FORM10-K
0000729986 us-gaap:NondesignatedMember ubsi:IncomeFromMortgageBankingActivitiesMember us-gaap:InterestRateLockCommitmentsMember 2020-01-01 2020-12-31
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ]
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the Fiscal Year Ended
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the transition period from
_______ to
_______
Commission File Number:
0-13322(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | | Identification No.) |
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500 Virginia Street, East
Charleston, West Virginia
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(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to section 12(b) of the Act:
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Common Stock, $2.50 Par Value | | | | |
Common Stock, par value $2.50 per share | | | | NASDAQ Global Select Market |
(Title of class) | | (Name of exchange on which registered) |
Securities registered pursuant to 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒No [ ]☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
[ ]☐☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒No [ ]
UNITED BANKSHARES, INC.
FORM10-K
(Continued)
☐
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation
S-T (§
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).☒No [ ]Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form☐
FORM10-K
or any amendment to thisForm 10-K. [ ] (Continued)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange Act: | | |
Large accelerated filer[ X ] ☒ | | Accelerated filer [ ]☐ |
Non-accelerated filer [ ]☐
| | Smaller reporting company [ ] |
(Do not check if a smaller reporting company)
| | ☐ |
| | Emerging growth company [ ]☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to§240.10D-1(b).
☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act). Yes [ ]☐☒The aggregate market value of United Bankshares, Inc. common stock, representing all of its voting stock that was held by
non-affiliates
on June 30, 2017,2022, was approximately$3,921,339,1114,522,371,470
As of January 31,
2018,2023, United Bankshares, Inc. had
105,041,766shares of common stock outstanding with a par value of
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| Auditor Firm PCAOB ID: 42 | | Auditor Name: Ernst & Young LLP | | Auditor Location: Charleston, WV, USA |
Documents Incorporated By Reference
Certain specifically designated portions of the Definitive Proxy Statement for the United Bankshares, Inc.
20182023 Annual Shareholders’ Meeting to be held on May
30, 201810, 2023 are incorporated by reference in Part III of this Form
10-K.
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UNITED BANKSHARES, INC.
FORM 10-K,
(Continued)
As of the date of filing this Annual report, neither the annual shareholders’ report for the year ended December 31, 2017, nor the proxy statement for the annual United shareholders’ meeting has been mailed to shareholders.
CROSS-REFERENCE INDEX PART I
UNITED BANKSHARES, INC.
FORM10-K, PART I
Organizational History and Subsidiaries
United Bankshares, Inc. (United)(“United,” “we,” “us,” “our,” or the “Company”) is a West Virginia corporation registered as a financial holding company pursuant to the Bank Holding Company Act of 1956, as amended. United was incorporated on March 26, 1982, organized on September 9, 1982, and began conducting business on May 1, 1984 with the acquisition of three wholly-owned subsidiaries. Since its formation in 1982, United has acquiredthirty-one thirty-three banking institutions including its recent acquisition of Cardinal Financial Corporation, which consummated after the close of business on April 21, 2017. During the fourth quarter of 2017, United consolidated its two banking subsidiaries, merging United Bank, Inc. into United Bank. Therefore, as of December 31, 2017,institutions. United has one banking subsidiary “doing business” under the name of United Bank, operating under the laws of Virginia. United Bank offers a full range of commercial and retail banking services and products. United also owns nonbank subsidiaries which engage in other community banking services such as asset management, real property title insurance, financial planning, mortgage banking, and brokerage services.
Employees
As of December 31, 2017, United and its subsidiaries had approximately 2,381 full-time equivalent employees and officers. None of these employees are represented by a collective bargaining unit and management considers employee relations to be excellent.
Web Site Address
United’s web site address is“www.ubsi-inc.com”. United makes available free of charge on its web site the annual reporton Form 10-K, quarterly reports on Form10-Q, current reports on Form8-K, and amendments thereto, as soon as reasonably practicable after United files such reports with the Securities and Exchange Commission (SEC)(“SEC”). The reference to United’s web site does not constitute incorporation by reference of the information contained in the web site and should not be considered part of this document. These reports are also available at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at1-800-SEC-0330.The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Business of United
As a financial holding company, United’s present businesses are community banking and mortgage banking. As of December 31, 2017,2022, United’s consolidated assets approximated $19.1$29.5 billion and total shareholders’ equity approximated $3.2$4.5 billion.
United is permitted to acquire other banks and bank holding companies, as well as thrift institutions. United is also permitted to engage in certainnon-banking activities which are closely related to banking under the provisions of the Bank Holding Company Act and the Federal Reserve Board’s Regulation Y. Management continues to consider such opportunities as they arise, and in this regard, management from time to time makes inquiries, proposals, or expressions of interest as to potential opportunities, although no agreements or understandings to acquire other banks or bank holding companies ornon-banking subsidiaries or to engage in other nonbanking activities, other than those identified herein, presently exist.
On December 3, 2021, United completed its acquisition of Community Bankers Trust Corporation (“Community Bankers Trust”), the parent company of Essex Bank (“Essex”) with $1.8 billion in assets, headquartered in Richmond, Virginia. The acquisition of Community Bankers Trust enhanced United’s existing presence in the DC Metro MSA and took United into new markets including Baltimore, Annapolis, Lynchburg, Richmond, and the Northern Neck of Virginia. It also strategically connected our Mid-Atlantic and Southeast footprints. See Note B—Notes to Consolidated Financial Statements for a discussion of United’s merger with Community Bankers Trust. On May 1, 2020, United completed mergersits acquisition of Carolina Financial Corporation (“Carolina Financial”), the parent company of CresCom Bank (“CresCom”) with $5.0 billion in assets, headquartered in Charleston, South Carolina. The acquisition of Carolina Financial broadened United’s footprint in the Southeast region with some of the most desirable banking markets in the nation. Prior to Carolina Financial, United more than doubled its size through three acquisitions in less than three and a half years. In January 2014, United closed its acquisition of Virginia Commerce Bancorp, Inc., followed by the November 2015 announcement of the Bank of Georgetown transaction which closed June 2016. In August 2016, United announced the Cardinal Financial Corporation and Bank of Georgetown.
acquisition which closed April 2017.4
Business of Subsidiaries
United, through its subsidiaries, engages primarily in community banking and mortgage banking offering most types of business permitted by law and regulation. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, and floor plan loans; and the making of construction and real estate loans. Also offered are individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As part of its lending function, United Bank offers credit card services.
United Bank maintains a trust department which acts as trustee under wills, trusts and pension and profit sharing plans, as executor and administrator of estates, and as guardian for estates of minors and incompetents, and in addition performs a variety of investment and security services. Trust services are available to customers of affiliate banks. United Bank provides services to its correspondent banks such as check clearing, safekeeping and the buying and selling of federal funds.
George Mason Mortgage, LLC (George Mason)(“George Mason”), a wholly-owned subsidiary of United Bank, is engaged in the operation of a general mortgage and agency business, including the origination and acquisition of residential real estate loans for resale and generally the activities commonly conducted by a mortgage banking company. Residential real estate loans are sold without the servicing rights retained. These loans are for single-family, owner-occupied residences with either adjustable or fixed rate terms, with a variety of maturities tailored to effectively serve its markets.
Crescent Mortgage Company (“Crescent”), a wholly-owned subsidiary of United Bank, is primarily a correspondent/wholesale mortgage company approved to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers. Much like George Mason, Crescent is also engaged in the operation of a general mortgage and agency business, including the origination and acquisition of residential real estate loans for resale and the activities commonly conducted by a mortgage banking company. Depending on the pricing of residential real estate loans sold, Crescent may retain the servicing rights. In addition, at certain times, Crescent may purchase or sell rights to service mortgage loans from or to third parties.
United Brokerage Services, Inc., a wholly-owned subsidiary of United Bank, is a fully-disclosed broker/dealer and a Registered Investment Advisor with the National Association of Securities Dealers, Inc.Financial Industry Regulatory Authority (“FINRA”), the Securities and Exchange Commission, and a member of the Securities Investor Protection Corporation. United Brokerage Services, Inc. offers a wide range of investment products as well as comprehensive financial planning and asset management services to the general public.
United Bank is a member of a network of automated teller machines known as the New York Currency Exchange (NYCE)(“NYCE”) ATM network. The NYCE is an interbank network connecting the ATMs of various financial institutions in the United States and Canada.
United through United Bank offers an Internet banking service, Smart Touch Onlinesecure Digital Banking whichfor consumer and commercial customers. Digital Banking is available on a multitude of devices to include a browser-based experience, mobile (Apple, Android) and tablet applications. Digital Banking allows customers to perform various transactions using a computer or tabletmanage their financial lives from any locationplace they can access the internet (cellular or from a mobile device such as a smart phone or other cellular device as long as they have access to the Internet, applicable software and a secure browser. Specifically, customersWi-Fi). Customers can quickly check personal account balances, receive information about transactions within their accounts, make transfers between accounts, stop payment on a check, and reorder checks. Customers may also pay bills, complete internal and Zelle® transfers; all from the convenience of their devices. They can also set-up text and email alerts to notify them of large transactions and help them avoid overdraft fees. Commercial customers have many of the same services, including balance inquiry, cash management, sweeps and wire transfers. Consumers can also research United Bank products and open deposits accounts online and can make payments to virtually any business or individual. Customers can set up recurring fixed payments,one-time future payments or aone-time immediate payment. Customers can also set up their own merchants, view and modify that merchant list, view pending transactions and view their bill payment history with approximately three (3) months of history.apply for mortgages from United Bank’s website.
United Bank also offers an automated telephone banking system, Telebanc, which allows customers to access their personal account(s) or business account(s) information from a touch-tone telephone.
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Lending Activities
United’s loan and lease portfolio, net of unearned income, increased $2.7$2.5 billion or 25.82%14.06% in 20172022 due mainly to the acquisitionsubstantial loan growth in almost all major categories of Cardinal Financial Corporation.loans. The loan and lease portfolio is mainly comprised of commercial, real estate and consumer loans including credit card and home equity loans. Commercial,Since year-end 2021, commercial, financial and agricultural loans increased $1.7 billion$471.6 million or 28.30% as4.23%. In particular, commercial real estate loans increased $1.3 billion$321.4 million or 29.89% and4.18% while commercial loans (not secured by real estate) increased $385.5$150.2 million or 23.90%4.34%. In addition, consumerWithin commercial loans increased $105.6 million or 17.34% while residential(not secured by real estateestate), Payment Protection Program (“PPP”) loans increased $592.7 million or 24.66%.declined $267.4 million. Construction and land development loans increased $249.2$912.8 million or 19.84%.
45.32%, residential real estate loans increased $971.4 million or 26.31%, and consumer loans increased $173.1 million or 14.51% due to an increase in indirect automobile financing.Commercial Loans and Leases
The commercial loan and lease portfolio consists of loans and leases to corporate borrowers primarily in small tomid-size industrial and commercial companies, as well as automobile dealers, service, retail and wholesale merchants. Collateral securing these loans includes equipment, machinery, inventory, receivables, vehicles and commercial real estate. Commercial loans and leases are considered to contain a higher level of risk than other loan types although care is taken to minimize these risks. Numerous risk factors impact this portfolio including industry specific risks such as economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. United diversifies risk within this portfolio by closely monitoring industry concentrations and portfolios to ensure that it does not exceed established lending guidelines. Diversification is intended to limit the risk of loss from any single unexpected economic event or trend. Underwriting standards require a comprehensive credit analysis and independent evaluation of virtually all larger balance commercial loans by the loan committee prior to approval.
Real Estate Loans
Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties. Also included in this portfolio are loans that are secured by owner-occupied real estate, but made for purposes other than the construction or purchase of real estate. Commercial real estate loans are to many of the same customers and carry similar industry risks as the commercial loan portfolio. Real estate mortgage loans to consumers are secured primarily by a first lien deed of trust. These loans are traditionalone-to-four family residential mortgages. The loans generally do not exceed an 80% loan to value ratio at the loan origination date and most are at a variable rate of interest. These loans are considered to be of normal risk. Also included in the category of real estate mortgage loans are home equity loans.
As of December 31, 2017,2022, approximately $390.77$406.8 million or 3.00%1.98% of United’s loan portfolio were real estate loans that met the regulatory definition of a highloan-to-value loan. A highloan-to-value real estate loan is defined as any loan, line of credit, or combination of credits secured by liens on or interests in real estate that equals or exceeds a certain percentage established by United’s primary regulator of the real estate’s appraised value, unless the loan has other appropriate credit support. The certain percentage varies depending on the loan type and collateral. Appropriate credit support may include mortgage insurance, readily marketable collateral, or other acceptable collateral that reduces theloan-to-value ratio below the certain percentage.
Consumer Loans
Consumer loans are secured by automobiles, boats, recreational vehicles, and other personal property. Personal loans, student loans and unsecured credit card receivables are also included as consumer loans. United monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors.
Underwriting Standards
United’s loan underwriting guidelines and standards are updated periodically and are presented for approval by the Board of Directors of United Bank. The purpose of the standards and guidelines is to grant loans on a sound and collectible basis; to invest available funds in a safe, profitable manner; to serve the legitimate credit needs of the communities of United’s primary market area; and to ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to:to minimize loan losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program.
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United’s underwriting standards and practices are designed to originate both fixed and variable rate loan products in a manner which is consistent with the prudent banking practices applicable to these exposures. Typically, both fixed and variable rate loan underwriting practices incorporate conservative methodology,
including the use of stress testing for commercial loans, and other product appropriate measures designed to provide an adequate margin of safety for the full collection of both principal and interest within contractual terms. Consumer real estate secured loans are underwritten to the initial rate, and to a higher assumed rate commensurate with normal market conditions. Therefore, it is the intent of United’s underwriting standards to insureensure that adequate primary repayment capacity exists to address both future increases in interest rates, and fluctuations in the underlying cash flows available for repayment. Historically, and at December 31, 2017,2022, United has not offered “teaser rate” loans, and had no loan portfolio products which were specifically designed for“sub-prime” borrowers. Management defines“sub-prime” borrowers as consumer borrowers with a credit score of less than 660.
The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant, with justification, a loan with variances from the underwriting guidelines and standards. However, the loan officer may not exceed his or her respective lending authority without obtaining the prior, proper approval as outlined in United’s loan policy from a superior, a regional supervisor or market president (dual approval per policy) or the Loan Committee, whichever is deemed appropriate for the nature of the variance.
Loan Concentrations
United has commercial loans, including real estate and owner-occupied, income-producing real estate and land development loans, of approximately $9.2$14.2 billion as of December 31, 2017.2022. These loans are primarily secured by real estate located in West Virginia, southeastern Ohio, southwestern Pennsylvania, Virginia, Maryland, North Carolina, South Carolina and the District of Columbia. United categorizes these commercial loans by industry according to the North American Industry Classification System (NAICS)(“NAICS”) to monitor the portfolio for possible concentrations in one or more industries. As of the most recent fiscalyear-end, United has one such industry classification that exceeded 10% of total loans. As of December 31, 2017,2022, approximately $5.0$9.6 billion or 38.1%46.38% of United’s total loan portfolio were for the purpose of renting or leasing real estate.estate and construction. The loans were originated by United’s subsidiary banksbank using underwriting standards as set forth by management. United’s loan administration policies are focused on the risk characteristics of the loan portfolio, including commercial real estate loans, in terms of loan approval and credit quality. It is the opinion of management that these loans do not pose any unusual risks and that adequate consideration has been given to the above loans in establishing the allowance for loan losses.
United does not have a loan classification concentration in the restaurants, hotel and accommodations industry. As of December 31, 2022, approximately $1.2 billion or 5.57% of United’s total loan portfolio were to hotels and other traveler accommodations. In addition, United does not have a loan classification concentration in the mining, quarrying and oil and gas extraction industry. As of December 31, 2017,2022, approximately $54.5$185.5 million or less than 1% of United’s total loan portfolio were for the purpose of mining, quarryingextracting, manufacturing and distributing oil, coal and gas extraction.natural gas.
Secondary Markets
United generally originates loans within the primary market area of United Bank. United may from time to time make loans to borrowers and/or on properties outside of its primary market area as an accommodation to its existing customers. In addition to offices in the primary market area of
United Bank, George Mason, also has offices in North Carolina and South Carolina. United does not service mortgage loans for others.
United Bank and George Mason bothCrescent originate and acquire residential real estate loans for resale in the secondary market. Mortgage loan originations are generally intended to be sold in the secondary market on a best efforts or mandatory basis. Depending on the pricing in the marketplace, servicing rights are either sold or retained.
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During 2017,2022, United originated $2.4$1.9 billion of real estate loans for sale in the secondary market and sold $2.4$2.2 billion of loans designated as held for sale in the secondary market. Net gains on the sales of these loans during 20172022 were $58.9$41.3 million.
The principal sources of revenue from United’s mortgage banking business are: (i) loan origination fees; (ii) gains or losses from the sale of loans; andloans, (iii) interest earned on mortgage loans during the period that they are held by United pending sale, if any.
any; and (iv) income on mortgage loans with servicing retained.Loan Servicing
United through its mortgage banking subsidiary, Crescent, may retain the rights to service a portion of the loans sold in the third-party market, as part of its mortgage banking activities, for which United receives service fee income. In addition, at certain times United may purchase rights to service from third parties. These rights are known as mortgage servicing rights, or MSRs, where the owner of the MSR acts on behalf of the mortgage loan owner and has the contractual right to receive a stream of cash flows in exchange for performing specified mortgage servicing functions. These duties typically include, but are not limited to, performing loan administration, collection, and default activities, including the collection and remittance of loan payments, responding to customer inquiries, accounting for principal and interest, holding custodial (impound) funds for the payment of property taxes and insurance premiums, counseling delinquent mortgagors, modifying loans and supervising foreclosures and property dispositions. United subservices the duties and responsibilities obligated to the owner of the MSR to a third party provider for which we pay a fee.
Investment Activities
United’s investment policy stresses the management of the investment securities portfolio, which includes both securities held to maturity and securities available for sale, to maximize return over the long-term in a manner that is consistent with good banking practices and relative safety of principal. United currently does not engage in trading account activity. The Asset/Liability Management Committee of United is responsible for the coordination and evaluation of the investment portfolio.
Sources of funds for investment activities include “core deposits”. Core deposits include certain demand deposits, savings and NOW accounts. These deposits are relatively stable and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased, securities sold under agreements to repurchase and FHLB borrowings. Repurchase agreements represent funds that are generally obtained as the result of a competitive bidding process.
United’s investment portfolio is comprised of a significant amount of mortgage-backed securities, asset-backed securities, obligations of states and political subdivisions, U.S. Treasury securities and obligations of U.S. AgenciesGovernment corporations and Corporations as well as mortgage-backedagencies and corporate securities. Obligations of Statesstates and Political Subdivisionspolitical subdivisions are comprised of primarily “investment grade” rated municipal securities. Interest and dividends on securities for the years of 2017, 2016,2022, 2021, and 20152020 were $42.2$114.5 million, $36.1$61.9 million, and $34.3$66.8 million, respectively. For the yearsyear of 2017, 2016 and 2015,2022, United realized net gains on sales of securities of $5.6$2 thousand. For the years of 2021 and 2020, United realized net gains on sales of securities of $2.8 million $313 thousand, and $202 thousand,$3.2 million, respectively. In
Human Capital
At United, one of our key competitive advantages is our people. Investment in our human capital is a top priority for the Company. As of December 31, 2022, United and its subsidiaries had 2,765 employees and officers. Of the 2,765 employees and officers, 2,331 are employed in the community banking segment, 366 are employed in the mortgage banking segment and 68 are in a general support and administrative function for the Company. None of these employees are represented by a collective bargaining unit and management considers employee relations to be excellent. We emphasize positive attitudes, communication, teamwork, goal attainment, personal growth, and the pursuit of excellence when it comes to delivering high-quality service to our customers and fellow employees.
Our human capital management strategy focuses on recruiting, developing, and engaging a talented and diverse workforce. Our strategy embodies our core values of integrity, teamwork, hard work, and caring, and foster positive attitudes, communication, goal attainment, personal growth, and the pursuit of United’s mission of excellence in service to our shareholders, our customers, our communities, and our employees.
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Focusing on talent selection and developing top talent remains a strong pillar of our organization. Our primary focus is to attract and advance the careers of employees with diverse backgrounds, experiences, ideas, and skills.
We host college recruiting and internship programs that attract candidates from a variety of colleges and universities within our footprint. These two programs build a talent pipeline and prioritize these individuals for internal openings.
Our Leadership Development Program provides an opportunity for the Company’s rising talent from across our footprint and various business lines to strengthen their leadership and communication skills, increase their visibility within the organization, and establish internal networks. This program helps to cultivate a future pipeline of leaders across the institution. Over a period of four years, these individuals are empowered to work on pertinent projects designed to enhance revenue, reduce expenses, and improve risk management functions, while developing the members’ leadership, interactive, and managerial skills. Past members now hold key positions across the Company ranging from Department Managers to Line of Business Leaders to Executive Officers.
One of our strategic priorities to ensure leadership continuity is effective succession planning. The Company has a formal plan to identify potential successors and actively develop those employees. The plan includes all critical management positions throughout the organization and is updated annually. This process is dynamic, and we have added additional management positions to the plan as the Company continues to evolve and grow. The Company’s executives constantly review and evaluate personnel to identify pools of candidates with high levels of leadership potential and promote their progress by engineering their range of work experiences. We also have an internal and external training platform to ensure our employees have the necessary tools to fill these key positions effectively.
United also has an effective and efficient onboarding program, introducing new team members to the culture and enabling an environment that helps them be engaged in their roles. We have rigorous interdepartmental training and development programs that provide employees with capabilities to perform their job functions, deliver results, and advance their careers.
We partnered with West Virginia University to develop an executive training program aimed at developing the technical, theoretical, and applied skills needed for a successful launch into a career in Business Banking. High-performing employees are given opportunities to attend state and national banking schools, conferences, industry peer groups, and training webinars. All United employees have access to career development and skills-based training through our internal online Human Resources (“HR”) management system.
United makes every effort to ensure that our compensation and benefits packages are inclusive and competitive to attract and retain talent. Our comprehensive benefit plans are designed to fully support our full-time and eligible part-time employees and their families through every stage of their life cycle, recognizing our employees’ individual needs and offering flexible benefit options. As an enhanced benefit, we recently increased our parental leave and family medical leave and added coverage for enhanced infertility coverage. We provide comprehensive health and wellness plans for all eligible employees as well as retirees of United. We also provide other paid-time off benefits such as vacation, sick time, personal days, and birthdays. The Company also provides financial wellness benefits to all employees through our 401K Plan in which the Company provides a competitive match of employee contributions. All employees are eligible to take advantage of United’s Employee Stock Purchase Plan through payroll deductions.
United Bank’s annual performance evaluation process provides the opportunity for discussing, planning, and reviewing the performance of each employee. The goal is to help employees clearly define and understand the responsibilities and expectations of their position while also identifying employees with high potential for advancement within the company. Performance evaluations also provide an opportunity for employees to be awarded additional compensation based on merit. Managers are expected to maintain open communication throughout the year 2017,as it pertains to the performance and mentorship of their employees. Training is provided to managers annually to prepare them for difficult conversations, analyzing team compensation, and maintaining fairness, among other topics.
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We are committed to providing a safe and healthy work environment for our employees and offer services to foster the best physical, mental, and social well-being of our workforce. United’s Employee Assistance Program provides all employees a comprehensive and personalized process with a tailored approach to meet employees where they are and supports them through whatever journey they may be facing. The Employee Assistance Program provides unlimited phone access for information, resources, and referrals and provides sessions with a counselor for the employee and their family members. The employee, and their family, can also take advantage of a host of web-based resources the program provides.
The commitment to our employees and their family’s well-being is at the forefront for United recognized other-than-temporary impairment (OTTI) chargesand allows us to be competitive in attracting and retaining top talent and ensuring our employee benefits remain competitive when compared with other institutions.
In addition, at United, we are committed to nurturing an inclusive culture that: is reflective of $60 thousand, consistingthe communities we serve; celebrates diversity of OTTI on collateralized mortgage obligations (CMOs). In the year 2016, United recognized other-than-temporary impairment (OTTI) charges of $33 thousand, consisting of OTTI on collateralized mortgage obligations (CMOs). In the year 2015, United recognized other-than-temporary impairment (OTTI) charges of $47 thousand, consisting of OTTI on an equity securitythought, backgrounds, and experience; promotes respect and a pooled trust preferred collateralized debt obligation (Trup Cdo).shared purpose; and aligns with our core values. United has a cross-functional Diversity, Equity, and Inclusion Council (“DE&I Council”) to advise executive and senior leadership on the Company’s diversity, equity, and inclusion strategy and to implement and manage programs to accomplish and support these priorities. United added a diversity trainer to the Learning & Talent Development Team who facilitates workshops available to all employees. In 2022, 100% of new hires completed implicit bias training and new supervisors participated in cultivating inclusive team workshops.
DE&I employee liaisons were selected through an application process, received training on courageous conversations, and then held open forums with local colleagues related to various DE&I topics. The Management Information System (“MIS”) team has collaborated with the HR department to apply best practices in data governance to the metrics that are so critical to measuring success in DE&I.
To continue to cultivate our inclusive culture, United offers employees a way to report confidential and anonymous issues of concern through our website. Whether it is a compliance or regulatory violation, wrongdoing, improper conduct, or harassment, the confidential report will be instantly and discreetly forwarded for review.
Competition
United faces a high degree of competition in all of the markets it serves. We face strong competition in gathering deposits, making loans and obtaining client assets for management by our investment or trust operations. United considers all of West Virginia to be included in its market area. This area includes the five largest West Virginia Metropolitan Statistical Areas (MSA)(“MSA”): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Morgantown MSA and the Wheeling MSA. United serves the Ohio counties of Lawrence, Belmont, Jefferson and Washington and Fayette county in Pennsylvania primarily because of their close proximity to the Ohio and Pennsylvania borders and United banking offices located in those counties or in nearby West Virginia. United’s Virginia markets include the Maryland, northern Virginia and Washington, D.C. MSA, the Winchester MSA, the Harrisonburg MSA, and the Charlottesville MSA. Through its acquisition of Carolina Financial, United’s market also includes the Coastal, Midlands, and Upstate regions of South Carolina, including the Charleston (Charleston, Dorchester and Berkeley Counties), Myrtle Beach (Horry and Georgetown Counties), Columbia (Richland and Lexington Counties), and the Upstate (Greenville and Spartanburg Counties) areas as well as areas in North Carolina including Wilmington (New Hanover County), Raleigh-Durham (Durham and Wake Counties), Charlotte-Concord-Gastonia (NC and SC) and the southeastern coastal region of North Carolina (Bladen, Brunswick, Columbus, Cumberland, Duplin and Robeson Counties). Through its acquisition of Community Bankers Trust, United added new markets in Baltimore and Annapolis, Maryland and Lynchburg and Richmond, Virginia as well as the Northern Neck of Virginia. United considers all of the above locations to be the primary market areaareas for the business of its banking subsidiary.and mortgage banking subsidiaries.
With prior regulatory approval, West Virginia and Virginia banks are permitted unlimited branch banking throughout each state. In addition, interstate acquisitions of and by West Virginia and Virginia banks and bank holding companies are permissible on a reciprocal basis, as well as reciprocal interstate acquisitions by thrift institutions. These conditions serve to intensify competition within United’s market.
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As of December 31, 2017,2022, there were 6267 bank holding companies operating in the State of West Virginia registered with the Federal Reserve System and the West Virginia Board of Banking and Financial Institutions, and 96115 bank holding companies operating in the Commonwealth of Virginia registered with the Federal Reserve System and the Virginia State Corporation Commission.Commission, 88 bank holding companies operating in the State of North Carolina registered with the Federal Reserve System and the N.C. Office of the Commissioner of Banks and 76 bank holding companies operating in the State of South Carolina registered with the Federal Reserve System and the South Carolina State Board of Financial Institutions. These holding companies are headquartered in various states and control banks throughout West Virginia, Virginia, North Carolina and Virginia,South Carolina, which compete for business as well as for the acquisition of additional banks.
Economic Characteristics of Primary Market Area
As of December 2017, West Virginia’s seasonally adjusted unemployment rate was 5.5% according to information from West Virginia’s Bureau of Employment Programs. The national unemployment rate was 4.1%. The state unemployment rate of 5.5% for December 2017 was an increase from a rate of 5.3% for the month of November 2017 and down from the rate of 5.8% for the month of December 2016. Total nonfarm payroll employment increased 400 in December, with losses of 600 in the service-providing sector offset by gains of 1,000 in the goods-producing sector. West Virginia’s not seasonally adjusted unemployment rate was 5.3% in December 2017. After several years of economic hardship, West Virginia’s economy hit bottom in 2016 and has grown over the past few quarters of 2017. West Virginia’s jobless rate fell to its lowest level in nearly a decade during the second quarter of 2017, reaching just over 4.6%. West Virginia’s real gross domestic product declined in 2015 and 2016, but has increased at a rapid pace over the past few quarters of 2017. Changes in the state’s total economic output have been volatile since 2012, reflecting the turbulence within the state’s coal and natural gas industries. According to the latest forecast from the West Virginia University College of Business and Economics, West Virginia’s unemployment rate is expected to hover in themid-4 percent range for the next several quarters, but slowly begin to decline through the early 2020s. Employment in West Virginia is estimated to increase nearly 0.7% per year on average through 2022, trailing the 0.9% average annual growth expected for the nation as a whole. Total employment is not expected to return to its 2012 peak until 2021. Per capita personal income is expected to grow at an annual average rate of 1.8% over the next five years, below the national rate of 2.3%. Growth will be driven largely bynon-wage income, such as Social Security benefits. West Virginia’s population has declined by more than 25,000 people since 2012, and although it is expected that the state’s population will stabilize, more losses are likely over the longer term due to large share of elderly residents and the effects of poor health outcomes and behaviors for many segments of the overall population.
United’s Virginia banking offices are located in markets that historically have reflected low unemployment rate levels. According to information available from the Virginia Employment Commission, Virginia’s seasonally adjusted unemployment rate in December 2017 was unchanged from November 2017 at 3.7%, but was down 0.4% from the month of December 2016. At the start of 2017, the seasonally adjusted unemployment rate was 4.0% and has been in the3.7-3.8% range for most of the year. Virginia’s seasonally adjusted unemployment rate continues to be below the national rate of 4.1%. Virginia’s seasonally adjusted nonfarm employment decreased by 2,100 jobs in December to 3,966,500, which was the third consecutive monthly decline. From November 2017 to December 2017, seasonally adjusted employment decreased in three major industry divisions, increased in seven major industry divisions, and was unchanged in mining. The largest job loss during December occurred in the professional and business services sector. From December 2016 to December 2017, Virginia’s seasonally adjusted total nonfarm employment was up 30,200 jobs, or 0.8%.Over-the-year employment growth in Virginia has been positive for 45 consecutive months. Whileover-the-year growth for the last three months of 2017 fell below 1.0% percent, growth in all the preceding months of 2017 exceeded 1.0%. Compared to a year ago, on a seasonally adjusted basis, eight of the eleven major industry divisions experienced employment gains, while the other three experienced employment losses. The largestover-the-year job gain occurred in private education and health services, up 2.7%. In December, six metropolitan areas experiencedover-the-month job gains, while the other three metropolitan areas experienced employment losses. The largest absolute job increase occurred in the Northern Virginia metropolitan area. The Richmond metropolitan area experienced the next largest job gain. The other metropolitan areas that experienced gains were: Lynchburg; Charlottesville; Blacksburg-Christiansburg-Radford; and Harrisonburg. The largest absolute job loss occurred in the Virginia Beach-Norfolk-Newport News metropolitan area. The other metropolitan areas that experienced job losses were Roanoke and Winchester. Over the year, seasonally adjusted total nonfarm employment increased in seven metropolitan areas, decreased in the Virginia Beach-Norfolk-Newport News metropolitan area, and remained unchanged in the Lynchburg metropolitan area. The Northern Virginia metropolitan area experienced the largest absolute job gain, up 1.4%. Richmond was ranked second, and Charlottesville was ranked third. The remaining metropolitan areas withover-the-year job gains were: Roanoke; Harrisonburg; Winchester; and Blacksburg-Christiansburg-Radford. Virginia’s unadjusted unemployment rate was down 0.2% in December to 3.4% and was down 0.4% from a year ago.
Regulation and Supervision
United, as a financial holding company, is subject to the restrictions of the Bank Holding Company Act of 1956, as amended, and is registered pursuant to its provisions. As such, United is subject to the reporting requirements of and examination by the Board of Governors of the Federal Reserve System (“Board of Governors”).
The Bank Holding Company Act prohibits the acquisition by a bank holding company of direct or indirect ownership of more than five percent of the voting shares of any bank within the United States without prior approval of the Board of Governors. With certain exceptions, a bank holding company also is prohibited from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank, and from engaging directly or indirectly in business unrelated to the business of banking, or managing or controlling banks.
