United Bankshares, Inc. Increases Earnings for the Third Quarter and First Nine Months of 2015

United Bankshares, Inc. (NASDAQ: UBSI), today reported increased earnings for the third quarter and the first nine months of 2015. Earnings for the third quarter of 2015 were $35.0 million or $0.50 per diluted share, an increase from earnings of $33.3 million or $0.48 per diluted share for the third quarter of 2014. Earnings for the first nine months of 2015 were $104.5 million or $1.50 per diluted share, up from earnings of $96.6 million or $1.44 per diluted share for the first nine months of 2014.

Third quarter of 2015 results produced a return on average assets of 1.12% and a return on average equity of 8.14%, respectively. For the first nine months of 2015, United’s return on average assets was 1.14% while the return on average equity was 8.25%. United’s Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported average return on assets and average return on equity were 0.92% and 8.09%, respectively, for the first half of 2015. United’s annualized returns on average assets and average equity were 1.10% and 7.96%, respectively, for the third quarter of 2014 while the returns on average assets and average equity was 1.12% and 8.22%, respectively, for the first nine months of 2014.

“We are pleased to announce record net income for the third quarter and first nine months of 2015,” stated Richard M. Adams, United’s Chief Executive Officer and Chairman of the Board. “In addition, our annualized returns on average assets and average equity outperformed our latest peer group numbers.”

On January 31, 2014, United completed its acquisition of Virginia Commerce Bancorp, Inc. (Virginia Commerce) of Arlington, Virginia. The results of operations of Virginia Commerce are included in the consolidated results of operations from the date of acquisition. As a result, the first nine months of 2015 was impacted for an additional month by increased levels of average balances, income, and expense as compared to the first nine months of 2014 due to the acquisition. At consummation, Virginia Commerce had assets of approximately $2.8 billion, loans of $2.1 billion, and deposits of $2.0 billion.

The results for the first nine months of 2015 included noncash, before-tax, other-than-temporary impairment charges of $34 thousand on certain investment securities. No noncash, before-tax, other-than-temporary impairment charges were recognized during the third quarter of 2015. Included in the results for the third quarter and first nine months of 2014 were noncash, before-tax, other-than-temporary impairment charges of $4.7 million and $5.8 million, respectively, on certain investment securities. During the first quarter of 2014, United sold a former branch building which resulted in a before-tax gain of $9.0 million. In addition, the results for the first nine months of 2014 included merger related expenses and charges of $5.3 million.

Tax-equivalent net interest income of $98.0 million for the third quarter of 2015 was relatively flat from the third quarter of 2014, increasing $473 thousand or less than 1%. The slight increase was due to higher average earning assets. Average earning assets for the third quarter of 2015 increased $444.6 million or 4% from the third quarter of 2014. Average net loans and average short-term investments increased $142.0 million or 2% and $349.8 million or 87%, respectively. The third quarter of 2015 average cost of funds decreased 5 basis points from the third quarter of 2014 due to the repayment of higher costing Federal Home Loan Bank advances and trust preferred issuances. Partially offsetting the increases to tax-equivalent net interest income for the third quarter of 2015 was a decrease of 18 basis points in the average yield on earning assets as compared to the third quarter of 2014 due to payoffs of higher yielding loans coupled with the re-investment of this cash inflow into new loans at lower interest rates. The net interest margin of 3.53% for the third quarter of 2015 was a decrease of 13 basis points from the net interest margin of 3.66% for the third quarter of 2014.

Tax-equivalent net interest income for the first nine months of 2015 was $291.8 million, an increase of $11.8 million or 4% from the first nine months of 2014. This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Virginia Commerce acquisition. Average earning assets increased $720.5 million or 7% from the first nine months of 2014. Average net loans increased $477.2 million or 6% for the first nine months of 2015 while average short-term investments increased $234.4 million or 65%. In addition, the average cost of funds declined 6 basis points from the first nine months of 2014. Partially offsetting the increases to tax-equivalent net interest income for the first nine months of 2015 was a decline of 15 basis points in the average yield on earning assets as compared to the first nine months of 2014. The net interest margin of 3.59% for the first nine months of 2015 was a decrease of 10 basis points from the net interest margin of 3.69% for the first nine months of 2014.

On a linked-quarter basis, United’s tax-equivalent net interest income for the third quarter of 2015 was relatively flat, increasing $467 thousand or less than 1% due mainly to an increase in average earning assets. Average earning assets increased $211.5 million or 2% from the second quarter of 2015. Average short-term investments increased $246.7 or 49% while average net loans were flat and average investments decreased $35.2 million or 3%. Partially offsetting the increases to tax-equivalent net interest income for the third quarter of 2015 was a decrease of 8 basis points in the average yield on earning assets due to a shift in the mix of balances and a basis point increase in the average cost of funds as compared to the second quarter of 2015. The net interest margin of 3.53% for the third quarter of 2015 was a decrease of 9 basis points from the net interest margin of 3.62% for the second quarter of 2015.

