United Bankshares, Inc. Announces Earnings for the Fourth Quarter and Year of 2017

United Bankshares, Inc. (NASDAQ: UBSI), today reported earnings for the fourth quarter and year of 2017. Earnings for the fourth quarter of 2017 were $18.0 million or $0.17 per diluted share as compared to earnings of $39.1 million or $0.51 per diluted share for the fourth quarter of 2016. The results for the fourth quarter of 2017 included additional income tax expense of $37.7 million or $0.36 per diluted share related to the estimated impact of the enactment of the Tax Cuts and Jobs Act (the Tax Act). Earnings for the year of 2017 were $150.6 million or $1.54 per diluted share as compared to earnings of $147.1 million or $1.99 per diluted share for the year of 2016. The results for the year of 2017 were impacted by $0.39 per diluted share for the additional income tax expense of $37.7 million related to the Tax Act.

“The year of 2017 was another successful year for United Bankshares,” stated Richard M. Adams, United’s Chairman of the Board and Chief Executive Officer. “We increased earnings before income taxes to a record $285 million. We increased dividends to $1.33 per share which represented the 44th consecutive year of dividend increases to our shareholders. This is a record only one other major banking company in the USA has been able to achieve. In addition, we completed our merger with Cardinal Financial Corporation (Cardinal), the 31st and largest acquisition under the current administration.”

On April 21, 2017, United completed its acquisition of Cardinal of Tysons Corner, Virginia. On June 3, 2016, United completed its acquisition of Bank of Georgetown of Washington, D.C. Both the results of operations of Cardinal and Bank of Georgetown are included in the consolidated results of operations from their respective dates of acquisition. Also, United consolidated its banking subsidiaries during the fourth quarter of 2017. As a result of the Cardinal acquisition, the fourth quarter and year of 2017 were impacted by increased levels of average balances, income, and expense as compared to the fourth quarter and year of 2016 which were impacted by increased levels of average balances, income, and expense due to the Bank of Georgetown acquisition. In addition, the fourth quarter and year of 2017 included merger-related expenses of $1.8 million and $26.8 million, respectively, as compared to merger-related expenses of $523 thousand and $6.1 million for the fourth quarter and year of 2016, respectively.

Net interest income for the fourth quarter of 2017 was $154.9 million, which was an increase of $41.6 million or 37% from the fourth quarter of 2016. The $41.6 million increase in net interest income occurred because total interest income increased $50.9 million while total interest expense only increased $9.3 million from the fourth quarter of 2016. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the fourth quarter of 2017 was $157.1 million, an increase of $42.3 million or 37% from the fourth quarter of 2016 due mainly to an increase in average earning assets from the Cardinal acquisition. Average earning assets for the fourth quarter of 2017 increased $3.9 billion or 31% from the fourth quarter of 2016 due mainly to a $2.9 billion or 28% increase in average net loans. Average short-term investments increased $439.8 million or 47% while average investment securities increased $580.3 million or 42%. The fourth quarter of 2017 average yield on earning assets increased 29 basis points from the fourth quarter of 2016 due to additional loan accretion of $8.7 million on acquired loans and higher market interest rates. Partially offsetting the increases to tax-equivalent net interest income for the fourth quarter of 2017 was an increase of 22 basis points in the average cost of funds as compared to the fourth quarter of 2016 due to the higher market interest rates. The net interest margin of 3.77% for the fourth quarter of 2017 was an increase of 15 basis points from the net interest margin of 3.62% for the fourth quarter of 2016.