The Board of Governors, in its Regulation Y, permits financial holding companies to engage in preapprovednon-banking activities closely related to banking or managing or controlling banks. Approval of the Board of Governors is necessary to engage in certain othernon-banking activities which are not preapproved or to make acquisitions of corporations engaging in these activities. In addition, on acase-by-case basis, the Board of Governors may approve othernon-banking activities. A financial holding company may also engage in financial activities, including securities underwriting and dealing, insurance agency and underwriting activities, and merchant banking activities.
As a financial holding company doing business in West Virginia, United is also subject to regulation and examination by the West Virginia Board of Banking and Financial Institutions (the West“West Virginia Banking Board)Board”) and must submit annual reports to the West Virginia Banking Board. Further, any acquisition application that United must submit to the Board of Governors must also be submitted to the West Virginia Banking Board for approval.
The Board of Governors has broad authority to prohibit activities of financial holding companies and theirnon-banking subsidiaries that represent unsafe and unsound banking practices or which constitute violations of laws or regulations. The Board of Governors also can assess civil money penalties for certain activities conducted on a knowing and reckless basis, if those activities caused a substantial loss to a depository institution. The penalties can be as high as $1 million for each day the activity continues.
United Bank, as a Virginia state member bank, is subject to supervision, examination, and regulation by the Federal Reserve System, and as such, areis subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder. United Bank is subject to the Virginia banking statutes and regulations, and is primarily regulated by the Virginia Bureau of Financial Institutions. As a member of the Federal Deposit Insurance Corporation (“FDIC”), United Bank’s deposits are insured as required by federal law. Bank regulatory authorities regularly examine revenues, loans, investments, management practices, and other aspects of United Bank. These examinations are conducted primarily to protect depositors and not shareholders. In addition to these regular examinations, United Bank must furnish to regulatory authorities quarterly reports containing full and accurate statements of its affairs.
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United is also under the jurisdiction of the SEC and certain state securities commissions in regard to the offering and sale of its securities. Generally, United must file under the Securities Exchange Act of 1933, as amended, to issue additional shares of its common stock. United is also registered under and is subject to the regulatory and disclosure requirements of the Securities Exchange Act of 1934, as amended, as administered by the SEC. United is listed on the NASDAQ Global Select Market under the quotation symbol “UBSI,” and is subject to the rules of the NASDAQ for listed companies.
SEC regulations require us to disclose certain types of business and financial data on a regular basis to the SEC and to our shareholders. We are required to file annual, quarterly and current reports with the SEC. We prepare and file an annual report onForm 10-K with the SEC that contains detailed financial and operating information, as well as a management response to specific questions about United’s operations. SEC regulations
require that our annual reports to shareholders contain certified financial statements and other specific items such as management’s discussion and analysis of our financial condition and results of operations. We must also file quarterly reports with the SEC on Form10-Q that contain detailed financial and operating information for the prior quarter and we must file current reports on Form8-K to provide the pubic with information on recent material events.
In addition to periodic reporting to the SEC, we are subject to proxy rules and tender offer rules issued by the SEC. Our officers, directors and principal shareholders (holding 10% or more of our stock) must also submit reports to the SEC regarding their holdings of our stock and any changes to such holdings, and they are subject to short-swing profit liability.
Dividends and Stock Repurchases
The principal source of United’s liquidity is dividends from United Bank. The prior approval of the Federal Reserve Board is required if the total of all dividends declared by a state-chartered member bank in any calendar year would exceed the sum of the bank’s net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus or to fund the retirement of preferred stock. Federal law also prohibits a state-chartered, member bank from paying dividends that would be greater than the bank’s undivided profits. United Bank is also subject to limitations under Virginia state law regarding the level of dividends that may be paid.
In addition, United and United Bank are subject to other regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The appropriate federal regulatory authorities have stated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, in the current financial and economic environment, the Federal Reserve Board has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
In July 2019, the federal bank regulators adopted final rules (the “Capital Simplifications Rules”) that, among other things, eliminated the standalone prior approval requirement in the Basel III Capital Rules for any repurchase of common stock. In certain circumstances, United’s repurchases of its common stock may be subject to a prior approval or notice requirement under other regulations, policies or supervisory expectations of the Federal Reserve Board. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board.
The Inflation Reduction Act of 2022 (the “IRA”) imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), into law. The Dodd-Frank Act significantly changes regulation of financial institutions and the financial services industry. The Dodd-Frank Act includes, among other things, provisions creating a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation; centralizing the responsibility for
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consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, which is responsible for implementing, examining and enforcing compliance with federal consumer financial laws; permanently raising the current standard maximum deposit insurance amount to $250,000; establishing strengthened capital standards for banks, and disallowing trust preferred securities as qualifying for Tier 1 capital (subject to certain grandfather provisions for existing trust preferred securities); establishing new minimum mortgage underwriting standards; granting the Federal Reserve Board the power to regulate debit card interchange fees; and implementing corporate governance changes.
On December 10, 2013,May 24, 2018, President Trump signed into law the banking agencies issued a final rule implementing Section 619 of“Economic Growth, Regulatory Relief, and Consumer Protection Act (the EGRRCPA Act)” which provides certain limited amendments to the Dodd-Frank Act, commonly referredas well as certain targeted modifications to asother post-financial crisis regulatory requirements. In addition, the “Volcker Rule”.legislation establishes new consumer protections and amends various securities- and investment company-related requirements. The EGRRCPA Act primarily amends several other laws, including the Truth in Lending Act (TILA), Federal Reserve issued an order on December 18, 2014 extending the period which banking entities have to divest disallowed securities under the Volcker Rule to July 21, 2016. TheCredit Union Act, Federal Reserve also announced its intention to grant an additional one year extension of the conformance period until July 21, 2017. On January 14, 2014, the banking agencies approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (Trup Cdos) from the prohibitions under the Volcker Rule. During the third quarter of 2014 United sold four Trup Cdos for a net gain of $1.3 million in response to the Volcker Rule. Under the Volcker Rule, these four securities were identified by United as covered funds and were required to be divested of before July 21, 2017. United believes the remaining Trup Cdo portfolio is excluded from the scope of the Volcker Rule.
Deposit Insurance Act, Fair Credit Reporting Act (FCRA) and Securities Act of 1933. The Act is divided into six titles, which aim to: improve consumer access to mortgage credit (Title I); provide regulatory relief and protect consumer access to credit (Title II); protect the credit information of consumers, including veterans and servicemembers (Title III); tailor regulations for certain bank holding companies, including raising the threshold levels for exemption from certain prudential standards and stress testing (Title IV); encourage capital formation by reforming certain Securities and Exchange Commission (SEC) regulations (Title V); and protect student borrowers (Title VI).
Deposit Insurance
The deposits of United Bank are insured by the FDIC to the extent provided by law. Accordingly, United Bank is also subject to regulation by the FDIC. United Bank is subject to deposit insurance assessments to maintain the Deposit Insurance Fund (DIF)(“DIF”) of the FDIC. The FDIC utilizes a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory rating (CAMELS rating) and certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress. The risk matrix utilizes four risk categories which are distinguished by capital levels and supervisory ratings.
In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. Under the new restoration plan, the FDIC will update its loss and income projections at least semi-annually for the fund and, if needed, will increase or decrease assessment rates, followingnotice-and-comment rulemaking if required.
In April 2011, the FDIC implemented rulemaking under the Dodd-Frank Act to reform the deposit insurance assessment system. The final rule redefined the assessment base used for calculating deposit insurance assessments. Specifically, the rule bases assessments on an institution’s total assets less tangible capital, as
opposed to total deposits. Since the new base is larger than the prior base, the FDIC also proposed lowering assessment rates so that the rules would not significantly alter the total amount of revenue collected from the industry. The new assessment scale ranges from 2.5 basis points for the least risky institutions to 45 basis points for the riskiest.
As part of its changes in April 2011, the FDIC established a new methodology for determining assessment rates for large and highly complex institutions, as defined in the rules. In October 2012, the FDIC announced revised changes to some of the definitions used to determine assessment rates for these large and highly complex insured depository institutions. The rule generally applies to FDIC-regulated banks with assets greater than $10 billion and took effect April 1, 2013. In the second quarter of 2018, United Bank was reclassified as a large institution for deposit insurance assessment purposes. Generally, this new classification resulted in higher FDIC insurance premiums.
On September 30, 2018, the Deposit Insurance Fund Reserve Ratio reached 1.36%, exceeding the statutorily required minimum reserve ratio of 1.35% ahead of the September 30, 2020, deadline required under the Dodd-Frank Act. FDIC regulations provide for two changes to deposit insurance assessments upon reaching the minimum: (1) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large banks) ceased on December 28, 2018; and (2) small banks will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15% and 1.35%, to be applied when the reserve ratio is at or above 1.38%. United benefited from both these changes.
On October 18, 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rates for insured depository institutions by 2 basis points, beginning with the first quarterly assessment period of 2023. The increased assessment rate schedules would remain in effect unless and until the reserve ratio of the Deposit Insurance Fund meets or exceeds 2 percent. As a result of the new rule, the FDIC insurance costs of insured depository institutions, including United Bank, would generally increase.
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United’s FDIC insurance expense totaled $7.1$12.0 million, $8.5$8.3 million, and $8.4$10.1 million in 2017, 20162022, 2021 and 2015,2020, respectively.
Capital Requirements
As a financial holding company, United is subjectand United Bank are each required to consolidated regulatorycomply with applicable capital requirements administeredadequacy standards established by the Federal Reserve Board. United Bank is also subject to the capital requirements administered by the Federal Reserve Board. On July 2, 2013, the Federal Reserve, United’s and United Bank’s primary federal regulator, published final rulesBoard (the Basel“Basel III Capital Rules) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, including United and its banking subsidiaries, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach, which was derived from Basel I capital accords of the Basel Committee, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 “Basel II” capital accords. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. The Basel III Capital Rules were effective for United and United Bank on January 1, 2015 (subject to aphase-in period)Rules”).
The Basel III Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (CET1), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments from capital as compared to existing regulations.
When Since fully phased in on January 1, 2019, the Basel III Capital Rules will require United and United Bank to maintain (i) athe following:
A minimum ratio of CET1Common Equity Tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting(resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7% upon full implementation), (ii) a7.0%);
A minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting(resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a);
A minimum ratio of Totaltotal capital (that is, Tier(Tier 1 capital plus Tier 2)2 capital) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting(resulting in a minimum total capital ratio of 10.5% upon full implementation)); and (iv) a
A minimum leverage ratio of 4%4.0%, calculated as the ratio of Tier 1 capital to average consolidated assets (as comparedas reported on consolidated financial statements (known as the “leverage ratio”).
Banking institutions that fail to a currentmeet the effective minimum leverage ratioratios once the capital conservation buffer is taken into account, as detailed above, will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of 3%the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (that is, the greater of (i) net income for banking organizations that either have the highest supervisory rating or have implementedpreceding four quarters, net of distributions and associated tax effects not reflected in net income and (ii) the appropriate federal regulatory authority’s risk-adjusted measure for market risk)average net income over the preceding four quarters).
The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and is not expected to have any current applicability to United and United Bank.
The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
Under the Basel III Capital Simplification Rules the initial minimum capital ratios as of January 1, 2015 are as follows:
4.5% CET1 to risk-weighted assets.
6.0% Tier 1 capital to risk-weighted assets.
8.0% Total capital to risk-weighted assets.
4.0% Tier 1 capital to average assets.
The Basel III Capital Rulesalso provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights,certain deferred tax assets dependent upon future taxable income and significant investments innon-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 25% of CET1. Prior to the adoption of the Capital Simplification Rules in July 2019, amounts were deducted from CET1 to the extent that any one such category exceeded 10% of CET1 or all such categoriesitems, in the aggregate, exceedexceeded 15% of CET1. Under currentThe Capital Simplification Rules took effect for United and United Bank as of January 1, 2020. These limitations did not impact our regulatory capital standards,during any of the reported periods.
In addition, under the general risk-based capital rules, the effects of accumulated other comprehensive income items included in capital arewere excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, the effects of certain accumulated other comprehensive income items are not excluded; however,non-advanced approaches banking organizations, including United and United Bank, maywere able to make aone-time permanent election to continue to exclude these items. Upon adoption on January 1, 2015,Both United and United Bank made this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of United’stheir available-for-sale securities portfolio. The Basel III Capital Rules also preclude certain hybrid securities, such as trust preferred securities, as Tier 1 capital of bank holding companies, subject tophase-out. However, because United was less than $15 billion in total consolidated assets for reporting periods prior to June 30, 2017,Under the Basel III Capital Rules, grandfathered United’s Trust Preferred Securities as Tier 1 capital and was thus subject to a limit of 25 percent of Tier 1 capital elements excluding anynon-qualifying capital instruments and after all regulatory capital deductions and adjustments applied to Tier 1 capital, which is substantially similar to the limit in the general risk-based capital rules.
However, with the acquisition of Cardinal on April 21, 2017, United’s total consolidated assets now exceeds $15 billion. As a result, United’s Trust Preferred Securities aretrust preferred securities no longer included in United’sour Tier 1 capital but aremay nonetheless be included as a component of Tier 2 capital on a permanent basis withoutphase-out. This new requirement was reflected in United’s
In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital amountsregulations to account for June 30, 2017, the first reporting period after the Cardinal acquisition.
As stated, implementation of the deductions and other adjustmentschanges to CET1 began on January 1, 2015 and will bephased-in overcredit loss accounting under U.S. GAAP. The 2019 CECL Rule included a4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased transition option that allows banking organizations to phase in, over a four-yearthree-year period, (increasingthe day-one adverse effects of adopting a new accounting standard related to the measurement of current expected credit losses (“CECL”) on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides banking organizations that were required under U.S. GAAP (as of January 2020) to implement CECL before the end of 2020 the option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019)a three-year transition period (five-year transition option). We elected to adopt the five-year transition option.
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The Basel III Capital Rules prescribe a standardized approach for risk weightings that expandexpanded the risk-weighting categories from the current four BaselI-derived categories (0%, 20%, 50% and 100%)general risk-based capital rules to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures (and higher percentages for certain other types of interests), and resulting in higher risk weights for a variety of asset categories. Specific changes to current rules impacting United’s determination of risk-weighted assets include, among other things:
Applying a 150% risk weight instead of a 100% risk weight for certain high volatility commercial real estate acquisition, development and construction loans.
Assigning a 150% risk weight to exposures (other than residential mortgage exposures) that are 90 days past due.
Providing for a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (currently set at 0%).
Providing for a risk weight, generally not less than 20% with certain exceptions, for securities lending transactions based on the risk weight category of the underlying collateral securing the transaction.
Providing for a 100% risk weight for claims on securities firms.
Eliminating the current 50% cap on the risk weight for OTC derivatives.
In addition, the Basel III Capital Rules also provide more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increases the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.
The Basel III liquidity framework also requires banks and bank holding companies to measure their liquidity against specific liquidity tests. One test, referred to as the “Liquidity Coverage Ratio” (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other test, referred to as the “Net Stable Funding Ratio” (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of banking entities over aone-year time horizon. These requirements will incent banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase long-term debt as a funding source. On September 3, 2014,November 2019, the federal banking agencies finalizedadopted a rule revising the scope of commercial real estate mortgages subject to a 150% risk weight.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards generally became effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, implementing the LCR foroperational risk capital requirements and a capital floor apply only to advanced approaches banking organizationsinstitutions, and a modified version of the LCR for bank holding companies with at least $50 billion in total consolidated assets that are not advanced approaches banking organizations, neither of which would apply to United or its banking subsidiaries.United Bank. The federal banking agencies have not yet proposed rules to implementimpact of Basel IV on us will depend on the NSFR.
As of December 31, 2017, United and United Bank met all capital adequacy requirements under the Basel III Capital Rules on a fullyphased-in basis if such requirements were currently effective.
The Basel III Capital Rules adoptedmanner in July of 2013 do not address the proposed Liquidity Coverage Ratio Test and Net Stable Funding Ratio Test called forwhich it is implemented by the proposed Basel III framework.federal bank regulators.
Failure to meet statutorily mandated capital guidelines or more restrictive ratios separately established for a financial institution could subject United to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the rates of interest that the institution may pay on its deposits and other restrictions on its business. As described below, significant additional restrictions can be imposed on United if it would fail to meet applicable capital requirements.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) establishes a new regulatory scheme, which ties the level of supervisory intervention by bank regulatory authorities primarily to a depository institution’s capital category. Among other things, FDICIA authorizes regulatory authorities to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
Effective January 1, 2015, under the Basel III Capital Rules, the current prompt corrective action requirements for an institution to be “well-capitalized” is a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a CET1 ratio of 6.5% or greater and a Tier 1 leverage ratio of 5 percent or greater.
United Bank was considered a “well capitalized” institution as of December 31, 2017.2022. Well-capitalized institutions are permitted to engage in a wider range of banking activities, including among other things, the accepting of “brokered deposits,” and the offering of interest rates on deposits higher than the prevailing rate in their respective markets.
Community Reinvestment Act
The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit tolow- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. Banking regulators take into account CRA ratings when considering approval of a proposed transaction.
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In the third quarter of 2022, United Bank received a Community Reinvestment Act (“CRA”) Performance Evaluation from the Federal Reserve Bank of Richmond (the “FRB”) with a rating of “Needs to Improve.” Based on its performance on the individual components of the CRA exam, United Bank received a rating of “satisfactory”“Satisfactory.” These individual components were a “High Satisfactory” rating for the Lending Test, an “Outstanding” rating for the Investment Test and a “High Satisfactory” rating for the Service Test. United Bank’s final overall rating, however, was downgraded to “Needs to Improve” as a result of a Fair Housing Act violation cited in the Washington DC Metropolitan Statistical Area following a FRB fair lending examination of United Bank and its most recentwholly-owned subsidiary, George Mason Mortgage, LLC. This matter was also the subject of an investigation by the Department of Justice. The Department of Justice, however, has advised United Bank in writing that it has completed its review of this matter and determined that the circumstances of this matter do not require enforcement action by the Department of Justice at this time. The FRB Performance Evaluation states that “United Bank management has taken action to address the deficiencies and committed to taking further voluntary corrective actions to prevent further violations.”
A “Needs to Improve” rating results in restrictions on certain expansionary activities, including certain mergers and acquisitions and the establishment of bank branches.
These restrictions will remain in place until the FRB issues a higher CRA rating following a subsequent CRA examination. The next CRA examination commenced in October 2022 and United Bank is awaiting the results. The precise timing of any results therefrom will not be known until later.
The Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board and the FDIC issued a joint notice of proposed rulemaking on May 5, 2022, proposing revisions to the CRA regulations. Comments on the proposed rulemaking were due by August 5, 2022. In September, 2022, legislation was introduced to significantly revise the CRA to add a number of new substantive and procedural requirements. This legislation may delay the pending proposed rulemaking by the banking regulators. We will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)
The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (“COVID-19”) and stimulate the economy. Many of the CARES Act’s programs, including the Paycheck Protection Program (“PPP”), are dependent upon the direct involvement of U.S. financial institutions and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve and other federal banking agencies, including those with direct supervisory jurisdiction over United and United Bank. Furthermore, as the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.
On December 27, 2020, then President Trump signed into law the 2021 Consolidated Appropriations Act (the “CAA”), an approximately $900 billion bill, which extended several provisions of the CARES Act as well as provided additional COVID-19 relief. In particular, the CAA extended weekly unemployment benefits, provided another round of economic stimulus payments to individuals and families, lengthened temporary suspensions and modifications of several-bank related provisions and provided more aid to small businesses.
On March 11, 2021, President Joe Biden signed into law the $1.9 trillion American Rescue Plan Act of 2021. The legislation included additional stimulus checks to eligible individuals and an extension of the $300-per-week supplement to federal unemployment benefits through September 6, 2021. The legislation also allocates funding to small businesses, state and local governments, and COVID-19 vaccination and testing and tracing efforts. The legislation also modified the PPP to clarify that the SBA affiliation rules would not apply to certain applicants. Specifically, 501(c)(3) organizations that employ not more than 500 employees per physical location of the organization would become eligible for the program. The legislation also provided an additional $7.25 billion for the program. However, the legislation did not extend the March 31, 2021 application deadline.
On March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the CARES Act of 2020 bill until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief.
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On March 30, 2021, President Biden signed into law the PPP Extension Act of 2021. This bill extended the PPP through June 30, 2021. For the final 30 days of the program (i.e., from June 1 until June 30), the SBA may only process applications submitted prior to June 1, and it may not accept any new loan applications.
On June 24, 2021, President Biden announced that the three federal agencies that back mortgages – the Department of Housing and Urban Development (“HUD”), Department of Veterans Affairs (“VA”), and Department of Agriculture (“USDA”) – extended their respective foreclosure moratorium for one, final month, until July 31, 2021. The Federal Housing Finance Agency (“FHFA”) also announced that it extended the foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac until July 31, 2021. President Biden emphasized that this was the final extension.
On January 30, 2023, President Biden announced that he intends to end both the national emergency and the public health emergency declarations related to COVID-19 on May 11, 2023.
Cybersecurity
In March 2015,February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.
The federal banking regulators issued two related statementsregularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity. One statement indicates thatcybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions should design multiple layers ofare expected to comply with such guidance and standards and to accordingly develop appropriate security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.processes. If United failswe fail to observe thesuch regulatory guidance Unitedor standards, we could be subject to various regulatory sanctions, including financial penalties.
In November 2021, the federal banking agencies adopted a final rule, with compliance by May 1, 2022, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
In the ordinary course of business, United relies on electronic communications and information systems to conduct its operations and to store sensitive data. United employs anin-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. United employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of its defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, United and United Bank have not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, United’s systems and those of its customers and third-party service providers are under constant threat and it is possible that United could experience a significant event in the future.
Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to remain highbe elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by United and its customers. See Item 1A. Risk Factors for a further discussion of risk related to cybersecurity.
Deposit Acquisition Limitation
Under West Virginia banking law, an acquisition or merger is not permitted if the resulting depository institution or its holding company, including its affiliated depository institutions, would assume additional deposits to cause it to control deposits in the State of West Virginia in excess of twenty five percent (25%) of such total amount of all deposits held by insured depository institutions in West Virginia. This limitation may be waived by the Commissioner of Banking by showing good cause.
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Consumer Laws and Regulations
In addition to the banking laws and regulations discussed above, bank subsidiaries are also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. Among the more prominent of such laws and regulations are the Truth in Lending Act, the Home Mortgage Disclosure Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act and the Fair Housing Act. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. United’s bank subsidiary must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.
As discussed above, the Dodd-Frank Act centralized responsibility for consumer financial protection by creating the CFPB, and giving it responsibility for implementing, examining and enforcing compliance with federal consumer protection laws. The CFPB has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans, and credit cards. The CFPB’s functions include investigating consumer complaints, rulemaking, supervising and examining banks’ consumer transactions, and enforcing rules related to consumer financial products and services. Banks with more than $10 billion in assets, such as United Bank, are subject to supervision by the CFPB with respect to these federal consumer financial laws.
Anti-Money Laundering and the USA Patriot Act
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001, or the USA Patriot Act, substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk customers and implement a written customer identification program. Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions. Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards for testing technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations; and expands BSA whistleblower incentives and protections. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA. The priorities include: corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking and proliferation financing.
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Incentive Compensation
The Federal Reserve Board reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as United, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of this supervisory initiative will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
In June 2010, the Federal Reserve Board, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.
In April and May of 2016, the Federal Reserve Board, other federal banking agencies and the SEC (the “Agencies”) jointly published proposed rulemaking designed to implement provisions of the Dodd-Frank Act prohibiting incentive compensation arrangements that would encourage inappropriate risk taking at a covered institution, which includes a bank or bank holding company with $1 billion or more of assets, such as United. The proposed rule expanded beyond the June 2010 principals based guidance and broadened the scope to include community banks. The proposed rules (i) prohibit incentive-based compensation arrangements that encourage executive officers, employees, directors or principal shareholders to expose the institution to inappropriate risks by providing excessive compensation (based on the standards for excessive compensation adopted pursuant to the FDIA) and (ii) prohibit incentive-based compensation arrangements for executive officers, employees, directors or principal shareholders that could lead to a material financial loss for the institution. The proposed rule requires covered institutions to establish policies and procedures for monitoring and evaluating their compensation practices. As of February 2018,
In August 2022, the SEC adopted final rules have not been adopted. Ifrequiring public companies to disclose the relationship between the executive compensation actually paid to the company’s named executive officers (“NEOs”) and the company’s financial performance. The final rules implement the “pay versus performance” disclosure requirements mandated by Section 953(a) of the Dodd-Frank Act. Disclosure related to these final rules will be effective for United’s proxy statement filed in 2023.
In October 2022, the SEC adopted the final “clawback” rule mandated by Section 954 of the Dodd-Frank Act directing national securities exchanges and associations, including the NASDAQ, to implement listing standards that require listed companies to adopt policies mandating the recovery or other regulations are adopted“clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a form similarmaterial misstatement if the error were corrected in the current period or left uncorrected in the current period. The final rule requires United to that initially proposed, they will impose limitations on the manner in which we may structure compensation for our executives.adopt a clawback policy within 60 days after such listing standard becomes effective.
The scope and content of the U.S. banking regulators’ policies on incentive compensation are continuing to develop. It cannot be determined at this time whether or when a final rule will be adopted and whether compliance with such a final rule will adversely affect the ability of United and United Bank to hire, retain and motivate their key employees.
United is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes affect the Company are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair United’s business operations. This report is qualified in its entirety by these risk factors.
RISKS RELATING TO UNITED’S BUSINESS
Changes in economic19
REGULATORY AND LITIGATION RISKS
Our Needs to Improve rating under The Community Reinvestment Act may restrict our operations and political conditions could adversely affectlimit our earnings, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline.
United’s success depends, to apursue certain extent, upon local and national economic and political conditions, as well as governmental monetary policies. Conditions such as an economic recession, rising unemployment, changes in interest rates, money supply and other factors beyond its control may adversely affect United’s and United Bank’s asset quality, deposit levels and loan demand and, therefore, its earnings. Because United has a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings. Consequently, declines in the economy in our market area could have a material adverse effect on our financial condition and results of operations.
The value of certain investment securities is volatile and future declines or other-than-temporary impairments could have a materially adverse effect on future earnings and regulatory capital.
Continued volatility in the fair value for certain investment securities, whether caused by changes in market conditions, interest rates, credit risk of the issuer, the expected yield of the security, or actual defaults in the portfolio could result in significant fluctuations in the value of the securities as well as any regulatory rulemaking such as the Volcker Rule which could exclude or limit the holdings of certain investment securities. This could have a material adverse impact on United’s accumulated other comprehensive income and shareholders’ equity depending on the direction of the fluctuations. Furthermore, future downgrades, defaults or prepayments, including the liquidation of the underlying collateral in certain securities, could result in future classifications as other-than-temporarily impaired. This could have a material impact on United’s future earnings, although the impact on shareholders’ equity will be offset by any amount already included in other comprehensive income for securities that were temporarily impaired.
There are no assurances as to adequacy of the allowance for loan losses.
United believes that its allowance for loan losses is maintained at a level appropriate to absorb any probable losses in its loan portfolio given the current information known to management.
Management establishes the allowance based upon many factors, including, but not limited to:
historical loan loss experience;
industry diversification of the commercial loan portfolio;
the effect of changes in the local real estate market on collateral values;
the amount of nonperforming loans and related collateral security;
current economic conditions that may affect the borrower’s ability to pay and value of collateral;
volume, growth and composition of the loan portfolio; and
other factors management believes are relevant.
These determinations are based upon estimates that are inherently subjective, and their accuracy depends on the outcome of future events, so ultimate losses may differ from current estimates. Changes in economic, operating and other conditions, including changes in interest rates, that are generally beyond United’s control, can affect United’s loan losses. Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of United’s control, may require an increase in the allowance for credit losses. United can provide no assurance that its allowance is sufficient to cover actual loan losses should such losses differ substantially from our current estimates.strategic opportunities.
In addition, federal and state regulators, as an integral partthe third quarter of their respective supervisory functions, periodically review United’s allowance for loan losses, and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. Furthermore, if charge-offs in future periods exceed the allowance for loan losses,2022, United will need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will result inBank received a decrease in net income and, possibly, capital, and may have a material adverse effect on United’s business, financial condition and results of operations.
Changes in interest rates may adversely affect United’s business.
United’s earnings, like most financial institutions, are significantly dependent on its net interest income. Net interest income is the difference between the interest income United earns on loans and other assets which earn interest and the interest expense incurred to fund those assets, such as on savings deposits and borrowed money. Therefore, changes in general market interest rates, such as a change in the monetary policy of the Board of Governors ofCommunity Reinvestment Act (“CRA”) Performance Evaluation from the Federal Reserve System or otherwise beyond those which are contemplated by United’s interest rate risk model and policy, could have an effectBank of Richmond (the “FRB”) with a rating of “Needs to Improve.” Based on net interest income. For more information concerning United’s interest rate risk model and policy, seeits performance on the discussion underindividual components of the caption “Quantitative and Qualitative Disclosures About Market Risk” under Item 7A.
United is subject to credit risk.
There are risks inherent in making any loan, including risks with respect toCRA exam, the periodBank received a rating of time over which the loan may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with“Satisfactory.” These individual borrowers and risks resulting from uncertainties as to the future value of collateral. United seeks to mitigate the risk inherent in its loan portfolio by adhering to prudent loan approval practices. Although United believes that its loan approval criteria are appropriatecomponents were a “High Satisfactory” rating for the various kinds of loansLending Test, an “Outstanding” rating for the Company makes, United may incur losses on loans that meet our loan approval criteria. A significant decline in general economic
conditions caused by inflation or deflation, recession, unemployment, changes in government fiscal and monetary policies, acts of terrorism, or other factors beyond our control could cause our borrowers to default on their loan payments, and the collateral values securing such loans to decline and be insufficient to repay any outstanding indebtedness. In such events, we could experience significant loan losses, which could have a material adverse effect on our financial condition and results of operations.
United’s information systems may experience an interruption or breach in security.
United relies heavily on communications and information systems to conduct its business. In addition, as part of its business, United collects, processes and retains sensitive and confidential client and customer information. United’s facilities and systems, and those of our third party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems. While United has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of the Company’s information systems could damage United’s reputation, result in a loss of customer business, subject United to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on United’s financial condition and results of operations.
Unauthorized disclosure of sensitive or confidential client or customer information, whether through a cyber-attack, other breach of our computer systems or otherwise, could severely harm our business.
In the normal course of our business, we collect, process and retain sensitive and confidential client and customer information on our behalf and on behalf of other third parties. Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and / or human errors, or other similar events.
Information security risks for financial institutions like us have increased recently in part because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks, designed to disrupt key business services such as customer-facing web sites. We are not able to anticipate or implement effective preventive measures against all security breaches of these types. Although we employ detection and response mechanisms designed to contain and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection.
We also face risks related to cyber-attacks and other security breaches in connection with card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. We also rely on numerous other third party service providers to conduct other aspects of our business operations and face similar risks relating to them. While we conduct security assessments on our higher risk third parties, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.
Any cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.
United’s business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, its businessInvestment Test and a negative impact on results of operations.
United relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems, whether due to severe weather, natural disasters, cyber-attack, acts of war or terrorism, criminal activity or other factors, could result in failures or disruptions in general ledger, deposit, loan, customer relationship management and other systems. While United has disaster recovery and other policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of United’s information systems could damage its reputation, result in a loss of customer business, subject it to additional regulatory scrutiny or expose it to civil litigation and possible financial liability, any of which could have a material adverse effect on results of operations.
The negative economic effects caused by terrorist attacks, including cyber-attacks, potential attacks and other destabilizing events would likely contribute to the deterioration of the quality of United’s loan portfolio and could reduce its customer base, level of deposits, and demand for its financial products such as loans.
High inflation, natural disasters, acts of terrorism, including cyber-attacks, an escalation of hostilities or other international or domestic occurrences, and other factors could have a negative impact on the economy of theMid-Atlantic regions in which United operates. An additional economic downturn in its markets would likely contribute to the deterioration of the quality of United’s loan portfolio by impacting the ability of its customers to repay loans, the value of the collateral securing loans, and may reduce the level of deposits in its bank and the stability of its deposit funding sources. An additional economic downturn could also have a significant impact on the demand for United’s products and services. The cumulative effect of these matters on United’s results of operations and financial condition would likely be adverse and material.
Loss of United’s Chief Executive Officer or other executive officers could adversely affect its business.
United’s success is dependent upon the continued service and skills of its executive officers and senior management. If United loses the services of these key personnel, it could have a negative impact on United’s business because of their skills, years of industry experience and the difficulty of promptly finding qualified replacement personnel. The services of Richard M. Adams, United’s Chief Executive Officer, would be particularly difficult to replace. United and Mr. Adams are parties to an Employment Agreement providing for his continued employment by United through March 31, 2021.
United operates in a highly competitive market.
