United Bankshares, Inc. Announces Record Earnings for the Second Quarter and First Half of 2019

United Bankshares, Inc. (NASDAQ: UBSI), today reported record earnings for the second quarter and the first half of 2019. Earnings for the second quarter of 2019 were a record $67.2 million as compared to earnings of $66.3 million for the second quarter of 2018. Diluted earnings per share were $0.66 for the second quarter of 2019 as compared to diluted earnings per share of $0.63 for the second quarter of 2018. Earnings for the first half of 2019 were a record $130.8 million as compared to earnings of $128.0 million for the first half of 2018. Diluted earnings per share were $1.28 for the first half of 2019 as compared to diluted earnings per share of $1.22 for the first half of 2018.

Second quarter of 2019 results produced an annualized return on average assets of 1.38%, an annualized return on average equity of 8.12% and an annualized return on average tangible equity of 14.90%, respectively. For the first half of 2019, United’s annualized return on average assets was 1.36% while the annualized return on average equity was 8.00% and the annualized return on average tangible equity was 14.78%. United’s annualized returns on average assets, average equity and average tangible equity were 1.42%, 8.11% and 15.14%, respectively, for the second quarter of 2018 while the annualized returns on average assets, average equity and average tangible equity were 1.39%, 7.88% and 14.72%, respectively, for the first half of 2018.

“We are pleased to report a continuation of strong financial performance as we announce record earnings for the second quarter and first half of 2019,” stated Richard M. Adams, United’s Chairman and Chief Executive Officer.

Net interest income for the second quarter of 2019 was $150.6 million, which was relatively flat from the second quarter of 2018, increasing $1.4 million or less than 1%. The $1.4 million increase in net interest income occurred because total interest income increased $21.2 million while total interest expense increased $19.8 million from the second quarter of 2018. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the second quarter of 2019 was $151.5 million, which was relatively flat from the second quarter of 2018, increasing $1.3 million or less than 1% due mainly to an increase in average earning assets mostly offset by an increase in the average cost of funds. Average earning assets for the second quarter of 2019 increased $785.8 million or 5% from the second quarter of 2018 due mainly to increases of $341.4 million or 3% in average net loans, $323.0 million or 14% in average investment securities and $121.3 million or 19% in average short-term investments. In addition, the average yield on earning assets for the second quarter of 2019 increased 30 basis points from the second quarter of 2018 due to higher market rates and an increase of $2.4 million in loan accretion on acquired loans. Loan accretion on acquired loans was $14.5 million and $12.1 million for the second quarter of 2019 and 2018, respectively. Mostly offsetting these increases to tax-equivalent net interest income for the second quarter of 2019 was an increase of 61 basis points in the average cost of funds as compared to the second quarter of 2018 due to higher market interest rates. The net interest margin of 3.53% for the second quarter of 2019 was a decrease of 14 basis points from the net interest margin of 3.67% for the second quarter of 2018.

Net interest income for the first half of 2019 was $294.7 million, which was relatively flat from the first half of 2018, increasing $1.6 million or less than 1%. The $1.6 million increase in net interest income occurred because total interest income increased $43.2 million while total interest expense increased $41.6 million from the first half of 2018. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the first half of 2019 was $296.7 million, which was relatively flat from the first half of 2018, increasing $1.3 million or less than 1% due mainly to an increase in average earning assets mostly offset by an increase in the average cost of funds. Average earning assets for the first half of 2019 increased $726.8 million or 4% from the first half of 2018 due mainly to increases of $439.4 million or 3% in average net loans and $346.1 million or 15% in average investment securities. Average short-term investments decreased $58.7 million or 7%. In addition, the average yield on earning assets for the first half of 2019 increased 32 basis points from the first half of 2018 due to higher market rates. Mostly offsetting these increases to tax-equivalent net interest income for the first half of 2019 was an increase of 67 basis points in the average cost of funds as compared to the first half of 2018 due to higher market interest rates. Loan accretion on acquired loans was $23.0 million and $22.8 million for the first half of 2019 and 2018, respectively, increasing $173 thousand or less than 1%. The net interest margin of 3.50% for the first half of 2019 was a decrease of 14 basis points from the net interest margin of 3.64% for the first half of 2018.

On a linked-quarter basis, net interest income for the second quarter of 2019 increased $6.4 million or 4% from the first quarter of 2019. The $6.4 million increase in net interest income occurred because total interest income increased $10.1 million while total interest expense only increased $3.7 million from the first quarter of 2019. United’s tax-equivalent net interest income for the second quarter of 2019 increased $6.4 million or 4% from the first quarter of 2019 as well due to an increase in the yield on average earning assets. The average yield on earning assets for the second quarter of 2019 increased 13 basis points from the first quarter of 2019 due to an increase of $6.0 million in loan accretion on acquired loans. Loan accretion on acquired loans was $14.5 million and $8.5 million for the second quarter and first quarter of 2019, respectively. In addition, average earning assets for the second quarter of 2019 increased $274.7 million or 2% as compared to the first quarter of 2019 as average net loans increased $176.5 million or 1%, average investment securities increased $66.5 million or 3% and average short-term investments increased $31.7 million or 4% for the linked quarter. Partially offsetting the increases to tax-equivalent net interest income for the second quarter of 2019 was an increase of 8 basis points in the average cost of funds as compared to the first quarter of 2019 due to higher market interest rates. The net interest margin of 3.53% for the second quarter of 2019 increased 7 basis points from the net interest margin of 3.46% for the first quarter of 2019.

