). ~~Short-term deferrals~~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. Deferrals related to the COVID-19 crisis are not reported as past due during the deferral period.


		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				60 - 89 Days				> 90 Days						Nonaccrual Loans			Total Loans
As of March 31, 2021																												As of March 31, 2021
Owner occupied commercial real estate	Owner occupied commercial real estate			$	1,996,903			$	585			$	111			$	0				$	11,075				$	2,008,674		Owner occupied commercial real estate			$	2,097,553			$	540			$	1,152			$	0				$	7,908			$	2,107,153
Income producing commercial real estate	Income producing commercial real estate	2,479,614				996				785				0					12,230				2,493,625				Income producing commercial real estate				2,584,511				231				0				0					13,740				2,598,482
Commercial & industrial	Commercial & industrial	3,099,387				1,882				65				0					3,534				3,104,868			Commercial & industrial				2,628,764				638				13				0					13,864				2,643,279
Commercial construction	Commercial construction	979,169				339				0				0					1,863				981,371			Commercial construction				957,435				734				0				0					1,984				960,153
Equipment financing	Equipment financing	817,583				1,416				886				0					3,137				823,022			Equipment financing				908,694				1,470				315				0					2,171				912,650
Total commercial	Total commercial	9,372,656				5,218				1,847				0					31,839				9,411,560			Total commercial				9,176,957				3,613				1,480				0					39,667				9,221,717
Residential mortgage	Residential mortgage	1,252,937				2,481				266				0					13,864				1,269,548			Residential mortgage				1,345,427				2,547				64				0					14,050				1,362,088
Home equity lines of credit		702,457				1,532				246				0					2,642				706,877
HELOC																										HELOC				675,545				1,632				210				0					1,707				679,094
Residential construction	Residential construction	262,002				712				73				0					479				263,266			Residential construction				270,769				509				0				0					322				271,600
Consumer	Consumer	147,177				202				20				0					260				147,659			Consumer				143,669				188				34				0					154				144,045
Total loans																										Total loans				$	11,612,367			$	8,489			$	1,788			$	0				$	55,900			$	11,678,544

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	$	11,737,229			$	10,145			$	2,452			$	0				$	49,084			$	11,798,910		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.~~

2115

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
September 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 $ 8,335 $ 2,740 $ 11,075 $ 10,544
Income producing commercial real estate 7,181 5,049 12,230 1,996
Commercial & industrial 1,213 2,321 3,534 2,545
Commercial construction 1,428 435 1,863 2,277
Equipment financing 111 3,026 3,137 3,141
Total commercial 18,268 13,571 31,839 20,503
Residential mortgage 1,964 11,900 13,864 10,567
Home equity lines of credit 1,066 1,576 2,642 3,173
Residential construction 181 298 479 939
Consumer 219 41 260 159
Total $ 21,698 $ 27,386 $ 49,084 $ 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 $570,000 and $338,000 for the three months ended September 30, 2020 and 2019, respectively, and $1.70 million and $965,000 for the nine months ended September 30, 2020 and 2019, respectively.


	Nonaccrual Loans
	March 31, 2021						December 31, 2020
	With no allowance		With an allowance		Total		With no allowance		With an allowance		Total
Owner occupied commercial real estate	$	4,202	$	3,706	$	7,908	$	6,614	$	1,968	$	8,582
Income producing commercial real estate	8,264		5,476		13,740		10,008		5,141		15,149
Commercial & industrial	6,376		7,488		13,864		2,004		14,630		16,634
Commercial construction	1,480		504		1,984		1,339		406		1,745
Equipment financing	19		2,152		2,171		156		3,249		3,405
Total commercial	20,341		19,326		39,667		20,121		25,394		45,515
Residential mortgage	3,226		10,824		14,050		1,855		11,003		12,858
HELOC	45		1,662		1,707		1,329		1,158		2,487
Residential construction	0		322		322		274		240		514
Consumer	2		152		154		181		44		225
Total	$	23,614	$	32,286	$	55,900	$	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. 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.

2216

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 September 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 March 31, 2021																		As of March 31, 2021			2021			2020				2019				2018				2017				Prior
Pass																					Pass
Owner occupied commercial real estate																					Owner occupied commercial real estate		$	179,476			$	701,135			$	317,755			$	199,511			$	191,124			$	350,036			$	46,178			$	9,426			$	1,994,641
Income producing commercial real estate																					Income producing commercial real estate		182,686				804,728				368,588				338,718				236,773				327,673				26,325				12,336				2,297,827
Commercial & industrial																					Commercial & industrial		696,983				792,547				227,628				216,428				81,554				114,095				445,382				3,877				2,578,494
Commercial construction																					Commercial construction		112,225				297,204				191,433				168,966				44,357				20,829				14,333				4,058				853,405
Equipment financing																					Equipment financing		139,648				376,918				247,084				107,756				32,220				6,339				0				0				909,965
Total commercial																					Total commercial		1,311,018				2,972,532				1,352,488				1,031,379				586,028				818,972				532,218				29,697				8,634,332
Residential mortgage																					Residential mortgage		217,716				444,751				159,000				108,791				100,023				309,592				16				5,032				1,344,921
HELOC																					HELOC		0				0				0				0				0				0				660,070				16,513				676,583
Residential construction																					Residential construction		57,904				178,711				11,751				4,301				4,257				14,072				0				59				271,055
Consumer																					Consumer		16,880				44,170				21,069				11,063				3,378				3,979				42,517				681				143,737
																							1,603,518				3,640,164				1,544,308				1,155,534				693,686				1,146,615				1,234,821				51,982				11,070,628
Watch																					Watch
Owner occupied commercial real estate																					Owner occupied commercial real estate		7,364				7,861				18,539				4,203				3,681				16,321				100				0				58,069
Income producing commercial real estate																					Income producing commercial real estate		11,606				28,811				59,580				51,067				15,200				37,827				0				1,651				205,742
Commercial & industrial																					Commercial & industrial		145				2,463				14,537				542				1,387				490				7,758				224				27,546
Commercial construction																					Commercial construction		539				19,080				12,828				28,164				23,801				481				0				0				84,893
Equipment financing																					Equipment financing		0				0				0				0				0				0				0				0				0
Total commercial																					Total commercial		19,654				58,215				105,484				83,976				44,069				55,119				7,858				1,875				376,250
Residential mortgage																					Residential mortgage		0				0				0				0				0				0				0				0				0
HELOC																					HELOC		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
																							19,654				58,215				105,484				83,976				44,069				55,119				7,858				1,875				376,250
Substandard																					Substandard
Owner occupied commercial real estate																					Owner occupied commercial real estate		2,615				12,137				10,231				8,289				5,257				12,508				2,381				1,025				54,443
Income producing commercial real estate																					Income producing commercial real estate		6,259				40,630				7,590				2,114				5,588				32,639				0				93				94,913
Commercial & industrial																					Commercial & industrial		5,981				1,281				8,466				6,486				2,060				7,432				4,935				598				37,239
Commercial construction																					Commercial construction		676				2,804				645				13,699				335				2,689				0				1,007				21,855
Equipment financing																					Equipment financing		0				514				1,107				655				254				155				0				0				2,685
Total commercial																					Total commercial		15,531				57,366				28,039				31,243				13,494				55,423				7,316				2,723				211,135
Residential mortgage																					Residential mortgage		161				1,911				2,366				3,821				1,450				6,659				0				799				17,167
HELOC																					HELOC		0				0				0				0				0				0				79				2,432				2,511
Residential construction																					Residential construction		0				71				35				54				3				382				0				0				545
Consumer																					Consumer		0				0				76				46				45				117				0				24				308
	2020		2019		2018		2017		2016		Prior				Revolvers			Revolvers converted to term loans				Total				15,692				59,348				30,516				35,164				14,992				62,581				7,395				5,978				231,666

Owner occupied commercial real estate:
Pass	$	536,362	$	407,134	$	258,280	$	218,505	$	213,644	$	228,141	$	54,615		$	11,174		$	1,927,855
Watch	4,552		4,916		1,019		3,987		11,021		3,719		620			59			29,893
Substandard	5,790		8,091		8,669		13,647		2,652		8,756		2,049			1,272			50,926

Total owner occupied commercial real estate	546,704		420,141		267,968		236,139		227,317		240,616		57,284			12,505			2,008,674
Income producing commercial real estate:
Pass	630,081		509,098		480,546		280,614		229,065		205,567		32,717			9,243			2,376,931
Watch	22,380		2,986		5,670		1,459		23,550		10,806		0			1,749			68,600
Substandard	8,781		8,117		7,775		5,529		15,232		2,562		0			98			48,094

Total income producing commercial real estate	661,242		520,201		493,991		287,602		267,847		218,935		32,717			11,090			2,493,625
Commercial & industrial
Pass	1,658,045		342,311		285,481		130,740		103,886		55,855		466,479			5,834			3,048,631
Watch	1,068		1,949		1,183		522		697		31		10,461			100			16,011
Substandard	7,743		3,782		6,155		3,302		1,190		1,442		15,769			843			40,226

Total commercial & industrial	1,666,856		348,042		292,819		134,564		105,773		57,328		492,709			6,777			3,104,868
Commercial construction
Pass	245,348		236,060		244,892		103,853		73,063		13,586		20,576			7,310			944,688
Watch	1,479		585		13,940		11,789		13		83		0			0			27,889
Substandard	3,428		601		374		346		2,754		272		0			1,019			8,794

Total commercial construction	250,255		237,246		259,206		115,988		75,830		13,941		20,576			8,329			981,371
Equipment financing:
Pass	311,697		298,146		146,957		48,264		13,336		950		0			0			819,350
Substandard	116��		1,168		1,797		413		146		32		0			0			3,672

Total equipment financing	311,813		299,314		148,754		48,677		13,482		982		0			0			823,022
Residential mortgage:
Pass	325,928		229,881		150,863		140,749		138,321		258,641		19			7,264			1,251,666
Substandard	1,810		1,852		3,383		1,261		772		8,485		0			319			17,882

Total residential mortgage	327,738		231,733		154,246		142,010		139,093		267,126		19			7,583			1,269,548
Home equity lines of credit
Pass	0		0		0		0		0		0		684,273			18,743			703,016
Substandard	0		0		0		0		0		0		338			3,523			3,861
Total home equity lines of credit	0		0		0		0		0		0		684,611			22,266			706,877
Residential construction
Pass	157,893		75,907		5,167		5,026		3,851		14,663		0			70			262,577
Substandard	0		85		55		37		141		371		0			0			689
Total residential construction	157,893		75,992		5,222		5,063		3,992		15,034		0			70			263,266
Consumer
Pass	43,495		31,411		17,547		6,074		4,517		2,193		41,840			68			147,145
Watch	0		0		0		0		0		0		87			0			87
Substandard	2		84		36		110		86		105		0			4			427
Total consumer	43,497		31,495		17,583		6,184		4,603		2,298		41,927			72			147,659

Total loans
Pass	3,908,849		2,129,948		1,589,733		933,825		779,683		779,596		1,300,519			59,706			11,481,859
Watch	29,479		10,436		21,812		17,757		35,281		14,639		11,168			1,908			142,480
Substandard	27,670		23,780		28,244		24,645		22,973		22,025		18,156			7,078			174,571
Total loans	$	3,965,998	$	2,164,164	$	1,639,789	$	976,227	$	837,937	$	816,260	$	1,329,843		$	68,692		$	11,798,910

Total																					Total			$	1,638,864			$	3,757,727			$	1,680,308			$	1,274,674			$	752,747			$	1,264,315			$	1,250,074			$	59,835			$	11,678,544

2317

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	$	0	$	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		0		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		0		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		0		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		0		3,141		0		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		0		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		0		14,135		0		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		0		4,646		0		659,265
HELOC												HELOC	0		0		0		0		0		0		675,878				17,581				693,459
Residential construction	Residential construction	234,791		0		1,272		0		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		0		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		0		8,753,907

Watch												Watch
Owner occupied commercial real estate	Owner occupied commercial real estate	3,238		2,797		2,511		0		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		0		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		0		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		0		6,862		Commercial construction	21,366		272		816		23,292		11,775		477		0				0				57,998
Equipment financing	Equipment financing	3,952		0		33		0		3,985		Equipment financing	0		0		0		0		0		0		0				0				0
Total commercial	Total commercial	30,570		9,773		6,604		0		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		0		1,467		0		9,579		Residential mortgage	0		0		0		0		0		0		0				0				0
Home equity lines of credit		1,350		0		60		0		1,410
HELOC												HELOC	0		0		0		0		0		0		0				0				0
Residential construction	Residential construction	348		0		26		0		374		Residential construction	0		0		0		0		0		0		0				0				0
Consumer	Consumer	303		0		33		0		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		0		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	$	0	$	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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, United had TDRs totaling ~~$54.5~~$59.3 million and ~~$54.2~~$61.6 million, respectively. ~~United allocated $927,000 and $2.51 million~~As of ~~ACL for TDRs as of September 30, 2020~~March 31, 2021 and December 31, 2019, respectively. As of September 30, 2020, there were commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs totaling $14,000. As of December 31, 2019, there were 0 commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

~~As of September 30,~~ 2020, United had remaining ~~short-term~~ deferrals related to the COVID-19 ~~crisis~~pandemic of approximately ~~$365~~$48.1 million and $70.7 million, respectively, which generally represented payment deferrals for up to 90 days. To the extent that these deferrals qualified under either the CARES Act or interagency guidance, they were not considered new TDRs.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Loans modified under the terms of a TDR during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ 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
				Post-Modification 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					Number of Contracts		Rate Reduction	Structure		Other		Total		Number of Contracts		Amortized Cost
Three Months Ended September 30, 2020
Three Months Ended March 31, 2021																					Three Months Ended March 31, 2021
Owner occupied commercial real estate	Owner occupied commercial real estate	4		$	0		$	375		$	0		$	375		0		$	0		Owner occupied commercial real estate		0		$	0	$	0	$	0	$	0	0	$	0
Income producing commercial real estate	Income producing commercial real estate	2		0			0			1,617			1,617			0		0			Income producing commercial real estate		2		0		0		1,319		1,319		0	0
Commercial & industrial	Commercial & industrial	2		0			193			0			193			0		0			Commercial & industrial		2		0		0		103		103		1	11
Commercial construction	Commercial construction	6		0			577			70			647			0		0			Commercial construction		1		0		309		0		309		0	0
Equipment financing	Equipment financing	7		0			247			0			247			9		290			Equipment financing		28		0		2,136		0		2,136		3	62
Total commercial	Total commercial	21		0			1,392			1,687			3,079			9		290			Total commercial		33		0		2,445		1,422		3,867		4	73
Residential mortgage	Residential mortgage	25		0			3,200			0			3,200			0		0			Residential mortgage		1		0		69		0		69		3	413
Home equity lines of credit		4		0			164			0			164			0		0
HELOC																					HELOC		0		0		0		0		0		0	0
Residential construction	Residential construction	3		0			123			0			123			0		0			Residential construction		0		0		0		0		0		0	0
Consumer	Consumer	3		0			11			0			11			0		0			Consumer		0		0		0		0		0		0	0

Total loans	Total loans	56		$	0		$	4,890		$	1,687		$	6,577		9		$	290		Total loans		34		$	0	$	2,514	$	1,422	$	3,936	7	$	486

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2020																					Three Months Ended March 31, 2020
Owner occupied commercial real estate	Owner occupied commercial real estate	7		$	0		$	375		$	1,536		$	1,911		0		$	0		Owner occupied commercial real estate		1		$	0	$	0	$	990	$	990	0	$	0
Income producing commercial real estate	Income producing commercial real estate	5		0			67			1,782			1,849			1		5,998			Income producing commercial real estate		3		0		67		165		232		0	0
Commercial & industrial	Commercial & industrial	3		0			193			15			208			2		633			Commercial & industrial		0		0		0		0		0		1	6
Commercial construction	Commercial construction	7		0			832			70			902			0		0			Commercial construction		0		0		0		0		0		0	0
Equipment financing	Equipment financing	143		0			4,152			0			4,152			15		600			Equipment financing		7		0		434		0		434		0	0
Total commercial	Total commercial	165		0			5,619			3,403			9,022			18		7,231			Total commercial		11		0		501		1,155		1,656		1	6
Residential mortgage	Residential mortgage	36		0			4,122			0			4,122			0		0			Residential mortgage		5		0		278		0		278		0	0
Home equity lines of credit		4		0			164			0			164			0		0
HELOC																					HELOC		0		0		0		0		0		0	0
Residential construction	Residential construction	3		0			123			0			123			0		0			Residential construction		0		0		0		0		0		0	0
Consumer	Consumer	6		0			11			18			29			1		3			Consumer		2		0		0		11		11		1	3

Total loans	Total loans	214		$	0		$	10,039		$	3,421		$	13,460		19		$	7,234		Total loans		18		$	0	$	779	$	1,166	$	1,945	2	$	9

Three Months Ended September 30, 2019
Owner occupied commercial real estate		0		$	0		$	0		$	0		$	0		0		$	0
Income producing commercial real estate		0		0			0			0			0			0		0
Commercial & industrial		0		0			0			0			0			0		0
Commercial construction		0		0			0			0			0			0		0
Equipment financing		2		0			93			0			93			0		0
Total commercial		2		0			93			0			93			0		0
Residential mortgage		2		0			609			0			609			0		0
Home equity lines of credit		0		0			0			0			0			0		0
Residential construction		0		0			0			0			0			0		0
Consumer direct		3		0			0			21			21			0		0
Indirect auto		4		0			0			101			101			0		0
Total loans		11		$	0		$	702		$	122		$	824		0		$	0

Nine Months Ended September 30, 2019
Owner occupied commercial real estate		2		$	0		$	610		$	0		$	610		0		$	0
Income producing commercial real estate		1		0			169			0			169			0		0
Commercial & industrial		1		0			0			7			7			0		0
Commercial construction		0		0			0			0			0			0		0
Equipment financing		3		0			113			0			113			0		0
Total commercial		7		0			892			7			899			0		0
Residential mortgage		11		0			1,784			0			1,784			1		135
Home equity lines of credit		1		0			50			0			50			0		0
Residential construction		1		0			0			21			21			1		13
Consumer direct		3		0			0			21			21			0		0
Indirect auto		15		0			0			262			262			0		0
Total loans		38		$	0		$	2,726		$	311		$	3,037		2		$	148

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

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

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 March 31,
																								2021													2020
																								Beginning Balance					Charge-Offs		Recoveries			(Release) Provision			Ending Balance			Dec. 31, 2019 Balance			Adoption of CECL			Jan. 1, 2020 Balance					Charge-Offs		Recoveries			(Release) Provision			Ending Balance

