United Bankshares, Inc. Announces Record Earnings for the First Nine Months of 2019

United Bankshares, Inc. (NASDAQ: UBSI), today reported earnings for the third quarter and the first nine months of 2019. Earnings for the third quarter of 2019 were $66.0 million, up from earnings of $64.4 million for the third quarter of 2018. Diluted earnings per share were $0.65 for the third quarter of 2019 as compared to diluted earnings per share of $0.62 for the third quarter of 2018. Earnings for the first nine months of 2019 were a record $196.8 million, an increase from earnings of $192.4 million for the first nine months of 2018. Diluted earnings per share were $1.93 for the first nine months of 2019 as compared to diluted earnings per share of $1.83 for the first nine months of 2018.

Third quarter of 2019 results produced an annualized return on average assets of 1.33%, an annualized return on average equity of 7.79% and an annualized return on average tangible equity of 14.16%. For the first nine months of 2019, United’s annualized return on average assets was 1.35% while the annualized return on average equity was 7.93% and the annualized return on average tangible equity was 14.56%. United’s annualized returns on average assets, average equity and average tangible equity were 1.34%, 7.83% and 14.65%, respectively, for the third quarter of 2018 while the annualized returns on average assets, average equity and average tangible equity were 1.37%, 7.86% and 14.69%, respectively, for the first nine months of 2018.

“Our earnings continue to be strong, achieving record net income for the first nine months of 2019,” stated Richard M. Adams, United’s Chairman of the Board and Chief Executive Officer.

Net interest income for the third quarter of 2019 was $141.9 million, which was a decrease of $6.9 million or 5% from the third quarter of 2018. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the third quarter of 2019 was $142.8 million, a decrease of $7.0 million or 5% from the third quarter of 2018 due mainly to an increase of 37 basis points in the average cost of funds as compared to the third quarter of 2018 due to higher market interest rates. In addition, the average yield on earning assets declined 4 basis points from the third quarter of 2018 due in large part to a decline in loan accretion on acquired loans of $4.4 million or 38%. Loan accretion on acquired loans was $7.2 million and $11.6 million for the third quarter of 2019 and 2018, respectively. Partially offsetting these decreases to tax-equivalent net interest income for the third quarter of 2019 was an increase in average earning assets of $609.4 million or 4%. The increase in average earning assets was due mainly to increases of $365.3 million or 16% and $325.1 million or 2% in average investment securities and average loans, respectively.

Partially offsetting these increases in average earning assets was a decrease in average short-term investments of $80.9 million or 9%. The net interest margin of 3.27% for the third quarter of 2019 was a decrease of 29 basis points from the net interest margin of 3.56% for the third quarter of 2018.

Net interest income for the first nine months of 2019 was $436.6 million, which was a decrease of $5.3 million or 1% from the first nine months of 2018. Tax-equivalent net interest income for the first nine months of 2019 was $439.5 million, which was a decrease of $5.7 million or 1% from the first nine months of 2018 due mainly to an increase in the average cost of funds. The average cost of funds for the first nine months of 2019 increased 57 basis points from the first nine months of 2018 due to higher market interest rates and a change in the mix of interest bearing liabilities. Partially offsetting these decreases to tax-equivalent net interest income for the first nine months of 2019 were increases in average earning assets and the average yield on those average earning assets. For the first nine months of 2019, average earning assets increased $687.3 million or 4% from the first nine months of 2018 due mainly to increases of $400.9 million or 3% in average net loans and $352.6 million or 16% in average investment securities. Average short-term investments decreased $66.2 million or 8%. The average yield on earning assets for the first nine months of 2019 increased 20 basis points from the first nine months of 2018 due to higher market rates. Loan accretion on acquired loans was $30.2 million and $34.4 million for the first nine months of 2019 and 2018, respectively, decreasing $4.2 million or 12%. The net interest margin of 3.42% for the first nine months of 2019 was a decrease of 19 basis points from the net interest margin of 3.61% for the first nine months of 2018.

On a linked-quarter basis, net interest income for the third quarter of 2019 decreased $8.6 million or 6% from the second quarter of 2019. United’s tax-equivalent net interest income for the third quarter of 2019 decreased $8.7 million or 6% from the second quarter of 2019 as well due to a decrease in the average yield on earning assets. The average yield on earning assets for the third quarter of 2019 decreased 29 basis points from the second quarter of 2019 due to a decrease of $7.3 million in loan accretion on acquired loans due to a large payoff in the second quarter of 2019. Loan accretion on acquired loans was $7.2 million and $14.5 million for the third quarter and second quarter of 2019, respectively. Partially offsetting the decline in the average yield on earning assets was a decrease of 2 basis points in the average cost of funds due to change in the mix of interest-bearing liabilities. Average earning assets were relatively flat for the quarter, increasing $158.2 million or less than 1% compared from the second quarter of 2019 as average net loans were also relatively flat, increasing $63.9 million or less than 1%. Average investment securities increased $34.5 million or 1% and average short-term investments increased $59.9 million or 8% for the linked quarter. The net interest margin of 3.27% for the third quarter of 2019 decreased 26 basis points from the net interest margin of 3.53% for the second quarter of 2019.

For the quarters ended September 30, 2019 and 2018, the provision for loan losses was $5.0 million and $4.8 million, respectively, while the provision for the first nine months of 2019 was $15.4 million as compared to $16.2 million for the first nine months of 2018. Net charge-offs were $4.3 million and $15.1 million for the third quarter and first nine months of 2019, respectively, as compared to $5.0 million and $15.9 million for the third quarter and first nine months of 2018, respectively. Annualized net charge-offs as a percentage of average loans were 0.13% and 0.15% for the third quarter and first nine months of 2019, respectively. On a linked-quarter basis, the provision for loan losses decreased $384 thousand while net charge-offs decreased $1.6 million from the second quarter of 2019.

