United Bankshares, Inc. Increases Earnings for the Second Quarter and First Half of 2014

United Bankshares, Inc. (NASDAQ: UBSI), today reported earnings for the second quarter and the first half of 2014. Earnings for the second quarter of 2014 were $33.2 million or $0.48 per diluted share, an increase from earnings of $22.2 million or $0.44 per diluted share for the second quarter of 2013. Earnings for the first half of 2014 were $63.4 million or $0.96 per diluted share, up from earnings of $43.8 million or $0.87 per diluted share for the first half of 2013.

Second quarter of 2014 results produced a return on average assets of 1.13% and a return on average equity of 8.16%, respectively. For the first half of 2014, United’s return on average assets was 1.14% while the return on average equity was 8.36%. 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 8.19%, respectively, for the first quarter of 2014. United’s annualized returns on average assets and average equity were 1.07% and 8.81%, respectively, for the second quarter of 2013 while the returns on average assets and average equity was 1.06% and 8.76%, respectively, for the first half of 2013.

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, comparisons for the second quarter and first half of 2014 to the second quarter and first half of 2013 are impacted by increased levels of average balances, income, and expense 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 second quarter and first half of 2014 included noncash, before-tax, other-than-temporary impairment charges of $421 thousand and $1.1 million, respectively, on certain investment securities. The results for the second quarter and first half of 2013 included noncash, before-tax, other-than-temporary impairment charges of $137 thousand and $971 thousand, respectively, on certain investment securities. As previously reported, United sold a former branch building during the first quarter of 2014 which resulted in a before-tax gain of $9.0 million. In addition, the results for the first half of 2014 included merger related expenses and charges of $5.4 million as compared to $1.1 million in the first half of 2013.

Tax-equivalent net interest income for the second quarter of 2014 was $95.5 million, an increase of $27.8 million or 41% from the second quarter of 2013. 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 $3.0 billion or 40% from the second quarter of 2013. Average net loans increased $2.3 billion or 35% for the second quarter of 2014 while average investment securities increased $524.4 million or 68%. In addition, the average cost of funds declined 11 basis points from the second quarter of 2013. Partially offsetting the increases to tax-equivalent net interest income for the second quarter of 2014 was a decline of 4 basis points in the average yield on earning assets as compared to the second quarter of 2013. The net interest margin for the second quarter of 2014 was 3.69%, which was an increase of 4 basis points from a net interest margin of 3.65% for the second quarter of 2013.

Tax-equivalent net interest income for the first half of 2014 was $182.4 million, an increase of $46.4 million or 34% from the first half of 2013. 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 $2.5 billion or 34% from the first half of 2013. Average net loans increased $1.9 billion or 30% for the first half of 2014 while average investment securities increased $499.3 million or 66%. In addition, the average cost of funds declined 13 basis points from the first half of 2013. Partially offsetting the increases to tax-equivalent net interest income for the first half of 2014 was a decline of 9 basis points in the average yield on earning assets as compared to the first half of 2013. The net interest margin for the first half of 2014 was 3.70%, which was flat as compared to the first half of 2013.

On a linked-quarter basis, United’s tax-equivalent net interest income for the second quarter of 2014 increased $8.6 million or 10% from the first quarter of 2014. This increase in tax-equivalent net interest income was primarily attributable to the average earning assets from the Virginia Commerce acquisition being included for the entire second quarter. Average earning assets increased $894.0 million or 9% from the first quarter of 2014. Average net loans for the second quarter increased $727.4 million or 9%. Average short-term investments increased $86.9 million or 30% while average investments increased $79.7 million or 7% for the quarter. The second quarter of 2014 average yield on earning assets decreased 2 basis points while the average cost of funds was flat from the first quarter of 2014. The net interest margin of 3.69% for the second quarter of 2014 was a decrease of a basis point from the net interest margin of 3.70% for the first quarter of 2014.

