UNITED STATES


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2017

OR

¨     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 STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2018
OR
¨
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
Georgia58-1807304
(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
(Telephone Number)

(706) 781-2265
(Telephone Number)
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 xý NO ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,website, if any, every Interactive Date File required to be submitted and posted 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 and post such files).

YES xý 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. (Check one):

Large accelerated filer xý
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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 Act).

YES ¨ NO xý


Common stock, par value $1 per share 73,405,73179,141,038 shares outstanding as of OctoberJuly 31, 2017.

2018.

INDEX



INDEX
PART I - Financial Information
 
    
 Item 1.  Financial Statements. 
    
  
Consolidated StatementStatements of Income (unaudited) for the Three and NineSix Months Ended SeptemberJune 30, 20172018 and 20162017
3
    
  
Consolidated StatementStatements of Comprehensive Income (unaudited) for the Three and NineSix Months Ended SeptemberJune 30, 20172018 and 20162017
4
    
  
Consolidated Balance SheetSheets (unaudited) at SeptemberJune 30, 20172018 and December 31, 20162017
5
    
  
Consolidated StatementStatements of Changes in Shareholders’ Equity (unaudited) for the NineSix Months Ended SeptemberJune 30, 20172018 and 20162017
6
    
  
Consolidated StatementStatements of Cash Flows (unaudited) for the NineSix Months Ended SeptemberJune 30, 20172018 and 20162017
7
    
  
Notes to Consolidated Financial Statements
8
    
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
4148
    
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
6371
    
 
Item 4.
Controls and Procedures.
6371
    
PART II - Other Information
 
    
 
Item 1.
Legal Proceedings.
6471
 
Item 1A.
Risk Factors.
6471
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
6472
 
Item 3.
Defaults Upon Senior Securities.
6472
 
Item 4.
Mine Safety Disclosures.
6472
 
Item 5.
Other Information.
6472
 
Item 6.
Exhibits.
6573

2




Part I – Financial Information

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Income(Unaudited)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(in thousands, except per share data) 2017  2016  2017  2016 
             
Interest revenue:                
Loans, including fees $80,264  $69,440  $227,816  $196,888 
Investment securities, including tax exempt of $671, $134, $1,307, and $449  17,875   15,418   53,365   48,039 
Deposits in banks and short-term investments  700   581   1,782   2,315 
Total interest revenue  98,839   85,439   282,963   247,242 
                 
Interest expense:                
Deposits:                
NOW  700   452   1,932   1,381 
Money market  1,953   1,347   4,938   3,661 
Savings  34   43   89   102 
Time  1,870   667   4,257   2,052 
Total deposit interest expense  4,557   2,509   11,216   7,196 
Short-term borrowings  36   98   177   278 
Federal Home Loan Bank advances  1,709   1,015   4,603   2,731 
Long-term debt  2,762   2,828   8,490   8,178 
Total interest expense  9,064   6,450   24,486   18,383 
Net interest revenue  89,775   78,989   258,477   228,859 
(Release of) provision for credit losses  1,000   (300)  2,600   (800)
Net interest revenue after provision for credit losses  88,775   79,289   255,877   229,659 
                 
Fee revenue:                
Service charges and fees  8,220   10,819   29,525   31,460 
Mortgage loan and other related fees  4,200   6,039   13,435   13,776 
Brokerage fees  1,009   1,199   3,565   3,369 
Gains from sales of SBA/USDA loans  2,806   2,479   7,391   6,517 
Securities gains, net  188   261   190   922 
Other  4,150   5,564   12,226   12,420 
Total fee revenue  20,573   26,361   66,332   68,464 
Total revenue  109,348   105,650   322,209   298,123 
                 
Operating expenses:                
Salaries and employee benefits  38,027   36,478   112,056   103,112 
Communications and equipment  4,547   4,919   14,443   13,602 
Occupancy  4,945   5,132   14,802   14,393 
Advertising and public relations  1,026   1,088   3,347   3,275 
Postage, printing and supplies  1,411   1,451   4,127   4,029 
Professional fees  2,976   3,160   8,391   9,049 
FDIC assessments and other regulatory charges  2,127   1,412   4,758   4,453 
Amortization of intangibles  1,212   1,119   3,085   3,116 
Merger-related and other charges  3,176   3,152   7,060   6,981 
Other  6,227   6,112   19,660   17,958 
Total operating expenses  65,674   64,023   191,729   179,968 
Net income before income taxes  43,674   41,627   130,480   118,155 
Income tax expense  15,728   15,753   50,743   44,720 
Net income $27,946  $25,874  $79,737  $73,435 
                 
Net income available to common shareholders $27,719  $25,874  $79,078  $73,414 
                 
Earnings per common share:                
Basic $.38  $.36  $1.10  $1.02 
Diluted  .38   .36   1.10   1.02 
Weighted average common shares outstanding:                
Basic  73,151   71,556   72,060   71,992 
Diluted  73,162   71,561   72,071   71,996 

UNITED COMMUNITY BANKS, INC.
Consolidated Statements of Income (Unaudited)
  Three Months Ended
June 30,		 Six Months Ended
June 30,
(in thousands, except per share data) 2018 2017 2018 2017
         
Interest revenue:  
  
    
Loans, including fees $103,492
 $74,825
 $199,961
 $147,552
Investment securities, including tax exempt of $1,025 and $357, and $1,997 and $636 18,254
 17,778
 36,549
 35,490
Deposits in banks and short-term investments 469
 563
 995
 1,082
Total interest revenue 122,215
 93,166
 237,505
 184,124
         
Interest expense:        
Deposits:        
NOW 1,303
 635
 2,416
 1,232
Money market 2,583
 1,559
 4,758
 2,985
Savings 35
 28
 84
 55
Time 4,198
 1,379
 7,154
 2,387
Total deposit interest expense 8,119
 3,601
 14,412
 6,659
Short-term borrowings 198
 101
 498
 141
Federal Home Loan Bank advances 1,636
 1,464
 3,760
 2,894
Long-term debt 3,786
 2,852
 7,074
 5,728
Total interest expense 13,739
 8,018
 25,744
 15,422
Net interest revenue 108,476
 85,148
 211,761
 168,702
Provision for credit losses 1,800
 800
 5,600
 1,600
Net interest revenue after provision for credit losses 106,676
 84,348
 206,161
 167,102
         
Noninterest income:        
Service charges and fees 8,794
 10,701
 17,719
 21,305
Mortgage loan and other related fees 5,307
 4,811
 10,666
 9,235
Brokerage fees 1,201
 1,146
 2,073
 2,556
Gains from sales of SBA/USDA loans 2,401
 2,626
 4,179
 4,585
Securities (losses) gains, net (364) 4
 (1,304) 2
Other 6,001
 4,397
 12,403
 8,076
Total noninterest income 23,340
 23,685
 45,736
 45,759
Total revenue 130,016
 108,033
 251,897
 212,861
         
Noninterest expenses:        
Salaries and employee benefits 45,363
 37,338
 88,238
 74,029
Communications and equipment 4,849
 4,978
 9,481
 9,896
Occupancy 5,547
 4,908
 11,160
 9,857
Advertising and public relations 1,384
 1,260
 2,899
 2,321
Postage, printing and supplies 1,685
 1,346
 3,322
 2,716
Professional fees 3,464
 2,371
 7,508
 5,415
FDIC assessments and other regulatory charges 1,973
 1,348
 4,449
 2,631
Amortization of intangibles 1,847
 900
 3,745
 1,873
Merger-related and other charges 2,280
 1,830
 4,334
 3,884
Other 8,458
 6,950
 15,189
 13,433
Total noninterest expenses 76,850
 63,229
 150,325
 126,055
Net income before income taxes 53,166
 44,804
 101,572
 86,806
Income tax expense 13,532
 16,537
 24,280
 35,015
Net income $39,634
 $28,267
 $77,292
 $51,791
         
Net income available to common shareholders $39,359
 $28,267
 $76,740
 $51,791
         
Earnings per common share:        
Basic $0.49
 $0.39
 $0.97
 $0.72
Diluted 0.49
 0.39
 0.97
 0.72
Weighted average common shares outstanding:        
Basic 79,745
 71,810
 79,477
 71,798
Diluted 79,755
 71,820
 79,487
 71,809

See accompanying notes to consolidated financial statements.

3


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

  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands) Before-tax
Amount		  Tax
(Expense)
Benefit		  Net of Tax
Amount		  Before-tax
Amount		  Tax
(Expense)
Benefit		  Net of Tax
Amount		 
2017                  
Net income $43,674  $(15,728) $27,946  $130,480  $(50,743) $79,737 
Other comprehensive income:                        
Unrealized gains on available-for-sale securities:                        
Unrealized holding gains arising during period  1,016   (355)  661   18,644   (7,036)  11,608 
Reclassification adjustment for gains included in net income  (188)  73   (115)  (190)  72   (118)
Net unrealized gains  828   (282)  546   18,454   (6,964)  11,490 
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity  278   (105)  173   849   (319)  530 
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges  150   (58)  92   740   (288)  452 
Reclassification of disproportionate tax effect related to terminated cash flow hedges  -   -   -   -   3,400   3,400 
Net cash flow hedge activity  150   (58)  92   740   3,112   3,852 
Net actuarial loss on defined benefit pension plan  -   -   -   (718)  280   (438)
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan  200   (78)  122   600   (235)  365 
Net defined benefit pension plan activity  200   (78)  122   (118)  45   (73)
Total other comprehensive income  1,456   (523)  933   19,925   (4,126)  15,799 
Comprehensive income $45,130  $(16,251) $28,879  $150,405  $(54,869) $95,536 
                         
2016                        
Net income $41,627  $(15,753) $25,874  $118,155  $(44,720) $73,435 
Other comprehensive income:                        
Unrealized gains on available-for-sale securities:                        
Unrealized holding gains arising during period  4,927   (1,927)  3,000   37,990   (14,488)  23,502 
Reclassification adjustment for gains included in net income  (261)  101   (160)  (922)  348   (574)
Net unrealized gains  4,666   (1,826)  2,840   37,068   (14,140)  22,928 
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity  663   (237)  426   1,601   (596)  1,005 
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges  466   (181)  285   1,426   (555)  871 
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan  167   (65)  102   501   (195)  306 
Total other comprehensive income  5,962   (2,309)  3,653   40,596   (15,486)  25,110 
Comprehensive income $47,589  $(18,062) $29,527  $158,751  $(60,206) $98,545 

UNITED COMMUNITY BANKS, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands) Three Months Ended June 30, Six Months Ended June 30,
  
Before-tax
Amount
 
Tax 
(Expense)
Benefit
 
Net of Tax
Amount
 
Before-tax
Amount
 
Tax
(Expense)
Benefit
 
Net of Tax
Amount
2018            
Net income $53,166
 $(13,532) $39,634
 $101,572
 $(24,280) $77,292
Other comprehensive loss:            
Unrealized losses on available-for-sale securities:            
Unrealized holding losses arising during period (9,574) 2,310
 (7,264) (38,838) 9,464
 (29,374)
Reclassification adjustment for losses included in net income 364
 (97) 267
 1,304
 (317) 987
Net unrealized losses (9,210) 2,213
 (6,997) (37,534) 9,147
 (28,387)
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity 218
 (55) 163
 439
 (109) 330
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges 143
 (38) 105
 290
 (76) 214
Net actuarial loss on defined benefit pension plan —
 —
 —
 (5) 1
 (4)
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan 227
 (73) 154
 454
 (131) 323
Net defined benefit pension plan activity 227
 (73) 154
 449
 (130) 319
             
Total other comprehensive loss (8,622) 2,047
 (6,575) (36,356) 8,832
 (27,524)
             
Comprehensive income $44,544
 $(11,485) $33,059
 $65,216
 $(15,448) $49,768
             
2017            
Net income $44,804
 $(16,537) $28,267
 $86,806
 $(35,015) $51,791
Other comprehensive income:            
Unrealized gains on available-for-sale securities:            
Unrealized holding gains arising during period 11,120
 (4,217) 6,903
 17,628
 (6,681) 10,947
Reclassification adjustment for gains included in net income (4) —
 (4) (2) (1) (3)
Net unrealized gains 11,116
 (4,217) 6,899
 17,626
 (6,682) 10,944
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity 261
 (98) 163
 571
 (214) 357
Amortization of losses included in net income on terminated derivative financial instruments that were previously accounted for as cash flow hedges 177
 (69) 108
 590
 (230) 360
Reclassification of disproportionate tax effect related to terminated cash flow hedges —
 —
 —
 —
 3,400
 3,400
Net cash flow hedge activity 177
 (69) 108
 590
 3,170
 3,760
Net actuarial gain (loss) on defined benefit pension plan 82
 (32) 50
 (718) 280
 (438)
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan 200
 (78) 122
 400
 (157) 243
Net defined benefit pension plan activity 282
 (110) 172
 (318) 123
 (195)
             
Total other comprehensive income 11,836
 (4,494) 7,342
 18,469
 (3,603) 14,866
             
Comprehensive income $56,640
 $(21,031) $35,609
 $105,275
 $(38,618) $66,657

See accompanying notes to consolidated financial statements.

4


UNITED COMMUNITY BANKS, INC.
Consolidated Balance Sheet(Unaudited)

  September 30,  December 31, 
(in thousands, except share and per share data) 2017  2016 
       
ASSETS        
Cash and due from banks $98,396  $99,489 
Interest-bearing deposits in banks  148,449   117,859 
Cash and cash equivalents  246,845   217,348 
Securities available for sale  2,540,470   2,432,438 
Securities held to maturity (fair value $310,446 and $333,170)  306,741   329,843 
Mortgage loans held for sale (includes $30,093 and $27,891 at fair value)  30,292   29,878 
Loans, net of unearned income  7,202,937   6,920,636 
Less allowance for loan losses  (58,605)  (61,422)
Loans, net  7,144,332   6,859,214 
Premises and equipment, net  193,915   189,938 
Bank owned life insurance  167,680   143,543 
Accrued interest receivable  29,573   28,018 
Net deferred tax asset  128,731   154,336 
Derivative financial instruments  20,972   23,688 
Goodwill and other intangible assets  182,716   156,222 
Other assets  136,760   144,189 
Total assets $11,129,027  $10,708,655 
LIABILITIES AND SHAREHOLDERS' EQUITY        
Liabilities:        
Deposits:        
Demand $2,889,125  $2,637,004 
NOW  1,967,655   1,989,763 
Money market  1,934,169   1,846,440 
Savings  605,230   549,713 
Time  1,363,949   1,287,142 
Brokered  367,256   327,496 
Total deposits  9,127,384   8,637,558 
Short-term borrowings  16,005   5,000 
Federal Home Loan Bank advances  494,484   709,209 
Long-term debt  135,707   175,078 
Derivative financial instruments  22,926   27,648 
Accrued expenses and other liabilities  111,881   78,427 
Total liabilities  9,908,387   9,632,920 
Shareholders' equity:        
Common stock, $1 par value; 150,000,000 shares authorized; 73,403,453 and 70,899,114 shares issued and outstanding  73,403   70,899 
Common stock issuable; 588,445 and 519,874 shares  8,703   7,327 
Capital surplus  1,341,346   1,275,849 
Accumulated deficit  (192,128)  (251,857)
Accumulated other comprehensive loss  (10,684)  (26,483)
Total shareholders' equity  1,220,640   1,075,735 
Total liabilities and shareholders' equity $11,129,027  $10,708,655 

UNITED COMMUNITY BANKS, INC.
Consolidated Balance Sheets (Unaudited)
  June 30, 2018 December 31, 2017
(in thousands, except share data)  
     
ASSETS  
  
Cash and due from banks $125,013
 $129,108
Interest-bearing deposits in banks 191,355
 185,167
Cash and cash equivalents 316,368
 314,275
Securities available for sale 2,536,294
 2,615,850
Securities held to maturity (fair value $291,463 and $321,276) 297,569
 321,094
Loans held for sale (includes $34,813 and $26,252 at fair value) 34,813
 32,734
Loans and leases, net of unearned income 8,220,271
 7,735,572
Less allowance for loan and lease losses (61,071) (58,914)
Loans and leases, net 8,159,200
 7,676,658
Premises and equipment, net 202,098
 208,852
Bank owned life insurance 190,649
 188,970
Accrued interest receivable 33,114
 32,459
Net deferred tax asset 77,274
 88,049
Derivative financial instruments 29,896
 22,721
Goodwill and other intangible assets 327,174
 244,397
Other assets 181,091
 169,401
Total assets $12,385,540
 $11,915,460
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Liabilities:    
Deposits:    
Demand $3,245,701
 $3,087,797
NOW 2,031,396
 2,131,939
Money market 2,036,588
 2,016,748
Savings 683,689
 651,742
Time 1,524,635
 1,548,460
Brokered 444,079
 371,011
Total deposits 9,966,088
 9,807,697
Short-term borrowings 9,325
 50,000
Federal Home Loan Bank advances 560,000
 504,651
Long-term debt 308,434
 120,545
Derivative financial instruments 37,261
 25,376
Accrued expenses and other liabilities 125,323
 103,857
Total liabilities 11,006,431
 10,612,126
Shareholders' equity:    
Common stock, $1 par value; 150,000,000 shares authorized;
    79,137,810 and 77,579,561 shares issued and outstanding
 79,138
 77,580
Common stock issuable; 616,549 and 607,869 shares 9,509
 9,083
Capital surplus 1,497,517
 1,451,814
Accumulated deficit (154,290) (209,902)
Accumulated other comprehensive loss (52,765) (25,241)
Total shareholders' equity 1,379,109
 1,303,334
Total liabilities and shareholders' equity $12,385,540
 $11,915,460
See accompanying notes to consolidated financial statements.

5


UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Changes in Shareholders' Equity(Unaudited)
For the Nine Months Ended September 30,

  Preferred                 Accumulated    
  Stock     Non-Voting  Common        Other    
  Series  Common  Common  Stock  Capital  Accumulated  Comprehensive    
(in thousands, except share and per share data) H  Stock  Stock  Issuable  Surplus  Deficit  Income (Loss)  Total 
                         
Balance, December 31, 2015 $9,992  $66,198  $5,286  $6,779  $1,286,361  $(330,879) $(25,452) $1,018,285 
Net income                      73,435       73,435 
Other comprehensive income                          25,110   25,110 
Redemption of Series H preferred stock (9,992 shares)  (9,992)                          (9,992)
Common stock issued to dividend reinvestment plan and to employee benefit plans (15,844 shares)      16           254           270 
Conversion of non-voting common stock to voting (5,285,516 shares)      5,286   (5,286)                  - 
Amortization of stock option and restricted stock awards                  3,257           3,257 
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (79,430 shares issued, 94,497 shares deferred)      79       1,384   (2,428)          (965)
Purchases of common stock (764,000 shares)      (764)          (12,895)          (13,659)
Deferred compensation plan, net, including dividend equivalents              291               291 
Shares issued from deferred compensation plan (45,758 shares)      46       (1,275)  1,229           - 
Common stock dividends ($.22 per share)                      (15,849)      (15,849)
Tax on restricted stock vesting                  (869)          (869)
Series H preferred stock dividends                      (21)      (21)
Balance, September 30, 2016 $-  $70,861  $-  $7,179  $1,274,909  $(273,314) $(342) $1,079,293 
                                 
Balance, December 31, 2016 $-  $70,899  $-  $7,327  $1,275,849  $(251,857) $(26,483) $1,075,735 
Net income                      79,737       79,737 
Other comprehensive income                          15,799   15,799 
Common stock issued to dividend reinvestment plan and to employee benefit plans (13,107 shares)      13           315           328 
Common stock issued for acquisition (2,370,331 shares)      2,370           63,430           65,800 
Amortization of stock option and restricted stock awards                  4,359           4,359 
Vesting of restricted stock, net of shares surrendered to cover payroll taxes (88,622 shares issued, 94,165 shares deferred)      89       1,454   (2,836)          (1,293)
Deferred compensation plan, net, including dividend equivalents              290               290 
Shares issued from deferred compensation plan (32,279 shares)      32       (368)  229           (107)
Common stock dividends ($.28 per share)                      (20,445)      (20,445)
Cumulative effect of change in accounting principle                      437       437 
Balance, September 30, 2017 $-  $73,403  $-  $8,703  $1,341,346  $(192,128) $(10,684) $1,220,640 

UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
For the Six Months Ended June 30,
(in thousands, except share and per share data) Common Stock Common Stock Issuable Capital Surplus Accumulated Deficit Accumulated Other Comprehensive Loss Total
Balance, December 31, 2016 $70,899
 $7,327
 $1,275,849
 $(251,857) $(26,483) $1,075,735
Net income       51,791
   51,791
Other comprehensive income         14,866
 14,866
Common stock issued to dividend
   reinvestment plan and employee benefit
   plans (8,569 shares)
 9
   207
     216
Amortization of stock option and restricted
   stock awards
     3,149
     3,149
Vesting of restricted stock, net of shares
   surrendered to cover payroll taxes (40,954
   shares issued, 58,784 shares deferred)
 41
 887
 (1,612)     (684)
Deferred compensation plan, net, including
  dividend equivalents
   216
       216
Shares issued from deferred compensation
   plan, net of shares surrendered to cover
   payroll taxes (32,279 shares)
 32
 (368) 229
     (107)
Common stock dividends ($0.18 per share)       (12,978)   (12,978)
Cumulative effect of change in accounting
   principle
       437
   437
Balance, June 30, 2017 $70,981
 $8,062
 $1,277,822
 $(212,607) $(11,617) $1,132,641
             
Balance, December 31, 2017 $77,580
 $9,083
 $1,451,814
 $(209,902) $(25,241) $1,303,334
Net income       77,292
   77,292
Other comprehensive loss         (27,524) (27,524)
Exercise of stock options (12,000 shares) 12
   130
     142
Common stock issued to dividend
   reinvestment plan and employee benefit
   plans (9,853 shares)
 10
   275
     285
Common stock issued for acquisition
   (1,443,987 shares)
 1,444
   44,302
     45,746
Amortization of stock option and restricted
   stock awards
     2,276
     2,276
Vesting of restricted stock, net of shares
   surrendered to cover payroll taxes (46,409
   shares issued, 47,419 shares deferred)
 46
 884
 (1,916)     (986)
Deferred compensation plan, net, including
   dividend equivalents
   234
       234
Shares issued from deferred compensation
   plan, net of shares surrendered to cover
   payroll taxes (46,000 shares)
 46
 (692) 636
     (10)
Common stock dividends ($0.27 per share)       (21,680)   (21,680)
Balance, June 30, 2018 $79,138
 $9,509
 $1,497,517
 $(154,290) $(52,765) $1,379,109

See accompanying notes to consolidated financial statements.

6


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

  Nine Months Ended 
  September 30, 
(in thousands) 2017  2016 
Operating activities:        
Net income $79,737  $73,435 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation, amortization and accretion  20,137   22,612 
(Release of) provision for credit losses  2,600   (800)
Stock based compensation  4,359   3,257 
Deferred income tax expense  51,806   45,308 
Securities gains, net  (190)  (922)
Gains from sales of SBA/USDA loans  (7,391)  (6,517)
Net losses (gains) and write downs on sales of other real estate owned  667   (59)
Changes in assets and liabilities:        
Other assets and accrued interest receivable  4,106   (42,267)
Accrued expenses and other liabilities  (8,382)  (1,788)
Mortgage loans held for sale  (414)  (6,441)
Net cash provided by operating activities  147,035   85,818 
         
Investing activities:        
Investment securities held to maturity:        
Proceeds from maturities and calls of securities held to maturity  44,896   49,968 
Purchases of securities held to maturity  (21,638)  (20,656)
Investment securities available for sale:        
Proceeds from sales of securities available for sale  275,769   189,164 
Proceeds from maturities and calls of securities available for sale  465,817   292,200 
Purchases of securities available for sale  (709,742)  (308,800)
Net increase in loans  (57,260)  (453,541)
Purchase of bank owned life insurance  (10,000)  - 
Proceeds from sales of premises and equipment  2,229   5,038 
Purchases of premises and equipment  (15,167)  (13,716)
Net cash received from acquisitions  17,822   1,912 
Proceeds from sale of other real estate  7,076   9,370 
Net cash used in investing activities  (198)  (249,061)
         
Financing activities:        
Net change in deposits  171,611   169,156 
Net change in short-term borrowings  9,864   8,360 
Proceeds from FHLB advances  3,370,000   7,080,000 
Repayments of FHLB advances  (3,609,000)  (7,074,000)
Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock  (1,400)  (965)
Repayment of long-term debt  (40,000)  - 
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans  328   270 
Retirement of preferred stock  -   (9,992)
Purchase of common stock  -   (13,659)
Cash dividends on common stock  (18,743)  (10,085)
Cash dividends on preferred stock  -   (46)
Net cash (used in) provided by financing activities  (117,340)  149,039 
         
Net change in cash and cash equivalents  29,497   (14,204)
         
Cash and cash equivalents at beginning of period  217,348   240,363 
         
Cash and cash equivalents at end of period $246,845  $226,159 
         
Supplemental disclosures of cash flow information:        
Interest paid $25,513  $25,815 
Income taxes paid  5,705   3,431 
Significant non-cash investing and financing transactions:        
Unsettled securities purchases  28,436   8,973 
Unsettled government guaranteed loan sales  21,517   22,355 
Transfers of loans to foreclosed properties  1,725   6,647 
Acquisitions:        
Assets acquired  412,477   450,958 
Liabilities assumed  346,646   439,749 
Net assets acquired  65,831   11,209 
Common stock issued in acquisitions  65,800   - 

UNITED COMMUNITY BANKS, INC.
Consolidated Statements of Cash Flows (Unaudited)
  Six Months Ended June 30,
(in thousands) 2018 2017
Operating activities:  
  
Net income $77,292
 $51,791
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation, amortization and accretion 17,068
 12,932
Provision for credit losses 5,600
 1,600
Stock based compensation 2,276
 3,149
Deferred income tax expense 22,782
 35,685
Securities losses (gains), net 1,304
 (2)
Gains from sales of SBA/USDA loans (4,179) (4,585)
Net losses and write downs on sales of other real estate owned 260
 471
Changes in assets and liabilities:    
Other assets and accrued interest receivable (18,799) (425)
Accrued expenses and other liabilities 12,273
 (7,191)
Mortgage loans held for sale 513
 4,167
Net cash provided by operating activities 116,390
 97,592
     
Investing activities:    
Investment securities held to maturity:    
Proceeds from maturities and calls of securities held to maturity 35,531
 31,369
Purchases of securities held to maturity (11,983) (13,433)
Investment securities available for sale:    
Proceeds from sales of securities available for sale 140,296
 94,650
Proceeds from maturities and calls of securities available for sale 174,284
 309,054
Purchases of securities available for sale (280,241) (412,407)
Net increase in loans (117,492) (115,952)
Purchase of bank owned life insurance —
 (10,000)
Proceeds from sales of premises and equipment 589
 5
Purchases of premises and equipment (9,959) (11,687)
Net cash paid for acquisition (56,800) —
Proceeds from sale of other real estate 1,986
 5,781
Net cash used in investing activities (123,789) (122,620)
     
Financing activities:    
Net change in deposits 159,015
 98,694
Net change in short-term borrowings (255,598) (5,000)
Repayments of long-term debt (30,023) —
Proceeds from FHLB advances 1,375,000
 2,710,000
Repayments of FHLB advances (1,319,003) (2,750,000)
Proceeds from issuance of subordinated debt, net of issuance costs 98,188
 —
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans 285
 216
Proceeds from exercise of stock options 142
 —
Cash paid for shares withheld to cover payroll taxes upon vesting of restricted stock (996) (791)
Cash dividends on common stock (17,518) (12,253)
Net cash provided by financing activities 9,492
 40,866
     
Net change in cash and cash equivalents, including restricted cash 2,093
 15,838
     
Cash and cash equivalents, including restricted cash, at beginning of period 314,275
 217,348
     
Cash and cash equivalents, including restricted cash, at end of period $316,368
 $233,186
     
Supplemental disclosures of cash flow information:    
Interest paid $23,518
 $15,346
Income taxes paid 4,345
 4,651
Significant non-cash investing and financing transactions:    
Unsettled securities purchases —
 20,269
Unsettled government guaranteed loan sales 18,800
 26,107
Transfers of loans to foreclosed properties 1,609
 1,042
Acquisitions:    
Assets acquired 481
 —
Liabilities assumed 351
 —
Net assets acquired 130
 —

See accompanying notes to consolidated financial statements.

7

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements




Note 1 – Accounting Policies

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States (“GAAP”) and reporting guidelines of banking regulatory authorities and regulators. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. AIn addition to those items mentioned below, 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, 2016.

Effective January 1, 2017, management elected to begin measuring residential mortgage servicing rights at fair value. The cumulative effect adjustment of this election to retained earnings, net of income tax effect, was $437,000.

2017.

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 statement. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.

Certain 2016 amounts have been reclassified to conform

Cash and Cash Equivalents
Restricted Cash
The terms of securitizations acquired with NLFC Holdings Corp. (“NLFC”) require various restricted cash accounts. These cash accounts were funded from either a portion of the proceeds from the issuance of notes or from the collections on leases and loans that were conveyed in the securitization. These restricted cash accounts provide additional collateral to the 2017 presentation. As discussed in the Form 10-K for the year ended December 31, 2016, certain loan balances previously shown as retail loans were reclassified to several commercial categories to better align the reporting with the business purpose or underlying credit risknote holders under specific provisions of the loans, rather than the collateral type. The reclassifications moved residential mortgages and home equity lines from the residential mortgage and home equity lines of credit categories to the owner-occupied and income-producing commercial real estate categories. Althoughsecuritizations which govern when funds in these loans were secured by one-to-four family residential properties, their purpose was commercial since they included residential home rental property and business purpose loans secured by the borrower’s primary residence. In addition, residential construction loans were reclassified to the commercial construction category. These reclassified loans are to builders and developers of residential properties. Reclassifying these balances better aligned the loan categories with the management of credit risk. For the three and nine months ended September 30, 2016, historic charge-offs and recoveries on these same loans have been reclassified,accounts may be released as well as conditions under which collections on contracts transferred to the corresponding allowancesecuritizations may be used to fund deposits into the restricted cash accounts. At June 30, 2018, these restricted cash accounts totaled $10.8 million and were included in interest-bearing deposits in banks on the consolidated balance sheet.
Loans and Leases
Equipment Financing Lease Receivables
Equipment financing lease receivables are recorded as the sum of the future minimum lease payments, initial deferred costs and estimated or contractual residual values less unearned income. 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 loan loss balances, average impaired loan balances,re-sale of certain leased assets are important variables considered in making this determination. Interest income is recognized as earned using the effective interest method. Direct fees and new troubled debt restructurings.

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.

Note 2 –Accounting Standards Updates and Recently Adopted Standards

Accounting Standards Updates

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers.  This ASU provides guidance on the recognition of revenue from contracts with customers.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and will be applied retrospectively either to each prior reporting period or with a cumulative effect recognized at the date of initial application. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, United does not expect the new revenue recognition guidance to have a material impact on the consolidated financial statements. United continues to evaluate the changes in disclosures required by the new guidance.

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842). This update requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. For public entities, this update is effective for fiscal years beginning after December 15, 2018, with modified retrospective application to prior periods presented. Upon adoption, United expects to report higher assets and liabilities as a result of including leases on the consolidated balance sheet. At December 31, 2016,2017, future minimum lease payments amounted to $29.1$27.1 million. United does not expect the new guidance to have a material impact on the consolidated statementstatements of income or the consolidated statementstatements of shareholders’ equity.

In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. Application of this update will primarily be on a modified retrospective
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


approach, although the guidance for debt securities for which an other-than-temporary impairment has been recognized before the effective date and for loans previously covered by ASC 310-30,Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality will be applied on a prospective basis. For public entities, this update is effective for fiscal years beginning after December 15, 2019. Upon adoption, United expects that the allowance for credit losses will be higher given the change to estimated losses for the estimated life of the financial asset, however management is still in the process of determining the magnitude of the increase. Management has formed a steering committee and has completed a gap assessment that became the basis for a full project plan. In addition, management has selected a vendor model and begun developing athe implementation phase of the project planplan. United expects to run parallel for the four quarters leading up to the effective date to ensure it is prepared for implementation by the effective date.

8


In May 2018, the FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. This update superseded outdated guidance related to the Office of the Comptroller of the Currency’s Banking Circular 202, Accounting for Net Deferred Tax Charges. United does not expect the new guidance to have a material impact on the consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based payment awards will be measured at the grant-date fair value of the equity instruments that an entity is obligated to issue when the service has been rendered, subject to the probability of satisfying performance conditions when applicable. For public entities, this update is effective for fiscal years beginning after December 15, 2018. United does not expect the new guidance to have a material impact on the consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-08, Not for Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This update clarifies the guidance about whether a transfer of assets (or the reduction, settlement or cancellation of liabilities) is a contribution or an exchange transaction. In addition, the guidance clarifies the determination of whether a transaction is conditional. For public entities, this update is effective for contributions made in fiscal years beginning after December 15, 2018. United does not expect the new guidance to have a material impact on the consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements to address stakeholder suggestions for minor corrections and clarifications within the codification. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this update do not require transition guidance and will be effective upon issuance of this update. However, many of the amendments in this update do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. United does not expect the new guidance to have a material impact on the consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842. Leases to address certain narrow aspects of the guidance issued in ASU No. 2016-02. This guidance did not change United’s assessment of the impact of ASU No. 2016-02 on the consolidated financial statements as described above.
Recently Adopted Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers.  This ASU provides guidance on the recognition of revenue from contracts with customers.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance was effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and was applied retrospectively either to each prior reporting period or with a cumulative effect recognized at the date of initial application. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, and revenue sources within scope were not materially affected, the new revenue recognition guidance did not have a material impact on the consolidated financial statements. United used the modified retrospective approach to adopting this guidance.
In January 2016, the FASB issued ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. The guidance in this update requires that equity investments (except those accounted for under the equity method of accounting) be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In addition, the guidance addresses various disclosure and presentation issues related to financial instruments. For public entities, this update was effective for fiscal years beginning after December 15, 2017 with early application
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



permitted. The adoption of this update did not have a material impact on the consolidated financial statements. There was no opening balance sheet adjustment as a result of the adoption and the remainder of the standard was applied prospectively.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). This ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance was effective for public entities for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, and was applied retrospectively to each period presented. The adoption of this update did not have a material impact on the consolidated financial statements. There was no adjustment to prior periods as a result of the adoption.
In March 2017, the FASB issued ASU No. 2017-07,Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost and allow only the service cost component to be eligible for capitalization. For public entities, this update iswas effective for fiscal years beginning after December 15, 2017, with retrospective presentation of the service cost and other components and prospective application for any capitalization of service cost. The adoption of this update isdid not expected to have a material impact on the consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This update shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. For securities held at a discount, the discount will continue to be amortized to maturity. For public entities, this update is effective for fiscal years beginning after December 15, 2018, with modified retrospective application. The adoption of this update is not expected to have a material impact on the consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09,Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This update clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Specifically, modification accounting should be applied unless the fair value of the modified award is the same as the original award immediately before modification, the vesting conditions of the modified award are the same as the original award immediately before modification, and the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before modification. For public entities, this update is effective for fiscal years beginning after December 15, 2017, with prospective application. The adoption of this update is not expected to have a material impact on the consolidated financial statements.

In August 2017, The FASB issued ASU No. 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This update also makes certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. For public entities, this update is effective for fiscal years beginning after December 15, 2018. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings. The amended presentation and disclosure guidance is required prospectively. The adoption of this update is not expected to have a material impact on the consolidated financial statements.

Recently Adopted Standards

In March 2016, the FASB issued ASU No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. United adopted this standard effective January 1, 2017, with no material impact on the consolidated financial statements, although management expects more volatility in the effective tax rate as excess tax benefits and deficiencies on stock compensation transactions flow through income tax expense rather than capital surplus. United prospectively adopted the amendment requiring that excess tax benefits and deficiencies be recognized as income tax expense or benefit in the income statement and as an operating activity in the statement of cash flows. In addition, United elected to account for forfeitures as they occur, rather than estimate the number of awards expected to vest. United retrospectively implemented the clarification that cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity.

9

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 3 – Acquisitions

Acquisition of HCSB Financial Corporation

NLFC Holdings Corp.

On July 31, 2017,February 1, 2018, United completed the acquisition of HCSB Financial Corporation (“HCSB”)NLFC and its wholly-owned bank subsidiary, Horry County State Bank. HCSB operated eight branches in coastal South Carolina.Navitas Credit Corp (“Navitas”). Navitas is a specialty lending company providing equipment finance credit services to small and medium-sized businesses nationwide. In connection with the acquisition, United acquired $390$393 million of assets and assumed $347$350 million of liabilities. Under the terms of the merger agreement, HCSBNLFC shareholders received .0050 shares$130 million in total consideration, of which $84.5 million was paid in cash and $45.7 million was paid in United common stock for each share of HCSB common stock issued and outstanding at the closing date.stock. 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 $23.9$87.4 million, representing the intangible value of HCSB’sNLFC’s business and reputation within the marketmarkets it served. None of the goodwill recognized is expected to be deductible for income tax purposes. United will amortize the related core deposit intangible of $3.48 million using the sum-of-the-years-digits method over six years, which represents the expected useful life of the asset. United will amortize the related noncompete agreements of $2.24 million using the straight line method over the terms of the agreements, which vary between one year and two years.