United faces a high degree of competition in all of the markets it serves. United considers all of West Virginia to be included in its market area. This area includes the five largest West Virginia Metropolitan Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Morgantown MSA and the Wheeling MSA. United serves the Ohio counties of Lawrence, Belmont, Jefferson and Washington and Fayette county in Pennsylvania primarily because of their close proximity to the Ohio and Pennsylvania borders and United banking offices located in those counties or in nearby West Virginia. United’s Virginia markets include the Maryland, northern Virginia and Washington, D.C. MSA, the Winchester MSA, the Harrisonburg MSA, and the Charlottesville MSA. United considers all of the above locations to be the primary market area“High Satisfactory” rating for the business of its banking subsidiaries.
There is a risk that aggressive competition could result in United controlling a smaller share of these markets. A decline in market share could leadService Test. The Bank’s final overall rating, however, was downgraded to a decline in net income which would have a negative impact on stockholder value.
United may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated“Needs to Improve” as a result of trading, clearing, counterparty, or other relationships. United has exposure to many different industries and counterparties, and routinely executes transactions with counterpartiesa Fair Housing Act violation cited in the financial services industry,Washington DC Metropolitan Statistical Area following a FRB fair lending examination of the Bank and its wholly-owned subsidiary, George Mason Mortgage, LLC. This matter was also the subject of an investigation by the Department of Justice. The Department of Justice, however, has advised the Bank in writing that it has completed its review of this matter and determined that the circumstances of this matter do not require enforcement action by the Department of Justice at this time. The FRB Performance Evaluation states that “United Bank management has taken action to address the deficiencies and committed to taking further voluntary corrective actions to prevent further violations.”
A “Needs to Improve” rating results in restrictions on certain expansionary activities, including brokerscertain mergers and dealers, commercial banks, investment banks, mutualacquisitions and hedge funds, or other institutional clients. Recent defaults by financial services institutions,the establishment of bank branches.
These restrictions will remain in place until the FRB issues a higher CRA rating following a subsequent CRA examination. The next CRA examination commenced in October 2022 and even rumors or questions about a financial institution orUnited Bank is awaiting the financial services industry in general, have led to marketwide liquidity problems and could lead to losses or defaults by United or other institutions. Any such losses could adversely affect United’s financial condition orresults. The precise timing of any results of operations.therefrom will not be known until later.
United is subject to extensive government regulation and supervision.
United is subject to extensive federal and state regulation, supervision and examination.examination which vests significant discretion in the various regulatory authorities. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect United’s lending practices, capital structure, investment practices, dividend policy, operations and growth, among other things. These regulations also impose obligations to maintain appropriate policies, procedures and controls, among other things, to detect, prevent and report money laundering and terrorist financing and to verify the identities of United’s customers. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The Dodd-Frank Act, enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect United in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products United may offer and/or increase the ability of nonbanks to offer competing financial services and products, among other things. United expends substantial effort and incurs costs to improve its systems, audit capabilities, staffing and training in order to satisfy regulatory requirements, but the regulatory authorities may determine that such efforts are insufficient. Failure to comply with relevant laws, regulations or policies could result in enforcement and other legal actions, sanctions by regulatory agencies, civil money and criminal penalties, the loss of FDIC insurance, the revocation of a banking charter, significant fines and/or reputation damage, which could have a material adverse effect on United’s business, financial condition and results of operations. In this regard, government authorities, including the bank regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures. Directives issued to enforce such actions may be confidential and thus, in some instances, we are not permitted to publicly disclose these actions. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. See the section captioned “Regulation and Supervision” included in Item 1. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.
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In the normal course of business, United and its subsidiaries are routinely subject to examinations and challenges from federal and state tax authorities regarding the amount of taxes due in connection with investments that the Company has made and the businesses in which United has engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in the Company’s favor, they could have a material adverse effect on United’s financial condition and results of operations.
The effects of the Tax Cuts and Jobs Act of 2017 on our business have not yet been fully analyzed and could have an adverse effect on our net income.
On December 22, 2017, President Donald Trump signed into law H.R.1, formerly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act makes significant changes to U.S. corporate income tax laws including a decrease in the corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the Tax Act, United recorded additional tax expense of $37.73 million in the fourth quarter of 2017 due to a remeasurement of United’s deferred tax assets and liabilities. Reasonable estimates were made based on United’s analysis of the Tax Act. This provisional amount may be adjusted in future periods during 2018 when additional information is obtained. Additional information that may affect United’s provisional amount would include further clarification and guidance on how the IRS will implement tax reform, further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on United’s state income tax returns, completion of United’s 2017 tax return filings, and the potential for additional guidance from the SEC or the FASB related to the Tax Act. United cannot determine at this time the full effects of the Tax Act on its business and financial results.
The Consumer Financial Protection Bureau (CFPB)(“CFPB”) may reshape the consumer financial laws through rulemaking and enforcement of the prohibitions against unfair, deceptive and abusive business practices. Compliance with any such change may impact the businessoperations of depository institutions offering consumer financial products or services, including United Bank.
The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The concept of what may be considered to be an “abusive” practice is relatively new under the law. Moreover, United Bank is supervised and examined by the CFPB for compliance with the CFPB’s regulations and policies. The costs and limitations related to this additional regulatory reporting regimen have yet to be fully determined, although they may be material and the limitations and restrictions that will be placed upon United Bank with respect to its consumer product offering and services may produce significant, material effects on United Bank (and United’s) profitability.
United may elect or be compelled to seek additional capital in the future, but capital may not be available when it is needed.
United is required by federal and state regulatory authorities to maintain adequate levels of capital to support the Company’s operations. In addition, United may elect to raise additional capital to support the Company’s business or to finance acquisitions, if any, or United may otherwise elect to raise additional capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital as a result of deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors, which may diminish United’s ability to raise additional capital.
United’s ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside the Company’s control, and on United’s financial performance. Accordingly, United cannot be assured of its ability to raise additional capital if needed or on terms acceptable to the Company. If United cannot raise additional capital when needed, it may have a material adverse effect on the Company’s financial condition, results of operations and prospects.
United is subject to higher regulatory capital requirements and failure to comply with these standards may impact dividend payments, equity repurchases and executive compensation.
On July 2, 2013, the Federal Reserve published final rules that substantially amend the regulatory risk-based capital rules applicable to United and United Bank. The rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act, or the Basel III Capital Rules. The new rules were effective for United and United Bank are each required to comply with applicable capital adequacy standards established by the Federal Reserve Board (the “FRB”). From time to time, the FRB changes these capital adequacy standards. In particular, the capital requirements applicable to United under the Basel III rules became fully effective on January 1, 2015 (subject to aphase-in period for certain of the new rules).
The Basel III Capital Rules, among other things, (i) introduce a capital measure called “Common Equity Tier 1”, or CET1, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/ adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments from capital as compared to existing regulations, and particularly as applied to CET1.
2019. Under the Basel III Capital Rules, the initial minimum capital and leverage ratios as of January 1, 2015 are as follows:
4.5% CET1rules, United is required to risk-weighted assets.
6.0%maintain a common equity Tier 1 capital to risk-weighted assets.
8.0% Total capital to risk-weighted assets.
4.0%ratio of 4.5%, a Tier 1 capital to average assets.
ratio of 6%, a total capital ratio of 8%, and a leverage ratio of 4%. In addition, to raising minimum capital and leverage ratios, the Basel III Capital Rules also establish aUnited must maintain an additional capital conservation buffer of 2.5% of total risk weighted assets.
Banking institutions that is designedfail to absorb losses during periods of economic stress. Themeet the effective minimum ratios including the capital conservation buffer will be phased in from January 1, 2016subject to January 1, 2019 in equal annual installments,constraints on capital distributions, including dividends and when fully implemented the capital conservation buffer will effectively add 2.5% to eachshare repurchases, and certain discretionary executive compensation. The severity of the minimum capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation baseddepends on the amount of the shortfall.
With respect to United’s banking subsidiary, United Bank,shortfall and the Basel III Capital Rules also revise the “prompt corrective action” regulations pursuant to Section 38institution’s “eligible retained income” (that is, four quarter trailing net income, net of the Federal Deposit Insurance Act, by (i) introducing a CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the current 6%);distributions and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized. The Basel III Capital Rules dotax effects not change the total risk-based capital requirement for any “prompt corrective action” category.
The Basel III Capital Rules prescribe a standardized approach for risk weightings that expand the risk-weighting categories from the current four BaselI-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resultingreflected in higher risk weights for a variety of asset categories. In particular, the Basel III Capital Rules increase risk weights that apply topast-due exposures and high volatility commercial real estate loans.net income).
The Basel III changes have resulted in generally higher minimum capital ratios than in the past that requirerequires United and its subsidiaries to maintain capital buffers above minimum requirements to avoid restrictions on capital distributions and executive bonus payments. In addition, the application of more stringent capital requirements for United could, among other things, result in lower returns on invested capital, require the raising of additional capital and result in additional regulatory actions if United were to be unable to comply with such requirements. Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could limit United’s ability to make distributions, including paying dividends.
In addition, in the current economic and regulatory environment, regulators of banks and bank holding companies have become more likely to impose capital requirements on bank holding companies and banks that are more stringent than those required by applicable existing regulations.
Failure to maintain effective internal controls over financial reporting in the future could impair United’s ability to accurately and timely report its financial results or prevent fraud, resulting in loss of investor confidence and adversely affecting United’s business and stock price.21
Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. Management believes that United’s internal controls over financial reporting are currently effective. Management will continually review and analyze the Company’s internal controls over financial reporting for Sarbanes-Oxley Section 404 compliance. Any failure to maintain, in the future, an effective internal control environment could impact United’s ability to report its financial results on an accurate and timely basis, which could result in regulatory actions, loss of investor confidence, and adversely impact United’s business and stock price.
United could face unanticipated environmental liabilities or costs related to real property owned or acquired through foreclosure. Compliance with federal, state and local environmental laws and regulations, including those related to investigation andclean-up of contaminated sites, could have a negative effect on expenses and results of operations.
A significant portion of United’s loan portfolio is secured by real property. During the ordinary course of business, United may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, United may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require United to incur substantial expenses and may materially reduce the affected property’s value or limit United’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase exposure to environmental liability. Although United has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on results of operations.
United’s earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.
The policies of the Federal Reserve impact United significantly. The Federal Reserve regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.
New accounting or tax pronouncements or interpretationsUnited may be issuedterminated as a servicer of mortgage loans, be required to repurchase a mortgage loan or reimburse investors for credit losses on a mortgage loan, or incur costs, liabilities, fines and other sanctions if we fail to satisfy our servicing obligations, including our obligations with respect to mortgage loan foreclosure actions.
United, through its mortgage banking subsidiary, Crescent, acts as servicer for approximately $3.4 billion of mortgage loans owned by third parties as of December 31, 2022. As a servicer for those loans, United has certain contractual obligations, including foreclosing on defaulted mortgage loans or, to the extent applicable, considering alternatives to foreclosure such as loan modifications or short sales. If United commits a material breach of its obligations as servicer, United may be subject to termination as servicer if the breach is not cured within a specified period of time following notice, causing United to lose servicing income.
In some cases, United may be contractually obligated to repurchase a mortgage loan or reimburse the investor for credit losses incurred on the loan as a remedy for servicing errors with respect to the loan. If United has increased repurchase obligations because of claims that United did not satisfy our obligations as a servicer, or increased loss severity on such repurchases, United may have a significant reduction to net servicing income within its noninterest income. United may incur costs if United is required to, or if United elects to, re-execute or re-file documents or take other action in its capacity as a servicer in connection with pending or completed foreclosures. United may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. If a court were to overturn a foreclosure because of errors or deficiencies in the foreclosure process, United may have liability to the borrower and/or to any title insurer of the property sold in foreclosure if the required process was not followed. These costs and liabilities may not be legally or otherwise reimbursable to United. In addition, if certain documents required for a foreclosure action are missing or defective, United could be obligated to cure the defect or repurchase the loan. United may incur liability to securitization investors relating to delays or deficiencies in its processing of mortgage assignments or other documents necessary to comply with state law governing foreclosures. The fair value of United’s mortgage servicing rights may be negatively affected to the extent our servicing costs increase because of higher foreclosure costs. United may be subject to fines and other sanctions imposed by federal or state regulators as a result of actual or perceived deficiencies in our foreclosure practices or in the foreclosure practices of other mortgage loan servicers. Any of these actions may harm United’s reputation or negatively affect its home lending or servicing business.
United may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could harm liquidity, results of operations and financial condition.
When mortgage loans are sold, whether as whole loans or pursuant to a securitization, United is required to make customary representations and warranties to purchasers, guarantors and insurers, including the government sponsored enterprises, about the mortgage loans and the manner in which they were originated. Whole loan sale agreements require repurchase or substitute mortgage loans, or indemnification of buyers against losses, in the event United breaches these representations or warranties. In addition, United may be required to repurchase mortgage loans as a result of early payment default of the borrower on a mortgage loan. With respect to loans that are originated through United’s broker or correspondent channels, the remedies available against the originating broker or correspondent, if any, may not be as broad as the remedies available to purchasers, guarantors and insurers of mortgage loans against United. United faces further risk that the originating broker or correspondent, if any, may not have financial capacity to perform remedies that otherwise may be available. Therefore, if a purchaser, guarantor or insurer enforces its remedies against United, it may not be able to recover losses from the originating broker or correspondent. If repurchase and indemnity demands increase and such demands are valid claims and are in excess of United’s provision for potential losses, its liquidity, results of operations and financial condition may be adversely affected.
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CREDIT RISKS
There are no assurances as to adequacy of the allowance for credit losses.
The FASB’s Accounting Standards Update 2016-13, effective for United as of January 1, 2020, substantially changes the accounting profession, regulatorsfor credit losses on loans, leases and other financial assets held by banks, financial institutions and other organizations. The new standard requires the recognition of credit losses on loans, leases and other financial assets based on an entity’s current estimate of expected losses over the lifetime of each loan, lease or other government bodiesfinancial asset, referred to as the Current Expected Credit Loss (“CECL”) model as opposed to the previous “incurred loss” model, which could change existing accounting methods. Changesrequired recognition of losses on loans, leases and other financial assets only when those losses had incurred. Under the CECL model, United is required to present these certain financial assets, carried at amortized cost, at the net amount expected to be collected over the life of the financial asset. The measurement of expected credit losses is based on information about past events, including credit quality, our historical experience, current conditions, and reasonable and supportable macroeconomic forecasts that may affect the collectability of the reported amount. This measurement will take place at the time a financial asset is first added to the balance sheet and at least quarterly thereafter.
CECL also requires management judgment that is supported by new models and more data elements, including macroeconomic forecasts, than the previous allowance standard. This increased the complexity and associated risk, particularly in accounting methodstimes of economic uncertainty or other unforeseen circumstances, which could negatively impact United’s results of operations and capital levels as well as place stress on our internal controls over financial condition.reporting.
Current accountingThe determination of the appropriate level of allowance for credit losses inherently involves a high degree of subjectivity and tax rules, standards, policiesrequires us to make significant estimates related to current and interpretations influenceexpected future credit risks and trends, all of which may undergo material changes. Deterioration in economic conditions affecting borrowers and securities issuers; new information regarding existing loans, credit commitments and securities holdings; natural disasters and risks related to climate change; and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the methods by which financial institutions conduct business, implement strategic initiativesallowances for credit losses on loans, securities and tax compliance,off-balance sheet credit exposures. In addition, federal and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolvingstate regulators, as an integral part of their respective supervisory functions, periodically review United’s allowance for credit losses on loans, and may change significantly over time. Events thatrequire an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. Any increases in the allowance for credit losses on loans will result in a decrease in net income and, possibly, capital, and may not have a direct impactmaterial adverse effect on United, such as the bankruptcy of major U.S. companies, have resulted in legislators, regulators and authoritative bodies, such as the Financial Accounting Standards Board, the SEC, the Public Company Accounting Oversight Board, and various taxing authorities, responding by adopting and/or proposing substantive revision to laws, regulations, rules, standards, policies, and interpretations. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. A change in accounting standards may adversely affect reportedUnited’s business, financial condition and results of operations.
See the section captioned “Provision for Credit Losses” in in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this Form 10-K for further discussion related to our process for determining the appropriate level of the allowance for credit losses.
United is subject to credit risk in its loan portfolio.
There are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral. United seeks to mitigate the risk inherent in its loan portfolio by adhering to prudent loan approval practices. Although United believes that its loan approval criteria are appropriate for the various kinds of loans the Company makes, United may incur losses on loans that meet our loan approval criteria. A significant decline in general economic conditions caused by inflation or deflation, recession, unemployment, changes in government fiscal and monetary policies, acts of terrorism, or other factors beyond our control could cause our borrowers to default on their loan payments, and the collateral values securing such loans to decline and be insufficient to repay any outstanding indebtedness. In such events, we could experience significant loan losses, which could have a material adverse effect on our financial condition and results of operations.
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Certain of our credit exposures are concentrated in industries that may be more susceptible to the long-term risks of climate change, natural disasters or global pandemics. To the extent that these risks may have a negative impact on the financial condition of borrowers, it could also have a material adverse effect on our business, financial condition and results of operations. See the section captioned “Loans” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further discussion related to commercial and industrial, energy, construction and commercial real estate loans.
OPERATIONAL RISKS
United’s information systems may experience an interruption or breach in security.
United relies heavily on communications and information systems to conduct its business. In addition, as part of its business, United collects, processes and retains sensitive and confidential client and customer information. United’s facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems. While United has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of the Company’s information systems could damage United’s reputation, result in a loss of customer business, subject United to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on United’s financial condition and results of operations.
Unauthorized disclosure of sensitive or confidential client or customer information, whether through a cyber-attack, other breach of our computer systems or otherwise, could severely harm our business.
In the normal course of our business, we collect, process and retain sensitive and confidential client and customer information on our behalf and on behalf of other third parties. Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.
Information security risks for financial institutions like us have increased recently in part because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, employees working from home and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks, designed to disrupt key business services such as customer-facing web sites. We are not able to anticipate or implement effective preventive measures against all security breaches of these types. Although we employ detection and response mechanisms designed to contain and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection.
We also face risks related to cyber-attacks and other security breaches in connection with card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. We also rely on numerous other third-party service providers to conduct other aspects of our business operations and face similar risks relating to them. While we conduct security assessments on our higher risk third parties, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.
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Any cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.
United’s business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, its business and a negative impact on results of operations.
United relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems, whether due to severe weather, natural disasters, cyber-attack, acts of war or terrorism, criminal activity or other factors, could result in failures or disruptions in general ledger, deposit, loan, customer relationship management and other systems. While United has disaster recovery and other policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of United’s information systems could damage its reputation, result in a loss of customer business, subject it to additional regulatory scrutiny or expose it to civil litigation and possible financial liability, any of which could have a material adverse effect on results of operations.
The negative economic effects caused by terrorist attacks, including cyber-attacks, potential attacks and other destabilizing events would likely contribute to the deterioration of the quality of United’s loan portfolio and could reduce its customer base, level of deposits, and demand for its financial products such as loans.
High inflation, natural disasters, acts of terrorism, including cyber-attacks, an escalation of hostilities or other international or domestic occurrences, and other factors could have a negative impact on the economy of the Mid-Atlantic and Southeast regions in which United operates. An additional economic downturn in its markets would likely contribute to the deterioration of the quality of United’s loan portfolio by impacting the ability of its customers to repay loans, the value of the collateral securing loans, and may reduce the level of deposits in its bank and the stability of its deposit funding sources. An additional economic downturn could also have a significant impact on the demand for United’s products and services. The cumulative effect of these matters on United’s results of operations and financial condition would likely be adverse and material.
Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled employees or if we lose the services of our senior management team.
Our ability to manage growth will depend upon our ability to continue to attract, hire and retain skilled employees. The unanticipated loss of members of our senior management team, could have a material adverse effect on our results of operations and ability to execute our strategic goals. Our success will also depend on the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and to hire, train and manage our employees.
United’s vendors could fail to fulfill their contractual obligations, resulting in a material interruption in, or disruption to, its business and a negative impact on results of operations.
United is dependent upon third parties for certain information system, data management and processing services and to provide key components of its business infrastructure. United has entered into subcontracts for the supply of current and future services, such as data processing, mortgage loan processing and servicing, and certain property management functions. These services must be available on a continuous and timely basis and be in compliance with any regulatory requirements. Failure to do so could substantially harm United’s business.
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United often purchases services from vendors under agreements that typically can be terminated on a periodic basis. There can be no assurance, however, that vendors will be able to meet their obligations under these agreements or that United will be able to compel them to do so. Risks of relying on vendors include the following:
If an existing agreement expires or a certain service is discontinued by a vendor, then United may not be able to continue to offer its customers the same breadth of products and its operating results would likely suffer unless it is able to find an alternate supply of a similar service.
Agreements United may negotiate in the future may commit it to certain minimum spending obligations. It is possible United will not be able to create the market demand to meet such obligations.
If market demand for United’s products increases suddenly, its current vendors might not be able to fulfill United’s commercial needs, which would require it to seek new arrangements or new sources of supply, and may result in substantial delays in meeting market demand.
United may not be able to control or adequately monitor the quality of services it receives from its vendors. Poor quality services could damage United’s reputation with its customers.
In addition, these third party service providers are sources of operational and informational security risk to United, including risks associated with operational errors, information system interruptions or breaches, and unauthorized disclosures of sensitive or confidential client or customer information. If third party service providers encounter any of these issues, or if United has difficulty communicating with them, United could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our results of operations or our business.
Potential problems with vendors such as those discussed above could have a significant adverse effect on United’s business, lead to higher costs and damage its reputation with its customers and, in turn, have a material adverse effect on its financial condition and results of operations.
MARKET AND INTEREST RATE RISKS RELATING TO UNITED’S MERGER WITH CARDINAL FINANCIAL
United may failChanges in economic and political conditions could adversely affect our earnings, as our borrowers’ ability to realizerepay loans and the cost savings estimated for the merger of Cardinal.
Although United estimates that it will realize cost savings of approximately $27 million annually (excludingone-time costs and expenses associated with the merger with Cardinal) from the merger when fully phased in, it is possible that the estimatesvalue of the potential cost savings could turn outcollateral securing our loans decline.
United’s success depends, to be incorrect. For example, the combined purchasing powera certain extent, upon local and national economic and political conditions, as well as governmental monetary policies. Conditions such as an economic recession, rising unemployment, changes in interest rates, money supply and other factors beyond its control may not be as strong as expected,adversely affect United’s and United Bank’s asset quality, deposit levels and loan demand and, therefore, the cost savingsits earnings. Because United has a significant amount of real estate loans, decreases in real estate values could be reduced. In addition, future business developments may require United to continue to operate or maintain some facilities or support functions that are currently expected to be combined or reduced. The cost savings estimates also depend on United’s ability to combine the businesses of United and Cardinal in a manner that permits those costs savings to be realized. If the estimates turn out to be incorrect or United is not able to combine the two companies successfully, the anticipated cost savings may not be fully realized or realized at all, or may take longer to realize than expected.
The integration of the operations of United and Cardinal may be more difficult, costly or time-consuming than anticipated.
The success of the merger of Cardinal will depend, in part, on United’s ability to realize the anticipated benefits and cost savings from successfully combining the businesses of United and Cardinal and to combine the businesses of United and Cardinal in a manner that permits growth opportunities and cost savings to be realized without materially disrupting the existing customer relationships of Cardinal or decreasing revenues due to loss of customers. If United is not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully or at all or may take longer to realize than expected.
It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefitsvalue of the merger. The loss of key employees could adversely affect United’s ability to successfully conduct its businessproperty used as collateral. Adverse changes in the markets in which Cardinal now operates,economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings. Consequently, declines in the economy in our market area could have a material adverse effect on United’sour financial condition and results of operations.
While recent economic conditions have seen improving trends since the onset of the COVID-19 pandemic, there can be no assurance that this improvement will continue. Evolving responses from federal and state governments and other regulators, and our customers or our third-party partners or vendors, to new challenges such as climate change have impacted and could continue to impact the economic and political conditions under which we operate. Economic and inflationary pressure on consumers and uncertainty regarding continuing economic improvement could result in changes in consumer and business spending, borrowing and savings habits. Such conditions could have a material adverse effect on the credit quality of our loans and our business, financial condition and results of operations.
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The value of certain investment securities is volatile and future declines in value could have a materially adverse effect on future earnings and regulatory capital.
Continued volatility in the fair value for certain investment securities, whether caused by changes in market conditions, interest rates, credit risk of the issuer, the expected yield of the security, or actual defaults in the portfolio could result in significant fluctuations in the value of its common stock. If United experiences difficulties with the integration process,securities as well as any regulatory rulemaking such as the anticipated benefitsVolcker Rule which could exclude or limit the holdings of certain investment securities. This could have a material adverse impact on United’s accumulated other comprehensive income and shareholders’ equity depending on the direction of the mergerfluctuations. Furthermore, future downgrades, defaults or prepayments, including the liquidation of the underlying collateral in certain securities, could result in the recording of an allowance for credit losses related to these securities. This could have a material impact on United’s future earnings, although the impact on shareholders’ equity will be offset by any amount already included in other comprehensive income.
United operates in a highly competitive market.
United faces a high degree of competition in all of the markets it serves. United faces strong competition in gathering deposits, making loans and obtaining client assets for management by its investment or trust operations. United considers all of West Virginia to be included in its market area. This area includes the five largest West Virginia Metropolitan Statistical Areas (“MSA”): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Morgantown MSA and the Wheeling MSA. United serves the Ohio counties of Lawrence, Belmont, Jefferson and Washington and Fayette county in Pennsylvania primarily because of their close proximity to the Ohio and Pennsylvania borders and United banking offices located in those counties or in nearby West Virginia. United’s Virginia markets include the Maryland, northern Virginia and Washington, D.C. MSA, the Winchester MSA, the Harrisonburg MSA, and the Charlottesville MSA. Through its acquisition of Carolina Financial, United’s market also includes the Coastal, Midlands, and Upstate regions of South Carolina, including the Charleston (Charleston, Dorchester and Berkeley Counties), Myrtle Beach (Horry and Georgetown Counties), Columbia (Richland and Lexington Counties), and the Upstate (Greenville and Spartanburg Counties) areas as well as areas in North Carolina including Wilmington (New Hanover County), Raleigh-Durham (Durham and Wake Counties), Charlotte-Concord-Gastonia (NC and SC) and the southeastern coastal region of North Carolina (Bladen, Brunswick, Columbus, Cumberland, Duplin and Robeson Counties). Through its acquisition of Community Bankers Trust, United added new markets in Baltimore and Annapolis, Maryland and Lynchburg and Richmond, Virginia as well as the Northern Neck of Virginia. United considers all of the above locations to be the primary market area for the business of its banking and mortgage banking subsidiaries.
There is a risk that aggressive competition could result in United controlling a smaller share of these markets. A decline in market share could lead to a decline in net income which would have a negative impact on shareholder value.
United may not be realized fullyadversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or at all,other relationships. United has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, or other institutional clients. Defaults by financial services institutions, and even rumors or questions about a financial institution or the financial services industry in general, may take longerlead to realize than expected. As with any mergermarket wide liquidity problems and could lead to losses or defaults by United or other institutions. Any such losses could adversely affect United’s financial condition or results of operations.
Changes in interest rates may adversely affect United’s business.
United’s earnings, like most financial institutions, there also may be business disruptions that cause Cardinal to lose customers or cause customers to remove their accounts from Cardinal and move their business to competing financial institutions. Integration effortsare significantly dependent on its net interest income. Net interest income is the difference between the two companies will also divert management attentioninterest income United earns on loans and resources. These integration mattersother assets which earn interest and the interest expense incurred to fund those assets, such as on savings deposits and borrowed money. Therefore, changes in general market interest rates, such as a change in the monetary policy of the Board of Governors of the Federal Reserve System or otherwise beyond those which are contemplated by United’s interest rate risk model and policy, could have an effect on net interest income. For more information concerning United’s interest rate risk model and policy, see the discussion in Quantitative and Qualitative Disclosures About Market Risk included in Part II, under Item 7A of this Form 10-K.
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Uncertainty relating to the LIBOR determination process and LIBOR discontinuance may adversely affect our results of operations.
The London Interbank Offered Rate (“LIBOR”) and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences, which cannot be predicted. The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of the most commonly used U.S. dollar LIBOR settings will cease to be published or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be published as of December 31, 2021. The bank regulatory agencies indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they would examine bank practices accordingly. The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (“SOFR”) for contracts governed by U.S. law that have no or ineffective fallback, and in December 2022, the Federal Reserve Board adopted related implementing rules.
United has taken steps to ensure that no new contracts using LIBOR were originated after December 31, 2021. At this time, United intends to prioritize SOFR and Prime as the preferred alternatives to LIBOR; however, these preferred alternatives could change over time based on market developments. There can be no assurances on which benchmark rate(s) may replace LIBOR or how LIBOR will be determined for purposes of financial instruments that are currently referencing LIBOR when it ceases to exist. The discontinuance of LIBOR may result in uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing documents, may adversely affect the value of our floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates and may also increase operational and other risks to the Company and the industry.
In addition, the implementation of LIBOR reform proposals may result in increased compliance costs and operational costs, including costs related to continued participation in LIBOR and the transition to a replacement reference rate or rates. We cannot reasonably estimate the expected cost.
RISKS RELATED TO ACQUISITION ACTIVITY
Potential acquisitions may disrupt our business and dilute shareholder value
We generally seek merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things, (i) potential exposure to unknown or contingent liabilities of the target company; (ii) exposure to potential asset quality issues of the target company; (iii) potential disruption to our business; (iv) potential diversion of our management’s time and attention; (v) the possible loss of key employees and customers of the target company; (vi) difficulty in estimating the value of the target company; and (vii) potential changes in banking or tax laws or regulations that may affect the target company.
Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. Acquisitions may also result in potential dilution to existing shareholders of our earnings per share if we issue common stock in connection with the acquisition. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on eachour business, financial condition and results of Cardinaloperations. In addition, from time to time, bank regulators may restrict the Company from making acquisitions. See “Regulation and United duringSupervision” in Item 1, “Business,” of this transition periodForm 10-K for additional detail and for an undetermined period after consummationfurther discussion of the merger.
The success of the merger will also depend on United’s ability to:these matters.
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RetainAcquisitions may be delayed, impeded, or prohibited due to regulatory issues
Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and attract qualified personnelstate regulatory agencies (collectively, “regulatory approvals”). The process for obtaining these required regulatory approvals has become substantially more difficult since the global financial crisis, and our ability to Unitedengage in certain merger or acquisition transactions depends on the bank regulators’ views at the time as to our capital levels, quality of management, and Cardinal;
Maintainoverall condition, in addition to their assessment of a variety of other factors, including our compliance with law. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing relationshipsor new regulatory issues we have, or may have, with depositorsregulatory agencies, including, without limitation, issues related to Bank Secrecy Act compliance, Community Reinvestment Act issues, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations and other laws and regulations. We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a result of Cardinalour inability, or perceived or anticipated inability, to minimize withdrawalsobtain regulatory approvals in a timely manner, under reasonable conditions or at all. Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, financial condition and results of deposits prior to and subsequent to the merger;
Maintain and enhance existing relationships with borrowers to limit unanticipated losses from loans of Cardinal;
Control the incrementalnon-interest expense from United to maintain overall operating efficiencies; and
Compete effectively in the communities served by United and Cardinal and in nearby communities.
United may not be able to manage effectively its growth resulting from the merger.operations.
SECURITY OWNERSHIP RISKS ASSOCIATED WITH UNITED’S COMMON STOCK
United’s stock price can be volatile.
Stock price volatility may make it more difficult for United shareholders to resell their common stock when they want and at prices they find attractive. United’s stock price can fluctuate significantly in response to a variety of factors, including, among other things:
Actual or anticipated negative variations in quarterly results of operations;
Negative recommendations by securities analysts;
Poor operating and stock price performance of other companies that investors deem comparable to United;
News reports relating to negative trends, concerns and other issues in the financial services industry or the economy in general;
Negative perceptions in the marketplace regarding United and/or its competitors;
New technology used, or services offered, by competitors;
Adverse changes in interest rates or a lending environment with prolonged low interest rates;
Adverse changes in the real estate market;
Failure to integrate acquisitions or realize anticipated benefits from acquisitions;
Adverse changes in government regulations; and
Geopolitical conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause United’s stock price to decrease regardless of operating results.
Dividend payments by United’s subsidiaries to United and by United to its shareholders can be restricted.
The declaration and payment of future cash dividends will depend on, among other things, United’s earnings, the general economic and regulatory climate, United’s liquidity and capital requirements, and other factors deemed relevant by United’s board of directors. Federal Reserve Board policy limits the payment of cash dividends by bank holding companies, without regulatory approval, and requires that a holding company serve as a source of strength to its banking subsidiaries.
United’s principal source of funds to pay dividends on its common stock is cash dividends from its subsidiaries. The payment of these dividends by its subsidiaries is also restricted by federal and state banking laws and regulations. As of December 31, 2017,2022, approximately $198.8$276.2 million was available for dividend payments from United Bank to United without regulatory approval.
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An investment in United common stock is not an insured deposit.