		Three Months Ended September 30,
		CECL												Incurred Loss
		2020												2019
		Beginning Balance		Initial ACL -PCD loans (1)		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	$	14,592	$	1,779	$	0	$	725	$	2,278	$	19,374	$	11,545	$	0	$	39	$	(165)		$	11,419		Owner occupied commercial real estate	$	20,673				$	0		$	240		$	(1,631)		$	19,282		$	11,404		$	(1,616)	$	9,788				$	(6)		$	1,034		$	184	$	11,000
Income producing commercial real estate	Income producing commercial real estate	21,699		1,208		(3,033)		1,248		13,916		35,038		11,020		(472)		41		473			11,062			Income producing commercial real estate	41,737					(1,007)			16			(5,835)			34,911			12,306			(30)		12,276					(411)			141			4,578		16,584
Commercial & industrial	Commercial & industrial	8,589		7,680		(303)		408		5,150		21,524		5,308		(898)		207		773			5,390			Commercial & industrial	22,019					(2,894)			5,647			(3,022)			21,750			5,266			4,012		9,278					(7,561)			376			8,738		10,831
Commercial construction	Commercial construction	14,514		74		(487)		658		92		14,851		10,318		0		247		(158)			10,407			Commercial construction	10,952					(178)			156			(358)			10,572			9,668			(2,583)		7,085					0			141			2,330		9,556
Equipment financing	Equipment financing	20,305		0		(2,418)		425		(3,136)		15,176		6,935		(1,376)		202		1,485			7,246			Equipment financing	16,820					(2,058)			547			1,891			17,200			7,384			5,871		13,255					(1,863)			356			2,990		14,738
Residential mortgage	Residential mortgage	12,826		195		(13)		48		4,506		17,562		8,290		(264)		106		82			8,214			Residential mortgage	15,341					(215)			123			(669)			14,580			8,081			1,569		9,650					(284)			275			1,422		11,063
Home equity lines of credit		8,687		209		(44)		169		(300)		8,721		4,794		(287)		204		(28)			4,683
HELOC																						HELOC		8,417					0		73			(1,610)			6,880			4,575			1,919			6,494					(20)		103			310			6,887
Residential construction	Residential construction	1,997		0		(26)		26		(229)		1,768		2,365		(13)		18		181			2,551			Residential construction	764					(10)			70			538			1,362			2,504			(1,771)		733					(22)			34			71		816
Consumer	Consumer	460		7		(432)		511		(304)		242		855		(645)		226		441			877			Consumer	287					(471)			266			247			329			901			(491)		410					(638)			231			427		430
Indirect auto		0		0		0		0		0		0		774		(125)		67		(51)			665
Total allowance for loan losses		103,669		11,152		(6,756)		4,218		21,973		134,256		62,204		(4,080)		1,357		3,033			62,514
Allowance for unfunded commitments		12,100		—		—		—		(180)		11,920		3,391		—		—		67			3,458
Total allowance for credit losses		$	115,769	$	11,152	$	(6,756)	$	4,218	$	21,793	$	146,176	$	65,595	$	(4,080)	$	1,357	$	3,100		$	65,972
ACL - loans																						ACL - loans		137,010					(6,833)		7,138			(10,449)			126,866			62,089			6,880			68,969					(10,805)		2,691			21,050			81,905
ACL - unfunded commitments																						ACL - unfunded commitments		10,558					—		—			(1,832)			8,726			3,458			1,871			5,329					—		—			1,141			6,470
Total ACL																						Total ACL		$	147,568				$	(6,833)	$	7,138		$	(12,281)		$	135,592		$	65,547		$	8,751		$	74,298				$	(10,805)	$	2,691		$	22,191		$	88,375

~~(1)~~ ~~Represents the initial ACL related to PCD loans acquired in the Three Shores transaction.~~

Nine Months Ended September 30,
CECL Incurred Loss
2020 2019
Dec. 31, 2019
Balance Adoption of CECL Jan. 1, 2020
Balance
Initial ACL - PCD loans (1)
Charge-Offs Recoveries (Release) Provision Ending Balance Beginning
Balance Charge-
Offs Recoveries (Release)
Provision Ending
Balance
Owner occupied commercial real estate $ 11,404 $ (1,616) $ 9,788 $ 1,779 $ (6) $ 2,225 $ 5,588 $ 19,374 $ 12,207 $ (5) $ 166 $ (949) $ 11,419
Income producing commercial real estate 12,306 (30) 12,276 1,208 (8,033) 1,430 28,157 35,038 11,073 (977) 127 839 11,062
Commercial & industrial 5,266 4,012 9,278 7,680 (8,118) 1,075 11,609 21,524 4,802 (3,833) 645 3,776 5,390
Commercial construction 9,668 (2,583) 7,085 74 (726) 916 7,502 14,851 10,337 (70) 804 (664) 10,407
Equipment financing 7,384 5,871 13,255 0 (6,366) 1,201 7,086 15,176 5,452 (3,810) 466 5,138 7,246
Residential mortgage 8,081 1,569 9,650 195 (347) 379 7,685 17,562 8,295 (433) 388 (36) 8,214
Home equity lines of credit 4,575 1,919 6,494 209 (162) 468 1,712 8,721 4,752 (653) 466 118 4,683
Residential construction 2,504 (1,771) 733 0 (80) 97 1,018 1,768 2,433 (263) 91 290 2,551
Consumer 901 (491) 410 7 (1,782) 1,028 579 242 853 (1,721) 672 1,073 877
Indirect auto 0 0 0 0 0 0 0 0 999 (502) 151 17 665
Total allowance for credit losses - loans 62,089 6,880 68,969 11,152 (25,620) 8,819 70,936 134,256 61,203 (12,267) 3,976 9,602 62,514
Allowance for unfunded commitments 3,458 1,871 5,329 — — — 6,591 11,920 3,410 — — 48 3,458
Total allowance for credit losses $ 65,547 $ 8,751 $ 74,298 $ 11,152 $ (25,620) $ 8,819 $ 77,527 $ 146,176 $ 64,613 $ (12,267) $ 3,976 $ 9,650 $ 65,972

~~(1)~~ ~~Represents the initial ACL related to PCD loans acquired in the Three Shores transaction.~~

At March 31, 2021 and December 31, 2020, United used a one-year reasonable and supportable forecast period. Expected credit losses were estimated using a regression model for each segment based on historical data from peer banks combined with a third party

2619

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

As of January 1, 2020 and September 30, 2020, United used a one-year reasonable and supportable forecast period. Expected credit losses were estimated using a regression model based on historical data from peer banks which incorporates a third party vendor’s economic forecast to predict the change in credit losses. These results were then combined with a starting value that was based on United’s recent default ~~experience.~~experience, which was adjusted for select portfolios based on expectations of future performance. At ~~September 30,~~March 31, 2021, the third party vendor’s forecast, which was representative of a baseline scenario, improved significantly from December 31, 2020, including the ~~forecast indicated~~unemployment rate which has a ~~challenging economic environment due~~significant impact on our models and led to ~~high levels of unemployment, but also indicated mild improvement~~the negative provision for loan losses in the short term. The increase in the ACL compared to January 1, 2020 was primarily attributable to the worsening trends in the forecast at September 30, 2020 compared to the beginning of 2020, with the primary economic forecast driver being the change in unemployment claims due to policy decisions made in response to the COVID-19 pandemic. The forecasted economic outlook at September 30, 2020 improved compared to the forecast at June 30, 2020 due to actual economic performance in the interim time period, which contributed to a lower calculated ACL on certain portfolios, most notably equipment financing loans.first quarter. 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 ~~used a model overlay for the economic forecast for residential mortgage loans and~~applied qualitative factors to income producing commercial real estate, owner occupied commercial real estate and commercial construction portfolios to ~~moderate losses in those portfolios. The overlay at September 30, 2020 was eased compared to the one used at June 30, 2020 which, combined with~~compensate for elevated criticized and classified loan ~~growth, led to a higher calculated ACL on residential mortgage loans and all other commercial loan categories, as well as a higher coverage ratio on many of these portfolios.~~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 average default rates using peer data from 2000 to 2017. For loans secured by residential mortgages, the peer data was adjusted for changes in lending practices designed to prevent the magnitude of losses observed during the mortgage crisis.

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

~~Disaggregation of Incurred Loss Impairment Methodology~~

The following tables represent 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 0 9,668
Equipment financing 1,027 739,532 3,985 744,544 0 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 0 3,458 — 3,458
Total allowance for credit losses $ 2,512 $ 62,672 $ 363 $ 65,547

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

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

~~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 0 0 0
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

~~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 September 30, 2019 Nine Months Ended September 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 $ 18,759 $ 288 $ 290 $ 18,302 $ 846 $ 882
Income producing commercial real estate 10,906 144 153 12,941 523 529
Commercial & industrial 2,133 48 54 1,921 74 89
Commercial construction 3,316 38 39 3,029 113 114
Equipment financing 66 3 3 29 3 3
Total commercial 35,180 521 539 36,222 1,559 1,617
Residential mortgage 16,669 195 203 16,134 553 561
Home equity lines of credit 301 4 2 288 11 7
Residential construction 1,298 22 25 1,352 70 72
Consumer 204 4 4 197 11 11
Indirect auto 1,069 14 14 1,121 42 42
Total $ 54,721 $ 760 $ 787 $ 55,314 $ 2,246 $ 2,310

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

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

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):


	March 31, 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	$	7,780	$	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		7,780		0		140,000		3,378		0

Derivatives not designated as hedging instruments:
Customer derivative positions	1,349,716		43,777		13,623		1,329,271		72,508		17
Dealer offsets to customer derivative positions	1,349,716		982		15,226		1,329,271		1		24,614
Risk participations	62,592		1		22		48,843		28		12
Mortgage banking - loan commitment	234,659		5,957		0		253,243		10,751		0
Mortgage banking - forward sales commitment	421,547		3,050		0		325,145		0		1,964
Bifurcated embedded derivatives	51,935		2,350		19		51,935		0		1,449
Dealer offsets to bifurcated embedded derivatives	51,935		0		4,565		51,935		0		947
Total	3,522,100		56,117		33,455		3,389,643		83,288		29,003

Total derivatives	$	3,652,100	$	63,897	$	33,455	$	3,529,643	$	86,666	$	29,003

Total gross derivative instruments			$	63,897	$	33,455			$	86,666	$	29,003
Less: Amounts subject to master netting agreements			(571)		(571)				(114)		(114)
Less: Cash collateral received/pledged			(8,765)		(20,737)				(3,200)		(27,092)
Net amount			$	54,561	$	12,147			$	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 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)~~:

September 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 $ 0 $ 0 $ 0 $ 880
Cash flow hedge of subordinated debt 2,735 0 0 0
Total 2,735 0 0 880
Derivatives not designated as hedging instruments:
Customer derivative positions 87,978 1 27,277 446
Dealer offsets to customer derivative positions 1 30,260 394 6,425
Risk participations 13 15 0 12
Mortgage banking - loan commitment 12,381 0 1,970 0
Mortgage banking - forward sales commitment 280 776 98 86
Bifurcated embedded derivatives 0 1,938 5,268 0
Dealer offsets to bifurcated embedded derivatives 0 529 0 7,667
Total 100,653 33,519 35,007 14,636
Total derivatives $ 103,388 $ 33,519 $ 35,007 $ 15,516
Total gross derivative instruments $ 103,388 $ 33,519 $ 35,007 $ 15,516
Less: Amounts subject to master netting agreements (295) (295) (401) (401)
Less: Cash collateral received/pledged (2,466) (31,676) 0 (14,933)
Net amount $ 100,627 $ 1,548 $ 34,606 $ 182

2920

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Hedging Derivatives

Cash Flow Hedges of Interest Rate Risk

United enters into cash flow hedges to mitigate exposure to the variability of future cash flows or other forecasted transactions. ~~During the second quarter~~As of March 31, 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 ~~$581,000~~$587,000 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 nine months ended September 30, 2019. See Note 13 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.

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, United had ~~2 and 4, respectively,~~ interest rate swaps ~~with an aggregate notional amount of $20.0 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 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.

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

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

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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Total amounts presented in the consolidated statements of income $ 13,319 $ 21,277 $ 45,561 $ 63,531
Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements on derivatives 24 (97) 51 (300)
Recognized on derivatives (114) 71 1,068 671
Recognized on hedged items (5) (55) (996) (668)
Net income (expense) recognized on fair value hedges (95) (81) 123 (297)
Gains (losses) on active cash flow hedging relationships (1):
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income (2)
$ (130) $ 0 $ (197) $ 0
Net income (expense) recognized on cash flow hedges $ (130) $ 0 $ (197) $ 0


	Interest expense

	2021		2020
Three Months Ended March 31,
Total expense presented in the consolidated statements of income	$	(9,478)	$	(17,941)






Net income recognized on fair value hedges	78		5




Net expense recognized on cash flow hedges (1)	(144)		0

(1) ~~Excludes amortization of losses related to de-designated cash flow hedges. See Note 13 for further detail.~~

~~(2)~~Includes ~~$119,000 and $211,000~~$116,000 of premium amortization expense excluded from the assessment of hedge effectiveness for the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~March 31, 2021.

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).

September 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 $ (20,324) $ (351) $ (35,880) $ 645


	March 31, 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	$	(10,143)	$	(155)	$	(20,216)	$	(235)

Derivatives Not Designated as Hedging Instruments

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

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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 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.

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.

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

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

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


		Location of Gain (Loss) Recognized in Income on Derivatives		Amount of Gain (Loss) Recognized in Income on Derivatives																	Location of Gain (Loss) Recognized in Income on Derivatives				Amount of Gain (Loss) Recognized in Income on Derivatives
			Three Months Ended September 30,							Nine Months Ended September 30,													Three Months Ended March 31,
			2020			2019				2020				2019										2021			2020

Customer derivatives, dealer offsets and risk participations			Other noninterest income			$	2,258			$	648			$	4,846			$	2,371
Customer derivatives and dealer offsets																		Customer derivatives and dealer offsets			Other noninterest income				$	1,897		$	1,424
Bifurcated embedded derivatives and dealer offsets	Bifurcated embedded derivatives and dealer offsets		Other noninterest income			65				0				(158)				144		Bifurcated embedded derivatives and dealer offsets		Other noninterest income					459			(195)

De-designated hedges		Other noninterest income		0				0				0				(193)

Mortgage banking derivatives	Mortgage banking derivatives	Mortgage loan revenue		(2,554)				(49)				(2,454)				(987)		Mortgage banking derivatives			Mortgage loan revenue				3,836			(829)
Risk participations																		Risk participations			Other noninterest income				(205)			(17)
																									$	5,987		$	383
				$	(231)			$	599			$	2,234			$	1,335

Credit-Risk-Related Contingent Features

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

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

~~Note 7 – Goodwill and Other Intangible Assets~~

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. 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.

Since the latter part of the first 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 the first nine months of 2020. United generally performs its annual goodwill impairment assessment during the fourth quarter of each year, using data as of the end of the third quarter; however, as a result of this triggering event, management has qualitatively assessed and concluded that there was not a greater than 50% likelihood that United’s fair value was less than its carrying amount as of September 30, 2020, given the anticipated short duration of the change in macroeconomic conditions and excess of value as of the latest annual assessment performed as of September 30, 2019. Management will continue to monitor and assess the impact of the pandemic on the Company’s value as part of the annual goodwill assessment in the fourth quarter.

~~The carrying amount of goodwill and other intangible assets as of the dates indicated is summarized below~~ ~~(in thousands)~~:

September 30, 2020 December 31, 2019
Core deposit intangible $ 36,162 $ 32,802
Less: accumulated amortization (21,106) (17,980)
Net core deposit intangible 15,056 14,822
Goodwill 369,018 327,425
Total goodwill and other intangible assets, net $ 384,074 $ 342,247

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

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

~~The following is a summary of changes in the carrying amounts of goodwill~~ ~~(in thousands)~~:

Three Months Ended September 30, Nine Months Ended September 30,
2020 Goodwill Accumulated Impairment Losses Goodwill, net of Accumulated Impairment Losses Goodwill Accumulated Impairment Losses Goodwill, net of Accumulated Impairment Losses
Balance, beginning of period $ 633,015 $ (305,590) $ 327,425 $ 633,015 $ (305,590) $ 327,425
Acquisition of Three Shores 41,593 — 41,593 41,593 — 41,593
Balance, end of period $ 674,608 $ (305,590) $ 369,018 $ 674,608 $ (305,590) $ 369,018
2019
Balance, beginning of period $ 633,015 $ (305,590) $ 327,425 $ 612,702 $ (305,590) $ 307,112
Acquisition of FMBT 0 — 0 20,313 — 20,313
Balance, end of period $ 633,015 $ (305,590) $ 327,425 $ 633,015 $ (305,590) $ 327,425

~~The estimated aggregate amortization expense for future periods for core deposit intangibles is as follows~~ ~~(in thousands)~~:

Year
Remainder of 2020 $ 1,042
2021 3,622
2022 2,915
2023 2,321
2024 1,834
Thereafter 3,322
Total $ 15,056

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

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

~~Note 8 - Long-term Debt~~

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

September 30,
2020 December 31, 2019 Issue
Date Stated
Maturity
Date Earliest
Call
Date Interest Rate
Obligations of the Bank and its Subsidiaries:
2026 subordinated debentures $ 15,000 $ 0 2016 2026 2021 5.875% through August 2021, 3-month LIBOR plus 4.70% thereafter
$ 15,000 $ 0
Obligations of the Holding Company:
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 0 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 plus 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 (9,549) (8,588)
Total long-term debt $ 326,703 $ 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 Bank assumed, as part of the Three Shores acquisition, $15.0 million aggregate principal amount of subordinated debentures (the “2026 subordinated debentures”). The 2026 subordinated debentures are redeemable by the issuer, in whole or in part, on or after September 1, 2021 at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued but unpaid interest, and will mature on September 1, 2026.

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

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

~~The 2025 subordinated debentures are due on November 30, 2025, but United may prepay the notes at any time after November 30, 2020, subject to compliance with applicable laws.~~

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

~~Trust Preferred Securities~~

Beginning in the third quarter of 2020, trust preferred securities qualify as Tier 2 capital for United under risk based capital guidelines, subject to certain limitations. Prior to that date, trust preferred securities qualified as Tier 1 capital. The trust preferred securities are mandatorily redeemable upon maturity, or upon earlier redemption as provided in the indentures governing such securities.

~~Note 9 - Operating Leases~~

United’s leases for which it is the lessee consist of operating leases for land, buildings, and equipment. Payments related to these leases consist primarily of base rent and, in the case of building leases, additional operating costs associated with the leased property such as common area maintenance and utilities. In most cases, these operating costs vary over the term of the lease, and therefore are classified as variable lease costs, which are recognized as incurred in the consolidated statement of income. In addition, certain operating leases include costs such as property tax, sales tax, and insurance, which are recognized as incurred in the consolidated statement of income. Many of United’s operating leases contain renewal options, which are included in the measurement of the right-of-use asset and lease liability only to the extent they are reasonably certain to be exercised. United also subleases and leases certain real estate properties to third parties under operating leases. The following table presents the balances of United’s right-of-use asset and operating lease liability for the periods indicated ~~(in thousands)~~.

Balance Sheet Location September 30, 2020 December 31, 2019
Right-of-use asset Other assets $ 32,180 $ 19,894
Operating lease liability Other liabilities 33,968 22,039

During the nine months ended September 30, 2020, United obtained building and office space right-of-use assets resulting in an increase in its operating lease liability of $16.3 million. Leases assumed as part of the Three Shores transaction accounted for $15.1 million of the increase.

~~The table below presents the operating lease income and expense recognized for the periods indicated~~ ~~(in thousands)~~.

Three Months Ended
September 30, Nine Months Ended
September 30,
Income Statement Location 2020 2019 2020 2019
Operating lease cost Occupancy expense $ 1,947 $ 1,272 $ 4,500 $ 3,783
Variable lease cost Occupancy expense 264 112 493 336
Short-term lease cost Occupancy expense 27 52 80 92
Total lease cost $ 2,238 $ 1,436 $ 5,073 $ 4,211
Sublease income and rental income from owned properties under operating leases Other noninterest income $ 263 $ 261 $ 792 $ 886

As of September 30, 2020, the weighted average remaining lease term and weighted average discount rate of operating leases was 5.78 years and 1.84%, respectively. Absent a readily determinable interest rate in the lease agreement, the discount rate applied to each individual lease obligation was United’s incremental borrowing rate for secured borrowings.

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

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

~~As of September 30, 2020, future minimum lease payments under operating leases were as follows~~ ~~(in thousands)~~:

Year
Remainder of 2020 $ 1,365
2021 8,057
2022 7,493
2023 6,793
2024 3,295
Thereafter 8,746
Total 35,749
Less discount (1,781)
Present value of lease liability $ 33,968

Note 106 – 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.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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.

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.

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.

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

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

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 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

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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.

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.

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

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

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).