For the quarters ended September 30, 2015 and 2014, the provision for loan losses was $5.2 million and $4.7 million, respectively, while the provision for the first nine months of 2015 was $16.3 million as compared to $15.6 million for the first nine months of 2014. Net charge-offs were $4.9 million and $16.3 million for the third quarter and first nine months of 2015, respectively, as compared to $4.0 million and $14.1 million for the third quarter and first nine months of 2014, respectively. Annualized net charge-offs as a percentage of average loans were 0.21% and 0.24% for the third quarter and first nine months of 2015, respectively. United’s most recently reported Federal Reserve peer group’s net charge-offs to average loans percentage was 0.25% for the first half of 2015.

Noninterest income for the third quarter of 2015 was $17.8 million, an increase of $1.7 million from the third quarter of 2014. No noncash, before-tax, other-than-temporary impairment charges were recognized during the third quarter of 2015. Included in noninterest income for the third quarter of 2014 were noncash, before-tax, other-than-temporary impairment charges of $4.7 million on certain investment securities. In addition, net gains on sales and calls of investment securities were $1.3 million for the third quarter of 2014. Excluding the noncash, other-than-temporary impairment charges as well as the net gains from sales and calls of investment securities, noninterest income for the third quarter of 2015 decreased $1.9 million or 10% from the third quarter of 2014. The decrease was due to lower fees from deposit services as a result of the Durbin Amendment being effective for United on July 1, 2015. The Durbin Amendment, passed as part of the Dodd-Frank financial reform legislation, limits fees for debit card processing paid by merchants to banking companies with assets in excess of $10 billion. Fees from deposit services for the third quarter of 2015 declined $2.1 million from the third quarter of 2014 due mainly to lower income on debit card transactions. Partially offsetting this decline was an increase of $263 thousand in fees from trust and brokerage services due to an increase in the value of managed trust assets.

Noninterest income for the first nine months of 2015 was $55.5 million, which was a decrease of $6.0 million from the first nine months of 2014. Included in noninterest income for the first nine months of 2014 was the previously mentioned net gain of $9.0 million on the sale of bank premises. Noninterest income for the first nine months of 2015 included noncash, before-tax, other-than-temporary impairment charges of $34 thousand on certain investment securities as compared to noncash, before-tax other-than-temporary impairment charges of $5.8 million on certain investment securities for the first nine months of 2014. In addition, net gains on sales and calls of investment securities were $2.1 million for the first nine months of 2014. Excluding the net gain on the sale of bank premises, the noncash, other-than-temporary impairment charges as well as the net gains from sales and calls of investment securities, noninterest income for the first nine months of 2015 decreased $836 thousand or 1% from the first nine months of 2014. This decrease for the first nine months of 2015 was due primarily to a decline in fees from deposit services as a result of the Durbin Amendment. Fees from deposit services for the first nine months of 2015 declined $2.3 million from the first nine months of 2014 due mainly to lower income from debit card transactions and overdrafts. Partially offsetting this decrease were increases of $852 thousand in income from trust and brokerage services due to an increase in volume and the value of assets under management and $402 thousand in mortgage banking income due to increased production and sales of mortgage loans in the secondary market.

On a linked-quarter basis, noninterest income for the third quarter of 2015 decreased $1.7 million or 9% from the second quarter of 2015. This decline was due primarily to a decrease of $1.4 million in fees from deposit services due to the Durbin Amendment. Specifically, fees from debit card transactions declined $1.6 million on a linked-quarter basis.

Noninterest expense for the third quarter of 2015 was $57.7 million, which was flat from the third quarter of 2014. Decreases in other real estate owned (OREO) expenses of $1.1 million due to fewer declines in the fair value of OREO properties and net occupancy expense of $746 thousand due to fewer branches were virtually offset by increases in employee compensation of $527 thousand due mainly to base salary increases and employee benefits expense of $1.9 million due to an increase in pension costs.

Noninterest expense for the first nine months of 2015 was $173.1 million, a decrease of $2.8 million or 2% from the first nine months of 2014. Employee compensation decreased $5.0 million from the first nine months of 2014 which included $3.6 million of merger severance charges, other merger expenses decreased $1.7 million and other real estate owned (OREO) expense declined $2.0 million due to fewer declines in the fair values of OREO properties. Partially offsetting these decreases were increases of $4.5 million in employee benefits due to an increase in pension expense, $581 thousand in data processing expense and $694 thousand in Federal Deposit Insurance Corporation (FDIC) insurance expense due to a higher assessment base as a result of the Virginia Commerce acquisition.