United common stock is not a bank deposit and, therefore, is not insured against loss by the Federal Deposit Insurance Corporation, any other deposit insurance fund or by any other public or private entity. Investment in United common stock is inherently risky for the reasons described in this section and elsewhere in this prospectus and joint proxy statementreport and is subject to the same market forces that affect the price of common stock in any company. As a result, someone who acquires United common stock, could lose some or all of their investment.
Failure to maintain effective internal controls over financial reporting in the future could impair United’s ability to accurately and timely report its financial results or prevent fraud, resulting in loss of investor confidence and adversely affecting United’s business and stock price.
Effective internal controls over financial reporting are necessary to provide reliable financial reports and prevent fraud. Management believes that United’s internal controls over financial reporting are currently effective. Management will continually review and analyze the Company’s internal controls over financial reporting for Sarbanes-Oxley Section 404 compliance. Any failure to maintain, in the future, an effective internal control environment could impact United’s ability to report its financial results on an accurate and timely basis, which could result in regulatory actions, loss of investor confidence, and adversely impact United’s business and stock price.
Certain banking laws may have an anti-takeover effect.
Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult to be acquired by a third party, even if perceived to be beneficial to United’s shareholders. These provisions effectively inhibit anon-negotiated merger or other business combination, which could adversely affect the market price of United’s common stock.
GENERAL RISKS
United may elect or be compelled to seek additional capital in the future, but capital may not be available when it is needed.
United is required by federal and state regulatory authorities to maintain adequate levels of capital to support the Company’s operations. In addition, United may elect to raise additional capital to support the Company’s business or to finance acquisitions, if any, or United may otherwise elect to raise additional capital.
United’s ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside the Company’s control, and on United’s financial performance. Accordingly, United cannot be assured of its ability to raise additional capital if needed or on terms acceptable to the Company. If United cannot raise additional capital when needed, it may have a material adverse effect on the Company’s financial condition, results of operations and prospects.
New accounting or tax pronouncements or interpretations may be issued by the accounting profession, regulators or other government bodies which could change existing accounting methods. Changes in accounting methods could negatively impact United’s results of operations and financial condition.
Current accounting and tax rules, standards, policies and interpretations influence the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time. Events that may not have a direct impact on United, such as the bankruptcy of major U.S. companies, have resulted in legislators, regulators and authoritative bodies, such as the Financial Accounting Standards Board, the SEC, the Public Company Accounting Oversight Board, and various taxing authorities, responding by adopting and/or proposing substantive revision to laws, regulations, rules, standards, policies, and interpretations. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. A change in accounting standards may adversely affect reported financial condition and results of operations.
Item 1B. | UNRESOLVED STAFF COMMENTS |
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United could face unanticipated environmental liabilities or costs related to real property owned or acquired through foreclosure. Compliance with federal, state and local environmental laws and regulations, including those related to investigation and clean-up of contaminated sites, could have a negative effect on expenses and results of operations.
A significant portion of United’s loan portfolio is secured by real property. During the ordinary course of business, United may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, United may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require United to incur substantial expenses and may materially reduce the affected property’s value or limit United’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase exposure to environmental liability. Although United has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on results of operations.
Severe weather, natural disasters, public health issues, acts of war or terrorism, and other external events could significantly impact United’s ability to conduct business.
Severe weather, natural disasters, public health issues, acts of war or terrorism, and other external events could affect the stability of United’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, adversely impact United’s employee base, cause significant property damage, result in loss of revenue, and / or cause the Company to incur additional expenses. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on United’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to United’s environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG-related compliance costs for United as well as among our suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact United’s reputation, ability to do business with certain partners, access to capital, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Climate change and related legislative and regulatory initiatives may materially affect United’s business and results of operations.
The effects of climate change continue to create an alarming level of concern for the state of the global environment. As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperatures, such as reentering the Paris Agreement. Further, the U.S. Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change. Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. The lack of empirical data surrounding the credit and other financial risks posed
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by climate change render it impossible to predict how specifically climate change may impact our financial condition and results of operations; however, the physical effects of climate change may also directly impact us. Specifically, unpredictable and more frequent weather disasters may adversely impact the value of real property securing the loans in our portfolios. Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted by climate change, which could impact our financial condition and results of operations. Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate.
We are also subject to reputational risk from shareholder concerns about our practices related to climate change, our carbon footprint and our business relationships with customers who operate in carbon-intensive industries. Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.
Climate change also exposes us to transition risks associated with the transition to a less carbon-dependent economy. Transition risks may result from changes in policies; laws and regulations; technologies; and/or market preferences to address climate change. Such changes could materially, negatively impact our business, results of operations, financial condition and/or our reputation, in addition to having a similar impact on our customers. We have customers who operate in carbon-intensive industries like oil and gas that are exposed to climate risks, such as those risks related to the transition to a less carbon-dependent economy, as well as customers who operate in low-carbon industries that may be subject to risks associated with new technologies. Federal and state banking regulators and supervisory authorities, investors and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their customers, which may result in financial institutions coming under increased pressure regarding the disclosure and management of their climate risks and related lending and investment activities. Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, we face regulatory risk of increasing focus on our resilience to climate-related risks, including in the context of stress testing for various climate stress scenarios. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.
Item 1B. UNRESOLVED STAFF COMMENTS
None
Item 2. PROPERTIES
Offices
United is headquartered in the United Center at 500 Virginia Street, East, Charleston, West Virginia. United’s executive offices are located in Parkersburg, West Virginia at Fifth and Avery Streets. United operates onetwo hundred andforty-two (142) twenty (220) full service offices—fifty-one (51)forty-seven (47) offices located throughout West Virginia,eighty-six (86) one hundred (100) offices in the Shenandoah Valley region, the Northern Neck, the Richmond and Lynchburg metropolitan areas of Virginia and the Northern Virginia, Maryland and Washington, D.C. metropolitan area, forty-three (43) offices in the Mountains, Piedmont, Coastal Plains and Tidewater regions of North Carolina, twenty-five (25) offices in the Coastal, Midlands, and Upstate regions of South Carolina, four (4) offices in southwestern Pennsylvania and one (1) office in southeastern Ohio. United owns allforty-one (41) of its West Virginia facilities except for two in the Charleston area and one each in areaswhile leasing six (6) of Beckley, Wheeling, Morgantown, Parkersburg, Charles Town, and Clarksburg, all of which are leasedits offices under operating leases. In Virginia, United leases forty-four (44) of its branches under operating leases while owning thirty-eight (38) branches. United owns mostthree (3) branches and leases eight (8) of its facilitiesbranches under operating leases in the Shenandoah Valley regionMaryland. In Washington, DC, United leases all seven (7) of Virginia except for nine offices, two in Winchester, one each in Charlottesville, Front Royal, Harrisonburg, Stanardsville, Waynesboro, Weyers Cave and Woodstock, all of which are leasedits branch facilities under operating leases. United leases alltwenty-five (25) of its branch offices in North Carolina under operating leases while owning eighteen (18) branches. In South Carolina, United owns twenty-one (21) of its facilities while leasing under operating lease agreements in the Northern Virginia, Maryland and Washington, D.C. areas except for five offices, two in Arlington, one each in Alexandria, Fairfax and Vienna, Virginia, which are owned facilities.leases four (4) branch offices. United owns all four (4) of its Pennsylvania facilities.
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In Ohio, United owns its one facility in Bellaire.branch. United leases operations centers in the Charleston, and Morgantown, West Virginia and Chantilly, Virginia areas.areas and owns two operations centers in the Morgantown, West Virginia area and Washington, North Carolina.
Item 3. LEGAL PROCEEDINGS
United and its subsidiaries are currently involved in various legal proceedings in the normal course of business. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United’s financial position.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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UNITED BANKSHARES, INC.
FORM10-K, PART II
| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Stock
As of January 31, 2018,2023, 200,000,000 shares of common stock, par value $2.50 per share, were authorized for United, of which 105,070,939142,011,832 were issued, including 29,1737,266,438 shares held as treasury shares. The outstanding shares are held by approximately 6,7809,485 shareholders of record, as well as 34,78150,813 shareholders in street name as of January 31, 2018.2023. The unissued portion of United’sUnited’ s authorized common stock (subject to registration approval by the SEC) and the treasury shares are available for issuance as the Board of Directors determines advisable. United offers its shareholders the opportunity to invest dividends in shares of United stock through its dividend reinvestment plan. United has also established stock option plans and a stock bonus plan as incentive for certain eligible officers. In addition to the above incentive plans, United is occasionally involved in certain mergers in which additional shares could be issued and recognizes that additional shares could be issued for other appropriate purposes.
In DecemberOctober of 2016, United completed a registered public offering of 4,330,000 shares of its common stock. The net proceeds of the offering will be used to provide capital support for the growth of the company and other general corporate purposes.
In August of 2017,2019, United’s Board of Directors approved a stock repurchase plan whereby United could buy(the “2019 Plan”) to repurchase up to 2,000,0004,000,000 shares of itsthe Company’s common stock inon the open market at prevailing prices. United repurchased 2,846,989 shares under this plan. On May 11, 2022, the Board of Directors approved a new repurchase plan (the “2022 Plan”) to repurchase up to 4,750,000 shares of United’s common stock on the open market. The 2022 Plan replaced the 2019 Plan. During 2022, United repurchased 378,761 shares under the 2022 Plan. As of December 31, 2017,2022, United still has 2,000,0004,371,239 shares available for repurchase under the plan. During 2017 and 2016, no shares were repurchased under a stock repurchase plan.2022 Plan.
The Board of Directors believes that the availability of authorized but unissued common stock of United is of considerable value if opportunities should arise for the acquisition of other businesses through the issuance of United’s stock. Shareholders do not have preemptive rights, which allow United to issue additional authorized shares without first offering them to current shareholders.
Currently, United has only one voting class of stock issued and outstanding and all voting rights are vested in the holders of United’s common stock. On all matters subject to a vote of shareholders, the shareholders of United will be entitled to one vote for each share of common stock owned. Shareholders of United have cumulative voting rights with regard to election of directors.
United’s common stock is traded over the counter on the National Association of Securities Dealers Automated Quotations System, Global Select Market (“NASDAQ”) under the trading symbol UBSI. The closing sale price reported for United’s common stock on February 22, 2023, the last practicable date, was $40.85.
On December 23, 2008, the shareholders of United authorized the issuance of preferred stock up to 50,000,000 shares with a par value of $1.00 per share. The authorized preferred stock may be issued by the Company’s Board of Directors in one or more series, from time to time, with each such series to consist of such number of shares and to have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors. Currently, no shares of preferred stock have been issued.
The authorization of preferred stock will not have an immediate effect on the holders of the Company’s common stock. The actual effect of the issuance of any shares of preferred stock upon the rights of the holders of common stock cannot be stated until the Board of Directors determines the specific rights of any shares of preferred stock. However, the effects might include, among other things, restricting dividends on common stock, diluting the voting power of common stock, reducing the market price of common stock or impairing the liquidation rights of the common stock without further action by the shareholders. Holders of the common stock will not have preemptive rights with respect to the preferred stock.
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There are no preemptive or conversion rights or, redemption or sinking fund provisions with respect to United’s stock. All of the issued and outstanding shares of United’s stock are fully paid andnon-assessable.
Dividends
The shareholders of United are entitled to receive dividends when and as declared by its Board of Directors. Dividends have been paid quarterly. Dividends were $1.33 per share in 2017, $1.32 per share in 2016 and $1.29 per share in 2015. See “Market and Stock Prices of United” for quarterly dividend information.
The payment of dividends is subject to the restrictions set forth in the West Virginia Corporation Act and the limitations imposed by the Federal Reserve Board. Payment of dividends by United is dependent upon receipt of dividends from its Banking Subsidiaries. Payment of dividends by United Bank is regulated by the Federal Reserve System and generally, the prior approval of the Federal Reserve Board (FRB) is required if the total dividends declared by a state member bank in any calendar year exceeds its net profits, as defined, for that year combined with its retained net profits for the preceding two years. Additionally, prior approval of the FRB is required when a state member bank has deficit retained earnings but has sufficient current year’s net income, as defined, plus the retained net profits of the two preceding years. The FRB may prohibit dividends if it deems the payment to be an unsafe or unsound banking practice. The FRB has issued guidelines for dividend payments by state member banks emphasizing that proper dividend size depends on the bank’s earnings and capital. See Note T, Notes to Consolidated Financial Statements.
Market and Stock Prices of United
United Bankshares, Inc. stock is traded over the counter on the National Association of Securities Dealers Automated Quotations System, Global Select Market (NASDAQ) under the trading symbol UBSI. The closing sale price reported for United’s common stock on February 22, 2018, the last practicable date, was $37.00.
The high and low prices listed below are based upon information available to United’s management from NASDAQ listings. No attempt has been made by United’s management to ascertain the prices for every sale of its stock during the periods indicated. However, based on the information available, United’s management believes that the prices fairly represent the amounts at which United’s stock was traded during the periods reflected.
The following table presents the dividends and high and low prices of United’s common stock during the periods set forth below:
| | | | | | | | | | | | |
2018 | | Dividends | | | High | | | Low | |
First Quarter through February 22, 2018 | | | — | (1) | | $ | 38.55 | | | $ | 33.60 | |
2017 | | | | | | | | | |
Fourth Quarter | | $ | 0.34 | | | $ | 38.45 | | | $ | 33.60 | |
Third Quarter | | $ | 0.33 | | | $ | 40.25 | | | $ | 31.70 | |
Second Quarter | | $ | 0.33 | | | $ | 42.60 | | | $ | 37.45 | |
First Quarter | | $ | 0.33 | | | $ | 47.30 | | | $ | 39.45 | |
2016 | | | | | | | | | |
Fourth Quarter | | $ | 0.33 | | | $ | 49.35 | | | $ | 36.52 | |
Third Quarter | | $ | 0.33 | | | $ | 39.71 | | | $ | 35.91 | |
Second Quarter | | $ | 0.33 | | | $ | 40.18 | | | $ | 34.50 | |
First Quarter | | $ | 0.33 | | | $ | 37.85 | | | $ | 32.22 | |
(1) | On February 26, 2018, United declared a dividend of $0.34 per share, payable April 2, 2018, to shareholders of record as of March 9, 2018. |
Stock Performance Graph
The following Stock Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that United specifically incorporates it by reference into such filing.
The following graph compares United’s cumulative total shareholder return (assuming reinvestment of dividends) on its common stock for the five-year period ending December 31, 2017,2022, with the cumulative total return (assuming reinvestment of dividends) of the Standard and Poor’s Midcap 400 Index and with the NASDAQ Bank Index. The cumulative total shareholder return assumes a $100 investment on December 31, 20122017 in the common stock of United and each index and the cumulative return is measured as of each subsequent fiscalyear-end. There is no assurance that United’s common stock performance will continue in the future with the same or similar trends as depicted in the graph.
| | | | Period Ending | | | Period Ending | |
| | | 12/31/12 | | | 12/31/13 | | | 12/31/14 | | | 12/31/15 | | | 12/31/16 | | | 12/31/17 | | | 12/31/17 | | | 12/31/18 | | | 12/31/19 | | | 12/31/20 | | | 12/31/21 | | | 12/31/22 | |
United Bankshares, Inc. | | | 100.00 | | | | 135.02 | | | | 167.18 | | | | 170.79 | | | | 220.82 | | | | 171.78 | | | | 100.00 | | | | 92.95 | | | | 119.74 | | | | 106.01 | | | | 123.35 | | | | 143.14 | |
NASDAQ Bank Index | | | 100.00 | | | | 141.64 | | | | 148.54 | | | | 161.65 | | | | 222.82 | | | | 234.90 | | | | 100.00 | | | | 83.83 | | | | 104.26 | | | | 96.44 | | | | 137.82 | | | | 115.38 | |
S&PMid-Cap Index | | | 100.00 | | | | 133.41 | | | | 146.37 | | | | 143.22 | | | | 172.81 | | | | 200.80 | | | | 100.00 | | | | 88.90 | | | | 112.17 | | | | 127.48 | | | | 159.01 | | | | 138.18 | |
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Issuer Repurchases
The table below includes certain information regarding United’s purchase of its common shares during the three months ended December 31, 2017:2022:
| | | | | | | | | | | | | | | | |
Period | | Total
Number of
Shares
Purchased
(1) (2) | | | Average Price
Paid per
Share | | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans (3) | | | Maximum
Number of
Shares that May
Yet be Purchased
Under the Plans (3) | |
10/01 – 10/31/2017 | | | 1,871 | | | $ | 37.10 | | | | 0 | | | | 2,000,000 | |
11/01 – 11/30/2017 | | | 11,590 | | | $ | 35.95 | | | | 0 | | | | 2,000,000 | |
12/01 – 12/31/2017 | | | 0 | | | $ | 00.00 | | | | 0 | | | | 2,000,000 | |
| | | | | | | | | | | | |
Total | | | 13,461 | | | $ | 36.11 | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Period | | Total
Number of
Shares
Purchased
(1) (2) | | | Average Price
Paid per
Share | | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans (3) | | | Maximum
Number of
Shares that May
Yet be Purchased
Under the Plans (3) | |
10/01 – 10/31/2022 | | | 0 | | | $ | 00.00 | | | | 0 | | | | 4,371,239 | |
11/01 – 11/30/2022 | | | 0 | | | $ | 00.00 | | | | 0 | | | | 4,371,239 | |
12/01 – 12/31/2022 | | | 5 | | | $ | 42.82 | | | | 0 | | | | 4,371,239 | |
| | | | | | | | | | | | |
Total | | | 5 | | | $ | 42.82 | | | | | | | | | |
| | | | | | | | | | | | |
| | (1) | Includes shares exchanged in connection with the exercise of stock options or the vesting of restricted stock under United’s stock optionlong-term incentive plans. Shares are purchased pursuant to the terms of the applicable stock option plan and not pursuant to a publicly announced stock repurchase plan. For the quarter ended December 31, 2017, 13,4572022 – no shares were exchanged by participants in United’s stock option plans at an average price of $36.11.long-term incentive plans. |
| | (2) | Includes shares purchased in open market transactions by United for a rabbi trust to provide payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. For the quarter ended December 31, 2017,2022, the following shares were purchased for the deferred compensation plan: November 2017 –4December 2022 – 5 shares at an average price of $39.28.$42.82. |
| | (3) | In AugustMay of 2017,2022, United’s Board of Directors approved a new repurchase plan to repurchase up to two million4,750,000 shares of United’s common stock on the open market (the 2017 Plan)“2022 Plan”). The timing, price and quantity of purchases under the plans are at the discretion of management and the plan may be discontinued, suspended or restarted at any time depending on the facts and circumstances. The 2022 Plan replaces a repurchase plan approved by United’s Board of Directors in October of 2019. |
| Item 6. | SELECTED FINANCIAL DATA[RESERVED] |
The following consolidated selected financial data is derived from United’s audited financial statements as of and for the five years ended December 31, 2017. The selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes contained elsewhere in this report.
| | | | | | | | | | | | | | | | | | | | |
| | | Five Year Summary | |
| (Dollars in thousands, except per share data) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Summary of Operations: | | | | | | | | | | | | | | | | | | | | |
Total interest income | | $ | 623,806 | | | $ | 470,341 | | | $ | 423,630 | | | $ | 418,542 | | | $ | 306,154 | |
Total interest expense | | | 74,809 | | | | 45,010 | | | | 39,506 | | | | 42,834 | | | | 36,313 | |
Net interest income | | | 548,997 | | | | 425,331 | | | | 384,124 | | | | 375,708 | | | | 269,841 | |
Provision for loan losses | | | 28,406 | | | | 24,509 | | | | 22,574 | | | | 21,937 | | | | 19,267 | |
Other income | | | 131,645 | | | | 70,032 | | | | 73,626 | | | | 80,962 | | | | 66,506 | |
Other expense | | | 367,409 | | | | 248,196 | | | | 231,687 | | | | 239,847 | | | | 192,036 | |
Income taxes | | | 134,246 | | | | 75,575 | | | | 65,530 | | | | 64,998 | | | | 39,416 | |
Net income | | | 150,581 | | | | 147,083 | | | | 137,959 | | | | 129,888 | | | | 85,628 | |
Cash dividends | | | 131,755 | | | | 98,696 | | | | 89,667 | | | | 88,522 | | | | 62,981 | |
| | | | | |
Per common share: | | | | | | | | | | | | | | | | | | | | |
Net income: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 1.54 | | | | 2.00 | | | | 1.99 | | | | 1.93 | | | | 1.70 | |
Diluted | | | 1.54 | | | | 1.99 | | | | 1.98 | | | | 1.92 | | | | 1.70 | |
Cash dividends | | | 1.33 | | | | 1.32 | | | | 1.29 | | | | 1.28 | | | | 1.25 | |
Book value per share | | | 30.85 | | | | 27.59 | | | | 24.61 | | | | 23.90 | | | | 20.66 | |
| | | | | |
Selected Ratios: | | | | | | | | | | | | | | | | | | | | |
Return on average shareholders’ equity | | | 5.09 | % | | | 7.67 | % | | | 8.10 | % | | | 8.13 | % | | | 8.43 | % |
Return on average assets | | | 0.85 | % | | | 1.10 | % | | | 1.12 | % | | | 1.11 | % | | | 1.02 | % |
Dividend payout ratio | | | 87.50 | % | | | 67.10 | % | | | 65.00 | % | | | 68.15 | % | | | 73.55 | % |
| | | | | |
Selected Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
Average assets | | $ | 17,617,429 | | | $ | 13,376,803 | | | $ | 12,265,115 | | | $ | 11,652,776 | | | $ | 8,419,456 | |
Investment securities | | | 2,071,645 | | | | 1,403,638 | | | | 1,204,182 | | | | 1,316,040 | | | | 889,342 | |
Loans held for sale | | | 265,955 | | | | 8,445 | | | | 10,681 | | | | 8,680 | | | | 4,236 | |
Total loans | | | 13,011,421 | | | | 10,341,137 | | | | 9,384,080 | | | | 9,104,652 | | | | 6,704,583 | |
Total assets | | | 19,058,959 | | | | 14,508,892 | | | | 12,577,944 | | | | 12,328,811 | | | | 8,735,324 | |
Total deposits | | | 13,830,591 | | | | 10,796,867 | | | | 9,341,527 | | | | 9,045,485 | | | | 6,621,571 | |
Long-term borrowings | | | 1,363,977 | | | | 1,172,026 | | | | 1,015,249 | | | | 1,105,314 | | | | 575,697 | |
Total liabilities | | | 15,818,429 | | | | 12,273,145 | | | | 10,865,309 | | | | 10,672,651 | | | | 7,693,592 | |
Shareholders’ equity | | | 3,240,530 | | | | 2,235,747 | | | | 1,712,635 | | | | 1,656,160 | | | | 1,041,732 | |
| Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe haven for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations.
United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involve numerous assumptions, risks and uncertainties. ActualForward-looking statements can be identified by the use of the words “expect,” “may,” “could,” “intend,” “project,” “estimate,” “believe,” “anticipate,” and other words of similar meaning. Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect, such as statements about the potential impacts of the COVID-19 pandemic. Therefore, undue reliance should not be placed upon these estimates and statements. United cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.” United undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
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The discussion in Item 1A, “Risk Factors,” lists some of the factors that could differcause United’s actual results to vary materially from those contained inexpressed or implied by United’sany forward-looking statements, and such discussion is incorporated into this discussion by reference.
CORONAVIRUS (“COVID-19”) PANDEMIC
During 2020, and to a lesser extent in 2021, the COVID-19 pandemic had a severe disruptive impact on the U.S. and global economy. As the pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, the ongoing impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). Refer to our 2021 Form 10-Kfor a varietyfurther information regarding (i) the impact of factors including, but not limited to: changes in economic conditions; business conditionsthe COVID-19 pandemic on our operations and our results thereof, as well as the impact on our financial position and (ii) legislative and regulatory actions taken related to the COVID-19 pandemic, particularly as they relate to the banking and financial services industry.
As the COVID-19 pandemic continues to be on-going, there continues to be uncertainties related to its magnitude, duration and persistent effects. This is particularly the case with the emergence, contagiousness and threat of new and different strains of the virus as well as the availability, acceptance and effectiveness of vaccines. However, United is currently unable to fully assess or predict the extent of the effects of COVID-19 on its operations and results in the banking industry; movements in interest rates; competitive pressuresfuture as the ultimate impact will depend 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.factors that are currently unknown and/or beyond our control.
RECENT DEVELOPMENTSACQUISITIONS
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act lowered the Federal corporate tax rate from 35% to 21% effective January 1, 2018 and made numerous other tax law changes. U.S. generally accepted accounting principles (GAAP) requires companies to recognize the effect of tax law changes in the period of enactment. As a result of the Tax Act, United recorded additional tax expense of $37.73 million in the fourth quarter of 2017 due to a remeasurement of the Company’s deferred tax assets and liabilities. Reasonable estimates were made based on the Company’s analysis of the Tax Act. This provisional amount may be adjusted in future periods during 2018 when additional information is obtained as provided for under Staff Accounting Bulletin (“SAB 118”). Additional information that may affect our provisional amount would include further clarification and guidance on how the IRS will implement tax reform, further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Company’s state income tax returns, completion of United’s 2017 tax return filings, and the potential for additional guidance from the SEC or the FASB related to the Tax Act.
MERGERS & ACQUISITIONS
On April 21, 2017,3, 2021, United acquired 100% of the outstanding common stock of Cardinal FinancialCommunity Bankers Trust Corporation (“Cardinal”Community Bankers Trust”), a Virginia corporation headquartered in Tysons Corner,Richmond, Virginia. Immediately following the Merger, Essex Bank, a wholly-owned subsidiary of Community Bankers Trust, merged with and into United Bank, a wholly-owned subsidiary of United. United Bank survived the Bank Merger and continues to exist as a Virginia banking corporation. The acquisition of Cardinal expandsCommunity Bankers Trust enhanced United’s existing footprintpresence in the Washington, D.C. Metropolitan Statistical Area (“MSA”). Cardinal also operated George Mason Mortgage, LLC (“George Mason”), a residential mortgage lending company based in Fairfax, Virginia with offices located in Virginia, Maryland, North Carolina, South CarolinaDC Metro MSA and took United into new markets including Baltimore, Annapolis, Lynchburg, Richmond, and the DistrictNorthern Neck of Columbia. As a result of the merger, George Mason became an indirectly-owned subsidiary of United.Virginia. It also strategically connected our Mid-Atlantic and Southeast footprints. The CardinalCommunity Bankers Trust merger was accounted for under the acquisition method of accounting. At consummation, CardinalCommunity Bankers Trust had assets of $4.14$1.79 billion, portfolio loans and leases, net of $3.31unearned income of $1.28 billion and deposits of $3.34$1.52 billion.
In addition, after the close of business on June 3, 2016,On May 1, 2020, United acquired 100% of the outstanding common stock of Bank of Georgetown, a privately held community bankCarolina Financial Corporation (“Carolina Financial”), headquartered in Washington, D.C.Charleston, South Carolina. Immediately following the Merger, CresCom Bank, a wholly-owned subsidiary of Carolina Financial, merged with and into United Bank, a wholly-owned subsidiary of United (the “Bank Merger)”. United Bank survived the Bank Merger and continues to exist as a Virginia banking corporation. The acquisition of Bank of Georgetown enhances United’sCarolina Financial afforded United the opportunity to expand its existing footprint in North Carolina and South Carolina. The merger resulted in a combined company with more than 200 locations in some of the Washington, D.C. MSA.best banking markets in the United States. CresCom Bank owned and operated Crescent Mortgage Company (“Crescent”), which is based in Atlanta. Crescent is approved to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers. As a result of the merger, Crescent became an indirectly-owned subsidiary of United. The Carolina Financial merger was accounted for under the acquisition method of accounting. At consummation, Bank of GeorgetownCarolina Financial had assets of approximately $1.28$5.00 billion, loans and leases, net of $999.77 million,unearned income of $3.29 billion and deposits of $971.37 million.$3.87 billion.
Both the
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The results of operations of CardinalCommunity Bankers Trust and Bank of GeorgetownCarolina Financial are included in the consolidated results of operations from their respective datesdate of acquisition. Also, United consolidated its banking subsidiaries during the fourth quarter of 2017. As a result of the CardinalCommunity Bankers Trust acquisition, the year of 2017 was impacted by increased levels of average
balances, income, and expense as compared to prior year which2022 was impacted by increased levels of average balances, income, and expense dueas compared to the Bankyear 2021. As a result of Georgetown acquisition.the Community Bankers Trust and Carolina Financial acquisitions, the year of 2021 was impacted by increased levels of average balances, income, and expense from both the Community Bankers Trust and Carolina Financial acquisition as compared to the year of 2020. In addition, the fourth quarter and year of 20172021 included $21.42 million of merger-related expenses of $1.78 million and $26.84 million, respectively,from Community Bankers Trust acquisition as compared to $54.24 million of merger-related expenses of $523 thousand and $6.13 million forfrom the fourth quarter andCarolina Financial acquisition in the year of 2016, respectively.2020.
TRANSITION FROM THE LONDON INTERBANK OFFERED RATE (“LIBOR”)
In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced its intention to stop persuading or compelling banks to submit the rates used to calculate LIBOR after 2021. ICE Benchmark Administration (the publisher of LIBOR) discontinued publication of the one-week and two-month U.S. Dollar LIBOR settings on December 31, 2021, and will cease the publication of overnight, one-month, three-month, six-month, and twelve-month U.S. Dollar LIBOR settings on June 30, 2023. It is assumed that LIBOR will either cease to be provided by any administrator or will no longer be representative of an acceptable market benchmark after these respective dates. Additionally, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have issued joint supervisory guidance encouraging banks to cease entering into any new contracts using LIBOR by December 31, 2021. Accordingly, United took steps to ensure compliance with the joint supervisory guidance, and no new contracts using LIBOR have been originated after December 31, 2021.
Working groups comprised of various regulators and other industry groups have been formed in the United States and other countries in order to provide guidance on this topic. In particular, the Alternative Reference Rates Committee (“ARRC”) has been formed in the United States by the Federal Reserve Board and the Federal Reserve Bank of New York. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative reference rate for U.S. Dollar LIBOR. The ARRC has also published recommended fall-back language for LIBOR-linked financial instruments, among numerous other areas of guidance. In addition, the Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (“SOFR”) for contracts governed by U.S. law that have no or ineffective fallback, and in December 2022, the Federal Reserve Board adopted related implementing rules. At this time, however, it is unclear to what extent these recommendations will be broadly accepted by industry participants, whether they will continue to evolve, and what other alternatives may be adopted by the broader markets that utilize LIBOR as a reference rate. United has formed a project team comprised of individuals across various lines of business throughout the company to identify risks, monitor market developments, evaluate replacement benchmark alternatives, and manage the company’s transition away from LIBOR. At this time, United is prioritizing SOFR and Prime as the preferred alternatives to LIBOR; however, these preferred alternatives could change over time based on market developments.
United has loans, derivative contracts, borrowings, and other financial instruments that are directly or indirectly dependent on LIBOR. The transition from LIBOR will cause changes to payment calculations for existing contracts that use LIBOR as the reference rate. These changes will create various risks surrounding the financial, operational, compliance and legal aspects associated with changing certain elements of existing contracts. United will also be subject to risks surrounding changes to models and systems that currently use LIBOR reference rates, as well as market and strategic risks that could arise from the use of alternative reference rates. Additionally, United could face reputational risks if this transition is not managed appropriately with its customers. While the full impact of the transition is not yet known, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
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INTRODUCTION
The following discussion and analysis presents the more significant changes in financial condition as of December 31, 2022 and 2021 and the results of operations of United and its subsidiaries for each of the periods indicated below.years then ended. This discussion and the consolidated financial statements and the notes to Consolidated Financial Statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated. Management has evaluated all significant events and transactions that occurred after December 31, 2017,2022, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on March 1, 2022 (the 2021 Form 10-K) for a discussion and analysis of the more significant factors that affected periods prior to 2021.
This discussion and analysis should be read in conjunction with the unauditedaudited Consolidated Financial Statements and accompanying notes thereto, which are included elsewhere in this document.
USE OFNON-GAAP FINANCIAL MEASURES
This discussion and analysis contains certain financial measures that are not recognized under GAAP. Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each“non-GAAP” financial measure, certain additional information, including a reconciliation of thenon-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing thenon-GAAP financial measure.
Generally, United has presented thesea non-GAAP financial measuresmeasure because it believes that these measures providethis measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of thesea non-GAAP financial measuresmeasure is consistent with how United’s management evaluates its performance internally and thesethis non-GAAP financial measures aremeasure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry. Specifically, this discussion contains certain references to financial measures identified astax-equivalent (“FTE”) net interest income the allowance for loan losses as a percentage ofnon-acquired loans and noninterest income excluding a net gainreturn on the sale of bank premises, noncash, other-than-temporary impairment charges on certain investment securities and net gains and losses from sales and calls of investment securities.average tangible equity. Management believes thesenon-GAAP financial measures to be helpful in understanding United’s results of operations or financial position.
Net interest income is presented in this discussion 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.