September 30, 2020 Level 1 Level 2 Level 3 Total
Assets:
Debt securities available-for-sale:
U.S. Treasuries $ 128,534 $ 0 $ 0 $ 128,534
U.S. Government agencies 0 51,745 0 51,745
State and political subdivisions 0 259,176 0 259,176
Residential mortgage-backed securities 0 1,299,804 0 1,299,804
Commercial mortgage-backed securities 0 394,517 0 394,517
Corporate bonds 0 97,520 1,750 99,270
Asset-backed securities 0 457,402 0 457,402
Equity securities with readily available fair values 573 830 0 1,403
Mortgage loans held for sale 0 128,587 0 128,587
Deferred compensation plan assets 9,001 0 0 9,001
Servicing rights for SBA/USDA loans 0 0 6,761 6,761
Residential mortgage servicing rights 0 0 14,367 14,367
Derivative financial instruments 0 90,590 12,798 103,388
Total assets $ 138,108 $ 2,780,171 $ 35,676 $ 2,953,955
Liabilities:
Deferred compensation plan liability $ 9,007 $ 0 $ 0 $ 9,007
Derivative financial instruments 0 31,037 2,482 33,519
Total liabilities $ 9,007 $ 31,037 $ 2,482 $ 42,526


December 31, 2019		Level 1		Level 2		Level 3		Total
March 31, 2021										March 31, 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	$	154,618	$	0	$	0	$	154,618	U.S. Treasuries	$	127,569	$	0	$	0	$	127,569
U.S. Agencies		0		3,035		0		3,035
U.S. Government agencies & GSEs										U.S. Government agencies & GSEs	0		173,522		0		173,522
State and political subdivisions	State and political subdivisions	0		226,490		0		226,490		State and political subdivisions	0		294,394		0		294,394
Residential mortgage-backed securities		0		1,299,025		0		1,299,025
Commercial mortgage-backed securities		0		284,953		0		284,953
Residential MBS										Residential MBS	0		1,662,635		0		1,662,635
Commercial MBS										Commercial MBS	0		735,058		0		735,058
Corporate bonds	Corporate bonds	0		202,093		998		203,091		Corporate bonds	0		68,860		1,750		70,610
Asset-backed securities	Asset-backed securities	0		103,369		0		103,369		Asset-backed securities	0		680,492		0		680,492
Equity securities with readily available fair values	Equity securities with readily available fair values	1,973		0		0		1,973		Equity securities with readily available fair values	921		1,056		0		1,977
Mortgage loans held for sale	Mortgage loans held for sale	0		58,484		0		58,484		Mortgage loans held for sale	0		164,979		0		164,979
Deferred compensation plan assets	Deferred compensation plan assets	8,133		0		0		8,133		Deferred compensation plan assets	10,133		0		0		10,133
Servicing rights for SBA/USDA loans	Servicing rights for SBA/USDA loans	0		0		6,794		6,794		Servicing rights for SBA/USDA loans	0		0		6,226		6,226
Residential mortgage servicing rights	Residential mortgage servicing rights	0		0		13,565		13,565		Residential mortgage servicing rights	0		0		20,728		20,728
Derivative financial instruments	Derivative financial instruments	0		27,769		7,238		35,007		Derivative financial instruments	0		55,589		8,308		63,897
Total assets	Total assets	$	164,724	$	2,205,218	$	28,595	$	2,398,537	Total assets	$	138,623	$	3,836,585	$	37,012	$	4,012,220

Liabilities:	Liabilities:									Liabilities:
Deferred compensation plan liability	Deferred compensation plan liability	$	8,132	$	0	$	0	$	8,132	Deferred compensation plan liability	$	10,156	$	0	$	0	$	10,156
Derivative financial instruments	Derivative financial instruments	0		6,957		8,559		15,516		Derivative financial instruments	0		28,849		4,606		33,455
Total liabilities	Total liabilities	$	8,132	$	6,957	$	8,559	$	23,648	Total liabilities	$	10,156	$	28,849	$	4,606	$	43,611

3824

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Notes to Consolidated Financial Statements (Unaudited)


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 & GSE's	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

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		AFS Debt Securities		Derivative Assets		Derivative Liabilities		SBA/USDA loan servicing rights		Residential mortgage servicing rights		AFS Debt Securities
Three Months Ended September 30,

Three Months Ended March 31,																						Three Months Ended March 31,
Balance at beginning of period	Balance at beginning of period	$	12,107	$	2,569	$	6,034	$	12,492	$	1,000	$	7,744	$	9,012	$	7,380	$	10,679	$	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	99		0		296		3,055		750		0		0		486		1,789		0		Additions	175		0		229		3,201		0		0		0		95		2,115		0

Sales and settlements	Sales and settlements	0		0		(100)		(723)		0		0		0		(286)		(416)		0		Sales and settlements	0		0		(191)		(1,129)		0		0		0		(307)		(493)		(1,000)
Other comprehensive income		0		0		0		0		0		0		0		0		0		3
Amounts included in OCI																						Amounts included in OCI	0		0		0		0		0		0		0		0		0		2
Amounts included in earnings - fair value adjustments	Amounts included in earnings - fair value adjustments	592		(87)		531		(457)		0		(1,501)		(2,299)		(334)		(963)		0		Amounts included in earnings - fair value adjustments	(2,646)		2,198		(274)		2,440		0		123		(5,842)		(292)		(4,128)		0
Balance at end of period	Balance at end of period	$	12,798	$	2,482	$	6,761	$	14,367	$	1,750	$	6,243	$	6,713	$	7,246	$	11,089	$	998	Balance at end of period	$	8,308	$	4,606	$	6,226	$	20,728	$	1,750	$	7,361	$	2,717	$	6,290	$	11,059	$	0

Nine Months Ended September 30,
Balance at beginning of period		$	7,238	$	8,559	$	6,794	$	13,565	$	998	$	11,841	$	15,732	$	7,510	$	11,877	$	995

Additions		106		0		694		8,387		1,750		0		0		1,266		3,880		0
Transfers into Level 3		583		0		0		0		0		0		0		0		0		0
Sales and settlements		0		0		(441)		(1,898)		(1,000)		(1,135)		(2,330)		(837)		(719)		0
Other comprehensive income		0		0		0		0		2		0		0		0		0		3
Amounts included in earnings - fair value adjustments		4,871		(6,077)		(286)		(5,687)		0		(4,463)		(6,689)		(693)		(3,949)		0
Balance at end of period		$	12,798	$	2,482	$	6,761	$	14,367	$	1,750	$	6,243	$	6,713	$	7,246	$	11,089	$	998

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

Weighted Average
Level 3 Assets and Liabilities Valuation Technique September 30,
2020 December 31, 2019
Unobservable Inputs
Servicing rights for SBA/USDA loans Discounted cash flow Discount rate 7.6 % 12.3 %
Prepayment rate 18.2 % 16.5 %
Residential mortgage servicing rights Discounted cash flow Discount rate 10.0 % 10.0 %
Prepayment rate 18.7 % 14.1 %
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
Derivative assets - customer derivative positions Internal model Probability of default rate 53.7 % N/A
Loss given default rate 100 % N/A
Derivative assets - mortgage Internal model Pull through rate 83.2 % 83.6 %
Derivative assets and liabilities - other Dealer priced Dealer priced N/A N/A
Derivative assets & liabilities - risk participations Internal model Probable exposure rate 1.05 % 0.36 %
Probability of default rate 1.88 % 1.80 %

3925

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

March 31, 2021

December 31, 2020

Range

Weighted Average

Range

Weighted Average

SBA/USDA loan servicing rights

Discounted cash flow

Discount rate

0% - 48.1%

9.2

1.6% - 44.1%

8.9

Prepayment rate

0.5 - 33.7

18.1

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

7.5 - 17.8

12.9

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

Derivative assets - mortgage

Internal model

Pull through rate

46.1 - 98.9

85.5

65.6 - 100

83.9

Derivative assets and liabilities - other

Dealer priced

N/A

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
September 30, 2020 December 31, 2019
Outstanding principal balance $ 121,687 $ 56,613
Fair value 128,587 58,484


Mortgage Loans Held for Sale
	March 31, 2021		December 31, 2020
Outstanding principal balance	$	161,534	$	99,746
Fair value	164,979		105,433

Amount of Gain (Loss) Recognized on
Mortgage Loans Held for Sale
Location Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Mortgage loan gains and other related fees $ 1,758 $ (2) $ 5,029 $ 873


Gain (Loss) Recognized on Mortgage Loans Held for Sale
Location	Three Months Ended March 31,
		2021		2020
Mortgage loan gains and other related fees		$	(2,242)	$	1,725

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 ~~September 30, 2020~~March 31, 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
September 30, 2020
Loans $ 0 $ 0 $ 16,350 $ 16,350
December 31, 2019
Loans $ 0 $ 0 $ 20,977 $ 20,977


	Level 1		Level 2		Level 3		Total
March 31, 2021
Loans	$	0	$	0	$	5,853	$	5,853

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

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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											Fair Value Level
		Carrying Amount		Level 1		Level 2		Level 3		Total			Carrying Amount		Level 1		Level 2		Level 3		Total
September 30, 2020
March 31, 2021												March 31, 2021
Assets:	Assets:											Assets:
Securities held-to-maturity		$	398,373	$	0	$	413,820	$	0	$	413,820
HTM debt securities												HTM debt securities	$	587,696	$	0	$	586,828	$	0	$	586,828
Loans and leases, net	Loans and leases, net	11,664,654		0		0		11,651,643		11,651,643		Loans and leases, net	11,551,678		0		0		11,574,199		11,574,199

Liabilities:	Liabilities:											Liabilities:
Deposits	Deposits	14,603,376		0		14,604,902		0		14,604,902		Deposits	15,993,220		0		15,993,408		0		15,993,408

Long-term debt	Long-term debt	326,703		0		0		332,869		332,869		Long-term debt	311,591		0		0		322,569		322,569

December 31, 2019
December 31, 2020												December 31, 2020
Assets:	Assets:											Assets:
Securities held-to-maturity		$	283,533	$	0	$	287,904	$	0	$	287,904
HTM debt securities												HTM debt securities	$	420,361	$	0	$	437,193	$	0	$	437,193
Loans and leases, net	Loans and leases, net	8,750,464		0		0		8,714,592		8,714,592		Loans and leases, net	11,233,805		0		0		11,209,717		11,209,717

Liabilities:	Liabilities:											Liabilities:
Deposits	Deposits	10,897,244		0		10,897,465		0		10,897,465		Deposits	15,232,358		0		15,232,274		0		15,232,274

Long-term debt	Long-term debt	212,664		0		0		217,665		217,665		Long-term debt	326,956		0		0		336,763		336,763

~~Note 11 – Common and Preferred Stock~~

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

~~In November of 2019, United’s Board of Directors authorized an expansion of the existing common stock repurchase plan~~Notes to authorize the repurchase of its common stock up to $50 million. The program is scheduled to expire on the earlier of United’s repurchase of its common stock having an aggregate purchase price of $50 million or December 31, 2020. Under the program, shares may be repurchased in the open market or in privately negotiated transactions, from time to time, subject to market conditions. NaN shares were repurchased during the three months ended September 30, 2020. During the three months ended September 30, 2019, 195,443 shares were repurchased under the program. During the nine months ended September 30, 2020 and 2019, 826,482 and 500,495 shares, respectively, were repurchased. As of September 30, 2020, United had remaining authorization to repurchase up to $29.2 million of outstanding common stock under the program.

During 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 $96.4 million and corresponding depositary shares each representing a 1/1,000th interest in one share of Preferred Stock. If declared, dividends are payable quarterly in arrears. 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 September 30, 2020, the Preferred Stock had a carrying amount of $96.4 million.Consolidated Financial Statements (Unaudited)

Note 127 – 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

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

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

unit awards provide for accelerated vesting if there is a change in control (as defined in the plan document). As of ~~September 30, 2020, 921,000~~March 31, 2021, 893,536 additional awards could be granted under the plan.

~~The following table shows stock option activity for the first nine months of September 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 September 30, 2020 0 0 0.00 $ 0
Exercisable at September 30, 2020 0 0 0.00 0

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 nine months ended September 30, 2020 and 2019. United recognized 0 compensation expense related to stock options during the nine months ended September 30, 2020 and 2019.

The table below presents restricted stock unit activity for the ~~first nine~~three months ~~of September 30, 2020.~~ended March 31, 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	426,107	18.99					Granted	45,471	28.65
Vested	Vested	(249,936)	26.50			$	5,379	Vested	(70,244)	29.35		$	2,317
Cancelled	Cancelled	(28,691)	26.08					Cancelled	(35,583)	26.15
Outstanding at September 30, 2020		955,904	24.11		3.4	16,183
Outstanding at March 31, 2021								Outstanding at March 31, 2021	833,075	23.45		28,425

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

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ expense of ~~$5.57~~$1.41 million and ~~$7.40~~$2.40 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 nine months ended September 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 $5.28 million for the nine months ended September 30, 2019~~ was ~~recognized~~included in salaries and employee benefits ~~expense, as was the entire amount for the nine months ended September 30, 2020.~~expense. In addition, for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, $100,000 and ~~2019, $367,000 and $283,000,~~$93,000, 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 ~~$1.52 million~~$385,000 and ~~$1.96 million~~$637,000 was included in the determination of income tax expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. As of ~~September 30, 2020,~~March 31, 2021, there was ~~$16.1~~$13.0 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 ~~2.7~~2.5 years. ~~As of September 30, 2020, there was 0 unrecognized expense related to non-vested stock options granted under the plan.~~

4228

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 138 – Reclassifications Out of ~~Accumulated Other Comprehensive Income~~AOCI

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

Details about Accumulated Other Comprehensive Income Components Three Months Ended
September 30, Nine Months Ended
September 30, Affected Line Item in the Statement Where Net Income is Presented
2020 2019 2020 2019
Realized gains (losses) on available-for-sale securities:
$ 746 $ 0 $ 746 $ (118) Securities gains (losses), net
(191) 0 (191) 30 Income tax (expense) benefit
$ 555 $ 0 $ 555 $ (88) Net of tax
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity:
$ (544) $ (105) $ (723) $ (282) Investment securities interest revenue
130 25 173 67 Income tax benefit
$ (414) $ (80) $ (550) $ (215) Net of tax
Reclassifications related to derivative financial instruments accounted for as cash flow hedges:
Interest rate contracts $ (130) $ 0 $ (197) $ 0 Long-term debt interest expense
Amortization of losses on
de-designated positions 0 0 0 (102) Deposit interest expense
Amortization of losses on
de-designated positions 0 0 0 (235) Other expense
(130) 0 (197) (337) Total before tax
33 0 50 86 Income tax benefit
$ (97) $ 0 $ (147) $ (251) Net of tax
Reclassifications related to defined benefit pension plan activity:
Prior service cost $ (133) $ (158) $ (398) $ (476) Salaries and employee benefits expense
Actuarial losses (82) (16) (245) (45) Other expense
Termination of defined benefit pension plan 0 (1,558) 0 (1,558) Merger-related and other charges
(215) (1,732) (643) (2,079) Total before tax
55 443 164 531 Income tax benefit
$ (160) $ (1,289) $ (479) $ (1,548) Net of tax
Total reclassifications for the period $ (116) $ (1,369) $ (621) $ (2,102) Net of tax



Details about AOCI Components	Three Months Ended March 31,			Affected Line Item in the Statement Where Net Income is Presented
		2021				2020






Amortization of losses included in net income on AFS securities transferred to HTM:
		$	0	$	(83)		Investment securities interest revenue
		0		20			Income tax benefit
		$	0	$	(63)		Net of tax

Reclassifications related to derivative financial instruments accounted for as cash flow hedges:
Interest rate contracts		$	(144)	$	0		Long-term debt interest expense



		37		0			Income tax benefit
		$	(107)	$	0		Net of tax




Reclassifications related to defined benefit pension plan activity:
Prior service cost		$	(117)	$	(133)		Salaries and employee benefits expense
Actuarial losses		(144)		(81)			Other expense

		(261)		(214)			Total before tax
		67		54			Income tax benefit
		$	(194)	$	(160)		Net of tax

Total reclassifications for the period		$	(301)	$	(223)		Net of tax

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

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

Note 149 – 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
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Net income $ 47,607 $ 48,362 $ 104,587 $ 136,709
Dividends on preferred stock (1,814) 0 (1,814) 0
Dividends and undistributed earnings allocated to unvested shares (356) (351) (779) (982)
Net income available to common shareholders $ 45,437 $ 48,011 $ 101,994 $ 135,727
Weighted average shares outstanding:
Basic 87,129 79,663 81,815 79,714
Effect of dilutive securities
Stock options 0 1 0 1
Restricted stock units 76 3 61 3
Diluted 87,205 79,667 81,876 79,718
Net income per common share:
Basic $ 0.52 $ 0.60 $ 1.25 $ 1.70
Diluted $ 0.52 $ 0.60 $ 1.25 $ 1.70


	Three Months Ended March 31,
		2021		2020
Net income		$	73,706	$	31,884
Dividends on preferred stock		(1,719)		0
Undistributed earnings allocated to participating securities		(462)		(243)
Net income available to common shareholders		$	71,525	$	31,641

Weighted average shares outstanding:
Basic		87,322		79,340
Effect of dilutive securities:

Restricted stock units		144		106
Diluted		87,466		79,446

Net income per common share:
Basic		$	0.82	$	0.40
Diluted		$	0.82	$	0.40

At ~~September 30, 2019,~~March 31, 2021, United had 0 potentially dilutive instruments outstanding that were not included in the above analysis. At March 31, 2020, 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.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1510 – Regulatory Matters

As of ~~September 30, 2020,~~March 31, 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 ~~September 30, 2020,~~March 31, 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 ~~September 30, 2020,~~March 31, 2021, and there have been no conditions or events since 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 after adoption.

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

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

Regulatory capital ratios at ~~September 30, 2020~~March 31, 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):


						United Community Banks, Inc. (Consolidated)						United Community Bank											United Community Banks, Inc. (Consolidated)						United Community Bank
		Minimum (1)		Well Capitalized		September 30, 2020			December 31, 2019			September 30, 2020			December 31, 2019				Minimum (1)		Well- Capitalized		March 31, 2021			December 31, 2020			March 31, 2021			December 31, 2020
Risk-based ratios:	Risk-based ratios:																	Risk-based ratios:
Common equity tier 1 capital		4.5	%	6.5	%	12.31		%	12.97		%	13.20		%	14.87		%
CET1 capital																		CET1 capital	4.5	%	6.5	%	12.34		%	12.31		%	12.80		%	13.31		%
Tier 1 capital	Tier 1 capital	6.0		8.0		13.12			13.21			13.20			14.87			Tier 1 capital	6.0		8.0		13.11			13.10			12.80			13.31
Total capital	Total capital	8.0		10.0		15.27			15.01			14.21			15.54			Total capital	8.0		10.0		14.92			15.15			13.66			14.28
Leverage ratio	Leverage ratio	4.0		5.0		9.38			10.34			9.42			11.63			Leverage ratio	4.0		5.0		9.39			9.28			9.13			9.42

Common equity tier 1 capital						$	1,459,152		$	1,275,148		$	1,559,356		$	1,458,720
CET1 capital																		CET1 capital					$	1,555,850		$	1,506,750		$	1,605,736		$	1,625,292
Tier 1 capital	Tier 1 capital					1,555,574			1,299,398			1,559,356			1,458,720			Tier 1 capital					1,652,272			1,603,172			1,605,736			1,625,292
Total capital	Total capital					1,810,503			1,476,302			1,678,689			1,524,267			Total capital					1,880,373			1,854,368			1,713,837			1,743,045
Risk-weighted assets	Risk-weighted assets					11,857,146			9,834,051			11,815,993			9,810,477			Risk-weighted assets					12,603,232			12,240,440			12,545,967			12,207,940
Average total assets for the leverage ratio	Average total assets for the leverage ratio					16,583,232			12,568,563			16,554,227			12,545,254			Average total assets for the leverage ratio					17,605,291			17,276,853			17,582,607			17,246,878

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

Note 1611 – 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).


		September 30, 2020		December 31, 2019			March 31, 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	$	2,993,692	$	2,126,275	Commitments to extend credit	$	3,156,771	$	3,052,657
Letters of credit	Letters of credit	32,702		22,533		Letters of credit	28,886		31,748

United holds minor investments in certain limited partnerships for Community Reinvestment Act purposes. As of ~~September 30, 2020,~~March 31, 2021, United had committed to fund an additional ~~$9.81~~$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 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.

4530

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1712 - Subsequent Events

~~On November 5, 2020, United’s Board~~During the second quarter of ~~Directors approved a regular quarterly cash dividend~~2021, through the date of ~~$0.18 per common share and a preferred stock dividend of $429.6875 per preferred share (equivalent to $0.4296875 per depositary share, or 1/1000 interest per share). The~~this Report, United repurchased 150,000 shares for $5.10 million in accordance with its common stock ~~dividend is payable January 5, 2021, to shareholders of record on December 15, 2020. The preferred stock dividend is payable December 15, 2020, to shareholders of record on November 30, 2020.~~repurchase plan.

~~In addition,~~United has provided a redemption notice to the ~~Board of Directors authorized an increase in the Company’s share repurchase program to $50 million of its outstanding common shares and extended the expiration~~holders of the ~~authorization~~2022 senior debentures of $50.0 million. Repayment is scheduled to ~~December 31,~~occur during the second quarter of 2021.