United’s operating results for the periodthree and six months ended SeptemberJune 30, 20172018 include the operating results of the acquired assets and assumed liabilities for the period subsequent to the acquisition date of July 31, 2017.

February 1, 2018.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


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
HCSB		  Fair Value
Adjustments (1)		  As Recorded by
United		 
Assets            
Cash and cash equivalents $17,855  $(2) $17,853 
Securities  101,462   (142)  101,320 
Loans, net  228,483   (12,536)  215,947 
Premises and equipment, net  14,030   (6,113)  7,917 
Bank owned life insurance  11,827   -   11,827 
Accrued interest receivable  1,322   (275)  1,047 
Net deferred tax asset  -   25,389   25,389 
Intangibles  -   5,716   5,716 
Other real estate owned  1,177   (372)  805 
Other assets  1,950   (32)  1,918 
Total assets acquired $378,106  $11,633  $389,739 
Liabilities            
Deposits $318,512  $430  $318,942 
Repurchase agreements  1,141   -   1,141 
Federal Home Loan Bank advances  24,000   517   24,517 
Other liabilities  1,955   91   2,046 
Total liabilities assumed  345,608   1,038   346,646 
Excess of assets acquired over liabilities assumed $32,498         
Aggregate fair value adjustments     $10,595     
Total identifiable net assets         $43,093 
Consideration transferred            
Cash          31 
Common stock issued (2,370,331 shares)          65,800 
Total fair value of consideration transferred          65,831 
Equity interest in HCSB held before the business combination          1,125 
Goodwill         $23,863 

 
As Recorded by
NLFC
 
Fair Value
Adjustments (1)
 
As Recorded by
United
Assets 
  
  
Cash and cash equivalents$27,700
 —
 $27,700
Loans and leases, net365,533
 (7,181) 358,352
Premises and equipment, net628
 (304) 324
Net deferred tax asset—
 2,873
 2,873
Other assets5,117
 (1,066) 4,051
Total assets acquired$398,978
 $(5,678) $393,300
Liabilities     
Short-term borrowings$214,923
 $—
 $214,923
Long-term debt119,402
 —
 119,402
Other liabilities17,059
 (951) 16,108
Total liabilities assumed351,384
 (951) 350,433
Excess of assets acquired over liabilities assumed$47,594
    
Aggregate fair value adjustments  $(4,727)  
Total identifiable net assets    $42,867
Consideration transferred     
Cash    84,500
Common stock issued (1,443,987 shares)    45,746
Total fair value of consideration transferred    130,246
Goodwill    $87,379

(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.

10

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes

Since the acquisition date, within the one year measurement period, United received additional information regarding the fair value of loans. As a result, the provisional value assigned to Consolidated Financial Statements

the acquired loans was reduced by $526,000, partially offset by acquisition-related adjustments to deferred tax assets. The net of the adjustments was reflected as a $390,000 increase to goodwill.  


The following table presents additional information related to the acquired loan and lease portfolio at the acquisition date(in thousands):

  July 31, 2017 
Accounted for pursuant to ASC 310-30:    
Contractually required principal and interest $46,069 
Non-accretable difference  12,413 
Cash flows expected to be collected  33,656 
Accretable yield  3,410 
Fair value $30,246 
     
Excluded from ASC 310-30:    
Fair value $185,701 
Gross contractual amounts receivable  212,780 
Estimate of contractual cash flows not expected to be collected  3,985 

Acquisition

 February 1, 2018
Accounted for pursuant to ASC 310-30: 
Contractually required principal and interest$24,711
Non-accretable difference5,505
Cash flows expected to be collected19,206
Accretable yield1,977
Fair value$17,229
  
Excluded from ASC 310-30: 
Fair value$341,123
Gross contractual amounts receivable389,432
Estimate of contractual cash flows not expected to be collected8,624
In January 2018, after announcement of Tidelands Bancshares, Inc.

On July 1, 2016, United completedits intention to acquire NLFC but prior to the completion of the acquisition, of Tidelands Bancshares, Inc. (“Tidelands”) and its wholly-owned bank subsidiary Tidelands Bank. Information relatedUnited purchased $19.9 million in loans from NLFC in a transaction separate from the business combination.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to the fair value of assets and liabilities acquired from Tidelands is included in United’s Annual Report on Form 10-K for the year ended December 31, 2016.

Consolidated Financial Statements



Pro forma information

The following table discloses the impact of the mergersmerger with HCSB and TidelandsNLFC since the respective acquisition datesdate through SeptemberJune 30, of the year of acquisition.2018. The table also presents certain pro forma information as if HCSBNLFC had been acquired on January 1, 2016 and Tidelands had been acquired on January 1, 2015.2017. These results combine the historical results of the acquired entitiesentity with United’s consolidated statement of income and, while adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not necessarily indicative of what would have occurred had the acquisition taken place in earlier years.

Merger-related costs from the HCSBNLFC acquisition of $1.62 million$118,000 and $1.88$4.83 million, respectively, have been excluded from the three and six months and nine months 20172018 pro forma information presented below and included in the three and six months and nine months 20162017 pro forma information below. Merger-related costs of $2.93 million from the Tidelands acquisition have been excluded from the 2016 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  Revenue  Net Income 
             
2017                
Actual HCSB results included in statement of income since acquisition date $2,404  $627  $2,404  $627 
Supplemental consolidated pro forma as if HCSB had been acquired January 1, 2016  110,910   27,590   330,851   80,539 
                 
2016                
Actual Tidelands results included in statement of income since acquisition date $3,988  $658  $3,988  $658 
Supplemental consolidated pro forma as if HCSB had been acquired January 1, 2016 and Tidelands had been acquired January 1, 2015  108,549   24,715   309,662   57,114 

11

  Three Months Ended
June 30,		 Six Months Ended
June 30,
  Revenue Net Income Revenue Net Income
2018        
Actual NLFC results included in statement of income since acquisition date $6,624
 $2,686
 $10,237
 $3,496
Supplemental consolidated pro forma as if NLFC had been acquired January 1, 2017 130,288
 39,924
 255,119
 78,989
         
2017        
Supplemental consolidated pro forma as if NLFC had been acquired January 1, 2017 $112,004
 $28,715
 $220,510
 $49,595

Acquisition of Four Oaks Fincorp, Inc.
On November 1, 2017, United completed the acquisition of Four Oaks FinCorp, Inc. (“FOFN”) and its wholly-owned bank subsidiary, Four Oaks Bank & Trust Company. Information related to the fair value of assets and liabilities acquired from FOFN is included in United’s Annual Report on Form 10-K for the year ended December 31, 2017. During first quarter 2018, within the one-year measurement period, United received additional information regarding the acquisition date fair values of loans held for sale and servicing assets. As a result, the provisional values assigned to the acquired loans held for sale and servicing assets have been adjusted to $10.7 million and $65,000, respectively, which represent an increase of $2.59 million and a decrease of $354,000, respectively, from amounts previously disclosed. The tax effect of these adjustments was reflected as a decrease to the deferred tax asset of $1.08 million, with the net amount of $1.16 million reflected as a decrease to goodwill.

Acquisition of HCSB Financial Corporation
On July 31, 2017, United completed the acquisition of HCSB Financial Corporation (“HCSB”) and its wholly-owned bank subsidiary, Horry County State Bank. Information related to the fair value of assets and liabilities acquired from HCSB is included in United’s Annual Report on Form 10-K for the year ended December 31, 2017. During second quarter 2018, within the one-year measurement period, United received additional information regarding the acquisition date fair value of premises and equipment. As a result, the provisional value assigned to the acquired premises and equipment has been adjusted to $7.42 million, which represents a decrease of $493,000 from the amount previously disclosed. The tax effect of this adjustment was reflected as an increase to the deferred tax asset of $190,000, resulting in a net $303,000 increase to goodwill.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements




Note 4 – Balance Sheet Offsetting and Repurchase Agreements Accounted for as Secured Borrowings

United enters into reverse repurchase agreements in order to invest short-term funds. In addition, United enters into repurchase agreements and reverse repurchase agreements with the same counterparty in transactions commonly referred to as collateral swaps that are subject to master netting agreements under which the balances are netted in the balance sheet in accordance with ASC 210-20,Offsetting.


The following table presents a summary of amounts outstanding under reverse repurchase agreements and derivative financial instruments including those entered into in connection with the same counterparty under master netting agreements as of the dates indicated(in thousands).

  Gross
Amounts of		  Gross
Amounts
Offset on the		     Gross Amounts not Offset
in the Balance Sheet		    
September 30, 2017 Recognized
Assets		  Balance
Sheet		  Net Asset
Balance		  Financial
Instruments		  

Collateral

Received

  Net
Amount		 
                   
Repurchase agreements / reverse repurchase agreements $200,000  $(200,000) $-  $-  $-  $- 
Derivatives  20,972   -   20,972   (2,232)  (2,048)  16,692 
Total $220,972  $(200,000) $20,972  $(2,232) $(2,048) $16,692 
                         
Weighted average interest rate of reverse repurchase agreements  2.02%                    
                         
  Gross
Amounts of		  Gross
Amounts
Offset on the		     Gross Amounts not Offset
in the Balance Sheet		    
  Recognized
Liabilities		  Balance
Sheet		  Net Liability
Balance		  Financial
Instruments		  

Collateral

Pledged

  Net
Amount		 
                   
Repurchase agreements / reverse repurchase agreements $200,000  $(200,000) $-  $-  $-  $- 
Derivatives  22,926   -   22,926   (2,232)  (20,900)  - 
Total $222,926  $(200,000) $22,926  $(2,232) $(20,900) $- 
                         
Weighted average interest rate of repurchase agreements  1.20%                    
                         
  Gross
Amounts of		  Gross
Amounts
Offset on the		     Gross Amounts not Offset in the
Balance Sheet		    
December 31, 2016 Recognized
Assets		  Balance
Sheet		  Net Asset
Balance		  Financial
Instruments		  Collateral
Received		  Net
Amount		 
                   
Repurchase agreements / reverse repurchase agreements $150,000  $(150,000) $-  $-  $-  $- 
Derivatives  23,688   -   23,688   (3,485)  (3,366)  16,837 
Total $173,688  $(150,000) $23,688  $(3,485) $(3,366) $16,837 
                         
Weighted average interest rate of reverse repurchase agreements  1.78%                    
                         
  Gross
Amounts of		  Gross
Amounts
Offset on the		     Gross Amounts not Offset in the
Balance Sheet		    
  Recognized
Liabilities		  Balance
Sheet		  Net Liability
Balance		  Financial
Instruments		  Collateral
Pledged		  Net
Amount		 
                   
Repurchase agreements / reverse repurchase agreements $150,000  $(150,000) $-  $-  $-  $- 
Derivatives  27,648   -   27,648   (3,485)  (18,505)  5,658 
Total $177,648  $(150,000) $27,648  $(3,485) $(18,505) $5,658 
                         
Weighted average interest rate of repurchase agreements  .88%                    

  
Gross
Amounts of Recognized
Assets
 
Gross
Amounts
Offset on the Balance
Sheet
   Gross Amounts not Offset in the Balance Sheet  
June 30, 2018   
Net Asset
Balance
 
Financial
Instruments
 
Collateral
Received
 
Net
Amount
Repurchase agreements / reverse repurchase agreements $50,000
 $(50,000) $—
 $—
 $—
 $—
Derivatives 29,896
 —
 29,896
 (553) (13,799) 15,544
Total $79,896
 $(50,000) $29,896
 $(553) $(13,799) $15,544
             
Weighted average interest rate of reverse repurchase agreements 2.70%          
 
  
Gross
Amounts of Recognized
Liabilities
 
Gross
Amounts
Offset on the Balance
Sheet
 
Net Liability
Balance
 
Gross Amounts not Offset
in the Balance Sheet
  
     
Financial
Instruments
 
Collateral
Pledged
 
Net
Amount
Repurchase agreements / reverse repurchase agreements $50,000
 $(50,000) $—
 $—
 $—
 $—
Derivatives 37,261
 —
 37,261
 (553) (18,438) 18,270
Total $87,261
 $(50,000) $37,261
 $(553) $(18,438) $18,270
             
Weighted average interest rate of repurchase agreements 1.95%          
 
  
Gross
Amounts of Recognized
Assets
 
Gross
Amounts
Offset on the Balance
Sheet
   
Gross Amounts not Offset
in the Balance Sheet
  
December 31, 2017   
Net Asset
Balance
 
Financial
Instruments
 
Collateral
Received
 
Net
Amount
Repurchase agreements / reverse repurchase agreements $100,000
 $(100,000) $—
 $—
 $—
 $—
Derivatives 22,721
 —
 22,721
 (1,490) (6,369) 14,862
Total $122,721
 $(100,000) $22,721
 $(1,490) $(6,369) $14,862
             
Weighted average interest rate of reverse repurchase agreements 1.95%          
 
  
Gross
Amounts of Recognized
Liabilities
 
Gross
Amounts
Offset on the Balance
Sheet
 Net 
Gross Amounts not Offset
in the Balance Sheet
  
    
Liability
Balance
 
Financial
Instruments
 
Collateral
Pledged
 
Net
Amount
Repurchase agreements / reverse repurchase agreements $100,000
 $(100,000) $—
 $—
 $—
 $—
Derivatives 25,376
 —
 25,376
 (1,490) (17,190) 6,696
Total $125,376
 $(100,000) $25,376
 $(1,490) $(17,190) $6,696
             
Weighted average interest rate of repurchase agreements 1.20%          
At SeptemberJune 30, 2018, United recognized the right to reclaim cash collateral of $18.4 million and the obligation to return cash collateral of $13.8 million. At December 31, 2017, United recognized the right to reclaim cash collateral of $20.9$17.2 million and the obligation to return cash collateral of $2.39 million. At December 31, 2016, United recognized the right to reclaim cash collateral of $18.5 million and the obligation to return cash collateral of $3.37$6.37 million. The right to reclaim cash collateral and the obligation to return cash collateral were included in the consolidated balance sheetsheets in other assets and other liabilities, respectively.

12

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements




The following table presents additional detail regarding repurchase agreements accounted for as secured borrowings and the securities underlying these agreements as of the dates indicated(in thousands).

  Remaining Contractual Maturity of the Agreements 
As of September 30, 2017 

Overnight and

Continuous

  Up to 30 Days  30 to 90 Days  91 to 110 days  Total 
                
Mortgage-backed securities $1,005  $100,000  $-  $100,000  $201,005 
                     
Total $1,005  $100,000  $-  $100,000  $201,005 
                     
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure                 $200,000 
Amounts related to agreements not included in offsetting disclosure                 $1,005 
                     
  Remaining Contractual Maturity of the Agreements 
As of December 31, 2016 

Overnight and

Continuous

  Up to 30 Days  30 to 90 Days  91 to 110 days  Total 
                
Mortgage-backed securities $-  $-  $50,000  $100,000  $150,000 
                     
Total $-  $-  $50,000  $100,000  $150,000 
                     
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure                 $150,000 
Amounts related to agreements not included in offsetting disclosure                 $- 

  Remaining Contractual Maturity of the Agreements
  Overnight and        
As of June 30, 2018 Continuous Up to 30 Days 30 to 90 Days 91 to 110 days Total
Mortgage-backed securities $—
 $—
 $—
 $50,000
 $50,000
           
Total $—
 $—
 $—
 $50,000
 $50,000
           
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure  
 $50,000
Amounts related to agreements not included in offsetting disclosure  
  
 $—
  Remaining Contractual Maturity of the Agreements
  Overnight and        
As of December 31, 2017 Continuous Up to 30 Days 30 to 90 Days 91 to 110 days Total
Mortgage-backed securities $—
 $—
 $100,000
 $—
 $100,000
           
Total $—
 $—
 $100,000
 $—
 $100,000
           
Gross amount of recognized liabilities for repurchase agreements in offsetting disclosure  
 $100,000
Amounts related to agreements not included in offsetting disclosure  
  
 $—
United is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price.  United manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

Note 5 – Securities


The amortized cost basis, unrealized gains and losses and fair value of securities held-to-maturity as of the dates indicated are as follows(in thousands).

     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
As of September 30, 2017            
             
State and political subdivisions $58,917  $2,140  $156  $60,901 
Mortgage-backed securities(1)  247,824   3,445   1,724   249,545 
                 
Total $306,741  $5,585  $1,880  $310,446 
                 
As of December 31, 2016                
                 
State and political subdivisions $57,134  $2,197  $249  $59,082 
Mortgage-backed securities(1)  272,709   4,035   2,656   274,088 
                 
Total $329,843  $6,232  $2,905  $333,170 

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
As of June 30, 2018       
        
State and political subdivisions$71,125
 $954
 $1,238
 $70,841
Mortgage-backed securities(1)
226,444
 987
 6,809
 220,622
        
Total$297,569
 $1,941
 $8,047
 $291,463
        
As of December 31, 2017       
        
State and political subdivisions$71,959
 $1,574
 $178
 $73,355
Mortgage-backed securities(1)
249,135
 2,211
 3,425
 247,921
        
Total$321,094
 $3,785
 $3,603
 $321,276

(1) All are residential type mortgage-backed securities or U.S. government agency commercial mortgage backed securities.

13


UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



The cost basis, unrealized gains and losses, and fair value of securities available-for-sale as of the dates indicated are presented below(in thousands).

     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
As of September 30, 2017            
             
U.S. Treasuries $74,434  $330  $-  $74,764 
U.S. Government agencies  27,276   473   21   27,728 
State and political subdivisions  171,372   1,402   385   172,389 
Mortgage-backed securities(1)  1,644,741   11,365   7,410   1,648,696 
Corporate bonds  305,559   3,108   296   308,371 
Asset-backed securities  306,127   2,505   167   308,465 
Other  57   -   -   57 
                 
Total $2,529,566  $19,183  $8,279  $2,540,470 
                 
As of December 31, 2016                
                 
U.S. Treasuries $170,360  $20  $764  $169,616 
U.S. Government agencies  21,053   6   239   20,820 
State and political subdivisions  74,555   176   554   74,177 
Mortgage-backed securities(1)  1,397,435   8,924   14,677   1,391,682 
Corporate bonds  306,824   591   2,023   305,392 
Asset-backed securities  468,742   2,798   1,971   469,569 
Other  1,182   -   -   1,182 
                 
Total $2,440,151  $12,515  $20,228  $2,432,438 

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
As of June 30, 2018       
        
U.S. Treasuries$122,290
 $—
 $3,251
 $119,039
U.S. Government agencies25,778
 240
 440
 25,578
State and political subdivisions200,486
 123
 2,978
 197,631
Mortgage-backed securities(1)
1,844,310
 1,992
 39,441
 1,806,861
Corporate bonds199,303
 793
 1,931
 198,165
Asset-backed securities189,067
 610
 714
 188,963
Other57
 —
 —
 57
        
Total$2,581,291
 $3,758
 $48,755
 $2,536,294
        
As of December 31, 2017       
        
U.S. Treasuries$122,025
 $—
 $912
 $121,113
U.S. Government agencies26,129
 269
 26
 26,372
State and political subdivisions195,663
 2,019
 396
 197,286
Mortgage-backed securities(1)
1,738,056
 7,089
 17,934
 1,727,211
Corporate bonds305,265
 1,513
 425
 306,353
Asset-backed securities236,533
 1,078
 153
 237,458
Other57
 —
 —
 57
        
Total$2,623,728
 $11,968
 $19,846
 $2,615,850
(1) All are residential type mortgage-backed securities or U.S. government agency commercial mortgage backed securities.


Securities with a carrying value of $1.35 billion$816 million and $1.45$1.04 billion were pledged to secure public deposits, derivatives and other secured borrowings at SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


The following table summarizes held-to-maturity securities 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, 2017                  
                   
State and political subdivisions $8,049  $156  $-  $-  $8,049  $156 
Mortgage-backed securities  80,277   1,025   18,871   699   99,148   1,724 
Total unrealized loss position $88,326  $1,181  $18,871  $699  $107,197  $1,880 
                         
As of December 31, 2016                        
                         
State and political subdivisions $18,359  $249  $-  $-  $18,359  $249 
Mortgage-backed securities  118,164   2,656   -   -   118,164   2,656 
Total unrealized loss position $136,523  $2,905  $-  $-  $136,523  $2,905 

14

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 Less than 12 Months 12 Months or More Total
 Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
As of June 30, 2018           
            
State and political subdivisions$43,131
 $1,238
 $—
 $—
 $43,131
 $1,238
Mortgage-backed securities82,473
 2,856
 79,198
 3,953
 161,671
 6,809
Total unrealized loss position$125,604
 $4,094
 $79,198
 $3,953
 $204,802
 $8,047
            
As of December 31, 2017           
            
State and political subdivisions$8,969
 $178
 $—
 $—
 $8,969
 $178
Mortgage-backed securities95,353
 1,448
 65,868
 1,977
 161,221
 3,425
Total unrealized loss position$104,322
 $1,626
 $65,868
 $1,977
 $170,190
 $3,603

The following table summarizes available-for-sale securities 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, 2017                  
                   
U.S. Treasuries $-  $-  $-  $-  $-  $- 
U.S. Government agencies  2,656   13   1,007   8   3,663   21 
State and political subdivisions  68,936   385   -   -   68,936   385 
Mortgage-backed securities  466,703   3,666   155,799   3,744   622,502   7,410 
Corporate bonds  31,113   106   810   190   31,923   296 
Asset-backed securities  64,580   135   5,027   32   69,607   167 
Total unrealized loss position $633,988  $4,305  $162,643  $3,974  $796,631  $8,279 
                         
As of December 31, 2016                        
                         
U.S. Treasuries $145,229  $764  $-  $-  $145,229  $764 
U.S. Government agencies  19,685   239   -   -   19,685   239 
State and political subdivisions  61,782   554   -   -   61,782   554 
Mortgage-backed securities  810,686   13,952   26,279   725   836,965   14,677 
Corporate bonds  228,504   1,597   15,574   426   244,078   2,023 
Asset-backed securities  54,477   540   115,338   1,431   169,815   1,971 
Total unrealized loss position $1,320,363  $17,646  $157,191  $2,582  $1,477,554  $20,228 

 Less than 12 Months 12 Months or More Total
 Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
As of June 30, 2018           
            
U.S. Treasuries$119,039
 $3,251
 $—
 $—
 $119,039
 $3,251
U.S. Government agencies19,790
 413
 1,624
 27
 21,414
 440
State and political subdivisions171,147
 2,899
 5,061
 79
 176,208
 2,978
Mortgage-backed securities1,212,603
 24,160
 339,456
 15,281
 1,552,059
 39,441
Corporate bonds116,563
 1,921
 990
 10
 117,553
 1,931
Asset-backed securities75,232
 714
 —
 —
 75,232
 714
Total unrealized loss position$1,714,374
 $33,358
 $347,131
 $15,397
 $2,061,505
 $48,755
            
As of December 31, 2017           
            
U.S. Treasuries$121,113
 $912
 $—
 $—
 $121,113
 $912
U.S. Government agencies1,976
 13
 1,677
 13
 3,653
 26
State and political subdivisions61,494
 365
 5,131
 31
 66,625
 396
Mortgage-backed securities964,205
 8,699
 328,923
 9,235
 1,293,128
 17,934
Corporate bonds55,916
 325
 900
 100
 56,816
 425
Asset-backed securities28,695
 126
 5,031
 27
 33,726
 153
Total unrealized loss position$1,233,399
 $10,440
 $341,662
 $9,406
 $1,575,061
 $19,846
At SeptemberJune 30, 2017,2018, there were 116294 available-for-sale securities and 3770 held-to-maturity securities that were in an unrealized loss position. United does not intend to sell nor believes it will be required to sell securities in an unrealized loss position prior to the recovery of their amortized cost basis. Unrealized losses at SeptemberJune 30, 20172018 were primarily attributable to changes in interest rates and spread relationships.

rates.

Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, among other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


agencies have occurred, and industry analysts’ reports. No impairment charges were recognized during the three or nineand six months ended SeptemberJune 30, 20172018 or 2016.

2017.

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 for the three and ninesix months ended SeptemberJune 30, 2018 and 2017 and 2016(in thousands).

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2017  2016  2017  2016 
Proceeds from sales $181,119  $100,867  $275,769  $189,164 
Gross gains on sales $923  $607  $1,248  $1,565 
Gross losses on sales  (735)  (346)  (1,058)  (643)
   Net gains on sales of securities $188  $261  $190  $922 
Income tax expense attributable to sales $73  $101  $72  $348 

15

 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
        
Proceeds from sales$26,335
 $70,453
 $140,296
 $94,650
        
Gross gains on sales$232
 $227
 $649
 $325
Gross losses on sales(596) (223) (1,953) (323)
        
Net (losses) gains on sales of securities$(364) $4
 $(1,304) $2
        
Income tax benefit attributable to sales$(97) $—
 $(317) $(1)

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



The amortized cost and fair value of held-to-maturity and available-for-sale securities at SeptemberJune 30, 2017,2018, by contractual maturity, are presented in the following table(in thousands).

  Available-for-Sale  Held-to-Maturity 
  Amortized Cost  Fair Value  Amortized Cost  Fair Value 
             
US Treasuries:                
1 to 5 years $44,523  $44,827  $-  $- 
5 to 10 years  29,911   29,937   -   - 
   74,434   74,764   -   - 
                 
US Government agencies:                
1 to 5 years  2,103   2,117   -   - 
5 to 10 years  19,757   19,913   -   - 
More than 10 years  5,416   5,698   -   - 
   27,276   27,728   -   - 
                 
State and political subdivisions:                
Within 1 year  1,500   1,515   4,092   4,146 
1 to 5 years  29,696   29,617   13,661   14,182 
5 to 10 years  44,422   44,740   16,956   18,423 
More than 10 years  95,754   96,517   24,208   24,150 
   171,372   172,389   58,917   60,901 
                 
Corporate bonds:                
1 to 5 years  258,158   260,793   -   - 
5 to 10 years  46,401   46,768   -   - 
More than 10 years  1,000   810   -   - 
   305,559   308,371   -   - 
                 
Asset-backed securities:                
1 to 5 years  6,951   7,121   -   - 
5 to 10 years  113,881   114,465   -   - 
More than 10 years  185,295   186,879   -   - 
   306,127   308,465   -   - 
                 
Other:                
More than 10 years  57   57   -   - 
   57   57   -   - 
                 
Total securities other than mortgage-backed securities:                
Within 1 year  1,500   1,515   4,092   4,146 
1 to 5 years  341,431   344,475   13,661   14,182 
5 to 10 years  254,372   255,823   16,956   18,423 
More than 10 years  287,522   289,961   24,208   24,150 
                 
Mortgage-backed securities  1,644,741   1,648,696   247,824   249,545 
                 
  $2,529,566  $2,540,470  $306,741  $310,446 

 Available-for-Sale Held-to-Maturity
 Amortized Cost Fair Value Amortized Cost Fair Value
US Treasuries: 
  
  
  
1 to 5 years$74,525
 $72,568
 $—
 $—
5 to 10 years47,765
 46,471
 —
 —
 122,290
 119,039
 —
 —
        
US Government agencies:       
1 to 5 years20,854
 20,422
 —
 —
More than 10 years4,924
 5,156
 —
 —
 25,778
 25,578
 —
 —
        
State and political subdivisions:       
Within 1 year1,500
 1,510
 5,929
 5,991
1 to 5 years44,769
 44,024
 10,670
 10,960
5 to 10 years26,393
 25,908
 10,157
 10,759
More than 10 years127,824
 126,189
 44,369
 43,131
 200,486
 197,631
 71,125
 70,841
        
Corporate bonds:       
1 to 5 years181,027
 180,412
 —
 —
5 to 10 years17,276
 16,763
 —
 —
More than 10 years1,000
 990
 —
 —
 199,303
 198,165
 —
 —
        
Asset-backed securities:       
1 to 5 years5,624
 5,771
 —
 —
5 to 10 years31,025
 31,105
 —
 —
More than 10 years152,418
 152,087
 —
 —
 189,067
 188,963
 —
 —
        
Other:       
More than 10 years57
 57
 —
 —
 57
 57
 —
 —
        
Total securities other than mortgage-backed securities:       
Within 1 year1,500
 1,510
 5,929
 5,991
1 to 5 years326,799
 323,197
 10,670
 10,960
5 to 10 years122,459
 120,247
 10,157
 10,759
More than 10 years286,223
 284,479
 44,369
 43,131
        
Mortgage-backed securities1,844,310
 1,806,861
 226,444
 220,622
        
 $2,581,291
 $2,536,294
 $297,569
 $291,463

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

16

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 6 – Loans and Leases and Allowance for Credit Losses

Major classifications of loansthe 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,  December 31, 
  2017  2016 
       
Owner occupied commercial real estate $1,791,762  $1,650,360 
Income producing commercial real estate  1,413,104   1,281,541 
Commercial & industrial  1,083,591   1,069,715 
Commercial construction  583,344   633,921 
Total commercial  4,871,801   4,635,537 
Residential mortgage  933,205   856,725 
Home equity lines of credit  688,875   655,410 
Residential construction  190,047   190,043 
Consumer installment  118,742   123,567 
Indirect auto  400,267   459,354 
         
Total loans  7,202,937   6,920,636 
         
Less allowance for loan losses  (58,605)  (61,422)
         
Loans, net $7,144,332  $6,859,214 

 June 30, 2018 December 31, 2017
Owner occupied commercial real estate$1,681,737
 $1,923,993
Income producing commercial real estate1,821,384
 1,595,174
Commercial & industrial1,193,046
 1,130,990
Commercial construction735,575
 711,936
Equipment financing464,594
 —
Total commercial5,896,336
 5,362,093
Residential mortgage1,020,606
 973,544
Home equity lines of credit707,718
 731,227
Residential construction195,580
 183,019
Consumer direct122,756
 127,504
Indirect auto277,275
 358,185
    
Total loans8,220,271
 7,735,572
    
Less allowance for loan losses(61,071) (58,914)
    
Loans, net$8,159,200
 $7,676,658
At SeptemberJune 30, 20172018 and December 31, 2016,2017, loans totaling $3.57$3.95 billion and $3.33$3.73 billion, respectively, were pledged as collateral to secure Federal Home Loan Bank advances, securitized notes payable and other contingent funding sources.

At SeptemberJune 30, 2017,2018, the carrying value and outstanding balance of purchased credit impaired (“PCI”) loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, were $68.7$89.8 million and $104$131 million, respectively. At December 31, 2016,2017, the carrying value and outstanding balance of PCI loans were $62.8$98.5 million and $87.9$142 million, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated(in thousands):

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2017  2016  2017  2016 
Balance at beginning of period $11,365  $5,337  $7,981  $4,279 
Additions due to acquisitions  3,410   2,113   3,410   2,113 
Accretion  (2,075)  (1,116)  (5,177)  (3,058)
Reclassification from nonaccretable difference  1,163   1,455   5,879   2,908 
Changes in expected cash flows that do not affect nonaccretable difference  735   362   2,505   1,909 
Balance at end of period $14,598  $8,151  $14,598  $8,151 

 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
Balance at beginning of period$18,036
 $7,762
 $17,686
 $7,981
Additions due to acquisitions147
 —
 1,977
 —
Accretion(2,965) (1,412) (5,511) (3,102)
Reclassification from nonaccretable difference6,527
 3,827
 7,118
 4,716
Changes in expected cash flows that do not affect nonaccretable difference1,661
 1,188
 2,136
 1,770
Balance at end of period$23,406
 $11,365
 $23,406
 $11,365
In addition to the accretable yield on PCI loans, the fair value adjustments on purchased loans outside the scope of ASC 310-30 are also accreted to interest revenue over the life of the loans. At SeptemberJune 30, 20172018 and December 31, 2016,2017, the remaining accretable net fair value marksdiscount on loans acquired through a business combination and not accounted for under ASC 310-30 were $9.19was $4.41 million and $7.14$14.7 million, respectively. At June 30, 2018, the net fair value discount of $4.41 million included a net premium on loans acquired with NLFC. In addition, indirect auto loans purchased at a premium outside of a business combination havehad a remaining premium of $9.19$5.47 million and $11.4$7.84 million, respectively, as of SeptemberJune 30, 20172018 and December 31, 2016.2017. During the three and six months ended SeptemberJune 30, 2017,2018, United did not purchase any indirect auto loans. During the ninethree and six months ended SeptemberJune 30, 2017, United purchased indirect auto loans of $81.7 million. During the three and nine months ended September 30, 2016, United purchased indirect auto loans of $38.8$40.5 million and $149$81.7 million, respectively.


UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


At June 30, 2018, equipment financing assets included leases of $25.5 million. The components of the net investment in leases are presented below (in thousands). 
 June 30, 2018
  
Minimum future lease payments receivable$26,396
Estimated residual value of leased equipment3,314
Initial direct costs764
Security deposits(1,192)
Purchase accounting premium1,197
Unearned income(4,930)
Net investment in leases$25,549
Minimum future lease payments expected to be received from lease contracts as of June 30, 2018 are as follows (in thousands): 
 Year  
 Remainder of 2018$5,900
 
 20199,325
 
 20206,396
 
 20213,185
 
 20221,373
 
 Thereafter217
 
 Total$26,396
 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Allowance for Credit Losses and Loans Individually Evaluated for Impairment
The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. The allowance for unfunded commitments is included in other liabilities in the consolidated balance sheet. Combined, the allowance for loan losses and allowance for unfunded commitments are referred to as the allowance for credit losses.

17

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the periods indicated(in thousands).

  2017  2016 
Three Months Ended September 30, Beginning
Balance		  Charge-Offs  Recoveries  (Release)
Provision		  Ending
Balance		  Beginning
Balance		  Charge-
Offs		  Recoveries  (Release)
Provision		  Ending 
Balance		 
                               
Owner occupied commercial real estate $15,422  $(100) $144  $(624) $14,842  $15,675  $(461) $415  $(353) $15,276 
Income producing commercial real estate  9,354   (1,235)  76   1,138   9,333   8,683   (206)  136   1,477   10,090 
Commercial & industrial  3,620   (329)  529   690   4,510   3,202   (850)  398   690   3,440 
Commercial construction  11,038   (206)  320   (946)  10,206   13,097   (30)  224   (2,367)  10,924 
Residential mortgage  9,798   (396)  83   145   9,630   11,329   (63)  109   64   11,439 
Home equity lines of credit  4,590   (321)  265   187   4,721   5,247   (321)  54   197   5,177 
Residential construction  3,084   (57)  21   (92)  2,956   4,851   (253)  10   (267)  4,341 
Consumer installment  584   (475)  314   292   715   723   (426)  190   183   670 
Indirect auto  2,010   (333)  65   (50)  1,692   1,446   (354)  69   443   1,604 
Total allowance for loan losses  59,500   (3,452)  1,817   740   58,605   64,253   (2,964)  1,605   67   62,961 
Allowance for unfunded commitments  2,222   -   -   260   2,482   2,369   -   -   (367)  2,002 
Total allowance for credit losses  61,722   (3,452)  1,817   1,000   61,087  $66,622  $(2,964) $1,605  $(300) $64,963 

Nine Months Ended September 30, Beginning
Balance		  Charge-Offs  Recoveries  (Release)
Provision		  Ending
Balance		  Beginning
Balance		  Charge-
Offs		  Recoveries  (Release)
Provision		  Ending
Balance		 
                               
Owner occupied commercial real estate $16,446  $(283) $501  $(1,822) $14,842  $18,016  $(1,929) $605  $(1,416) $15,276 
Income producing commercial real estate  8,843   (2,335)  123   2,702   9,333   11,548   (788)  463   (1,133)  10,090 
Commercial & industrial  3,810   (1,143)  1,141   702   4,510   4,433   (1,645)  1,302   (650)  3,440 
Commercial construction  13,405   (769)  912   (3,342)  10,206   9,553   (392)  617   1,146   10,924 
Residential mortgage  8,545   (1,069)  200   1,954   9,630   12,719   (776)  248   (752)  11,439 
Home equity lines of credit  4,599   (1,216)  485   853   4,721   5,956   (1,513)  361   373   5,177 
Residential construction  3,264   (127)  153   (334)  2,956   4,002   (531)  61   809   4,341 
Consumer installment  708   (1,374)  716   665   715   828   (1,123)  625   340   670 
Indirect auto  1,802   (1,066)  214   742   1,692   1,393   (953)  141   1,023   1,604 
Total allowance for loan losses  61,422   (9,382)  4,445   2,120   58,605   68,448   (9,650)  4,423   (260)  62,961 
Allowance for unfunded commitments  2,002   -   -   480   2,482   2,542   -   -   (540)  2,002 
Total allowance for credit losses $63,424  $(9,382) $4,445  $2,600  $61,087  $70,990  $(9,650) $4,423  $(800) $64,963 

18

  2018 2017
Three Months Ended June 30, Beginning Balance Charge-Offs Recoveries (Release)Provision Ending Balance Beginning Balance Charge-Offs Recoveries (Release) Provision Ending Balance
Owner occupied commercial real estate $14,561
 $(7) $585
 $(2,230) $12,909
 $15,669
 $(158) $120
 $(209) $15,422
Income producing commercial real estate 9,776
 (1,653) 232
 2,507
 10,862
 8,878
 (203) 20
 659
 9,354
Commercial & industrial 4,075
 (233) 217
 146
 4,205
 3,725
 (598) 244
 249
 3,620
Commercial construction 10,034
 (53) 159
 (17) 10,123
 12,790
 (361) 20
 (1,411) 11,038
Equipment financing 2,291
 (23) 71
 1,222
 3,561
 —
 —
 —
 —
 —
Residential mortgage 10,221
 (112) 101
 (365) 9,845
 9,071
 (131) 105
 753
 9,798
Home equity lines of credit 4,932
 (211) 190
 32
 4,943
 4,530
 (424) 171
 313
 4,590
Residential construction 3,044
 (8) 67
 (513) 2,590
 3,267
 (70) 123
 (236) 3,084
Consumer direct 733
 (552) 195
 389
 765
 609
 (457) 195
 237
 584
Indirect auto 1,418
 (379) 55
 174
 1,268
 2,004
 (313) 94
 225
 2,010
Total allowance for loan losses 61,085
 (3,231) 1,872
 1,345
 61,071
 60,543
 (2,715) 1,092
 580
 59,500
Allowance for unfunded commitments 2,440
 —
 —
 455
 2,895
 2,002
 —
 —
 220
 2,222
Total allowance for credit losses $63,525
 $(3,231) $1,872
 $1,800
 $63,966
 $62,545
 $(2,715) $1,092
 $800
 $61,722
  2018 2017
Six Months Ended June 30, Beginning Balance Charge-Offs Recoveries (Release) Provision Ending Balance Beginning Balance Charge-Offs Recoveries (Release) Provision Ending Balance
Owner occupied commercial real estate $14,776
 $(67) $688
 $(2,488) $12,909
 $16,446
 $(183) $357
 $(1,198) $15,422
Income producing commercial real estate 9,381
 (2,310) 467
 3,324
 10,862
 8,843
 (1,100) 47
 1,564
 9,354
Commercial & industrial 3,971
 (617) 606
 245
 4,205
 3,810
 (814) 612
 12
 3,620
Commercial construction 10,523
 (416) 256
 (240) 10,123
 13,405
 (563) 592
 (2,396) 11,038
Equipment financing —
 (162) 168
 3,555
 3,561
 —
 —
 —
 —
 —
Residential mortgage 10,097
 (182) 224
 (294) 9,845
 8,545
 (673) 117
 1,809
 9,798
Home equity lines of credit 5,177
 (335) 225
 (124) 4,943
 4,599
 (895) 220
 666
 4,590
Residential construction 2,729
 (8) 131
 (262) 2,590
 3,264
 (70) 132
 (242) 3,084
Consumer direct 710
 (1,203) 355
 903
 765
 708
 (899) 402
 373
 584
Indirect auto 1,550
 (815) 135
 398
 1,268
 1,802
 (733) 149
 792
 2,010
Total allowance for loan losses 58,914
 (6,115) 3,255
 5,017
 61,071
 61,422
 (5,930) 2,628
 1,380
 59,500
Allowance for unfunded commitments 2,312
 —
 —
 583
 2,895
 2,002
 —
 —
 220
 2,222
Total allowance for credit losses $61,226
 $(6,115) $3,255
 $5,600
 $63,966
 $63,424
 $(5,930) $2,628
 $1,600
 $61,722

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



The following table represents the recorded investment in loans by portfolio segment and the balance of the allowance for loan losses assigned to each segment based on the method of evaluating the loans for impairment as of the dates indicated(in thousands).