Average tangible equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible equity can thus be considered a more conservative valuation of the company. When considering net income, a return on average tangible equity can be calculated. Management provides a return on average equity to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. This measure, along with others, is used by management to analyze capital adequacy and performance.
However, thisnon-GAAP information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.
Where the non-GAAP financial measures aremeasure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing thenon-GAAP financial measure, can be found within this discussion and analysis. Investors should recognize that United’s presentation of thesethis non-GAAP financial measuresmeasure might not be comparable to a similarly titled measuresmeasure at other companies.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of United conform with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments, which are reviewed with the Audit Committee of the Board of Directors, are based on information available as
39
of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan and lease losses, the valuation of investment securities and the related other-than-temporary impairment analysis, the accounting for acquired loans and the calculation
of the income tax provision, and the use of fair value measurements to account for certain financial instruments to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. The most significant accounting policies followed by United are presented in Note A, Notes to Consolidated Financial Statements.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses represents management’sis an estimate of the probableexpected credit losses inherent inon financial assets measured at amortized cost to present the lending portfolio.net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset (contractual term). Determining the allowance for loan losses requires management to make estimates of expected credit losses that are highly uncertain and require a high degree of judgment. At December 31, 2017,2022, the allowance for loan losses was $76.6$234.75 million and is subject to periodic adjustment based on management’s assessment of current probableexpected credit losses in the loan portfolio. Such adjustment from period to period can have a significant impact on United’s consolidated financial statements. To illustrate the potential effect on the financial statements of our estimates of the allowance for loan losses, a 10% increase in the allowance for loan losses would have required $7.7$23.47 million in additional allowance (funded by additional provision for creditloan losses), which would have negatively impacted the year of 20172022 net income by approximately $4.1$18.54 million,after-tax or $0.04$0.14 diluted per common share. Management’s evaluation of the adequacy of the allowance for loan losses and the appropriate provision for loan losses is based upon a quarterly evaluation of the loan portfolio. This evaluation is inherently subjective and requires significant estimates, including estimates related to the amounts and timing of future cash flows, value of collateral, losses on pools of homogeneous loans and leases based on historical loss experience, and consideration of qualitative factors such as current economic trends, all of which are susceptible to constant and significant change. The allowance allocated to specific credits and loan pools grouped by similar risk characteristics is reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. In determining the components of the allowance for loan losses, management considers the risk arising in part from, but not limited to, qualitative factors which include charge-off and delinquency trends, current economic and business conditions and reasonable and supportable economic forecasts, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. The methodology used to determine the allowance for loan losses is described in Note A, Notes to Consolidated Financial Statements. A discussion of the factors leading to changes in the amount of the allowance for loan losses is included in the Provision for LoanCredit Losses section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)(“MD&A”). For a discussion of concentrations of credit risk, see Item 1, under the caption of Loan Concentrations in this Form10-K.
Investment Securities
Accounting estimates are used in the presentation of the investment portfolio and these estimates impact the presentation of United’s financial condition and results of operations. United classifies its investments in debt as either held to maturity or available for sale and its equity securities as available for sale. Securities held to maturity are accounted for using historical costs, adjusted for amortization of premiums and accretion of discounts. Securities available for sale are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of shareholders’ equity. When available, fair values of securities are based on quoted prices or prices obtained from third party vendors. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data. Prices obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management. Where prices reflect forced liquidation or distressed sales, as is the case with United’s portfolio of trust preferred securities (Trup Cdos), management estimates fair value based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Due to the subjective nature of this valuation process, it is possible that the actual fair values of these securities could differ from the estimated amounts, thereby affecting United’s financial position, results of operations and cash flows. The potential impact to United’s financial position, results of operations or cash flows for changes in the valuation process cannot be reasonably estimated.
If the estimated value of investments is less than the cost or amortized cost, the investment is considered impaired and management evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred, management must exercise judgment to determine the nature of the potential impairment (i.e., temporary or other-than-temporary) in order to apply the appropriate accounting treatment. If United intends to sell, or is more likely than not they will be required to sell an impaired debt security before recovery of its amortized cost basis less any current period credit loss, other-than-temporary impairment is recognized in earnings. The amount recognized in earnings is equal to the entire difference between the security’s
amortized cost basis and its fair value at the balance sheet date. If United does not intend to sell, and is not more likely than not they will be required to sell the impaired debt security prior to recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is separated into the following: 1) the amount representing the credit loss, which is recognized in earnings, and 2) the amount related to all other factors, which is recognized in other comprehensive income. For additional information on management’s consideration of investment valuation and other-than-temporary impairment, see Note C and Note U, Notes to Consolidated Financial Statements.
Accounting for Acquired Loans
Loans acquired are initially recorded at their acquisition date fair values. The fair value of the acquired loans is based on the present value of the expected cash flows, including principal, interest and prepayments. Periodic principal and interest cash flows are adjusted for expected losses and prepayments, then discounted to determine the present value and summed to arrive at the estimated fair value. Fair value estimates involve assumptions and judgments as to credit risk, interest rate risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.
Acquired loans are divided into loans with evidence of credit quality deterioration, which are accounted for under Accounting Standards Codification (ASC) topic310-30 (acquired impaired) and loans that do not meet this criteria, which are accounted for under ASC topic310-20 (acquired performing). Acquired impaired loans have experienced a deterioration of credit quality from origination to acquisition for which it is probable that United will be unable to collect all contractually required payments receivable, including both principal and interest. In the assessment of credit quality, numerous assumptions, interpretations and judgments must be made, based on internal and third-party credit quality information and ultimately the determination as to the probability that all contractual cash flows will not be able to be collected. This is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved.
Subsequent to the acquisition date, United continues to estimate the amount and timing of cash flows expected to be collected on acquired impaired loans. Increases in expected cash flows will generally result in a recovery of any previously recorded allowance for loan losses, to the extent applicable, and/or a reclassification from the nonaccretable difference to accretable yield, which will be recognized prospectively. The present value of any decreases in expected cash flows after the acquisition date will generally result in an impairment charge recorded as a provision for loan losses, resulting in an increase to the allowance for loan losses.
For acquired performing loans, the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the fair value adjustment. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to interest income over the loan’s remaining life using the level yield method. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans.
See Note B and D, Notes to Consolidated Financial Statements for additional information regarding United’s acquired loans disclosures.
Income Taxes
United’s calculation of income tax provision is inherently complex due to the various different tax laws and jurisdictions in which we operate and requires management’s use of estimates and judgments in its determination. The current income tax liability also includes income tax expense related to our uncertain tax positions as required in ASC topicTopic 740, “Income Taxes.” Changes to the estimated accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of issues with taxing authorities and recently enacted statutory, judicial and regulatory guidance. These changes can be material to the Company’s operating results for any particular reporting period. The analysis of the income tax provision requires the assessments of the relative risks and merits of the appropriate tax treatment of transactions, filing positions, filing methods and taxable income calculations after considering statutes, regulations, judicial precedent and other information. United strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense. United is also subject to audit by
federal and state authorities. Because the application of tax laws is subject to varying interpretations, results of these audits may produce indicated liabilities which differ from United’s estimates and provisions. United continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances. The potential impact to United’s operating results for any of the changes cannot be reasonably estimated. See Note M,O, Notes to Consolidated Financial Statements for information regarding United’s ASC topicTopic 740 disclosures.
40
Use of Fair Value Measurements
United determines the fair value of its financial instruments based on the fair value hierarchy established in ASC topicTopic 820, whereby the fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC topicTopic 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable. Observable inputs reflect market-based information obtained from independent sources (Level 1 or Level 2), while unobservable inputs reflect management’s estimate of market data (Level 3). For assets and liabilities that are actively traded and have quoted prices or observable market data, a minimal amount of subjectivity concerning fair value is needed. Prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management. When quoted prices or observable market data are not available, management’s judgment is necessary to estimate fair value.
At December 31, 2017,2022, approximately 11.91%15.67% of total assets, or $2.27$4.62 billion, consisted of financial instruments recorded at fair value. Of this total, approximately 85.90%98.92% or $1.95$4.57 billion of these financial instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. Approximately 14.10%1.08% or $319.98$50.11 million of these financial instruments were valued using unobservable market information or Level 3 measurements. Most of these financial instruments valued using unobservable market information were Trup Cdos classified asavailable-for-sale.loans held for sale at our mortgage banking segment. At December 31, 2017,2022, only $477$561 thousand or less than 1% of total liabilities were recorded at fair value. This entire amount was valued using methodologies involving observable market data. United does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on United’s results of operations, liquidity, or capital resources. See Note UW for additional information regarding ASC topicTopic 820 and its impact on United’s financial statements.
Any material effect on the financial statements related to these critical accounting areas is further discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
20172022 COMPARED TO 20162021
United’s total assets as of December 31, 20172022 were $19.06$29.49 billion, which was an increase of $4.55 billion$160.48 million or 31.36%less than 1% from December 31, 2016, primarily the result2021. This increase was mainly due to an increase of the acquisition of Cardinal on April 21, 2017. Portfolio loans increased $2.67$2.53 billion or 25.82%,14.06% in portfolio loans held for sale increased $257.51and leases and an increase of $576.86 million or 3,049.26%,13.43% in investment securities. These increases in assets were partially offset by a decrease of $2.58 billion or 68.69% in cash and cash equivalents increased $231.64and a decrease of $447.54 million or 16.15%, investment securities increased $668.01 million or 47.59%, goodwill increased $614.61 million or 71.15%, other assets increased $69.47 million or 16.75%, bank premises and equipment increased $28.99 million or 38.18% and interest receivable increased $13.42 million or 34.05% due primarily to the Cardinal merger.88.72% in loans held for sale. Total liabilities increased $3.55$362.91 million or 1.47% from year-end 2021. Borrowings increased $1.41 billion or 28.89% fromyear-end 2016. This increase149.23% and the allowance for lending-related commitments increased $14.75 million or 46.90%. Mostly offsetting these increases in total liabilities was due mainly to an increase of $3.03a $1.05 billion or 28.10% and $459.99 million or 33.29%4.48% decrease in deposits and borrowings, respectively, mainly due toa $10.95 million or 12.63% decrease in the Cardinal acquisition.operating lease liability. Shareholders’ equity increased $1.00 billiondecreased $202.44 million or 44.94% fromyear-end 2016 due primarily to the acquisition of Cardinal.4.29%.
The following discussion explains in more detail the changes in financial condition by major category.
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2017 increased $231.64 million2022 decreased $2.58 billion or 16.15%68.69% fromyear-end 2016. Of this total increase, 2021. In particular, interest-bearing deposits with other banks increased $210.30 milliondecreased $2.59 billion or 16.71%74.63% as United placed moreless cash in an interest-bearing account with the Federal Reserve while cashReserve. Cash and due from banks increased $21.27$11.28 million or 12.12% and fed3.99% from year-end 2021 while federal funds sold increased $64$152 thousand or 8.83%16.40%. During the year of 2017,2022, net cash of $253.93$760.82 million and $266.68$105.32 million waswere provided by operating activities and investingfinancing activities, respectively, while $288.97 millionnet cash of $3.45 billion was used in financinginvesting activities. Further details related to changes in cash and cash equivalents are presented in the Consolidated Statements of Cash Flows.
Securities
41
Securities
Total investment securities at December 31, 20172022 increased $668.01$576.86 million or 47.59% fromyear-end 2016. Cardinal added $395.83 million in investment securities, including purchase accounting amounts, upon consummation of the acquisition.13.43%. Securities available for sale increased $629.54$499.23 million or 49.99%12.35%. This change in securities available for sale reflects $378.05 million acquired from Cardinal, $684.44$1.57 billion in purchases, $575.75 million in sales, maturities and calls of securities $932.47 million in purchases, and an increasea decrease of $6.50$481.01 million in market value. The majority of the purchase activity was related to securities of the U.S. Treasury and obligations of U.S. Government corporations and agencies, mortgage-backed securities, and asset-backed securities. Securities held to maturity decreased $12.83were flat from year-end 2021. Equity securities were $7.63 million at December 31, 2022, a decrease of $4.78 million or 38.58% fromyear-end 201638.50% due mainly to calls and maturities of securities.sales. Other investment securities increased $51.30$82.40 million or 46.14%34.39% fromyear-end 2016. Cardinal added $14.27 million in other investment securities. Otherwise, 2021 due to purchases of Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (FRB)(“FRB”) stock increased $33.28 million.as well as investment tax credits.
The following is a summary oftable summarizes the changes in the available for sale securities at December 31:since year-end 2021:
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | (In thousands) | |
U.S. Treasury and obligations of U.S. Government corporations and agencies | | $ | 114,735 | | | $ | 95,247 | | | $ | 71,993 | |
States and political subdivisions | | | 303,101 | | | | 196,350 | | | | 130,685 | |
Mortgage-backed securities | | | 1,283,933 | | | | 896,472 | | | | 788,218 | |
Asset-backed securities | | | 109,829 | | | | 217 | | | | 3,404 | |
Marketable equity securities | | | 9,712 | | | | 12,436 | | | | 4,844 | |
Trust preferred collateralized debt obligations | | | 37,856 | | | | 48,558 | | | | 49,386 | |
Single issue trust preferred securities | | | 13,417 | | | | 13,363 | | | | 13,811 | |
Corporate securities | | | 28,101 | | | | 14,996 | | | | 9,999 | |
| | | | | | | | | | | | |
TOTAL AVAILABLE FOR SALE SECURITIES, at amortized cost | | $ | 1,900,684 | | | $ | 1,277,639 | | | $ | 1,072,340 | |
| | | | | | | | | | | | |
| | | |
TOTAL AVAILABLE FOR SALE SECURITIES, at fair value | | $ | 1,888,756 | | | $ | 1,259,214 | | | $ | 1,066,334 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | December 31
2022 | | | December 31
2021 | | | $
Change | | | %
Change | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 529,492 | | | $ | 81,850 | | | $ | 447,642 | | | | 546.91 | % |
State and political subdivisions | | | 709,530 | | | | 847,298 | | | | (137,768 | ) | | | (16.26 | %) |
Mortgage-backed securities | | | 1,849,470 | | | | 1,828,244 | | | | 21,226 | | | | 1.16 | % |
Asset-backed securities | | | 911,611 | | | | 656,572 | | | | 255,039 | | | | 38.84 | % |
Single issue trust preferred securities | | | 16,284 | | | | 16,811 | | | | (527 | ) | | | (3.13 | %) |
Corporate securities | | | 525,538 | | | | 611,924 | | | | (86,386 | ) | | | (14.12 | %) |
| | | | | | | | | | | | | | | | |
| | | | |
Total available for sale securities, at fair value | | $ | 4,541,925 | | | $ | 4,042,699 | | | $ | 499,226 | | | | 12.35 | % |
| | | | | | | | | | | | | | | | |
The following is a summary oftable summarizes the changes in the held to maturity securities at December 31:since year-end 2021:
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | (In thousands) | |
U.S. Treasury and obligations of U.S. Government corporations and agencies | | $ | 5,187 | | | $ | 5,295 | | | $ | 10,425 | |
States and political subdivisions | | | 5,797 | | | | 8,598 | | | | 9,321 | |
Mortgage-backed securities | | | 23 | | | | 30 | | | | 35 | |
Single issue trust preferred securities | | | 9,401 | | | | 19,315 | | | | 19,298 | |
Other corporate securities | | | 20 | | | | 20 | | | | 20 | |
| | | | | | | | | | | | |
TOTAL HELD TO MATURITY SECURITIES, at amortized cost | | $ | 20,428 | | | $ | 33,258 | | | $ | 39,099 | |
| | | | | | | | | | | | |
| | | |
TOTAL HELD TO MATURITY SECURITIES, at fair value | | $ | 20,018 | | | $ | 31,178 | | | $ | 36,319 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | December 31
2022 | | | December 31
2021 | | | $
Change | | | %
Change | |
State and political subdivisions | | $ | 982 | (1) | | $ | 981 | (2) | | $ | 1 | | | | 0.10 | % |
Other corporate securities | | | 20 | | | | 20 | | | | 0 | | | | 0.00 | % |
| | | | | | | | | | | | | | | | |
Total held to maturity securities, at amortized cost | | $ | 1,002 | | | $ | 1,001 | | | $ | 1 | | | | 0.10 | % |
| | | | | | | | | | | | | | | | |
| (1) net of allowance for credit losses of $18 thousand. |
| (2) net of allowance for credit losses of $19 thousand. |
At December 31, 2017,2022, gross unrealized losses on available for sale securities were $20.85$470.06 million. Securities in anwith the most significant gross unrealized loss positionlosses at December 31, 20172022 consisted primarily of Trup Cdos, single issue trust preferred securities and agency commercial and residential mortgage-backed securities. The Trup Cdos and the single issue trust preferred securities relate mainly to securities of financial institutions. The agency commercial and residential mortgage-backed securities, relate tostate and political subdivision securities, agency commercial mortgage-backed securities, asset-backed securities and residential properties and provide a guaranty of full and timely payments of principal and interest by the issuing agency.
other corporate securities.As of December 31, 2017,2022, United’s available for sale mortgage-backed securities had an amortized cost of $1.28$2.12 billion, with an estimated fair value of $1.27$1.85 billion. The portfolio consisted primarily of $821.88 million$1.37 billion in agency residential mortgage-backed securities with a fair value of $814.62$1.17 billion, $121.34 million $4.97 million innon-agency residential mortgage-backed securities with an estimated fair value of $5.51$111.97 million, and $457.11$627.77 million in commercial agency mortgage-backed securities with an estimated fair value of $454.86$562.55 million.
As of December 31, 2017,2022, United’s available for sale state and political subdivisions securities had an amortized cost of $820.17 million, with an estimated fair value of $709.53 million. The portfolio relates to securities issued by various municipalities located throughout the United States, and no securities within the portfolio were rated below investment grade as of December 31, 2022.
As of December 31, 2022, United’s available for sale corporate securities had an amortized cost of $208.34 million,$1.52 billion, with an estimated fair value of $203.86 million.$1.45 billion. The portfolio consisted primarily of $37.86 million in Trup Cdos with a fair value of $34.27 million and $22.82$17.34 million in single issue trust preferred securities with an estimated fair value of $21.23$16.28 million. In addition to the single issue trust preferred securities, the Company held positions in various other corporate securities, including asset-backed securities with an amortized cost of $109.83$943.81 million and a fair value of $109.97$911.61 million and marketable equityother corporate securities, with an amortized cost of $9.71$563.43 million and a fair value of $9.88 million, only one of which was individually significant.$525.54 million.
The Trup Cdos consisted of pools of trust preferred securities issued by trusts related primarily to financial institutions and to a lesser extent, insurance companies. The Company has no exposure to Real Estate Investment Trusts (REITs) in its investment portfolio. The Company owns both senior and mezzanine tranches in the Trup Cdos; however, the Company does not own any income notes. The senior and mezzanine tranches of Trup Cdos generally have some protection from defaults in the form of over-collateralization and excess spread revenues, along with waterfall structures that redirect cash flows in the event certain coverage test requirements have failed. Generally, senior tranches have the greatest protection, with mezzanine tranches subordinated to the senior tranches, and income notes subordinated to the mezzanine tranches. The fair value of senior tranches represents $4.97 million of the Company’s pooled securities, while mezzanine tranches represent $29.30 million. Of the $29.30 million in mezzanine tranches, $6.23 million are now in the Senior position as the Senior notes have been paid to a zero balance. As of December 31, 2017, Trup Cdos with a fair value of $2.85 million were investment grade, and the remaining $31.42 million were below investment grade. In terms of capital adequacy, the Company allocates additional risk-based capital to the below investment grade securities. As of December 31, 2017,
42
United’s available for sale single issue trust preferred securities had a fair value of $21.23 million.$16.28 million as of December 31, 2022. Of the $21.23$16.28 million, $8.96$7.63 million or 42.22%46.83% were investment grade; $4.62$3.17 million or 21.79%19.50% were split rated; $3.17and $5.48 million or 14.87% were below investment grade; and $4.48 million or 21.13%33.67% were unrated. The two largest exposures accounted for 53.58%76.24% of the $21.23$16.28 million. These included SunTrustTruist Bank at $6.89$6.93 million and Emigrant Bank at $4.48$5.48 million. All single-issuesingle issue trust preferred securities are currently receiving full scheduled principal and interest payments.
The following two tables provide a summary of Trup Cdos as of December 31, 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Description (1) | | Tranche | | Class | | Moodys | | S&P | | Fitch | | Amortized
Cost Basis | | | Fair
Value | | | Unrealized
Loss
(Gain) | | | Cumulative
Credit-
Related
OTTI | |
| | | | | | | | | | | | | Dollars in thousands | |
SECURITY 1 | | Senior | | Sr | | Ca | | NR | | WD | | $ | 1,798 | | | $ | 2,115 | | | $ | (317 | ) | | $ | 1,219 | |
SECURITY 2 | | Senior (org Mezz) | | B | | Ca | | NR | | WD | | | 6,428 | | | | 6,226 | | | | 202 | | | | 7,398 | |
SECURITY 5 | | Mezzanine | | C-2 | | Caa1 | | NR | | C | | | 1,978 | | | | 1,473 | | | | 505 | | | | 184 | |
SECURITY 6 | | Mezzanine | | C-1 | | Ca | | NR | | C | | | 1,919 | | | | 1,638 | | | | 281 | | | | 1,316 | |
SECURITY 7 | | Mezzanine | | B-1 | | Caa1 | | NR | | C | | | 4,506 | | | | 4,145 | | | | 361 | | | | 41 | |
SECURITY 8 | | Mezzanine | | B-1 | | Ca | | NR | | C | | | 3,676 | | | | 3,122 | | | | 554 | | | | 1,651 | |
SECURITY 14 | | Mezzanine | | B-1 | | Ba2 | | NR | | CCC | | | 3,300 | | | | 3,525 | | | | (225 | ) | | | 422 | |
SECURITY 15 | | Mezzanine | | B | | Caa3 | | NR | | C | | | 6,436 | | | | 5,200 | | | | 1,236 | | | | 3,531 | |
SECURITY 17 | | Mezzanine | | B-1 | | Caa1 | | NR | | C | | | 2,250 | | | | 2,100 | | | | 150 | | | | 750 | |
SECURITY 18 | | Senior | | A-3 | | Aaa | | NR | | AA | | | 3,065 | | | | 2,850 | | | | 215 | | | | 0 | |
SECURITY 22 | | Mezzanine | | B-1 | | B1 | | NR | | CCC | | | 2,500 | | | | 1,875 | | | | 625 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | $ | 37,856 | | | $ | 34,269 | | | $ | 3,587 | | | $ | 16,512 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) Securities that are no longer owned by the Company have been removed from the tables.
| | | | | | | | | | | | | | | | |
Desc. | | # of Issuers
Currently
Performing
(1) | | Deferrals
as % of
Original
Collateral | | Defaults
as a % of
Original
Collateral | | Expected
Deferrals
and Defaults
as a % of
Remaining
Performing
Collateral
(2) | | Projected
Recovery/
Cure
Rates on
Deferring
Collateral | | Excess
Subordination
as % of
Performing
Collateral | | Amortized
Cost as a %
of Par
Value | | Discount
as a % of
Par
Value (3) |
1 | | 5 | | 6.3% | | 13.3% | | 7.9% | | 25 - 90% | | (73.5)% | | 57.0% | | 43.0% |
2 | | 7 | | 0.0% | | 11.1% | | 5.0% | | N/A | | (104.7)% | | 45.4% | | 54.6% |
5 | | 39 | | 0.0% | | 9.8% | | 5.6% | | N/A | | 0.3% | | 91.3% | | 8.7% |
6 | | 39 | | 0.0% | | 15.7% | | 5.5% | | N/A | | (21.6)% | | 58.6% | | 41.4% |
7 | | 18 | | 0.0% | | 12.0% | | 5.1% | | N/A | | (7.6)% | | 84.8% | | 15.2% |
8 | | 22 | | 0.0% | | 22.4% | | 5.6% | | N/A | | (28.4)% | | 68.3% | | 31.7% |
14 | | 37 | | 3.1% | | 7.1% | | 6.0% | | 0 - 90% | | 10.8% | | 88.0% | | 12.0% |
15 | | 17 | | 0.8% | | 13.2% | | 7.0% | | 90% | | (33.2)% | | 64.4% | | 35.6% |
17 | | 25 | | 0.0% | | 7.4% | | 5.9% | | N/A | | (1.7)% | | 75.0% | | 25.0% |
18 | | 28 | | 1.0% | | 15.2% | | 5.0% | | 15% | | 78.7% | | 100.0% | | 0.0% |
22 | | 27 | | 1.5% | | 4.8% | | 5.5% | | 25% | | 6.4% | | 100.0% | | 0.0% |
(1) “Performing” refers to all outstanding issuers less issuers that have either defaulted or are currently deferring their interest payment.
(2) “Expected Deferrals and Defaults” refers to projected future defaultsDuring 2022, United did not recognize any credit losses on performing collateral and does not include the projected defaults on deferring collateral.
(3) The “Discount” in the table above represents the Par Value less the Amortized Cost. This metric generally approximates the level of OTTI that has been incurred on these securities.
The Company defines “Excess Subordination” as all outstanding collateral less the sum of (i) 100% of the defaulted collateral, (ii) the sum of the projected net loss amounts for each piece of the deferring but not defaulted collateral and (iii) the amount of each Trup Cdo’s debt that is either senior to or pari passu with our security’s priority level.
The calculation of excess subordination in the above table does not consider the OTTI the Company has recognized on these securities. While the ratio of excess subordination provides some insight on overall collateralization levels, the Company completes an expected cash flow analysis each quarter to determine whether an adverse change in future cash flows has occurred under ASC topic 320. The standard specifies that a cash flow projection should be present-valued at the security specific effective interest rate and the resulting present value compared to the amortized cost in order to quantify the credit component of impairment. The Company utilizes the cash flow models to determine the net realizable value and assess whether additional OTTI has occurred.
While the ratio of excess subordination provides some insight on overall collateralization levels, the Company does not utilize this ratio to calculate OTTI. The ratio of excess subordination represents only one component of the projected cash flow. The Company believes the excess subordination is limited as it does not consider the following:
Waterfall structure and redirection of cash flows
The collateral backing of a particular tranche can be increased by decreasing the more senior liabilities of the Trup Cdo tranche. This occurs when collateral deterioration due to defaults and deferrals triggers alternative waterfall provisions of the cash flow. The waterfall structure of the bond requires the excess spread to be rerouted away from the most junior classes of debt (which includes the income notes) in order to pay down the principal of the most senior liabilities. As these senior liabilities are paid down, the senior and mezzanine tranches become better secured (due to the rerouting away from the income notes). Therefore, variances will exist between the calculated excess subordination measure and the amount of OTTI recognized due to the impact of the specific structural features of each bond as it relates to the cash flow models.
The following is a summary ofits available for sale single-issue trust preferred securities as of December 31, 2017:
| | | | | | | | | | | | | | | | | | |
Security | | Moodys | | S&P | | Fitch | | Amortized
Cost | | | Fair
Value | | | Unrealized
Loss/(Gain) | |
| | | (Dollars in thousands) | |
Emigrant | | NR | | NR | | WD | | $ | 5,710 | | | $ | 4,485 | | | $ | 1,225 | |
Bank of America | | Baa3 | | NR | | BBB- | | | 4,688 | | | | 4,813 | | | | (125 | ) |
M&T Bank | | NR | | BBB- | | BBB- | | | 3,019 | | | | 3,262 | | | | (243 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | $ | 13,417 | | | $ | 12,560 | | | $ | 857 | |
| | | | | | | | | | | | | | | | | | |
Additionally, the Company owns two single-issue trust preferred securities that are classified asheld-to-maturity and include at least one rating below investment grade. These securities include SunTrust Bank ($7.43 million) and Royal Bank of Scotland ($976 thousand).
During 2017, United recognized net other-than-temporary impairment charges totaling $60 thousand on onenon-agency residential mortgage-backed security, which is not expected to be sold. Other than the securities that have already been deemed to beother-than-temporarily impaired, management does not believesecurities. Management believes that any otherdecline in value on an individual security with an unrealized loss as of December 31, 2017 is other-than-temporarily impaired. United believes the decline in value2022 resulted from changes in market interest rates, credit spreads and liquidity, not an adverse change in the expected contractual cash flows.a deterioration of credit. Based on a review of each of the securities in the available for sale investment portfolio, management concluded that it was not probablemore-likely-than-not that it would be unableable to realize the cost basis investment and appropriate interest payments on such securities. United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature. As of December 31, 2022, there was no allowance for credit losses related to the Company’s available for sale securities. However, United acknowledges that any impaired securities in an unrealized loss position may be sold in future periods in response to significant, unanticipated changes in asset/liability management decisions, unanticipated future market movements or business plan changes.
Further information regarding the amortized cost and estimated fair value of investment securities, including remaining maturities as well as a more detailed discussion of management’s other-than-temporary impairment analysis, is presented in Note C, Notes to Consolidated Financial Statements.
Loans Held For Sale
Loans held for sale decreased $447.54 million or 88.72% from year-end 2021. Loan sales in the secondary market exceeded originations during the year of 2022. Originations of loans for the year of 2022 were $1.90 billion while sales of loans were $2.20 billion. Loans held for sale were $56.88 million at December 31, 2022 as compared to $504.42 million at year-end 2021.
Portfolio Loans
Loans, net of unearned income, increased $2.67$2.53 billion or 25.82% from14.06%. Since year-end 2016 mainly as a result of the Cardinal acquisition which added $3.17 billion, including purchase accounting amounts, in portfolio loans. Sinceyear-end 2016, 2021, commercial, financial and agricultural loans increased $1.72 billion$471.64 million or 28.30% as4.23%. In particular, commercial real estate loans increased $1.34 billion$321.44 million or 29.89% and4.18% while commercial loans (not secured by real estate) increased $385.54$150.21 million or 23.90%4.34%. In addition, residential real estate loans and other consumer loans increased $592.73 million or 24.66% and $105.58 million or 17.34%, respectively, while constructionConstruction and land development loans increased $249.17$912.81 million or 19.84%. These increases were45.32%, residential real estate loans increased $971.35 million or 26.31%, and consumer loans increased $173.06 million or 14.51% due primarily to the Cardinal acquisition. Otherwise, portfolio loans, net of unearned income, declined $496.03 million fromyear-end 2016.an increase in indirect automobile financing.