Net interest income for the year of 2017 was $549.0 million, which was an increase of $123.7 million or 29% from the year of 2016. The $123.7 million increase in net interest income occurred because total interest income increased $153.5 million while total interest expense only increased $29.8 million from the year of 2016. Tax-equivalent net interest income for the year of 2017 was $557.4 million, an increase of $126.0 million or 29% from the year of 2016. This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Cardinal acquisition. Average earning assets increased $3.6 billion or 30% from the year of 2016 as average net loans increased $2.6 billion or 26% for the year of 2017. Average investment securities increased $401.3 million or 30%. In addition, the average yield on earning assets increased 7 basis points from the year of 2016 due to additional loan accretion of $20.4 million on acquired loans and higher market interest rates. Partially offsetting the increases to tax-equivalent net interest income for the year of 2017 was an increase of 16 basis points in the average cost of funds as compared to the year of 2016 due to higher market interest rates. The net interest margin of 3.58% for the year of 2017 was a decrease of 4 basis points from the net interest margin of 3.62% for the year of 2016.

On a linked-quarter basis, net interest income for the fourth quarter of 2017 increased $4.6 million or 3% from the third quarter of 2017. The $4.6 million increase in net interest income occurred because total interest income increased $4.9 million while total interest expense only increased $355 thousand from the third quarter of 2017. Tax-equivalent net interest income for the fourth quarter of 2017 increased $4.8 million or 3% due mainly to an increase in the average yield on earning assets. The yield on average earning assets for the fourth quarter of 2017 increased 13 basis points from the third quarter of 2017 due to additional loan accretion of $4.0 million and higher market interest rates. Average earning assets were relatively flat for the quarter, decreasing $11.0 million or less than 1%. Average net loans decreased $305.3 million or 2% while average short-term investments increased $124.1 million or 10% and average investment securities increased $170.2 million or 9%, respectively. Partially offsetting the increases to tax-equivalent net interest income for the fourth quarter of 2017 was an increase of 4 basis points in the average cost of funds as compared to the third quarter of 2017. The net interest margin of 3.77% for the fourth quarter of 2017 was an increase of 12 basis points from the net interest margin of 3.65% for the third quarter of 2017.

For the quarters ended December 31, 2017 and 2016, the provision for loan losses was $7.0 million and $5.8 million, respectively, while the provision for the year of 2017 was $28.4 million as compared to $24.5 million for the year of 2016. Net charge-offs were $5.3 million and $24.6 million for the fourth quarter and year of 2017, respectively, as compared to $5.7 million and $27.5 million for the same time periods in 2016. Annualized net charge-offs as a percentage of average loans were 0.16% and 0.20% for the fourth quarter and year of 2017, respectively. On a linked-quarter basis, the provision for loan losses for the fourth quarter of 2017 decreased $302 thousand while net charge-offs decreased $60 thousand from the third quarter of 2017.

Noninterest income for the fourth quarter of 2017 was $32.8 million, which was an increase of $16.1 million or 97% from the fourth quarter of 2016. The increase was due mainly to an increase of $14.4 million in income from mortgage banking activities due to increased production and sales of mortgage loans in the secondary market. As part of the Cardinal acquisition, United acquired Cardinal’s mortgage banking subsidiary, George Mason Mortgage, LLC (George Mason). George Mason is the largest locally headquartered home mortgage lender in the D.C. Metro region with offices located in Virginia, Maryland, North Carolina, South Carolina and the District of Columbia.

Noninterest income for the year of 2017 was $131.6 million, which was an increase of $61.6 million or 88% from the year of 2016. Once again, the increase was mainly due to increased production and sales of mortgage loans in the secondary market because of the acquisition of Cardinal and its mortgage banking subsidiary, George Mason. Income from mortgage banking activities for the year of 2017 increased $55.5 million from the year of 2016. Also, net gains on the sales, calls and redemption of investment securities for the year of 2017 increased $5.3 million from the year of 2016 due mainly to a net gain of $3.8 million on the redemption of an investment security during the first quarter of 2017.

On a linked-quarter basis, noninterest income for the fourth quarter of 2017 decreased $5.5 million or 14% from the third quarter of 2017 due mainly to a decline of $5.1 million in income from mortgage banking activities due to decreased production and sales of mortgage loans in the secondary market. The decline was due mainly to a typical seasonal slowdown.