  Allowance for Loan Losses 
  September 30, 2017  December 31, 2016 
  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 $1,131  $13,711  $-  $14,842  $1,746  $14,700  $-  $16,446 
Income producing commercial real estate  869   8,439   25   9,333   885   7,919   39   8,843 
Commercial & industrial  1,040   3,470   -   4,510   58   3,752   -   3,810 
Commercial construction  165   10,040   1   10,206   168   13,218   19   13,405 
Residential mortgage  1,111   8,504   15   9,630   517   7,997   31   8,545 
Home equity lines of credit  -   4,721   -   4,721   2   4,597   -   4,599 
Residential construction  82   2,874   -   2,956   64   3,198   2   3,264 
Consumer installment  8   705   2   715   12   696   -   708 
Indirect auto  30   1,662   -   1,692   -   1,802   -   1,802 
Total allowance for loan losses  4,436   54,126   43   58,605   3,452   57,879   91   61,422 
Allowance for unfunded commitments  -   2,482   -   2,482   -   2,002   -   2,002 
Total allowance for credit losses $4,436  $56,608  $43  $61,087  $3,452  $59,881  $91  $63,424 
                                 
  Loans Outstanding 
  September 30, 2017  December 31, 2016 
  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 $29,429  $1,744,318  $18,015  $1,791,762  $31,421  $1,600,355  $18,584  $1,650,360 
Income producing commercial real estate  26,061   1,361,914   25,129   1,413,104   30,459   1,225,763   25,319   1,281,541 
Commercial & industrial  5,653   1,076,890   1,048   1,083,591   1,915   1,066,764   1,036   1,069,715 
Commercial construction  4,728   569,841   8,775   583,344   5,050   620,543   8,328   633,921 
Residential mortgage  14,352   906,287   12,566   933,205   13,706   836,624   6,395   856,725 
Home equity lines of credit  204   687,228   1,443   688,875   63   653,337   2,010   655,410 
Residential construction  1,544   188,054   449   190,047   1,594   187,516   933   190,043 
Consumer installment  293   117,146   1,303   118,742   290   123,118   159   123,567 
Indirect auto  1,312   398,955   -   400,267   1,165   458,189   -   459,354 
Total loans $83,576  $7,050,633  $68,728  $7,202,937  $85,663  $6,772,209  $62,764  $6,920,636 

 Allowance for Credit Losses
 June 30, 2018 December 31, 2017
 
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$985
 $11,647
 $277
 $12,909
 $1,255
 $13,521
 $—
 $14,776
Income producing commercial real estate609
 10,193
 60
 10,862
 562
 8,813
 6
 9,381
Commercial & industrial35
 4,135
 35
 4,205
 27
 3,944
 —
 3,971
Commercial construction98
 10,025
 —
 10,123
 156
 10,367
 —
 10,523
Equipment financing—
 3,561
 —
 3,561
 —
 —
 —
 —
Residential mortgage1,007
 8,838
 —
 9,845
 1,174
 8,919
 4
 10,097
Home equity lines of credit—
 4,943
 —
 4,943
 —
 5,177
 —
 5,177
Residential construction52
 2,538
 —
 2,590
 75
 2,654
 —
 2,729
Consumer direct6
 758
 1
 765
 7
 700
 3
 710
Indirect auto29
 1,239
 —
 1,268
 —
 1,550
 —
 1,550
Total allowance for loan losses2,821
 57,877
 373
 61,071
 3,256
 55,645
 13
 58,914
Allowance for unfunded commitments—
 2,895
 —
 2,895
 —
 2,312
 —
 2,312
Total allowance for credit losses$2,821
 $60,772
 $373
 $63,966
 $3,256
 $57,957
 $13
 $61,226
 Loans Outstanding
 June 30, 2018 December 31, 2017
 
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$18,932
 $1,649,437
 $13,368
 $1,681,737
 $21,823
 $1,876,411
 $25,759
 $1,923,993
Income producing commercial real estate16,245
 1,762,960
 42,179
 1,821,384
 16,483
 1,533,851
 44,840
 1,595,174
Commercial & industrial1,510
 1,190,900
 636
 1,193,046
 2,654
 1,126,894
 1,442
 1,130,990
Commercial construction3,528
 725,474
 6,573
 735,575
 3,813
 699,266
 8,857
 711,936
Equipment financing—
 452,620
 11,974
 464,594
 —
 —
 —
 —
Residential mortgage14,012
 995,072
 11,522
 1,020,606
 14,193
 946,210
 13,141
 973,544
Home equity lines of credit232
 705,591
 1,895
 707,718
 101
 728,235
 2,891
 731,227
Residential construction1,498
 193,156
 926
 195,580
 1,577
 180,978
 464
 183,019
Consumer direct249
 121,737
 770
 122,756
 270
 126,114
 1,120
 127,504
Indirect auto1,215
 276,060
 —
 277,275
 1,396
 356,789
 —
 358,185
Total loans$57,421
 $8,073,007
 $89,843
 $8,220,271
 $62,310
 $7,574,748
 $98,514
 $7,735,572
A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the original contractual terms of the loan will not be collected. Management individually evaluates for impairmentcertain impaired loans, including all non-PCI relationships that are on nonaccrual with a balance of $500,000 or greater and all troubled debt restructurings (“TDRs”), and all accruing substandard loans greater than $2 million. regardless of accrual status, for impairment. Impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. A specific reserve is established for impaired loans for the amount of calculated impairment.impairment, if any. Interest payments received on impaired nonaccrual loans are applied as a reduction of the recorded investment in the loan. For impaired loans not on nonaccrual status, interest is accrued according to the terms of the loan agreement.

Loans are evaluated for impairment quarterly and specific reserves are established in the allowance for loan losses for any measured impairment.

Each quarter, management prepares an analysis of the allowance for credit losses to determine the appropriate balance that measures and quantifies the amount of probable incurred losses in the loan portfolio and unfunded loan commitments. The allowance is comprised of
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


specific reserves on individually impaired loans, which are determined as described above, and general reserves which are determined based on historical loss experience as adjusted for current trends and economic conditions multiplied by a loss emergence period factor.

Management calculates the loss emergence period for each pool of loansin the loan portfolio based on the weighted average length of time between the date a loan first exceeds 30 days past due and the date the loan is charged off.

On junior lien home equity loans, management has limited ability to monitor the delinquency status of the first lien unless the first lien is also held by United. As a result, management applies the weighted average historical loss factor for this category and appropriately adjusts it to reflect the increased risk of loss from these credits.

Management carefully reviews the resulting loss factors for each category of the loan portfolio and evaluates whether qualitative adjustments are necessary to take into consideration recent credit trends such as increases or decreases in past due, nonaccrual, criticized and classified loans, and other macro environmental factors such as changes in unemployment rates, lease vacancy rates and trends in property values and absorption rates.

Management believes that its method of determining the balance of the allowance for credit losses provides a reasonable and reliable basis for measuring and reporting losses that are incurred in the loan portfolio as of the reporting date.

19

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

When a loan officer determines that a loan is uncollectible, he or she is responsible for recommending that the loan be placed on nonaccrual status evaluating the loanand evaluated for impairment, and,which, if necessary, could result in fully or partially charging off the loan.loan or establishing a specific reserve. Full or partial charge-offs may also be recommended by the Collections Department, the Special Assets Department, the Loss Mitigation Department and the Foreclosure/OREO Department. Nonaccrual real estate loans are generally charged down to fair value less costs to sell at the time they are placed on nonaccrual status.

Commercial and consumer asset quality committees meet monthly to review charge-offs that have occurred during the previous month. Participants include the Chief Credit Officer, Senior Risk Officers and Senior Credit Officers, and Regional Credit Managers.

Officers.

Generally, closed-end retail loans (installment and residential mortgage loans) past due 90 cumulative days are written down to their collateral value less estimated selling costs. Open-end (revolving) unsecured retail loans which are past due 90 cumulative days from their contractual due date are generally charged-off.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


The following table presents loans individually evaluated for impairment by class of loans as of the dates indicated(in thousands).

  September 30, 2017  December 31, 2016 
  Unpaid
Principal
Balance		  Recorded
Investment		  Allowance
for Loan
Losses
Allocated		  Unpaid
Principal
Balance		  Recorded
Investment		  Allowance
for Loan
Losses
Allocated		 
                   
With no related allowance recorded:                        
Owner occupied commercial real estate $8,958  $8,126  $-  $9,171  $8,477  $- 
Income producing commercial real estate  14,739   14,739   -   16,864   16,864   - 
Commercial & industrial  2,387   2,100   -   421   334   - 
Commercial construction  981   776   -   845   841   - 
Total commercial  27,065   25,741   -   27,301   26,516   - 
Residential mortgage  2,980   2,885   -   630   628   - 
Home equity lines of credit  393   204   -   -   -   - 
Residential construction  239   164   -   -   -   - 
Consumer installment  30   30   -   -   -   - 
Indirect auto  134   134   -   1,165   1,165   - 
Total with no related allowance recorded  30,841   29,158   -   29,096   28,309   - 
                         
With an allowance recorded:                        
Owner occupied commercial real estate  21,645   21,303   1,131   23,574   22,944   1,746 
Income producing commercial real estate  11,421   11,322   869   13,681   13,595   885 
Commercial & industrial  3,655   3,553   1,040   1,679   1,581   58 
Commercial construction  4,490   3,952   165   4,739   4,209   168 
Total commercial  41,211   40,130   3,205   43,673   42,329   2,857 
Residential mortgage  12,009   11,467   1,111   13,565   13,078   517 
Home equity lines of credit  -   -   -   63   63   2 
Residential construction  1,458   1,380   82   1,947   1,594   64 
Consumer installment  267   263   8   293   290   12 
Indirect auto  1,178   1,178   30   -   -   - 
Total with an allowance recorded  56,123   54,418   4,436   59,541   57,354   3,452 
Total $86,964  $83,576  $4,436  $88,637  $85,663  $3,452 

 June 30, 2018 December 31, 2017
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Allowance
for Loan
Losses
Allocated
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Allowance
for Loan
Losses
Allocated
With no related allowance recorded: 
  
  
  
  
  
Owner occupied commercial real estate$8,292
 $6,763
 $—
 $1,238
 $1,176
 $—
Income producing commercial real estate7,568
 7,496
 —
 2,177
 2,165
 —
Commercial & industrial160
 123
 —
 1,758
 1,471
 —
Commercial construction564
 558
 —
 134
 134
 —
Equipment financing—
 —
 —
 —
 —
 —
Total commercial16,584
 14,940
 —
 5,307
 4,946
 —
Residential mortgage5,125
 4,520
 —
 2,661
 2,566
 —
Home equity lines of credit284
 229
 —
 393
 101
 —
Residential construction712
 576
 —
 405
 330
 —
Consumer direct49
 49
 —
 29
 29
 —
Indirect auto139
 137
 —
 1,396
 1,396
 —
Total with no related allowance recorded22,893
 20,451
 —
 10,191
 9,368
 —
            
With an allowance recorded:           
Owner occupied commercial real estate12,665
 12,169
 985
 21,262
 20,647
 1,255
Income producing commercial real estate9,017
 8,749
 609
 14,419
 14,318
 562
Commercial & industrial1,776
 1,387
 35
 1,287
 1,183
 27
Commercial construction3,216
 2,970
 98
 3,917
 3,679
 156
Equipment financing—
 —
 —
 —
 —
 —
Total commercial26,674
 25,275
 1,727
 40,885
 39,827
 2,000
Residential mortgage9,576
 9,492
 1,007
 12,086
 11,627
 1,174
Home equity lines of credit4
 3
 —
 —
 —
 —
Residential construction933
 922
 52
 1,325
 1,247
 75
Consumer direct207
 200
 6
 244
 241
 7
Indirect auto1,079
 1,078
 29
 —
 —
 —
Total with an allowance recorded38,473
 36,970
 2,821
 54,540
 52,942
 3,256
Total$61,366
 $57,421
 $2,821
 $64,731
 $62,310
 $3,256
As of SeptemberJune 30, 20172018 and December 31, 2016, $2.982017, $2.74 million and $2.90$3.26 million, respectively, of specific reserves were allocated to customers whose loan terms have been modified in TDRs. United committed to lend additional amounts totaling up to $45,000 and $95,000, respectively, at September 30, 2017 and$75,000 as of December 31, 20162017, to customers with outstanding loans classified as TDRs. As of June 30, 2018, there were no commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.


The modification of the TDR terms included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the amortization period that would not otherwise be considered in the current market for new debt with similar risk characteristics; a restructuring of the borrower’s debt into an “A/B note structure” where the A note would fall within the borrower’s ability to pay and the remainder would be included in the B note; a mandated bankruptcy restructuring; or interest-only payment terms greater than 90 days where the borrower is unable to amortize the loan. Modified PCI loans are not accounted for as TDRs because they are not separated from the pools, and as such are not classified as impaired loans.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Loans modified under the terms of a TDR during the three and ninesix months ended SeptemberJune 30, 20172018 and 20162017 are presented in the table below. In addition, the following table presents loans modified under the terms of a TDR that defaulted (became 90 days or more delinquent) during the periods presented and were initially restructured within one year prior to default(dollars in thousands).

20

  New TDRs
    Pre-modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment 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
 
Recorded  
Investment
Three Months Ended June 30, 2018                
                 
Owner occupied commercial real estate 1
 $282
 $—
 $282
 $—
 $282
 1
 $283
Income producing commercial real estate 1
 106
 106
 —
 —
 106
 —
 —
Commercial & industrial 1
 27
 —
 27
 —
 27
 —
 —
Commercial construction —
 —
 —
 —
 —
 —
 1
 3
Equipment financing —
 —
 —
 —
 —
 —
 —
 —
Total commercial 3
 415
 106
 309
 —
 415
 2
 286
Residential mortgage 2
 425
 —
 424
 —
 424
 1
 101
Home equity lines of credit —
 —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
 —
Consumer direct —
 —
 —
 —
 —
 —
 —
 —
Indirect auto 17
 236
 —
 —
 236
 236
 —
 —
Total loans 22
 $1,076
 $106
 $733
 $236
 $1,075
 3
 $387
                 
Six Months Ended June 30, 2018                
                 
Owner occupied commercial real estate 4
 $1,276
 $—
 $1,260
 $—
 $1,260
 3
 $1,869
Income producing commercial real estate 1
 106
 106
 —
 —
 106
 —
 —
Commercial & industrial 2
 108
 —
 32
 —
 32
 —
 —
Commercial construction —
 —
 —
 —
 —
 —
 1
 3
Equipment financing —
 —
 —
 —
 —
 —
 —
 —
Total commercial 7
 1,490
 106
 1,292
 —
 1,398
 4
 1,872
Residential mortgage 4
 765
 —
 764
 —
 764
 1
 101
Home equity lines of credit —
 —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
 —
Consumer direct —
 —
 —
 —
 —
 —
 —
 —
Indirect auto 17
 236
 —
 —
 236
 236
 —
 —
Total loans 28
 $2,491
 $106
 $2,056
 $236
 $2,398
 5
 $1,973
                 
Three Months Ended June 30, 2017                
                 
Owner occupied commercial real estate 3
 $1,860
 $—
 $1,860
 $—
 $1,860
 —
 $—
Income producing commercial real estate 1
 226
 —
 —
 226
 226
 —
 —
Commercial & industrial 1
 28
 —
 28
 —
 28
 —
 —
Commercial construction —
 —
 —
 —
 —
 —
 —
 —
Equipment financing —
 —
 —
 —
 —
 —
 —
 —
Total commercial 5
 2,114
 —
 1,888
 226
 2,114
 —
 —
Residential mortgage 5
 483
 —
 483
 —
 483
 —
 —
Home equity lines of credit 1
 296
 —
 —
 176
 176
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
 —
Consumer direct —
 —
 —
 —
 —
 —
 —
 —
Indirect auto —
 —
 —
 —
 —
 —
 —
 —
Total loans 11
 $2,893
 $—
 $2,371
 $402
 $2,773
 —
 $—
                 
Six Months Ended June 30, 2017                
                 
Owner occupied commercial real estate 3
 $1,860
 $—
 $1,860
 $—
 $1,860
 —
 $—
Income producing commercial real estate 1
 226
 —
 —
 226
 226
 —
 —
Commercial & industrial 2
 53
 —
 53
 —
 53
 —
 —
Commercial construction —
 —
 —
 —
 —
 —
 —
 —
Equipment financing —
 —
 —
 —
 —
 —
 —
 —
Total commercial 6
 2,139
 —
 1,913
 226
 2,139
 —
 —
Residential mortgage 12
 836
 —
 836
 —
 836
 2
 655
Home equity lines of credit 1
 296
 —
 —
 176
 176
 —
 —
Residential construction 1
 40
 40
 —
 —
 40
 —
 —
Consumer direct 1
 6
 —
 6
 —
 6
 —
 —
Indirect auto —
 —
 —
 —
 —
 —
 —
 —
Total loans 21
 $3,317
 $40
 $2,755
 $402
 $3,197
 2
 $655
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

  New TDRs 
     Pre-
Modification
Outstanding		  Post-
Modification Outstanding Recorded Investment by Type
of Modification		  TDRs Modified Within the
Previous Twelve Months
That Have Subsequently
Defaulted		 
  Number of
Contracts		  Recorded
Investment		  Rate Reduction  Structure  Other  Total  Number of
Contracts		  Recorded
Investment		 
                         
Three Months Ended September 30, 2017                                
                                 
Owner occupied commercial real estate  3  $743  $-  $301  $108  $409   -  $- 
Income producing commercial real estate  1   31   -   -   26   26   -   - 
Commercial & industrial  1   22   -   22   -   22   -   - 
Commercial construction  -   -   -   -   -   -   -   - 
Total commercial  5   796   -   323   134   457   -   - 
Residential mortgage  9   773   -   773   -   773   1   160 
Home equity lines of credit  -   -   -   -   -   -   -   - 
Residential construction  1   31   -   31   -   31   -   - 
Consumer installment  1   10   -   10   -   10   -   - 
Indirect auto  10   188   -   -   188   188   -   - 
Total loans  26  $1,798  $-  $1,137  $322  $1,459   1  $160 
                                 
Nine Months Ended September 30, 2017                                
                                 
Owner occupied commercial real estate  6  $2,603  $-  $2,161  $108  $2,269   -  $- 
Income producing commercial real estate  2   257   -   -   252   252   -   - 
Commercial & industrial  3   75   -   75   -   75   -   - 
Commercial construction  -   -   -   -   -   -   -   - 
Total commercial  11   2,935   -   2,236   360   2,596   -   - 
Residential mortgage  21   1,609   -   1,609   -   1,609   3   815 
Home equity lines of credit  1   296   -   -   176   176   -   - 
Residential construction  2   71   40   31   -   71   -   - 
Consumer installment  2   16   -   16   -   16   -   - 
Indirect auto  23   521   -   -   521   521   -   - 
Total loans  60  $5,448  $40  $3,892  $1,057  $4,989   3  $815 
                                 
Three Months Ended September 30, 2016                                
                                 
Owner occupied commercial real estate  1  $1,007  $-  $1,007  $-  $1,007   -  $- 
Income producing commercial real estate  1   257   -   257   -   257   -   - 
Commercial & industrial  2   66   -   66   -   66   2   34 
Commercial construction  1   224   -   224   -   224   -   - 
Total commercial  5   1,554   -   1,554   -   1,554   2   34 
Residential mortgage  6   605   -   550   -   550   -   - 
Home equity lines of credit  -   -   -   -   -   -   -   - 
Residential construction  1   48   -   48   -   48   -   - 
Consumer installment  2   14   -   14   -   14   -   - 
Indirect auto  8   226   -   -   226   226   -   - 
Total loans  22  $2,447  $-  $2,166  $226  $2,392   2  $34 
                                 
Nine Months Ended September 30, 2016                                
                                 
Owner occupied commercial real estate  8  $2,699  $-  $2,699  $-  $2,699   1  $252 
Income producing commercial real estate  1   257   -   257   -   257   -   - 
Commercial & industrial  5   1,012   -   1,012   -   1,012   2   34 
Commercial construction  3   459   -   393   66   459   -   - 
Total commercial  17   4,427   -   4,361   66   4,427   3   286 
Residential mortgage  23   3,033   1,957   982   -   2,939   1   85 
Home equity lines of credit  1   38   38   -   -   38   -   - 
Residential construction  5   307   45   125   82   252   -   - 
Consumer installment  3   34   -   34   -   34   -   - 
Indirect auto  26   699   -   -   699   699   -   - 
Total loans  75  $8,538  $2,040  $5,502  $847  $8,389   4  $371 



TDRs that subsequently default and are placed on nonaccrual are charged down to the fair value less costs of disposal, of the collateral consistent with United’s policy for nonaccrual loans.

21

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

  2017  2016 
  Average
Balance		  Interest
Revenue
Recognized
During
Impairment		  Cash Basis
Interest
Revenue
Received		  Average
Balance		  Interest
Revenue
Recognized
During
Impairment		  Cash Basis
Interest
Revenue
Received		 
 Three Months Ended September 30,                        
Owner occupied commercial real estate $29,764  $307  $331  $35,714  $434  $433 
Income producing commercial real estate  26,203   329   331   31,753   416   380 
Commercial & industrial  5,492   53   65   2,553   33   33 
Commercial construction  4,863   51   48   5,984   66   69 
Total commercial  66,322   740   775   76,004   949   915 
Residential mortgage  14,448   139   139   14,060   140   140 
Home equity lines of credit  207   4   4   103   1   1 
Residential construction  1,561   24   24   1,542   19   17 
Consumer installment  300   6   5   291   5   6 
Indirect auto  1,339   18   18   959   11   11 
Total $84,177  $931  $965  $92,959  $1,125  $1,090 
                         
Nine Months Ended September 30,                        
                         
Owner occupied commercial real estate $30,149  $1,023  $1,043  $33,997  $1,280  $1,307 
Income producing commercial real estate  27,794   1,039   1,023   32,013   1,054   1,047 
Commercial & industrial  3,103   106   110   2,614   98   94 
Commercial construction  5,511   174   178   6,135   201   208 
Total commercial  66,557   2,342   2,354   74,759   2,633   2,656 
Residential mortgage  14,266   407   429   14,224   502   499 
Home equity lines of credit  274   7   9   103   3   3 
Residential construction  1,581   70   71   1,699   67   66 
Consumer installment  298   17   17   303   17   18 
Indirect auto  1,199   46   46   871   33   33 
Total $84,175  $2,889  $2,926  $91,959  $3,255  $3,275 

  2018 2017
Three Months Ended June 30, 
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 $19,353
 $235
 $236
 $30,825
 $371
 $376
Income producing commercial real estate 16,408
 215
 212
 28,768
 359
 347
Commercial & industrial 1,542
 25
 24
 1,877
 26
 17
Commercial construction 3,564
 47
 44
 6,670
 70
 77
Equipment financing —
 —
 —
 —
 —
 —
Total commercial 40,867
 522
 516
 68,140
 826
 817
Residential mortgage 14,115
 157
 161
 14,742
 130
 147
Home equity lines of credit 235
 5
 4
 552
 2
 4
Residential construction 1,516
 25
 24
 1,563
 23
 24
Consumer direct 256
 5
 5
 307
 6
 6
Indirect auto 1,283
 17
 17
 1,137
 14
 14
Total $58,272
 $731
 $727
 $86,441
 $1,001
 $1,012
             
Six Months Ended June 30,            
Owner occupied commercial real estate $22,006
 $480
 $516
 $30,342
 $716
 $712
Income producing commercial real estate 16,421
 425
 447
 28,589
 710
 692
Commercial & industrial 2,069
 65
 66
 1,908
 53
 45
Commercial construction 3,750
 98
 96
 5,836
 123
 130
Equipment financing —
 —
 —
 —
 —
 —
Total commercial 44,246
 1,068
 1,125
 66,675
 1,602
 1,579
Residential mortgage 14,554
 306
 311
 14,175
 268
 290
Home equity lines of credit 290
 9
 8
 308
 3
 5
Residential construction 1,553
 49
 48
 1,591
 46
 47
Consumer direct 274
 10
 10
 297
 11
 12
Indirect auto 1,301
 34
 34
 1,130
 28
 28
Total $62,218
 $1,476
 $1,536
 $84,176
 $1,958
 $1,961
Nonaccrual and Past Due Loans

Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans, based on the size of the loan.loans. United’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in full or when the loan becomes 90 days past due and is not well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce the loan’s recorded investment.

PCI loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered to be performing, even
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period loan loss provision or future period yield adjustments. The accrual of interest is discontinued on PCI loans if management can no longer reliably estimate future cash flows on the loan. No PCI loans were classified as nonaccrual at SeptemberJune 30, 20172018 or December 31, 20162017 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans.

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 $291,000$256,000 and $262,000$246,000 for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $814,000$599,000 and $686,000$523,000 for the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, respectively.

22

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table presents the recorded investment in nonaccrual loans by loan class as of the dates indicated(in thousands).

  September 30,  December 31, 
  2017  2016 
       
Owner occupied commercial real estate $5,027  $7,373 
Income producing commercial real estate  2,042   1,324 
Commercial & industrial  2,378   966 
Commercial construction  1,376   1,538 
Total commercial  10,823   11,201 
Residential mortgage  8,559   6,368 
Home equity lines of credit  1,898   1,831 
Residential construction  178   776 
Consumer installment  84   88 
Indirect auto  1,379   1,275 
Total $22,921  $21,539 

 June 30, 2018 December 31, 2017
Owner occupied commercial real estate$5,772
 $4,923
Income producing commercial real estate991
 3,208
Commercial & industrial2,180
 2,097
Commercial construction613
 758
Equipment financing1,075
 —
Total commercial10,631
 10,986
Residential mortgage7,918
 8,776
Home equity lines of credit1,812
 2,024
Residential construction637
 192
Consumer direct68
 43
Indirect auto751
 1,637
Total$21,817
 $23,658
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Excluding PCI loans, substantially all loans more than 90 days past due were on nonaccrual status at SeptemberJune 30, 20172018 and December 31, 2016.2017. The following table presents the aging of the recorded investment in past due loans by class of loans as of the dates indicated(in thousands).

  Loans Past Due  Loans Not       
  30 - 59 Days  60 - 89 Days  > 90 Days  Total  Past Due  PCI Loans  Total 
As of September 30, 2017                            
                             
Owner occupied commercial real estate $4,017  $1,236  $2,176  $7,429  $1,766,318  $18,015  $1,791,762 
Income producing commercial real estate  1,189   595   463   2,247   1,385,728   25,129   1,413,104 
Commercial & industrial  3,088   1,008   1,006   5,102   1,077,441   1,048   1,083,591 
Commercial construction  494   5   219   718   573,851   8,775   583,344 
Total commercial  8,788   2,844   3,864   15,496   4,803,338   52,967   4,871,801 
Residential mortgage  6,133   1,883   3,301   11,317   909,322   12,566   933,205 
Home equity lines of credit  2,545   666   608   3,819   683,613   1,443   688,875 
Residential construction  400   110   16   526   189,072   449   190,047 
Consumer installment  544   39   28   611   116,828   1,303   118,742 
Indirect auto  936   415   1,047   2,398   397,869   -   400,267 
Total loans $19,346  $5,957  $8,864  $34,167  $7,100,042  $68,728  $7,202,937 
                             
                             
As of December 31, 2016                            
                             
Owner occupied commercial real estate $2,195  $1,664  $3,386  $7,245  $1,624,531  $18,584  $1,650,360 
Income producing commercial real estate  1,373   355   330   2,058   1,254,164   25,319   1,281,541 
Commercial & industrial  943   241   178   1,362   1,067,317   1,036   1,069,715 
Commercial construction  452   14   292   758   624,835   8,328   633,921 
Total commercial  4,963   2,274   4,186   11,423   4,570,847   53,267   4,635,537 
Residential mortgage  7,221   1,799   1,700   10,720   839,610   6,395   856,725 
Home equity lines of credit  1,996   101   957   3,054   650,346   2,010   655,410 
Residential construction  950   759   51   1,760   187,350   933   190,043 
Consumer installment  633   117   35   785   122,623   159   123,567 
Indirect auto  1,109   301   909   2,319   457,035   -   459,354 
Total loans $16,872  $5,351  $7,838  $30,061  $6,827,811  $62,764  $6,920,636 

  Loans Past Due      
As of June 30, 2018 30 - 59 Days 60 - 89 Days > 90 Days Total Loans Not Past Due PCI Loans Total
Owner occupied commercial real estate $5,007
 $822
 $2,553
 $8,382
 $1,659,987
 $13,368
 $1,681,737
Income producing commercial real estate 2,045
 269
 49
 2,363
 1,776,842
 42,179
 1,821,384
Commercial & industrial 2,450
 576
 714
 3,740
 1,188,670
 636
 1,193,046
Commercial construction 992
 343
 253
 1,588
 727,414
 6,573
 735,575
Equipment financing 346
 465
 1,075
 1,886
 450,734
 11,974
 464,594
Total commercial 10,840
 2,475
 4,644
 17,959
 5,803,647
 74,730
 5,896,336
Residential mortgage 6,470
 2,284
 2,684
 11,438
 997,646
 11,522
 1,020,606
Home equity lines of credit 2,113
 797
 500
 3,410
 702,413
 1,895
 707,718
Residential construction 757
 92
 493
 1,342
 193,312
 926
 195,580
Consumer direct 536
 142
 1
 679
 121,307
 770
 122,756
Indirect auto 731
 132
 601
 1,464
 275,811
 —
 277,275
Total loans $21,447
 $5,922
 $8,923
 $36,292
 $8,094,136
 $89,843
 $8,220,271
  Loans Past Due      
As of December 31, 2017 30 - 59 Days 60 - 89 Days > 90 Days Total Loans Not Past Due PCI Loans Total
Owner occupied commercial real estate $3,810
 $1,776
 $1,530
 $7,116
 $1,891,118
 $25,759
 $1,923,993
Income producing commercial real estate 1,754
 353
 1,939
 4,046
 1,546,288
 44,840
 1,595,174
Commercial & industrial 2,139
 869
 1,133
 4,141
 1,125,407
 1,442
 1,130,990
Commercial construction 568
 132
 158
 858
 702,221
 8,857
 711,936
Equipment financing —
 —
 —
 —
 —
 —
 —
Total commercial 8,271
 3,130
 4,760
 16,161
 5,265,034
 80,898
 5,362,093
Residential mortgage 6,717
 1,735
 3,438
 11,890
 948,513
 13,141
 973,544
Home equity lines of credit 3,246
 225
 578
 4,049
 724,287
 2,891
 731,227
Residential construction 885
 105
 93
 1,083
 181,472
 464
 183,019
Consumer direct 739
 133
 —
 872
 125,512
 1,120
 127,504
Indirect auto 1,152
 459
 1,263
 2,874
 355,311
 —
 358,185
Total loans $21,010
 $5,787
 $10,132
 $36,929
 $7,600,129
 $98,514
 $7,735,572
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:

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.

23

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



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 system, consumer purpose loans that become past due 90 days or are in bankruptcy are classified as “fail” and all other loans are classified as “pass”. For reporting purposes, consumer purpose loans in these categories that are classified as “fail” are reported in the substandard column and all other consumer purpose loans are reported in the “pass” column.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

24


UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Based on the most recent analysis performed, the risk category of loans by class of loans as of the dates indicatedis as follows(in thousands).