A summary of loans outstanding is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | December 31 | |
| (In thousands) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Commercial, financial & agricultural | | $ | 7,811,906 | | | $ | 6,088,775 | | | $ | 5,426,335 | | | $ | 5,353,991 | | | $ | 3,911,103 | |
Residential real estate | | | 2,996,171 | | | | 2,403,437 | | | | 2,268,685 | | | | 2,263,354 | | | | 1,821,378 | |
Construction & land development | | | 1,504,907 | | | | 1,255,738 | | | | 1,273,054 | | | | 1,133,251 | | | | 670,364 | |
Consumer | | | 714,353 | | | | 608,769 | | | | 430,878 | | | | 368,896 | | | | 310,754 | |
Less: Unearned interest | | | (15,916) | | | | (15,582) | | | | (14,872) | | | | (14,840) | | | | (9,016) | |
| | | | | | | | | | | | | | | | | | | | |
Total loans | | | 13,011,421 | | | | 10,341,137 | | | | 9,384,080 | | | | 9,104,652 | | | | 6,704,583 | |
Allowance for loan losses | | | (76,627) | | | | (72,771) | | | | (75,726) | | | | (75,529) | | | | (74,198) | |
| | | | | | | | | | | | | | | | | | | | |
TOTAL LOANS, NET | | $ | 12,934,794 | | | $ | 10,268,366 | | | $ | 9,308,354 | | | $ | 9,029,123 | | | $ | 6,630,385 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Loans held for sale | | $ | 265,955 | | | $ | 8,445 | | | $ | 10,681 | | | $ | 8,680 | | | $ | 4,236 | |
| | | | | | | | | | | | | | | | | | | | |
The following table summarizes the changes in the major loan classes since year-end 2021:
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | December 31
2022 | | | December 31
2021 | | | $
Change | | | %
Change | |
Loans held for sale | | $ | 56,879 | | | $ | 504,416 | | | $ | (447,537 | ) | | | (88.72 | %) |
| | | | | | | | | | | | | | | | |
Commercial, financial, and agricultural: | | | | | | | | | | | | | | | | |
Owner-occupied commercial real estate | | $ | 1,724,927 | | | $ | 1,733,176 | | | $ | (8,249 | ) | | | (0.48 | %) |
Nonowner-occupied commercial real estate | | | 6,286,974 | | | | 5,957,288 | | | | 329,686 | | | | 5.53 | % |
Other commercial loans | | | 3,612,568 | | | | 3,462,361 | | | | 150,207 | | | | 4.34 | % |
| | | | | | | | | | | | | | | | |
Total commercial, financial, and agricultural | | $ | 11,624,469 | | | $ | 11,152,825 | | | $ | 471,644 | | | | 4.23 | % |
Residential real estate | | | 4,662,911 | | | | 3,691,560 | | | | 971,351 | | | | 26.31 | % |
Construction & land development | | | 2,926,971 | | | | 2,014,165 | | | | 912,806 | | | | 45.32 | % |
Consumer: | | | | | | | | | | | | | | | | |
Bankcard | | | 9,273 | | | | 8,913 | | | | 360 | | | | 4.04 | % |
Other consumer | | | 1,356,539 | | | | 1,183,844 | | | | 172,695 | | | | 14.59 | % |
| | | | | | | | | | | | | | | | |
Total gross loans | | $ | 20,580,163 | | | $ | 18,051,307 | | | $ | 2,528,856 | | | | 14.01 | % |
Less: Unearned income | | | (21,997 | ) | | | (27,659 | ) | | | 5,662 | | | | (20.47 | %) |
| | | | | | | | | | | | | | | | |
Total Loans, net of unearned income | | $ | 20,558,166 | | | $ | 18,023,648 | | | $ | 2,534,518 | | | | 14.06 | % |
| | | | | | | | | | | | | | | | |
43
The following table shows the amount of loans acquired and outstanding balances of portfolio loans originated and acquired, by type,major loan classes as of December 31, 20172022 and December 31, 2016:2021:
| | | | December 31, 2017 | | | December 31, 2022 | | | December 31, 2021 | |
| (In thousands) | | Commercial,
financial and
agricultural | | | Residential real
estate | | | Construction & land
development | | | Consumer | | | Total | | | Originated | | | Acquired | | | Total | | | Originated | | | Acquired | | | Total | |
| | | |
Originated | | $ | 4,647,745 | | | $ | 1,974,804 | | | $ | 1,032,629 | | | $ | 707,661 | | | $ | 8,362,839 | | |
Acquired | | | 3,164,161 | | | | 1,021,367 | | | | 472,278 | | | | 6,692 | | | | 4,664,498 | | |
Commercial, financial, and agricultural: | | | | | | | | | | | | | |
Owner-occupied commercial real estate | | | $ | 1,031,330 | | | $ | 693,597 | | | $ | 1,724,927 | | | $ | 864,795 | | | $ | 868,381 | | | $ | 1,733,176 | |
Nonowner-occupied commercial real estate | | | | 4,515,059 | | | | 1,771,915 | | | | 6,286,974 | | | | 3,925,144 | | | | 2,032,144 | | | | 5,957,288 | |
Other commercial loans | | | | 3,110,273 | | | | 502,295 | | | | 3,612,568 | | | | 2,555,285 | | | | 907,076 | | | | 3,462,361 | |
| | | | | | | | | | | | | | | | | | | |
Total commercial, financial, and agricultural | | | $ | 8,656,662 | | | $ | 2,967,807 | | | $ | 11,624,469 | | | $ | 7,345,224 | | | $ | 3,807,601 | | | $ | 11,152,825 | |
Residential real estate | | | | 3,999,088 | | | | 663,823 | | | | 4,662,911 | | | | 2,795,608 | | | | 895,952 | | | | 3,691,560 | |
Construction & land development | | | | 2,618,810 | | | | 308,161 | | | | 2,926,971 | | | | 1,502,804 | | | | 511,361 | | | | 2,014,165 | |
Consumer: | | | | | | | | | | | | | |
Bankcard | | | | 9,273 | | | | 0 | | | | 9,273 | | | | 8,913 | | | | 0 | | | | 8,913 | |
Other consumer | | | | 1,346,699 | | | | 9,840 | | | | 1,356,539 | | | | 1,166,719 | | | | 17,125 | | | | 1,183,844 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total gross loans | | $ | 7,811,906 | | | $ | 2,996,171 | | | $ | 1,504,907 | | | $ | 714,353 | | | $ | 13,027,337 | | | $ | 16,630,532 | | | $ | 3,949,631 | | | $ | 20,580,163 | | | $ | 12,819,268 | | | $ | 5,232,039 | | | $ | 18,051,307 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2016 | | |
| (In thousands) | | Commercial,
financial and
agricultural | | | Residential real
estate | | | Construction & land
development | | | Consumer | | | Total | | |
| | | |
Originated | | $ | 4,457,470 | | | $ | 1,914,273 | | | $ | 1,095,972 | | | $ | 603,781 | | | $ | 8,071,496 | | |
Acquired | | | 1,631,305 | | | | 489,164 | | | | 159,766 | | | | 4,988 | | | | 2,285,223 | | |
| | | | | | | | | | | | | | | | |
Total gross loans | | $ | 6,088,775 | | | $ | 2,403,437 | | | $ | 1,255,738 | | | $ | 608,769 | | | $ | 10,356,719 | | |
| | | | | | | | | | | | | | | | |
The following table shows the maturity of commercial, financial, and agricultural loans and real estate construction and land development loansleases, outstanding as of December 31, 2017:2022:
| | (In thousands) | | Less Than
One Year | | | One To
Five Years | | | Over
Five Years | | | Total | | | Less Than
One Year | | | One To
Five Years | | | Five to
Fifteen Years | | | Greater than
Fifteen Years | | | Total | |
Commercial, financial & agricultural | | $ | 1,286,880 | | | $ | 2,564,879 | | | $ | 3,960,147 | | | $ | 7,811,906 | | |
Commercial, financial and agricultural: | | | | | | | | | | | |
Owner-occupied commercial real estate | | | $ | 95,831 | | | $ | 824,297 | | | $ | 775,783 | | | $ | 29,016 | | | $ | 1,724,927 | |
Nonowner-occupied commercial real estate | | | | 631,850 | | | | 3,569,350 | | | | 1,950,518 | | | | 135,256 | | | | 6,286,974 | |
Other commercial loans | | | | 626,754 | | | | 2,217,213 | | | | 670,943 | | | | 97,658 | | | | 3,612,568 | |
| | | | | | | | | | | | | | | | |
Total commercial, financial, and agricultural | | | $ | 1,354,435 | | | $ | 6,610,860 | | | $ | 3,397,244 | | | $ | 261,930 | | | $ | 11,624,469 | |
Residential real estate | | | | 104,812 | | | | 532,659 | | | | 682,355 | | | | 3,343,085 | | | | 4,662,911 | |
Construction & land development | | | 598,808 | | | | 612,432 | | | | 293,667 | | | | 1,504,907 | | | | 913,146 | | | | 1,614,349 | | | | 304,817 | | | | 94,659 | | | | 2,926,971 | |
Consumer: | | | | | | | | | | | |
Bankcard | | | | 0 | | | | 4,102 | | | | 5,171 | | | | 0 | | | | 9,273 | |
Other consumer | | | | 14,391 | | | | 670,548 | | | | 670,399 | | | | 1,201 | | | | 1,356,539 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,885,688 | | | $ | 3,177,311 | | | $ | 4,253,814 | | | $ | 9,316,813 | | | $ | 2,386,784 | | | $ | 9,432,518 | | | $ | 5,059,986 | | | $ | 3,700,875 | | | $ | 20,580,163 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
44
At December 31, 2017, commercial, financial and agricultural2022, for loans and real estate construction and land development loans by maturity areleases due after one year, interest rate information is as follows:
| | | | Less Than | | | One to | | | Over | | | | | | | | | | | | |
| (In thousands) | | One Year | | | Five Years | | | Five Years | | | Total | | | One To
Five Years | | | Five to
Fifteen Years | | | Greater than
Fifteen Years | | | Total | |
Commercial, financial and agricultural: | | | | | | | | | |
Owner-occupied commercial real estate | | | | | | | | | |
Outstanding with fixed interest rates | | $ | 520,667 | | | $ | 1,837,651 | | | $ | 1,885,587 | | | $ | 4,243,905 | | | $ | 677,411 | | | $ | 318,456 | | | $ | 9,433 | | | $ | 1,005,300 | |
Outstanding with adjustable rates | | | 1,365,021 | | | | 1,339,660 | | | | 2,368,227 | | | | 5,072,908 | | |
Outstanding with adjustable interest rates | | | | 146,886 | | | | 457,327 | | | | 19,583 | | | | 623,796 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total owner-occupied | | | | 824,297 | | | | 775,783 | | | | 29,016 | | | | 1,629,096 | |
Nonowner-occupied commercial real estate | | | | | | | | | |
Outstanding with fixed interest rates | | | $ | 2,602,677 | | | $ | 1,144,298 | | | $ | 15,540 | | | $ | 3,762,515 | |
Outstanding with adjustable interest rates | | | | 966,673 | | | | 806,220 | | | | 119,716 | | | | 1,892,609 | |
| | $ | 1,885,688 | | | $ | 3,177,311 | | | $ | 4,253,814 | | | $ | 9,316,813 | | | | | | | | | | | | | |
Total non-owner occupied | | | | 3,569,350 | | | | 1,950,518 | | | | 135,256 | | | | 5,655,124 | |
Other commercial loans | | | | | | | | | |
Outstanding with fixed interest rates | | | $ | 1,788,957 | | | $ | 468,944 | | | $ | 58,019 | | | $ | 2,315,920 | |
Outstanding with adjustable interest rates | | | | 428,256 | | | | 201,999 | | | | 39,639 | | | | 669,894 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other commercial | | | | 2,217,213 | | | | 670,943 | | | | 97,658 | | | | 2,985,814 | |
Residential real estate | | | | | | | | | |
Outstanding with fixed interest rates | | | $ | 352,727 | | | $ | 262,619 | | | $ | 1,680,827 | | | $ | 2,296,173 | |
Outstanding with adjustable interest rates | | | | 179,932 | | | | 419,736 | | | | 1,662,258 | | | | 2,261,926 | |
| | | | | | | | | | | | | |
Total residential real estate | | | | 532,659 | | | | 682,355 | | | | 3,343,085 | | | | 4,558,099 | |
Construction | | | | | | | | | |
Outstanding with fixed interest rates | | | $ | 495,230 | | | $ | 113,745 | | | $ | 81,833 | | | $ | 690,808 | |
Outstanding with adjustable interest rates | | | | 1,119,119 | | | | 191,072 | | | | 12,826 | | | | 1,323,017 | |
| | | | | | | | | | | | | |
Total construction | | | | 1,614,349 | | | | 304,817 | | | | 94,659 | | | | 2,013,825 | |
Consumer: | | | | | | | | | |
Bankcard | | | | | | | | | |
Outstanding with fixed interest rates | | | $ | 622 | | | $ | 252 | | | $ | 0 | | | $ | 874 | |
Outstanding with adjustable interest rates | | | | 3,480 | | | | 4,919 | | | | 0 | | | | 8,399 | |
| | | | | | | | | | | | | |
Total bankcard | | | | 4,102 | | | | 5,171 | | | | 0 | | | | 9,273 | |
Other consumer | | | | | | | | | |
Outstanding with fixed interest rates | | | $ | 670,309 | | | $ | 670,261 | | | $ | 1,201 | | | $ | 1,341,771 | |
Outstanding with adjustable interest rates | | | | 239 | | | | 138 | | | | 0 | | | | 377 | |
| | | | | | | | | | | | | |
Total other consumer | | | | 670,548 | | | | 670,399 | | | | 1,201 | | | | 1,342,148 | |
Total outstanding with fixed interest rates | | | $ | 6,587,933 | | | $ | 2,978,575 | | | $ | 1,846,853 | | | $ | 11,413,361 | |
| | | | | | | | | | | | | |
Total outstanding with adjustable rates | | | $ | 2,844,585 | | | $ | 2,081,411 | | | $ | 1,854,022 | | | $ | 6,780,018 | |
| | | | | | | | | | | | | |
Total | | | $ | 9,432,518 | | | $ | 5,059,986 | | | $ | 3,700,875 | | | $ | 18,193,379 | |
| | | | | | | | | | | | | |
More information relating to loans is presented in Note D, Notes to Consolidated Financial Statements.
Other Assets
Other assets increased $69.47$72.98 million or 16.75%31.52% fromyear-end 2016. Other than amounts added from Cardinal’s balance sheet at acquisition, United added $28.72 2021 as a result of a $106.31 million increase in core deposit intangibles and $1.08 million fordeferred tax assets due to a decrease in the George Mason trade name intangible from the acquisition. The cash surrenderfair value of bank-owned life insurance policiesavailable-for-sale securities. In addition, dealer reserve increased $5.59$4.20 million excluding $33.50and net pension asset increased $7.48 million acquired from Cardinal,primarily due to an increase in the cash surrender value. In addition, income tax receivable increased $23.24 million due to a timing differencediscount rate used in payments. The remainder of the increase in other assets is the result of an increase of $2.81 million due mainly to derivative assets at George Mason.year-end valuation. Partially offsetting these increases was a decreasein other assets were decreases of $17.17$12.60 million in deferredincome tax assetsreceivable due the enactment of the Tax Cutsto timing differences, $12.82 million in other real estate owned properties (“OREO”) due to sales and Jobs Act that resultedwrite downs, $26.67 million in a revaluation of United’s deferred taxderivative assets, and liabilities using a lower enacted corporate tax rate.
$5.52 million in core deposit intangibles due to amortization.Deposits
Deposits represent United’s primary source of funding. Total deposits at December 31, 2017 increased $3.032022 decreased $1.05 billion or 28.10% fromyear-end 2016 as a result of the Cardinal acquisition. Cardinal added $3.35 billion in deposits, including purchase accounting amounts.4.48%. In terms of composition, noninterest-bearing deposits increased $1.12 billiondecreased $296.88 million or 35.40%3.96% while interest-bearing deposits increased $1.91 billiondecreased $750.22 million or 25.06%4.73% from December 31, 2016. Organically,2021.
Noninterest-bearing deposits, declined $313.84which consist of noninterest-bearing demand deposit and noninterest-bearing money market (“MMDA”) account balances, decreased $296.88 million fromyear-end 2016.
The increase in noninterest-bearing deposits was 2021 due mainly to increasesa $139.87 million decrease in commercial noninterest-bearing deposits and a $148.83 million decrease in public funds noninterest-bearing deposits.
45
Interest-bearing deposits consist of $899.94interest-bearing transaction accounts, regular savings, interest-bearing MMDA, and time deposit account balances. Interest-bearing transaction accounts decreased $101.38 million or 37.05%1.94% since year-end 2021 as the result of a $182.47 million decrease in personal interest-bearing transaction accounts and personal noninterest-bearing depositsa $20.84 million decrease in public funds interest-bearing transaction accounts partially offset by an increase of $126.68$101.94 million in nonpersonal interest-bearing transaction accounts. Regular savings accounts increased $36.90 million or 22.05%2.25% mainly as a result of the Cardinal acquisition. Public funds noninterest-bearing deposits increased $27.20 million or 26.94%.
All major categories of interest-bearing deposits increased fromyear-end 2016 as the result of the Cardinal acquisition.Interest-bearing checking accounts increased $378.82 million or 21.30% mainly due to a $84.58 million increase in commercialinterest-bearing checking accounts and a $275.26$43.52 million increase in personal interest-bearing checkingsavings accounts. Regular savings increased $312.88Interest-bearing MMDAs decreased $62.48 million or 43.38% due to the Cardinal acquisition. Interest-bearing MMDAs increased $604.36 million or 19.17% asless than 1%. In particular, commercial MMDAs increased $469.13decreased $27.94 million, or 25.50%brokered MMDAs decreased $31.86 million, and public funds MMDAs decreased $43.97 million while personal MMDAs increased $124.02 million or 10.67%. $41.30 million.
Time deposits under $100,000 increased $102.13decreased $187.06 million or 14.74% due mainly to an increase18.14% from year-end 2021. This decrease in time deposits under $100,000 was the result of a $174.13 million decrease in fixed rate Certificates of Deposits (“CDs”) under $100,000, a $8.75 million decrease in CDs under $100,000 obtained through the use of deposit listing services, and a $4.60 million decrease in variable rate CDs.
Since year-end 2021, time deposits over $100,000 decreased $436.20 million or 27.24% as fixed rate CDs decreased $320.18 million, CDARS over $100,000 decreased $52.26 million, public funds CDs over $100,000 decreased $51.74 million, and brokered certificates of deposits (CDs) and variable rate CDs of $56.44 million and $20.33 million due to the Cardinal acquisition. Time deposits over $100,000 increased $512.69 million or 40.03% due to increases in brokered deposits of $51.89 million, fixed rate CDs of $214.38 million, Certificate of Deposit Account Registry Service (CDARS) balances of $156.56 million and public funds CDs of $83.64 million, all as a result of the Cardinal acquisition.decreased $11.27 million.
The table below summarizes the changes by deposit category sinceyear-end 2016: 2021:
| | | | December 31 | | | December 31 | | | | | | | | |
| | | 2017 | | | 2016 | | | $ Change | | | % Change | | | | | | | | | |
| (Dollars in thousands) | | | | | | | | | | | | | | December 31
2022 | | | December 31
2021 | | $
Change | | | %
Change | |
Demand deposits | | $ | 4,294,687 | | | $ | 3,171,841 | | | $ | 1,122,846 | | | | 35.40 | % | |
Interest-bearing checking | | | 2,156,974 | | | | 1,778,156 | | | | 378,818 | | | | 21.30 | % | |
Noninterest-bearing accounts | | | $ | 7,199,678 | | | $ | 7,496,560 | (1) | | $ | (296,882 | ) | | | (3.96 | %) |
Interest-bearing transaction accounts | | | | 5,116,966 | | | | 5,218,342 | (1) | | | (101,376 | ) | | | (1.94 | %) |
Regular savings | | | 1,034,100 | | | | 721,224 | | | | 312,876 | | | | 43.38 | % | | | 1,678,302 | | | | 1,641,404 | | | | 36,898 | | | | 2.25 | % |
Money market accounts | | | 3,756,259 | | | | 3,151,896 | | | | 604,363 | | | | 19.17 | % | |
Interest-bearing money market accounts | | | | 6,299,404 | | | | 6,361,887 | | | | (62,483 | ) | | | (0.98 | %) |
Time deposits under $100,000 | | | 795,137 | | | | 693,005 | | | | 102,132 | | | | 14.74 | % | | | 843,950 | | | | 1,031,008 | | | | (187,058 | ) | | | (18.14 | %) |
Time deposits over $100,000(1) | | | 1,793,434 | | | | 1,280,745 | | | | 512,689 | | | | 40.03 | % | |
Time deposits over $100,000 (2)(3) | | | | 1,164,866 | | | | 1,601,062 | | | | (436,196 | ) | | | (27.24 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total deposits | | $ | 13,830,591 | | | $ | 10,796,867 | | | $ | 3,033,724 | | | | 28.10 | % | | $ | 22,303,166 | | | $ | 23,350,263 | | | $ | (1,047,097 | ) | | | (4.48 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | (1) | For December 31, 2021, $1,483,987 was reclassed from noninterest-bearing accounts to interest-bearing transaction accounts. |
| (2) | Includes time deposits of $250,000 or more of $790,703$454,477 and $357,468$640,752 at December 31, 20172022 and 2016,December 31, 2021, respectively. |
| (3) | Includes $246,505 and $375,510 of uninsured time deposits at December 31, 2022 and December 31, 2021, respectively. |
At December 31, 2017,2022, the scheduled maturities of time deposits are as follows:
| | | | |
Year | | Amount | |
(In thousands) | | | | |
2018 | | $ | 1,725,875 | |
2019 | | | 465,480 | |
2020 | | | 179,414 | |
2021 | | | 126,103 | |
2022 and thereafter | | | 91,699 | |
| | | | |
TOTAL | | $ | 2,588,571 | |
| | | | |
| | | | |
Year | | Amount | |
| (In thousands) | | | |
2023 | | $ | 1,476,438 | |
2024 | | | 357,142 | |
2025 | | | 86,189 | |
2026 | | | 40,656 | |
2027 and thereafter | | | 48,391 | |
| | | | |
TOTAL | | $ | 2,008,816 | |
| | | | |
Maturities of estimated uninsured time certificates of depositdeposits of $100,000 or more outstanding at December 31, 20172022 are summarized as follows:
| | | | |
| | | Amount | |
| ( In thousands) | | | |
3 months or less | | $ | 688,758 | |
Over 3 through 6 months | | | 275,366 | |
Over 6 through 12 months | | | 295,081 | |
Over 12 months | | | 534,229 | |
| | | | |
| |
TOTAL | | $ | 1,793,434 | |
| | | | |
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 3 months
or less | | | Over 3
through
6 months | | | Over 6
through 12
months | | | Over 12
months | |
Time deposits in amounts in excess of the FDIC Insurance limit | | $ | 77,573 | | | $ | 34,131 | | | $ | 75,721 | | | $ | 59,080 | |
46
The amounts of uninsured time deposits of $100,000 or more outstanding at December 31, 2022 are based on estimates using the same methodologies and assumptions used for regulatory reporting requirements.
The average daily amount of deposits and rates paid on such deposits is summarized for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | | | | Interest | | | | | | | | | Interest | | | | | | | | | Interest | | | | |
| | | Amount | | | Expense | | | Rate | | | Amount | | | Expense | | | Rate | | | Amount | | | Expense | | | Rate | |
| | | (Dollars in thousands) | |
Demand deposits | | $ | 3,800,902 | | | $ | 0 | | | | 0.00 | % | | $ | 2,921,628 | | | $ | 0 | | | | 0.00 | % | | $ | 2,591,501 | | | $ | 0 | | | | 0.00 | % |
NOW and money market deposits | | | 5,650,379 | | | | 25,867 | | | | 0.46 | % | | | 4,364,102 | | | | 14,151 | | | | 0.32 | % | | | 3,996,323 | | | | 12,617 | | | | 0.32 | % |
Savings deposits | | | 992,798 | | | | 2,002 | | | | 0.20 | % | | | 733,233 | | | | 994 | | | | 0.14 | % | | | 703,150 | | | | 955 | | | | 0.14 | % |
Time deposits | | | 2,505,711 | | | | 21,857 | | | | 0.87 | % | | | 1,840,790 | | | | 13,980 | | | | 0.76 | % | | | 1,902,503 | | | | 14,451 | | | | 0.76 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
TOTAL | | $ | 12,949,790 | | | $ | 49,726 | | | | 0.38 | % | | $ | 9,859,753 | | | $ | 29,125 | | | | 0.30 | % | | $ | 9,193,477 | | | $ | 28,023 | | | | 0.30 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | | 2021 | | | 2020 | |
| | | | | | Interest | | | | | | | | | Interest | | | | | | | | | Interest | | | | |
| | | Amount | | | Expense | | | Rate | | | Amount (1) | | | Expense | | | Rate | | | Amount (2) | | | Expense | | | Rate | |
| | | (Dollars in thousands) | |
Noninterest-bearing | | $ | 7,580,624 | | | $ | 0 | | | | 0.00 | % | | $ | 6,709,510 | | | $ | 0 | | | | 0.00 | % | | $ | 5,153,258 | | | $ | 0 | | | | 0.00 | % |
Interest-bearing transaction and money market | | | 11,540,192 | | | | 67,240 | | | | 0.58 | % | | | 11,010,496 | | | | 23,498 | | | | 0.21 | % | | | 8,897,140 | | | | 40,322 | | | | 0.45 | % |
Regular savings | | | 1,744,841 | | | | 2,427 | | | | 0.14 | % | | | 1,455,305 | | | | 2,085 | | | | 0.14 | % | | | 1,149,201 | | | | 2,087 | | | | 0.18 | % |
Time deposits | | | 2,181,353 | | | | 10,570 | | | | 0.48 | % | | | 2,462,044 | | | | 16,037 | | | | 0.65 | % | | | 2,952,944 | | | | 36,170 | | | | 1.22 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
TOTAL | | $ | 23,047,010 | | | $ | 80,237 | | | | 0.35 | % | | $ | 21,637,355 | | | $ | 41,620 | | | | 0.19 | % | | $ | 18,152,543 | | | $ | 78,579 | | | | 0.43 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | For the year of 2021, $1,571,758 was reclassed from noninterest-bearing accounts to interest-bearing transaction accounts. |
| (2) | For the year of 2020, $1,280,091 was reclassed from noninterest-bearing accounts to interest-bearing transaction accounts. |
More information relating to deposits is presented in Note I,K, Notes to Consolidated Financial Statements.
Borrowings
Total borrowings at December 31, 20172022 increased $459.99 million$1.41 billion or 33.29% during149.23% since year-end 2021. During the year of 2017. Cardinal added $316.33 million, including purchase accounting amounts, upon consummation of the acquisition. Sinceyear-end 2016,2022, short-term borrowings increased $268.04$31.85 million or 127.91%24.72% due to increases of $200.00 million and $74.04 millionan increase in short-term FHLB advances and short-term securities sold under agreements to repurchase, respectively. Federal funds purchased decreased $6.00 million. Cardinal added $96.21 million in short-term borrowings, all of which was repaid prior toquarter-end.repurchase. Long-term borrowings increased $191.95 million$1.38 billion or 16.38% since168.86% from year-end 2016 as long-term 2021 due to an increase in FHLB advances increased $173.82 million and issuances of trust preferred capital securities increased $18.13 million. Cardinal added $220.12 million in long-term borrowings, $20 million of which was repaid prior toquarter-end.advances.
The table below summarizes the changes bychange in the borrowing categorycategories sinceyear-end 2016: 2021:
| | | | December 31 | | | Amount
Change | | | Percentage
Change | | | | | | | | | |
| | | 2017 | | | 2016 | | | | December 31 | | | December 31 | | | $ | | | % | |
(Dollars in thousands) | | | | | | | | | | 2022 | | | 2021 | | | Change | | | Change | |
Federal funds purchased | | $ | 16,235 | | | $ | 22,235 | | | $ | (6,000 | ) | | | (26.98 | %) | |
Short-term securities sold under agreements to repurchase | | | 261,352 | | | | 187,316 | | | | 74,036 | | | | 39.52 | % | | $ | 160,698 | | | $ | 128,844 | | | $ | 31,854 | | | | 24.72 | % |
Long-term securities sold under agreements to repurchase | | | 50,000 | | | | 50,000 | | | | 0 | | | | 0.00 | % | |
Short-term FHLB advances | | | 200,000 | | | | 0 | | | | 200,000 | | | | 100.00 | % | |
Long-term FHLB advances | | | 1,071,531 | | | | 897,707 | | | | 173,824 | | | | 19.36 | % | |
FHLB advances | | | | 1,910,775 | | | | 532,199 | | | | 1,378,576 | | | | 259.03 | % |
Subordinated debt | | | | 9,892 | | | | 9,872 | | | | 20 | | | | 0.20 | % |
Issuances of trust preferred capital securities | | | 242,446 | | | | 224,319 | | | | 18,127 | | | | 8.08 | % | | | 276,989 | | | | 275,323 | | | | 1,666 | | | | 0.61 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total borrowings | | $ | 1,841,564 | | | $ | 1,381,577 | | | $ | 459,987 | | | | 33.29 | % | | $ | 2,358,354 | | | $ | 946,238 | | | $ | 1,412,116 | | | | 149.23 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
For a further discussion of borrowings see Notes JL and K,M, Notes to Consolidated Financial Statements.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 2017 increased $51.942022 decreased $5.90 million or 55.46%3.02% fromyear-end 2016. Cardinal added $41.55 million including an unfavorable lease liability of $2.28 million. 2021. In particular, accrued employee expenses and deferred compensation increased $14.48 million, dividends payable increased $10.40 million, accrued mortgage escrow liabilities increased $5.54 million, other accrued expenses increased $5.55decreased $5.48 million and income taxes payable increased $10.47$2.77 million, respectively, and derivative liabilities decreased $3.13 million. Partially offsetting these increases in accrued expenses and other liabilitiesdecreases was a decrease of $4.46$7.48 million increase in the pension liabilityinterest payable due mainly to a $10 million paymentan increase in the third quarter of 2017FHLB borrowings and a decline of $2.13 million in derivative liabilities due to a change in fair value.rising interest rates.
Shareholders’ Equity
Shareholders’ equity at December 31, 20172022 was $4.52 billion, which was a decrease of $202.44 million or 4.29% from year-end 2021.
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Retained earnings increased $1.00 billion$184.65 million or 44.94%13.28% from December 31, 2016 mainly as a result of the Cardinal acquisition. The Cardinal transaction added approximately $975.25 million in shareholders’ equity as 23,690,589 shares were issued from United’s authorized but unissued shares for the merger at a cost of approximately $972.50 million.year-end 2021. Earnings net of dividends for the year of 20172022 were $18.83$184.65 million.
Accumulated other comprehensive income increased $2.69decreased $327.84 million or 6,707.12% from year-end 2021 due mainly to an increasea decrease of $4.09$368.93 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes, primarily the result of an increase in market interest rates. Partially offsetting this decrease was a $36.66 million increase in the fair value of cash flow hedges, net of deferred income taxes. Theafter-tax accretion of pension costs was $2.87$2.75 million for the year of 2017. Partially offsetting these increases to accumulated other comprehensive income was2022 while theafter-tax pension accounting adjustment atyear-end 2017 resulting 2022 resulted in an increase of $1.68 million.
Treasury stock increased $79.79 million or 46.76% from year-end 2021. During the year of 2022, United repurchased 2,259,546 shares of its common stock on the open market under repurchase plans approved by United’s Board of Directors at a declinecost of $4.27 million.$78.38 million or an average price per share of $34.69.
EARNINGS SUMMARYRESULTS OF OPERATIONS
Overview
The following table sets forth certain consolidated income statement information of United:
| | | | | | | | | | | | |
| | | Year Ended | |
| (Dollars in thousands except per share amounts) | | 2022 | | | 2021 | | | 2020 | |
Interest income | | $ | 1,001,990 | | | $ | 795,117 | | | $ | 798,382 | |
Interest expense | | | 105,559 | | | | 52,383 | | | | 108,609 | |
| | | | | | | | | | | | |
Net interest income | | | 896,431 | | | | 742,734 | | | | 689,773 | |
Provision for credit losses | | | 18,822 | | | | (23,970 | ) | | | 106,562 | |
Noninterest income | | | 153,261 | | | | 278,128 | | | | 354,775 | |
Noninterest expense | | | 555,087 | | | | 581,979 | | | | 578,246 | |
| | | | | | | | | | | | |
Income before income taxes | | | 475,783 | | | | 462,853 | | | | 359,740 | |
Income taxes | | | 96,156 | | | | 95,115 | | | | 70,717 | |
| | | | | | | | | | | | |
Net income | | $ | 379,627 | | | $ | 367,738 | | | $ | 289,023 | |
| | | | | | | | | | | | |
PER COMMON SHARE: | | | | | | | | | | | | |
Net income: | | | | | | | | | | | | |
Basic | | $ | 2.81 | | | $ | 2.84 | | | $ | 2.40 | |
Diluted | | | 2.80 | | | | 2.83 | | | | 2.40 | |
Net income for the year 20172022 was $150.58$379.63 million or $1.54$2.80 per diluted share, compared to $147.08an increase of $11.89 million or $1.993.23% from $367.74 million or $2.83 per diluted share for the year of 2016. The results2021. Higher net income for the year of 2017 included additional income tax expense of $37.73 million or $0.39 per diluted share related2022 compared to the estimated impact of the enactment of the Tax Cuts and Jobs Act (the Tax Act). Income before income taxes for the year of 20172021 was $284.83 million, an increaseprimarily driven by strong loan growth and net interest margin expansion primarily as a result of $62.17 million or 27.92% from the year of 2016.a rising rate environment.
As previously mentioned, United completed its acquisition of CardinalCommunity Bankers Trust on April 21, 2017.December 3, 2021. The financial results of Cardinaloperations for Community Bankers Trust are included in United’sthe consolidated results of operations from the acquisition date. As a resultdate of the acquisition, the year of 2017 was impacted for increased levels of average balances, income, and expense as compared to the year of 2016. Also, United consolidated its banking subsidiaries during the fourth quarter of 2017. As a result of the Cardinal acquisition the year of 2017 was impacted by increased levels of average balances, income, and expense.
In addition, as previously mentioned, United completed its acquisition of Bank of Georgetown on June 3, 2016. The financial results of Bank of Georgetown were included in United’s results from the acquisition date. As a result, the year of 2016 were impacted by increased levels of average balances, income, and expense.acquisition. In addition, the year of 20172022 included merger-related expenses of $26.84 million as$537 thousand related to the Community Bankers Trust acquisition compared to merger-related expenses of $6.13$21.42 million for the year of 2016.in 2021.
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United’s return on average assets for the year of 20172022 was 0.85%1.31% and the return on average shareholders’ equity was 5.09%8.25% as compared to 1.10%1.35% and 7.67%8.30% for the year of 2016.2021. For the year of 2022, 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 ontangible equity, were 0.98% and 8.35%a non-GAAP measure, was 14.11%, respectively, foras compared to 14.18% the first nine monthsyear of 2017.2021.
| | | | | | | | |
| | | Year Ended | |
| (Dollars in thousands) | | December 31,
2022 | | | December 31,
2021 | |
Return on Average Tangible Equity: | | | | | | | | |
(a) Net Income (GAAP) | | $ | 379,627 | | | $ | 367,738 | |
Average Total Shareholders’ Equity (GAAP) | | | 4,601,440 | | | | 4,430,688 | |
Less: Average Total Intangibles | | | (1,910,377 | ) | | | (1,837,609 | ) |
| | | | | | | | |
(b) Average Tangible Equity (non-GAAP) | | $ | 2,691,063 | | | $ | 2,593,079 | |
Return on Tangible Equity (non-GAAP) [(a) / (b)] | | | 14.11 | % | | | 14.18 | % |
Net interest income for the year of 20172022 was $549.00$896.43 million, an increase of $123.67$153.70 million or 29.08%20.69% from the prior year. TheMainly, this increase in net interest income occurred because totalfor 2022 compared to 2021 was due to the impact of rising market interest income increased $153.47 million while total interest expense only increased $29.80 millionrates on earning assets, an increase in average earning assets from the year of 2016.Community Bankers Trust acquisition as well as organic loan growth and a change in the asset mix to higher earning assets.