For the quarters ended June 30, 2019 and 2018, the provision for loan losses was $5.4 million and $6.2 million, respectively, while the provision for the first six months of 2019 was $10.4 million as compared to $11.4 million for the first six months of 2018. Net charge-offs were $5.9 million and $5.7 million for the second quarter of 2019 and 2018, respectively. Net charge-offs were $10.7 million and $10.9 million for the first half of 2019 and 2018, respectively. Annualized net charge-offs as a percentage of average loans was 0.17% and 0.16% for the second quarter and first half of 2019, respectively. On a linked-quarter basis, the provision for loan losses increased $421 thousand while net charge-offs increased $1.1 million from the first quarter of 2019.

Noninterest income for the second quarter of 2019 was $39.8 million, which was an increase of $3.8 million or 11% from the second quarter of 2018. The increase was due mainly to an increase of $3.0 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). In addition, fees from brokerage services increased $813 thousand due to increased volume.

Noninterest income for the first half of 2019 was $71.0 million, which was an increase of $3.8 million or 6% from the first half of 2018. The increase was due mainly to an increase of $2.1 million in income from mortgage banking activities due mainly to a change in fair value of $4.3 million on George Mason’s interest rate lock commitments due to a higher locked pipeline. In addition, fees from brokerage services increased $1.1 million due to increased volume and income from bank-owned life insurance increased $628 thousand due to the recognition of $600 thousand in death benefits for the first half of 2019.

On a linked-quarter basis, noninterest income for the second quarter of 2019 increased $8.6 million or 27% from the first quarter of 2019 due mainly to an increase of $8.0 million in income from mortgage banking activities. The increase was due mainly to increased production and sales of mortgage loans in the secondary market by George Mason.

Noninterest expense for the second quarter of 2019 was $100.2 million, an increase of $6.8 million or 7% from the second quarter of 2018 due mainly to penalties of $5.1 million to prepay long-term Federal Home Loan Bank (FHLB) advances. In addition, employee compensation increased $1.2 million due mainly to an increase in employee incentives while other expense also increased $1.2 million due to an increase of $858 thousand on the write-off of income tax credits. Partially offsetting these increases was a decrease of $720 thousand in employee benefits due to a decline in pension expense.

Noninterest expense for the first half of 2019 was $189.6 million, an increase of $5.8 million or 3% from the first half of 2018 due mainly to the previously mentioned prepayment penalties on FHLB advances of $5.1 million. In addition, Federal Deposit Insurance Corporation (FDIC) insurance expense increased $1.9 million due to United Bank becoming a large institution and subject to increased assessment rates and other expense increased $1.7 million due to an increase of $1.4 million on the write-off of income tax credits. Partially offsetting these increases were decreases of $1.1 million in net occupancy expense due mainly to a decline in building rental expense, $938 thousand in data processing fees due to lower fees under a new contract, and $860 thousand in employee benefits due mainly to a decline in pension expense.

On a linked-quarter basis, noninterest expense for the second quarter of 2019 increased $10.8 million or 12% from the first quarter of 2019 due in large part to the previously mentioned prepayment penalties on FHLB advances of $5.1 million. In addition, employee compensation increased $5.4 million as a result of higher commissions expense related to an increase in production and sales of mortgage loans at George Mason and other expense increased $1.3 million due primarily to increased consulting and legal expenses. Partially offsetting these increases were decreases of $853 thousand in employee benefits due mainly to a decline in pension expense and $783 thousand in other real estate owned (OREO) expense due to fewer declines in the values of OREO properties.

For the second quarter and first half of 2019, income tax expense was $17.5 million and $34.9 million, respectively, as compared to $19.2 million and $37.1 million, respectively, in second quarter and first half of 2018. The decreases in 2019 were mainly due to a decline in the effective tax rate due in large part to the increased benefit from income tax credits. On a linked-quarter basis, income tax expense for the second quarter of 2019 increased $201 thousand from the first quarter of 2019 mainly due to higher earnings. United’s effective tax rate was 20.7% for the second quarter of 2019, 22.5% for the second quarter of 2018 and 21.4% for the first quarter of 2019. For the first half of 2019 and 2018, United's effective tax rate was 21.0% and 22.5%, respectively.

United’s asset quality continues to be sound. At June 30, 2019, nonperforming loans were $142.6 million, or 1.05% of loans, net of unearned income, relatively flat from nonperforming loans of $142.8 million, or 1.06% of loans, net of unearned income, at December 31, 2018. As of June 30, 2019, the allowance for loan losses was $76.4 million or 0.56% of loans, net of unearned income, as compared to $76.7 million or 0.57% of loans, net of unearned income, at December 31, 2018. Total nonperforming assets of $157.1 million, including OREO of $14.5 million at June 30, 2019, represented 0.79% 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 14.3% at June 30, 2019 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.2%, 12.2% 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 June 30, 2019, United had consolidated assets of approximately $19.9 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 17 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 June 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 June 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, return on 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.