           Doubtful /    
  Pass  Watch  Substandard  Loss  Total 
As of September 30, 2017                    
                     
Owner occupied commercial real estate $1,708,659  $32,450  $32,638  $-  $1,773,747 
Income producing commercial real estate  1,337,358   30,584   20,033   -   1,387,975 
Commercial & industrial  1,054,999   14,645   12,899   -   1,082,543 
Commercial construction  563,616   5,006   5,947   -   574,569 
Total commercial  4,664,632   82,685   71,517   -   4,818,834 
Residential mortgage  899,000   -   21,639   -   920,639 
Home equity lines of credit  680,711   -   6,721   -   687,432 
Residential construction  187,684   -   1,914   -   189,598 
Consumer installment  116,877   -   562   -   117,439 
Indirect auto  397,203   -   3,064   -   400,267 
Total loans, excluding PCI loans $6,946,107  $82,685  $105,417  $-  $7,134,209 
                     
Owner occupied commercial real estate $3,628  $4,851  $9,536  $-  $18,015 
Income producing commercial real estate  12,459   9,739   2,931   -   25,129 
Commercial & industrial  426   403   219   -   1,048 
Commercial construction  4,742   2,391   1,642   -   8,775 
Total commercial  21,255   17,384   14,328   -   52,967 
Residential mortgage  9,732   -   2,834   -   12,566 
Home equity lines of credit  663   -   780   -   1,443 
Residential construction  431   -   18   -   449 
Consumer installment  1,273   -   30   -   1,303 
Indirect auto  -   -   -   -   - 
Total PCI loans $33,354  $17,384  $17,990  $-  $68,728 
                     
As of December 31, 2016                    
                     
Owner occupied commercial real estate $1,577,301  $18,029  $36,446  $-  $1,631,776 
Income producing commercial real estate  1,220,626   8,502   27,094   -   1,256,222 
Commercial & industrial  1,055,282   4,188   9,209   -   1,068,679 
Commercial construction  612,900   6,166   6,527   -   625,593 
Total commercial  4,466,109   36,885   79,276   -   4,582,270 
Residential mortgage  829,844   -   20,486   -   850,330 
Home equity lines of credit  647,425   -   5,975   -   653,400 
Residential construction  185,643   -   3,467   -   189,110 
Consumer installment  122,736   -   672   -   123,408 
Indirect auto  456,717   -   2,637   -   459,354 
Total loans, excluding PCI loans $6,708,474  $36,885  $112,513  $-  $6,857,872 
                     
Owner occupied commercial real estate $2,044  $3,444  $13,096  $-  $18,584 
Income producing commercial real estate  13,236   8,474   3,609   -   25,319 
Commercial & industrial  216   160   660   -   1,036 
Commercial construction  3,212   1,265   3,851   -   8,328 
Total commercial  18,708   13,343   21,216   -   53,267 
Residential mortgage  5,189   -   1,206   -   6,395 
Home equity lines of credit  1,094   -   916   -   2,010 
Residential construction  898   -   35   -   933 
Consumer installment  159   -   -   -   159 
Indirect auto  -   -   -   -   - 
Total PCI loans $26,048  $13,343  $23,373  $-  $62,764 
25

  Pass Watch Substandard 
Doubtful /
Loss
 Total
As of June 30, 2018          
Owner occupied commercial real estate $1,607,152
 $21,030
 $40,187
 $—
 $1,668,369
Income producing commercial real estate 1,738,757
 19,989
 20,459
 —
 1,779,205
Commercial & industrial 1,158,458
 14,103
 19,849
 —
 1,192,410
Commercial construction 696,187
 24,575
 8,240
 —
 729,002
Equipment financing 451,545
 —
 1,075
 —
 452,620
Total commercial 5,652,099
 79,697
 89,810
 —
 5,821,606
Residential mortgage 989,403
 —
 19,681
 —
 1,009,084
Home equity lines of credit 699,455
 —
 6,368
 —
 705,823
Residential construction 192,656
 —
 1,998
 —
 194,654
Consumer direct 121,493
 —
 493
 —
 121,986
Indirect auto 275,233
 —
 2,042
 —
 277,275
Total loans, excluding PCI loans $7,930,339
 $79,697
 $120,392
 $—
 $8,130,428
           
Owner occupied commercial real estate $2,586
 $3,027
 $7,755
 $—
 $13,368
Income producing commercial real estate 12,918
 22,609
 6,652
 —
 42,179
Commercial & industrial 258
 227
 151
 —
 636
Commercial construction 3,345
 753
 2,475
 —
 6,573
Equipment financing 11,154
 —
 820
 —
 11,974
Total commercial 30,261
 26,616
 17,853
 —
 74,730
Residential mortgage 8,167
 148
 3,207
 —
 11,522
Home equity lines of credit 1,334
 —
 561
 —
 1,895
Residential construction 473
 247
 206
 —
 926
Consumer direct 697
 —
 73
 —
 770
Indirect auto —
 —
 —
 —
 —
Total PCI loans $40,932
 $27,011
 $21,900
 $—
 $89,843
           
Total loan portfolio $7,971,271
 $106,708
 $142,292
 $—
 $8,220,271
           
As of December 31, 2017          
Owner occupied commercial real estate $1,833,469
 $33,571
 $31,194
 $—
 $1,898,234
Income producing commercial real estate 1,495,805
 30,780
 23,749
 —
 1,550,334
Commercial & industrial 1,097,907
 18,052
 13,589
 —
 1,129,548
Commercial construction 693,873
 2,947
 6,259
 —
 703,079
Equipment financing —
 —
 —
 —
 —
Total commercial 5,121,054
 85,350
 74,791
 —
 5,281,195
Residential mortgage 939,706
 —
 20,697
 —
 960,403
Home equity lines of credit 721,142
 —
 7,194
 —
 728,336
Residential construction 180,567
 —
 1,988
 —
 182,555
Consumer direct 125,860
 —
 524
 —
 126,384
Indirect auto 354,788
 —
 3,397
 —
 358,185
Total loans, excluding PCI loans $7,443,117
 $85,350
 $108,591
 $—
 $7,637,058
           
Owner occupied commercial real estate $2,400
 $8,163
 $15,196
 $—
 $25,759
Income producing commercial real estate 13,392
 21,928
 9,520
 —
 44,840
Commercial & industrial 383
 672
 387
 —
 1,442
Commercial construction 3,866
 2,228
 2,763
 —
 8,857
Equipment financing —
 —
 —
 —
 —
Total commercial 20,041
 32,991
 27,866
 —
 80,898
Residential mortgage 9,566
 173
 3,402
 —
 13,141
Home equity lines of credit 1,579
 427
 885
 —
 2,891
Residential construction 423
 —
 41
 —
 464
Consumer direct 1,076
 10
 34
 —
 1,120
Indirect auto —
 —
 —
 —
 —
Total PCI loans $32,685
 $33,601
 $32,228
 $—
 $98,514
           
Total loan portfolio $7,475,802
 $118,951
 $140,819
 $—
 $7,735,572

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 7 – Reclassifications Out of Accumulated Other Comprehensive Income


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

  Amounts Reclassified from Accumulated Other
Comprehensive Income		 
Details about Accumulated Other  For the Three Months
Ended September 30,		  For the Nine Months
Ended September 30,		  Affected Line Item in the Statement
Comprehensive Income Components 2017  2016  2017  2016  Where Net Income is Presented
               
Realized gains on available-for-sale securities:   
  $188  $261  $190  $922  Securities gains, net
   (73)  (101)  (72)  (348) Tax expense
  $115  $160  $118  $574  Net of tax
                   
Amortization of losses included in net income on available-for-sale securities transferred to held to maturity:
  $(278) $(663) $(849) $(1,601) Investment securities interest revenue
   105   237   319   596  Tax benefit
  $(173) $(426) $(530) $(1,005) Net of tax
                   
Gains included in net income on derivative financial instruments accounted for as cash flow hedges:
Amortization of losses on de-designated positions $-  $-  $-  $(7) Deposits in banks and short-term investments interest revenue
Amortization of losses on de-designated positions  (150)  (153)  (448)  (495) Money market deposit interest expense
Amortization of losses on de-designated positions  -   (313)  (292)  (924) Federal Home Loan Bank advances interest expense
   (150)  (466)  (740)  (1,426) Total before tax
   58   181   288   555  Tax benefit
  $(92) $(285) $(452) $(871) Net of tax
                   
Reclassification of disproportionate tax effect related to terminated cash flow hedges:
  $-  $-  $(3,400) $-  Income tax expense
                   
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan: 
Prior service cost $(140) $(125) $(420) $(375) Salaries and employee benefits expense
Actuarial losses  (60)  (42)  (180)  (126) Salaries and employee benefits expense
   (200)  (167)  (600)  (501) Total before tax
   78   65   235   195  Tax benefit
  $(122) $(102) $(365) $(306) Net of tax
                   
Total reclassifications for the period $(272) $(653) $(4,629) $(1,608) Net of tax

  
Amounts Reclassified from Accumulated Other
Comprehensive Income
  
Details about Accumulated Other Comprehensive Income Components Three Months Ended June 30, Six Months Ended
June 30,		 Affected Line Item in the Statement Where Net Income is Presented
 2018 2017 2018 2017 
Realized (losses) gains on available-for-sale securities:
  $(364) $4
 $(1,304) $2
 Securities (losses) gains, net
  97
 —
 317
 1
 Income tax benefit
  $(267) $4
 $(987) $3
 Net of tax
           
Amortization of losses included in net income on available-for-sale securities transferred to held-to-maturity:  
  $(218) $(261) $(439) $(571) Investment securities interest revenue
  55
 98
 109
 214
 Income tax benefit
  $(163) $(163) $(330) $(357) Net of tax
           
Amortization of losses included in net income on derivative financial instruments accounted for as cash flow hedges:  
Amortization of losses on de-designated positions $(143) $(149) $(290) $(298) Money market deposit interest expense
Amortization of losses on de-designated positions —
 (28) —
 (292) Federal Home Loan Bank advances interest expense
  (143) (177) (290) (590) Total before tax
  38
 69
 76
 230
 Income tax benefit
  $(105) $(108) $(214) $(360) Net of tax
           
Reclassification of disproportionate tax effect related to terminated cash flow hedges:
  $—
 $—
 $—
 $(3,400) Income tax expense
           
Amortization of prior service cost and actuarial losses included in net periodic pension cost for defined benefit pension plan:  
Prior service cost $(167) $(140) $(334) $(280) Salaries and employee benefits expense
Actuarial losses (60) —
 (120) —
 Other expense
Actuarial losses —
 (60) —
 (120) Salaries and employee benefits expense
  (227) (200) (454) (400) Total before tax
  73
 78
 131
 157
 Income tax benefit
  $(154) $(122) $(323) $(243) Net of tax
Total reclassifications for the period $(689) $(389) $(1,854) $(4,357) Net of tax

Amounts shown above in parentheses reduce earnings.

26


UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 8 – Earnings Per Share

United is required to report on the face of the consolidated statement of income, earnings per common share with and without the dilutive effects of potential common stock issuances from instruments such as options, convertible securities and warrants. Basic earnings per common share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per common share.

During the nine months ended September 30, 2016, United accrued dividends of $21,000 on its Series H preferred stock. The Series H preferred stock was redeemed in the first quarter of 2016; accordingly, United did not accrue any dividends in 2017 or the third quarter of 2016.

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  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
             
Net income $27,946  $25,874  $79,737  $73,435 
Dividends and undistributed earnings allocated to unvested shares  (227)  -   (659)  - 
Preferred dividends  -   -   -   (21)
Net income available to common shareholders $27,719  $25,874  $79,078  $73,414 
                 
                 
Weighted average shares outstanding:                
Basic  73,151   71,556   72,060   71,992 
Effect of dilutive securities                
Stock options  11   5   11   4 
Diluted  73,162   71,561   72,071   71,996 
                 
Net income per common share:                
Basic $.38  $.36  $1.10  $1.02 
Diluted $.38  $.36  $1.10  $1.02 

 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Net income$39,634
 $28,267
 $77,292
 $51,791
Dividends and undistributed earnings allocated to unvested shares(275) —
 (552) —
Net income available to common shareholders$39,359
 $28,267
 $76,740
 $51,791
        
Weighted average shares outstanding:       
Basic79,745
 71,810
 79,477
 71,798
Effect of dilutive securities       
Stock options10
 10
 10
 11
Diluted79,755
 71,820
 79,487
 71,809
        
Net income per common share:       
Basic$0.49
 $0.39
 $0.97
 $0.72
Diluted$0.49
 $0.39
 $0.97
 $0.72
At SeptemberJune 30, 2018, United had potentially dilutive warrants outstanding to purchase 219,909 shares of common stock at $61.40 per share. At June 30, 2018, there were no shares of potentially dilutive common stock issuable upon exercise of stock options granted to employees.
At June 30, 2017, United had the following potentially dilutive stock options and warrants outstanding: a warrant to purchase 219,909 shares of common stock at $61.40 per share; 60,48963,404 shares of common stock issuable upon exercise of stock options granted to employees with a weighted average exercise price of $24.15;$25.45; and 710,145595,188 shares of common stock issuable upon the vesting of restricted stock unit awards.

At September 30, 2016, United had the following potentially dilutive stock options and warrants outstanding: a warrant to purchase 219,909 shares of common stock at $61.40 per share; 185,688 shares of common stock issuable upon exercise of stock options granted to employees with a weighted average exercise price of $77.63; and 674,862 shares of common stock issuable upon the vesting of restricted stock unit awards.

Note 9 – 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 primarily by managing the amount, sources, and duration of its investment securities portfolio and wholesale funding and through the use of derivative financial instruments. Specifically, United enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined primarily 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.

In conjunction with the FASB’s fair value measurement guidance, United made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a gross basis.

27


UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



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 sheet(in thousands).

Derivatives designated as hedging instruments under ASC 815      
    Fair Value 
Interest Rate Products Balance Sheet
Location		 September 30,
2017		  December 31,
2016		 
         
Fair value hedge of corporate bonds Derivative assets $67  $265 
    $67  $265 
           
Fair value hedge of brokered CDs Derivative liabilities $1,816  $1,980 
    $1,816  $1,980 

Derivatives not designated as hedging instruments under ASC 815      
    Fair Value 
Interest Rate Products Balance Sheet
Location		 September 30,
2017		  December 31,
2016		 
         
Customer derivative positions Derivative assets $4,804  $5,266 
Dealer offsets to customer derivative positions Derivative assets  4,424   3,869 
Mortgage banking - loan commitment Derivative assets  1,193   1,552 
Mortgage banking - forward sales commitment Derivative assets  149   534 
Bifurcated embedded derivatives Derivative assets  9,925   10,225 
Interest rate caps Derivative assets  410   - 
Offsetting positions for de-designated hedges Derivative assets  -   1,977 
    $20,905  $23,423 
           
Customer derivative positions Derivative liabilities $4,524  $3,897 
Dealer offsets to customer derivative positions Derivative liabilities  3,054   5,328 
Risk participations Derivative liabilities  22   26 
Mortgage banking - forward sales commitment Derivative liabilities  3   96 
Dealer offsets to bifurcated embedded derivatives Derivative liabilities  13,210   14,341 
De-designated hedges Derivative liabilities  297   1,980 
    $21,110  $25,668 


Derivatives designated as hedging instruments under ASC 815
Interest Rate Products Balance Sheet Location June 30, 2018 December 31, 2017
Fair value hedge of corporate bonds Derivative assets $—
 $336
    $—
 $336
       
Fair value hedge of brokered CDs Derivative liabilities $2,425
 $2,053
    $2,425
 $2,053
Derivatives not designated as hedging instruments under ASC 815
    Fair Value
Interest Rate Products Balance Sheet Location June 30, 2018 December 31, 2017
Customer derivative positions Derivative assets $951
 $2,659
Dealer offsets to customer derivative positions Derivative assets 14,433
 6,867
Mortgage banking - loan commitment Derivative assets 1,764
 1,150
Mortgage banking - forward sales commitment Derivative assets 2
 13
Bifurcated embedded derivatives Derivative assets 12,746
 11,057
Interest rate caps Derivative assets —
 639
    $29,896
 $22,385
       
Customer derivative positions Derivative liabilities $18,489
 $7,032
Dealer offsets to customer derivative positions Derivative liabilities 217
 1,551
Risk participations Derivative liabilities 8
 20
Mortgage banking - forward sales commitment Derivative liabilities 189
 49
Dealer offsets to bifurcated embedded derivatives Derivative liabilities 15,471
 14,279
De-designated hedges Derivative liabilities 462
 392
    $34,836
 $23,323
Customer derivative positions are between United and certain commercial loan customers with offsetting positions to dealers under a back-to-back swap/cap program. United also has three 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 LIBORLondon Interbank Offered Rate (“LIBOR”) and therefore provide an economic hedge.

To accommodate customers, United occasionally enters into credit risk participation agreements with counterparty banks to accept a portion of the credit risk related to interest rate swaps. This allows customers to execute an interest rate swap with one bank while allowing for the distribution of the credit risk among participating members. Credit risk participation agreements arise when United contracts with other financial institutions, as a guarantor, to share credit risk associated with certain interest rate swaps. These agreements provide for reimbursement of losses resulting from a third party default on the underlying swap. These transactions are typically executed in conjunction with a participation in a loan with the same customer. Collateral used to support the credit risk for the underlying lending relationship is also available to offset the risk of the credit risk participation.

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. Most of this hedging activity is executed on a matched basis, with a loan sale commitment hedging a specific loan. The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments. Beginning late in the third quarter of 2016United accounts for most newly originated mortgage loans, United began to account for the underlying 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 and other related fee income in the consolidated statement of income.

28

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In the second quarter of 2017, United purchased interest rate caps with a notional amount of $200 million to serve as an economic macro hedge of exposure to rising interest rates.




Cash Flow Hedges of Interest Rate Risk

At SeptemberJune 30, 20172018 and December 31, 20162017 United did not have any designatedactive cash flow hedges. Changes in balance sheet composition and interest rate risk position made cash flow hedges no longer necessary as protection against rising interest rates. The loss remaining in other comprehensive income on thefrom prior hedges that have been de-designated swaps is being amortized into earnings over the original term of the swaps as the forecasted transactions that the swaps were originally designated to hedge are still expected to occur. United expects that $545,000$361,000 will be reclassified as an increase to interest expense over the next twelve months related to these cash flow hedges.

The table below presents the effect of cash flow hedges on the consolidated statementstatements of income for the periods indicated(in thousands).

  Amount of Gain (Loss)
Recognized in Other
Comprehensive Income
on Derivative (Effective
Portion)		  Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income into Income (Effective Portion)		 Gain (Loss) Recognized in Income on
Derivative (Ineffective Portion)
  2017  2016  Location 2017  2016  Location 2017  2016 
                       
Three Months Ended September 30,                     
                             
Interest rate swaps $-  $-  Interest expense $(150) $(466) Interest expense $-  $- 
                             
Nine Months Ended September 30,                     
Interest rate swaps $-  $-  Interest expense $(740) $(1,426) Interest expense $-  $- 

 
Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income into Income (Effective Portion)
 Location 2018 2017
Three Months Ended June 30,   
  
      
Interest rate swapsInterest expense $(143) $(177)
      
Six Months Ended June 30,   
  
      
Interest rate swapsInterest expense $(290) $(590)
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 swaps to manage its exposure to changes in fair value on these instruments attributable to changes in interest rates. Interest rate swaps designated as fair value hedges of brokered deposits involve the receipt of fixed-rate amounts from a counterparty in exchange for United making variable rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate swaps designated as fair value hedges of fixed-rate investments involve the receipt of variable-rate payments from a counterparty in exchange for United making fixed-rate payments over the life of the instrument without the exchange of the underlying notional amount. At SeptemberJune 30, 2017,2018, United had four interest rate swaps with a notional amount of $40.7$39.0 million that were designated as fair value hedges of interest rate risk and were pay-variable / receive-fixed swaps hedging the changes in the fair value of fixed-rate brokered time deposits resulting from changes in interest rates. Also at September 30,At December 31, 2017, United had onefour interest rate swap with a notional value of $30.0 million that was designated as a pay-fixed / receive-variable fair value hedge of changes in the fair value of a fixed-rate corporate bond. At December 31, 2016, United had one interest rate swapswaps with an aggregate notional amount of $12.8$40.7 million that waswere designated as a fair value hedgehedges of interest rate risk and waswere pay-variable / receive-fixed, hedging the changes in the fair value of fixed-rate brokered time deposits resulting from changes in interest rates. Also at December 31, 2016,2017, United had one interest rate swap with a notional value of $30 million that was designated as a pay-fixed / receive-variable fair value hedge of changes in the fair value of a fixed-rate corporate bond.

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. During the three and ninesix months ended SeptemberJune 30, 2017,2018, United recognized net losses of $160,000$119,000 and $612,000,$199,000 , respectively, related to ineffectiveness in the fair value hedging relationships. During the three and ninesix months ended SeptemberJune 30, 2016,2017, United recognized net gainslosses of $1.51 million$327,000 and $2.37 million,$452,000, respectively, related to ineffectiveness in the fair value hedging relationships. United also recognized a net reductions ofincrease in interest expense of $40,000$66,000 and $137,000,$80,000, respectively, for the three and ninesix months ended SeptemberJune 30, 20172018, and net reductions of interest expense of $388,000$65,000 and $1.63 million,$97,000, respectively, for the three and ninesix months ended SeptemberJune 30, 20162017 related to fair value hedges of brokered time deposits, which includes net settlements on the derivatives. United recognized reductions ofan increase in interest revenue on securities duringfor the three and ninesix months ended SeptemberJune 30, 20172018 of $71,000 and $244,000, respectively,$17,000 and reductions of interest revenue on securities during the three and ninesix months ended SeptemberJune 30, 20162017 of $262,000$80,000 and $508,000,$173,000, respectively, related to fair value hedges of corporate bonds.

29
For the three months ended June 30, 2018, there was no impact on interest revenue on securities related to fair value hedges of corporate bonds.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



The table below presents the effect of derivatives in fair value hedging relationships on the consolidated statement of income for the periods indicated(in thousands).

  Location of Gain Amount of Gain (Loss)  Amount of Gain (Loss) 
  (Loss) Recognized Recognized in Income  Recognized in Income 
  in Income on on Derivative  on Hedged Item 
  Derivative 2017  2016  2017  2016 
               
Three Months Ended September 30,                  
Fair value hedges of brokered CDs Interest expense $(217) $(389) $95  $1,945 
Fair value hedges of corporate bonds Interest revenue  20   262   (58)  (307)
    $(197) $(127) $37  $1,638 
                   
Nine Months Ended September 30,                  
Fair value hedges of brokered CDs Interest expense $(418) $2,882  $(60) $(268)
Fair value hedges of corporate bonds Interest revenue  (197)  (2,145)  63   1,896 
    $(615) $737  $3  $1,628 

  
Location of Gain
(Loss) Recognized
in Income on Derivative
 
Amount of Gain (Loss)
Recognized in Income
on Derivative
 
Amount of Gain (Loss)
Recognized in Income
on Hedged Item
   2018 2017 2018 2017
Three Months Ended June 30,    
  
  
  
Fair value hedges of brokered CDs Interest expense $(144) $73
 $25
 $(344)
Fair value hedges of corporate bonds Interest revenue —
 (323) —
 267
    $(144) $(250) $25
 $(77)
           
Six Months Ended June 30,    
  
  
  
Fair value hedges of brokered CDs Interest expense $(837) $(201) $569
 $(155)
Fair value hedges of corporate bonds Interest revenue (336) (217) 405
 121
    $(1,173) $(418) $974
 $(34)
In certain cases, the estate of deceased brokered certificate of deposit holders may put the certificate of deposit back to United at par upon the death of the holder. When these estate puts 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 and such gains and losses are included in the amount of reported ineffectiveness gains or losses.


Derivatives Not Designated as Hedging Instruments under ASC 815

The table below presents the gains and losses recognized in income on derivatives not designated as hedging instruments under ASC 815 for the periods indicated(in thousands).

    Amount of Gain (Loss) Recognized in Income on 
  Location of Gain Derivative 
  (Loss) Recognized
in Income on		 Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  Derivative 2017  2016  2017  2016 
               
Customer derivatives and dealer offsets Other fee revenue $554  $1,115  $1,804  $2,952 
Bifurcated embedded derivatives  and dealer offsets Other fee revenue  225   291   431   (125)
Interest rate caps Other fee revenue  (67)  -   23   - 
De-designated hedges Other fee revenue  30   -   34   - 
Mortgage banking derivatives Mortgage loan revenue  303   884   (573)  884 
Risk participations Other fee revenue  (1)  331   4   331 
    $1,044  $2,621  $1,723  $4,042 

  Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income on Derivative
   2018 2017
Three Months Ended June 30,    
  
Customer derivatives and dealer offsets Other noninterest income $643
 $775
Bifurcated embedded derivatives and dealer offsets Other noninterest income 12
 119
Interest rate caps Other noninterest income —
 90
De-designated hedges Other noninterest income (17) 28
Mortgage banking derivatives Mortgage loan revenue 156
 (1,000)
Risk participations Other noninterest income 15
 1
    $809
 $13
       
Six Months Ended June 30,    
  
Customer derivatives and dealer offsets Other noninterest income $1,417
 $1,250
Bifurcated embedded derivatives and dealer offsets Other noninterest income 381
 206
Interest rate caps Other noninterest income 276
 90
De-designated hedges Other noninterest income (83) 4
Mortgage banking derivatives Mortgage loan revenue 1,420
 (876)
Risk participations Other noninterest income 12
 5
    $3,423
 $679


UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Credit-Risk-Related Contingent Features

United manages its credit exposure on derivatives transactions by entering into a bilateral credit support agreement with each 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. As of SeptemberJune 30, 2017,2018, collateral totaling $20.9$18.4 million was pledged toward derivatives in a liability position.

United’s agreements with each of its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivatives 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 contain a provision where 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.

30
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), all newly eligible derivatives entered into are cleared through a central clearinghouse. Derivatives that are centrally cleared do not have credit-risk-related features that require additional collateral if our credit rating were downgraded.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 10 – Stock-Based Compensation

United has an equity compensation plan that allows for grants of incentive stock options, nonqualified stock options, restricted stock and restricted stock unit awards (also referred to as “nonvested stock” awards), stock awards, performance share awards or stock appreciation rights. Options granted under the plan can 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, restricted stock and restricted stock unit awards provide for accelerated vesting if there is a change in control (as defined in the plan). Through SeptemberJune 30, 2017,2018, incentive stock options, nonqualified stock options, restricted stock and restricted stock unit awards, base salary stock grants and performance share awards have been granted under the plan. As of SeptemberJune 30, 2017, 1.942018, 1.74 million additional sharesawards remained available for grant under the plan.


The following table shows stock option activity for the first ninesix months of 2017.

Options Shares  Weighted-
Average
Exercise Price		  Weighted-
Average
Remaining
Contractual
Term (Years)		  Aggregate
Intrinisic
Value
($000)		 
             
Outstanding at December 31, 2016  72,665  $34.34         
Expired  (1,538)  147.60         
Cancelled  (10,638)  75.91         
Outstanding at September 30, 2017  60,489   24.15   3.3  $365 
                 
Exercisable at September 30, 2017  55,489   24.82   3.0   306 

2018.

Options Shares 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 Aggregate
Intrinsic
Value ($000)
Outstanding at December 31, 2017 60,287
 $24.12
    
Exercised (12,000) 11.85
    
Cancelled/forfeited (181) 31.50
    
Outstanding at June 30, 2018 48,106
 27.16
 2.4 $169
         
Exercisable at June 30, 2018 45,606
 27.73
 2.1 134
The fair value of each option is estimated on the date of grant using the Black-Scholes model. No stock options were granted during the ninesix months ended SeptemberJune 30, 20172018 and 2016.

United’s stock option exercise patterns were significantly impacted by the past economic downturn, which rendered most of United’s outstanding options worthless to the grantee. Therefore, historical exercise patterns do not provide a reasonable basis for determining the expected life of new option grants. United therefore uses the formula provided in ASC 718-10-S99 to determine the expected life of options.

2017.

United recognized $22,000$12,000 and $23,000, respectively,$15,000 in compensation expense related to stock options during each of the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016.respectively. The amount of compensation expense was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period. No options were exercised during the first nine months of 2017 or 2016.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


The table below presents restricted stock units activity for the first ninesix months of 2017.

Restricted Stock Unit Awards Shares  Weighted-
Average Grant-
Date Fair Value		  Weighted-
Average
Remaining
Contractual
Term (Years)		  Aggregate
Intrinisic
Value
($000)		 
             
Outstanding at December 31, 2016  690,970  $18.60         
Granted  259,220   26.48         
Vested  (230,080)  17.09      $6,326 
Cancelled  (9,965)  19.99         
Outstanding at September 30, 2017  710,145   22.06   3.2   20,268 

31
2018.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Restricted Stock Unit Awards Shares 
Weighted-
Average Grant-
Date Fair Value
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 Aggregate
Intrinsic
Value
($000)
Outstanding at December 31, 2017 663,817
 $22.40
    
Granted 206,123
 31.07
    
Vested (124,551) 18.53
   $3,998
Cancelled (13,665) 21.95
    
Outstanding at June 30, 2018 731,724
 25.51
 5.4 22,442
Compensation expense for restricted stock units is based on the fair value of restricted stock unit awards at the time of grant, which is equal to themarket value of United’s common stock on the date of grant. United recognizes the impact of forfeitures as they occur. The value of restricted stock unit awards is amortized into expense over the vesting period. For the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, expense of $4.13$2.11 million and $3.16$3.02 million, respectively, was recognized related to employee restricted stock unit awards. Of the expense recognized related to restricted stock unit awards during the ninesix months ended SeptemberJune 30, 2017, $696,000 relates to the modification of existing awards resulting from an acceleration of vesting of unvested awards due to retirement which was recognized in merger-related and other charges.charges in the consolidated statement of income. The remaining expense of $3.43$2.33 million was recognized in compensation expense. In addition, for the ninesix months ended SeptemberJune 30, 2018 and 2017, $156,000 and 2016, $212,000 and $75,000,$113,000, 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 expense for options and restricted stock of $581,000 and $1.23 million was included in the determination of income tax expense for the six months ended June 30, 2018 and 2017, respectively. As of SeptemberJune 30, 2017,2018, there was $12.4$14.9 million of unrecognized expense related to non-vested stock options and restricted stock unit awards granted under the plan. That cost is expected to be recognized over a weighted-average period of 3.142.4 years.

Note 11 – Common and Preferred Stock Issued / Common Stock Issuable

United sponsors a Dividend Reinvestment and Share Purchase Plan (“DRIP”) that allows participants who already own United’s common stock to purchase additional shares directly from United. The DRIP also allows participants to automatically reinvest their quarterly dividends in additional shares of common stock without a commission. In the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, 2,8423,364 shares and 2,9381,714 shares, respectively, were issued through the DRIP.

In addition, United has an Employee Stock Purchase Program (“ESPP”) that allows eligible employees to purchase shares of common stock at a 10% discount, with no commission charges. During the first ninesix months of 20172018 and 2016,2017, United issued 10,2656,489 shares and 12,9066,855 shares, respectively, through the ESPP.

United offers its common stock as an investment option in its deferred compensation plan. United also allows for the deferral of restricted stock unit awards. The common stock component of the deferred compensation plan is accounted for as an equity instrument and is reflected in the consolidated financial statements as common stock issuable. The deferred compensation plan does not allow for diversification once an election is made to invest in United’s common stock and settlement must be accomplished in shares at the time the deferral period is completed. At SeptemberJune 30, 20172018 and December 31, 2016, 588,4452017, 616,549 and 519,874607,869 shares of common stock, respectively, were issuable under the deferred compensation plan.

On March 22, 2016, United announced that its Board of Directors had authorized a program to repurchase up to $50 million of United’s outstanding common stock through December 31, 2017. In November 2017, the Board of Directors extended this program to December 31, 2018. Under the program, the shares may be repurchased periodically in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program depends on a number of factors, including the market price of United’s common stock, general market and economic conditions, and applicable legal requirements. During the first ninesix months of 2018 and 2017, United did not repurchase any shares under the program. As of SeptemberJune 30, 2017,2018, $36.3 million of United’s outstanding common stock may be repurchased under the program. In November of 2017, the Board of Directors extended this program through December 31, 2018.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 12 – Income Taxes

The income tax provision for the three and ninesix months ended SeptemberJune 30, 20172018 was $15.7$13.5 million and $50.7 million, respectively, which represents effective tax rates of 36.0% and 38.9%, respectively, for each period. The income tax provision for the three and nine months ended September 30, 2016 was $15.8 million and $44.7$24.3 million, respectively, which represents an effective tax rate of 37.8%25.5% and 23.9%, respectively, for both periods.each period. The effective tax rate for the second quarter and first six months of 2018 reflect the lower federal income tax rate enacted in the fourth quarter of 2017 following the passage of H.R. 1, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The income tax provision for the second quarter of 2018 also includes $509,000 of additional tax expense resulting from the partial impairment of United’s deferred tax asset due to Georgia’s announcement that it has reduced its corporate income tax rate from 6.00% to 5.75% effective January 1, 2019. The income tax provision for the three and six months ended June 30, 2017 was $16.5 million and $35.0 million, respectively, which represents an effective tax rate of 36.9% and 40.3%, respectively, for each period. Upon reversal of United’s former full deferred tax valuation allowance in 2013, certain disproportionate tax effects were retained in accumulated other comprehensive income (loss). During the first quarter of 2017, with the maturity and termination of certain dedesignated cash flow hedges, the disproportionate tax effect associated with these hedges was reversed and recorded as a tax expense of $3.40 million, which was the primary reason for the increase in the effective tax rate compared to the first nine months of 2016.

for that period.

At SeptemberJune 30, 20172018 and December 31, 2016,2017, United maintained a valuation allowance on its net deferred tax asset of $4.20$4.71 million and $3.88$4.41 million, respectively. Management assesses the valuation allowance recorded against its net deferred tax asset at each reporting period. The determination of whether a valuation allowance for its net deferred tax asset is appropriate is subject to considerable judgment and requires an evaluation of all the positive and negative evidence.

United evaluated the need for a valuation allowance at September 30, 2017. Based on the assessment of all the positive and negative evidence, management concluded that it is more likely than not that nearly all of its net deferred tax asset will be realized based upon future taxable income. The remaining valuation allowance of $4.20 million is related to specific state income tax credits that have short carryforward periods and are expected to expire unused.

32

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The valuation allowance could fluctuate in future periods based on the assessment of the positive and negative evidence. Management'sManagement’s conclusion at SeptemberJune 30, 20172018 that it was more likely than not that the net deferred tax asset of $129$77.3 million will be realized is based upon management’s estimate of future taxable income. Management’s estimate of future taxable income is based on internal forecasts that consider historical performance, various internal estimates and assumptions, as well as certain external data all of which management believes to be reasonable although inherently subject to significant judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, the valuation allowance may need to be increased for some or all of its net deferred tax asset. Such an increase to the net deferred tax asset valuation allowance could have a material adverse effect on United’s financial condition and results of operations.

United is subject to income taxation in the United States and various state jurisdictions. United’s federal and state income tax returns are filed on a consolidated basis. Currently, no years for which United filed a federal income tax return are under examination by the IRS, and there are no state tax examinations currently in progress. United is no longer subject to income tax examinations from state and local income tax authorities for years before 2014. Although it is not possible to know the ultimate outcome of future examinations, management believes that the liability recorded for uncertain tax positions is appropriate. At SeptemberJune 30, 20172018 and December 31, 2016,2017, unrecognized income tax benefits totaled $3.87$3.39 million and $3.89$3.16 million, respectively.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 13 – 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 1Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that United has the ability to access.

Level 2Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Level 3Valuation 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 where 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. United’sThe 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.

Securities Available-for-Sale

Investment securities available-for-sale 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, United States Department of Treasury (“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 issued by government sponsored entities, municipal bonds, corporate debt securities and asset-backed 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 asset-backed securities in less liquid markets. Securities classified as Level 3 are valued based on estimates obtained from broker-dealers and 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.

33

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Mortgage Loans Held for Sale

Beginning in the third quarter of 2016,

United has elected the fair value option for most of its newly originated mortgage loans held for sale. United elected the fair value option for its portfolio of 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).

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Loans

United does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loancredit losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment based on the present value of expected future cash flows discounted at the loan'sloan’s effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan'sloan’s observable market price, or the fair value of the collateral if repayment of the loan is dependent upon the sale of the underlying collateral.

Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. In accordance with ASC 820,Fair Value Measures and Disclosures, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. 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.

Derivative Financial Instruments

United uses interest rate swaps and interest rate floors to manage its 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.

To comply with the provisions of ASC 820, United incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and 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, mutual puts, and guarantees.

Although management has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2017, management had assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Derivatives classified as Level 3 included structured derivatives for which broker quotes, used as a key valuation input, were not observable consistent with a Level 2 disclosure. The fair value of risk participations incorporates Level 3 inputs to evaluate the likelihood of customer default. The fair value of interest rate lock commitments, which is related to mortgage loan commitments, is categorized as Level 3 based on unobservable inputs for commitments that United does not expect to fund.

Servicing Rights for SBA/USDA Loans

United recognizes servicing rights upon the sale of Small Business Administration and United States Department of Agriculture (“SBA/USDA”)USDA loans sold with servicing retained. Management has elected to carry this asset at fair value. Given the nature of the asset, the key valuation inputs are unobservable and management classifies this asset as Level 3.

Residential Mortgage Servicing Rights

United recognizes servicing rights upon the sale of residential mortgage loans sold with servicing retained. Effective January 1, 2017, management has elected to carry this asset at fair value. Given the nature of the asset, the key valuation inputs are unobservable and management classifies this asset as Level 3. The cumulative effect adjustment of this election to retained earnings, net of income tax effect, was $437,000.

34

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Pension Plan Assets

For information on the fair value of pension plan assets, see Note 18 in the Annual Report on Form 10-K for the year ended December 31, 2016.

2017.


UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


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, 2017 Level 1  Level 2  Level 3  Total 
Assets:                
Securities available for sale:                
U.S. Treasuries $74,764  $-  $-  $74,764 
U.S. Government agencies  -   27,728   -   27,728 
State and political subdivisions  -   172,389   -   172,389 
Mortgage-backed securities  -   1,648,696   -   1,648,696 
Corporate bonds  -   307,561   810   308,371 
Asset-backed securities  -   308,465   -   308,465 
Other  -   57   -   57 
Mortgage loans held for sale  -   30,093   -   30,093 
Deferred compensation plan assets  5,368   -   -   5,368 
Servicing rights for SBA/USDA loans  -   -   7,067   7,067 
Residential mortgage servicing rights  -   -   6,926   6,926 
Derivative financial instruments  -   9,854   11,118   20,972 
Total assets $80,132  $2,504,843  $25,921  $2,610,896 
                 
Liabilities:                
Deferred compensation plan liability $5,368  $-  $-  $5,368 
Derivative financial instruments  -   7,581   15,345   22,926 
Total liabilities $5,368  $7,581  $15,345  $28,294 
                 
December 31, 2016 Level 1  Level 2  Level 3  Total 
Assets:                
Securities available for sale                
U.S. Treasuries $169,616  $-  $-  $169,616 
U.S. Agencies  -   20,820   -   20,820 
State and political subdivisions  -   74,177   -   74,177 
Mortgage-backed securities  -   1,391,682   -   1,391,682 
Corporate bonds  -   304,717   675   305,392 
Asset-backed securities  -   469,569   -   469,569 
Other  -   1,182   -   1,182 
Mortgage loans held for sale  -   27,891   -   27,891 
Deferred compensation plan assets  4,161   -   -   4,161 
Servicing rights for SBA/USDA loans  -   -   5,752   5,752 
Derivative financial instruments  -   11,911   11,777   23,688 
Total assets $173,777  $2,301,949  $18,204  $2,493,930 
                 
Liabilities:                
Deferred compensation plan liability $4,161  $-  $-  $4,161 
Derivative financial instruments  -   11,301   16,347   27,648 
Total liabilities $4,161  $11,301  $16,347  $31,809 

35

June 30, 2018 Level 1 Level 2 Level 3 Total
Assets:  
  
  
  
Securities available for sale:  
  
  
  
U.S. Treasuries $119,039
 $—
 $—
 $119,039
U.S. Agencies —
 25,578
 —
 25,578
State and political subdivisions —
 197,631
 —
 197,631
Mortgage-backed securities —
 1,806,861
 —
 1,806,861
Corporate bonds —
 197,175
 990
 198,165
Asset-backed securities —
 188,963
 —
 188,963
Other —
 57
 —
 57
Mortgage loans held for sale —
 34,813
 —
 34,813
Deferred compensation plan assets 6,199
 —
 —
 6,199
Servicing rights for SBA/USDA loans —
 —
 7,509
 7,509
Residential mortgage servicing rights —
 —
 10,801
 10,801
Derivative financial instruments —
 15,386
 14,510
 29,896
         
Total assets $125,238
 $2,466,464
 $33,810
 $2,625,512
         
Liabilities:        
Deferred compensation plan liability $6,199
 $—
 $—
 $6,199
Derivative financial instruments —
 18,895
 18,366
 37,261
         
Total liabilities $6,199
 $18,895
 $18,366
 $43,460
December 31, 2017 Level 1 Level 2 Level 3 Total
Assets:  
  
  
  
Securities available for sale  
  
  
  
U.S. Treasuries $121,113
 $—
 $—
 $121,113
U.S. Agencies —
 26,372
 —
 26,372
State and political subdivisions —
 197,286
 —
 197,286
Mortgage-backed securities —
 1,727,211
 —
 1,727,211
Corporate bonds —
 305,453
 900
 306,353
Asset-backed securities —
 237,458
 —
 237,458
Other —
 57
 —
 57
Mortgage loans held for sale —
 26,252
 —
 26,252
Deferred compensation plan assets 5,716
 —
 —
 5,716
Servicing rights for SBA/USDA loans —
 —
 7,740
 7,740
Residential mortgage servicing rights —
 —
 8,262
 8,262
Derivative financial instruments —
 10,514
 12,207
 22,721
         
Total assets $126,829
 $2,530,603
 $29,109
 $2,686,541
         
Liabilities:        
Deferred compensation plan liability $5,716
 $—
 $—
 $5,716
Derivative financial instruments —
 8,632
 16,744
 25,376
         
Total liabilities $5,716
 $8,632
 $16,744
 $31,092
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



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).