On a linked-quarter basis, noninterest expense for the third quarter of 2015 was flat from the second quarter of 2015. Employee compensation expense increased $2.0 million due to additional employees and annual base salary increases while net occupancy expense declined $888 thousand, OREO expense declined $352 thousand and data processing expense decreased $285 thousand.

For the third quarter of 2015, income tax expense was $16.2 million as compared to $16.4 million for the third quarter of 2014. This slight decrease resulted mainly because of a release of income tax reserves due to the expiration of the statute of limitations for examinations of certain years largely offset by higher earnings. For the first nine months of 2015, income tax expense of $48.7 million was virtually flat from the first nine months of 2014. On a linked-quarter basis, income tax expense decreased $928 thousand due to the release of the income tax reserves mentioned above. United’s effective tax rate was approximately 31.6% for the third quarter of 2015 and 33.0% for the third quarter of 2014 and the second quarter of 2015. For the fourth quarter of 2015, United expects the effective tax rate to be approximately 33.5%. For the first nine months of 2015 and 2014, United's effective tax rate was 31.8% and 33.5%, respectively. The lower effective tax rate in 2015 was due to the release of the income tax reserves during the third quarter and historical tax credits recognized in the first quarter.

United’s asset quality continues to be sound. At September 30, 2015, nonperforming loans were $125.0 million, or 1.36% of loans, net of unearned income, up from nonperforming loans of $109.0 million or 1.20% of loans, net of unearned income, at December 31, 2014. As of September 30, 2015, the allowance for loan losses was $75.5 million or 0.82% of loans, net of unearned income, as compared to $75.5 million or 0.83% of loans, net of unearned income, at December 31, 2014. Total nonperforming assets of $159.2 million, including OREO of $34.1 million at September 30, 2015, represented 1.27% of total assets.

On January 1, 2015, the new Basel III Capital Rules became effective for United and its banking subsidiaries. United continues to be well-capitalized based upon these new regulatory guidelines. United’s estimated risk-based capital ratio is 12.7% at September 30, 2015 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 9.7%, 12.0% and 10.6%, respectively. The new regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.

During the third quarter of 2015, United’s Board of Directors declared a cash dividend of $0.32 per share. United has increased its dividend to shareholders for 41 consecutive years. United is one of only two major banking companies in the USA to have achieved such a record.

As of September 30, 2015, United has consolidated assets of approximately $12.6 billion with 129 full service offices in West Virginia, Virginia, Maryland, Ohio, Pennsylvania and Washington, D.C. United Bankshares stock is traded on the NASDAQ Global Select Market under the quotation symbol "UBSI".

Cautionary Statements

The Company is required under generally accepted accounting principles to evaluate subsequent events through the filing of its September 30, 2015 consolidated financial statements on Form 10-Q. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of September 30, 2015 and will adjust amounts preliminarily reported, if necessary.

Use of non-GAAP Financial Measures

This press release contains certain financial measures that are not recognized under U.S. generally accepted accounting principles ("GAAP"). Generally, United has presented these “non-GAAP” financial measures because it believes that these measures provide meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of these non-GAAP financial measures is consistent with how United’s management evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry.

Specifically, this press release contains certain references to financial measures identified as tax-equivalent (FTE) net interest income, noninterest income excluding the results of the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, tangible equity and tangible book value per share. Management believes these non-GAAP financial measures to be helpful in understanding United’s results of operations or financial position.

Net interest income is presented in this press release on a tax-equivalent basis. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 35%.

GAAP total non-interest income results are adjusted for other-than-temporary impairment charges (OTTI) on certain investment securities, net gains or losses on the sale of securities and any infrequent noninterest income items. Management believes noninterest income without OTTI charges, net securities gains or losses and infrequent noninterest income items is more indicative of United’s performance because it isolates income that is primarily customer relationship driven and is more indicative of normalized operations. In addition, these items can fluctuate greatly from quarter to quarter and are difficult to predict.

Tangible common equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible common equity can thus be considered the most conservative valuation of the company. Tangible common equity is also presented on a per common share basis. Management provides these amounts to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. By removing the effect of intangible assets that result from merger and acquisition activity, the “permanent” items of common equity are presented. These two measures, along with others, are used by management to analyze capital adequacy.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure can be found in the attached financial information tables to this press release. Investors should recognize that United’s presentation of these non-GAAP financial measures might not be comparable to similarly titled measures at other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and United strongly encourages a review of its condensed consolidated financial statements in their entirety.

Forward-Looking Statements

This press release contains certain forward-looking statements, including certain plans, expectations, goals and projections, which are subject to numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by such statements for a variety of factors including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.

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