Noninterest income for the third quarter of 2019 was $42.2 million, which was an increase of $10.5 million or 33% from the third quarter of 2018. The increase was due mainly to an increase of $10.7 million in income from mortgage banking activities due to increased production and sales of mortgage loans in the secondary market by United’s mortgage banking subsidiary, George Mason Mortgage, LLC (George Mason).

Noninterest income for the first nine months of 2019 was $113.2 million, which was an increase of $14.4 million or 15% from the first nine months of 2018. The increase was due mainly to an increase of $12.9 million in income from mortgage banking activities primarily due to increased loan originations and a higher realized gain on sale margin by George Mason. In addition, fees from trust services increased $731 thousand due to an increase in managed assets, fees from brokerage services increased $704 thousand due to increased volume and income from bank-owned life insurance increased $657 thousand due to the recognition of $600 thousand in death benefits for the first nine months of 2019. Partially offsetting these increases was a decrease of $864 thousand in bankcard income due to a decline in interchange income.

On a linked-quarter basis, noninterest income for the third quarter of 2019 increased $2.4 million or 6% from the second quarter of 2019. The increase was due mainly to an increase of $2.3 million in income from mortgage banking activities due mainly to increased production and sales of mortgage loans in the secondary market by George Mason.

Noninterest expense for the third quarter of 2019 was $96.1 million, an increase of $2.8 million or 3% from the third quarter of 2018. In particular, employee compensation increased $5.0 million due mainly to an increase in employee commissions expense related to the increase in production and sales of mortgage loans at George Mason, other real estate owned (OREO) expense increased $916 thousand due to a decline in the fair value of OREO properties while other expense increased $1.3 million due to an increase of $1.1 million on the write-off of income tax credits. Partially offsetting these increases was a decrease of $3.1 million in Federal Deposit Insurance Corporation (FDIC) insurance expense resulting from a small bank assessment credit.

Noninterest expense for the first nine months of 2019 was $285.8 million, an increase of $8.6 million or 3% from the first nine months of 2018 due mainly to prepayment penalties on FHLB advances of $5.1 million. In addition, employee compensation increased $4.3 million due mainly to higher employee incentives expense, OREO expense increased $1.5 million due to a decline in the fair values of OREO properties and other expense increased $3.1 million due to an increase of $2.5 million on the write-off of income tax credits. Partially offsetting these increases were decreases of $1.7 million in net occupancy expense due mainly to a decline in building rental expense, $1.2 million in data processing fees due to lower fees under a new contract, $1.2 million in FDIC insurance expense resulting from the small bank assessment credit, and $890 thousand in employee benefits due mainly to a decline in pension expense.

On a linked-quarter basis, noninterest expense for the third quarter of 2019 decreased $4.1 million or 4% from the second quarter of 2019 due in large part to the previously mentioned prepayment penalties on FHLB advances of $5.1 million in the second quarter. In addition, FDIC insurance expense declined $2.8 million resulting from the small bank assessment credit. Partially offsetting these decreases were increases of $2.0 million in employee compensation due mainly to an increase in employee commissions expense related to the increase in production and sales of mortgage loans at George Mason and $1.2 million in OREO expense due to declines in the values of OREO properties.

For the third quarter and first nine months of 2019, income tax expense was $17.0 million and $51.9 million, respectively, as compared to $17.9 million and $55.1 million, respectively, in the third quarter and first nine months of 2018. The decreases in 2019 were mainly due to a decline in the effective tax rate as a result of the increased benefit from income tax credits. On a linked-quarter basis, income tax expense for the third quarter of 2019 decreased $519 thousand from the second quarter of 2019 due to a combination of lower earnings and a slightly lower effective tax rate. United’s effective tax rate was 20.5% for the third quarter of 2019, 20.7% for the second quarter of 2019 and 21.8% for the third quarter of 2018. For the first nine months of 2019 and 2018, United's effective tax rate was 20.9% and 22.3%, respectively. The lower effective tax rate for the time periods in 2019 was due primarily to the increased benefit from income tax credits.

United’s asset quality continues to be sound. At September 30, 2019, nonperforming loans were $140.3 million, or 1.03% of loans, net of unearned income, a decline from nonperforming loans of $142.8 million, or 1.06% of loans, net of unearned income, at December 31, 2018. As of September 30, 2019, the allowance for loan losses was $77.1 million or 0.57% of loans, net of unearned income, which was comparable to $76.7 million or 0.57% of loans, net of unearned income, at December 31, 2018. Total nonperforming assets of $158.7 million, including OREO of $18.4 million at September 30, 2019, represented 0.80% of total assets as compared to nonperforming assets of $159.7 million or 0.83% at December 31, 2018.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 14.4% at September 30, 2019 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.3%, 12.3% and 10.2%, respectively. The 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%.

As of September 30, 2019, United had consolidated assets of approximately $19.8 billion. United is the parent company of United Bank, the largest community bank headquartered in the D.C. Metro region. United Bank which comprises 139 full-service banking offices and 16 George Mason Mortgage, LLC locations, is located throughout Virginia, West Virginia, Maryland, North Carolina, South Carolina, Ohio, Pennsylvania and Washington, D.C. United’s 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, 2019 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, 2019 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, 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 21%.

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 and considering net income, a return on average tangible equity. 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 measures, along with others, are used by management to analyze capital adequacy and performance.

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.