  2017  2016 
  Derivative
Asset		  Derivative
Liability		  Servicing
rights for
SBA/USDA
loans		  Residential
mortgage
servicing
rights		  Securities
Available-
for-Sale		  Derivative
Asset		  Derivative
Liability		  Servicing
rights for
SBA/USDA
loans		  Securities
Available-
for-Sale		 
Three Months Ended September 30,                                    
Balance at beginning of period $11,856  $16,091  $6,640  $6,499  $810  $2,657  $7,531  $4,615  $500 
Additions  -   -   770   846   -   -   16   752   - 
Sales and settlements  (658)  (909)  (209)  (118)  -   (204)  (483)  (126)  - 
Other comprehensive income  -   -   -   -   -   -   -   -   - 
Amounts included in earnings -
fair value adjustments		  (80)  163   (134)  (301)  -   2,412   2,529   (141)  - 
Transfers between valuation levels, net  -   -   -   -   -   -   22   -   - 
Balance at end of period $11,118  $15,345  $7,067  $6,926  $810  $4,865  $9,615  $5,100  $500 
                                     
Nine Months Ended September 30,                                    
Balance at beginning of period $11,777  $16,347  $5,752  $-  $675  $9,418  $15,794  $3,712  $750 
Transfer from amortization
method to fair value		  -   -   -   5,070   -   -   -   -   - 
Additions  -   -   1,991   2,659   -   -   16   1,852   - 
Sales and settlements  (1,744)  (2,423)  (508)  (232)  -   (204)  (483)  (297)  - 
Other comprehensive income  -   -   -   -   135   -   -   -   (250)
Amounts included in earnings -
fair value adjustments		  1,085   1,421   (168)  (571)  -   (4,349)  (5,734)  (167)  - 
Transfers between valuation levels, net  -   -   -   -   -   -   22   -   - 
Balance at end of period $11,118  $15,345  $7,067  $6,926  $810  $4,865  $9,615  $5,100  $500 

 2018 2017
 
Derivative
Asset
 
Derivative
Liability
 
Servicing
rights for
SBA/USDA
loans
 
Residential
mortgage
servicing
rights
 
Securities
Available-
for-Sale
 Derivative
Asset		 Derivative
Liability		 Servicing
rights for
SBA/USDA
loans		 Residential
mortgage
servicing
rights		 Securities
Available-
for-Sale
Three Months Ended June 30,  
  
  
  
  
  
  
  
Balance at beginning of period$13,877
 $17,788
 $7,470
 $9,718
 $900
 $12,649
 $16,580
 $5,997
 $5,971
 $675
Additions—
 —
 613
 1,182
 —
 —
 —
 668
 947
 —
Sales and settlements—
 —
 (316) (126) —
 (702) (964) (36) (74) —
Other comprehensive income—
 —
 —
 —
 90
 —
 —
 —
 —
 135
Amounts included in earnings - fair value adjustments633
 578
 (258) 27
 —
 (91) 475
 11
 (345) —
Balance at end of period$14,510
 $18,366
 $7,509
 $10,801
 $990
 $11,856
 $16,091
 $6,640
 $6,499
 $810
                 
Six Months Ended June 30,                
Balance at beginning of period$12,207
 $16,744
 $7,740
 $8,262
 $900
 $11,777
 $16,347
 $5,752
 $—
 $675
Business combinations—
 —
 (354) —
 —
 —
 —
 —
 —
 —
Transfer from amortization method to fair value—
 —
 —
 —
 —
 —
 —
 —
 5,070
 —
Additions—
 —
 1,092
 2,108
 —
 —
 —
 1,221
 1,813
 —
Sales and settlements(1,029) (1,347) (407) (206) —
 (1,086) (1,514) (299) (114) —
Other comprehensive income—
 —
 —
 —
 90
 —
 —
 —
 —
 135
Amounts included in earnings - fair value adjustments3,332
 2,969
 (562) 637
 —
 1,165
 1,258
 (34) (270) —
Balance at end of period$14,510
 $18,366
 $7,509
 $10,801
 $990
 $11,856
 $16,091
 $6,640
 $6,499
 $810

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

  Fair Value      Weighted Average 
Level 3 Assets September 30,
2017		  December 31,
2016		  Valuation
Technique		 Unobservable Inputs September 30,
2017		  December 31,
2016		 
                 
Servicing rights for $7,067  $5,752  Discounted Discount rate  12.3%  11.0%
SBA/USDA loans         cash flow Prepayment rate  7.85%  7.12%
                     
Residential mortgage  6,926   -  Discounted Discount rate  10.0%  N/A 
servicing rights         cash flow Prepayment rate  10.8%  N/A 
                     
Corporate bonds  810   675  Indicative bid provided by a broker Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company  N/A   N/A 
                     
Derivative assets - mortgage  1,193   1,552  Internal model Pull through rate  80%  80%
                     
Derivative assets - other  9,925   10,225  Dealer priced Dealer priced  N/A   N/A 
                     
Derivative liabilities - risk  22   26  Internal model Probable exposure rate  .34%  .35%
participations           Probability of default rate  1.80%  1.80%
                     
Derivative liabilities - other  15,323   16,321  Dealer priced Dealer priced  N/A   N/A 

  Fair Value     Weighted Average
Level 3 Assets and Liabilities June 30, 2018 December 31, 2017 Valuation Technique   June 30, 2018 December 31, 2017
    Unobservable Inputs  
Servicing rights for SBA/USDA loans $7,509
 $7,740
 Discounted cash flow Discount rate 12.7% 12.5%

     
 Prepayment rate 10.1
 8.3
Residential mortgage servicing rights 10,801
 8,262
 Discounted cash flow Discount rate 10.0
 10.0
        Prepayment rate 8.6
 9.5
Corporate bonds 990
 900
 Indicative bid provided by a broker Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the company N/A
 N/A
             
Derivative assets - mortgage 1,764
 1,150
 Internal model Pull through rate 81.1
 80.0
Derivative assets - other 12,746
 11,057
 Dealer priced Dealer priced N/A
 N/A
Derivative liabilities - risk participations 8
 20
 Internal model Probable exposure rate 0.5
 0.4

       Probability of default rate 1.8
 1.8
Derivative liabilities - other 18,358
 16,724
 Dealer priced Dealer priced N/A
 N/A
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Fair Value Option

At SeptemberJune 30, 2018, mortgage loans held for sale for which the fair value option was elected had an aggregate fair value and outstanding principal balance of $34.8 million and $33.7 million, respectively. At December 31, 2017, mortgage loans held for sale for which the fair value option was elected had an aggregate fair value and outstanding principal balance of $30.1$26.3 million and $29.1 million, respectively. At December 31, 2016, mortgage loans held for sale for which the fair value option was elected had an aggregate fair value and outstanding principal balance of $27.9 million and $27.6$25.4 million, respectively. Interest income on these loans is calculated based on the note rate of the loan and is recorded in interest revenue. During the three and ninesix months ended SeptemberJune 30, 2017, net gains resulting from2018, changes in fair value of these loans resulted in net gains of $264,000$326,000 and $708,000,$254,000, respectively. During the three and six months ended June 30, 2017, changes in fair value of these loans resulted in net gains of $192,000 and $444,000, respectively, which were recorded in mortgage loan and other related fees. These 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. During the three and nine months ended September 30, 2016, net gains resulting from changes in fair value of these loans of $11,000 were recorded in mortgage loan and other related fees.

36

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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 SeptemberJune 30, 20172018 and December 31, 2016,2017, 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, 2017                
Loans $-  $-  $8,843  $8,843 
                 
December 31, 2016                
Loans $-  $-  $7,179  $7,179 

  Level 1 Level 2 Level 3 Total
June 30, 2018  
  
  
  
Loans $—
 $—
 $6,570
 $6,570
         
December 31, 2017        
Loans $—
 $—
 $6,905
 $6,905
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 impaired loans that are collateral dependent are generally written down to 80% of appraised value which considers the estimated costs to sell. Specific reserves are established for impaired loans based on appraised value of collateral or discounted cash flows, although only those specific reserves based on the fair value of collateral are considered nonrecurring fair value adjustments.

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.

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.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


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.

37

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements


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).

  Carrying  Fair Value Level 
  Amount  Level 1  Level 2  Level 3  Total 
September 30, 2017                    
Assets:                    
Securities held to maturity $306,741  $-  $310,446  $-  $310,446 
Loans, net  7,144,332   -   -   7,051,886   7,051,886 
Mortgage loans held for sale  199   -   205   -   205 
                     
Liabilities:                    
Deposits  9,127,384   -   9,128,990   -   9,128,990 
Federal Home Loan Bank advances  494,484   -   494,411   -   494,411 
Long-term debt  135,707   -   -   136,824   136,824 
                     
December 31, 2016                    
Assets:                    
Securities held to maturity $329,843  $-  $333,170  $-  $333,170 
Loans, net  6,859,214   -   -   6,824,229   6,824,229 
Mortgage loans held for sale  1,987   -   2,018   -   2,018 
Residential mortgage servicing rights  4,372   -   -   5,175   5,175 
                     
Liabilities:                    
Deposits  8,637,558   -   8,635,811   -   8,635,811 
Federal Home Loan Bank advances  709,209   -   709,174   -   709,174 
Long-term debt  175,078   -   -   175,750   175,750 
  Carrying Fair Value Level
  Amount Level 1 Level 2 Level 3 Total
June 30, 2018          
Assets:          
Securities held to maturity $297,569
 $—
 $291,463
 $—
 $291,463
Loans and leases, net 8,159,200
 —
 —
 8,132,734
 8,132,734
           
Liabilities:          
Deposits 9,966,088
 —
 9,958,439
 —
 9,958,439
Federal Home Loan Bank advances 560,000
 —
 559,979
 —
 559,979
Long-term debt 308,434
 —
 —
 321,424
 321,424
           
December 31, 2017          
Assets:          
Securities held to maturity $321,094
 $—
 $321,276
 $—
 $321,276
Loans, net 7,676,658
 —
 —
 7,674,460
 7,674,460
Loans held for sale 6,482
 —
 6,514
 —
 6,514
           
Liabilities:          
Deposits 9,807,697
 —
 9,809,264
 —
 9,809,264
Federal Home Loan Bank advances 504,651
 —
 504,460
 —
 504,460
Long-term debt 120,545
 —
 —
 123,844
 123,844

Note 14 – 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 manymost 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,  December 31, 
  2017  2016 
Financial instruments whose contract amounts represent credit risk:        
Commitments to extend credit $1,793,538  $1,542,186 
Letters of credit  26,763   26,862 

 June 30, 2018 December 31, 2017
Financial instruments whose contract amounts represent credit risk: 
  
Commitments to extend credit$2,047,081
 $1,910,777
Letters of credit26,396
 28,075
United’s wholly-owned bank subsidiary, United Community Bank (the “Bank”), holds minor investments in certain limited partnerships for Community Reinvestment Act purposes. As of SeptemberJune 30, 2017,2018, the Bank had invested $4.13 million in these limited partnerships and had committed to fund an additional $5.37$9.16 million related to future capital calls.

calls that has not been reflected in the consolidated balance sheet.

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


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.

38

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 15 – Goodwill and Other Intangible Assets

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

  September 30,  December 31, 
  2017  2016 
Core deposit intangible $54,822  $51,342 
Less: accumulated amortization  (39,986)  (37,145)
Net core deposit intangible  14,836   14,197 
Noncompete agreement  2,236   - 
Less: accumulated amortization  (244)  - 
Net noncompete agreement  1,992   - 
Total intangibles subject to amortization, net  16,828   14,197 
Goodwill  165,888   142,025 
Total goodwill and other intangible assets, net $182,716  $156,222 

  June 30, 2018 December 31, 2017 
 Core deposit intangible$62,652
 $62,652
 
 Less: accumulated amortization(43,786) (41,229) 
 Net core deposit intangible18,866
 21,423
 
 Noncompete agreements3,144
 3,144
 
 Less: accumulated amortization(1,948) (761) 
 Net noncompete agreements1,196
 2,383
 
 Total intangibles subject to amortization, net20,062
 23,806
 
 Goodwill307,112
 220,591
 
 Total goodwill and other intangible assets, net$327,174
 $244,397
 
The following is a summary of changes in the carrying amounts of goodwill(in thousands):

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
        Goodwill, net of        Goodwill, net of 
     Accumulated  Accumulated     Accumulated  Accumulated 
     Impairment  Impairment     Impairment  Impairment 
  Goodwill  Losses  Losses  Goodwill  Losses  Losses 
2017                        
Balance, beginning of period $447,615  $(305,590) $142,025  $447,615  $(305,590) $142,025 
Acquisition of HCSB  23,863   -   23,863   23,863   -   23,863 
Balance, end of period $471,478  $(305,590) $165,888  $471,478  $(305,590) $165,888 
                         
2016                        
Balance, beginning of period $436,902  $(305,590) $131,312  $436,202  $(305,590) $130,612 
Acquisition of Tidelands  10,713   -   10,713   10,713   -   10,713 
Measurement period adjustments  -   -   -   700   -   700 
Balance, end of period $447,615  $(305,590) $142,025  $447,615  $(305,590) $142,025 

  For the Three Months Ended June 30, For the Six Months Ended June 30,
2018 Goodwill Accumulated Impairment Losses Goodwill, net of Accumulated Impairment Losses Goodwill Accumulated Impairment Losses Goodwill, net of Accumulated Impairment Losses
Balance, beginning of period $612,009
 $(305,590) $306,419
 $526,181
 $(305,590) $220,591
Acquisition of NLFC 390
 —
 390
 87,379
 —
 87,379
Measurement period adjustments- FOFN and HCSB 303
 —
 303
 (858) —
 (858)
Balance, end of period $612,702
 $(305,590) $307,112
 $612,702
 $(305,590) $307,112
             
2017            
Balance, beginning of period $447,615
 $(305,590) $142,025
 $447,615
 $(305,590) $142,025
Balance, end of period $447,615
 $(305,590) $142,025
 $447,615
 $(305,590) $142,025
The estimated aggregate amortization expense for future periods for core deposit intangibles and noncompete agreements is as follows(in thousands):

Year   
Remainder of 2017 $1,384 
2018  4,810 
2019  3,391 
2020  2,272 
2021  1,631 
Thereafter  3,340 
Total $16,828 

39

 Year  
 Remainder of 2018$3,102
 
 20194,551
 
 20203,315
 
 20212,557
 
 20221,982
 
 Thereafter4,555
 
 Total$20,062
 

UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 16 - Long-term Debt
Long-term debt consisted of the following (in thousands):
 June 30, 2018 December 31, 2017 
Issue
Date
 
Stated
Maturity
Date
 
Earliest
Call
Date
 Interest Rate
Obligations of the Bank and its Subsidiaries: 
  
        
NER 15-1 Class C notes$7,025
 $—
 2015 2019 n/a 4.500%
NER 15-1 Class D notes3,421
 —
 2015 2021 n/a 5.750%
NER 16-1 Class A-2 notes43,912
 —
 2016 2021 n/a 2.200%
NER 16-1 Class B notes25,489
 —
 2016 2021 n/a 3.220%
NER 16-1 Class C notes6,319
 —
 2016 2021 n/a 5.050%
NER 16-1 Class D notes3,213
 —
 2016 2023 n/a 7.870%
Total securitized notes payable89,379
 —
        
            
Obligations of the Holding Company:           
2022 senior debentures50,000
 50,000
 2015 2022 2020 5.000% through August 13, 2020, 3-month LIBOR plus 3.814% thereafter
2027 senior debentures35,000
 35,000
 2015 2027 2025 5.500% through August 13, 2025 3-month LIBOR plus 3.71% thereafter
Total senior debentures85,000
 85,000
        
            
2028 subordinated debentures100,000
 —
 2018 2028 2023 4.500% through January 30, 2023, 3-month LIBOR plus 2.12% thereafter
2025 subordinated debentures11,500
 11,500
 2015 2025 2020 6.250%
Total subordinated debentures111,500
 11,500
        
            
Southern Bancorp Capital Trust I4,382
 4,382
 2004 2034 2009 Prime + 1.00%
United Community Statutory Trust III1,238
 1,238
 2008 2038 2013 Prime + 3.00%
Tidelands Statutory Trust I8,248
 8,248
 2006 2036 2011 3-month LIBOR plus 1.38%
Tidelands Statutory Trust II6,186
 6,186
 2008 2038 2013 3-month LIBOR plus 5.075%
Four Oaks Statutory Trust I12,372
 12,372
 2006 2036 2011 3-month LIBOR plus 1.35%
Total trust preferred securities32,426
 32,426
        
Less discount(9,871) (8,381)        
Total long-term debt$308,434
 $120,545
        
Interest is currently paid semiannually or quarterly for all senior and subordinated debentures and trust preferred securities.
Senior Debentures
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
United acquired, as part of the FOFN acquisition, $11.5 million aggregate principal amount of subordinated debentures. The notes are due on November 30, 2025. United may prepay the notes at any time after November 30, 2020, subject to compliance with applicable laws. In January 2018, United issued $100 million fixed to floating rate subordinated notes due January 30, 2028. The subordinated debentures qualify as Tier 2 regulatory capital.
Securitized Notes Payable
United acquired, as part of the NLFC acquisition, Navitas Equipment Receivables LLC 2015-1 (“NER 15-1”) and Navitas Equipment Receivables LLC 2016-1 (“NER 16-1”), which are bankruptcy-remote special purpose entities (“SPEs”) whose sole purpose is to receive loans to secure financings. Each of these SPEs provided financing by issuing notes to investors through a private offering of Receivable-Backed Notes under Rule 144A of the Securities and Exchange Act of 1934. These notes are collateralized by specific qualifying loans
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


and by cash placed in restricted cash accounts. These notes will continue amortizing sequentially based on collections on the underlying loans available to pay the note holders at each monthly payment date after payment of certain amounts as specified in the securitization documents including fees to various parties to the securitizations, interest due to the note holders and certain other payments. Sequentially, each subsequent class of note holders receive principal payments until paid down in full prior to the remaining subsequent class of note holders receiving principal payments. In addition to the pay-downs on these notes, they also have legal final maturity dates as reflected in the table above.
Trust Preferred Securities
Trust preferred securities qualify as Tier 1 capital under risk based capital guidelines subject to certain limitations. The trust preferred securities are mandatorily redeemable upon maturity, or upon earlier redemption as provided in the indentures.

Note 16 –17 - Subsequent Events

On October 15, 2017, United paid off $35 million of maturing long-term debt that had an interest rate of 9%. On November 3, 2017, United'sAugust 1, 2018, United’s Board of Directors approved a regular quarterly cash dividend of ten cents$0.15 per common share. The dividend is payable JanuaryOctober 5, 2018, to shareholders of record on DecemberSeptember 15, 2017.

Four Oaks Fincorp, Inc.

On November 1, 2017, United completed its previously announced acquisition of Four Oaks Fincorp, Inc. (“FOFN”) and its wholly-owned bank subsidiary, Four Oaks Bank & Trust Company. As of June 30, 2017, FOFN had total assets of $740 million, loans of $498 million and deposits of $560 million. Four Oaks Bank & Trust Company, which operated 14 banking offices in the Raleigh, North Carolina metropolitan statistical area, will operate under the Four Oaks Bank & Trust Company brand until the system conversions are completed in the second quarter of 2018, at which time it will begin to operate as United Community Bank.

Under the terms of the merger agreement, FOFN shareholders received .6178 shares of United common stock and $1.90 for each share of FOFN common stock, or an aggregate of approximately $128 million based on United’s closing price of $27.42 on October 31, 2017.

The acquisition will be accounted for as a business combination, subject to the provisions of ASC 805-10-50,Business Combinations. Due to the timing of the acquisition, United is currently in the process of completing the purchase accounting and has not made all of the remaining disclosures required by ASC 805-10-50, such as the fair value of assets acquired and supplemental pro forma information, which will be disclosed in subsequent filings.

40
2018.




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

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), about United and its subsidiaries. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, and 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”, the negative thereof or comparable terminology. 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 future performance, operations, products and services of United and its subsidiaries. We caution our shareholders and other readers not to place undue reliance on such statements.

Our businesses and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experiences may differ materially from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experiences to differ from those projected include, but are not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 20162017 as well as the following factors:

·the condition of the general business and economic environment;
·the results of our internal credit stress tests may not accurately predict the impact on our financial condition if the economy were to deteriorate;
·our ability to maintain profitability;
·our ability to fully realize the balance of our net deferred tax asset, including net operating loss carryforwards;
·the impact of lower federal income tax rates on the carrying amount of our deferred tax asset;
·the risk that we may be required to increase the valuation allowance on our net deferred tax asset in future periods;
·the condition of the banking system and financial markets;
·our ability to raise capital;
·our ability to maintain liquidity or access other sources of funding;
·changes in the cost and availability of funding;
·the success of the local economies in which we operate;
·our lack of geographic diversification;
·our concentrations of residential and commercial construction and development loans and commercial real estate loans are subject to unique risks that could adversely affect our earnings;
·changes in prevailing interest rates may negatively affect our net income and the value of our assets and other interest rate risks;
·our accounting and reporting policies;
·if our allowance for loan losses is not sufficient to cover actual loan losses;
·losses due to fraudulent and negligent conduct of our loan customers, third party service providers or employees;
·risks related to our communications and information systems, including risks with respect to cybersecurity breaches;
·our reliance on third parties to provide key components of our business infrastructure and services required to operate our business;
·competition from financial institutions and other financial service providers;
·risks with respect to our ability to successfully expand and complete acquisitions and integrate businesses and operations that are acquired;
·if the conditions in the stock market, the public debt market and other capital markets deteriorate;
·the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and related regulations;
·changes in laws and regulations or failures to comply with such laws and regulations;
·changes in regulatory capital and other requirements;
·the costs and effects of litigation, examinations, investigations, or similar matters, or adverse facts and developments related thereto;
·regulatory or judicial proceedings, board resolutions, informal memorandums of understanding or formal enforcement actions imposed by regulators that may occur;
·changes in tax laws, regulations and interpretations or challenges to our income tax provision; and
·our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures.

the condition of the general business and economic environment, banking system and financial markets;
deteriorating conditions in the stock market, the public debt market, and other capital markets, which could affect our ability to raise capital;
our ability to maintain profitability;
changes in prevailing interest rates may negatively affect our net income and the value of our assets and other interest rate risks;
our ability to maintain liquidity or access other sources of funding, as well as changes in the cost and availability of funding;
the results of our internal credit stress tests may not accurately predict the impact on our financial condition if the economy were to deteriorate;
our lack of geographic diversification and the success of the local economies in which we operate;
our concentrations of commercial construction and development loans and commercial real estate loans are subject to unique risks that could adversely affect our earnings;
risks with respect to our ability to successfully expand and complete acquisitions and integrate businesses and operations that are acquired;
competition from financial institutions and other financial service providers including financial technology providers;
losses due to fraudulent and negligent conduct of our customers, third party service providers or employees;
risks related to our communications and information systems, including risks with respect to cybersecurity breaches;
our reliance on third parties to provide key components of our business infrastructure and services required to operate our business;
changes in laws and regulations or failures to comply with such laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and related regulations (the “Dodd-Frank Act”) and the Tax Cuts and Jobs Act of 2017 and related regulations (the “Tax Act”);
changes in tax laws, regulations and interpretations or challenges to our income tax provision;
changes in regulatory capital and other requirements as well as the impact on regulatory capital of changing accounting standards related to the allowance for loan and lease losses and lease accounting;
the costs and effects of litigation, examinations, investigations, or similar matters, or adverse facts and developments related thereto;
possible regulatory or judicial proceedings, board resolutions, informal memorandums of understanding or formal enforcement actions imposed by regulators;
if our allowance for loan losses is not sufficient to cover actual loan losses;
our ability to fully realize the balance of our net deferred tax asset, including net operating loss carryforwards;
our accounting and reporting policies; and
our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures.

Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements may also be included in other reports that United files with the Securities and Exchange Commission (the “SEC”). United cautions that the foregoing list of factors is not exclusive and not to place undue reliance on forward-looking statements. United does not intend to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Form 10-Q. The financial statements and information contained herein have not been reviewed, or confirmed for accuracy or relevance, by the Federal Deposit Insurance Corporation.

41




Overview

The following discussion is intended to provide insight into the results of operations and financial condition of United Community Banks, Inc. (“United”) and its subsidiaries and should be read in conjunction with theUnited’s consolidated financial statements and accompanying notes.

United is a bank holding company registered with the Board of Governors of the Federal Reserve under the Bank Holding Company Act of 1956 that was incorporated under the laws of the State of Georgia in 1987 and commenced operations in 1988. At SeptemberJune 30, 2017,2018, United had total consolidated assets of $11.1$12.4 billion, total loans of $7.20$8.22 billion, total deposits of $9.13$9.97 billion, and shareholders’ equity of $1.22$1.38 billion.

United conducts substantially all of its operations through its wholly-owned Georgia bank subsidiary, United Community Bank (the “Bank”), which as of SeptemberJune 30, 2017,2018, operated at 142150 locations throughout the Atlanta-Sandy Springs-Roswell,markets in Georgia, and Gainesville, Georgia metropolitan statistical areas, upstate and coastal South Carolina, north and coastal Georgia, western North Carolina, and east Tennessee, as well as a commercial loan office in Charlotte, North Carolina.

On July 1, 2016,Tennessee.

Since June 30, 2017 United has completed its previously announced acquisition of Tidelands Bancshares, Inc. (“Tidelands”the following acquisitions (the “Acquisitions”) and its wholly-owned bank subsidiary, Tidelands Bank.  Tidelands’:
EntityDate Acquired
NLFC Holdings Corp. (“NLFC”)February 1, 2018
Four Oaks Fincorp, Inc. (“FOFN”)November 1, 2017
HCSB Financial Corporation (“HCSB”)July 31, 2017
The acquired entities’ results are included in United’s consolidated results beginning on the respective acquisition date.

On July 31, 2017, United completed its previously announced acquisition of HCSB Financial Corporation (“HCSB”) and its wholly-owned bank subsidiary, Horry County State Bank.  HCSB’s results are included in United’s consolidated results beginning on the acquisition date.

dates.

United reported net income of $27.9$39.6 million, or $.38$0.49 per diluted share, for the thirdsecond quarter of 2017,2018, compared to net income of $25.9$28.3 million, or $.36$0.39 per diluted share, for the thirdsecond quarter of 2016.2017. For the ninesix months ended SeptemberJune 30, 2017,2018, United reported net income of $79.7$77.3 million, or $1.10$0.97 per diluted share, compared to $73.4$51.8 million, or $1.02$0.72 per diluted share for the first ninesix months of 2016. The increase in earnings per share resulted from an increase in net interest revenue, partially offset by a decrease in fee revenue and an increase in operating expenses.

2017.

Net interest revenue increased to $89.8$108 million for the thirdsecond quarter of 2017,2018, compared to $79.0$85.1 million for the thirdsecond quarter of 2016,2017, primarily due to higher loan volume, much of which resulted from the acquisition of HCSB.Acquisitions. Net interest margin increased to 3.54%3.90% for the three months ended SeptemberJune 30, 20172018 from 3.34%3.47% for the same period in 2016 mostly2017 due to the effect of rising interest rates on floating rate loans and investment securities. Growth in the loan portfolio also led tosecurities and a more favorable earning asset mix.mix due to the Acquisitions. For the ninesix months ended SeptemberJune 30, 2017,2018, net interest revenue was $258$212 million and the net interest margin was 3.49%3.85% compared to net interest revenue of $229$169 million and net interest margin of 3.36%3.46% for the same period in 2016.

2017.

The provision for credit losses was $1.00$1.80 million for the thirdsecond quarter of 2017,2018, compared to a release of provision of $300,000$800,000 for the thirdsecond quarter of 2016.2017. For the ninesix months ended SeptemberJune 30, 2017,2018, the provision for credit losses was $2.60$5.60 million, compared to a release of provision of $800,000$1.60 million for the same period in 2016.2017. Net charge-offs for the thirdsecond quarter of 20172018 were $1.64$1.36 million, compared to $1.36$1.62 million for the thirdsecond quarter of 2016.

As of September 30, 2017,2017. Since credit quality remained stable, the increase in the provision reflects growth in the loan and lease portfolio (collectively referred to as the “loan portfolio” or “loans”), including a $2.29 million increase resulting from including NLFC’s loans in the allowance for loan losses model in the first quarter of 2018. Because NLFC’s loans were recorded at a premium, the allowance for loan losses model required us to establish an allowance for loan losses sufficient to cover estimated credit losses inherent in the NLFC loan portfolio.

As of June 30, 2018, United’s allowance for loan losses was $58.6$61.1 million, or .81%0.74% of loans, compared to $61.4$58.9 million, or .89%0.76% of loans, at December 31, 20162017 reflecting continuedstable asset quality improvement and the effect of loans acquired through a business combination which are recorded at fair value with credit losses reflected in the value rather than in the allowance for loan losses.quality. Nonperforming assets of $25.7$24.4 million were .23%0.20% of total assets at SeptemberJune 30, 2017,2018, down from .28%0.23% at December 31, 2016 primarily due to sales of foreclosed properties.2017. During the thirdsecond quarter of 2017, $7.962018, $3.61 million in loans were placed on nonaccrual compared with $6.68$8.11 million in the thirdsecond quarter of 2016.

Fee revenue2017.

Noninterest income of $20.6$23.3 million for the thirdsecond quarter of 20172018 was down $5.79,$345,000, or 22%1%, from the thirdsecond quarter of 2016.2017. Service charges and fees decreased 24%18% compared to thirdthe second quarter of 20162017 due mainly to the effect of the Durbin Amendment of the Dodd-Frank Act (the “Durbin Amendment”), which took effect for United in the third quarter of 2017 and limited the amount of interchange fees United could earncharged on debit card transactions. Decreases in service charges and fees were offset by increases in other noninterest income comprising of volume driven increases in miscellaneous banking fees, fee revenues from the equipment finance business, which came through acquisition of NLFC, and gains on extinguishment of debt. Mortgage fees of $5.31 million for the second quarter of 2018 increased from $4.81 million in the second quarter of 2017. The increase was due to United’s emphasis on growing its mortgage business by recruiting lenders in metropolitan markets. For the first ninesix months of 2017, fee revenue of $66.3 million decreased $2.13 million, or 3%, from2018, total noninterest income remained relatively consistent compared to the same period in 2016, primarilyof 2017 due to the same factors that affecteddecrease in service charges and fees and increase in securities losses being offset by increases in mortgage fees and other noninterest income, including gains on derivative cancellations recognized in the quarterly results.

first quarter.



For the thirdsecond quarter and first nine months of 2017, operating2018, noninterest expenses of $65.7$76.9 million and $192 million, respectively, were up $1.65 million and $11.8increased $13.6 million from the same periodssecond quarter of 2016,2017, primarily due to the addition of HCSB and (fornoninterest expenses related to the year to date period) Tidelands operating expenses since acquisition.Acquisitions. Salaries and benefits expense increased $1.55$8.03 million from thirdsecond quarter 2016 and $8.94$14.2 million from the first nine monthshalf of 2016, also2017, mostly due to the addition of HCSBAcquisitions and Tidelandsinvestment in additional staff and new teams to expand the Commercial Banking Solutions area as well as higher incentives and commissionsincentive compensation in connection with increased lending activities and improvement in earnings performance.

42

Recent Developments

On November 1, 2017, United completed its previously announced acquisition of Four Oaks Fincorp, Inc. (“FOFN”) and its wholly-owned bank subsidiary, Four Oaks Bank & Trust Company. As of June 30, 2017, FOFN had total assets of $740 million, loans of $498 million and deposits of $560 million. Four Oaks Bank & Trust Company, which operated 14 banking offices in the Raleigh, North Carolina metropolitan statistical area, will operate under the Four Oaks Bank & Trust Company brand until the system conversions are completed in the second quarter of 2018, at which time it will begin to operate as United Community Bank.

Under the terms of the merger agreement, FOFN shareholders received .6178 shares of United common stock and $1.90 for each share of FOFN common stock, or an aggregate of approximately $128 million based on United’s closing price of $27.42 on October 31, 2017.

Critical Accounting Policies

The accounting and reporting policies of United are in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to general practices within the banking industry. The more critical accounting and reporting policies include United’s accounting for the allowance for loan losses, fair value measurements, and income taxes 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 United’s consolidated financial position or consolidated results of operations. See “Asset Quality and Risk Elements” herein for additional discussion of United’s accounting methodologies related to the allowance for loan losses.

GAAP Reconciliation and Explanation

This Form 10-Q 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,” “average tangible equity to average assets,” “tangible equity to assets,” “average tangible common equity to average assets,” “tangible common equity to assets” and “tangible common equity to risk-weighted assets.” In addition, management presents non-GAAP operating performance measures, which exclude merger-related and other items that are not part of United’s ongoing business operations. Operating performance measures include “expenses – operating,” “net income – operating,” “net income available to common shareholders – operating,” “diluted net 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 processespolicies and procedures to accurately capture and account for merger-related and other charges and those charges are reviewed with the audit committee of United’s Board of Directors each quarter. Management uses these non-GAAP measures because it believes they may provide useful supplemental information for evaluating United’s operations and performance over periods of time, as well as in managing and evaluating United’s business and in discussions about United’s operations and performance. Management believes these non-GAAP measures may also provide users of United’s financial information with a meaningful measure for assessing United’s financial results and credit trends, as well as a comparison to financial results for prior periods. 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 and are not necessarily comparable to other 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 the table on page 45.

52.


Results of Operations

United reported net income and diluted earnings per common share of $39.6 million and $0.49, respectively, for the second quarter of 2018. This compared to net income and diluted earnings per common share of $28.3 million and $0.39, respectively, for the same period in 2017. For the six months ended June 30, 2018, United reported net income of $27.9$77.3 million for the third quarter of 2017. This compared to net income of $25.9$51.8 million for the same period in 2016. For the third quarter of 2017, diluted earnings per common share were $.38 compared to $.36 for the third quarter of 2016. For the nine months ended September 30, 2017, United reported net income of $79.7 million compared to net income of $73.4 million for the same period in 2016.

2017.

United reported operating net income of $30.2$42.4 million and $87.9$82.1 million, respectively, for the thirdsecond quarter and first nine monthshalf of 2017,2018, compared to $27.8$29.4 million and $77.8$57.6 million, respectively, for the same periods in 2016.2017. For the thirdsecond quarter and first half of 2018, operating net income excludes merger-related and branch closure charges and a deferred tax asset impairment charge resulting from Georgia lowering its corporate income tax rate, which net of tax, totaled $2.75 million and $4.77 million, respectively. For the second quarter of 2017, operating net income excludes merger-related charges and impairmentexecutive retirement charges, on surplus bank properties, which, net of the associated income tax benefit, totaled $2.27of $1.16 million. For the first nine monthshalf of 2017, operating net income excludes merger-related charges, impairment charges on surplus bank properties,and executive retirement charges and the release from accumulated other comprehensive income of the disproportionate tax effect related to cash flow hedges, which, net of tax, totaled $8.12 million. For the third quarter and first nine months of 2016, operating net income excludes merger-related charges, which, net of tax, totaled $1.96$2.45 million and $4.34$3.40 million, respectively.