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

The following is a discussion of our financial condition at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 and our results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~September 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 ~~163-banking office~~161 branch network throughout ~~Florida,~~ Georgia, South Carolina, North Carolina, Tennessee and ~~Tennessee.~~Florida. We have grown organically as well as through strategic acquisitions. At March 31, 2021, we had consolidated total assets of $18.6 billion and 2,396 full-time equivalent employees.

Recent Developments

Mergers and Acquisitions

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

COVID-19

~~Recent Developments~~

During 2020 and continuing into 2021, the ~~first nine months~~effects 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~~including preventative and protective government issued mandates, 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~~These government mandates included restrictions on travel and business operations, ~~advising or requiring individuals to limit or forego time outside of their homes,~~stay-at-home advisories and ~~ordering~~requirements and temporary closures of businesses ~~that have been~~ deemed to be non-essential. ~~These measures have~~In turn, unemployment dramatically increased ~~unemployment~~ in the United States and, ~~have~~while it has receded from its highest levels, it continues to negatively ~~impacted~~impact many businesses, and thereby ~~threatened~~threatens the repayment ability of some of our borrowers.

~~To address~~ The distribution of COVID-19 vaccinations and reduction in COVID-19 cases since 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 includes a number of provisions that affect 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 establishes the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”), which allows us to lend money to small businesses to maintain employee payrolls and pay other qualified expensespeak during the ~~crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the proceeds are used for payroll~~fourth quarter of 2020 and ~~other permitted expenses~~beginning of 2021 has resulted in ~~accordance with the requirements~~a projected improved outlook of the ~~PPP, and~~pandemic. We nevertheless continue to monitor the ~~borrower meets certain other requirements.~~

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

~~In response to the~~COVID-19 pandemic ~~we have implemented protocols and processes to help protect our employees, customers and communities. These measures have included:~~

•~~Temporarily operating our branches under a drive-through model with appointment-only lobby service, leveraging~~on our business ~~continuity plans~~ and ~~capabilities that include critical operations teams being divided and dispersed~~ to ~~separate locations and, when possible, having employees work from home;~~

•~~Offering~~offer assistance to our customers affected by ~~the COVID-19 pandemic, including~~its economic impacts, through payment deferrals, waiving certain fees, suspending property foreclosures and participating in the CARES Act and ~~lending programs for businesses, including the SBA PPP;~~PPP.

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

•Issuing $100 million of non-cumulative perpetual preferred stock and $100 million of senior debentures to ensure our capital ratios and liquidity remain strong throughout the rapidly changing economic conditions.

Results of Operations

In connection with reviewing our financial condition in light of the pandemic, we evaluated certain assets, including goodwill and other intangibles, for potential impairment. Based upon our most recent review as of September 30, 2020, no impairments have occurred. We have also elected to delay for two years the phase-in of the capital impact from our adoption of CECL, 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 ~~Table 10 - COVID-19 Deferrals~~.

Given the unprecedented uncertainty and rapidly evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect impact on our business, 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, 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.

~~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 September 30, 2020, we had total consolidated assets of $17.2 billion, total loans of $11.8 billion, total deposits of $14.6 billion, and shareholders’ equity of $1.97 billion.~~ We reported net income and diluted earnings per common share of ~~$47.6~~$73.7 million ~~or $0.52 per diluted share,~~and $0.82, respectively, for the ~~third~~first quarter of ~~2020,~~2021. This compared to net income and diluted earnings per common share of ~~$48.4~~$31.9 million ~~or $0.60 per diluted share,~~and $0.40, respectively, for the ~~third quarter of 2019. For the nine months ended September 30, 2020, we~~same period in 2020.

We reported net income - operating (non-GAAP) of ~~$105~~$74.9 million ~~or $1.25 per diluted share, compared to $137 million, or $1.70 per diluted share,~~ for the first ~~nine months~~quarter of ~~2019. The decreases~~2021, compared to $32.5 million for the same period in 2020. For the first quarters of 2021 and 2020, net income - operating (non-GAAP) excludes merger-related and ~~earnings per share from 2019 reflect the economic impact~~other charges, which net of ~~the COVID-19 pandemic.~~tax, totaled $1.21 million and $626,000, respectively.

Net interest revenue increased to ~~$128~~$132 million for the ~~third~~first quarter of ~~2020,~~2021, compared to $119 million for the ~~third~~first quarter of ~~2019.~~2020, due to several factors including loan growth, mostly from the acquisition of Three Shores and addition of PPP loans, accelerated recognition of net deferred fees on forgiven and repaid PPP loans and a more favorable deposit mix, which included a reduction in higher cost time deposits and an increase in noninterest-bearing deposits. The net interest margin decreased to ~~3.27%~~3.22% for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~4.12%~~4.07% for the same period in ~~2019. For the nine months ended September 30,~~ 2020 net interest revenue was $356 million and the net interest margin was 3.55% compared to net interest revenue of $353 million and net interest margin of 4.11% for the same period in 2019. The decreases in net interest margin were primarily due to the effect of falling interest rates on our asset sensitive balance ~~sheet, which more than offset~~sheet.

We recorded a negative provision for credit losses of $12.3 million for the ~~positive impact~~first quarter of ~~continued growth~~2021, compared to $22.2 million of ~~our loan portfolio~~provision expense for the first quarter of 2020. The negative provision in 2021 resulted from a downward adjustment to the ACL, reflecting a combination of the Bank’s own credit trends and an improved economic forecast compared to the ~~reduction~~first quarter of ~~borrowed funds since September 30, 2019.~~2020.

The provision for credit losses ~~was $21.8 million for~~during the ~~third~~first quarter of 2020 reflected the economic forecast at the onset of the COVID-19 pandemic and increased charge-offs. We recognized net recoveries for the first quarter of 2021 of $305,000 compared to ~~$3.10~~$8.11 million ~~for the third quarter~~ of ~~2019. For the nine months ended September 30, 2020, the provision for credit losses was $77.5 million, compared to $9.65 million~~net charge-offs for the same period in ~~2019. The increase in provision expense for~~2020. During the ~~third~~first quarter ~~and first nine months~~ of ~~2020 reflected higher expected losses resulting~~2021, net recoveries were primarily ~~from the adoption of CECL and the macroeconomic effects~~a result of the ~~COVID-19 pandemic on our CECL calculation, as well as~~recovery of one loan charged off prior to 2021. During the ~~establishment of the initial allowance for credit losses (“ACL”) on non-purchased credit deteriorated loans~~

and unfunded commitments acquired from Three Shores. As a result, as of September 30, 2020, our ACL on loans was $134 million, or 1.14% of loans, compared to $62.1 million, or 0.70% of loans, at December 31, 2019. Net charge-offs for the thirdfirst quarter of 2020, ~~were $2.54 million compared to $2.72 million~~we also had one loan that elevated the level of charge-offs recorded for the ~~same period in 2019. At September 30, 2020 and December 31, 2019, nonperforming assets of $50.0 million and $35.8 million, respectively, were 0.29% and 0.28% of total assets, respectively.~~period.

Noninterest income of ~~$48.7~~$44.7 million for the ~~third~~first quarter of ~~2020~~2021 was up ~~$19.7~~$18.9 million, or ~~68%~~73%, from the ~~third~~first quarter of ~~2019.~~2020. The primary driver of the increase was a $14.3 million increase in mortgage loan gains and related fees, resulting from strong demand for mortgage originations and refinances in the low interest rate environment, as well as a positive fair value adjustment to our mortgage servicing right asset.

For the first quarter of 2021, noninterest expenses of $95.2 million increased $13.7 million, or 17%, compared to the same period of 2020. The increase was primarily attributable to ~~an increase in mortgage origination activity that resulted in~~ a ~~$16.5~~$9.23 million increase in mortgage fees. We closed $569 million in mortgage loans in the third quarter of 2020 compared with $330 million a year ago. Continued demand for customer derivative products in the low interest rate environmentsalaries and the addition of Three Shores’ wealth management business also contributed to the increase in noninterest income for the third quarter of 2020. These increases were partially offset by decreases in service charges and fees driven mostly by a reduction in overdraft transaction volume. For the first nine months of 2020, total noninterest incomeemployee benefits, which was ~~up $40.2 million compared to the same period of 2019, mostly~~ driven by ~~the same~~several factors, ~~affecting the quarter.~~

~~For the third quarter~~including higher mortgage commissions as a result of increased mortgage production and first nine months of 2020, noninterest expenses of $96.0 million and $261 million, respectively, increased $13.1 million and $20.7 million, respectively, from the same periods of 2019. Much of the increase reflects the inclusion of Three ~~Shores’ operating expenses. However, we also had increases in mortgage commissions and merit-based salary increases (awarded during~~Shores employees for the ~~second~~first quarter of 2020), which increased our salaries and employee benefit expense. We also made $1.50 million in charitable contributions to our newly formed United Community Bank Foundation, which elevated our advertising and public relations expense. In addition, FDIC assessments and other regulatory charges for the third quarter and nine months ended September 30, 2019, reflected a one-time $1.38 million credit, decreasing our expense for 2019.2021.

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 to be made 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 ACL 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 ACL 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 ACL; 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 ACL 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 ACL.~~in 2021.

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 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 $47.6 million and $0.52, respectively, for the third quarter of 2020. This compared to net income and diluted earnings per common share of $48.4 million and $0.60, respectively, for the same period in 2019. For the nine months ended September 30, 2020, we reported net income and diluted earnings per share of $105 million and $1.25, respectively, compared to net income and diluted earnings per share of $137 million and $1.70, respectively, for the same period in 2019.

We reported net income - operating (non-GAAP) of $50.4 million and $108 million for the third quarter and first nine months of 2020, compared to $50.4 million and $142 million for the same periods in 2019. For the third quarter and first nine months of 2020, net income - operating (non-GAAP) excludes merger-related and other charges, which net of tax, totaled $2.84 million and $3.78 million, respectively. For the third quarter of 2019, net income - operating (non-GAAP) excludes merger-related, pension termination and branch closure charges, which net of tax, totaled $2.01 million. For the first nine months of 2019, net income - operating (non-GAAP) excludes executive retirement charges as well as the items mentioned in the previous sentence, which net of tax, totaled $5.72 million.MD&A.

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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
		2020									2019						Third Quarter 2020 - 2019 Change			For the Nine Months Ended September 30,								YTD 2020 - 2019 Change			2021			2020												First Quarter 2021 - 2020 Change
(in thousands, except per share data)	(in thousands, except per share data)	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter					2020				2019				(in thousands, except per share data)			First Quarter		Fourth Quarter			Third Quarter			Second Quarter			First Quarter
INCOME SUMMARY	INCOME SUMMARY																														INCOME SUMMARY
Interest revenue	Interest revenue	$	141,773		$	123,605		$	136,547		$	136,419		$	140,615					$	401,925			$	416,287					Interest revenue	$	141,542		$	156,071		$	141,773		$	123,605		$	136,547
Interest expense	Interest expense	13,319			14,301			17,941			19,781			21,277						45,561				63,531						Interest expense	9,478			10,676			13,319			14,301			17,941
Net interest revenue	Net interest revenue	128,454			109,304			118,606			116,638			119,338			8	%		356,364				352,756				1	%	Net interest revenue	132,064			145,395			128,454			109,304			118,606				11	%
Provision for credit losses		21,793			33,543			22,191			3,500			3,100						77,527				9,650
(Release of) provision for credit losses																														(Release of) provision for credit losses	(12,281)			2,907			21,793			33,543			22,191
Noninterest income	Noninterest income	48,682			40,238			25,814			30,183			29,031			68			114,734				74,530				54		Noninterest income	44,705			41,375			48,682			40,238			25,814			73
Total revenue	Total revenue	155,343			115,999			122,229			143,321			145,269			7			393,571				417,636				(6)		Total revenue	189,050			183,863			155,343			115,999			122,229			55
Expenses	Expenses	95,981			83,980			81,538			81,424			82,924			16			261,499				240,821				9		Expenses	95,194			106,490			95,981			83,980			81,538			17
Income before income tax expense	Income before income tax expense	59,362			32,019			40,691			61,897			62,345			(5)			132,072				176,815				(25)		Income before income tax expense	93,856			77,373			59,362			32,019			40,691			131
Income tax expense	Income tax expense	11,755			6,923			8,807			12,885			13,983			(16)			27,485				40,106				(31)		Income tax expense	20,150			17,871			11,755			6,923			8,807			129
Net income	Net income	47,607			25,096			31,884			49,012			48,362			(2)			104,587				136,709				(23)		Net income	73,706			59,502			47,607			25,096			31,884			131
Merger-related and other charges	Merger-related and other charges	3,361			397			808			(74)			2,605						4,566				7,431						Merger-related and other charges	1,543			2,452			3,361			397			808
Income tax benefit of merger-related and other charges	Income tax benefit of merger-related and other charges	(519)			(87)			(182)			17			(600)						(788)				(1,712)						Income tax benefit of merger-related and other charges	(335)			(552)			(519)			(87)			(182)

Net income - operating (1)	Net income - operating (1)	$	50,449		$	25,406		$	32,510		$	48,955		$	50,367		—			$	108,365			$	142,428			(24)		Net income - operating (1)	$	74,914		$	61,402		$	50,449		$	25,406		$	32,510		130

PERFORMANCE MEASURES	PERFORMANCE MEASURES																													PERFORMANCE MEASURES
Per common share:	Per common share:																													Per common share:
Diluted net income - GAAP	Diluted net income - GAAP	$	0.52		$	0.32		$	0.40		$	0.61		$	0.60		(13)			$	1.25			$	1.70			(26)		Diluted net income - GAAP	$	0.82		$	0.66		$	0.52		$	0.32		$	0.40		105
Diluted net income - operating (1)	Diluted net income - operating (1)	0.55			0.32			0.41			0.61			0.63			(13)			1.29				1.77				(27)		Diluted net income - operating (1)	0.83			0.68			0.55			0.32			0.41			102
Cash dividends declared	Cash dividends declared	0.18			0.18			0.18			0.18			0.17			6			0.54				0.50				8		Cash dividends declared	0.19			0.18			0.18			0.18			0.18			6
Book value	Book value	21.45			21.22			20.80			20.53			20.16			6			21.45				20.16				6		Book value	22.15			21.90			21.45			21.22			20.80			6
Tangible book value (3)	Tangible book value (3)	17.09			16.95			16.52			16.28			15.90			7			17.09				15.90				7		Tangible book value (3)	17.83			17.56			17.09			16.95			16.52			8
Key performance ratios:	Key performance ratios:																													Key performance ratios:
Return on common equity - GAAP (2)(4)	Return on common equity - GAAP (2)(4)	10.06		%	6.17		%	7.85		%	12.07		%	12.16		%				8.11		%		11.83		%				Return on common equity - GAAP (2)(4)	15.37		%	12.36		%	10.06		%	6.17		%	7.85		%
Return on common equity - operating (1)(2)(4)	Return on common equity - operating (1)(2)(4)	10.69			6.25			8.01			12.06			12.67						8.40				12.32						Return on common equity - operating (1)(2)(4)	15.63			12.77			10.69			6.25			8.01
Return on tangible common equity - operating (1)(2)(3)(4)	Return on tangible common equity - operating (1)(2)(3)(4)	13.52			8.09			10.57			15.49			16.38						10.76				15.92						Return on tangible common equity - operating (1)(2)(3)(4)	19.68			16.23			13.52			8.09			10.57
Return on assets - GAAP (4)	Return on assets - GAAP (4)	1.07			0.71			0.99			1.50			1.51						0.93				1.45						Return on assets - GAAP (4)	1.62			1.30			1.07			0.71			0.99
Return on assets - operating (1)(4)	Return on assets - operating (1)(4)	1.14			0.72			1.01			1.50			1.58						0.97				1.51						Return on assets - operating (1)(4)	1.65			1.34			1.14			0.72			1.01
Dividend payout ratio - GAAP	Dividend payout ratio - GAAP	34.62			56.25			45.00			29.51			28.33						43.20				29.41						Dividend payout ratio - GAAP	23.17			27.27			34.62			56.25			45.00
Dividend payout ratio - operating (1)	Dividend payout ratio - operating (1)	32.73			56.25			43.90			29.51			26.98						41.86				28.25						Dividend payout ratio - operating (1)	22.89			26.47			32.73			56.25			43.90
Net interest margin (fully taxable equivalent) (4)		3.27			3.42			4.07			3.93			4.12						3.55				4.11
Net interest margin (FTE) (4)																														Net interest margin (FTE) (4)	3.22			3.55			3.27			3.42			4.07
Efficiency ratio - GAAP	Efficiency ratio - GAAP	54.14			55.86			56.15			54.87			55.64						55.30				56.09						Efficiency ratio - GAAP	53.55			56.73			54.14			55.86			56.15
Efficiency ratio - operating (1)	Efficiency ratio - operating (1)	52.24			55.59			55.59			54.92			53.90						54.34				54.36						Efficiency ratio - operating (1)	52.68			55.42			52.24			55.59			55.59
Equity to total assets	Equity to total assets	11.47			11.81			12.54			12.66			12.53						11.47				12.53						Equity to total assets	10.95			11.29			11.47			11.81			12.54

Tangible common equity to tangible assets (3)	Tangible common equity to tangible assets (3)	8.89			9.12			10.22			10.32			10.16						8.89				10.16						Tangible common equity to tangible assets (3)	8.57			8.81			8.89			9.12			10.22

ASSET QUALITY	ASSET QUALITY																													ASSET QUALITY
Nonperforming loans	Nonperforming loans	$	49,084		$	48,021		$	36,208		$	35,341		$	30,832		59			$	49,084			$	30,832			59		Nonperforming loans	$	55,900		$	61,599		$	49,084		$	48,021		$	36,208		54
Foreclosed properties	Foreclosed properties	953			477			475			476			102						953				102						Foreclosed properties	596			647			953			477			475
Total nonperforming assets ("NPAs")		50,037			48,498			36,683			35,817			30,934			62			50,037				30,934				62
Allowance for credit losses - loans		134,256			103,669			81,905			62,089			62,514			115			134,256				62,514				115
Total NPAs																														Total NPAs	56,496			62,246			50,037			48,498			36,683			54
ACL - loans																														ACL - loans	126,866			137,010			134,256			103,669			81,905			55
Net charge-offs	Net charge-offs	2,538			6,149			8,114			3,925			2,723			(7)			16,801				8,291				103		Net charge-offs	(305)			1,515			2,538			6,149			8,114
Allowance for credit losses - loans to loans		1.14		%	1.02		%	0.92		%	0.70		%	0.70		%				1.14		%		0.70		%
ACL - loans to loans																														ACL - loans to loans	1.09		%	1.20		%	1.14		%	1.02		%	0.92		%
Net charge-offs to average loans (4)	Net charge-offs to average loans (4)	0.09			0.25			0.37			0.18			0.12						0.22				0.13						Net charge-offs to average loans (4)	(0.01)			0.05			0.09			0.25			0.37
NPAs to loans and foreclosed properties	NPAs to loans and foreclosed properties	0.42			0.48			0.41			0.41			0.35						0.42				0.35						NPAs to loans and foreclosed properties	0.48			0.55			0.42			0.48			0.41
NPAs to total assets	NPAs to total assets	0.29			0.32			0.28			0.28			0.24						0.29				0.24						NPAs to total assets	0.30			0.35			0.29			0.32			0.28

AVERAGE BALANCES ($ in millions)	AVERAGE BALANCES ($ in millions)																													AVERAGE BALANCES ($ in millions)
Loans	Loans	$	11,644		$	9,773		$	8,829		$	8,890		$	8,836		32			$	10,088			$	8,647			17		Loans	$	11,433		$	11,595		$	11,644		$	9,773		$	8,829		29
Investment securities	Investment securities	2,750			2,408			2,520			2,486			2,550			8			2,560				2,701				(5)		Investment securities	3,991			3,326			2,750			2,408			2,520			58
Earning assets	Earning assets	15,715			12,958			11,798			11,832			11,568			36			13,498				11,534				17		Earning assets	16,782			16,394			15,715			12,958			11,798			42
Total assets	Total assets	17,013			14,173			12,944			12,946			12,681			34			14,718				12,600				17		Total assets	18,023			17,698			17,013			14,173			12,944			39
Deposits	Deposits	14,460			12,071			10,915			10,924			10,531			37			12,490				10,462				19		Deposits	15,366			15,057			14,460			12,071			10,915			41
Shareholders’ equity	Shareholders’ equity	1,948			1,686			1,653			1,623			1,588			23			1,763				1,533				15		Shareholders’ equity	2,025			1,994			1,948			1,686			1,653			23
Common shares - basic (thousands)	Common shares - basic (thousands)	87,129			78,920			79,340			79,659			79,663			9			81,815				79,714				3		Common shares - basic (thousands)	87,322			87,258			87,129			78,920			79,340			10
Common shares - diluted (thousands)	Common shares - diluted (thousands)	87,205			78,924			79,446			79,669			79,667			9			81,876				79,718				3		Common shares - diluted (thousands)	87,466			87,333			87,205			78,924			79,446			10

AT PERIOD END ($ in millions)	AT PERIOD END ($ in millions)																													AT PERIOD END ($ in millions)
Loans	Loans	$	11,799		$	10,133		$	8,935		$	8,813		$	8,903		33			$	11,799			$	8,903			33		Loans	$	11,679		$	11,371		$	11,799		$	10,133		$	8,935		31
Investment securities	Investment securities	3,089			2,432			2,540			2,559			2,515			23			3,089				2,515				23		Investment securities	4,332			3,645			3,089			2,432			2,540			71
Total assets	Total assets	17,153			15,005			13,086			12,916			12,809			34			17,153				12,809				34		Total assets	18,557			17,794			17,153			15,005			13,086			42
Deposits	Deposits	14,603			12,702			11,035			10,897			10,757			36			14,603				10,757				36		Deposits	15,993			15,232			14,603			12,702			11,035			45
Shareholders’ equity	Shareholders’ equity	1,967			1,772			1,641			1,636			1,605			23			1,967				1,605				23		Shareholders’ equity	2,031			2,008			1,967			1,772			1,641			24
Common shares outstanding (thousands)	Common shares outstanding (thousands)	86,611			78,335			78,284			79,014			78,974			10			86,611				78,974				10		Common shares outstanding (thousands)	86,777			86,675			86,611			78,335			78,284			11

(1) Excludes merger-related and other charges that includes termination of our funded 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.