For the quarters ended June 30, 2014 and 2013, the provision for loan losses was $6.2 million and $5.0 million, respectively, while the provision for the first six months of 2014 was $10.9 million as compared to $10.1 million for the first six months of 2013. Net charge-offs were $5.6 million and $4.5 million for the second quarter of 2014 and 2013, respectively. Net charge-offs were $10.1 million and $9.5 million for the first half of 2014 and 2013, respectively. Annualized net charge-offs as a percentage of average loans was 0.25% and 0.24% for the second quarter and first half of 2014, respectively. United’s most recently reported Federal Reserve peer group’s net charge-offs to average loans percentage was 0.33% for the first quarter of 2014.

Noninterest income for the second quarter of 2014 was $19.1 million, which was flat from the second quarter of 2013. Included in noninterest income for the second quarter of 2014 were noncash, before-tax, other-than-temporary impairment charges of $421 thousand on certain investment securities as compared to noncash, before-tax other-than-temporary impairment charges of $137 thousand on certain investment securities for the second quarter of 2013. Excluding the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, noninterest income for the second quarter of 2014 increased $667 thousand or 4% from the second quarter of 2013. This increase for the second quarter of 2014 was due primarily to an increase of $694 thousand in fees from deposit services as a result of increased debit card and automated teller machine (ATM) usage as a result of the Virginia Commerce merger.

Noninterest income for the first half of 2014 was $45.7 million, which was an increase of $8.2 million from the first half of 2013. Included in noninterest income for the first half of 2014 was the previously mentioned net gain of $9.0 million on the sale of bank premises as well as noncash, before-tax, other-than-temporary impairment charges of $1.1 million on certain investment securities as compared to noncash, before-tax other-than-temporary impairment charges of $971 thousand on certain investment securities for the first half of 2013. In addition, net gains on sales and calls of investment securities were $825 thousand and $488 thousand for the first half of 2014 and 2013, respectively. Excluding the net gain on the sale of bank premises, the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, noninterest income for the first half of 2014 decreased $1.0 million or 3% from the first half of 2013. This decrease for the first half of 2014 was due primarily to decreases of $1.0 million in mortgage banking income due to lower production and sales of mortgage loans in the secondary market and $878 thousand in income from bank-owned insurance policies due to death benefits in 2013. In addition, income from derivatives not in hedge relationships declined $690 thousand due to a change in the fair value. Partially offsetting these decreases were increases of $1.0 million income from trust and brokerage services due to increase in volume and the value of assets under management and $629 thousand in fees from deposit services due to increased debit card and ATM usage.

On a linked-quarter basis, noninterest income for the second quarter of 2014 decreased $7.4 million from the first quarter of 2014 which included the previously mentioned net gain of $9.0 million on the sale of bank premises. Included in the results for the second quarter and first quarter of 2014 were noncash, before-tax, other-than-temporary impairment charges of $421 thousand and $639 thousand, respectively. Excluding the net gain on the sale of bank premises, the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, noninterest income increased $2.2 million or 13% on a linked-quarter basis due primarily to an increase of $1.3 million in fees from deposit services as a result of increases in overdraft fees and debit card income. Several other sources of noninterest income increased, none of which were individually significant.

Noninterest expense for the second quarter of 2014 was $57.2 million, an increase of $8.7 million or 18% from the second quarter of 2013 due mainly to the Virginia Commerce merger. Accordingly, most major categories of noninterest expense showed increases. In particular, employee compensation increased $4.6 million, net occupancy expenses increased $1.7 million, data processing fees increased $776 thousand and equipment expense increased $530 thousand. These increases were due mainly to the additional employees, offices, equipment, and data processing expenses as a result of the Virginia Commerce acquisition. Partially offsetting these increases was a decrease of $1.3 million in other real estate owned (OREO) expense as reductions to the fair value and maintenance costs on OREO properties declined from the second quarter of 2013.