43


UNITED COMMUNITY BANKS, INC.
Table 1 - Financial Highlights
Selected Financial Information

                 Third  For the Nine    
  2017  2016  Quarter  Months Ended  YTD 
  Third  Second  First  Fourth  Third  2017-2016  September 30,  2017-2016 
(in thousands, except per share data) Quarter  Quarter  Quarter  Quarter  Quarter  Change  2017  2016  Change 
INCOME SUMMARY                                    
Interest revenue $98,839  $93,166  $90,958  $87,778  $85,439      $282,963  $247,242     
Interest expense  9,064   8,018   7,404   6,853   6,450       24,486   18,383     
Net interest revenue  89,775   85,148   83,554   80,925   78,989   14%  258,477   228,859   13%
Provision for credit losses  1,000   800   800   -   (300)      2,600   (800)    
Fee revenue  20,573   23,685   22,074   25,233   26,361   (22)  66,332   68,464   (3)
Total revenue  109,348   108,033   104,828   106,158   105,650   4   322,209   298,123   8 
Expenses  65,674   63,229   62,826   61,321   64,023   3   191,729   179,968   7 
Income before income tax expense  43,674   44,804   42,002   44,837   41,627   5   130,480   118,155   10 
Income tax expense  15,728   16,537   18,478   17,616   15,753   -   50,743   44,720   13 
Net income  27,946   28,267   23,524   27,221   25,874   8   79,737   73,435   9 
Merger-related and other charges  3,420   1,830   2,054   1,141   3,152       7,304   6,981     
Income tax benefit of merger-related and other charges  (1,147)  (675)  (758)  (432)  (1,193)      (2,580)  (2,642)    
Impairment of deferred tax asset on canceled non-qualified stock options  -   -   -   976   -       -   -     
Release of disproportionate tax effects lodged in OCI  -   -   3,400   -   -       3,400   -     
Net income - operating(1) $30,219  $29,422  $28,220  $28,906  $27,833   9  $87,861  $77,774   13 
                                     
PERFORMANCE MEASURES                                    
Per common share:                                    
Diluted net income - GAAP $.38  $.39  $.33  $.38  $.36   6  $1.10  $1.02   8 
Diluted net income - operating  (1)  .41   .41   .39   .40   .39   5   1.21   1.08   12 
Cash dividends declared  .10   .09   .09   .08   .08       .28   .22     
Book value  16.50   15.83   15.40   15.06   15.12   9   16.50   15.12   9 
Tangible book value(3)  14.11   13.74   13.30   12.95   13.00   9   14.11   13.00   9 
                                     
Key performance ratios:                                    
Return on common equity - GAAP(2)(4)  9.22%  9.98%  8.54%  9.89%  9.61%      9.26%  9.25%    
Return on common equity - operating(1)(2)(4)  9.97   10.39   10.25   10.51   10.34       10.20   9.79     
Return on tangible common equity - operating(1)(2)(3)(4)  11.93   12.19   12.10   12.47   12.45       12.07   11.64     
Return on assets - GAAP(4)  1.01   1.06   .89   1.03   1.00       .99   .99     
Return on assets - operating(1)(4)  1.09   1.10   1.07   1.10   1.08       1.09   1.05     
Dividend payout ratio - GAAP  26.32   23.08   27.27   21.05   22.22       25.45   21.57     
Dividend payout ratio - operating(1)  24.39   21.95   23.08   20.00   20.51       23.14   20.37     
Net interest margin (fully taxable equivalent)(4)  3.54   3.47   3.45   3.34   3.34       3.49   3.36     
Efficiency ratio - GAAP  59.27   57.89   59.29   57.65   60.78       58.81   60.56     
Efficiency ratio - operating  (1)  56.18   56.21   57.35   56.58   57.79       56.57   58.21     
Average equity to average assets  10.86   10.49   10.24   10.35   10.38       10.54   10.60     
Average tangible equity to average assets(3)  9.45   9.23   8.96   9.04   8.98       9.21   9.27     
Average tangible common equity to average assets(3)  9.45   9.23   8.96   9.04   8.98       9.21   9.24     
Tangible common equity to risk-weighted assets(3)  12.80   12.44   12.07   11.84   12.22       12.80   12.22     
                                     
ASSET QUALITY                                    
Nonperforming loans $22,921  $23,095  $19,812  $21,539  $21,572   6  $22,921  $21,572   6 
Foreclosed properties  2,736   2,739   5,060   7,949   9,187   (70)  2,736   9,187   (70)
Total nonperforming assets (NPAs)  25,657   25,834   24,872   29,488   30,759   (17)  25,657   30,759   (17)
Allowance for loan losses  58,605   59,500   60,543   61,422   62,961   (7)  58,605   62,961   (7)
Net charge-offs  1,635   1,623   1,679   1,539   1,359   20   4,937   5,227   (6)
Allowance for loan losses to loans  .81%  .85%  .87%  .89%  .94%      .81%  .94%    
Net charge-offs to average loans(4)  .09   .09   .10   .09   .08       .09   .11     
NPAs to loans and foreclosed properties  .36   .37   .36   .43   .46       .36   .46     
NPAs to total assets  .23   .24   .23   .28   .30       .23   .30     
                                     
AVERAGE BALANCES($ in millions)                                    
Loans $7,149  $6,980  $6,904  $6,814  $6,675   7  $7,012  $6,278   12 
Investment securities  2,800   2,775   2,822   2,690   2,610   7   2,799   2,692   4 
Earning assets  10,133   9,899   9,872   9,665   9,443   7   9,969   9,120   9 
Total assets  10,980   10,704   10,677   10,484   10,281   7   10,788   9,909   9 
Deposits  8,913   8,659   8,592   8,552   8,307   7   8,723   8,051   8 
Shareholders’ equity  1,193   1,123   1,093   1,085   1,067   12   1,137   1,051   8 
Common shares - basic(thousands)  73,151   71,810   71,700   71,641   71,556   2   72,060   71,992   - 
Common shares - diluted(thousands)  73,162   71,820   71,708   71,648   71,561   2   72,071   71,996   - 
                                     
AT PERIOD END($ in millions)                                    
Loans $7,203  $7,041  $6,965  $6,921  $6,725   7  $7,203  $6,725   7 
Investment securities  2,847   2,787   2,767   2,762   2,560   11   2,847   2,560   11 
Total assets  11,129   10,837   10,732   10,709   10,298   8   11,129   10,298   8 
Deposits  9,127   8,736   8,752   8,638   8,442   8   9,127   8,442   8 
Shareholders’ equity  1,221   1,133   1,102   1,076   1,079   13   1,221   1,079   13 
Common shares outstanding(thousands)  73,403   70,981   70,973   70,899   70,861   4   73,403   70,861   4 



UNITED COMMUNITY BANKS, INC.                  
Table 1 - Financial Highlights                  
Selected Financial Information                  
  2018 2017 Second Quarter 2018 - 2017 Change For the Six Months Ended June 30, YTD 2018 - 2017 Change
(in thousands, except per share data) Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter  2018 2017 
INCOME SUMMARY            
      
Interest revenue $122,215
 $115,290
 $106,757
 $98,839
 $93,166
   $237,505
 $184,124
  
Interest expense 13,739
 12,005
 9,249
 9,064
 8,018
   25,744
 15,422
  
Net interest revenue 108,476
 103,285
 97,508
 89,775
 85,148
 27 % 211,761
 168,702
 26 %
Provision for credit losses 1,800
 3,800
 1,200
 1,000
 800
   5,600
 1,600
  
Noninterest income 23,340
 22,396
 21,928
 20,573
 23,685
 (1) 45,736
 45,759
 —
Total revenue 130,016
 121,881
 118,236
 109,348
 108,033
 20
 251,897
 212,861
 18
Expenses 76,850
 73,475
 75,882
 65,674
 63,229
 22
 150,325
 126,055
 19
Income before income tax expense 53,166
 48,406
 42,354
 43,674
 44,804
 19
 101,572
 86,806
 17
Income tax expense 13,532
 10,748
 54,270
 15,728
 16,537
 (18) 24,280
 35,015
 (31)
Net income (loss) 39,634
 37,658
 (11,916) 27,946
 28,267
 40
 77,292
 51,791
 49
Merger-related and other charges 2,873
 2,646
 7,358
 3,420
 1,830
   5,519
 3,884
  
Income tax benefit of merger-related and other charges (121) (628) (1,165) (1,147) (675)   (749) (1,433)  
Impact of remeasurement of deferred tax asset resulting  from 2017 Tax Cuts and Jobs Act —
 —
 38,199
 —
 —
   —
 —
  
Release of disproportionate tax effects lodged in OCI —
 —
 —
 —
 —
   —
 3,400
  
Net income - operating (1)
 $42,386
 $39,676
 $32,476
 $30,219
 $29,422
 44
 $82,062
 $57,642
 42
                   
PERFORMANCE MEASURES                  
Per common share:                  
Diluted net income (loss) - GAAP $0.49
 $0.47
 $(0.16) $0.38
 $0.39
 26
 $0.97
 $0.72
 35
Diluted net income - operating (1)
 0.53
 0.50
 0.42
 0.41
 0.41
 29
 1.03
 0.80
 29
Cash dividends declared 0.15
 0.12
 0.10
 0.10
 0.09
 67
 0.27
 0.18
 50
Book value 17.29
 17.02
 16.67
 16.50
 15.83
 9
 17.29
 15.83
 9
Tangible book value (3)
 13.25
 12.96
 13.65
 14.11
 13.74
 (4) 13.25
 13.74
 (4)
Key performance ratios:                  
Return on common equity - GAAP (2)(4)
 11.20% 11.11% (3.57)% 9.22% 9.98%   11.15% 9.27%  
Return on common equity - operating (1)(2)(4)
 11.97
 11.71
 9.73
 9.97
 10.39
   11.84
 10.32
  
Return on tangible common equity - operating (1)(2)(3)(4)
 15.79
 15.26
 11.93
 11.93
 12.19
   15.53
 12.15
  
Return on assets - GAAP (4)
 1.30
 1.26
 (0.40) 1.01
 1.06
   1.28
 0.98
  
Return on assets - operating (1)(4)
 1.39
 1.33
 1.10
 1.09
 1.10
   1.36
 1.09
  
Dividend payout ratio - GAAP 30.61
 25.53
 (62.50) 26.32
 23.08
   27.84
 25.00
  
Dividend payout ratio - operating (1)
 28.30
 24.00
 23.81
 24.39
 21.95
   26.21
 22.50
  
Net interest margin (fully taxable equivalent) (4)
 3.90
 3.80
 3.63
 3.54
 3.47
   3.85
 3.46
  
Efficiency ratio - GAAP 57.94
 57.83
 63.03
 59.27
 57.89
   57.89
 58.58
  
Efficiency ratio - operating (1)
 55.77
 55.75
 56.92
 56.18
 56.21
   55.76
 56.77
  
Average equity to average assets 11.21
 11.03
 11.21
 10.86
 10.49
   11.13
 10.36
  
Average tangible equity to average assets (3)
 8.83
 8.82
 9.52
 9.45
 9.23
   8.82
 9.09
  
Average tangible common equity to average assets (3)
 8.83
 8.82
 9.52
 9.45
 9.23
   8.82
 9.09
  
Tangible common equity to risk-weighted assets (3)
 11.36
 11.19
 12.05
 12.80
 12.44
   11.36
 12.44
  
                   
ASSET QUALITY                  
Nonperforming loans $21,817
 $26,240
 $23,658
 $22,921
 $23,095
 (6) $21,817
 $23,095
 (6)
Foreclosed properties 2,597
 2,714
 3,234
 2,736
 2,739
 (5) 2,597
 2,739
 (5)
Total nonperforming assets (NPAs) 24,414
 28,954
 26,892
 25,657
 25,834
 (5) 24,414
 25,834
 (5)
Allowance for loan losses 61,071
 61,085
 58,914
 58,605
 59,500
 3
 61,071
 59,500
 3
Net charge-offs 1,359
 1,501
 1,061
 1,635
 1,623
 (16) 2,860
 3,302
 (13)
Allowance for loan losses to loans 0.74% 0.75% 0.76 % 0.81% 0.85%   0.74% 0.85%  
Net charge-offs to average loans (4)
 0.07
 0.08
 0.06
 0.09
 0.09
   0.07
 0.10
  
NPAs to loans and foreclosed properties 0.30
 0.35
 0.35
 0.36
 0.37
   0.30
 0.37
  
NPAs to total assets 0.20
 0.24
 0.23
 0.23
 0.24
   0.20
 0.24
  
                   
AVERAGE BALANCES ($ in millions)
                  
Loans $8,177
 $7,993
 $7,560
 $7,149
 $6,980
 17
 $8,086
 $6,942
 16
Investment securities 2,802
 2,870
 2,991
 2,800
 2,775
 1
 2,836
 2,798
 1
Earning assets 11,193
 11,076
 10,735
 10,133
 9,899
 13
 11,135
 9,885
 13
Total assets 12,213
 12,111
 11,687
 10,980
 10,704
 14
 12,163
 10,691
 14
Deposits 9,978
 9,759
 9,624
 8,913
 8,659
 15
 9,869
 8,626
 14
Shareholders’ equity 1,370
 1,336
 1,310
 1,193
 1,123
 22
 1,353
 1,108
 22
Common shares - basic (thousands) 79,753
 79,205
 76,768
 73,151
 71,810
 11
 79,477
 71,798
 11
Common shares - diluted (thousands) 79,755
 79,215
 76,768
 73,162
 71,820
 11
 79,487
 71,809
 11
                   
AT PERIOD END ($ in millions)
                  
Loans $8,220
 $8,184
 $7,736
 $7,203
 $7,041
 17
 $8,220
 $7,041
 17
Investment securities 2,834
 2,731
 2,937
 2,847
 2,787
 2
 2,834
 2,787
 2
Total assets 12,386
 12,264
 11,915
 11,129
 10,837
 14
 12,386
 10,837
 14
Deposits 9,966
 9,993
 9,808
 9,127
 8,736
 14
 9,966
 8,736
 14
Shareholders’ equity 1,379
 1,357
 1,303
 1,221
 1,133
 22
 1,379
 1,133
 22
Common shares outstanding (thousands) 79,138
 79,123
 77,580
 73,403
 70,981
 11
 79,138
 70,981
 11

(1) Excludes merger-related and other charges which includes amortization of certain executive change of control benefits, the fourth quarter 2017 impact of remeasurement of United’s deferred tax assets following the passage of tax reform legislation and a first quarter 2017 release of disproportionate tax effects lodged in OCI and a fourth quarter 2016 deferred tax asset impairment charge related to cancelled non-qualified stock options.OCI. (2) Net income available to common shareholders, which is net ofless preferred stock dividends, divided by average realized common equity, which excludes accumulated other comprehensive income (loss).(3) Excludes effect of acquisition related intangibles and associated amortization.(4) Annualized.

44

UNITED COMMUNITY BANKS, INC.
Table 1 (Continued) Non-GAAP Performance Measures Reconciliation
Selected Financial Information

  2017  2016  For the Nine Months Ended
June 30,		 
  Third  Second  First  Fourth  Third       
(in thousands, except per share data) Quarter  Quarter  Quarter  Quarter  Quarter  2017  2016 
        \  \  \       
Expense reconciliation                            
Expenses (GAAP) $65,674  $63,229  $62,826  $61,321  $64,023  $191,729  $179,968 
Merger-related and other charges  (3,420)  (1,830)  (2,054)  (1,141)  (3,152)  (7,304)  (6,981)
Expenses – operating $62,254  $61,399  $60,772  $60,180  $60,871  $184,425  $172,987 
                             
Net income reconciliation                            
Net income (GAAP) $27,946  $28,267  $23,524  $27,221  $25,874  $79,737  $73,435 
Merger-related and other charges  3,420   1,830   2,054   1,141   3,152   7,304   6,981 
Income tax benefit of merger-related and other charges  (1,147)  (675)  (758)  (432)  (1,193)  (2,580)  (2,642)
Impairment of deferred tax asset on canceled non-qualified stock options  -   -   -   976   -   -   - 
Release of disproportionate tax effects lodged in OCI  -   -   3,400   -   -   3,400   - 
Net income - operating $30,219  $29,422  $28,220  $28,906  $27,833  $87,861  $77,774 
Diluted income per common share reconciliation                            
Diluted income per common share (GAAP) $.38  $.39  $.33  $.38  $.36  $1.10  $1.02 
Merger-related and other charges  .03   .02   .01   .01   .03   .06   - 
Impairment of deferred tax asset on canceled non-qualified stock options  -   -   -   .01   -   -   - 
Release of disproportionate tax effects lodged in OCI  -   -   .05   -   -   .05   - 
Diluted income per common share - operating $.41  $.41  $.39  $.40  $.39  $1.21  $1.02 
                             
Book value per common share reconciliation                            
Book value per common share (GAAP) $16.50  $15.83  $15.40  $15.06  $15.12  $16.50  $15.12 
Effect of goodwill and other intangibles  (2.39)  (2.09)  (2.10)  (2.11)  (2.12)  (2.39)  (2.12)
Tangible book value per common share $14.11  $13.74  $13.30  $12.95  $13.00  $14.11  $13.00 
                             
Return on tangible common equity reconciliation                            
Return on common equity (GAAP)  9.22%  9.98%  8.54%  9.89%  9.61%  9.26%  9.25%
Merger-related and other charges  .75   .41   .47   .26   .73   .55   .54 
Impairment of deferred tax asset on canceled non-qualified stock options  -   -   -   .36   -   -   - 
Release of disproportionate tax effects lodged in OCI  -   -   1.24   -   -   .39   - 
Return on common equity - operating  9.97   10.39   10.25   10.51   10.34   10.20   9.79 
Effect of goodwill and other intangibles  1.96   1.80   1.85   1.96   2.11   1.87   1.85 
Return on tangible common equity - operating  11.93%  12.19%  12.10%  12.47%  12.45%  12.07%  11.64%
                             
Return on assets reconciliation                            
Return on assets (GAAP)  1.01%  1.06%  .89%  1.03%  1.00%  .99%  .99%
Merger-related and other charges  .08   .04   .05   .03   .08   .06   .06 
Impairment of deferred tax asset on canceled non-qualified stock options  -   -   -   .04   -   -   - 
Release of disproportionate tax effects lodged in OCI  -   -   .13   -   -   .04   - 
Return on assets - operating  1.09%  1.10%  1.07%  1.10%  1.08%  1.09%  1.05%
                             
Dividend payout ratio reconciliation                            
Dividend payout ratio (GAAP)  26.32%  23.08%  27.27%  21.05%  22.22%  25.45%  21.57%
Merger-related and other charges  (1.93)  (1.13)  (.98)  (.54)  (1.71)  (1.31)  (1.20)
Impairment of deferred tax asset on canceled non-qualified stock options  -   -   -   (.51)  -   -   - 
Release of disproportionate tax effects lodged in OCI  -   -   (3.21)  -   -   (1.00)  - 
Dividend payout ratio - operating  24.39%  21.95%  23.08%  20.00%  20.51%  23.14%  20.37%
                             
Efficiency ratio reconciliation                            
Efficiency ratio (GAAP)  59.27%  57.89%  59.29%  57.65%  60.78%  58.81%  60.56%
Merger-related and other charges  (3.09)  (1.68)  (1.94)  (1.07)  (2.99)  (2.24)  (2.35)
Efficiency ratio - operating  56.18%  56.21%  57.35%  56.58%  57.79%  56.57%  58.21%
                             
Average equity to assets reconciliation                            
Equity to assets (GAAP)  10.86%  10.49%  10.24%  10.35%  10.38%  10.54%  10.60%
Effect of goodwill and other intangibles  (1.41)  (1.26)  (1.28)  (1.31)  (1.40)  (1.33)  (1.33)
Tangible equity to assets  9.45   9.23   8.96   9.04   8.98   9.21   9.27 
Effect of preferred equity  -   -   -   -   -   -   (.03)
Tangible common equity to assets  9.45%  9.23%  8.96%  9.04%  8.98%  9.21%  9.24%
                             
Tangible common equity to risk-weighted assets reconciliation                            
Tier 1 capital ratio (Regulatory)  12.27%  11.91%  11.46%  11.23%  11.04%  12.27%  11.04%
Effect of other comprehensive income  (.13)  (.15)  (.24)  (.34)  -   (.13)  - 
Effect of deferred tax limitation  .94   .95   1.13   1.26   1.50   .94   1.50 
Effect of trust preferred  (.24)  (.25)  (.25)  (.25)  (.26)  (.24)  (.26)
Basel III intangibles transition adjustment  (.04)  (.02)  (.03)  (.06)  (.06)  (.03)  (.06)
Tangible common equity to risk-weighted assets  12.80%  12.44%  12.07%  11.84%  12.22%  12.81%  12.22%

45



UNITED COMMUNITY BANKS, INC.              
Table 1 (Continued) - Non-GAAP Performance Measures Reconciliation
Selected Financial Information              
  2018 2017 For the Six Months Ended June 30,
  Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter 2018 2017
(in thousands, except per share data)       
               
Expense reconciliation  
  
  
  
  
    
Expenses (GAAP) $76,850
 $73,475
 $75,882
 $65,674
 $63,229
 $150,325
 $126,055
Merger-related and other charges (2,873) (2,646) (7,358) (3,420) (1,830) (5,519) (3,884)
Expenses - operating $73,977
 $70,829
 $68,524
 $62,254
 $61,399
 $144,806
 $122,171
               
Net income (loss) reconciliation              
Net income (loss) (GAAP) $39,634
 $37,658
 $(11,916) $27,946
 $28,267
 $77,292
 $51,791
Merger-related and other charges 2,873
 2,646
 7,358
 3,420
 1,830
 5,519
 3,884
Income tax benefit of merger-related and other charges (121) (628) (1,165) (1,147) (675) (749) (1,433)
Impact of tax reform on remeasurement of deferred tax asset —
 —
 38,199
 —
 —
 —
 —
Release of disproportionate tax effects lodged in OCI —
 —
 —
 —
 —
 —
 3,400
Net income - operating $42,386
 $39,676
 $32,476
 $30,219
 $29,422
 $82,062
 $57,642
               
Diluted income (loss) per common share reconciliation              
Diluted income (loss) per common share (GAAP) $0.49
 $0.47
 $(0.16) $0.38
 $0.39
 $0.97
 $0.72
Merger-related and other charges 0.04
 0.03
 0.08
 0.03
 0.02
 0.06
 0.03
Impact of tax reform on remeasurement of deferred tax asset —
 —
 0.50
 —
 —
 —
 —
Release of disproportionate tax effects lodged in OCI —
 —
 —
 —
 —
 —
 0.05
Diluted income per common share - operating $0.53
 $0.50
 $0.42
 $0.41
 $0.41
 $1.03
 $0.80
               
Book value per common share reconciliation              
Book value per common share (GAAP) $17.29
 $17.02
 $16.67
 $16.50
 $15.83
 $17.29
 $15.83
Effect of goodwill and other intangibles (4.04) (4.06) (3.02) (2.39) (2.09) (4.04) (2.09)
Tangible book value per common share $13.25
 $12.96
 $13.65
 $14.11
 $13.74
 $13.25
 $13.74
               
Return on tangible common equity reconciliation              
Return on common equity (GAAP) 11.20 % 11.11 % (3.57)% 9.22 % 9.98 % 11.15 % 9.27 %
Merger-related and other charges 0.77
 0.60
 1.86
 0.75
 0.41
 0.69
 0.44
Impact of tax reform on remeasurement of deferred tax asset —
 —
 11.44
 —
 —
 —
 —
Release of disproportionate tax effects lodged in OCI —
 —
 —
 —
 —
 —
 0.61
Return on common equity - operating 11.97
 11.71
 9.73
 9.97
 10.39
 11.84
 10.32
Effect of goodwill and other intangibles 3.82
 3.55
 2.20
 1.96
 1.80
 3.69
 1.83
Return on tangible common equity - operating 15.79 % 15.26 % 11.93 % 11.93 % 12.19 % 15.53 % 12.15 %
               
Return on assets reconciliation              
Return on assets (GAAP) 1.30 % 1.26 % (0.40)% 1.01 % 1.06 % 1.28 % 0.98 %
Merger-related and other charges 0.09
 0.07
 0.20
 0.08
 0.04
 0.08
 0.05
Impact of tax reform on remeasurement of deferred tax asset —
 —
 1.30
 —
 —
 —
 —
Release of disproportionate tax effects lodged in OCI —
 —
 —
 —
 —
 —
 0.06
Return on assets - operating 1.39 % 1.33 % 1.10 % 1.09 % 1.10 % 1.36 % 1.09 %
               
Dividend payout ratio reconciliation              
Dividend payout ratio (GAAP) 30.61 % 25.53 % (62.50)% 26.32 % 23.08 % 27.84 % 25.00 %
Merger-related and other charges (2.31) (1.53) 12.04
 (1.93) (1.13) (1.63) (1.00)
Impact of tax reform on remeasurement of deferred tax asset —
 —
 74.27
 —
 —
 —
 —
Release of disproportionate tax effects lodged in OCI —
 —
 —
 —
 —
 —
 (1.50)
Dividend payout ratio - operating 28.30 % 24.00 % 23.81 % 24.39 % 21.95 % 26.21 % 22.50 %
               
Efficiency ratio reconciliation              
Efficiency ratio (GAAP) 57.94 % 57.83 % 63.03 % 59.27 % 57.89 % 57.89 % 58.58 %
Merger-related and other charges (2.17) (2.08) (6.11) (3.09) (1.68) (2.13) (1.81)
Efficiency ratio - operating 55.77 % 55.75 % 56.92 % 56.18 % 56.21 % 55.76 % 56.77 %
               
Average equity to assets reconciliation              
Equity to assets (GAAP) 11.21 % 11.03 % 11.21 % 10.86 % 10.49 % 11.13 % 10.36 %
Effect of goodwill and other intangibles (2.38) (2.21) (1.69) (1.41) (1.26) (2.31) (1.27)
Tangible common equity to assets 8.83 % 8.82 % 9.52 % 9.45 % 9.23 % 8.82 % 9.09 %
               
Tangible common equity to risk-weighted assets reconciliation              
Tier 1 capital ratio (Regulatory) 11.94 % 11.61 % 12.24 % 12.27 % 11.91 % 11.94 % 11.91 %
Effect of other comprehensive income (0.57) (0.50) (0.29) (0.13) (0.15) (0.57) (0.15)
Effect of deferred tax limitation 0.33
 0.42
 0.51
 0.94
 0.95
 0.33
 0.95
Effect of trust preferred (0.34) (0.34) (0.36) (0.24) (0.25) (0.34) (0.25)
Basel III intangibles transition adjustment —
 —
 (0.05) (0.04) (0.02) —
 (0.02)
Tangible common equity to risk-weighted assets 11.36 % 11.19 % 12.05 % 12.80 % 12.44 % 11.36 % 12.44 %


Net Interest Revenue

Net interest revenue (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. Net interest revenue for the thirdsecond quarter of 20172018 was $89.8 million.$108 million, compared to $85.1 million for the second quarter of 2017. Taxable equivalent net interest revenue for the thirdsecond quarter of 20172018 was $90.4$109 million, which represents an increase of $11.2$23.4 million from the same period in 2016.2017. The combination of the larger earning asset base from the acquisition of HCSB andAcquisitions, growth in the loan portfolio and a wider net interest margin were responsible for the increase in net interest revenue.

Average interest-earning assets for the second quarter of 2018 increased $1.29 billion, or 13%, from the second quarter of 2017, which was due primarily to the increase in loans. Average loans increased $474 million,$1.20 billion, or 7%17%, from the thirdsecond quarter of last year, whilewhich includes the effect of the Acquisitions. The yield on loans increased 3277 basis points, reflecting the effect of rising interest rates on the floating rate loans in the portfolio.

Average interest-earning assets for the third quarter of 2017 increased $689 million, or 7%, from the third quarter of 2016, which was due primarily to the increase in loans, includingportfolio and the acquisition of HCSB loans. Average investment securities for the third quarter of 2017 increased $190 millionhigher yielding loans from a year ago, partially due to the HCSB acquisition. The average yield on the taxable investment portfolio increased 19 basis points from a year ago, primarily due to the impact of higher short-term interest rates on the floating rate portion of the securities portfolio as well as accelerated discount accretion on called asset-backed securitiesNLFC and a higher reinvestment rate on maturing fixed rate investments.

FOFN.

Average interest-bearing liabilities of $6.82$7.49 billion for the thirdsecond quarter of 20172018 increased $196$751 million from the thirdsecond quarter of 2016.2017. Average non-interest-bearing deposits increased $347$458 million from the thirdsecond quarter of 20162017 to $2.84$3.19 billion for the thirdsecond quarter of 2017.2018. The average cost of interest-bearing liabilities for the thirdsecond quarter of 20172018 was .53%0.74% compared to .39%0.48% for the same period in 2016,2017, reflecting higher average rates on money market deposits, NOW deposits, timeinterest-bearing deposits and brokeredshort-term borrowings. Although the fed funds rate has increased 75 basis points since June 30, 2017, United’s cost of interest-bearing deposits has increased only 24 basis points over that same time deposits.

period, which has contributed to margin expansion and an increase in net interest revenue.

The banking industry uses two ratios to measure 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 net interest rate spread eliminates the effect of non-interest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company’s balance sheet, and is defined as net interest revenue as a percent of average total interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with non-interest-bearing deposits and stockholders’ equity.

For the thirdsecond quarters of 20172018 and 2016,2017, the net interest spread was 3.37%3.65% and 3.22%3.31%, respectively, while the net interest margin was 3.54%3.90% and 3.34%3.47%, respectively. The increase in the net interest margin reflects the impact of higher short-term interest rates on floating-rate loans and securities which exceededwhile the increase in deposit and other funds pricing on interest-bearing liabilities increased slightly from the prior year.

Additionally, United was able to improve its overall yield on interest-earning assets through growth in the loan portfolio, which had a positive impact on the composition of interest-earning assets.


For the first ninesix months of 2017,2018, net interest revenue was $258$212 million, an increase of $29.6$43.1 million, or 13%26%, from the first ninesix months
of 2016.2017. Similarly, fully taxable equivalent net interest revenue for the first ninesix months of 20172018 was $260$213 million, an increase of $30.2$43.2 million, or 13%26%, from the first ninesix months of 2016.2017. Average earning assets increased 9%13% to $9.97$11.1 billion during the first ninesix months of 20172018 compared to the same period a year ago, primarily due to the increase in loans, including the acquisition of HCSB and Tidelands loans.Acquisitions. The yield on earning assets increased 1855 basis points to 3.81%4.31% in the first ninesix months of 20172018 primarily due to higher loan and securities yields. The higher loan portfolio yield reflects the effect of rising interest rates onand changes in portfolio composition, primarily due to the floating rate loans in the portfolio. InvestmentNLFC acquisition. Taxable investment yield increased 163 basis points for the first ninesix months of 20172018 compared to the same period in 2016,2017, which further improved the net interest margin. The rate on interest-bearing liabilities over the same period increased 1023 basis points. The higher yield on interest-earning assets more than offset the higher cost of interest-bearing liabilities and resulted in a 13an 39 basis point increase in the net interest margin from the first nine monthshalf of 20162017 to the first nine monthshalf of 2017.

46
2018.


The following tables show the relationship between interest revenue and expense, and the average amounts of interest-earning assets and interest-bearing liabilities for the periods indicated.




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

  2017 2016 
(dollars in thousands, Average     Avg.  Average     Avg. 
fully taxable equivalent (FTE)) Balance  Interest  Rate  Balance  Interest  Rate 
Assets:                        
Interest-earning assets:                        
Loans, net of unearned income (FTE)(1)(2) $7,149,348  $80,301   4.46% $6,675,328  $69,427   4.14%
Taxable securities(3)  2,695,162   17,204   2.55   2,588,037   15,284   2.36 
Tax-exempt securities (FTE)(1)(3)  105,151   1,098   4.18   22,113   219   3.96 
Federal funds sold and other interest-earning assets  183,170   883   1.93   157,972   754   1.91 
Total interest-earning assets (FTE)  10,132,831   99,486   3.90   9,443,450   85,684   3.61 
Non-interest-earning assets:                        
Allowance for loan losses  (60,098)          (63,874)        
Cash and due from banks  103,477           100,775         
Premises and equipment  203,579           198,234         
Other assets(3)  599,725           602,690         
Total assets $10,979,514          $10,281,275         
                         
Liabilities and Shareholders' Equity:                        
Interest-bearing liabilities:                        
Interest-bearing deposits:                        
NOW $1,863,160   700   .15  $1,744,473   452   .10 
Money market  2,170,148   1,953   .36   1,997,165   1,347   .27 
Savings  593,823   34   .02   537,447   43   .03 
Time  1,338,786   1,548   .46   1,375,706   833   .24 
Brokered time deposits  109,811   322   1.16   162,255   (166)  (.41)
Total interest-bearing deposits  6,075,728   4,557   .30   5,817,046   2,509   .17 
                         
Federal funds purchased and other borrowings  11,313   36   1.26   42,234   98   .92 
Federal Home Loan Bank advances  574,404   1,709   1.18   583,312   1,015   .69 
Long-term debt  154,616   2,762   7.09   177,333   2,828   6.34 
Total borrowed funds  740,333   4,507   2.42   802,879   3,941   1.95 
                         
Total interest-bearing liabilities  6,816,061   9,064   .53   6,619,925   6,450   .39 
Non-interest-bearing liabilities:                        
Non-interest-bearing deposits  2,837,378           2,490,019         
Other liabilities  133,212           103,859         
Total liabilities  9,786,651           9,213,803         
Shareholders' equity  1,192,863           1,067,472         
Total liabilities and shareholders' equity $10,979,514          $10,281,275         
                         
Net interest revenue (FTE)     $90,422          $79,234     
Net interest-rate spread (FTE)          3.37%          3.22%
                         
Net interest margin (FTE)(4)          3.54%          3.34%

  2018 2017
(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)
 $8,177,343
 $103,395
 5.07% $6,979,980
 $74,811
 4.30%
Taxable securities (3)
 2,651,816
 17,229
 2.60
 2,719,390
 17,421
 2.56
Tax-exempt securities (FTE) (1)(3)
 150,503
 1,380
 3.67
 55,992
 584
 4.17
Federal funds sold and other interest-earning assets 212,849
 674
 1.27
 143,143
 743
 2.08
Total interest-earning assets (FTE) 11,192,511
 122,678
 4.39
 9,898,505
 93,559
 3.79
Non-interest-earning assets:            
Allowance for loan losses (62,275)     (61,163)    
Cash and due from banks 133,060
     104,812
    
Premises and equipment 218,517
     192,906
    
Other assets (3)
 731,514
     569,435
    
Total assets $12,213,327
     $10,704,495
    
             
Liabilities and Shareholders' Equity:            
Interest-bearing liabilities:            
Interest-bearing deposits:            
NOW $2,071,289
 1,303
 0.25
 $1,901,890
 635
 0.13
Money market 2,214,077
 2,583
 0.47
 2,064,143
 1,559
 0.30
Savings 678,988
 35
 0.02
 575,960
 28
 0.02
Time 1,524,124
 2,696
 0.71
 1,274,009
 1,136
 0.36
Brokered time deposits 300,389
 1,502
 2.01
 111,983
 243
 0.87
Total interest-bearing deposits 6,788,867
 8,119
 0.48
 5,927,985
 3,601
 0.24
Federal funds purchased and other borrowings 45,241
 198
 1.76
 37,317
 101
 1.09
Federal Home Loan Bank advances 335,521
 1,636
 1.96
 594,815
 1,464
 0.99
Long-term debt 316,812
 3,786
 4.79
 175,281
 2,852
 6.53
Total borrowed funds 697,574
 5,620
 3.23
 807,413
 4,417
 2.19
Total interest-bearing liabilities 7,486,441
 13,739
 0.74
 6,735,398
 8,018
 0.48
Non-interest-bearing liabilities:            
Non-interest-bearing deposits 3,188,847
     2,731,217
    
Other liabilities 168,417
     114,873
    
Total liabilities 10,843,705
     9,581,488
    
Shareholders' equity 1,369,622
     1,123,007
    
Total liabilities and shareholders' equity $12,213,327
     $10,704,495
    
             
Net interest revenue (FTE)  
 $108,939
     $85,541
  
Net interest-rate spread (FTE)  
  
 3.65%     3.31%
Net interest margin (FTE) (4)
  
  
 3.90%     3.47%
(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% in 2018 and 39%, in 2017, 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 where 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 gainslosses of $12.6$42.9 million in 20172018 and $30.4$6.58 million in 20162017 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.