5134

UNITED COMMUNITY BANKS, INC.
Table 1 (Continued) - Non-GAAP Performance Measures Reconciliation
Selected Financial Information
2020 2019 For the Nine Months Ended September 30,
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter 2020 2019
(in thousands, except per share data)
Expense reconciliation
Expenses (GAAP) $ 95,981 $ 83,980 $ 81,538 $ 81,424 $ 82,924 $ 261,499 $ 240,821
Merger-related and other charges (3,361) (397) (808) 74 (2,605) (4,566) (7,431)
Expenses - operating $ 92,620 $ 83,583 $ 80,730 $ 81,498 $ 80,319 $ 256,933 $ 233,390
Net income reconciliation
Net income (GAAP) $ 47,607 $ 25,096 $ 31,884 $ 49,012 $ 48,362 $ 104,587 $ 136,709
Merger-related and other charges 3,361 397 808 (74) 2,605 4,566 7,431
Income tax benefit of merger-related and other charges (519) (87) (182) 17 (600) (788) (1,712)
Net income - operating $ 50,449 $ 25,406 $ 32,510 $ 48,955 $ 50,367 $ 108,365 $ 142,428
Diluted income per common share reconciliation
Diluted income per common share (GAAP) $ 0.52 $ 0.32 $ 0.40 $ 0.61 $ 0.60 $ 1.25 $ 1.70
Merger-related and other charges, net of tax 0.03 — 0.01 — 0.03 0.04 0.07
Diluted income per common share - operating $ 0.55 $ 0.32 $ 0.41 $ 0.61 $ 0.63 $ 1.29 $ 1.77
Book value per common share reconciliation
Book value per common share (GAAP) $ 21.45 $ 21.22 $ 20.80 $ 20.53 $ 20.16 $ 21.45 $ 20.16
Effect of goodwill and other intangibles (4.36) (4.27) (4.28) (4.25) (4.26) (4.36) (4.26)
Tangible book value per common share $ 17.09 $ 16.95 $ 16.52 $ 16.28 $ 15.90 $ 17.09 $ 15.90
Return on tangible common equity reconciliation
Return on common equity (GAAP) 10.06 % 6.17 % 7.85 % 12.07 % 12.16 % 8.11 % 11.83 %
Merger-related and other charges, net of tax 0.63 0.08 0.16 (0.01) 0.51 0.29 0.49
Return on common equity - operating 10.69 6.25 8.01 12.06 12.67 8.40 12.32
Effect of goodwill and other intangibles 2.83 1.84 2.56 3.43 3.71 2.36 3.60
Return on tangible common equity - operating 13.52 % 8.09 % 10.57 % 15.49 % 16.38 % 10.76 % 15.92 %
Return on assets reconciliation
Return on assets (GAAP) 1.07 % 0.71 % 0.99 % 1.50 % 1.51 % 0.93 % 1.45 %
Merger-related and other charges, net of tax 0.07 0.01 0.02 — 0.07 0.04 0.06
Return on assets - operating 1.14 % 0.72 % 1.01 % 1.50 % 1.58 % 0.97 % 1.51 %
Dividend payout ratio reconciliation
Dividend payout ratio (GAAP) 34.62 % 56.25 % 45.00 % 29.51 % 28.33 % 43.20 % 29.41 %
Merger-related and other charges, net of tax (1.89) — (1.10) — (1.35) (1.34) (1.16)
Dividend payout ratio - operating 32.73 % 56.25 % 43.90 % 29.51 % 26.98 % 41.86 % 28.25 %
Efficiency ratio reconciliation
Efficiency ratio (GAAP) 54.14 % 55.86 % 56.15 % 54.87 % 55.64 % 55.30 % 56.09 %
Merger-related and other charges (1.90) (0.27) (0.56) 0.05 (1.74) (0.96) (1.73)
Efficiency ratio - operating 52.24 % 55.59 % 55.59 % 54.92 % 53.90 % 54.34 % 54.36 %
Tangible common equity to tangible assets reconciliation
Equity to total assets (GAAP) 11.47 % 11.81 % 12.54 % 12.66 % 12.53 % 11.47 % 12.53 %
Effect of goodwill and other intangibles (2.02) (2.05) (2.32) (2.34) (2.37) (2.02) (2.37)
Effect of preferred equity (0.56) (0.64) — — — (0.56) —
Tangible common equity to tangible assets 8.89 % 9.12 % 10.22 % 10.32 % 10.16 % 8.89 % 10.16 %


UNITED COMMUNITY BANKS, INC.
Table 1 (Continued) - Non-GAAP Performance Measures Reconciliation
Selected Financial Information
	2021			2020
(in thousands, except per share data)	First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter

Expense reconciliation
Expenses (GAAP)	$	95,194		$	106,490		$	95,981		$	83,980		$	81,538
Merger-related and other charges	(1,543)			(2,452)			(3,361)			(397)			(808)
Expenses - operating	$	93,651		$	104,038		$	92,620		$	83,583		$	80,730

Net income reconciliation
Net income (GAAP)	$	73,706		$	59,502		$	47,607		$	25,096		$	31,884
Merger-related and other charges	1,543			2,452			3,361			397			808
Income tax benefit of merger-related and other charges	(335)			(552)			(519)			(87)			(182)


Net income - operating	$	74,914		$	61,402		$	50,449		$	25,406		$	32,510

Diluted income per common share reconciliation
Diluted income per common share (GAAP)	$	0.82		$	0.66		$	0.52		$	0.32		$	0.40
Merger-related and other charges, net of tax	0.01			0.02			0.03			—			0.01


Diluted income per common share - operating	$	0.83		$	0.68		$	0.55		$	0.32		$	0.41

Book value per common share reconciliation
Book value per common share (GAAP)	$	22.15		$	21.90		$	21.45		$	21.22		$	20.80
Effect of goodwill and other intangibles	(4.32)			(4.34)			(4.36)			(4.27)			(4.28)
Tangible book value per common share	$	17.83		$	17.56		$	17.09		$	16.95		$	16.52

Return on tangible common equity reconciliation
Return on common equity (GAAP)	15.37		%	12.36		%	10.06		%	6.17		%	7.85		%
Merger-related and other charges, net of tax	0.26			0.41			0.63			0.08			0.16


Return on common equity - operating	15.63			12.77			10.69			6.25			8.01
Effect of goodwill and other intangibles	4.05			3.46			2.83			1.84			2.56
Return on tangible common equity - operating	19.68		%	16.23		%	13.52		%	8.09		%	10.57		%

Return on assets reconciliation
Return on assets (GAAP)	1.62		%	1.30		%	1.07		%	0.71		%	0.99		%
Merger-related and other charges, net of tax	0.03			0.04			0.07			0.01			0.02


Return on assets - operating	1.65		%	1.34		%	1.14		%	0.72		%	1.01		%

Dividend payout ratio reconciliation
Dividend payout ratio (GAAP)	23.17		%	27.27		%	34.62		%	56.25		%	45.00		%
Merger-related and other charges, net of tax	(0.28)			(0.80)			(1.89)			—			(1.10)


Dividend payout ratio - operating	22.89		%	26.47		%	32.73		%	56.25		%	43.90		%

Efficiency ratio reconciliation
Efficiency ratio (GAAP)	53.55		%	56.73		%	54.14		%	55.86		%	56.15		%
Merger-related and other charges	(0.87)			(1.31)			(1.90)			(0.27)			(0.56)
Efficiency ratio - operating	52.68		%	55.42		%	52.24		%	55.59		%	55.59		%

Tangible common equity to tangible assets reconciliation
Equity to total assets (GAAP)	10.95		%	11.29		%	11.47		%	11.81		%	12.54		%
Effect of goodwill and other intangibles	(1.86)			(1.94)			(2.02)			(2.05)			(2.32)

Effect of preferred equity	(0.52)			(0.54)			(0.56)			(0.64)			—
Tangible common equity to tangible assets	8.57		%	8.81		%	8.89		%	9.12		%	10.22		%

5235

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 generally 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 shareholders’ equity 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’~~shareholders’ equity.

Net interest revenue for the ~~third~~first quarters of 2021 and 2020 ~~and 2019~~ was ~~$128~~$132 million and $119 million, respectively. As set forth in the following ~~tables, fully taxable equivalent~~table, FTE net interest revenue for the ~~third~~first quarter of ~~2020~~2021 was ~~$129~~$133 million, representing an increase of ~~$9.37~~$13.6 million, or 8%11%, from the same period in ~~2019.~~2020. The net interest spread for the first quarters of 2021 and 2020 was 3.06% and 3.73%, respectively. The net interest margin for the ~~third quarter~~first quarters of ~~2020 of 3.06%~~2021 and 3.27%, respectively, decreased 66 basis points and 85 basis points, respectively, from the third quarter of 2019. For the first nine months of 2020 and 2019, net interest revenue was $356 million and $353 million, respectively. Fully taxable equivalent net interest revenue for the first nine months of 2020 was ~~$359 million, an increase of $4.14 million, or 1%~~3.22% and 4.07%, ~~from the first nine months of 2019.~~respectively.

The following ~~tables also indicate~~table indicates the relationship between interest revenue and expense and the average amounts of assets and liabilities for the periods indicated. ~~As shown in the tables, both~~Both average assets and average liabilities for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 increased compared to the same ~~periods~~period of ~~2019. For the third quarter of 2020, the~~2020. The increase in average assets was primarily driven by ~~the increase~~increases in average loans of ~~$2.81~~$2.60 billion, ~~or 32%, from~~average securities of $1.47 billion and interest-bearing deposits in banks of $909 million. The increase in average liabilities was primarily driven by the ~~third quarter of 2019,~~$4.45 billion increase in average deposits, which ~~reflects the PPP loans originated during the second quarter of 2020, the acquisition of Seaside, and organic growth, the combination of which more than offset the impact~~funded much of the ~~sale of the indirect auto portfolio on December 31, 2019. The increase~~growth in average assets for the three months ended ~~September 30, 2020~~March 31, 2021.

In addition to organic growth, the increases in average loans and deposits reflect loans and deposits acquired from Seaside and the addition of PPP loans to our loan portfolio. PPP loans also contributed to deposit growth, since in many cases the proceeds of PPP loans remained in United customer deposit accounts during the first quarter of 2021. Approximately $2.30 billion of the increase in average loans can be attributed to the Seaside and PPP loan portfolios. In addition, the forgiveness of PPP loans has generated additional liquidity, reflected in higher cash balances and a larger investment portfolio.

The increase in net interest revenue for the three months ended March 31, 2021 compared to the same period of ~~2019~~2020 was ~~funded~~ primarily ~~through an increase in average interest-bearing and noninterest-bearing customer deposits, including deposits received through~~driven by the acquisition of ~~Seaside.~~

~~The~~Seaside, the loan growth discussed above and accelerated recognition of net deferred PPP loan fees upon loan forgiveness or repayment. These contributors to net interest revenue were partially offset by the impact of historically low interest rates and a $2.59 million decrease in purchase loan accretion compared to the same period of 2020, which in turn negatively impacted our net interest margin and net interest spread. Additionally, while PPP loans have significantly contributed to loan growth over the past few quarters, the low contractual interest rate on these loans has exerted negative pressure on the net interest margin ~~during the three~~ and ~~nine months ended September 30, 2020, was primarily attributable to the~~net interest spread. The impact of ~~falling~~the decrease in net interest rates 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, whichmargin was ~~the most aggressive action taken~~partially mitigated by the ~~FOMC~~growth in noninterest-bearing deposits, which increased $2.07 billion since the ~~financial crisis in 2008. This followed three other federal funds rate reductions since second~~first quarter ~~2019~~ of ~~25 basis points each on July 31, September 18 and October 30. Although~~2020. Noninterest-bearing deposits comprised 36% of average total deposits for the first quarter of 2021 compared to 32% for the first quarter of 2020. The investment of excess cash into our securities portfolio also has helped improve the earning asset mix ~~generally improved as growth in~~and mitigate the ~~loan portfolio exceeded growth in the lower-yielding investment portfolio, lower-yielding PPP loans and cash balances exerted downward pressure on the margin. The negative~~ impact of ~~falling~~the low interest rates and the introduction of lower-yielding PPP loans and higher cash balances was partially mitigated by a more favorable funding mix. In the third quarter and first nine months of 2020, noninterest-bearing deposits funded 33% and 32%, respectively, of our interest-earning assets compared with 30% and 29%, respectively, for the same periods of 2019. Since the first quarter of 2019, we have reduced our use of wholesale funding sources, with the majority of our balance sheet funded with customer deposits as of September 30, 2020.rate environment.

5336


Table 2 - Average Consolidated Balance Sheets and Net Interest Analysis
For the Three Months Ended ~~September 30,~~March 31,


		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)	$	11,644,202	$	126,342	4.32	%	$	8,835,585	$	122,526	5.50	%	Loans, net of unearned income (FTE) (1)(2)	$	11,432,908	$	125,122	4.44	%	$	8,828,880	$	117,796	5.37	%
Taxable securities (3)	Taxable securities (3)	2,499,649		12,663		2.03		2,379,927		16,626		2.79		Taxable securities (3)	3,686,405		13,298		1.44		2,357,635		15,871		2.69
Tax-exempt securities (FTE) (1)(3)	Tax-exempt securities (FTE) (1)(3)	249,959		2,544		4.07		170,027		1,502		3.53		Tax-exempt securities (FTE) (1)(3)	304,983		2,888		3.79		162,253		2,045		5.04
Federal funds sold and other interest-earning assets	Federal funds sold and other interest-earning assets	1,321,445		1,132		0.34		182,935		616		1.35		Federal funds sold and other interest-earning assets	1,357,890		1,222		0.36		448,775		1,632		1.46
Total interest-earning assets (FTE)	Total interest-earning assets (FTE)	15,715,255		142,681		3.61		11,568,474		141,270		4.85		Total interest-earning assets (FTE)	16,782,186		142,530		3.44		11,797,543		137,344		4.68

Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Allowance for credit losses	Allowance for credit losses	(128,581)						(63,474)						Allowance for credit losses	(143,703)						(69,777)
Cash and due from banks	Cash and due from banks	135,949						116,922						Cash and due from banks	140,292						128,254
Premises and equipment	Premises and equipment	216,326						221,930						Premises and equipment	221,411						219,243
Other assets (3)	Other assets (3)	1,074,529						836,951						Other assets (3)	1,023,275						868,452
Total assets	Total assets	$	17,013,478					$	12,680,803					Total assets	$	18,023,461					$	12,943,715

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	NOW and interest-bearing demand	$	2,890,735	1,634		0.22		$	2,123,910	3,214		0.60		NOW and interest-bearing demand	$	3,331,043	1,486		0.18		$	2,412,733	2,978		0.50
Money market	Money market	3,501,781		3,017		0.34		2,277,162		5,126		0.89		Money market	3,732,988		1,804		0.20		2,340,723		4,531		0.78
Savings	Savings	864,849		47		0.02		695,297		41		0.02		Savings	989,584		49		0.02		712,110		35		0.02
Time	Time	1,933,764		4,127		0.85		1,879,801		8,053		1.70		Time	1,642,423		1,588		0.39		1,841,552		7,250		1.58
Brokered time deposits	Brokered time deposits	96,198		173		0.72		102,078		679		2.64		Brokered time deposits	75,259		292		1.57		80,821		281		1.40
Total interest-bearing deposits	Total interest-bearing deposits	9,287,327		8,998		0.39		7,078,248		17,113		0.96		Total interest-bearing deposits	9,771,297		5,219		0.22		7,387,939		15,075		0.82

Federal funds purchased and other borrowings	Federal funds purchased and other borrowings	4,405		2		0.18		73,733		429		2.31		Federal funds purchased and other borrowings	12		—		—		396		1		1.02
Federal Home Loan Bank advances	Federal Home Loan Bank advances	2,818		27		3.81		88,261		521		2.34		Federal Home Loan Bank advances	3,333		2		0.24		165		1		2.44
Long-term debt	Long-term debt	327,017		4,292		5.22		243,935		3,214		5.23		Long-term debt	317,172		4,257		5.44		212,762		2,864		5.41
Total borrowed funds	Total borrowed funds	334,240		4,321		5.14		405,929		4,164		4.07		Total borrowed funds	320,517		4,259		5.39		213,323		2,866		5.40
Total interest-bearing liabilities	Total interest-bearing liabilities	9,621,567		13,319		0.55		7,484,177		21,277		1.13		Total interest-bearing liabilities	10,091,814		9,478		0.38		7,601,262		17,941		0.95

Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Noninterest-bearing deposits	Noninterest-bearing deposits	5,172,999						3,453,174						Noninterest-bearing deposits	5,594,394						3,527,385
Other liabilities	Other liabilities	270,451						155,107						Other liabilities	312,610						162,187
Total liabilities	Total liabilities	15,065,017						11,092,458						Total liabilities	15,998,818						11,290,834
Shareholders' equity	Shareholders' equity	1,948,461						1,588,345						Shareholders' equity	2,024,643						1,652,881
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	17,013,478					$	12,680,803					Total liabilities and shareholders' equity	$	18,023,461					$	12,943,715

Net interest revenue (FTE)	Net interest revenue (FTE)			$	129,362					$	119,993			Net interest revenue (FTE)			$	133,052					$	119,403
Net interest-rate spread (FTE)	Net interest-rate spread (FTE)					3.06	%					3.72	%	Net interest-rate spread (FTE)					3.06	%					3.73	%
Net interest margin (FTE) (4)	Net interest margin (FTE) (4)					3.27	%					4.12	%	Net interest margin (FTE) (4)					3.22	%					4.07	%

(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 ~~$77.0~~$58.3 million and $52.9 million in 2021 and 2020, ~~and unrealized gains of $35.1 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.