The provision for credit losses was $28.41$18.82 million for the year 20172022 as compared to $24.51a benefit of $23.97 million for the year 2021. Noninterest income was $153.26 million for the year of 2016. Noninterest income2022 which was $131.65a decrease of $124.87 million foror 44.90% from the year of 2017, up $61.61 million or 87.98% when compared to the year of 2016. This increase from 2016 was mainly due to additional income from mortgage banking activities as a result of the Cardinal acquisition.2021. Noninterest expense was $367.41$555.09 million an increasewhich was a decrease of $119.21$26.89 million or 48.03% for the year of 2017 when compared to 2016. This increase from 2016 was due mainly to the Cardinal acquisition.4.62%.
Income taxes for the year of 2017 was $134.252022 were $96.16 million as compared to $75.58$95.12 million for the year of 2016.2021. United’s effective tax rate was approximately 47.1%20.2% and 33.9%20.6% for years ended December 31, 20172022 and 2016,2021, respectively, as compared to 32.2%19.7% for 2015. As previously mentioned, the year of 2017 included additional income tax expense of $37.73 million related to the estimated impact of the enactment of the Tax Act.2020.
Business Segments
As a result of the Cardinal acquisition, United now operates in two business segments: community banking and mortgage banking. Prior to the Cardinal acquisition, United’s business activities were confined to just one reportable segment of community banking.
Community Banking
Net income attributable to the community banking segment for the year of 20172022 was $168.27$397.32 million compared to net income of $152.72$327.08 million for the year of 2016.2021. The higher net income within the community banking segment in 2022 was due primarily to the impact of the Community Bankers Trust acquisition, organic loan growth and the positive impact of rising market interest rates on the net interest margin. The full year of 2022 was impacted by the Community Bankers Trust acquisition as compared to one month in 2021.
Net interest income increased $125.48$159.27 million to $558.62$890.58 million for the year of 2017,2022, compared to $433.14$731.31 million for the same period of 2016.2021. Generally, net interest income for the year of 20172022 increased from the year of 2016 because2021 due to an increase in average earning assets as a result of the Community Bankers Trust acquisition, organic loan growth and an increase in the average yield on earning assets addeddue to rising market interest rates.
Provision for credit losses was $18.82 million for the year of 2022 compared to a net benefit of $23.97 million for the same period of 2021. The increase in the provision for credit losses was primarily due to an increase in loans outstanding.
Noninterest income for the year of 2022 was relatively flat from the Cardinal acquisition. Provision for loan lossesyear of 2021, decreasing $877 thousand or less than 1%.
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Noninterest expense was $28.41$472.81 million for the year ended December 31, 20172022, compared to a provision of $24.51$443.49 million for the same period of 2016. Noninterest income decreased by $3.00 million to $69.62 million for the year of 2017 as compared to $72.62 million for the year of 2016. The decrease was mainly due to a decline of $684 thousand in income from bank-owned life insurance policies due to death benefits recorded in the third quarter of 2016. Noninterest expense was $291.58 million for the year ended December 31, 2017, compared to $249.89 million for the same period of 2016.2021. The increase of $41.69$29.32 million in noninterest expense was primarily attributable to increases in branches, staffingthe additional employees and merger-related expensesbranch offices from the Cardinal acquisition.Community Bankers Trust acquisition as most major categories of noninterest expense showed increases.
Mortgage Banking
The mortgage banking segment reported a net loss of $2.71$7.22 million for the year of 2017.2022 as compared to net income of $43.93 million for the year of 2021. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $58.53$69.31 million for the year of 2022 as compared to $183.22 million for the year of 2021. The decrease of $113.91 million in 2022 was due mainly to lower originations and sales of mortgage loans driven by the rising rate environment and a lower margin on loans sold in the secondary market. Noninterest expense was $88.98 million for the year of 2022 as compared to $138.51 million the year of 2017. Noninterest expense was $62.07 million the year of 2017.2021. Noninterest expense consists mainly of salaries, commissions, and benefits of mortgage segment employees. There is no comparisonThe decrease in 2022 was primarily due to results for 2016 because United did not have a decrease in employee compensation due to lower employee incentives and commissions related to a decrease in mortgage banking segment in 2016.production.
The following discussion explains in more detail the consolidated results of operations by major category.
Net Interest Income
Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 20172022 and 2016,2021, are presented below.
Net interest income for the year of 20172022 was $549.00$896.43 million, which was an increase of $123.67$153.70 million or 29.08%20.69% from the year of 2016.2021. The $123.67$153.70 million increase in net interest income occurred because total interest income increased $153.47$206.87 million while total interest expense only increased $29.80$53.18 million from the year of 2016.2021. Generally, interest income for the year of 20172022 increased from the year of 2016 because2021 due mainly to a higher amount of interest earning assets, mainly as result of the Community Bankers Trust acquisition and organic loan growth, and an increase in the yield on those earning assets added frommainly as a result of a rise in market interest rates. Interest expense increased primarily due to an increase in the Cardinal acquisition. In addition,amount of interest-bearing funds, mainly as result of the Community Bankers Trust acquisition and to partially fund loan accretion on acquired loans for the year of 2017 increased from the same time period last year.growth, as well as an increase in market interest rates which resulted in higher funding costs. For the purpose of this remaining discussion, net interest income is presented on atax-equivalent basis to provide a comparison among all types of interest earning assets. Thetax-equivalent basis adjusts for thetax-favored status of income from certain loans and investments. Although this is anon-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 andtax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.
Tax-equivalent net interest income for the year of 2017 was $557.43 million, an increase of $125.972022 increased $153.95 million, or 29.20%20.61%, from the year of 2016. This2021. The increase in net interest income and tax-equivalent net interest income was primarily attributabledue to the impact of rising market interest rates on earning assets, an increase in average earning assets from the Cardinal acquisition. AverageCommunity Bankers Trust acquisition as well as organic loan growth and a change in the asset mix to higher earning assetsassets. These increases were partially offset by higher interest expense primarily driven by deposit rate repricing, lower Paycheck Protection Plan (“PPP”) loan fee income and lower acquired loan accretion income. The interest rate spread for the year of 2022 increased $3.63 billion or 30.45%30 basis points from the year of 2016 as average net loans increased $2.61 billion or 26.29% for the year of 2017. Average investment securities increased $401.32 million or 30.41%. In addition,2021 due to a 61 basis point increase in the average yield on earning assets increased 7partially offset by a 31 basis points from the year of 2016 due to additional loan accretion of $20.36 million on acquired loans and higher market interest rates. Partially offsetting the increases totax-equivalent net interest income for the year of 2017 was anpoint increase of 16 basis points in the average cost of funds as compared tofunds. Average earning assets for the year of 20162022 increased $1.52 billion, or 6.26%, from the year of 2021 due to higher market interest rates.a $1.68 billion increase in average net loans and loans held for sale and a $1.40 billion increase in average investment securities partially offset by a $1.57 billion decrease in average short-term investments. Net PPP loan fee income was $9.62 million and $33.22 million for the year of 2022 and 2021, respectively, a decrease of $23.59 million. Acquired loan accretion income was $18.32 million and $33.86 million for the year of 2022 and 2021, respectively, a decrease of $15.54 million. The net interest margin of 3.58%3.50% for the year of 20172022 was a decreasean increase of 441 basis points from the net interest margin of 3.62%3.09% for the year of 2016.2021.
50
United’stax-equivalent net interest income also includes the impact of acquisition accounting fair value adjustments. The following table provides the discount/premium and net accretion impact totax-equivalent net interest income for the year ended December 31, 2017, 20162022, 2021 and 2015.2020.
| | | | Year Ended | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | | | Year Ended | |
| (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | December 31
2022 | | | December 31
2021 | | | December 31
2020 | |
Loan Accretion | | $ | 41,202 | | | $ | 20,845 | | | $ | 10,780 | | |
Loan accretion | | | $ | 18,315 | | | $ | 33,857 | | | $ | 41,766 | |
Certificates of deposit | | | 2,244 | | | | 111 | | | | 1,698 | | | | 2,765 | | | | 4,305 | | | | 7,925 | |
Long-term borrowings | | | 617 | | | | 210 | | | | 611 | | | | (262 | ) | | | 684 | | | | 1,278 | |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 44,063 | | | $ | 21,166 | | | $ | 13,089 | | | $ | 20,818 | | | $ | 38,846 | | | $ | 50,969 | |
| | | | | | | | | | | | | | | | | | |
The following table reconciles the difference between net interest income andtax-equivalent net interest income for the year ended December 31, 2017, 20162022, 2021 and 2015.2020.
| | | | Year Ended | | | | | | | |
| | | December 31 | | | December 31 | | | December 31 | | | Year Ended | |
| (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | December 31
2022 | | | December 31
2021 | | | December 31
2020 | |
Net interest income (GAAP) | | $ | 548,997 | | | $ | 425,331 | | | $ | 384,124 | | | $ | 896,431 | | | $ | 742,734 | | | $ | 689,773 | |
Tax-equivalent adjustment(non-GAAP)(1) | | | 8,429 | | | | 6,121 | | | | 6,486 | | | | 4,467 | | | | 4,218 | | | | 3,888 | |
| | | | | | | | | | | | | | | | | | |
Tax-equivalent net interest income(non-GAAP) | | $ | 557,426 | | | $ | 431,452 | | | $ | 390,610 | | | $ | 900,898 | | | $ | 746,952 | | | $ | 693,661 | |
| | | | | | | | | | | | | | | | | | |
| | (1) | Thetax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 35%.21% for 2022, 2021, and 2020. All interest income on loans and investment securities was subject to state income taxes. |
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The following table shows the consolidated daily average balance of major categories of assets and liabilities for each of the three years ended December 31, 2017, 20162022, 2021 and 20152020 with the consolidated interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on atax-equivalent basis using the statutory federal income tax rate of 35%.21% for the years ended December 31, 2022, 2021, and 2020. Interest income on all loans and investment securities was subject to state taxes.
| | | | Year Ended
December 31, 2017 | | Year Ended
December 31, 2016 | | Year Ended
December 31, 2015 | | | Year Ended
December 31, 2022 | | Year Ended
December 31, 2021 | | Year Ended
December 31, 2020 | |
| (Dollars in thousands) | | Average
Balance | | Interest
(1) | | Avg.
Rate
(1) | | Average
Balance | | Interest
(1) | | Avg.
Rate
(1) | | Average
Balance | | Interest
(1) | | Avg.
Rate
(1) | | | Average
Balance | | Interest
(1) | | | Avg.
Rate
(1) | | Average
Balance | | Interest
(1) | | | Avg.
Rate
(1) | | Average
Balance | | Interest
(1) | | | Avg.
Rate
(1) | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Federal funds sold, securities repurchased under agreements to resell & other short-term investments | | $ | 1,304,830 | | | $ | 16,035 | | | | 1.23 | % | | $ | 682,988 | | | $ | 3,495 | | | | 0.51 | % | | $ | 600,218 | | | $ | 1,645 | | | | 0.27 | % | | $ | 1,597,108 | | | $ | 22,950 | | | | 1.44 | % | | $ | 3,162,814 | | | $ | 8,734 | | | | 0.28 | % | | $ | 1,501,771 | | | $ | 9,780 | | | | 0.65 | % |
Investment Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 1,486,460 | | | | 36,715 | | | | 2.47 | % | | | 1,173,829 | | | | 32,357 | | | | 2.76 | % | | | 1,140,852 | | | | 30,744 | | | | 2.69 | % | | | 4,532,713 | | | | 105,780 | | | | 2.33 | % | | | 3,193,414 | | | | 54,678 | | | | 1.71 | % | | | 2,700,416 | | | | 61,808 | | | | 2.29 | % |
Tax-exempt | | | 234,450 | | | | 8,491 | | | | 3.62 | % | | | 145,763 | | | | 5,771 | | | | 3.96 | % | | | 119,514 | | | | 5,427 | | | | 4.54 | % | | | 410,037 | | | | 10,983 | | | | 2.68 | % | | | 352,843 | | | | 9,129 | | | | 2.59 | % | | | 217,836 | | | | 6,285 | | | | 2.89 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Securities | | | 1,720,910 | | | | 45,206 | | | | 2.63 | % | | | 1,319,592 | | | | 38,128 | | | | 2.89 | % | | | 1,260,366 | | | | 36,171 | | | | 2.87 | % | | | 4,942,750 | | | | 116,763 | | | | 2.36 | % | | | 3,546,257 | | | | 63,807 | | | | 1.80 | % | | | 2,918,252 | | | | 68,093 | | | | 2.33 | % |
Loans, net of unearned Income (2) | | | 12,598,295 | | | | 570,994 | | | | 4.53 | % | | | 9,991,696 | | | | 434,839 | | | | 4.35 | % | | | 9,126,387 | | | | 392,300 | | | | 4.30 | % | |
Allowance for loan losses | | | (73,434 | ) | | | | | | | (73,813 | ) | | | | | | | (75,451 | ) | | | | | |
Loans and leases, net of unearned income (2) | | | | 19,389,485 | | | | 866,744 | | | | 4.47 | % | | | 17,714,288 | | | | 726,794 | | | | 4.10 | % | | | 17,151,291 | | | | 724,397 | | | | 4.22 | % |
Allowance for credit losses | | | | (216,104 | ) | | | | | | | (225,740 | ) | | | | | | | (186,640 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loans | | | 12,524,861 | | | | | | 4.56 | % | | | 9,917,883 | | | | | | 4.38 | % | | | 9,050,936 | | | | | | 4.33 | % | |
Net loans and leases | | | | 19,173,381 | | | | | | 4.52 | % | | | 17,488,548 | | | | | | 4.16 | % | | | 16,964,651 | | | | | | 4.27 | % |
| | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total earning assets | | | 15,550,601 | | | $ | 632,235 | | | | 4.07 | % | | | 11,920,463 | | | $ | 476,462 | | | | 4.00 | % | | | 10,911,520 | | | $ | 430,116 | | | | 3.94 | % | | | 25,713,239 | | | $ | 1,006,457 | | | | 3.91 | % | | | 24,197,619 | | | $ | 799,335 | | | | 3.30 | % | | | 21,384,674 | | | $ | 802,270 | | | | 3.75 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other assets | | | 2,066,828 | | | | | | | | 1,456,340 | | | | | | | | 1,353,595 | | | | | | | | 3,360,609 | | | | | | | | 3,058,476 | | | | | | | | 2,752,396 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL ASSETS | | $ | 17,617,429 | | | | | | | $ | 13,376,803 | | | | | | | $ | 12,265,115 | | | | | | | $ | 29,073,848 | | | | | | | $ | 27,256,095 | | | | | | | $ | 24,137,070 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-Bearing Funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 9,148,888 | | | $ | 49,726 | | | | 0.54 | % | | $ | 6,938,125 | | | $ | 29,125 | | | | 0.42 | % | | $ | 6,601,976 | | | $ | 28,023 | | | | 0.42 | % | | $ | 15,466,386 | | | $ | 80,237 | | | | 0.52 | % | | $ | 14,927,845 | | | $ | 41,620 | | | | 0.28 | % | | $ | 12,999,285 | | | $ | 78,579 | | | | 0.60 | % |
Short-term borrowings | | | 309,794 | | | | 1,579 | | | | 0.51 | % | | | 409,939 | | | | 1,584 | | | | 0.39 | % | | | 323,279 | | | | 834 | | | | 0.26 | % | | | 140,773 | | | | 1,785 | | | | 1.27 | % | | | 132,489 | | | | 693 | | | | 0.52 | % | | | 145,768 | | | | 1,027 | | | | 0.70 | % |
Long- term borrowings | | | 1,306,120 | | | | 23,504 | | | | 1.80 | % | | | 1,118,673 | | | | 14,301 | | | | 1.28 | % | | | 985,458 | | | | 10,649 | | | | 1.08 | % | | | 1,014,655 | | | | 23,537 | | | | 2.32 | % | | | 819,440 | | | | 10,070 | | | | 1.23 | % | | | 1,645,783 | | | | 29,003 | | | | 1.76 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Interest-Bearing Funds | | | 10,764,802 | | | | 74,809 | | | | 0.69 | % | | | 8,466,737 | | | | 45,010 | | | | 0.53 | % | | | 7,910,713 | | | | 39,506 | | | | 0.50 | % | | | 16,621,814 | | | | 105,559 | | | | 0.64 | % | | | 15,879,774 | | | | 52,383 | | | | 0.33 | % | | | 14,790,836 | | | | 108,609 | | | | 0.73 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | | | 3,800,902 | | | | | | | | 2,921,628 | | | | | | | | 2,591,501 | | | | | | | | 7,580,624 | | | | | | | | 6,709,510 | | | | | | | | 5,153,258 | | | | | |
Accrued expenses and other liabilities | | | 92,432 | | | | | | | | 69,551 | | | | | | | | 60,411 | | | | | | | | 269,970 | | | | | | | | 236,123 | | | | | | | | 236,007 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL LIABILITIES | | | 14,658,136 | | | | | | | | 11,457,916 | | | | | | | | 10,562,625 | | | | | | | | 24,472,408 | | | | | | | | 22,825,407 | | | | | | | | 20,180,101 | | | | | |
SHAREHOLDERS’ EQUITY | | | 2,959,293 | | | | | | | | 1,918,887 | | | | | | | | 1,702,490 | | | | | | | | 4,601,440 | | | | | | | | 4,430,688 | | | | | | | | 3,956,969 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 17,617,429 | | | | | | | $ | 13,376,803 | | | | | | | $ | 12,265,115 | | | | | | | $ | 29,073,848 | | | | | | | $ | 27,256,095 | | | | | | | $ | 24,137,070 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
NET INTEREST INCOME | | | | $ | 557,426 | | | | | | | $ | 431,452 | | | | | | | $ | 390,610 | | | | | | | $ | 900,898 | | | | | | | $ | 746,952 | | | | | | | $ | 693,661 | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| INTEREST SPREAD | | | | | | | 3.38 | % | | | | | | | 3.47 | % | | | | | | | 3.44 | % | | | | | | | 3.27 | % | | | | | | | 2.97 | % | | | | | | | 3.02 | % |
| NET INTEREST MARGIN | | | | | | | 3.58 | % | | | | | | | 3.62 | % | | | | | | | 3.58 | % | | | | | | | 3.50 | % | | | | | | | 3.09 | % | | | | | | | 3.24 | % |
| | (1) | The interest income and the yields on federally nontaxable loans and investment securities are presented on atax-equivalent basis using the statutory federal income tax rate of 35%.21% for 2022, 2021 and 2020. |
| | (2) | Nonaccruing loans are included in the daily average loan amounts outstanding. |
| (3) | For the years of 2021 and 2020, average balances of $1,571,758 and $1,280,091, respectively, were reclassed from noninterest- bearing deposits to interest-bearing deposits. |
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The following table sets forth a summary for the periods indicated of the changes in consolidated interest earned and interest paid detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year’s average rate), (ii) changes in rate (change in the average rate times the prior year’s average volume), and (iii) changes in rate/volume (change in the average volume times the change in average rate).
| | | | 2017 Compared to 2016 | | 2016 Compared to 2015 | | | | | | | | | | | | | | | | | |
| | | Increase (Decrease) Due to | | Increase (Decrease) Due to | | | 2022 Compared to 2021 | | | 2021 Compared to 2020 | |
| | | | | | | Rate/ | | | | | | | | | Rate/ | | | | | Increase (Decrease) Due to | | | Increase (Decrease) Due to | |
| (In thousands) | | Volume | | Rate | | Volume | | Total | | Volume | | | Rate | | Volume | | Total | | | Volume | | Rate | | | Rate/
Volume | | Total | | | Volume | | Rate | | Rate/
Volume | | Total | |
Interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Federal funds sold, securities purchased under agreements to resell and other short-term investments | | $ | 3,171 | | | $ | 4,918 | | | $ | 4,451 | | | $ | 12,540 | | | $ | 223 | | | $ | 1,441 | | | $ | 186 | | | $ | 1,850 | | | $ | (4,384 | ) | | $ | 36,689 | | | $ | (18,089 | ) | | $ | 14,216 | | | $ | 10,797 | | | $ | (5,557 | ) | | $ | (6,286 | ) | | $ | (1,046 | ) |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 8,629 | | | | (3,404 | ) | | | (867 | ) | | | 4,358 | | | | 887 | | | | 799 | | | | (73 | ) | | | 1,613 | | | | 22,902 | | | | 19,799 | | | | 8,401 | | | | 51,102 | | | | 11,290 | | | | (15,662 | ) | | | (2,758 | ) | | | (7,130 | ) |
Tax-exempt (1) | | | 3,512 | | | | (496 | ) | | | (296 | ) | | | 2,720 | | | | 1,192 | | | | (693 | ) | | | (155 | ) | | | 344 | | | | 1,481 | | | | 318 | | | | 55 | | | | 1,854 | | | | 3,902 | | | | (654 | ) | | | (404 | ) | | | 2,844 | |
| Loans (1),(2) | | | 114,186 | | | | 17,852 | | | | 4,117 | | | | 136,155 | | | | 37,539 | | | | 4,525 | | | | 475 | | | | 42,539 | | | | 70,089 | | | | 62,959 | | | | 6,902 | | | | 139,950 | | | | 22,370 | | | | (18,661 | ) | | | (1,312 | ) | | | 2,397 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL INTEREST INCOME | | | 129,498 | | | | 18,870 | | | | 7,405 | | | | 155,773 | | | | 39,841 | | | | 6,072 | | | | 433 | | | | 46,346 | | | | 90,088 | | | | 119,765 | | | | (2,731 | ) | | | 207,122 | | | | 48,359 | | | | (40,534 | ) | | | (10,760 | ) | | | (2,935 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 9,285 | | | $ | 8,326 | | | $ | 2,990 | | | $ | 20,601 | | | $ | 1,412 | | | $ | 0 | | | $ | (310 | ) | | $ | 1,102 | | | $ | 1,508 | | | $ | 35,827 | | | $ | 1,282 | | | $ | 38,617 | | | $ | 11,571 | | | $ | (41,598 | ) | | $ | (6,932 | ) | | $ | (36,959 | ) |
Short-term borrowings | | | (391 | ) | | | 492 | | | | (106 | ) | | | (5 | ) | | | 225 | | | | 420 | | | | 105 | | | | 750 | | | | 43 | | | | 994 | | | | 55 | | | | 1,092 | | | | (93 | ) | | | (262 | ) | | | 21 | | | | (334 | ) |
Long-term borrowings | | | 2,399 | | | | 5,817 | | | | 987 | | | | 9,203 | | | | 1,439 | | | | 1,971 | | | | 242 | | | | 3,652 | | | | 2,401 | | | | 8,932 | | | | 2,134 | | | | 13,467 | | | | (14,544 | ) | | | (8,723 | ) | | | 4,334 | | | | (18,933 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL INTEREST EXPENSE | | | 11,293 | | | | 14,635 | | | | 3,871 | | | | 29,799 | | | | 3,076 | | | | 2,391 | | | | 37 | | | | 5,504 | | | | 3,952 | | | | 45,753 | | | | 3,471 | | | | 53,176 | | | | (3,066 | ) | | | (50,583 | ) | | | (2,577 | ) | | | (56,226 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME | | $ | 118,205 | | | $ | 4,235 | | | $ | 3,534 | | | $ | 125,974 | | | $ | 36,765 | | | $ | 3,681 | | | $ | 396 | | | $ | 40,842 | | | $ | 86,136 | | | $ | 74,012 | | | $ | (6,202 | ) | | $ | 153,946 | | | $ | 51,425 | | | $ | 10,049 | | | $ | (8,183 | ) | | $ | 53,291 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (1) | Yields and interest income on federallytax-exempt loans and investment securities are computed on a fullytax-equivalent basis using the statutory federal income tax rate of 35%.21% for 2022, 2021 and 2020. |
| | (2) | Nonaccruing loans are included in the daily average loan amounts outstanding. |
Provision for LoanCredit Losses
AtUnited’s provision for credit losses was $18.82 million for the year of 2022 while the provision for credit losses was a net benefit of $23.97 million for the year of 2021. United’s provision for credit losses relates to its portfolio of loans and leases, held to maturity securities and interest receivable on loans which are discussed in more detail in the following paragraphs.
The provision for loan and lease losses for the year of 2022 was $18.83 million as compared to a net benefit of $23.72 million for the year of 2021. The higher amount of provision expense for 2022 compared to 2021 was mainly due to an increase in overall loans outstanding. Net charge-offs for the year of 2022 were $101 thousand as compared to $8.72 million for the year of 2021. The lower amount of net charge-offs for the year of 2022 as compared to the year of 2021 was primarily due to charge-offs recognized on several large commercial credits in 2021. Net charge-offs as a percentage of average loans and leases were zero and 0.05% for the year of 2022 and 2021, respectively.
As of December 31, 2017,2022, nonperforming loans and leases were $168.74$58.64 million or 1.30%0.29% of loans and leases, net of unearned income as compared to nonperforming loans of $113.26$90.76 million or 1.10%0.50% of loans, net of unearned income at December 31, 2016.2021. The components of nonperforming loans and leases include: 1) nonaccrual loans and leases, 2) loans and leases which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis and 3) loans and leases whose terms have been restructured for economic or legal reasons due to financial difficulties of the borrowers.
53
Loans past due 90 days or more and still on accrual were $9.80$15.57 million at December 31, 2017 which was an increase2022, a decrease of $1.22$3.31 million or 14.17%17.55% from $8.59$18.88 million atyear-end 2016. The increase 2021. This decrease was primarily due mainly to the delinquency of a $822 thousandlarge delinquent commercial credit atquarter-end.brought current. At December 31, 2017,2022, nonaccrual loans were $108.80$23.69 million, an increasewhich was a decrease of $25.28$12.34 million or 30.26%34.26% from $83.53$36.03 million atyear-end 2016. 2021. This increasedecrease was due to the downgrade and transfer to nonaccrualrepayment of several oil, gas and coal industry relationships withinmid-sized commercial nonaccrual loans as well as the Company’s loan portfolio.return to accrual status for three commercial relationships. Restructured loans were $50.13$19.39 million at December 31, 2017, an increase2022, a decrease of $28.98$16.47 million or 136.99%45.93% from $21.15$35.86 million atyear-end 2016. Fifteen loans totaling $36.12 million were restructured 2021. The decrease was mainly due to the repayment of six large commercial relationships during the year of 2017. Four of the restructured loans totaling $19.82 million were associated with an oil, gas and coal industry-related relationship. The remaining difference was mainly due to repayments and acharge-off.2022. The loss potential on these loans has been properly evaluated and allocated within the Company’s allowance for loan losses.
Nonperforming assets include nonperforming loans and leases and real estate acquired in foreclosure or other settlement of loans (OREO)(“OREO”). Total nonperforming assets of $193.08$60.69 million, including OREO of $24.35$2.05 million at December 31, 2017,2022, represented 1.01%0.21% of total assets.
Management is not aware of any other significant loans or securities, groups of loans or securities, or segments of the loan or investment portfolio not included below or disclosed elsewhere herein where there are serious doubts as to the ability of the borrowers or issuers to comply with the present repayment terms of the debt. The following table summarizes nonperforming assets for the indicated periods.
| | | | | | | | | | | | | | | | | | | | |
| | | December 31 | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | (In thousands) | |
Nonaccrual loans | | | | | | | | | | | | | | | | | | | | |
Originated | | $ | 97,971 | | | $ | 77,111 | | | $ | 83,146 | | | $ | 64,312 | | | $ | 58,121 | |
Acquired | | | 10,832 | | | | 6,414 | | | | 8,043 | | | | 10,739 | | | | 3,807 | |
Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest | | | | | | | | | | | | | | | | | | | | |
Originated | | | 7,288 | | | | 7,763 | | | | 11,462 | | | | 10,868 | | | | 10,015 | |
Acquired | | | 2,515 | | | | 823 | | | | 166 | | | | 807 | | | | 1,029 | |
Restructured loans (1) | | | | | | | | | | | | | | | | | | | | |
Originated | | | 48,709 | | | | 21,115 | | | | 23,890 | | | | 22,234 | | | | 8,157 | |
Acquired | | | 1,420 | | | | 37 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | |
Total nonperforming loans | | $ | 168,735 | | | $ | 113,263 | | | $ | 126,707 | | | $ | 108,960 | | | $ | 81,129 | |
| | | | | |
Other real estate owned | | | 24,348 | | | | 31,510 | | | | 32,228 | | | | 38,778 | | | | 38,182 | |
| | | | | | | | | | | | | | | | | | | | |
TOTAL NONPERFORMING ASSETS | | $ | 193,083 | | | $ | 144,773 | | | $ | 158,935 | | | $ | 147,738 | | | $ | 119,311 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | Restructured loans with an aggregate balance of $30.87 million, $11.11 million, and $11.95 million at December 31, 2017, 2016 and 2015 respectively, were on nonaccrual status, but are not included in the “Nonaccrual loans” category. |
Loans are designated as impaired when, in the opinion of management, the collection of principal and interest in accordance with the loan contract is doubtful. At December 31, 2017, impaired loans were $454.43 million, which was an increase of $145.99 million or 47.33% from the $308.44 million in impaired loans at December 31, 2016. This increase was due mainly to the acquired impaired loans from Cardinal and the Company’s exposure to the oil, gas and coal industry. Acquired impaired loans are accounted for under ASC Subtopic310-30. The recorded investment balance and the contractual principal balance of the acquired impaired loans were $210.52 million and $285.96 million, respectively, at December 31, 2017 as compared to $171.60 million and $231.10 million, respectively, at December 31, 2016. For the acquired impaired loans accounted for under ASC310-30, the difference between the contractually required payments due and the cash flows expected to be collected, considering the impact of prepayments, is referred to as thenon-accretable difference (the credit mark). The credit mark is not recognized in income. The remaining credit mark was $60.15 million and $58.88 million at December 31, 2017 and December 31, 2016, respectively. For further details regarding impaired loans, see Note 5 to the unaudited Consolidated Financial Statements.
United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan and lease losses and reserve for lending-related commitments are referred to asis considered the allowance for credit losses. At December 31, 2017,2022, the allowance for credit losses was $77.31$280.94 million as compared to $73.82$247.46 million at December 31, 2016.2021.
At December 31, 2017,2022, the allowance for loan and lease losses was $76.63$234.75 million as compared to $72.78$216.02 million at December 31, 2016.2021. The increase in the allowance for loan and lease losses was due mainly to an increase in outstanding loans as well as lower forecasted Gross Domestic Product (“GDP”) and a higher forecasted unemployment rate within the reasonable and supportable forecast. This increase was offset slightly due to improvement in historical loss rates and a decrease in allocations established for individually assessed loans. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 0.59%1.14% at December 31, 20172022 and 0.70%1.20% at December 31, 2016, respectively.2021. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 45.41%400.33% and 64.25%238.00% at December 31, 20172022 and December 31, 2016,2021, respectively. The Company’s detailed methodology and analysis indicated a minimal increase in the allowance for loan losses primarily because of the offsetting factors of changes within historical loss rates and reduced loss allocations on impaired loans.
For the years ended December 31, 2017 and 2016, the provision for loan losses was $28.41 million and $24.51 million, respectively. Net charge-offs were $24.55 million for the year of 2017 as compared to net charge-offs of $27.46 million for the year of 2016. The higher amounts of provision expense for the year of 2017 compared to the year of 2016this ratio was due mainly to an increasea decline in loss factors pertaining to the Company’s exposure to the oil, gas and coal industry. The lower amount of net charge-offs for the year of 2017 was due to thecharge-off in 2016 of a large loan relationship which had deteriorated to the point ofnon-collectability. Annualized net charge-offs as a percentage of average loans were 0.20% for the year of 2017. The reserve for lending-related commitments at December 31, 2017 was $679 thousand, a decrease of $365 thousand or 34.96% from December 31, 2016. Changes to the reserve for lending-related commitments are recorded in other expense in the Consolidated Statements of Income.nonperforming loans.