47

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

  2017 2016
  Average     Avg.  Average     Avg. 
(dollars in thousands, fully taxable equivalent (FTE)) Balance  Interest  Rate  Balance  Interest  Rate 
Assets:                        
Interest-earning assets:                        
Loans, net of unearned income (FTE)(1)(2) $7,011,962  $227,853   4.34% $6,277,972  $196,956   4.19%
Taxable securities(3)  2,731,081   52,058   2.54   2,665,272   47,590   2.38 
Tax-exempt securities (FTE)(1)(3)  68,005   2,139   4.19   26,415   735   3.71 
Federal funds sold and other interest-earning assets  157,582   2,290   1.94   150,146   2,719   2.41 
Total interest-earning assets (FTE)  9,968,630   284,340   3.81   9,119,805   248,000   3.63 
Non-interest-earning assets:                        
Allowance for loan losses  (60,971)          (66,142)        
Cash and due from banks  102,529           93,802         
Premises and equipment  195,576           187,019         
Other assets(3)  582,194           574,870         
Total assets $10,787,958          $9,909,354         
                         
Liabilities and Shareholders' Equity:                        
Interest-bearing liabilities:                        
Interest-bearing deposits:                        
NOW $1,907,889   1,932   .14  $1,795,372   1,381   .10 
Money market  2,100,296   4,938   .31   1,901,903   3,661   .26 
Savings  576,927   89   .02   505,337   102   .03 
Time  1,292,521   3,499   .36   1,280,503   2,325   .24 
Brokered time deposits  106,753   758   .95   194,199   (273)  (.19)
Total interest-bearing deposits  5,984,386   11,216   .25   5,677,314   7,196   .17 
                         
Federal funds purchased and other borrowings  22,525   177   1.05   29,427   278   1.26 
Federal Home Loan Bank advances  616,388   4,603   1.00   506,524   2,731   .72 
Long-term debt  168,271   8,490   6.75   168,955   8,178   6.47 
Total borrowed funds  807,184   13,270   2.20   704,906   11,187   2.12 
                         
Total interest-bearing liabilities  6,791,570   24,486   .48   6,382,220   18,383   .38 
Non-interest-bearing liabilities:                        
Non-interest-bearing deposits  2,738,118           2,374,076         
Other liabilities  121,672           102,421         
Total liabilities  9,651,360           8,858,717         
Shareholders' equity  1,136,598           1,050,637         
Total liabilities and shareholders' equity $10,787,958          $9,909,354         
                         
Net interest revenue (FTE)     $259,854          $229,617     
Net interest-rate spread (FTE)          3.33%          3.25%
                         
Net interest margin (FTE)(4)          3.49%          3.36%

  2018 2017
(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)
 $8,085,849
 $199,784
 4.98% $6,942,130
 $147,552
 4.29%
Taxable securities (3)
 2,687,200
 34,552
 2.57
 2,749,339
 34,854
 2.54
Tax-exempt securities (FTE) (1)(3)
 148,528
 2,689
 3.62
 49,125
 1,041
 4.24
Federal funds sold and other interest-earning assets 212,951
 1,372
 1.29
 144,577
 1,407
 1.95
Total interest-earning assets (FTE) 11,134,528
 238,397
 4.31
 9,885,171
 184,854
 3.76
Non-interest-earning assets:            
Allowance for loan losses (60,718)     (61,414)    
Cash and due from banks 146,697
     102,048
    
Premises and equipment 217,625
     191,509
    
Other assets (3)
 724,488
     573,281
    
Total assets $12,162,620
     $10,690,595
    
             
Liabilities and Shareholders' Equity:            
Interest-bearing liabilities:            
Interest-bearing deposits:            
NOW $2,077,461
 2,416
 0.23
 $1,930,624
 1,232
 0.13
Money market 2,222,304
 4,758
 0.43
 2,064,792
 2,985
 0.29
Savings 667,431
 84
 0.03
 568,339
 55
 0.02
Time 1,529,639
 4,937
 0.65
 1,269,005
 1,951
 0.31
Brokered time deposits 229,766
 2,217
 1.95
 105,199
 436
 0.84
Total interest-bearing deposits 6,726,601
 14,412
 0.43
 5,937,959
 6,659
 0.23
Federal funds purchased and other borrowings 61,894
 498
 1.62
 28,225
 141
 1.01
Federal Home Loan Bank advances 423,137
 3,760
 1.79
 637,728
 2,894
 0.92
Long-term debt 295,763
 7,074
 4.82
 175,212
 5,728
 6.59
Total borrowed funds 780,794
 11,332
 2.93
 841,165
 8,763
 2.10
Total interest-bearing liabilities 7,507,395
 25,744
 0.69
 6,779,124
 15,422
 0.46
Non-interest-bearing liabilities:            
Non-interest-bearing deposits 3,142,384
     2,687,665
    
Other liabilities 159,734
     115,808
    
Total liabilities 10,809,513
     9,582,597
    
Shareholders' equity 1,353,107
     1,107,998
    
Total liabilities and shareholders' equity $12,162,620
     $10,690,595
    
             
Net interest revenue (FTE)   $212,653
     $169,432
  
Net interest-rate spread (FTE)     3.62%     3.30%
Net interest margin (FTE) (4)
     3.85%     3.46%
(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% in 2018 and 39%, in 2017, 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 where 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 gainslosses of $4.67$35.6 million in 20172018 and $15.1 million$638 thousand in 20162017 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.
48



The following table shows the relative effect on net interest revenue for changes in the average outstanding amounts (volume) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities (rate). Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.

Table 4 - Change in Interest Revenue and Expense on a Taxable Equivalent Basis
(in thousands)

  Three Months Ended September 30, 2017  Nine Months Ended September 30, 2017 
  Compared to 2016  Compared to 2016 
  Increase (decrease)  Increase (decrease) 
  Due to Changes in  Due to Changes in 
  Volume  Rate  Total  Volume  Rate  Total 
Interest-earning assets:                        
Loans (FTE) $5,115  $5,759  $10,874  $23,658  $7,239  $30,897 
Taxable securities  650   1,270   1,920   1,196   3,272   4,468 
Tax-exempt securities (FTE)  866   13   879   1,297   107   1,404 
Federal funds sold and other interest-earning assets  121   8   129   129   (558)  (429)
Total interest-earning assets (FTE)  6,752   7,050   13,802   26,280   10,060   36,340 
                         
Interest-bearing liabilities:                        
NOW accounts  33   215   248   91   460   551 
Money market accounts  125   481   606   409   868   1,277 
Savings deposits  4   (13)  (9)  13   (26)  (13)
Time deposits  (23)  738   715   22   1,152   1,174 
Brokered deposits  38   450   488   71   960   1,031 
Total interest-bearing deposits  177   1,871   2,048   606   3,414   4,020 
Federal funds purchased & other borrowings  (89)  27   (62)  (59)  (42)  (101)
Federal Home Loan Bank advances  (16)  710   694   675   1,197   1,872 
Long-term debt  (385)  319   (66)  (33)  345   312 
Total borrowed funds  (490)  1,056   566   583   1,500   2,083 
Total interest-bearing liabilities  (313)  2,927   2,614   1,189   4,914   6,103 
                         
Increase in net interest revenue (FTE) $7,065  $4,123  $11,188  $25,091  $5,146  $30,237 

  Three Months Ended
June 30, 2018		 Six Months Ended
June 30, 2018
  Compared to 2017 Increase (decrease) Due to Changes in
  Volume Rate Total Volume Rate Total
Interest-earning assets:            
Loans (FTE) $13,960
 $14,624
 $28,584
 $26,298
 $25,934
 $52,232
Taxable securities (437) 245
 (192) (795) 493
 (302)
Tax-exempt securities (FTE) 875
 (79) 796
 1,820
 (172) 1,648
Federal funds sold and other interest-earning assets 283
 (352) (69) 534
 (569) (35)
Total interest-earning assets (FTE) 14,681
 14,438
 29,119
 27,857
 25,686
 53,543
             
Interest-bearing liabilities:            
NOW accounts 61
 607
 668
 100
 1,084
 1,184
Money market accounts 120
 904
 1,024
 243
 1,530
 1,773
Savings deposits 5
 2
 7
 11
 18
 29
Time deposits 260
 1,300
 1,560
 470
 2,516
 2,986
Brokered deposits 709
 550
 1,259
 839
 942
 1,781
Total interest-bearing deposits 1,155
 3,363
 4,518
 1,663
 6,090
 7,753
Federal funds purchased & other borrowings 25
 72
 97
 236
 121
 357
Federal Home Loan Bank advances (831) 1,003
 172
 (1,216) 2,082
 866
Long-term debt 1,843
 (909) 934
 3,180
 (1,834) 1,346
Total borrowed funds 1,037
 166
 1,203
 2,200
 369
 2,569
Total interest-bearing liabilities 2,192
 3,529
 5,721
 3,863
 6,459
 10,322
             
Increase in net interest revenue (FTE) $12,489
 $10,909
 $23,398
 $23,994
 $19,227
 $43,221


Provision for Credit Losses

The provision for credit losses is based on management’s evaluation of probable incurred losses in the loan portfolio and corresponding analysis of the allowance for credit losses at quarter-end. Provision for credit losses was $1.00$1.8 million and $5.6 million for the third quarter of 2017,three and six months ended June 30, 2018, compared to a release of provision of $300,000 in the third quarter of 2016. The provision for credit losses$800,000 and $1.6 million for the nine months ended September 30, 2017 and 2016 was provision expense of $2.60 million and a release of provision expense of $800,000, respectively.same periods in 2017. The amount of provision recorded in each period was the amount required such that the total allowance for loan losses reflected the appropriate balance, in the estimation of management, sufficient to cover incurred losses in the loan portfolio. In accordance with the accounting guidance for business combinations, there was no allowance for loan losses brought forward on loans acquired from NLFC on February 1, 2018. At June 30, 2018, United included the performing non-impaired loans acquired from NLFC in its general allowance calculation in order to reflect the necessary allowance for incurred losses, which accounted for a majority of the increase in the provision expense. For the threesix months ended SeptemberJune 30, 2017,2018, net loan charge-offs as an annualized percentage of average outstanding loans were .09%0.07% compared to .08%0.10% for the same period in 2016.

2017.

The allowance for unfunded commitments represents probable incurred losses on unfunded loan commitments that are expected to result in outstanding loan balances. The allowance for unfunded loan commitments was established through the provision for credit losses.

Additional discussion on credit quality and the allowance for loan losses is included in the “Asset Quality and Risk Elements” section of this report on page 54.

49
report.


Fee Revenue

Fee revenue



Noninterest income
Noninterest income for the three and nine months ended September 30, 2017second quarter of 2018 was $20.6$23.3 million, and $66.3 million, respectively, a decrease of $5.79 million,$345,000, or 22%1%, compared to the thirdsecond quarter of 2016 and a decrease of $2.132017. For the six months ended June 30, 2018, noninterest income totaled $45.7 million, or 3%,flat compared to the first nine monthssame period of 2016.2017. The following table presents the components of fee revenuenoninterest income for the periods indicated.

Table 5 - Fee RevenueNoninterest Income
(in thousands)

  Three Months Ended        Nine Months Ended       
  September 30,  Change  September 30,  Change 
  2017  2016  Amount  Percent  2017  2016  Amount  Percent 
                         
Overdraft fees $3,555  $3,648  $(93)  (3) $10,273  $10,338  $(65)  (1)
ATM and debit card fees  2,810   5,283   (2,473)  (47)  13,734   15,589   (1,855)  (12)
Other service charges and fees  1,855   1,888   (33)  (2)  5,518   5,533   (15)  - 
Service charges and fees  8,220   10,819   (2,599)  (24)  29,525   31,460   (1,935)  (6)
Mortgage loan and related fees  4,200   6,039   (1,839)  (30)  13,435   13,776   (341)  (2)
Brokerage fees  1,009   1,199   (190)  (16)  3,565   3,369   196   6 
Gains on sales of SBA/USDA loans  2,806   2,479   327   13   7,391   6,517   874   13 
Customer derivatives  554   1,446   (892)  (62)  1,808   3,283   (1,475)  (45)
Securities gains, net  188   261   (73)  (28)  190   922   (732)  (79)
Other  3,596   4,118   (522)  (13)  10,418   9,137   1,281   14 
Total fee revenue $20,573  $26,361  $(5,788)  (22) $66,332  $68,464  $(2,132)  (3)

 Three Months Ended
June 30,		 Change Six Months Ended
June 30,		 Change
 2018 2017 Amount Percent 2018 2017 Amount Percent
Overdraft fees$3,480
 $3,321
 $159
 5 % $7,132
 $6,718
 $414
 6 %
ATM and debit card fees3,071
 5,536
 (2,465) (45) 6,342
 10,924
 (4,582) (42)
Other service charges and fees2,243
 1,844
 399
 22
 4,245
 3,663
 582
 16
Service charges and fees8,794
 10,701
 (1,907) (18) 17,719
 21,305
 (3,586) (17)
Mortgage loan and related fees5,307
 4,811
 496
 10
 10,666
 9,235
 1,431
 15
Brokerage fees1,201
 1,146
 55
 5
 2,073
 2,556
 (483) (19)
Gains on sales of SBA/USDA loans2,401
 2,626
 (225) (9) 4,179
 4,585
 (406) (9)
Customer derivatives657
 776
 (119) (15) 1,430
 1,254
 176
 14
Securities losses, net(364) 4
 (368)   (1,304) 2
 (1,306)  
Other5,344
 3,621
 1,723
 48
 10,973
 6,822
 4,151
 61
Total noninterest income$23,340
 $23,685
 $(345) (1) $45,736
 $45,759
 $(23) —
Service charges and fees of $8.22 million and $29.5$8.79 million for the thirdsecond quarter and first nine months of 2017 were down $2.602018 decreased $1.91 million, or 24%18%, from the thirdsecond quarter of 20162017. Service charges and $1.94fees for the six months ended June 30, 2018 decreased $3.59 million, or 6%, from17% compared to the first nine monthssame period of 2016.2017. The decrease in both periods wasis primarily due to the impacteffect of the Durbin Amendment, to the Dodd Frank Act which became effectivetook effect for United on July 1, 2017 and reduced United’s debit card interchange fees in the third quarter of 2017 by approximately $2.7 million compared toand limited the second quarteramount of 2017 and $2.47 million compared to the third quarter of 2016.

interchange fees charged on debit card transactions.

Mortgage loan and related fees for the thirdsecond quarter of 2018 increased $496,000, or 10%, from the second quarter of 2017. For the six months ended June 30, 2018 mortgage loan and first nine months of 2017 were down $1.84related fees increased $1.43 million or 30%, and $341,000, or 2%, respectively, from the same periodsperiod of 2017. The increase reflects United’s focus on growing the mortgage business by recruiting new mortgage lenders in 2016. The decrease reflectskey metropolitan markets and an increase in purchase and refinancing activity. In the impact of moving to mandatory delivery of loans to the secondary market from best efforts in late 2016, which accelerated revenue recognition to the time of the rate lock. Also, in the thirdsecond quarter of 2017, the fair value mark on the mortgage servicing asset was a decrease in value of $419,000. United elected to carry its mortgage servicing asset at fair value effective January 1, 2017. In the third quarter of 2017,2018, United closed 8481,077 loans totaling $193$259 million compared with 904888 loans totaling $194$204 million in the thirdsecond quarter of 2016.2017. Year-to-date mortgage production in 20172018 amounted to 2,4331,876 loans totaling $548$450 million, compared to 2,4071,585 loans totaling $522$355 million for the same period in 2016.2017. United had $117$151 million and $351$254 million respectively, in home purchase mortgage originations in the thirdsecond quarter and first nine monthshalf of 2017,2018, which accounted for 59% and 58% of production volume, respectively, compared with $99.7$141 million and $292$234 million, or 69% and 66%, respectively, of production volume for the same periods a year ago. The volume of home purchase mortgages relative to total mortgages (both purchases and refinances) in the third quarter of 2017 was 60% compared with 51% in the third quarter of 2016.

Brokerage fees infor the third quarterfirst six months of 20172018 decreased 16%19%, compared to the same period of 2016, primarily due to the United States Department of Labor’s new fiduciary rules, effective in June 2017, which implemented a level compensation requirement throughout the industry. Brokerage feesreflecting downtime in the first nine monthsquarter of 20172018 associated with transitioning to a new third-party broker dealer. Brokerage fees for the second quarter of 2018 increased 6%5% compared to the same period in 2016, reflecting the addition of several new financial advisors since early 2016.

second quarter 2017.

In the thirdsecond quarter and first ninesix months of 2017,2018, United realized $2.81$2.40 million and $7.39$4.18 million, respectively, in gains from the sales of the guaranteed portion of SBA/USDASmall Business Administration (“SBA”) and United States Department of Agriculture (“USDA”) loans, compared to $2.48$2.63 million and $6.52$4.59 million respectively, in the same periods of 2016.2017. United’s SBA/USDA lending strategy includes selling a portion of the loan production each quarter. United retains the servicing rights on the sold loans and earns a fee for servicing the loans. In the thirdsecond quarter and first ninesix months of 2017,2018, United sold the guaranteed portion of loans in the amount of $29.9$28.5 million and $83.6$50.7 million, respectively, compared to $32.2$30.3 million and $78.6$53.7 million, respectively, for the same periods a year ago.

Customer derivative fees were down $892,000 and $1.48 million from

Other noninterest income for the thirdsecond quarter and first ninesix months of 20162018 was up $1.72 million and $4.15 million, respectively, from the same periods of 2017. Much of the increase in both periods is due to lower demandthe Acquisitions. Noninterest income from NLFC added approximately $1.06 million and $1.85 million, respectively, to fee revenue for this productthe second quarter and first six months of 2018. Second quarter 2018 other noninterest income also includes $533,000 in gains from the prepayment of fixed rate FHLB advances. In addition to


those gains, other noninterest income for the first six months of 2018 includes $1.16 million in gains from the first quarter cancellation of interest rate swaps and caps that were serving as economic hedges to protect against rising interest rates.
The securities losses of $364,000 and $1.30 million recognized in the current rate environment.

Other fee revenue was down $522,000, or 13%, for the thirdsecond quarter of 2017 due to a number of small gains on disposition of assets in 2016. For theand first ninesix months of 2017, other fee revenue was up $1.28 million, or 14%, primarily due to volume driven increases in earnings on bank owned life insurance, increases in miscellaneous banking fees, decreases in losses attributable to hedge ineffectiveness, and increases2018, respectively, were part of the same balance sheet management activities described above that resulted in the valuegains from prepayment of equity investments held by United.

50
FHLB advances and cancellation of the derivative instruments. The gains from those activities and the securities losses are mostly offsetting.


Operating

Noninterest Expenses

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

Table 6 - OperatingNoninterest Expenses
(in thousands)

  Three Months Ended        Nine Months Ended       
  September 30,  Change  September 30,  Change 
  2017  2016  Amount  Percent  2017  2016  Amount  Percent 
                         
Salaries and employee benefits $38,027  $36,478  $1,549   4  $112,056  $103,112  $8,944   9 
Communications and equipment  4,547   4,919   (372)  (8)  14,443   13,602   841   6 
Occupancy  4,945   5,132   (187)  (4)  14,802   14,393   409   3 
Advertising and public relations  1,026   1,088   (62)  (6)  3,347   3,275   72   2 
Postage, printing and supplies  1,411   1,451   (40)  (3)  4,127   4,029   98   2 
Professional fees  2,976   3,160   (184)  (6)  8,391   9,049   (658)  (7)
FDIC assessments and other regulatory charges  2,127   1,412   715   51   4,758   4,453   305   7 
Amortization of core deposit intangibles  968   1,119   (151)  (13)  2,841   3,116   (275)  (9)
Other  6,227   6,112   115   2   19,660   17,958   1,702   9 
Total excluding merger-related and other charges  62,254   60,871   1,383   2   184,425   172,987   11,438   7 
Merger-related and other charges  3,176   3,152   24   1   7,060   6,981   79   1 
Amortization of noncompete agreements  244   -   244       244   -   244     
Total operating expenses $65,674  $64,023  $1,651   3  $191,729  $179,968  $11,761   7 

Operating

            
 Three Months Ended
June 30,		 Change Six Months Ended
June 30,		 Change
 2018 2017 Amount Percent 2018 2017 Amount Percent
Salaries and employee benefits$45,363
 $37,338
 $8,025
 21 % $88,238
 $74,029
 $14,209
 19 %
Communications and equipment4,849
 4,978
 (129) (3) 9,481
 9,896
 (415) (4)
Occupancy5,547
 4,908
 639
 13
 11,160
 9,857
 1,303
 13
Advertising and public relations1,384
 1,260
 124
 10
 2,899
 2,321
 578
 25
Postage, printing and supplies1,685
 1,346
 339
 25
 3,322
 2,716
 606
 22
Professional fees3,464
 2,371
 1,093
 46
 7,508
 5,415
 2,093
 39
FDIC assessments and other regulatory charges1,973
 1,348
 625
 46
 4,449
 2,631
 1,818
 69
Amortization of intangibles1,847
 900
 947
 105
 3,745
 1,873
 1,872
 100
Other8,458
 6,950
 1,508
 22
 15,189
 13,433
 1,756
 13
Total excluding merger-related and other charges74,570
 61,399
 13,171
 21
 145,991
 122,171
 23,820
 19
Merger-related and other charges2,280
 1,830
 450
   4,334
 3,884
 450
  
Total noninterest expenses$76,850
 $63,229
 $13,621
 22
 $150,325
 $126,055
 $24,270
 19
Noninterest expenses for the thirdsecond quarter and first six months of 20172018 totaled $65.7$76.9 million and $150 million, respectively, up $1.65$13.6 million or 3%, from the third quarter of 2016, primarily due to the inclusion of operating expenses of HCSB. For the nine months ended September 30, 2017, operating expenses totaled $192 million, an increase of $11.822% and $24.3 million, or 7%,19% from the same period in 2016.periods of 2017. The increase year over year reflects the inclusion of the operating expenses of both the Tidelands and the HCSB acquisitions.

Acquisitions.

Salaries and employee benefits for the thirdsecond quarter of 20172018 were $38.0$45.4 million, up $1.55$8.03 million, or 4%21%, from the thirdsecond quarter of 2016.2017. For the first six months of 2018, salaries and employee benefits were $88.2 million, up $14.2 million, or 19% from the same period of 2017. The increase was due to a number of factors including investments in additional staff and new teams to expand Commercial Banking Solutions and other key areas, additional staff resulting from the HCSB acquisitionAcquisitions, and higher incentives and commissions. Forannual merit based salary increases awarded in the first nine months of 2017, salaries and employee benefits of $112 million were up $8.94 million, or 9%, from the same period in 2016.second quarter. Full time equivalent headcount totaled 2,0202,289 at SeptemberJune 30, 2017,2018, up from 1,9391,928 at SeptemberJune 30, 2016, reflecting the addition of HCSB personnel.

Communications and equipment and occupancy expenses decreased in third quarter 2017 relative to the same period in 2016 primarily due to lower telephone charges and service contract charges and lower building maintenance and rental charges. For the first nine months of 2017, communications and equipment and occupancy2017.

Occupancy expenses increased primarily due to higher depreciation and lease rental charges for the Tidelands acquisition.

expanded branch network resulting from the Acquisitions. Professional fees for the thirdsecond quarter of 2018 of $3.46 million were up $1.09 million or 46%, from the second quarter of 2017. For the first six months of 2018, professional fees increased $2.09 million, or 39% from the same period of 2017. The increase was due primarily to the Acquisitions and increased legal fees associated with loan growth.

Amortization of intangibles of $1.85 million and $3.75 million in the second quarter and first ninesix months of 2017 were down 6% and 7%, respectively, from2018 increased relative to the same periods in 20162017 due primarily to lower fees related to outsourcing functions.

Amortization of intangibles in the third quarter and first nine months of 2017 decreased from the same periods in 2016 due to the accelerated method used to amortize core deposit intangibles, which more than offset the additional amortization resulting from intangibles related to the HCSB acquisition.

Acquisitions.

In the thirdsecond quarter and first six months of 2018, merger-related and other charges of $2.28 million and $4.33 million, respectively, consisted primarily of severance, conversion costs, branch closure costs, and legal and professional fees. In the second quarter of 2017, merger-related and other charges of $3.18$1.83 million consisted primarily of merger costs of $2.04 million and impairment charges on surplus properties of $1.14 million.associated with executive retirements. In the first nine monthshalf of


2017, merger-related and other charges of $7.06$3.88 million included theseexecutive retirement costs as well as executive retirement costs, severance, branch closure costs and technology equipment write offs. In the third quarter and first nine months of 2016, merger-related charges of $3.15 million and $6.98 million, respectively, consisted primarily of severance, conversion costs, and legal and professional fees.

Other expense of $6.23 million for the third quarter of 2017 increased $115,000, or 2%, from the third quarter of 2016. Year-to-date, other expenses of $19.7 million increased $1.70 million, or 9%, from the first nine months of 2016. The increase was primarily due to writedowns on foreclosed property and higher lending support costs resulting from higher production volume in the Commercial Banking areas.


Income Taxes

The income tax provision for the three and ninesix months ended SeptemberJune 30, 20172018 was $15.7$13.5 million and $50.7$24.3 million, respectively, as compared with $15.8 millionwhich represents an effective tax rate of 25.5% and $44.7 million,23.9% respectively, for the same periods in 2016.each period. The income tax provision for the three and six months ended June 30, 2017 was $16.5 million and $35.0 million, respectively, which represents an effective tax ratesrate of 36.0%36.9% and 38.9%40.3%, respectively, for each period. The effective tax rate for the thirdsecond quarter and first ninesix months of 2018 reflects the lower federal income tax rate enacted following the passage of the Tax Act in the fourth quarter of 2017. The income tax provision for the second quarter of 2018 also included $509,000 of additional tax expense caused by the partial impairment of United’s net deferred tax asset as a result of the announcement that Georgia has elected to lower its corporate income tax rate from 6.00% to 5.75% effective January 1, 2019. The effective tax rate in the first six months of 2017 compared to 37.8% for both periodswas affected by the release of 2016. Upon reversal of United’s former full deferred tax valuation allowance in 2013, certain disproportionate tax effects were retained in accumulated other comprehensive income (loss). During the first quarter of 2017, with the maturity and termination of certain dedesignated cash flow hedges, the disproportionate tax effect associated with these hedges was reversed and recorded as a tax expense of $3.40 million, which was the primary reason for the increase in the effective tax rate compared to the first nine months of 2016.

51
2017.

At SeptemberJune 30, 20172018 and December 31, 2016,2017, United maintained a valuation allowance on its net deferred tax asset of $4.20$4.71 million and $3.88$4.41 million, respectively. Management assesses the valuation allowance recorded against its net deferred tax asset at each reporting period. The determination of whether a valuation allowance for its net deferred tax asset is appropriate is subject to considerable judgment and requires an evaluation of all the positive and negative evidence.

United evaluated the need for a valuation allowance at September 30, 2017. Based on the assessment of all the positive and negative evidence, management concluded that it is more likely than not that nearly all of its net deferred tax asset will be realized based upon future taxable income. The remaining valuation allowance of $4.20 million is related to specific state income tax credits that have short carryforward periods and are expected to expire unused.

The valuation allowance could fluctuate in future periods based on the assessment of the positive and negative evidence. Management'sManagement’s conclusion at SeptemberJune 30, 20172018 that it was more likely than not that the net deferred tax asset of $129$77.3 million will be realized is based upon management’s estimate of future taxable income. Management’s estimate of future taxable income is based on internal forecasts that consider historical performance, various internal estimates and assumptions, as well as certain external data all of which management believes to be reasonable although inherently subject to significant judgment. If actual results differ significantly from the current estimates of future taxable income, the valuation allowance may need to be increased for some or all of its net deferred tax asset. Such an increase to the net deferred tax asset valuation allowance could have a material adverse effect on United’s financial condition and results of operations.

United is subject to income taxation in the United States and various state jurisdictions. United’s federal and state income tax returns are filed on a consolidated basis. Currently, no years for which United filed a federal income tax return are under examination by the IRS, and there are no state tax examinations currently in progress. United is no longer subject to income tax examinations from state and local income tax authorities for years before 2014. Although it is not possible to know the ultimate outcome of future examinations, management believes that the liability recorded for uncertain tax positions is appropriate.

Additional information regarding income taxes, including a reconciliation of the differences between the recorded income tax provision and the amount of income tax computed by applying the statutory federal income tax rate to income before income taxes, can be found in Note 17 to the consolidated financial statements filed with United’s Annual Report on Form 10-K for the year ended December 31, 2016.

52
2017.




Balance Sheet Review

Total assets at SeptemberJune 30, 20172018 and December 31, 20162017 were $11.1$12.4 billion and $10.7$11.9 billion, respectively. Average total assets for both the thirdsecond quarter and first nine monthshalf of 20172018 were $11.0$12.2 billion, and $10.8 billion, respectively, up from $10.3$10.7 billion and $9.91 billion, respectively, in both the thirdsecond quarter and first nine monthshalf of 2016.

2017.


The following table presents a summary of the loan portfolio.

Table 7 - Loans Outstanding

(in thousands)

  September 30,  December 31, 
  2017  2016 
By Loan Type        
Owner occupied commercial real estate $1,791,762  $1,650,360 
Income producing commercial real estate  1,413,104   1,281,541 
Commercial & industrial  1,083,591   1,069,715 
Commercial construction  583,344   633,921 
Total commercial  4,871,801   4,635,537 
Residential mortgage  933,205   856,725 
Home equity lines of credit  688,875   655,410 
Residential construction  190,047   190,043 
Consumer installment  118,742   123,567 
Indirect auto  400,267   459,354 
Total loans $7,202,937  $6,920,636 
         
As a percentage of total loans:        
Owner occupied commercial real estate  25%  24%
Income producing commercial real estate  20   19 
Commercial & industrial  15   15 
Commercial construction  8   9 
Total commercial  68   67 
Residential mortgage  13   12 
Home equity lines of credit  9   9 
Residential construction  3   3 
Consumer installment  2   2 
Indirect auto  5   7 
Total  100%  100%
         
By Geographic Location        
North Georgia $1,047,254  $1,096,974 
Atlanta MSA  1,476,624   1,398,657 
North Carolina  542,069   544,792 
Coastal Georgia  634,048   581,138 
Gainesville MSA  242,128   247,410 
East Tennessee  470,407   503,843 
South Carolina  1,470,392   1,233,185 
Commercial Banking Solutions  919,748   855,283 
Indirect Auto  400,267   459,354 
Total loans $7,202,937  $6,920,636 

Table 7 - Loans Outstanding
(in thousands)
 June 30, 2018 December 31, 2017
By Loan Type   
Owner occupied commercial real estate$1,681,737
 $1,923,993
Income producing commercial real estate1,821,384
 1,595,174
Commercial & industrial1,193,046
 1,130,990
Commercial construction735,575
 711,936
Equipment financing464,594
 —
Total commercial5,896,336
 5,362,093
Residential mortgage1,020,606
 973,544
Home equity lines of credit707,718
 731,227
Residential construction195,580
 183,019
Consumer direct122,756
 127,504
Indirect auto277,275
 358,185
Total loans$8,220,271
 $7,735,572
    
As a percentage of total loans:   
Owner occupied commercial real estate20% 25%
Income producing commercial real estate22
 21
Commercial & industrial15
 15
Commercial construction9
 9
Equipment financing6
 —
Total commercial72
 70
Residential mortgage12
 13
Home equity lines of credit9
 9
Residential construction2
 2
Consumer direct2
 2
Indirect auto3
 4
Total100% 100%
    
By Geographic Location   
North Georgia$1,000,943
 $1,018,945
Atlanta MSA1,533,064
 1,510,067
North Carolina1,067,356
 1,049,592
Coastal Georgia622,845
 629,919
Gainesville MSA229,431
 248,060
East Tennessee474,196
 474,515
South Carolina1,571,171
 1,485,632
Commercial Banking Solutions1,443,979
 960,657
Indirect auto277,286
 358,185
Total loans$8,220,271
 $7,735,572



Substantially all of United’s loans are to customers located in the immediate market areas of its community banks in Georgia, North Carolina, South Carolina and Tennessee, including customers who have a seasonal residence in United’s market areas, or are generated by United’sthe Commercial Banking Solutions division (formerly referred to as Specialized Lending) that focuses on specific commercial loan businesses, such as SBA and franchise lending. More than 77%Approximately 75% of theUnited’s loans wereare secured by real estate. Total loans averaged $7.15$8.18 billion in the thirdsecond quarter of 2018, compared with $6.98 billion in the second quarter of 2017, compared with $6.68 billion in the third quarter of 2016, an increase of 7% which includes17% due in part to the acquisition of HCSB.Acquisitions. At SeptemberJune 30, 2017,2018, total loans were $7.20$8.22 billion, an increase of $282$485 million from December 31, 2016.

53
2017, of which $359 million came through the acquisition of NLFC.


United’s home equity lines generally require the payment of interest only for a set period after origination. After this initial period, the outstanding balance begins amortizing and requires the payment of both principal and interest. At SeptemberJune 30, 20172018 and December 31, 2016,2017, the funded portion of home equity lines totaled $689$708 million and $655$731 million, respectively. Approximately 3% of the home equity lines at SeptemberJune 30, 20172018 were amortizing. Of the $689$708 million in balances outstanding at SeptemberJune 30, 2017, $4032018, $428 million, or 58%60%, were secured by first liens. At SeptemberJune 30, 2017, 55%2018, 53% of the total available home equity lines were drawn upon.

United monitors the performance of its home equity loans and lines secured by second liens similar to other consumer loans and utilizes assumptions specific to these loans in determining the necessary allowance. United also receives notification when the first lien holder is in the process of foreclosure and upon that notification, management reviews current valuations to determine if any charge-offs are warranted and whether it is in United’s best interest to pay off the first lien holder, in order to potentially limit losses on the second lien.

creditor.


Asset Quality and Risk Elements

United manages asset quality and controls 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. United’s credit administration function is responsible for monitoring asset quality and Board of Directors approved portfolio limits, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures among all lending units. Additional information on the credit administration function is included in Item 1 under the headingLoan Review and Nonperforming Assetsin United’s Annual Report on Form 10-K for the year ended December 31, 2016.

2017.

United classifies commercial performing 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 United could sustain some loss if the deficiency is not corrected. United classifies consumer performing loans as “fail”“substandard” when the loan is in bankruptcy or voluntary repossession.

bankruptcy.




The table below presents performing classified loans for the last five quarters.

Table 8 - Performing Classified Loans

(in thousands)

  September 30,  June 30,  March 31,  December 31,  September 30, 
  2017  2017  2017  2016  2016 
By Category                    
Owner occupied commercial real estate $37,147  $34,427  $41,536  $42,169  $42,025 
Income producing commercial real estate  20,922   22,457   24,143   29,379   31,627 
Commercial & industrial  10,740   7,247   10,372   8,903   10,047 
Commercial construction  6,213   4,808   8,564   8,840   8,788 
Total commercial  75,022   68,939   84,615   89,291   92,487 
Residential mortgage  15,914   12,929   14,632   15,324   18,303 
Home equity  5,603   5,733   5,789   5,060   4,930 
Residential construction  1,754   1,822   1,858   2,726   3,628 
Consumer installment  508   627   657   584   662 
Indirect auto  1,685   1,697   1,288   1,362   1,616 
Total $100,486  $91,747  $108,839  $114,347  $121,626 
                     
By Market                    
North Georgia $30,049  $34,638  $38,092  $39,438  $40,231 
Atlanta MSA  9,936   10,384   14,258   17,954   19,040 
North Carolina  11,341   11,916   10,022   11,089   12,179 
Coastal Georgia  2,791   3,062   6,957   4,516   5,247 
Gainesville MSA  456   475   698   713   540 
East Tennessee  10,620   7,089   6,781   7,485   9,383 
South Carolina  31,123   21,763   30,612   31,623   33,218 
Commercial Banking Solutions  2,485   723   131   167   172 
Indirect auto  1,685   1,697   1,288   1,362   1,616 
Total loans $100,486  $91,747  $108,839  $114,347  $121,626 

Table 8 - Performing Classified Loans
(in thousands)
 June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017
By Category 
  
  
  
  
Owner occupied commercial real estate$42,169
 $42,096
 $41,467
 $37,147
 $34,427
Income producing commercial real estate26,120
 24,984
 30,061
 20,922
 22,457
Commercial & industrial17,820
 11,003
 11,879
 10,740
 7,247
Commercial construction10,102
 8,422
 8,264
 6,213
 4,808
Equipment financing820
 414
 —
 —
 —
Total commercial97,031
 86,919
 91,671
 75,022
 68,939
Residential mortgage14,970
 14,824
 15,323
 15,914
 12,929
Home equity5,117
 5,491
 6,055
 5,603
 5,733
Residential construction1,567
 1,506
 1,837
 1,754
 1,822
Consumer direct498
 1,142
 515
 508
 627
Indirect auto1,291
 1,498
 1,760
 1,685
 1,697
Total$120,474
 $111,380
 $117,161
 $100,486
 $91,747
          
By Market         
North Georgia$25,417
 $26,243
 $30,952
 $30,049
 $34,638
Atlanta MSA13,640
 12,145
 9,358
 9,936
 10,384
North Carolina24,886
 27,186
 30,670
 11,341
 11,916
Coastal Georgia3,550
 3,075
 3,322
 2,791
 3,062
Gainesville MSA966
 662
 750
 456
 475
East Tennessee12,737
 12,402
 10,953
 10,620
 7,089
South Carolina22,841
 26,800
 27,212
 31,123
 21,763
Commercial Banking Solutions15,146
��1,369
 2,184
 2,485
 723
Indirect auto1,291
 1,498
 1,760
 1,685
 1,697
Total loans$120,474
 $111,380
 $117,161
 $100,486
 $91,747
At SeptemberJune 30, 2017,2018, performing classified loans totaled $100$120 million and increased $8.74$9.09 million from the prior quarter-end and decreased $21.1 million from a year ago. Performing classified loans reflect a general downward trend, offset by acquisition activity. The increase in performing classified loans in South Carolina in the third quarter of 2017 was attributableprimarily due to the HCSB acquisition.

downgrade of two commercial relationships.