Noninterest expense for the fourth quarter of 2017 was $95.8 million, an increase of $33.3 million or 53% from the fourth quarter of 2016 due mainly to the additional employees and branch offices from the Cardinal acquisition as most major categories of noninterest expense showed increases. In particular, employee compensation increased $16.9 million, employee benefits increased $2.2 million, net occupancy expenses increased $2.4 million, and data processing expense increased $1.8 million. In addition, within other expense, merger-related expenses increased $1.3 million and amortization of core deposit intangibles increased $1.2 million.

Noninterest expense for the year of 2017 was $367.4 million, an increase of $119.2 million or 48% from the year of 2016 due mainly to the additional employees and branch offices from the Cardinal acquisition as most major categories of noninterest expense showed increases. Employee compensation increased $71.0 million which includes an increase of $12.1 million in merger severance charges. Otherwise, employee compensation increased due to higher employee incentives and commissions expense mainly related to the mortgage banking production of George Mason. Employee benefits increased $8.2 million, net occupancy expenses increased $11.5 million which includes an increase of $4.4 million for the termination of leases and a reduction in value of leasehold improvements for closed offices, and data processing expense increased $5.7 million which included a contract termination penalty of $525 thousand. In addition, within other expense, other merger-related expenses increased $4.8 million and amortization of core deposit intangibles increased $3.8 million.

On a linked-quarter basis, noninterest expense for the fourth quarter of 2017 was relatively flat from the third quarter of 2017, decreasing $874 thousand or less than 1%. Employee compensation decreased $3.3 million due mainly to a decrease in commissions expense related to the decline in production and sales of mortgage loans in the secondary market. In addition, OREO expense decreased $1.4 million due to fewer declines in the fair value of OREO properties. Partially offsetting these decreases were increases in merger-related expenses of $1.3 million and business franchise taxes of $990 thousand within other expense.

For the fourth quarter of 2017, income tax expense was $66.9 million, an increase of $44.4 million from the fourth quarter of 2016 mainly due to the previously mentioned additional income tax expense of $37.7 million related to the estimated impact of the Tax Act and to higher earnings. For the year of 2017, income tax expense was $134.2 million, an increase of $58.7 million from the year of 2016 due to the additional income tax expense related to the estimated impact of the Tax Act and to higher earnings. On a linked-quarter basis, income tax expense increased $39.1 million due to the additional income tax expense related to the estimated impact of the Tax Act. The additional income tax expense related to the estimated impact of the Tax Act resulted primarily from the revaluation of United’s deferred tax assets and liabilities using a lower enacted corporate tax rate. United’s effective tax rate was approximately 78.8% for the fourth quarter of 2017, 36.5% for the fourth quarter of 2016 and 32.9% for the third quarter of 2017. For the years of 2017 and 2016, United's effective tax rate was 47.1% and 33.9%, respectively. The higher effective tax rates for the fourth quarter and year of 2017 were due to impact of the Tax Act.

United’s asset quality continues to be sound. At December 31, 2017, nonperforming loans were $168.7 million, or 1.30% of loans, net of unearned income as compared to nonperforming loans of $168.40 million or 1.28% of loans, net of unearned income at September 30, 2017 and $113.3 million, or 1.10% of loans, net of unearned income, at December 31, 2016. As of December 31, 2017, the allowance for loan losses was $76.6 million or 0.59% of loans, net of unearned income, as compared to $74.9 million or 0.57% of loans, net of unearned income at September 30, 2017 and $72.8 million or 0.70% of loans, net of unearned income, at December 31, 2016. Total nonperforming assets of $193.1 million, including OREO of $24.3 million at December 31, 2017, represented 1.01% of total assets as compared to nonperforming assets of $195.2 million or 1.02% at September 30, 2017 and nonperforming assets of $144.8 million or 1.00% of total assets at December 31, 2016.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 14.2% at December 31, 2017 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.0%, 12.0% and 10.1%, 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 December 31, 2017, United had consolidated assets of approximately $19.1 billion with 144 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 December 31, 2017 consolidated financial statements on Form 10-K. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2017 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 35%.

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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