Noninterest expense for the first half of 2014 was $118.4 million, an increase of $21.6 million or 22% from the first half of 2013 due mainly to the Virginia Commerce merger. Accordingly, most major categories of noninterest expense showed increases. In particular, employee compensation increased $13.0 million including $3.6 million of merger severance charges, net occupancy expenses increased $2.9 million, data processing fees increased $1.3 million, equipment expense increased $732 thousand and merger expenses increased $624 thousand. These increases were due mainly to the additional employees, offices, equipment, data processing and other merger-related expenses as a result of the Virginia Commerce acquisition. Partially offsetting these increases was a decrease of $854 thousand in employee benefits due to a decline in pension expense due to an increase in the value at year-end 2013.

On a linked-quarter basis, noninterest expense for the second quarter of 2014 decreased $3.9 million or 6% from the first quarter of 2014. This decrease was due primarily to a decrease of $3.5 million in employee compensation from the first quarter which included the $3.6 million of merger severance charges. In addition, OREO expense declined $1.1 million due mainly to fewer reductions in the fair values of OREO properties. Partially offsetting these decreases was an increase of $564 thousand in Federal Deposit Insurance Corporation (FDIC) insurance expense due to a higher assessment base as a result of the Virginia Commerce acquisition.

United’s asset quality continues to outperform its peers. United’s percentage of nonperforming loans to loans, net of unearned income of 0.98% at June 30, 2014 compares favorably to the most recently reported percentage of 1.54% at March 31, 2014 for United’s Federal Reserve peer group. At June 30, 2014, nonperforming loans were $87.2 million, up from nonperforming loans of $81.1 million or 1.21% of loans, net of unearned income, at December 31, 2013. The increase was due mainly to two troubled loans to a commercial customer in the amount of $5.6 million being restructured into one loan during the first six months of 2014. The loss potential on this loan has been properly evaluated and allocated within the company’s allowance for loan losses. As of June 30, 2014, the allowance for loan losses was $75.0 million or 0.85% of loans, net of unearned income, as compared to $74.2 million or 1.11% of loans, net of unearned income, at December 31, 2013. The decline in the ratio at June 30, 2014 of the allowance for loan losses as a percentage of loans, net of unearned income was because United was unable to carry-over Virginia Commerce’s previously established allowance for loan losses because acquired loans are recorded at fair value in accordance with accounting rules. Therefore, United recorded a downward fair value adjustment of approximately $90.4 million on the loans acquired from Virginia Commerce. Total nonperforming assets of $130.4 million, including OREO of $43.2 million at June 30, 2014, represented 1.08% of total assets which is comparable to the most recently reported percentage of 1.09% at March 31, 2014 for United’s Federal Reserve peer group.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 13.5% at June 30, 2014 while its Tier I capital and leverage ratios are 12.5% and 10.6%, respectively. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10%, a Tier I capital ratio of 6% and a leverage ratio of 5%.

During the second quarter of 2014, United’s Board of Directors declared a cash dividend of $0.32 per share. United has increased its dividend to shareholders for 40 consecutive years. The annualized 2014 dividend of $1.28 equates to a yield of approximately 4% based on recent UBSI market prices.

United has consolidated assets of approximately $12.1 billion with 132 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 June 30, 2014 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 June 30, 2014 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.

The efficiency ratio used by United focuses on the performance of its core business operations. It is used by management as a measure of operating expense control. In general, the GAAP efficiency ratio is total noninterest expenses as a percentage of net interest income plus total noninterest income as shown on the face of the Consolidated Statements of Income. In United’s calculation of its efficiency ratio, amortization of intangibles, OREO expense and any infrequent noninterest expenses are excluded from total noninterest expenses. Net interest income is increased for the favorable treatment of tax-exempt income and excludes securities gains and losses as well as any infrequent noninterest income items from total noninterest income. Management believes that excluding these items is more indicative of United’s normalized operations and is highly useful in comparing period-to-period core operating performance.

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.