Reviews of classified performing and non-performing loans, past due loans and larger credits are conducted on a regular basis and are designed to identify risk migration and potential charges to the allowance for loan losses. These reviews are presented by the responsible lending officers or respective credit officer and specific action plans are discussed along with the financial strength of borrowers, the value of the applicable collateral, past loan loss experience, anticipated loan losses, changes in risk profile, the effect of prevailing economic conditions on the borrower and other factors specific to the borrower and its industry. In addition to the reviews mentioned above, United also has an internal loan review team which directly reviews the portfolio in conjunction with external loan review to ensure the objectivity of the loan review process.

54




The following table presents a summary of the changes in the allowance for credit losses for the periods indicated.

Table 9 - Allowance for Credit Losses

(in thousands)

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2017  2016  2017  2016 
Allowance for loan losses at beginning of period $59,500  $64,253  $61,422  $68,448 
Charge-offs:                
Owner occupied commercial real estate  100   461   283   1,929 
Income producing commercial real estate  1,235   206   2,335   788 
Commercial & industrial  329   850   1,143   1,645 
Commercial construction  206   30   769   392 
Residential mortgage  396   63   1,069   776 
Home equity lines of credit  321   321   1,216   1,513 
Residential construction  57   253   127   531 
Consumer installment  475   426   1,374   1,123 
Indirect auto  333   354   1,066   953 
Total loans charged-off  3,452   2,964   9,382   9,650 
Recoveries:                
Owner occupied commercial real estate  144   415   501   605 
Income producing commercial real estate  76   136   123   463 
Commercial & industrial  529   398   1,141   1,302 
Commercial construction  320   224   912   617 
Residential mortgage  83   109   200   248 
Home equity lines of credit  265   54   485   361 
Residential construction  21   10   153   61 
Consumer installment  314   190   716   625 
Indirect auto  65   69   214   141 
Total recoveries  1,817   1,605   4,445   4,423 
Net charge-offs  1,635   1,359   4,937   5,227 
(Release of) provision for loan losses  740   67   2,120   (260)
Allowance for loan losses at end of period $58,605  $62,961  $58,605  $62,961 
Allowance for unfunded commitments at beginning of period $2,222  $2,369  $2,002  $2,542 
(Release of) provision for losses on unfunded commitments  260   (367)  480   (540)
Allowance for unfunded commitments at end of period  2,482   2,002   2,482   2,002 
Allowance for credit losses $61,087  $64,963  $61,087  $64,963 
Total loans:                
At period-end $7,202,937  $6,725,110  $7,202,937  $6,725,110 
Average  7,149,348   6,675,328   7,011,962   6,277,972 
Allowance for loan losses as a percentage of period-end loans  .81%  .94%  .81%  .94%
As a percentage of average loans (annualized):                
Net charge-offs  .09   .08   .09   .11 
(Release of) provision for loan losses  .04   .00   .04   (.01)

Table 9 - Allowance for Credit Losses
(in thousands)
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Allowance for loan and lease losses at beginning of period$61,085
 $60,543
 $58,914
 $61,422
Charge-offs:       
Owner occupied commercial real estate7
 158
 67
 183
Income producing commercial real estate1,653
 203
 2,310
 1,100
Commercial & industrial233
 598
 617
 814
Commercial construction53
 361
 416
 563
Equipment financing23
 —
 162
 —
Residential mortgage112
 131
 182
 673
Home equity lines of credit211
 424
 335
 895
Residential construction8
 70
 8
 70
Consumer direct552
 457
 1,203
 899
Indirect auto379
 313
 815
 733
Total loans charged-off3,231
 2,715
 6,115
 5,930
Recoveries:       
Owner occupied commercial real estate585
 120
 688
 357
Income producing commercial real estate232
 20
 467
 47
Commercial & industrial217
 244
 606
 612
Commercial construction159
 20
 256
 592
Equipment financing71
 —
 168
 —
Residential mortgage101
 105
 224
 117
Home equity lines of credit190
 171
 225
 220
Residential construction67
 123
 131
 132
Consumer direct195
 195
 355
 402
Indirect auto55
 94
 135
 149
Total recoveries1,872
 1,092
 3,255
 2,628
Net charge-offs1,359
 1,623
 2,860
 3,302
Provision for loan and lease losses1,345
 580
 5,017
 1,380
Allowance for loan and lease losses at end of period61,071
 59,500
 61,071
 59,500
        
Allowance for unfunded commitments at beginning of period2,440
 2,002
 2,312
 2,002
Provision for losses on unfunded commitments455
 220
 583
 220
Allowance for unfunded commitments at end of period2,895
 2,222
 2,895
 2,222
Allowance for credit losses$63,966
 $61,722
 $63,966
 $61,722
        
Total loans and leases:       
At period-end$8,220,271
 $7,040,932
 $8,220,271
 $7,040,932
Average8,177,343
 6,979,980
 8,085,849
 6,942,130
Allowance for loan and lease losses as a percentage of period-end loans and leases0.74% 0.85% 0.74% 0.85%
As a percentage of average loans (annualized):       
Net charge-offs0.07
 0.09
 0.07
 0.10
Provision for loan and lease losses0.07
 0.03
 0.13
 0.04


The provision for credit losses charged to earnings is based upon management’s judgment of the amount necessary to maintain the allowance at a level appropriate to absorb probable incurred losses in the loan portfolio at the balance sheet date. The amount each quarter is dependent upon many factors, including growth and changes in the composition of the loan portfolio, net charge-offs, delinquencies, management’s assessment of loan portfolio quality, the value of collateral, and other macro-economic factors and trends. The evaluation of these factors is performed quarterly by management through an analysis of the appropriateness of the allowance for loan losses.


The allowance for credit losses, which includes a portion related to unfunded commitments, totaled $61.1$64.0 million at SeptemberJune 30, 2017,2018, compared with $63.4$61.2 million at December 31, 2016.2017. At SeptemberJune 30, 2017,2018, the allowance for loan losses was $58.6$61.1 million, or .81%0.74% of loans, compared with $61.4$58.9 million, or .89%0.76% of total loans, at December 31, 2016.

2017.

Management believes that the allowance for credit losses at SeptemberJune 30, 20172018 reflects the probable incurred 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 change substantially with respect to one or more loan relationships or portfolios. 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 for additional information on the allowance for loan losses.

55


Nonperforming Assets


The table below summarizes nonperforming assets.

Table 10 - Nonperforming Assets
(in thousands)

  September 30,  December 31, 
  2017  2016 
Nonperforming loans $22,921  $21,539 
Foreclosed properties (OREO)  2,736   7,949 
Total nonperforming assets $25,657  $29,488 
Nonperforming loans as a percentage of total loans  .32%  .31%
Nonperforming assets as a percentage of total loans and OREO  .36   .43 
Nonperforming assets as a percentage of total assets  .23   .28 

 June 30, 2018 December 31, 2017
Nonperforming loans$21,817
 $23,658
Foreclosed properties/other real estate owned (OREO)2,597
 3,234
    
Total nonperforming assets$24,414
 $26,892
    
Nonperforming loans as a percentage of total loans and leases0.27% 0.31%
Nonperforming assets as a percentage of total loans and OREO0.30
 0.35
Nonperforming assets as a percentage of total assets0.20
 0.23
At SeptemberJune 30, 2017,2018, nonperforming loans were $22.9$21.8 million compared to $21.5$23.7 million at December 31, 2016.2017. Nonperforming assets, which include nonperforming loans and foreclosed real estate, totaled $25.7$24.4 million at SeptemberJune 30, 20172018 and $29.5$26.9 million at December 31, 2016.

2017.

United’s policy is to place loans on nonaccrual status when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in full or when the loan becomes 90 days past due. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce the loan’s recorded investment.

Purchased credit impaired (“PCI”) loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered as performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. The accrual of interest is discontinued on PCI loans if management can no longer reliably estimate future cash flows on the loan. No PCI loans were classified as nonaccrual at SeptemberJune 30, 20172018 or December 31, 20162017 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans.




The following table summarizes nonperforming assets by category and market as of the dates indicated.

56

Table 11 - Nonperforming Assets by Category and Market
(in thousands)

  September 30, 2017  December 31, 2016 
  Nonaccrual  Foreclosed  Total  Nonaccrual  Foreclosed  Total 
  Loans  Properties  NPAs  Loans  Properties  NPAs 
BY CATEGORY                        
Owner occupied commercial real estate $5,027  $764  $5,791  $7,373  $3,145  $10,518 
Income producing commercial real estate  2,042   121   2,163   1,324   36   1,360 
Commercial & industrial  2,378   -   2,378   966   -   966 
Commercial construction  1,376   923   2,299   1,538   2,977   4,515 
Total commercial  10,823   1,808   12,631   11,201   6,158   17,359 
Residential mortgage  8,559   392   8,951   6,368   1,260   7,628 
Home equity lines of credit  1,898   195   2,093   1,831   531   2,362 
Residential construction  178   341   519   776   -   776 
Consumer installment  84   -   84   88   -   88 
Indirect auto  1,379   -   1,379   1,275   -   1,275 
Total NPAs $22,921  $2,736  $25,657  $21,539  $7,949  $29,488 
                         
BY MARKET                        
North Georgia $6,707  $404  $7,111  $5,278  $856  $6,134 
Atlanta MSA  1,098   338   1,436   1,259   716   1,975 
North Carolina  4,376   318   4,694   4,750   632   5,382 
Coastal Georgia  2,532   -   2,532   1,778   -   1,778 
Gainesville MSA  763   -   763   279   -   279 
East Tennessee  1,734   67   1,801   2,354   675   3,029 
South Carolina  1,903   1,609   3,512   2,494   5,070   7,564 
Commercial Banking Solutions  2,429   -   2,429   2,072   -   2,072 
Indirect auto  1,379   -   1,379   1,275   -   1,275 
Total NPAs $22,921  $2,736  $25,657  $21,539  $7,949  $29,488 

 June 30, 2018 December 31, 2017
 
Nonaccrual
Loans
 
Foreclosed
Properties
 
Total
NPAs
 
Nonaccrual
Loans
 
Foreclosed
Properties
 
Total
NPAs
BY CATEGORY 
  
  
  
  
  
Owner occupied commercial real estate$5,772
 $812
 $6,584
 $4,923
 $1,955
 $6,878
Income producing commercial real estate991
 455
 1,446
 3,208
 244
 3,452
Commercial & industrial2,180
 —
 2,180
 2,097
 —
 2,097
Commercial construction613
 576
 1,189
 758
 884
 1,642
Equipment financing1,075
 —
 1,075
 —
 —
 —
Total commercial10,631
 1,843
 12,474
 10,986
 3,083
 14,069
Residential mortgage7,918
 184
 8,102
 8,776
 136
 8,912
Home equity lines of credit1,812
 550
 2,362
 2,024
 15
 2,039
Residential construction637
 20
 657
 192
 —
 192
Consumer direct68
 —
 68
 43
 —
 43
Indirect auto751
 —
 751
 1,637
 —
 1,637
Total NPAs$21,817
 $2,597
 $24,414
 $23,658
 $3,234
 $26,892
            
BY MARKET           
North Georgia$7,583
 $640
 $8,223
 $7,310
 $94
 $7,404
Atlanta MSA1,928
 132
 2,060
 1,395
 279
 1,674
North Carolina3,029
 750
 3,779
 4,543
 1,213
 5,756
Coastal Georgia943
 —
 943
 2,044
 20
 2,064
Gainesville MSA186
 —
 186
 739
 —
 739
East Tennessee1,473
 143
 1,616
 1,462
 —
 1,462
South Carolina3,093
 362
 3,455
 3,433
 1,059
 4,492
Commercial Banking Solutions2,831
 570
 3,401
 1,095
 569
 1,664
Indirect auto751
 —
 751
 1,637
 —
 1,637
Total NPAs$21,817
 $2,597
 $24,414
 $23,658
 $3,234
 $26,892

At June 30, 2018 and December 31, 2017, United had $54.7 million and $58.1 million, respectively, in loans with terms that have been modified in TDRs. Included therein were $7.38 million and $5.50 million, respectively, of TDRs that were classified as nonaccrual and were included in nonperforming loans. The remaining TDRs with an aggregate balance of $47.3 million and $52.6 million, respectively, were performing according to their modified terms and are therefore not considered to be nonperforming assets.
At June 30, 2018 and December 31, 2017, there were $57.4 million and $62.3 million, respectively, of loans classified as impaired under the definition outlined in the Accounting Standards Codification, including TDRs which are by definition considered impaired. Included in impaired loans at June 30, 2018 and December 31, 2017 was $20.5 million and $9.37 million, respectively, that did not require specific reserves or had previously been charged down to net realizable value. The remaining balance of impaired loans at June 30, 2018 and December 31, 2017 of $37.0 million and $52.9 million, respectively, had specific reserves that totaled $2.82 million and $3.26 million, respectively. The average recorded investment in impaired loans for the second quarters of 2018 and 2017 was $58.3 million and $86.4 million, respectively. For the six months ended June 30, 2018 and 2017, the average recorded investment in impaired loans was $62.2 million and $84.2 million, respectively. For the three and six months ended June 30, 2018, United recognized $731,000 and $1.48 million, respectively, in interest revenue on impaired loans compared to $1.00 million and $1.96 million, respectively, for the same periods of the prior year.



The table below summarizes activity in nonperforming assets for the periods indicated.

57
Table 12 - Activity in Nonperforming Assets
(in thousands)

Table 12 - Activity in Nonperforming Assets

(in thousands)

  Third Quarter 2017  Third Quarter 2016 
  Nonaccrual  Foreclosed  Total  Nonaccrual  Foreclosed  Total 
  Loans  Properties  NPAs  Loans  Properties  NPAs 
                   
Beginning Balance $23,095  $2,739  $25,834  $21,348  $6,176  $27,524 
Acquisitions  20   805   825   -   7,495   7,495 
Loans placed on non-accrual  7,964   -   7,964   6,680   -   6,680 
Payments received  (5,192)  -   (5,192)  (3,938)  -   (3,938)
Loan charge-offs  (2,159)  -   (2,159)  (1,236)  -   (1,236)
Foreclosures  (807)  683   (124)  (1,282)  2,335   1,053 
Capitalized costs  -   -   -   -   3   3 
Property sales  -   (1,295)  (1,295)  -   (6,553)  (6,553)
Write downs  -   (236)  (236)  -   (53)  (53)
Net gains on sales  -   40   40   -   (216)  (216)
Ending Balance $22,921  $2,736  $25,657  $21,572  $9,187  $30,759 

  First Nine Months of 2017  First Nine Months 2016 
  Nonaccrual  Foreclosed  Total  Nonaccrual  Foreclosed  Total 
  Loans  Properties  NPAs  Loans  Properties  NPAs 
                   
Beginning Balance $21,539  $7,949  $29,488  $22,653  $4,883  $27,536 
Acquisitions  20   805   825   -   6,998   6,998 
Loans placed on non-accrual  19,246   -   19,246   18,237   -   18,237 
Payments received  (11,193)  -   (11,193)  (9,951)  -   (9,951)
Loan charge-offs  (5,015)  -   (5,015)  (4,718)  -   (4,718)
Foreclosures  (1,676)  1,725   49   (4,649)  6,647   1,998 
Capitalized costs  -   -   -   -   101   101 
Note / property sales  -   (7,076)  (7,076)  -   (9,501)  (9,501)
Write downs  -   (1,010)  (1,010)  -   (133)  (133)
Net gains on sales  -   343   343   -   192   192 
Ending Balance $22,921  $2,736  $25,657  $21,572  $9,187  $30,759 

 Second Quarter 2018 Second Quarter 2017
 
Nonaccrual
Loans
 
Foreclosed
Properties
 
Total
NPAs
 
Nonaccrual
Loans
 
Foreclosed
Properties
 
Total
NPAs
Beginning Balance$26,240
 $2,714
 $28,954
 $19,812
 $5,060
 $24,872
Loans placed on non-accrual3,612
 —
 3,612
 8,110
 —
 8,110
Payments received(5,314) —
 (5,314) (2,955) —
 (2,955)
Loan charge-offs(2,065) —
 (2,065) (1,564) —
 (1,564)
Foreclosures(656) 984
 328
 (308) 481
 173
Property sales—
 (1,029) (1,029) —
 (2,704) (2,704)
Write downs—
 (106) (106) —
 (294) (294)
Net gains (losses) on sales—
 34
 34
 —
 196
 196
Ending Balance$21,817
 $2,597
 $24,414
 $23,095
 $2,739
 $25,834
            
 First Six Months of 2018 First Six Months of 2017
 
Nonaccrual
Loans
 
Foreclosed
Properties
 
Total
NPAs
 
Nonaccrual
Loans
 
Foreclosed
Properties
 
Total
NPAs
Beginning Balance$23,658
 $3,234
 $26,892
 $21,539
 $7,949
 $29,488
Acquisitions428
 —
 428
 —
 —
 —
Loans placed on non-accrual11,075
 —
 11,075
 11,282
 —
 11,282
Payments received(8,848) —
 (8,848) (6,001) —
 (6,001)
Loan charge-offs(3,215) —
 (3,215) (2,856) —
 (2,856)
Foreclosures(1,281) 1,609
 328
 (869) 1,042
 173
Property sales—
 (1,986) (1,986) —
 (5,781) (5,781)
Write downs—
 (178) (178) —
 (774) (774)
Net gains (losses) on sales—
 (82) (82) —
 303
 303
Ending Balance$21,817
 $2,597
 $24,414
 $23,095
 $2,739
 $25,834
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. FinancedDuring the second quarter of 2018, United transferred $984,000 of loans into foreclosed property through foreclosures. During the same period, proceeds from sales of foreclosed property are accounted for in accordance with ASC 360-20,Real Estate Sales.

Impaired Loans

At September 30, 2017 and December 31, 2016, United had $65.2 million and $73.2 million, respectively, in loans with terms that have been modified in TDRs. Included therein were $5.65 million and $5.35 million, respectively, of TDRs that were classified as nonaccrual and were included in nonperforming loans. The remaining TDRs with an aggregate balance of $59.6 million and $67.8 million, respectively, were performing according to their modified terms and are therefore not considered to be nonperforming assets.

At September 30, 2017 and December 31, 2016, there were $83.6 million and $85.7 million, respectively, of loans classified as impaired under the definition outlined in the Accounting Standards Codification, including TDRs which are by definition considered impaired. Included in impaired loans at September 30, 2017 and December 31, 2016 was $29.2 million and $28.3 million, respectively, that did not require specific reserves or had previously been charged down to net realizable value. The balance of impaired loans at September 30, 2017 and December 31, 2016 of $54.4 million and $57.4 million, respectively, had specific reserves that totaled $4.44 million and $3.45 million, respectively. The average recorded investment in impaired loans for the third quarters of 2017 and 2016 was $84.2 million and $93.0 million, respectively. For the nine months ended September 30, 2017 and 2016, the average recorded investment in impaired loans was $84.2 million and $92.0 million, respectively. For the three and nine months ended September 30, 2017, United recognized $931,000 and $2.89 million in interest revenue on impaired loans compared to $1.13 million and $3.26 million, respectively, for the same periods of the prior year.

58
$1.03 million.


Investment Securities

The composition of the investment securities portfolio reflects United’s 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, including repurchase agreements.

At SeptemberJune 30, 20172018 and December 31, 2016,2017, United had securities held-to-maturity with a carrying amount of $307$298 million and $330$321 million, respectively, and securities available-for-sale totaling $2.54 billion and $2.43$2.62 billion, respectively. At SeptemberJune 30, 20172018 and December 31, 2016,2017, the securities portfolio represented approximately 26%23% and 25%, 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 rely on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will usually differ from contractual maturities because loans underlying the securities can prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining or prolonged low interest rate environment, United 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. United’s asset-backed securities include collateralized loan obligations and securities backed by student loans.

Management evaluates its securities portfolio each quarter to determine if any security is considered to be other than temporarily impaired. In making this evaluation, management considers its ability and intent to hold securities to recover current market losses. Losses on United’s fixed income securities at SeptemberJune 30, 20172018 primarily reflect the effect of changes in interest rates. United did not recognize any other than temporary impairment losses on its investment securities during the third quarter of 2017three and six months ended June 30, 2018 or 2016.

2017.

At SeptemberJune 30, 20172018 and December 31, 2016, 16%2017, 12% and 22%15%, respectively, of the securities portfolio was invested in floating-rate securities or fixed-rate securities that were swapped to floating rates in order to manage exposure to rising interest rates.

Goodwill and Core Deposit Intangibles

Goodwill represents the premium paid for acquired companies above the fair value of the assets acquired and liabilities assumed, including separately identifiable intangible assets.

Core deposit intangibles, representing the value of acquired deposit relationships, and noncompete agreements 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 management to believe that any impairment exists in goodwill or other intangible assets.

Deposits

Total customer deposits, excluding brokered deposits, as of SeptemberJune 30, 20172018 were $8.76$9.52 billion, compared to $8.31$9.44 billion at December 31, 2016.2017. Total core transaction deposits (demand, NOW, money market and savings deposits, excluding public funds deposits) of $6.45$6.94 billion at SeptemberJune 30, 20172018 increased $532$175 million since December 31, 2016, partly due to the HCSB acquisition.2017. United’s high level of service, as evidenced by its strong customer satisfaction scores, has been instrumental in attracting and retaining core transaction deposit accounts.

Total time deposits, excluding brokered deposits, as of June 30, 2018 were $1.52 billion, down $23.8 million from December 31, 2017. United has allowed some attrition of certificates of deposit, as funding needs have been met with lower cost transaction account deposits.
Borrowing Activities

The Bank is a shareholder in the Federal Home Loan Bank of Atlanta (“FHLB”). Through this affiliation, FHLB secured advances totaled $494$560 million and $709$505 million, respectively, as of SeptemberJune 30, 20172018 and December 31, 2016.2017. United anticipates continued use of this short and long-term source of funds. Additional information regarding FHLB advances is provided in Note 13 to the consolidated financial statements included in United’s Annual Report on Form 10-K for the year ended December 31, 2016.

2017.

Contractual Obligations

There have not been any material changes to United’s contractual obligations since December 31, 2016.

2017.

Off-Balance Sheet Arrangements

United is 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.

59



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. United uses the same credit underwriting procedures for making commitments, letters of credit and financial guarantees, as it uses 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. United is 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 14 to the consolidated financial statements 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.profitability, primarily in United’s core community banking activities of extending loans and accepting deposits. The objective of interest rate risk management is to identify and manage the sensitivity of net interest revenue to changing interest rates, consistent with United’s 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.

United’s net

Net interest revenue and the fair value of its financial instruments are influenced by changes in the level of interest rates. United limits its exposure to fluctuations in interest rates through policies developed by the Asset/Liability Management Committee (“ALCO”) and approved by the Board of Directors. 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 a number of assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments. 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. Another commonly analyzed scenario is a most-likely scenario that projects the expected change in rates based on the slope of the forward yield curve. 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 twelve monthtwelve-month time frame, longer time horizons are also modeled.

United’s 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 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. United’s policy limits the projected change in net interest revenue over the first 12 months to a 5% decrease for each 100 basis point change in the increasing and decreasing rate ramp and shock scenarios. Historically low rates on September 30, 2016 made use of the down scenarios irrelevant. The following table presents United’sthe interest sensitivity position at the dates indicated.

Table 13 - Interest Sensitivity

  Increase (Decrease) in Net Interest Revenue from Base Scenario at
September 30,		 
  2017  2016 
Change in Rates Shock  Ramp  Shock  Ramp 
100 basis point increase  0.6%  0.0%  0.6%  0.0%
100 basis point decrease  (8.7)  (6.7)   n/a    n/a 

  Increase (Decrease) in Net Interest Revenue from Base Scenario at
  June 30, 2018 December 31, 2017
Change in Rates Shock Ramp Shock Ramp
100 basis point increase (0.26)% (0.76)% 0.11 % (0.33)%
100 basis point decrease (5.58) (4.03) (7.37) (6.24)
Interest rate sensitivity is a function of the re-pricing characteristics of the portfolio of assets and liabilities. These re-pricing 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, re-pricing or maturity. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and


their re-pricing 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.

United has some discretion in the extent and timing of deposit re-pricing depending upon the competitive pressures in the markets in which it operates. 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 re-pricing for both the asset and the liability remains the same, due to the two instruments re-pricing according to different indices. This is commonly referred to as basis risk.

60

Management

In order to manage interest rate sensitivity, management uses derivative financial instruments to assist in the management of interest rate sensitivity.instruments. Derivative financial instruments can be a cost-effective and capital-effective means of modifying the re-pricing characteristics of on-balance sheet assets and liabilities. These contracts generally consist of interest rate swaps under which United pays a variable rate (or fixed rate, as the case may be) and receives a fixed rate (or variable rate, as the case may be), interest rate caps that fix the maximum amount of interest paid on a variable rate borrowing and interest rate floors that fix the minimum amount of interest received for floating rate loans.. In addition to derivative instruments, management uses a variety of balance sheet instruments to manage interest rate risk such as investment securities, wholesale funding, and bank-issued deposits.

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. 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. United has 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.

From time to time, United will terminate hedging positions when conditions change and the position is no longer necessary to manage overall sensitivity to changes in interest rates. In those situations where the terminated contract was in an effective hedging relationship at the time of termination and the hedging relationship is expected to remain effective throughout the original term of the contract, the resulting gain or loss is amortized over the remaining life of the original contract. For swap contracts, the gain or loss is amortized over the remaining original contract term using the straight line method of amortization. United expects that $545,000$361,000 will be reclassified as an increase to interest expense from other comprehensive income over the next twelve months related to these terminated cash flow hedges.

United’s policy requires all non-customer facing derivative financial instruments be used only for asset/liability management through the hedging of specific transactions or positions, 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 United may require the counterparties to derivative contracts to pledge cash and/or securities as collateral to cover the net exposure.


Liquidity Management

The objective of liquidity management 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, it is the primary goal of United to maintain a sufficient level of liquidity in all expected economic environments. To assist in determining the adequacy of its liquidity, United performs a variety of liquidity stress tests including idiosyncratic, systemic and combined scenarios for both moderate and severe events. 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. United maintains an unencumbered liquid asset reserve to help ensure its ability to meet its 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 also maintains excess funds in short-term interest-bearing assets that provide additional liquidity.

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, brokered deposits and securities sold under agreements to repurchase. 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 United’s holding company is a separate entity and apart from the Bank, it must provide for its own liquidity. United’s holding company is responsible for the payment of dividends declared for its common shareholders, and interest and principal on any outstanding debt or trust preferred securities. United’s holding company currently has internal capital resources to meet these obligations. While United’s holding company has access to the capital markets, the ultimate source of holding company liquidity is subsidiary service fees and dividends from the Bank, which are limited by applicable law and regulations.

At SeptemberJune 30, 2017,2018, United had cash and cash equivalent balances of $247$316 million and had sufficient qualifying collateral to increase FHLB advances by $834$774 million and Federal Reserve discount window borrowing capacity of $1.17$1.40 billion. United also has the ability to raise substantial funds through brokered deposits. In addition to these wholesale sources, United has the ability to attract retail deposits by competing more aggressively on pricing.

61

As disclosed in the consolidated statement of cash flows, net cash provided by operating activities was $147$116 million for the ninesix months ended SeptemberJune 30, 2017.2018. Net income of $79.7$77.3 million for the ninesix month period included non-cash expenses for the following: deferred income tax expense of $51.8$22.8 million, and non-cash expenses for the following: depreciation, amortization and accretion of $20.1$17.1 million, provision expense of $5.60 million and stock-based compensation expense of $4.36$2.28 million. Other sources of cash from operating activities included a decreasean increase in accrued expenses and other liabilities of $12.3 million, offset by an increase in other assets and accrued interest receivable of $4.11 million. These sources of cash from operating activities were offset by a decrease in accrued expenses and other liabilities of $8.38$18.8 million. Net cash used in investing activities of $198,000$124 million consisted primarily of $280 million in purchases of securities of available for sale, cash paid for acquisitions of $56.8 million and a $57.3 million net increase in loans purchases of investment securities available-for-sale totaling $710 million and purchases of investment securities held-to-maturity of $21.6$117 million. These uses of cash were partially offset by $44.9 million in proceeds from maturities and calls of investment securities held-to-maturity, $276 million inand proceeds from the sale of investment securities available-for-saleavailable for sale of $174 million and $466$140 million, in proceeds from maturities and calls of investment securities available-for-sale.respectively. Net cash used inprovided by financing activities of $117$9.49 million consisted primarily of a net decreaseincrease in deposits of $159 million, issuance of subordinated debt of $98.2 million and a net increase in FHLB advances of $239 million, repayment$56.0 million. These sources of long-term debt of $40.0 million, and $18.7 million in dividends to common shareholders,cash were partially offset by a net increasedecrease in depositsshort-term borrowings of $172$256 million, cash dividends of $17.5 million and repayments of long-term debt of $30.0 million. In the opinion of management, United’s liquidity position at SeptemberJune 30, 2017,2018, was sufficient to meet its expected cash flow requirements.


Capital Resources and Dividends

Shareholders’ equity at SeptemberJune 30, 20172018 was $1.22$1.38 billion, an increase of $145$75.8 million from December 31, 20162017 due to shares issued for the NLFC acquisition plus year-to-date earnings less dividends declared stock issued for the HCSB acquisition, an increaseand a decrease in the value of available-for-sale securities and the release of the disproportionate tax effect related to terminated cash flow hedges.securities. Accumulated other comprehensive loss, which includes unrealized gains and losses on securities available-for-sale, the unrealized gains and losses on derivatives qualifying as cash flow hedges and unamortized prior service cost and actuarial gains and losses on United’s modified retirement plan, is excluded in the calculation of regulatory capital adequacy ratios.

The following table shows United’s capital ratios, as calculated under applicable regulatory guidelines, at SeptemberJune 30, 20172018 and December 31, 2016.2017. As of SeptemberJune 30, 2017,2018, capital levels remained characterized as “well-capitalized” under the Basel III Capital Rules in effect at the time.


Table 14 -– Capital Ratios

(dollars in thousands)

  Basel III Guidelines  United Community Banks, Inc.
(Consolidated)		  United Community Bank 
     Well  September 30,  December 31,  September 30,  December 31, 
  Minimum  Capitalized  2017  2016  2017  2016 
                   
Risk-based ratios:                        
Common equity tier 1 capital  4.5%  6.5%  12.22%  11.23%  12.67%  12.66%
Tier I capital  6.0   8.0   12.27   11.23   12.67   12.66 
Total capital  8.0   10.0   13.02   12.04   13.43   13.48 
Leverage ratio  4.0   5.0   9.30   8.54   9.61   9.63 
                         
Common equity tier 1 capital         $993,706  $874,452  $1,028,893  $984,529 
Tier I capital          997,883   874,452   1,028,893   984,529 
Total capital          1,058,970   937,876   1,089,980   1,047,953 
                         
Risk-weighted assets          8,134,417   7,789,089   8,118,459   7,775,352 
Average total assets          10,726,624   10,236,868   10,710,987   10,221,318 

  Basel III Guidelines 
United Community Banks, Inc.
(Consolidated)
 United Community Bank
  Minimum 
Well
Capitalized
 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Risk-based ratios:            
Common equity tier 1 capital 4.5% 6.5% 11.60% 11.98% 13.19% 12.93%
Tier I capital 6.0
 8.0
 11.94
 12.24
 13.19
 12.93
Total capital 8.0
 10.0
 13.83
 13.06
 13.88
 13.63
Leverage ratio 4.0
 5.0
 9.31
 9.44
 10.27
 9.98
             
Common equity tier 1 capital     $1,074,861
 $1,053,983
 $1,220,098
 $1,135,728
Tier I capital     1,106,311
 1,076,465
 1,220,098
 1,135,728
Total capital     1,281,909
 1,149,191
 1,284,064
 1,196,954
Risk-weighted assets     9,267,868
 8,797,387
 9,252,050
 8,781,177
Average total assets     11,887,877
 11,403,248
 11,885,069
 11,385,716


United’s common stock trades on the Nasdaq Global Select Market under the symbol “UCBI”. Below is a quarterly schedule of high, low and closing stock prices and average daily volume for 20172018 and 2016.

2017.


Table 15 - Stock Price Information

  2017  2016 
  High  Low  Close  Avg Daily
Volume		  High  Low  Close  Avg Daily
Volume		 
                         
First quarter $30.47  $25.29  $27.69   459,018  $19.27  $15.74  $18.47   440,759 
Second quarter  28.57   25.39   27.80   402,802   20.60   17.07   18.29   771,334 
Third quarter  29.02   24.47   28.54   365,102   21.13   17.42   21.02   379,492 
Fourth quarter                  30.22   20.26   29.62   532,944 

62

  2018 2017
  High Low Close 
Avg Daily
Volume
 High Low Close 
Avg Daily
Volume
First quarter $33.60
 $27.73
 $31.65
 529,613
 $30.47
 $25.29
 $27.69
 459,018
Second quarter 34.18
 30.52
 30.67
 402,230
 28.57
 25.39
 27.80
 402,802
Third quarter         29.02
 24.47
 28.54
 365,102
Fourth quarter         29.60
 25.76
 28.14
 365,725

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 United'sUnited’s ability to react to changes in interest rates, and by such reaction, reduce the inflationary effect on performance. United has 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.


Item 3.Quantitative and Qualitative Disclosure About Market Risk

Item 3.    Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes in United’s market risk as of SeptemberJune 30, 20172018 from that presented in the Annual Report on Form 10-K for the year ended December 31, 2016.2017. The interest rate sensitivity position at SeptemberJune 30, 20172018 is included in Table 13 in management’s discussion and analysis on page 59 of this report.

Item 4.Controls and Procedures

Item 4.    Controls and Procedures
United’s management, including the Chief Executive Officer and Chief Financial Officer, supervised and participated in an evaluation of United’s disclosure controls and procedures as of SeptemberJune 30, 2017.2018. Based on, and as of the date of that evaluation, United’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective in accumulating and communicating information to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures of that information under the SEC’s rules and forms and that the disclosure controls and procedures are designed to ensure that the information required to be disclosed in reports that are filed or submitted by United under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.


There were no significant changes in the internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

63

Part II.Other Information

Part II.    Other Information
Item 1.Legal Proceedings

Item 1. Legal Proceedings
In the ordinary course of operations, United and the Bank are defendants in various legal proceedings. Additionally, in the ordinary course of business, United 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 change in the consolidated financial condition or results of operations of United.

Item 1A.Risk Factors

Items 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2016.

2017. 



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information for shares repurchased during the second quarter of 2018.
(Dollars in thousands, except for per share amounts) 
Total
Number of
Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Number (or
Approximate Dollar
Value) of Shares that May
Yet Be Purchased Under
the Plans or Programs (1)
April 1, 2018 - April 30, 2018 —
 —
 —
 36,342
May 1, 2018 - May 31, 2018 —
 —
 —
 36,342
June 1, 2018 - June 30, 2018 —
 —
 —
 36,342
Total —
 $—
 —
 $36,342
(1)On March 22, 2016, United announced that its Board of Directors had authorized a program to repurchase up to $50 million of United’s outstanding common stock through December 31, 2017. In November of 2017, the Board of Directors extended this program through December 31, 2018. Under the program, the shares may be repurchased periodically in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program depends on a number of factors, including the market price of United’s common stock, general market and economic conditions, and applicable legal requirements. As of June 30, 2018, the remaining authorization was $36.3 million.
Item 3. Defaults upon Senior Securities – None
Item 4. Mine Safety Disclosures – None
Item 5. Other Information – None




Item 6. Exhibits
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

On March 22, 2016, United announced that its Board of Directors had authorized a program to repurchase up to $50 million of United’s outstanding common stock through December 31, 2017. Under the program, the shares may be repurchased periodically in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program depends on a number of factors, including the market price of United’s common stock, general market and economic conditions, and applicable legal requirements. As of September 30, 2017, the remaining authorization was $36.3 million. In November of 2017, the Board of Directors extended this program through December 31, 2018.

The following table contains information for shares repurchased during the third quarter of 2017.

(Dollars in thousands, except for per share 
amounts)		 Total
Number of
Shares
Purchased		  Average
Price Paid
per Share		  Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs		  Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the
Plans or Programs		 
July 1, 2017 - July 31, 2017  -  $-   -  $36,342 
August 1, 2017 - August 31, 2017  -   -   -   36,342 
September 1, 2017 - September 30, 2017  -   -   -   36,342 
Total  -  $-   -  $36,342 

Item 3.Defaults upon Senior Securities – None

Exhibit No.Item 4.Mine Safety Disclosures – NoneDescription

Item 5.Other Information – None

 64 
10.1
Executive Transition Agreement, dated May 10, 2018, by and between United Community Banks, Inc. and Jimmy C. Tallent
31.1
Certification by H. Lynn Harton, Chief Executive Officer of United Community Banks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Jefferson L. Harralson, Executive Vice President and Chief Financial Officer of United Community Banks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document




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
Chief Executive Officer
(Principal Executive Officer)
/s/ Jefferson L. Harralson
Jefferson L. Harralson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Alan H. Kumler
Alan H. Kumler
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date:  August 6, 2018


74
Item 6.Exhibits

Exhibit No.Description
31.1Certification by Jimmy C. Tallent, Chairman and Chief Executive Officer of United Community Banks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification by Jefferson L. Harralson, Executive Vice President and Chief Financial Officer of United Community Banks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

65

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/ Jimmy C. Tallent
Jimmy C. Tallent
Chairman 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 3, 2017

66