~~Table 3 - Average Consolidated Balance Sheets and Net Interest Analysis~~
~~For the Nine Months Ended September 30,~~

2020 2019
(dollars in thousands, fully taxable equivalent (FTE)) Average Balance Interest Average Rate Average Balance Interest Average Rate
Assets:
Interest-earning assets:
Loans, net of unearned income (FTE) (1)(2)
$ 10,087,630 $ 351,536 4.65 % $ 8,646,622 $ 357,541 5.53 %
Taxable securities (3)
2,362,674 42,579 2.40 2,532,070 54,229 2.86
Tax-exempt securities (FTE) (1)(3)
197,231 6,699 4.53 168,787 4,579 3.62
Federal funds sold and other interest-earning assets 850,722 3,621 0.57 186,402 1,913 1.37
Total interest-earning assets (FTE) 13,498,257 404,435 4.00 11,533,881 418,262 4.85
Non-interest-earning assets:
Allowance for loan losses (96,235) (62,664)
Cash and due from banks 134,354 121,889
Premises and equipment 217,551 220,872
Other assets (3)
964,511 785,862
Total assets $ 14,718,438 $ 12,599,840
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and interest-bearing demand $ 2,583,911 6,240 0.32 $ 2,199,607 10,283 0.63
Money market 2,797,350 10,969 0.52 2,187,822 14,100 0.86
Savings 788,681 121 0.02 685,167 115 0.02
Time 1,860,597 17,435 1.25 1,761,374 20,338 1.54
Brokered time deposits 102,502 579 0.75 292,835 5,349 2.44
Total interest-bearing deposits 8,133,041 35,344 0.58 7,126,805 50,185 0.94
Federal funds purchased and other borrowings 1,611 3 0.25 44,898 838 2.50
Federal Home Loan Bank advances 1,001 28 3.74 142,876 2,695 2.52
Long-term debt 256,218 10,186 5.31 252,686 9,813 5.19
Total borrowed funds 258,830 10,217 5.27 440,460 13,346 4.05
Total interest-bearing liabilities 8,391,871 45,561 0.73 7,567,265 63,531 1.12
Noninterest-bearing liabilities:
Noninterest-bearing deposits 4,356,484 3,335,450
Other liabilities 206,904 164,350
Total liabilities 12,955,259 11,067,065
Shareholders' equity 1,763,179 1,532,775
Total liabilities and shareholders' equity $ 14,718,438 $ 12,599,840
Net interest revenue (FTE) $ 358,874 $ 354,731
Net interest-rate spread (FTE) 3.27 % 3.73 %
Net interest margin (FTE) (4)
3.55 % 4.11 %

~~(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 are shown at amortized cost. Pretax unrealized gains of $65.5 million in 2020 and unrealized gains of $4.94 million in 2019 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.~~

5537

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

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Compared to 2019
Increase (Decrease) Due to Changes in
Volume Rate Total Volume Rate Total
Interest-earning assets:
Loans (FTE) $ 33,917 $ (30,101) $ 3,816 $ 54,765 $ (60,770) $ (6,005)
Taxable securities 801 (4,764) (3,963) (3,457) (8,193) (11,650)
Tax-exempt securities (FTE) 787 255 1,042 850 1,270 2,120
Federal funds sold and other interest-earning assets 1,281 (765) 516 3,390 (1,682) 1,708
Total interest-earning assets (FTE) 36,786 (35,375) 1,411 55,548 (69,375) (13,827)
Interest-bearing liabilities:
NOW and interest-bearing demand accounts 895 (2,475) (1,580) 1,566 (5,609) (4,043)
Money market accounts 1,964 (4,073) (2,109) 3,289 (6,420) (3,131)
Savings deposits 9 (3) 6 16 (10) 6
Time deposits 225 (4,151) (3,926) 1,096 (3,999) (2,903)
Brokered deposits (37) (469) (506) (2,312) (2,458) (4,770)
Total interest-bearing deposits 3,056 (11,171) (8,115) 3,655 (18,496) (14,841)
Federal funds purchased & other borrowings (216) (211) (427) (432) (403) (835)
Federal Home Loan Bank advances (696) 202 (494) (3,546) 879 (2,667)
Long-term debt 1,090 (12) 1,078 138 235 373
Total borrowed funds 178 (21) 157 (3,840) 711 (3,129)
Total interest-bearing liabilities 3,234 (11,192) (7,958) (185) (17,785) (17,970)
Increase in net interest revenue (FTE) $ 33,552 $ (24,183) $ 9,369 $ 55,733 $ (51,590) $ 4,143


	Three Months Ended March 31, 2021
	Compared to 2020 Increase (Decrease) Due to Changes in
	Volume		Rate		Total
Interest-earning assets:
Loans (FTE)	$	30,863	$	(23,537)	$	7,326
Taxable securities	6,668		(9,241)		(2,573)
Tax-exempt securities (FTE)	1,450		(607)		843
Federal funds sold and other interest-earning assets	1,498		(1,908)		(410)
Total interest-earning assets (FTE)	40,479		(35,293)		5,186

Interest-bearing liabilities:
NOW and interest-bearing demand accounts	863		(2,355)		(1,492)
Money market accounts	1,801		(4,528)		(2,727)
Savings deposits	14		—		14
Time deposits	(710)		(4,952)		(5,662)
Brokered deposits	(20)		31		11
Total interest-bearing deposits	1,948		(11,804)		(9,856)
Federal funds purchased & other borrowings	—		(1)		(1)
FHLB advances	3		(2)		1
Long-term debt	1,401		(8)		1,393
Total borrowed funds	1,404		(11)		1,393
Total interest-bearing liabilities	3,352		(11,815)		(8,463)

Increase in net interest revenue (FTE)	$	37,127	$	(23,478)	$	13,649

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~~We recorded a negative provision for credit losses ~~was $21.8~~of $12.3 million ~~and $77.5 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$3.10~~$22.2 million ~~and $9.65 million, respectively,~~in provision expense for the same ~~periods~~period in ~~2019.~~2020. 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 nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period of ~~2019~~2020 was primarily a result of ~~higher expected~~an improved economic forecast compared to the first quarter of 2020 combined with net recoveries recognized during the first quarter of 2021. The provision for credit losses ~~mostly resulting from~~for the ~~adoption~~first quarter of ~~CECL,~~2020 was elevated due to a less optimistic economic forecast at the ~~initial ACL recorded on Three Shores’ non-PCD loans and unfunded commitments of $9.78 million and $913,000, respectively, and the macroeconomic effects~~onset of the COVID-19 ~~pandemic on our CECL calculation. Loan growth also contributed to the higher provision for credit losses.~~pandemic.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net loan charge-offs (recoveries) as an annualized percentage of average outstanding loans were ~~0.22%~~(0.01)% compared to ~~0.13%~~0.37% for the same period in ~~2019.~~2020. The ~~increase in charge-offs~~net recoveries amount recorded during the first ~~nine~~three months of ~~2020~~2021 was mostly attributable to ~~a few~~one large ~~credits that had been deteriorating over the previous several quarters.~~commercial credit.

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~~Income

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


Table 54 - Noninterest Income
(in thousands)

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2020 2019 Amount Percent 2020 2019 Amount Percent
Overdraft fees $ 2,484 $ 3,800 $ (1,316) (35) % $ 8,000 $ 10,728 $ (2,728) (25) %
ATM and debit card fees 3,577 3,901 (324) (8) 9,845 10,109 (264) (3)
Other service charges and fees 2,199 2,215 (16) (1) 6,048 6,592 (544) (8)
Total service charges and fees 8,260 9,916 (1,656) (17) 23,893 27,429 (3,536) (13)
Mortgage loan gains and related fees 25,144 8,658 16,486 190 57,113 17,750 39,363 222
Brokerage and wealth management fees 3,055 1,699 1,356 80 6,019 4,624 1,395 30
Gains on sales of other loans 1,175 1,639 (464) (28) 3,889 4,412 (523) (12)
Securities gains (losses), net 746 — 746 746 (118) 864
Other noninterest income:
Bank owned life insurance ("BOLI") 1,214 962 252 26 4,091 2,792 1,299 47
Customer derivatives 2,258 647 1,611 249 4,846 2,370 2,476 104
Other 6,830 5,510 1,320 24 14,137 15,271 (1,134) (7)
Total other noninterest income 10,302 7,119 3,183 45 23,074 20,433 2,641 13
Total noninterest income $ 48,682 $ 29,031 $ 19,651 68 $ 114,734 $ 74,530 $ 40,204 54


	Three Months Ended March 31,	Change
		2021		2020		Amount		Percent
Service charges and fees:
Overdraft fees		$	2,342	$	3,519	$	(1,177)	(33)	%
ATM and debit card fees		3,090		3,069		21		1
Other service charges and fees		2,138		2,050		88		4
Total service charges and fees		7,570		8,638		(1,068)		(12)
Mortgage loan gains and related fees		22,572		8,310		14,262		172
Wealth management fees		3,505		1,640		1,865		114
Gains on sales of other loans		1,030		1,674		(644)		(38)

Other noninterest income:
Other lending and loan servicing fees		2,160		1,665		495		30
Customer derivatives		1,692		1,407		285		20
Other investment gains (losses)		1,506		(1,157)		2,663
BOLI		857		845		12		1
Treasury management income		645		509		136		27
Other		3,168		2,283		885		39
Total other noninterest income		10,028		5,552		4,476		81
Total noninterest income		$	44,705	$	25,814	$	18,891	73

During the ~~third~~first quarter ~~and first nine months~~ of ~~2020, noninterest income increased $19.7 million and $40.2 million, respectively,~~2021, we recognized lower overdraft transaction fees compared to the same ~~periods~~period of ~~2019. The increase was primarily~~2020 due to ~~increases in mortgage~~increased customer deposit account balances resulting from government stimulus payments combined with lower transaction volume due to the COVID-19 pandemic-related shutdown.

Mortgage loan gains and related fees ~~brokerage and wealth management fees, and customer derivative income, partially offset by a decrease in service charges and fees and gains on sales of other loans.~~

~~Service charges and fees decreased $1.66 million and $3.54 million~~ for the ~~three and nine months ended September 30, 2020, respectively, in comparison to~~first quarter of 2021 increased $14.3 million from the same ~~periods of 2019, which is mostly attributable to a decrease in overdraft fees. Lower customer transaction volume due to the economic shutdown during the third quarter and first nine months~~period of 2020, ~~combined with government stimulus payments during the second quarter and July of 2020, increased the balances of customer deposit accounts, which in turn reduced the number of overdraft transactions.~~

~~Mortgage loan and related fees for the third quarter and first nine months of 2020 reflected~~reflecting an increase in ~~fees on~~demand for mortgage rate locks and mortgage ~~closings compared to the same periods of last year. The increase was driven by both higher demand~~refinances 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~~compared to the ~~150 basis point decrease in~~same period of 2020. During March of 2020, the national federal funds rate ~~during the first quarter of 2020~~decreased 150 basis points in response to the COVID-19 pandemic. ~~For~~While mortgage interest rates have remained low, rates began trending upward toward the end of the first ~~nine months~~quarter of ~~2020, the increase~~2021. As a result, projected mortgage prepayments decelerated, which resulted in ~~rate locks and closings was partially offset by negative~~a positive fair value ~~adjustments on~~adjustment to the mortgage servicing rights asset, ~~due~~contributing to the ~~decrease~~increase in mortgage ~~interest rates that resulted in an acceleration~~loan gain and related fees for the first quarter of ~~prepayments.~~2021. The following table summarizes mortgage loan sales and closings for the periods presented.

~~Mortgage rate locks during~~


Table 5 - Mortgage Loan Sales
(dollars in thousands)
		Three Months Ended March 31,
		2021		2020		% Change
	Mortgage loans sold	$	335,673	$	259,112	30	%
	# of mortgage loans sold	1,405		1,158		21

	Mortgage loans closed
	Originations	$	292,919	$	218,578	34
	Refinances	363,553		169,281		115
	Total	$	656,472	$	387,859	69

	# of mortgage loans closed	2,142		1,470		46

Wealth management fees for the ~~third~~first quarter of ~~2020~~2021 increased ~~79% to $910 million compared to $508 million in the third quarter of 2019. Mortgage production in the third quarter of 2020 also increased~~114% compared to the same period of 2019. We closed 2,102 mortgage loans totaling $569 million in the third quarter of 2020 compared with 1,265 mortgage loans totaling $330 million in the third quarter of 2019. We had $327 million in home purchase mortgage originations in the third quarter of 2020, which ~~accounted for 57%~~was primarily driven by the addition of ~~mortgage production volume, compared to $215 million, or 65% of production volume for the same period a year ago.~~Three Shores’ wealth management business.

Mortgage rate locks during the first nine months of 2020 increased 108% to $2.51 billion compared to $1.21 billion for the same period of 2019. During the first nine months of 2020, we closed 5,667 mortgage loans totaling $1.52 billion compared to 3,110 loans totaling $770 million for the same period of last year. We had $789 million in home purchase mortgage originations in the first nine months of 2020, which accounted for 52% of mortgage production volume. During the first nine months of 2019, we had $540 million in home purchase originations, or 70% of production volume.

5739

~~As to non-mortgage loan sales, during the third quarter and first nine months of 2020, we realized net gains~~Gains on the sale of other loans for the first quarter of ~~$1.18 million and $3.89 million, respectively, which included~~2021 decreased $644,000 compared to the ~~sale~~same period of 2020. For the ~~guaranteed portion~~periods presented, loans sold consisted of ~~SBA~~SBA/USDA loans and ~~the sale of certain~~ equipment financing loans. During the third quarter and first nine months of 2020, we sold $950,000 and $24.9 million, respectively, of equipment financing loans, which resulted in gains of $1.28 million for the nine months ended September 30, 2020, which includes nominal losses on third quarter sales.receivables. 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 the first quarter of 2020, less-favorable pricing for these loans driven by COVID-19 related market disruption led to our decision to hold more of our production in portfolio, rather than sell to the secondary market until market conditions improved during the second and third quarters of 2020. In the third quarter and first nine months of 2020,2021, we sold ~~the guaranteed portion of SBA~~more SBA/USDA loans in the amount of $13.5 million and $31.5 million, respectively, which resulted in gains of $1.18 million and $2.61 million, respectively. In the third quarter and first nine months of 2019, we sold the guaranteed portion of SBA loans in the amount of $21.0 million and $55.2 million, respectively, which resulted in gains of $1.64 million and $4.41 million, respectively.

The increase in brokerage and wealth management fees during the third quarter and first nine months of 2020 from the same periods of 2019 was primarily a result of the addition of the Three Shores wealth management business in the third quarter of 2020.

During the third quarter and first nine months of 2020, we recognized death benefit gains of $274,000 and $1.37 million, respectively, resulting in an increase in BOLI income compared to the same periods of 2019. Income from customer derivatives during the third quarter and first nine months of 2020 increased $1.61 million and $2.48 million, respectively, compared to the same periods of 2019 due to increased demand for fixed rates during the current low rate environment. The increase in customer derivative income for the first nine months of 2020 included the negative impact of an increase to the credit valuation adjustment on customer derivative positions during the second quarter of 2020. Other noninterest income for the third quarter of 2020 included a positive fair value adjustment on the SBA servicing asset. The decrease in other noninterest income for the first nine months of 2020 compared to the same period of ~~2019 was~~last year, as market conditions for the sale of these loans has improved since the onset of the COVID-19 pandemic. In the first quarter of 2020, due to the market disruption caused by the COVID-19 pandemic, we held more of our SBA/USDA loan production in portfolio rather than selling to the secondary market. From time to time, we also sell certain equipment financing receivables. During the first quarter of 2021, we sold a nominal amount of equipment financing receivables compared to the same period of 2020. The following table presents loans sold and the corresponding gains or losses recognized on the sale for the periods indicated.


Table 6 - Other Loan Sales
(in thousands)
		Three Months Ended March 31,
		2021				2020
		Loans Sold		Gain (Loss)		Loans Sold		Gain (Loss)
	Guaranteed portion of SBA/USDA loans	$	11,345	$	1,023	$	4,034	$	415
	Equipment financing receivables	1,059		7		22,217		1,259
	Total	$	12,404	$	1,030	$	26,251	$	1,674

Other noninterest income for the first quarter of 2021 increased from the same period of 2020 primarily ~~driven by losses~~due to positive fair value adjustments on deferred compensation plan assets and other investments ~~and reductions in miscellaneous income.~~compared to negative fair value adjustments during the first quarter of 2020, which resulted from the COVID-19 pandemic related market disruption.

Noninterest Expenses

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


Table 67 - Noninterest Expenses
(in thousands)

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2020 2019 Amount Percent 2020 2019 Amount Percent
Salaries and employee benefits $ 59,067 $ 50,501 $ 8,566 17 % $ 162,236 $ 146,161 $ 16,075 11 %
Communications and equipment 6,960 6,223 737 12 19,462 18,233 1,229 7
Occupancy 7,050 5,921 1,129 19 18,709 17,424 1,285 7
Advertising and public relations 1,778 1,374 404 29 5,312 4,256 1,056 25
Postage, printing and supplies 1,703 1,618 85 5 4,986 4,733 253 5
Professional fees 5,083 4,715 368 8 14,003 11,930 2,073 17
Lending and loan servicing expense 3,043 2,556 487 19 8,525 7,509 1,016 14
Outside services - electronic banking 1,888 1,934 (46) (2) 5,516 5,101 415 8
FDIC assessments and other regulatory charges 1,346 314 1,032 329 4,388 3,571 817 23
Amortization of core deposit intangibles 1,099 1,146 (47) (4) 3,126 3,395 (269) (8)
Other 3,603 4,017 (414) (10) 10,670 11,077 (407) (4)
Total excluding merger-related and other charges 92,620 80,319 12,301 15 256,933 233,390 23,543 10
Merger-related and other charges 3,361 2,541 820 4,566 6,981 (2,415)
Amortization of noncompete agreements — 64 (64) — 450 (450)
Total noninterest expenses $ 95,981 $ 82,924 $ 13,057 16 $ 261,499 $ 240,821 $ 20,678 9

Noninterest expenses for the third quarter and first nine months of 2020 totaled $96.0 million and $261 million, respectively, up 16% and 9%, respectively, from the same periods of 2019. Overall, the increase in noninterest expenses for these periods reflects the inclusion of Three Shores’ operating expenses since acquisition on July 1, 2020. Specifically, the addition of Three Shores’ employees

~~and locations contributed to much of the increase in salaries and employee benefits and occupancy costs during the third quarter and first nine months of 2020.~~



	Three Months Ended March 31,	Change
		2021		2020		Amount		Percent
Salaries and employee benefits		$	60,585	$	51,358	$	9,227	18	%
Communications and equipment		7,203		5,946		1,257		21
Occupancy		6,956		5,714		1,242		22
Advertising and public relations		1,199		1,274		(75)		(6)
Postage, printing and supplies		1,822		1,670		152		9
Professional fees		4,234		4,097		137		3
Lending and loan servicing expense		2,877		2,293		584		25
Outside services - electronic banking		2,218		1,832		386		21
FDIC assessments and other regulatory charges		1,896		1,484		412		28
Amortization of core deposit intangibles		985		1,040		(55)		(5)
Other		3,676		4,022		(346)		(9)
Total excluding merger-related and other charges		93,651		80,730		12,921		16
Merger-related and other charges		1,543		808		735

Total noninterest expenses		$	95,194	$	81,538	$	13,656	17

Salaries and employee benefits for the ~~third~~first quarter ~~and first nine months~~ of ~~2020~~2021 increased ~~17% and 11%, respectively,~~18% from ~~the~~ same ~~periods~~period of ~~2019. In addition to the growth in our employee base from the acquisition of Three Shores, the~~2020. The increase was ~~a result of several factors including increased~~primarily attributable to higher mortgage commissions, other incentives and ~~incentives~~bonus accrual resulting from increased production and ~~merit-based salary increases awarded~~strong performance during the ~~second~~first quarter of ~~2020.~~2021. The three months ended March 31, 2021 also reflects the addition of Three Shores employees. These increases ~~in expense~~ were partially offset by ~~higher~~a decrease in stock compensation expense and an increase in deferred loan ~~origination~~ costs, ~~related to increases in~~resulting from strong loan production, including ~~recording~~mortgage and third round PPP loans, incompared to the ~~second quarter~~same period of 2020. Full time equivalent headcount totaled ~~2,414~~2,396 at ~~September 30, 2020,~~March 31, 2021, up from ~~2,319~~2,332 at ~~September 30, 2019.~~March 31, 2020.

~~Advertising~~

Communications and ~~public relations~~equipment expense increased primarily due to incremental software contract costs. The increase in occupancy costs for the ~~three and nine months ended September 30, 2020 increased relative~~first quarter of 2021 compared to the same periods of 2019 as a result of contributions to our newly formed private foundation, United Community Bank Foundation. In the third quarter of 2020, we contributed $500,000 to the United Community Bank Foundation, bringing year-to-date total contributions to $1.50 million. The increase in professional fees for the first nine monthsperiod of 2020 was mostly attributable to ~~increases~~the addition of operating lease costs associated with the Three Shores’ locations. The increase in ~~legal~~lending and ~~consulting fees related to various projects~~loan servicing expense was driven by strong loan production in ~~process.~~the first quarter of 2021. The increase in FDIC assessments and other regulatory charges ~~for~~was primarily attributable to an increased assessment base driven by higher average total assets compared to the ~~third~~first quarter ~~and first nine months~~ of 2020, ~~increased from the same periods of 2019~~partly due to the ~~receipt~~acquisition of Three Shores. The decrease in other noninterest expense was attributable to lower travel expenses as a ~~one-time $1.38 million credit~~result of the COVID-19 pandemic and net gains on sale of foreclosed properties during the ~~third~~first quarter of ~~2019. Lending and loan servicing expense increased mostly due to the increase in mortgage origination volume.~~2021.

Merger-related and other charges for the ~~third quarter of 2020~~three months ended March 31, 2021 consisted primarily of merger-related expenses associated with the acquisition of Three Shores, including ~~investment banker fees and severance for eliminated positions. The nine months ended September 30, 2020 also included merger-related expenses~~costs associated with system conversion, which occurred during the ~~acquisition~~first quarter of ~~First Madison Bank & Trust (“FMBT”), severance, and branch closure costs.~~2021. Merger-related and other charges for the three ~~and nine~~ months ended ~~September 30, 2019 included a $2.94 million charge for the termination and settlement~~March 31, 2020 consisted primarily of ~~a pension plan, FMBT~~ merger-related expenses associated with First Madison Bank & Trust and Three Shores, as well as branch closure ~~costs, executive retirement charges, and gains on the sale of surplus properties.~~

~~The reduction of amortization of noncompete agreements was a result of the expiration of certain of these agreements since the third quarter of 2019.~~costs.

Balance Sheet Review

Total assets at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were ~~$17.2~~$18.6 billion and ~~$12.9~~$17.8 billion, respectively. The increase in assets was primarily ~~attributable to the acquisition of Three Shores,~~evident in loans, which included PPP loan originations ~~and other loan growth~~ during the ~~year,~~quarter, and increased cash balances. Total liabilities at September 30, 2020 and December 31, 2019 were $15.2 billion and $11.3 billion, respectively, primarily due to deposit growth including deposits received through the acquisition of Three Shores. In addition to the inclusion of Three Shores’ deposits as of September 30, 2020, theinvestments. An increase in customer deposits provided liquidity, some of which was ~~also directly attributable~~strategically deployed to fund a larger investment portfolio. Total liabilities at March 31, 2021 and December 31, 2020 were $16.5 billion and $15.8 billion, respectively, with the increase quarter over quarter primarily due to the ~~increase~~aforementioned customer deposit growth. Shareholders’ equity totaled $2.03 billion and $2.01 billion at March 31, 2021 and December 31, 2020, respectively.

Loans

Our loan portfolio is our largest category of interest-earning assets. Total loans averaged $11.4 billion in ~~PPP loans, as many~~the first quarter of 2021, compared with $8.83 billion in the ~~balances remained deposited in customer accounts through the end of the period. Average total assets for the third~~first quarter of 2020, an increase of 29%, much of which resulted from the Three Shores acquisition and our participation in the PPP program. At March 31, 2021, total loans were ~~$17.0~~$11.7 billion, upan increase of 3%, from $12.7 billion for the same period of 2019. Average total assets for the first nine months of 2020 were $14.7 billion, up from $12.6 billion for the same period of 2019. Average total liabilities for the third quarter of 2020 were $15.1 billion, up from $11.1 billion for the same period of 2019. Average total liabilities for the first nine months of 2020 were $13.0 billion, up from $11.1 billion for the same period of 2019.

December 31, 2020. The following table presents a summary by loan type of the loan portfolio, of which approximately ~~65%~~68% was secured by real estate at ~~September 30, 2020.~~March 31, 2021.


Table 78 - Loans Outstanding
(in thousands)

September 30, 2020 December 31, 2019
By Loan Type
Owner occupied commercial real estate $ 2,008,674 $ 1,720,227
Income producing commercial real estate 2,493,625 2,007,950
Commercial & industrial (1)
3,104,868 1,220,657
Commercial construction 981,371 976,215
Equipment financing 823,022 744,544
Total commercial 9,411,560 6,669,593
Residential mortgage 1,269,548 1,117,616
Home equity lines of credit 706,877 660,675
Residential construction 263,266 236,437
Consumer 147,659 128,232
Total loans $ 11,798,910 $ 8,812,553
As a percentage of total loans:
Owner occupied commercial real estate 17 % 20 %
Income producing commercial real estate 21 23
Commercial & industrial (1)
27 14
Commercial construction 8 11
Equipment financing 7 8
Total commercial 80 76
Residential mortgage 11 13
Home equity lines of credit 6 7
Residential construction 2 3
Consumer 1 1
Total 100 % 100 %


	March 31, 2021				December 31, 2020
	Amortized Cost		% of total loans		Amortized Cost		% of total loans
Owner occupied commercial real estate	$	2,107,153	18	%	$	2,090,443	18	%
Income producing commercial real estate	2,598,482		22		2,540,750		22
Commercial & industrial (1)	2,643,279		23		2,498,560		22
Commercial construction	960,153		8		967,305		9
Equipment financing	912,650		8		863,830		8
Total commercial	9,221,717		79		8,960,888		79
Residential mortgage	1,362,088		12		1,284,920		11
HELOC	679,094		6		697,117		6
Residential construction	271,600		2		281,430		3
Consumer	144,045		1		146,460		1

Total loans	$	11,678,544	100	%	$	11,370,815	100	%

~~(1)~~((1) Commercial and industrial loans as of ~~September 30,~~March 31, 2021 and December 31, 2020 included ~~$1.32 billion~~$883 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 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 ~~$125~~$176 million and $165 million, respectively, at ~~both September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

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

The ACL ~~at September 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 Accounting 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 $146 million at September 30, 2020, compared with $65.5 million at December 31, 2019. At September 30, 2020, the ACL for loans was $134 million, or 1.14% 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 the impact of the COVID-19 pandemic, $11.2 million of allowance established for Seaside PCD loans at acquisition with no impact to earnings, as well as the impact of loan growth during 2020 including the non-PCD loans received through the Seaside acquisition. 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 100% guarantee by the SBA.

6142

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


Table 89 - ACL
(in thousands)

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
ACL - loans, beginning of period $ 103,669 $ 62,204 $ 62,089 $ 61,203
Adoption of CECL — — 6,880 —
ACL - loans, adjusted beginning balance 103,669 62,204 68,969 61,203
Impact of merger - ACL - PCD loans 11,152 — 11,152 —
Charge-offs:
Owner occupied commercial real estate — — 6 5
Income producing commercial real estate 3,033 472 8,033 977
Commercial & industrial 303 898 8,118 3,833
Commercial construction 487 — 726 70
Equipment financing 2,418 1,376 6,366 3,810
Residential mortgage 13 264 347 433
Home equity lines of credit 44 287 162 653
Residential construction 26 13 80 263
Consumer direct 432 645 1,782 1,721
Indirect auto — 125 — 502
Total loans charged-off 6,756 4,080 25,620 12,267
Recoveries:
Owner occupied commercial real estate 725 39 2,225 166
Income producing commercial real estate 1,248 41 1,430 127
Commercial & industrial 408 207 1,075 645
Commercial construction 658 247 916 804
Equipment financing 425 202 1,201 466
Residential mortgage 48 106 379 388
Home equity lines of credit 169 204 468 466
Residential construction 26 18 97 91
Consumer direct 511 226 1,028 672
Indirect auto — 67 — 151
Total recoveries 4,218 1,357 8,819 3,976
Net charge-offs 2,538 2,723 16,801 8,291
Provision for credit losses - loans 21,973 3,033 70,936 9,602
ACL - loans, end of period 134,256 62,514 134,256 62,514
ACL - unfunded commitments, beginning of period 12,100 3,391 3,458 3,410
Adoption of CECL — — 1,871 —
ACL - unfunded commitments, adjusted beginning balance 12,100 3,391 5,329 3,410
Provision for credit losses - unfunded commitments (180) 67 6,591 48
ACL - unfunded commitments, end of period 11,920 3,458 11,920 3,458
Total ACL $ 146,176 $ 65,972 $ 146,176 $ 65,972
Total loans:
At period-end $ 11,798,910 $ 8,903,266 $ 11,798,910 $ 8,903,266
Average 11,644,202 8,835,585 10,087,630 8,646,622
ACL - loans, as a percentage of period-end loans 1.14 % 0.70 % 1.14 % 0.70 %
As a percentage of average loans (annualized):
Net charge-offs 0.09 0.12 0.22 0.13
Provision for credit losses - loans 0.75 0.14 0.94 0.15


	Three Months Ended March 31,
		2021			2020
ACL - loans, beginning of period		$	137,010		$	62,089
Adoption of CECL		—			6,880
ACL - loans, adjusted beginning balance		137,010			68,969



Charge-offs:
Owner occupied commercial real estate		—			6
Income producing commercial real estate		1,007			411
Commercial & industrial		2,894			7,561
Commercial construction		178			—
Equipment financing		2,058			1,863
Residential mortgage		215			284
HELOC		—			20
Residential construction		10			22
Consumer		471			638
Total charge-offs		6,833			10,805
Recoveries:
Owner occupied commercial real estate		240			1,034
Income producing commercial real estate		16			141
Commercial & industrial		5,647			376
Commercial construction		156			141
Equipment financing		547			356
Residential mortgage		123			275
HELOC		73			103
Residential construction		70			34
Consumer		266			231
Total recoveries		7,138			2,691
Net (recoveries) charge-offs		(305)			8,114
(Release of) provision for credit losses - loans		(10,449)			21,050
ACL - loans, end of period		126,866			81,905

ACL - unfunded commitments, beginning of period		10,558			3,458
Adoption of CECL		—			1,871
ACL - unfunded commitments, adjusted beginning balance		10,558			5,329
(Release of) provision for credit losses - unfunded commitments		(1,832)			1,141
ACL - unfunded commitments, end of period		8,726			6,470

Total ACL		$	135,592		$	88,375

Total loans:
At period-end		$	11,678,544		$	8,935,424
Average		11,432,908			8,828,880
ACL - loans, as a percentage of period-end loans		1.09		%	0.92		%
As a percentage of average loans (annualized):
Net charge-offs		(0.01)			0.37
Provision for credit losses - loans		(0.37)			0.96

The reduction in the ACL since December 31, 2020 reflects an improved economic forecast, which includes an improved COVID-19 pandemic outlook, 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 to compensate for the increase in criticized and classified assets at March 31, 2021. In addition, the impact of loan growth on the ACL was partially mitigated by the fact that PPP loans originated during the first quarter of 2021 of approximately $518 million were considered low risk assets due to the 100% guarantee by the SBA.

6243

Nonperforming Assets

~~Nonperforming assets (“NPAs”),~~NPAs, which include nonaccrual loans and foreclosed properties, totaled ~~$50.0~~$56.5 million at ~~September 30, 2020,~~March 31, 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~~a decrease in 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 $2.40 million to the increase in nonaccrual loans since December 31, 2019. The inclusion of Three Shores nonaccrual loans and foreclosed properties in the NPA balances also contributed to the increase from 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. A loan may continue on accrual after 90 days if it is well collateralized and in the process of collection. When a loan is placed on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Interest payments received on nonaccrual loans are applied to reduce the loan’s amortized cost. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance and future payments are reasonably assured.

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

Foreclosed property is initially recorded at fair value, less estimated costs to sell. If the fair value, less estimated costs to sell, at the time of foreclosure is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the lesser of fair value, less estimated costs to sell, or the listed selling price, less the costs to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to foreclosed property expense. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property.

The table below summarizes NPAs.


Table 910 - NPAs
(in thousands)

September 30,
2020 December 31, 2019
Nonaccrual loans:
Owner occupied commercial real estate 11,075 10,544
Income producing commercial real estate 12,230 1,996
Commercial & industrial 3,534 2,545
Commercial construction 1,863 2,277
Equipment financing 3,137 3,141
Total commercial 31,839 20,503
Residential mortgage 13,864 10,567
Home equity lines of credit 2,642 3,173
Residential construction 479 939
Consumer 260 159
Total nonaccrual loans 49,084 35,341
Foreclosed properties/other real estate owned ("OREO") 953 476
Total NPAs $ 50,037 $ 35,817
Nonaccrual loans as a percentage of total loans 0.42 % 0.40 %
NPAs as a percentage of total loans and OREO 0.42 0.41
NPAs as a percentage of total assets 0.29 0.28


	March 31, 2021			December 31, 2020
Nonaccrual loans:
Owner occupied commercial real estate	7,908			8,582
Income producing commercial real estate	13,740			15,149
Commercial & industrial	13,864			16,634
Commercial construction	1,984			1,745
Equipment financing	2,171			3,405
Total commercial	39,667			45,515
Residential mortgage	14,050			12,858
HELOC	1,707			2,487
Residential construction	322			514
Consumer	154			225

Total nonaccrual loans	55,900			61,599
Foreclosed properties	596			647
Total NPAs	$	56,496		$	62,246

Nonaccrual loans as a percentage of total loans	0.48		%	0.54		%
NPAs as a percentage of total loans and foreclosed properties	0.48			0.55
NPAs as a percentage of total assets	0.30			0.35

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had ~~$54.5~~$59.3 million and ~~$54.2~~$61.6 million, respectively, in loans with terms that have been modified in TDRs. Included therein were $17.3 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 ~~$37.2~~$42.0 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 granted a significant number of payment deferral requests to our borrowers related to the economic disruption created by ~~COVID-19, most of which were exempt from TDR classification~~COVID-19. We continued to grant payment deferral requests in ~~the short term. In the third quarter, most of the loans with deferral periods had resumed normal payments.~~2021 to certain borrowers. The following table ~~below~~ presents remaining COVID-19 related ~~short-term~~ deferrals that, to the extent they qualified for exemption, were not considered TDRs as of ~~September 30,~~March 31, 2021 and December 31, 2020.


Table 1011 - COVID-19 Deferrals
(in thousands)

September 30, 2020
COVID-19 Deferrals Deferrals as a % of loan category
Owner occupied commercial real estate $ 42,559 2 %
Income producing commercial real estate 182,438 7
Commercial & industrial 51,429 2
Commercial construction 54,153 6
Equipment financing 19,765 2
Total commercial 350,344 4
Residential mortgage 12,453 1
Home equity lines of credit 1,451 —
Residential construction 239 —
Consumer 310 —
Total COVID-19 deferrals $ 364,797 3


	March 31, 2021		December 31, 2020
Owner occupied commercial real estate	$	6,399	$	4,774
Income producing commercial real estate	21,734		45,190
Commercial & industrial	1,163		5,682
Commercial construction	73		1,745
Equipment financing	12,135		3,474
Total commercial	41,504		60,865
Residential mortgage	6,165		8,731
HELOC	368		1,012
Residential construction	45		55
Consumer	23		46
Total COVID-19 deferrals	$	48,105	$	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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had HTM debt securities ~~held-to-maturity~~ with a carrying amount of ~~$398~~$588 million and ~~$284~~$420 million, respectively, and AFS debt securities ~~available-for-sale~~ totaling ~~$2.69~~$3.74 billion and ~~$2.27~~$3.22 billion, respectively. The increased balances at ~~September 30, 2020 reflected securities acquired from Three Shores as well as~~March 31, 2021 reflect our decision to deploy ~~excess~~ liquidity generated through strong deposit growth by purchasing additional investment securities. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the securities portfolio represented approximately ~~18%~~23% 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 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~~March 31, 2021 and ~~at September 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 September 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 ~~September 30,~~March 31, 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 ~~September 30,~~March 31, 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 September 30, 2020 and December 31, 2019, the net carrying amount of goodwill was $369 million and $327 million, respectively. 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.

Since the latter part of the first 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 the first nine months of 2020. United generally performs its annual goodwill impairment assessment during the fourth quarter of each year, using data as of the end of the third quarter; however as a result of this triggering event, management has qualitatively assessed and concluded that there was not a greater than 50% likelihood that United’s fair value was less than its carrying amount as of September 30, 2020, given the anticipated short duration of the change in macroeconomic conditions and excess of value as of the latest annual assessment performed as of September 30, 2019. Management will continue to monitor and assess the impact of the pandemic on the Company’s value as part of the annual goodwill assessment in the fourth quarter.

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.

~~In connection with the acquisition of Three Shores on July 1, 2020, we recorded goodwill and a core deposit intangible of $41.6 million and $3.36 million, respectively.~~

Deposits

Customer deposits are the primary source of funds for the continued growth of our earning assets. Our high level of service, as evidenced by our strong customer satisfaction scores, has been instrumental in attracting and retaining customer deposit accounts. In addition to organic growth, at ~~September 30, 2020,~~March 31, 2021, the increase in core transaction deposits was also attributable to ~~deposits acquired from Three Shores ($1.80 billion at the July 1, 2020 acquisition date) and~~ PPP-related deposits. The following table sets forth the deposit composition for the periods indicated.

Table 1112 - Deposits

(in thousands)

September 30, 2020 December 31, 2019
Noninterest-bearing demand $ 5,227,170 $ 3,477,979
NOW and interest-bearing demand 2,989,455 2,461,895
Money market and savings 4,290,940 2,937,095
Time 1,819,586 1,859,574
Total customer deposits 14,327,151 10,736,543
Brokered deposits 276,225 160,701
Total deposits $ 14,603,376 $ 10,897,244


	March 31, 2021		December 31, 2020
Noninterest-bearing demand	$	6,058,439	$	5,390,291
NOW and interest-bearing demand	3,417,915		3,346,490
Money market and savings	4,729,011		4,501,189
Time	1,587,653		1,704,290
Total customer deposits	15,793,018		14,942,260
Brokered deposits	200,202		290,098
Total deposits	$	15,993,220	$	15,232,358

Borrowing Activities

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had long-term debt outstanding of ~~$327~~$312 million and ~~$213~~$327 million, respectively, which includes senior debentures, subordinated debentures, and trust preferred securities. The reduction in long-term debt since December 31, 2020 is a result of the repayment of the 2025 subordinated debentures and the Southern Bancorp Capital Trust I trust preferred securities of $11.3 million and $4.38 million, respectively. During the first quarter of 2021, we also provided a redemption notice to the holders of the 2022 senior debentures of $50.0 million. Repayment is scheduled to occur during the second quarter of 2020, we issued $100 million of 5% fixed-to-floating rate 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. During the third quarter of 2020, we assumed $15.0 million of subordinated debt from Three Shores. See Note 8 to the consolidated financial statements for additional information regarding long-term debt.2021.

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 1611 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, 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 1213 - Interest Sensitivity

Increase (Decrease) in Net Interest Revenue from Base Scenario at
September 30, 2020 December 31, 2019
Change in Rates Shock Ramp Shock Ramp
100 basis point increase 3.39 % 2.43 % 2.91 % 2.22 %
100 basis point decrease (1.81) (1.67) (4.86) (3.92)


	Increase (Decrease) in Net Interest Revenue from Base Scenario at
	March 31, 2021				December 31, 2020
Change in Rates	Shock		Ramp		Shock		Ramp
100 basis point increase	2.84	%	2.17	%	3.80	%	2.88	%
100 basis point decrease	(2.80)		(2.49)		(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.

6747

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. 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 ~~September 30, 2020,~~March 31, 2021, we had sufficient qualifying collateral to provide borrowing capacity for FHLB advances of ~~$1.39~~$1.46 billion and Federal Reserve discount window borrowing capacity of ~~$1.39~~$1.63 billion, as well as unpledged investment securities of ~~$2.19~~$3.10 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 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 of September 30, 2020 we had outstanding PPP loans of $1.32 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 the consolidated statement of cash flows, net cash provided by operating activities was ~~$53.6~~$34.7 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Net income of ~~$105~~$73.7 million for the ~~nine-month~~three-month period included non-cash expense and income items consisting primarily of the following: release of provision of $12.3 million, deferred income tax expense of ~~$77.5~~$9.17 million, stock-based compensation expense of ~~$5.94~~$1.51 million, net gains on the sales of other loans of $1.03 million and net depreciation, amortization and accretion ~~expense~~income of ~~$5.33 million.~~$681,000. Uses of cash from operating activities included an increase in loans held for sale of $59.5 million, which was partially offset by cash provided by a decrease in other assets and accrued interest receivable of ~~$44.6 million, an increase in loans held for sale of $69.9~~$15.2 million and ~~a decrease~~an increase in accrued expenses and other liabilities of ~~$20.9~~$8.65 million. Net cash used in investing activities of ~~$1.43~~$1.04 billion included a ~~$1.52 billion~~$293 million net increase in loans, ~~$668~~$760 million in purchases of AFS debt securities, ~~available-for-sale and equity securities,~~$193 million in purchases of HTM debt securities, ~~held-to-maturity of $106~~$5.75 million in additional investments in equity investments and ~~$5.99~~$2.49 million in purchases of premises and equipment. These uses of cash were partially offset by ~~$604~~$184 million in proceeds from maturities and calls of AFS debt securities, ~~available-for-sale and equity securities, $45.2~~$24.6 million in proceeds from maturities and calls of HTM debt securities ~~held-to-maturity~~ and ~~$40.4~~$4.98 million in ~~proceeds~~receipts from ~~sales of debt securities available-for-sale and~~ equity ~~securities.~~investments. Net cash provided by financing activities of ~~$1.90 billion~~$728 million consisted primarily of a net increase in deposits of ~~$1.90 billion, net proceeds from the issuance of senior debentures of $98.6~~$762 million, ~~and net proceeds from the issuance of preferred stock of $96.4 million. These sources of cash were~~which was partially offset by the repayment of ~~FHLB advances, some~~long-term debt of ~~which were assumed in the Three Shores transaction, of $134~~$15.6 million and payment of cash dividends on common and preferred stock of ~~$44.9 million, and the repurchases of our common stock of $20.8~~$17.6 million. In the opinion of management, our liquidity position at ~~September 30, 2020,~~March 31, 2021 was sufficient to meet our expected cash flow requirements.

6848

Capital Resources and Dividends

Shareholders’ equity at ~~September 30, 2020~~March 31, 2021 was ~~$1.97~~$2.03 billion, an increase of ~~$332~~$23.6 million from December 31, ~~2019~~2020 primarily due ~~primarily~~ to ~~$164 million in common stock issued to Three Shores shareholders as part of the acquisition’s purchase price, 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 after adoption.AFS securities.

The following table shows capital ratios, as calculated under applicable regulatory guidelines, at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. As of ~~September 30, 2020,~~March 31, 2021, capital levels remained characterized as “well-capitalized” under prompt corrective action provisions in effect at the time. The decrease in the Bank’s ratios as of ~~September 30, 2020~~March 31, 2021 was primarily attributable to ~~the increase in assets due~~a dividend paid to the ~~acquisition of Three Shores.~~Holding Company.

Additional information related to capital ratios, as calculated under regulatory guidelines, as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, is provided in Note 1510 to the consolidated financial statements.

Table 1314 – 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		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019			Minimum		Well- Capitalized		Minimum Capital Plus Capital Conservation Buffer		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Risk-based ratios:	Risk-based ratios:															Risk-based ratios:
Common equity tier 1 capital		4.5	%	6.5	%	7.0	%	12.31	%	12.97	%	13.20	%	14.87	%
CET1 capital																CET1 capital	4.5	%	6.5	%	7.0	%	12.34	%	12.31	%	12.80	%	13.31	%
Tier 1 capital	Tier 1 capital	6.0		8.0		8.5		13.12		13.21		13.20		14.87		Tier 1 capital	6.0		8.0		8.5		13.11		13.10		12.80		13.31
Total capital	Total capital	8.0		10.0		10.5		15.27		15.01		14.21		15.54		Total capital	8.0		10.0		10.5		14.92		15.15		13.66		14.28
Leverage ratio	Leverage ratio	4.0		5.0		N/A		9.38		10.34		9.42		11.63		Leverage ratio	4.0		5.0		N/A		9.39		9.28		9.13		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.

6949

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in our market risk as of ~~September 30, 2020~~March 31, 2021 from that presented in our ~~2019~~2020 10-K. Our interest rate sensitivity position at ~~September 30, 2020~~March 31, 2021 is set forth in Table 1013 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 ~~September 30, 2020.~~March 31, 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.

On July 1, 2020, we completed our acquisition of Three Shores Bancorporation, Inc. (“Three Shores”) as described in Note 3 to the consolidated financial statements. We are in the process of evaluating the existing controls and procedures of Three Shores and integrating Three Shores into our disclosure controls and procedures and internal control over financial reporting. In accordance with published SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, and similarly exclude an acquired business from the quarterly evaluation of disclosure controls and procedures to the extent that they are subsumed by internal control over financial reporting, the scope of management’s assessment of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2020 includes all of our consolidated operations except for those disclosure controls and procedures of Three Shores that are subsumed by internal control over financial reporting. The Three Shores acquisition represented approximately 11% of total consolidated assets at September 30, 2020 and approximately 2% of our total consolidated revenue for the nine months ended September 30, 2020.

(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 ~~September 30, 2020~~March 31, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ~~We are currently in the process of assessing and integrating Three Shores’ internal control over financial reporting with our existing internal control over financial reporting.~~

7050

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 6. Exhibits

(d) Exhibits. See Exhibit Index below.


EXHIBIT INDEX

Exhibit No.						Description

~~2.1~~						Agreement and Plan of Merger, dated as of March 9, 2020 by and between United Community Banks, Inc. and Three Shores Bancorporation, 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 and filed with the SEC on March 10, 2020).

3.1						Restated Articles of Incorporation of United Community Banks, Inc., as amended to date (incorporated herein by reference to Exhibit 3.1 to United Community Banks, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 6, 2020).

3.2						Amended and Restated Bylaws of United Community Banks, Inc., as amended (incorporated herein by reference to Exhibit 3.2 to United Community Banks, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2015, filed with the SEC on May 11, 2015).











31.1						Certification by H. Lynn Harton, President and Chief Executive Officer of United Community Banks, Inc., pursuant to Exchange Act Rule 13a-14(a).

31.2						Certification by Jefferson L. Harralson, Executive Vice President and Chief Financial Officer of United Community Banks, Inc., pursuant to Exchange Act Rule 13a-14(a).

32						Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.

101						Interactive data files for United Community Bank, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2020,~~March 31, 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 ~~September 30, 2020~~March 31, 2021 (formatted in Inline XBRL and included in Exhibit 101)

7151

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: ~~November 6, 2020~~May 7, 2021

7252


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2020		2019		2020		2019

Interest revenue:
Loans, including fees	$	126,936	$	122,645	$	352,861	$	357,575
Investment securities, including tax exempt of $1,895, $1,118, $4,988 and $3,409, respectively	14,558		17,744		47,567		57,638
Deposits in banks and short-term investments	279		226		1,497		1,074
Total interest revenue	141,773		140,615		401,925		416,287

Interest expense:






Deposits	8,998		17,113		35,344		50,185
Short-term borrowings	2		429		3		838
Federal Home Loan Bank advances	27		521		28		2,695
Long-term debt	4,292		3,214		10,186		9,813
Total interest expense	13,319		21,277		45,561		63,531
Net interest revenue	128,454		119,338		356,364		352,756
Provision for credit losses	21,793		3,100		77,527		9,650
Net interest revenue after provision for credit losses	106,661		116,238		278,837		343,106

Noninterest income:
Service charges and fees	8,260		9,916		23,893		27,429
Mortgage loan gains and other related fees	25,144		8,658		57,113		17,750
Brokerage and wealth management fees	3,055		1,699		6,019		4,624
Gains from sales of other loans, net	1,175		1,639		3,889		4,412
Securities gains (losses), net	746		0		746		(118)
Other	10,302		7,119		23,074		20,433
Total noninterest income	48,682		29,031		114,734		74,530
Total revenue	155,343		145,269		393,571		417,636

Noninterest expenses:
Salaries and employee benefits	59,067		50,501		162,236		146,161
Communications and equipment	6,960		6,223		19,462		18,233
Occupancy	7,050		5,921		18,709		17,424
Advertising and public relations	1,778		1,374		5,312		4,256
Postage, printing and supplies	1,703		1,618		4,986		4,733
Professional fees	5,083		4,715		14,003		11,930
Lending and loan servicing expense	3,043		2,556		8,525		7,509
Outside services - electronic banking	1,888		1,934		5,516		5,101
FDIC assessments and other regulatory charges	1,346		314		4,388		3,571
Amortization of intangibles	1,099		1,210		3,126		3,845
Merger-related and other charges	3,361		2,541		4,566		6,981
Other	3,603		4,017		10,670		11,077
Total noninterest expenses	95,981		82,924		261,499		240,821
Net income before income taxes	59,362		62,345		132,072		176,815
Income tax expense	11,755		13,983		27,485		40,106
Net income	$	47,607	$	48,362	$	104,587	$	136,709



Net income available to common shareholders	$	45,437	$	48,011	$	101,994	$	135,727

Net income per common share:
Basic	$	0.52	$	0.60	$	1.25	$	1.70
Diluted	0.52		0.60		1.25		1.70
Weighted average common shares outstanding:
Basic	87,129		79,663		81,815		79,714
Diluted	87,205		79,667		81,876		79,718


	Three Months Ended September 30,														Nine Months Ended September 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	$	96,660	$	78,335	$	10,646	$	1,480,464	$	64,990	$	40,550	$	1,771,645	$	0	$	79,014	$	11,491	$	1,496,641	$	40,152	$	8,394	$	1,635,692
Net income									47,607				47,607										104,587				104,587
Other comprehensive income											635		635												32,791		32,791

Issuance of preferred stock (4,000 shares), net	(238)												(238)		96,422												96,422
Common stock issued to dividend reinvestment plan and employee benefit plans (37,863 and 59,455 shares, respectively)			38				614						652				60				1,018						1,078
Common stock issued for acquisition (8,130,633 shares)			8,131				155,458						163,589				8,131				155,458						163,589
Amortization of restricted stock unit awards							1,683						1,683								5,939						5,939
Vesting of restricted stock unit awards, net of shares surrendered to cover payroll taxes (89,095 and 151,347 shares issued, respectively, and 13,164 and 37,509 shares deferred, respectively)			89		332		(1,064)						(643)				151		1,008		(2,481)						(1,322)
Purchases of common stock (826,482 shares)													0				(827)				(19,955)						(20,782)
Deferred compensation plan, net, including dividend equivalents					113								113						380								380
Common stock issued from deferred compensation plan, net of shares surrendered to cover payroll taxes (18,396 and 82,432 shares, respectively)			18		(459)		312						(129)				82		(2,247)		847						(1,318)
Preferred stock dividends									(1,814)				(1,814)										(1,814)				(1,814)
Common stock dividends ($0.18 and $0.54 per share, respectively)									(15,845)				(15,845)										(44,458)				(44,458)
Adoption of new accounting standard													—										(3,529)				(3,529)
Balance, September 30, 2020	$	96,422	$	86,611	$	10,632	$	1,637,467	$	94,938	$	41,185	$	1,967,255	$	96,422	$	86,611	$	10,632	$	1,637,467	$	94,938	$	41,185	$	1,967,255

2019
Balance at beginning of period	$	0	$	79,075	$	10,858	$	1,498,740	$	(29,116)	$	6,777	$	1,566,334	$	0	$	79,234	$	10,744	$	1,499,584	$	(90,419)	$	(41,589)	$	1,457,554
Net income									48,362				48,362										136,709				136,709
Other comprehensive income											7,486		7,486												55,852		55,852
Exercise of stock options (12,000 shares)													0				12				185						197
Common stock issued to dividend reinvestment plan and employee benefit plans (34,190 and 76,613 shares, respectively)			34				879						913				76				1,928						2,004

Amortization of restricted stock unit awards							1,678						1,678								7,680						7,680
Vesting of restricted stock unit awards, net of shares surrendered to cover payroll taxes (60,199 and 81,178 shares issued, respectively, and 14,919 and 51,580 shares deferred, respectively)			60		356		(1,046)						(630)				81		1,365		(2,468)						(1,022)
Purchases of common stock (195,443 and 500,495 shares, respectively)			(195)				(4,985)						(5,180)				(500)				(12,520)						(13,020)
Deferred compensation plan, net, including dividend equivalents					114								114						406								406
Common stock issued from deferred compensation plan, net of shares surrendered to cover payroll taxes (34 and 70,826 shares, respectively)					(1)		1						0				71		(1,188)		878						(239)
Common stock dividends ($0.17 and $0.50 per share, respectively)									(13,652)				(13,652)										(40,147)				(40,147)
Adoption of new accounting standard													—										(549)				(549)
Balance, September 30, 2019	$	0	$	78,974	$	11,327	$	1,495,267	$	5,594	$	14,263	$	1,605,425	$	0	$	78,974	$	11,327	$	1,495,267	$	5,594	$	14,263	$	1,605,425


	As Recorded by Three Shores		Fair Value Adjustments (1)		As Recorded by United
Assets
Cash and cash equivalents	$	218,714	$	0	$	218,714
Debt securities	374,237		7,503		381,740
Loans, net	1,463,567		(35,601)		1,427,966

Premises and equipment, net	1,892		(308)		1,584
Accrued interest receivable	8,849		(1,284)		7,565
Derivative assets	12,165		(365)		11,800
Net deferred tax asset	3,837		11,224		15,061
Core deposit intangible	0		3,360		3,360
Other assets	71,984		(6,644)		65,340
Total assets acquired	$	2,155,245	$	(22,115)	$	2,133,130
Liabilities
Deposits	$	1,796,739	$	5,955	$	1,802,694
FHLB advances and long-term debt	136,000		8,121		144,121
Derivative liabilities	12,165		0		12,165
Other liabilities	30,857		(2,811)		28,046
Total liabilities assumed	1,975,761		11,265		1,987,026
Excess of assets acquired over liabilities assumed	$	179,484
Aggregate fair value adjustments			$	(33,380)
Total identifiable net assets					146,104
Consideration transferred
Cash consideration transferred					24,108
Common stock issued (8,130,633 shares)					163,589
Total fair value of consideration transferred					187,697
Goodwill					$	41,593


	Three Months Ended September 30,				Nine Months Ended September 30,
	Revenue		Net Income (Loss)		Revenue		Net Income (Loss)
2020
Actual Three Shores results included in statement of income since acquisition date	$	7,486	$	(129)	$	7,486	$	(129)
Supplemental consolidated pro forma as if Three Shores had been acquired January 1, 2019	152,257		47,827		418,950		112,103

2019
Actual FMBT results included in statement of income since acquisition date	$	2,697	$	1,403	$	5,024	$	2,590
Supplemental consolidated pro forma as if Three Shores had been acquired on January 1, 2019 and FMBT had been acquired January 1, 2018	163,430		53,118		473,556		153,675


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

U.S. Government agencies	$	10,616	$	146	$	0	$	10,762
State and political subdivisions	163,180		6,200		28		169,352
Residential mortgage-backed securities, Agency	125,011		5,149		0		130,160

Commercial mortgage-backed, Agency	99,566		4,104		124		103,546

Total	$	398,373	$	15,599	$	152	$	413,820

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	$	3,986
2021	14,203
2022	10,461
2023	6,495
2024	2,760
Thereafter	864
Total	$	38,769


	September 30, 2019
	Three Months Ended		Nine Months Ended
Balance at beginning of period	$	26,308	$	26,868
Additions due to acquisitions	0		1,300
Accretion	(4,950)		(14,037)
Reclassification from nonaccretable difference	1,159		5,627
Changes in expected cash flows that do not affect nonaccretable difference	329		3,088
Balance at end of period	$	22,846	$	22,846




	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		0		9,668
Equipment financing	1,027		739,532		3,985		744,544		0		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									0		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		0		0		0
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


Year
Remainder of 2020	$	1,042
2021	3,622
2022	2,915
2023	2,321
2024	1,834
Thereafter	3,322
Total	$	15,056


	September 30, 2020		December 31, 2019		Issue Date	Stated Maturity Date	Earliest Call Date	Interest Rate
Obligations of the Bank and its Subsidiaries:
2026 subordinated debentures	$	15,000	$	0	2016	2026	2021	5.875% through August 2021, 3-month LIBOR plus 4.70% thereafter
	$	15,000	$	0

Obligations of the Holding Company:
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		0		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 plus 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	(9,549)		(8,588)
Total long-term debt	$	326,703	$	212,664


		Three Months Ended September 30,				Nine Months Ended September 30,
	Income Statement Location	2020		2019		2020		2019
Operating lease cost	Occupancy expense	$	1,947	$	1,272	$	4,500	$	3,783
Variable lease cost	Occupancy expense	264		112		493		336
Short-term lease cost	Occupancy expense	27		52		80		92

Total lease cost		$	2,238	$	1,436	$	5,073	$	4,211

Sublease income and rental income from owned properties under operating leases	Other noninterest income	$	263	$	261	$	792	$	886


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 September 30, 2020	0	0		0.00	$	0

Exercisable at September 30, 2020	0	0		0.00	0


	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Compared to 2019 Increase (Decrease) Due to Changes in
	Volume		Rate		Total		Volume		Rate		Total
Interest-earning assets:
Loans (FTE)	$	33,917	$	(30,101)	$	3,816	$	54,765	$	(60,770)	$	(6,005)
Taxable securities	801		(4,764)		(3,963)		(3,457)		(8,193)		(11,650)
Tax-exempt securities (FTE)	787		255		1,042		850		1,270		2,120
Federal funds sold and other interest-earning assets	1,281		(765)		516		3,390		(1,682)		1,708
Total interest-earning assets (FTE)	36,786		(35,375)		1,411		55,548		(69,375)		(13,827)

Interest-bearing liabilities:
NOW and interest-bearing demand accounts	895		(2,475)		(1,580)		1,566		(5,609)		(4,043)
Money market accounts	1,964		(4,073)		(2,109)		3,289		(6,420)		(3,131)
Savings deposits	9		(3)		6		16		(10)		6
Time deposits	225		(4,151)		(3,926)		1,096		(3,999)		(2,903)
Brokered deposits	(37)		(469)		(506)		(2,312)		(2,458)		(4,770)
Total interest-bearing deposits	3,056		(11,171)		(8,115)		3,655		(18,496)		(14,841)
Federal funds purchased & other borrowings	(216)		(211)		(427)		(432)		(403)		(835)
Federal Home Loan Bank advances	(696)		202		(494)		(3,546)		879		(2,667)
Long-term debt	1,090		(12)		1,078		138		235		373
Total borrowed funds	178		(21)		157		(3,840)		711		(3,129)
Total interest-bearing liabilities	3,234		(11,192)		(7,958)		(185)		(17,785)		(17,970)

Increase in net interest revenue (FTE)	$	33,552	$	(24,183)	$	9,369	$	55,733	$	(51,590)	$	4,143


	September 30, 2020			December 31, 2019
By Loan Type
Owner occupied commercial real estate	$	2,008,674		$	1,720,227
Income producing commercial real estate	2,493,625			2,007,950
Commercial & industrial (1)	3,104,868			1,220,657
Commercial construction	981,371			976,215
Equipment financing	823,022			744,544
Total commercial	9,411,560			6,669,593
Residential mortgage	1,269,548			1,117,616
Home equity lines of credit	706,877			660,675
Residential construction	263,266			236,437
Consumer	147,659			128,232

Total loans	$	11,798,910		$	8,812,553

As a percentage of total loans:
Owner occupied commercial real estate	17		%	20		%
Income producing commercial real estate	21			23
Commercial & industrial (1)	27			14
Commercial construction	8			11
Equipment financing	7			8
Total commercial	80			76
Residential mortgage	11			13
Home equity lines of credit	6			7
Residential construction	2			3
Consumer	1			1

Total	100		%	100		%


	September 30, 2020
	COVID-19 Deferrals		Deferrals as a % of loan category
Owner occupied commercial real estate	$	42,559	2	%
Income producing commercial real estate	182,438		7
Commercial & industrial	51,429		2
Commercial construction	54,153		6
Equipment financing	19,765		2
Total commercial	350,344		4
Residential mortgage	12,453		1
Home equity lines of credit	1,451		—
Residential construction	239		—
Consumer	310		—
Total COVID-19 deferrals	$	364,797	3