The following table summarizes United’s credit loss experience for eachloan and leases losses, based on loan categories, for the year of 2022 and 2021:
| | | | | | | | |
| (Dollars in thousands) | | 2022 | | | 2021 | |
Commercial, financial and agricultural: | | | | | | | | |
Owner-occupied commercial real estate | | | | | | | | |
Loans & leases charged off | | $ | 68 | | | $ | 414 | |
Recoveries | | | 489 | | | | 869 | |
| | | | | | | | |
Net loans & leases (recovered) charged off | | $ | (421 | ) | | $ | (455 | ) |
Average gross loans & leases outstanding | | | 1,716,201 | | | | 1,612,387 | |
Net recoveries as a percentage of average gross loans & leases outstanding | | | (0.02 | %) | | | (0.03 | %) |
Nonowner-occupied commercial real estate | | | | | | | | |
Loans & leases charged off | | $ | 0 | | | $ | 3,531 | |
Recoveries | | | 234 | | | | 1,907 | |
| | | | | | | | |
Net loans & leases (recovered) charged off | | $ | (234 | ) | | $ | 1,624 | |
Average gross loans & leases outstanding | | | 6,042,221 | | | | 5,045,006 | |
Net charge-offs as a percentage of average gross loans & leases outstanding | | | 0.00 | % | | | 0.03 | % |
Other Commercial | | | | | | | | |
Loans & leases charged off | | $ | 4,308 | | | $ | 6,182 | |
Recoveries | | | 5,367 | | | | 4,307 | |
| | | | | | | | |
Net loans & leases (recovered) charged off | | $ | (1,059 | ) | | $ | 1,875 | |
Average gross loans & leases outstanding | | | 3,613,204 | | | | 3,777,988 | |
Net (recoveries) charge-offs as a percentage of average gross loans & leases outstanding | | | (0.03 | %) | | | 0.05 | % |
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| | | | | | | | |
| (Dollars in thousands) | | 2022 | | | 2021 | |
Residential Real Estate | | | | | | | | |
Loans & leases charged off | | $ | 1,546 | | | $ | 6,016 | |
Recoveries | | | 1,507 | | | | 2,400 | |
| | | | | | | | |
Net loans & leases charged off | | $ | 39 | | | $ | 3,616 | |
Average gross loans & leases outstanding | | | 4,080,515 | | | | 3,624,157 | |
Net charge-offs as a percentage of average gross loans & leases outstanding | | | 0.00 | % | | | 0.10 | % |
Construction | | | | | | | | |
Loans & leases charged off | | $ | 2 | | | $ | 560 | |
Recoveries | | | 1,414 | | | | 604 | |
| | | | | | | | |
Net loans & leases (recovered) charged off | | $ | (1,412 | ) | | $ | (44 | ) |
Average gross loans & leases outstanding | | | 2,517,561 | | | | 1,961,661 | |
Net recoveries as a percentage of average gross loans & leases outstanding | | | (0.06 | %) | | | (0.00 | %) |
Consumer: | | | | | | | | |
Bankcard | | | | | | | | |
Loans & leases charged off | | $ | 355 | | | $ | 190 | |
Recoveries | | | 9 | | | | 42 | |
| | | | | | | | |
Net loans & leases charged off | | $ | 346 | | | $ | 148 | |
Average gross loans & leases outstanding | | | 8,766 | | | | 8,298 | |
Net charge-offs as a percentage of average gross loans & leases outstanding | | | 3.95 | % | | | 1.78 | % |
Other consumer | | | | | | | | |
Loans & leases charged off | | $ | 3,371 | | | $ | 2,404 | |
Recoveries | | | 529 | | | | 449 449 | |
| | | | | | | | |
Net loans & leases charged off | | $ | 2,842 | | | $ | 1,955 | |
Average gross loans & leases outstanding | | | 1,309,773 | | | | 1,174,323 | |
Net charge-offs as a percentage of average gross loans & leases outstanding | | | 0.22 | % | | | 0.17 | % |
Total | | | | | | | | |
Loans & leases charged off | | $ | 9,650 | | | $ | 19,297 | |
Recoveries | | | 9,549 | | | | 10,578 | |
| | | | | | | | |
Net loans & leases charged off | | $ | 101 | | | $ | 8,719 | |
Average gross loans & leases outstanding | | | 19,288,241 | | | | 17,203,820 | |
Net charge-offs as a percentage of average gross loans & leases outstanding | | | 0.00 | % | | | 0.05 | % |
Nonaccrual loans & leases | | $ | 30,871 | | | $ | 58,449 | |
Allowance for loan & lease losses | | | 234,746 | | | | 216,016 | |
Loans & leases (net of unearned income) | | | 20,558,166 | | | | 18,023,648 | |
Allowance for loan & lease losses as a percentage of loans (net of unearned income) | | | 1.14 | % | | | 1.20 | % |
Nonaccrual loans as a percentage of loans & leases (net of unearned income) | | | 0.15 | % | | | 0.32 | % |
Allowance for loan & lease losses as a percentage of nonaccrual loans & leases | | | 760.41 | % | | | 369.58 | % |
United continues to evaluate risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then, any qualitative adjustments are applied to account for the Company’s view of the five years ended December 31:future and other factors. If current conditions underlying any qualitative adjustment factor were deemed to be materially different than historical conditions, an adjustment was made for that factor.
| | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | (Dollars in thousands) | |
Balance of allowance for loan losses at beginning of year | | $ | 72,771 | | | $ | 75,726 | | | $ | 75,529 | | | $ | 74,198 | | | $ | 73,901 | |
| | | | | |
Loans charged off: | | | | | | | | | | | | | | | | | | | | |
Commercial, financial & agricultural | | | 23,731 | | | | 26,130 | | | | 15,917 | | | | 10,117 | | | | 14,207 | |
Residential real estate | | | 2,973 | | | | 4,597 | | | | 6,411 | | | | 5,027 | | | | 4,111 | |
Construction & land development | | | 3,337 | | | | 2,659 | | | | 862 | | | | 7,476 | | | | 896 | |
Consumer | | | 2,822 | | | | 2,794 | | | | 2,309 | | | | 2,621 | | | | 1,792 | |
| | | | | | | | | | | | | | | | | | | | |
TOTAL CHARGE-OFFS | | | 32,863 | | | | 36,180 | | | | 25,499 | | | | 25,241 | | | | 21,006 | |
Recoveries: | | | | | | | | | | | | | | | | | | | | |
Commercial, financial & agricultural | | | 6,238 | | | | 7,198 | | | | 1,617 | | | | 2.934 | | | | 847 | |
Residential real estate | | | 601 | | | | 639 | | | | 495 | | | | 573 | | | | 698 | |
Construction & land development | | | 726 | | | | 433 | | | | 511 | | | | 685 | | | | 73 | |
Consumer | | | 748 | | | | 446 | | | | 499 | | | | 443 | | | | 418 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
TOTAL RECOVERIES | | | 8,313 | | | | 8,716 | | | | 3,122 | | | | 4,635 | | | | 2,036 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
NET LOANS CHARGED OFF | | | 24,550 | | | | 27,464 | | | | 22,377 | | | | 20,606 | | | | 18,970 | |
Provision for loan losses | | | 28,406 | | | | 24,509 | | | | 22,574 | | | | 21,937 | | | | 19,267 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
BALANCE OF ALLOWANCE FOR LOAN LOSSES AT END OF YEAR | | $ | 76,627 | | | $ | 72,771 | | | $ | 75,726 | | | $ | 75,529 | | | $ | 74,198 | |
| | | | | |
Reserve for lending-related commitments | | | 679 | | | | 1,044 | | | | 936 | | | | 1,518 | | | | 2,143 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
BALANCE OF ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR | | $ | 77,306 | | | $ | 73,815 | | | $ | 76,662 | | | $ | 77,047 | | | $ | 76,341 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Loans outstanding at the end of period (gross) (1) | | $ | 13,027,337 | | | $ | 10,356,719 | | | $ | 9,398,952 | | | $ | 9,119,492 | | | $ | 6,713,599 | |
| | | | | |
Average loans outstanding during period (net of unearned income) (1) | | $ | 12,399,901 | | | $ | 9,983,828 | | | $ | 9,117,844 | | | $ | 8,715,370 | | | $ | 6,537,360 | |
| | | | | |
Net charge-offs as a percentage of average loans outstanding | | | 0.20 | % | | | 0.28 | % | | | 0.25 | % | | | 0.24 | % | | | 0.29 | % |
| | | | | |
Allowance for loan losses, as a percentage of nonperforming loans | | | 45.41 | % | | | 64.25 | % | | | 59.76 | % | | | 69.32 | % | | | 91.46 | % |
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The year of 2022 qualitative adjustments include analyses of the following:
| | (1)• | | ExcludesCurrent conditions – United considered the impact of inflation, rising interest rates, increased oil and gas prices and the potential impact of the geopolitical situation when making determinations related to factor adjustments, such as changes in economic and business conditions; collateral values for dependent loans; past due, nonaccrual and adversely classified loans held for sale.and leases; concentrations of credit and external factors.
|
United evaluates the adequacy of the allowance for credit losses and its loan administration policies are focused upon the risk characteristics of the loan portfolio and lending-related commitments. United’s process for evaluating the allowance is a formal company-wide process that focuses on early identification of potential problem credits and procedural discipline in managing and accounting for those credits. This process determines the appropriate level of the allowance for credit losses, allocation among loan types and lending-related commitments, and the resulting provision for credit losses. The provision for credit losses includes the provision for loan losses and a provision for lending-related commitments included in other expenses.
| • | | Reasonable and supportable forecasts – The forecast is determined on a portfolio-by-portfolio basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following: |
| Ø | The forecast for real GDP shifted downward in the fourth quarter, from a projection of 1.20% for 2023 as of mid-September 2022 to 0.50% for 2023 as of mid-December with projections of 1.60% for 2024 and 1.80% for 2025. The unemployment rate forecast shifted slightly upward compared to the third quarter of 2022 with an increasing trend expected throughout 2024 and 2025. |
Allocations are made for specific commercial loans based upon management’s estimate of the borrowers’ ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loss percentages applied to loan pools that have been segregated by risk. Allocations for loans other than commercial loans are made based upon historical loss experience adjusted for current environmental conditions. The allowance for credit losses includes estimated probable inherent but unidentified losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. In addition, a portion of the allowance accounts for the inherent imprecision in the allowance for credit losses analysis.
| Ø | Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period. |
The following table presents the allocation of United’s allowance for credit losses for each of the five years ended December 31:
| | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2022 | | | 2021 | |
| | | (In thousands) | | | | | | | |
Commercial, financial & agricultural | | $ | 56,959 | | | $ | 45,243 | | | $ | 40,274 | | | $ | 39,139 | | | $ | 35,562 | | |
| | | (in thousands) | |
Commercial, financial & agricultural: | | | | | |
Owner-occupied commercial real estate | | | $ | 13,945 | | | $ | 14,443 | |
Nonowner-occupied commercial real estate | | | | 38,543 | | | | 42,156 | |
Other commercial | | | | 79,706 | | | | 78,432 | |
| | | | | | | |
Total commercial, financial & agricultural | | | | 132,194 | | | | 135,031 | |
Residential real estate | | | 9,927 | | | | 13,770 | | | | 15,148 | | | | 13,835 | | | | 16,694 | | | | 36,227 | | | | 26,404 | |
| Construction & land development | | | 7,187 | | | | 10,606 | | | | 18,205 | | | | 19,402 | | | | 18,953 | | | | 48,390 | | | | 39,395 | |
Consumer | | | 2,481 | | | | 2,805 | | | | 1,995 | | | | 3,083 | | | | 2,945 | | |
Allowance for estimated imprecision | | | 73 | | | | 347 | | | | 104 | | | | 70 | | | | 44 | | |
Consumer: | | | | | |
Bankcard | | | | 561 | | | | 317 | |
Other consumer | | | | 17,374 | | | | 14,869 | |
| | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | $ | 76,627 | | | $ | 72,771 | | | $ | 75,726 | | | $ | 75,529 | | | $ | 74,198 | | | $ | 234,746 | | | $ | 216,016 | |
| Reserve for lending-related commitments | | | 679 | | | | 1,044 | | | | 936 | | | | 1,518 | | | | 2,143 | | | | 46,189 | | | | 31,442 | |
| | | | | | | | | | | | | | | | |
| | | | | | | |
Allowance for credit losses | | $ | 77,306 | | | $ | 73,815 | | | $ | 76,662 | | | $ | 77,047 | | | $ | 76,341 | | | $ | 280,935 | | | $ | 247,458 | |
| | | | | | | | | | | | | | | | | | | | | |
The following is a summary of loans and leases outstanding as a percent of totalgross loans at December 31:
| | | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | | 2022 | | 2021 | |
Commercial, financial & agricultural | | | 59.97 | % | | | 58.88 | % | | | 57.82 | % | | | 58.80 | % | | | 58.33 | % | |
Commercial, financial & agricultural: | | | | | |
Owner-occupied commercial real estate | | | | 8.38 | % | | | 9.60 | % |
Nonowner-occupied commercial real estate | | | | 30.55 | % | | | 33.00 | % |
Other commercial | | | | 17.55 | % | | | 19.18 | % |
| | | | | | | |
Total commercial, financial & agricultural | | | | 56.48 | % | | | 61.78 | % |
Residential real estate | | | 23.00 | % | | | 23.24 | % | | | 24.18 | % | | | 24.86 | % | | | 27.17 | % | | | 22.66 | % | | | 20.45 | % |
Construction & land development | | | 11.55 | % | | | 12.14 | % | | | 13.57 | % | | | 12.45 | % | | | 10.00 | % | | | 14.22 | % | | | 11.16 | % |
Consumer | | | 5.48 | % | | | 5.74 | % | | | 4.43 | % | | | 3.89 | % | | | 4.50 | % | |
Consumer: | | | | | |
Bankcard | | | | 0.05 | % | | | 0.05 | % |
Other consumer | | | | 6.59 | % | | | 6.56 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total | | | 100.00 | % | | | 100.00 | % | | | 100.00 | % | | | 100.00 | % | | | 100.00 | % | | | 100.00 | % | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | |
United’s company-wide review of the allowance for loan and lease losses at December 31, 20172022 produced increased allocationsreserves in onethree of the four loan categories.categories as compared to December 31, 2021. The residential real estate reserve increased $9.82 million. The real estate construction and development loan pool reserve increased $8.99 million. The consumer loan pool reserve increased $2.75 million. Each of these increases were primarily due to increased outstanding balances. The allowance related to the commercial, financial & agricultural loan pool allocation increased $11.72 million primarily due to an increase in other commercial loans deemed impaired necessitating specific allowance allocation. Offsetting these increases was adecreased $2.84 million. This decrease in the allocation related to the real estate construction and land development loan pool of $3.42 million due to recognition of losses previously allocated. The residential real estate loan pool allocation decreased $3.84 millionis due to improvement in the Bank’s collateral position for a significant relationship and reduction of impairment allocation required as well as an improvement in historical loss rates. The consumer loan pool also experiencedrates and a decrease of $324 thousand due to an improvement in historical loss rates. In summary, the overall level of the allowanceallocations established for loan losses was relatively stable in comparison toyear-end 2016 as a result of offsetting factors within the portfolio as described above.individually assessed loans.
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An allowance is established for probable creditestimated lifetime losses on impairedfor loans via specific allocations.that are individually assessed. Nonperforming commercial loans and leases are regularly reviewed to identify impairment.expected credit losses. A loan or lease is impairedindividually assessed for expected credit losses when based on current information and events, it is probable that the Company willloan does not be able to collect all amounts contractually due.share similar characteristics with other loans in the portfolio. Measuring impairmentexpected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment isExpected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate the loan’s observable market price or the fair value of collateral if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an impairmentexpected credit loss has occurred. The allowance for impaired loans and leases that were individually assessed was $22.35$1.27 million at December 31, 20172022 and $23.42$6.53 million at December 31, 2016.2021. In comparison to the prioryear-end, this element of the allowance decreased by $1.07$5.26 million primarily due to recognitionrepayment of losses previously allocated within the real estate constructionindividually assessed loans, improved borrowers’ financial conditions such that individual assessments were no longer necessary and development loan pool.improved collateral valuations.
Management believes that the allowance for credit losses of $77.31$280.94 million at December 31, 20172022 is adequate to provide for probableexpected losses on existing loans and lending-related commitments based on information currently available. United’s loan administration policies are focused on the risk characteristics of the loan portfolio in terms of loan approval and credit quality. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses.
The provision for credit losses related to held to maturity securities for the year of 2022 and 2021 was immaterial. The allowance for credit losses related to held to maturity securities was $18 thousand as of December 31, 2022 as compared to $19 thousand as of December 31, 2021. There was no provision for credit losses recorded on available for sale investment securities for the year of 2022 and 2021 and no allowance for credit losses on available for sale investment securities as of December 31, 2022 and 2021. Loan interest payment deferrals granted by United under the CARES Act ended on of January 1, 2022. Therefore, United released all of its remaining $8 thousand in reserves in the year of 2022 related to these loan interest payment deferrals granted under the CARES Act as compared to the release of $242 thousand in the year of 2021. The allowance for accrued interest receivables not expected to be collected as of December 31, 2021 was $8 thousand.
Management is not aware of any potential problem loans or leases, trends or uncertainties, which it reasonably expects, will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits, which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules.
Other Income
Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced.
Noninterest income for the year of 20172022 was $131.65$153.26 million, which was an increasea decrease of $61.61$124.87 million or 87.98%44.90% from the year of 2016.2021. The decrease was due mainly to a decrease in income from mortgage banking activities primarily as a result of lower mortgage loan originations and sales volume driven by a rising interest rate environment and a lower margin on loans sold in the secondary market.
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Income from mortgage banking activities totaled $58.91$42.69 million for the year of 20172022 compared to $3.45$171.69 million for the year of 2016.2021. The increasedecrease of $129.00 million or 75.14% for 2017 is the resultyear of 2022 was due mainly to lower mortgage loan origination and sale volume driven by the acquisition of Cardinalrising rate environment and a lower margin on loans sold in particular, the acquisition of its mortgage banking subsidiary, George Mason.secondary market. Mortgage loan sales were $2.40$2.20 billion in the year of 20172022 as compared to $156.57 million$6.41 billion in the year of 2016.2021. Mortgage loans originated for sale were $1.90 billion for the year of 2022 as compared to $6.19 billion for the year of 2021.
NetUnited recognized a net gain of $776 thousand on investment securities’ activity in 2022 as compared to a net gain of $2.68 million on investment securities activity in 2021. In particular, United recognized a net gain of $1.36 million on an equity security without a readily determinable market value and a $589 thousand net loss on equity securities for the year of 2022 as compared to net gains of $1.55 million on the sales, calls and redemption of available-for-sale securities investment securities, $670 thousand on equity securities and $455 thousand on an equity security without a readily determinable market value for the year of 2021. In addition, United did not recognize any impairment on investment securities for the year of 2017 increased $5.332022 and 2021.
Fees from trust services for the year of 2022 were $17.22 million, an increase of $664 thousand or 4.01% from the year of 20162021 due mainly to a net gainan increase in managed assets.
Fees from brokerage services for the year of $3.772022 were $16.41 million, onan increase of $853 thousand or 5.48% from the redemptionyear of an investment security during the first quarter of 2017.2021 due to increased volume.
Fees from deposit services for the year of 20172022 were $33.62$40.56 million, an increase of $764 thousand$1.87 million or 2.33%4.83% from the year of 2016. In particular, debit2021. Debit card income increased $431$741 thousand and overdraft fees increased $713 thousand. Partially offsetting fees from deposit services was the impact of implemented changes to United’s overdraft increased $244 thousandpolicy during the third quarter of 2022.
Bankcard fees for the year of 2017.
Partially offsetting these increases2022 increased $1.10 million or 19.96% from the year of 2021 due mainly to noninterest income was a declinean increase in interchange income from bank-owned life insurance policies. increased volume.
Income from bank-owned life insurance (“BOLI”) for the year of 2017 decreased $684 thousand2022 increased $2.35 million or 11.81%34.33% from the year of 2016. This decrease was2021 due to an increase of $2.64 million in death benefits recordedand the addition of $30.64 million in BOLI from the third quarter of 2016.Community Bankers Trust acquisition.
Other miscellaneous income decreased $700 thousand or 8.71% mainly due to an decrease in prepayment fees received on Delegated Underwriting and Servicing (“DUS”) securities.
Other Expense
Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expense includes all items of expense other than interest expense, the provision for credit losses and income tax expense. Noninterest expense for the year of 20172022 was $367.41$555.09 million, an increasewhich was a decrease of $119.21$26.89 million or 48.03%4.62% from the year of 2016. Generally, the increase was primarily due to increased general operating and merger-related expenses as a result of the Cardinal acquisition.2021.
Employee compensation for the year of 2017 increased $70.972022 decreased $37.56 million or 76.08%13.42% from the year of 2016. Merger severance charges of $12.78 million from the Cardinal acquisition were included in the year of 2017 as compared to $670 thousand in the year of 2016 from the Bank of Georgetown acquisition. Otherwise, base salaries2021. The decrease for the year of 2017 increased $27.88 million or 34.48% from the same time period in 20162022 was due mainly to lower employee commissions, incentives and overtime related to a decline in mortgage banking production partially offset by additional employees from the CardinalCommunity Bankers Trust acquisition. The remainder of the increase in employee compensation for the year of 2017 was due mainly to higher employee incentives and commissions expense mainly related to the mortgage banking production of George Mason.
Employee benefits expense for the year of 2017 increased $8.182022 decreased $7.93 million or 28.23%14.71% as compared to the year of 2016. This increase was due in large part to additional health insurance expense of $4.27 million from last year due to higher premiums and additional employees from the Cardinal acquisition. In addition, Federal Insurance Contributions Act (FICA) expense for2021. For the year of 2017 increased $3.692022, postretirement expense, which includes expense associated with United’s pension plan, supplemental early retirement plans (“SERPs”) and Savings and Stock Investment Plan (“401K plan”), decreased $8.25 million from the year of 2016 due mainly to the additional employees from the Cardinal acquisition. Expense related to United’s Stock and Investment Plan increased $1.13 million there again due to additional employees from the Cardinal acquisition. Pension expense decreased $1.86 million.2021. United uses certain valuation methodologies to measure the fair value of the assets within United’s pension plan which are presented in Note N,P, Notes to Consolidated Financial Statements. The funded status of United’s pension plan is based upon the fair value of the plan assets compared to the projected benefit obligation. The determination of the projected benefit obligation and the associated periodic benefit expense involves significant judgment and estimation of future employee compensation levels, the discount rate and the expected long-term rate of return on plan assets. If United assumes a 1% increase or decrease in the estimation of future employee compensation levels while
58
keeping all other assumptions constant, the benefit cost associated with the pension plan would increase by approximately $656$909 thousand and decrease by approximately $609$849 thousand, respectively. If United assumes a 1% increase or decrease in the discount rate while keeping all other assumptions constant, the benefit cost associated with the pension plan would decrease by approximately $1.75$3.15 million and increase by approximately $2.10$3.61 million, respectively. If United assumes a 1% increase or decrease in the expected long-term rate of return on plan assets while keeping all other assumptions constant, the benefit cost associated with the pension plan would decrease by approximately $1.22 million and increase by approximately $1.22$2.07 million, respectively.
Net occupancy expense increased $11.54$3.10 million or 41.91%7.36% for the year of 20172022 as compared to the prior year. The increase was due mainly to additionalincreases of $1.17 million in building rentalmaintenance expense fromand $998 thousand in depreciation due mainly to the offices added in the Cardinal acquisition. IncludedCommunity Bankers Trust acquisition partially offset by a decline of $479 thousand in net occupancybuilding rental expense due to the closing of certain leased offices.
OREO expense for the year of 2017 were charges2022 decreased $3.23 million or 60.19% from the year of $5.932021 due mainly to fewer declines in the fair value of OREO properties.
Equipment expense increased $3.34 million or 12.86% for the terminationyear of leases and the reduction in the value of leasehold improvements for closed offices in the Cardinal acquisition2022 as compared to chargesthe year of $1.582021. The increase was due mainly to higher maintenance costs of $2.32 million and depreciation expense of $684 thousand primarily due to the Community Bankers Trust acquisition.
Data processing expense decreased $1.45 million or 4.61% for the year of 2022 as compared to the year of 2021. The decrease for year of 2022 was due to $3.47 million of merger conversion and Community Bankers Trust contract termination costs included in the year of 2016 for the termination of leases for closed offices in the Bank of Georgetown acquisition.2021.
Data processingMortgage loan servicing expense increased $5.74 million or 37.56%and impairment for the year of 2017 as compared to the prior year due to additional processing as a result of the Cardinal acquisition. In addition, the results for2022 decreased $5.15 million from the year of 2017 included a penalty2021. The decrease was due to the recovery of $525 thousand for the terminationpast temporary impairment and lower amortization expense of Cardinal’s data processing contract.mortgage servicing rights.
Federal Deposit Insurance Corporation (FDIC) insurance(“FDIC”) expense for the year of 2017 decreased $1.502022 increased $3.64 million or 17.51%43.64% from the year of 20162021 due to lower premiums.a higher assessment base.
Other expense for the year of 20172022 increased $22.16$17.48 million or 37.95%14.46% from the year of 2016. Included2021. The increase in other noninterest expense mainly resulted from higher amounts of certain general operating expenses primarily related to consulting and legal costs. Additionally, the expense for the year of 2017 were merger-related expenses of $7.61reserve for unfunded loan commitments increased $2.71 million as compared to merger-related expenses of $3.30and charitable contributions increased $1.41 million forfrom the year of 2016. Amortization of core deposit intangibles increased $3.83 million for the year of 2017 as compared to the same period in 2016 due to the additional core deposit intangibles added in the Cardinal acquisition. Business and occupation (B&O) taxes increased $4.81 million for the year of 2017 as compared to the year of 2016. Several other general operating expenses such as telephone, insurance and office supplies expense increased as a result of the Cardinal acquisition.2021.
Income Taxes
For the year ended December 31, 2017,2022, income taxes were $134.25$96.16 million, compared to $75.58$95.12 million for 2016.2021, an increase of $1.04 million or 1.09%. The increase was mainly due to the previously mentioned additional incomehigher earnings partially offset by a slightly lower effective tax expense of $37.73 million related to the estimated impact of the remeasurement of deferred tax assets and liabilities at the lower rate as a result of the Tax Act and to higher earnings. Income before income taxes for the year of 2017 increased $62.17 million or 27.92% from the year of 2016.rate. United’s effective tax rate was approximately 47.1%20.2% and 33.9%20.6% for years ended December 31, 20172022 and 2016,2021, respectively, as compared to 32.2%19.7% for 2015.2020. For further details related to income taxes, see Note M,O, Notes to Consolidated Financial Statements.
Quarterly Results
Net income for the first three monthsquarter of 20172022 was $38.81$81.66 million or $0.48 per diluted shareas compared to $34.71earnings of $106.90 million or $0.50 per share for the first three monthsquarter of 2016. The decrease in earnings per share was2021. Earnings for the first quarter of 2022, as compared to the first quarter of 2021, decreased primarily due to lower income from mortgage banking activities mainly as a result of 4,330,000 common shares issued in a $199.9 million public offering completed in December of 2016.the rising rate environment partially offset by lower noninterest expense associated with decreased mortgage banking production. Net interest income for the first three monthsquarter of 20172022 was $107.62relatively flat from the first quarter of 2021, increasing $542 thousand, or less than 1%, to $191.50 million which was an increase of $9.34 million or 9.50% from net interest income of $98.28$190.96 million for the first three months of 2016.2021. The slight increase of $542 thousand in net interest income occurred because total interest income decreased $2.86 million while total interest expense decreased $3.40 million from the first quarter of 2021. The provision for credit losses was a net benefit of $3.41 million for the first quarter of 2022
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as compared to a provision for credit losses expense of $143 thousand for the first quarter of 2021. The decrease in the provision for credit losses was mainly due to the impact of better performance trends within the loan portfolio. Noninterest income was $46.02 million for the first three months of 2022, a decrease of $46.55 million or 50.28% from the first three months of 2021 due mainly to decreased income from mortgage banking activities due to a lower volume of mortgage loan originations and sales in the secondary market mainly the result of a rising interest rate environment. Noninterest expense for the first three months of 2022 decreased $9.75 million or 6.55% from the first three months of 2021 due mainly to lower employee compensation expense as a result of lower employee commissions, incentives and overtime related to mortgage banking production and lower OREO expense due to fewer declines in the fair value of OREO properties. Income taxes decreased $7.47 million or 27.09% for the first three months of 2022 as compared to the first three months of 2021 primarily due to lower earnings and a lower effective tax rate. The effective tax rate was 19.75% and 20.50% for the first quarter of 2022 and 2021, respectively.
Net income for the second quarter of 2022 was $95.61 million or $0.71 per diluted share, as compared to $94.84 million or $0.73 per diluted share for the prior year second quarter. Net interest income for the second quarter of 2022 was $214.90 million, which was an increase of $28.39 million or 15.22% from the second quarter of 2021. The $28.39 million increase in net interest income occurred because total interest income increased $12.26$27.59 million while total interest expense only increased $2.93 milliondecreased $801 thousand from the firstsecond quarter of 2016. The2021. United’s provision for loancredit losses was $5.90a net benefit of $1.81 million for the first three monthssecond quarter of 20172022 while the provision for credit losses was a net benefit of $8.88 million for the second quarter of 2021. The lower net benefit amount for 2022 compared to 2021 was mainly due to an increase in total loans outstanding. For the second quarter of 2022, noninterest income was $43.61 million, which was a decrease of $19.26 million or 30.63% from the second quarter of 2021. The decrease in noninterest income were primarily due to decreased income from mortgage banking activities due to a lower volume of mortgage loan originations and sales in the secondary market mainly the result of a rising interest rate environment. For the second quarter of 2022, noninterest expense increased $2.21 million or 1.59% from the second quarter of 2021 due mainly to an increase in the expense for the reserve for unfunded loan commitments as well as higher amounts of certain general operating expenses. Income taxes for the second quarter of 2022 were $23.53 million as compared to $4.04$24.46 million for the first three months of 2016. Noninterest income was $20.15 million for the first three months of 2017, up $3.75 million or 22.90% when compared to the first three months of 2016. Included in the results for the firstsecond quarter of 20172021. For the quarters ended June 30, 2022 and June 30, 2021, United’s effective tax rate was a net gain of $3.77 million on the redemption of an investment security. Noninterest expense for the first three months of 2017 increased $4.79 million or 8.24% from the first three months of 2016. The first quarter of 2017 included $1.23 million of merger expenses related to the acquisition of Cardinal. Income taxes increased $2.34 million or 13.07% for the first three months of 2017 as compared to the first three months of 2016.19.75% and 20.50%, respectively.
Net income for the secondthird quarter of 20172022 was $37.06$102.59 million or $0.37$0.76 per diluted share, as compared to $31.79$92.15 million or $0.44$0.71 per diluted share for the prior year secondthird quarter. The second quarter of 2017 included $23.22 million and of merger-related expenses from the Cardinal acquisition and the second quarter of 2016 included $4.47 million of merger-related expenses from the Bank of Georgetown acquisition. Net interest income for the secondthird quarter of 20172022 was $136.25$240.62 million, which was an increase of $33.52$59.04 million or 32.63%32.52% from the secondthird quarter of 2016.2021. The $59.04 million increase in net interest income occurred because total interest income increased $41.86$69.60 million while total interest expense only increased $8.34$10.56 million from the secondthird quarter of 2016.2021. The provision for credit losses was $8.25 million for the second quarter of 2017 as compared to $7.67 million for the secondthird quarter of 2016.2022 while the provision for credit losses was a net benefit of $7.83 million for the third quarter of 2021. For the secondthird quarter of 2017,2022, noninterest income was $40.51$32.75 million, which was a decrease of $35.88 million or 52.28% from the third quarter of 2021 primarily due to decreased income from mortgage banking activities due to a lower volume of mortgage loan originations and sales in the secondary market mainly the result of a rising interest rate environment. For the third quarter of 2022, noninterest expense decreased $5.08 million or 3.58% from the third quarter of 2021 due mainly to lower employee compensation expense as a result of lower employee commissions, incentives and overtime related to mortgage banking production. Income tax expense for the third quarter of 2022 was $25.92 million as compared to $23.60 million for the third quarter of 2021 primarily due to higher earnings partially offset by a slightly lower effective tax rate. United’s effective tax rate was 20.17% and 20.39% for the third quarter of 2022 and 2021, respectively.
Net income for the fourth quarter of 2022 was $99.77 million or $0.74 per diluted share as compared to earnings of $73.85 million or $0.56 per diluted share for the fourth quarter of 2021. Net interest income for the fourth quarter of 2022 was $249.40 million, which was an increase of $22.54$65.73 million or 125.45%35.78% from the secondfourth quarter of 2016. This2021. The $65.73 million increase in net interest income occurred because total interest income increased $112.55 million while total interest expense increased $46.82 million from 2016the fourth quarter of 2021. The provision for credit losses was mainly$16.37 million for the fourth quarter of 2022 as compared to a net benefit of $7.41 million for the fourth quarter of 2021. The increase in the provision for credit losses was primarily due to additionalloan growth and the impact of reasonable and supportable forecasts of future macroeconomic conditions. Partially offsetting the fourth quarter of 2021 net benefit was a provision for loan losses of $12.29 million recorded on purchased non-credit deteriorated (“non-PCD”) loans from Community Bankers Trust. Noninterest income for the fourth quarter of 2022 was $30.88 million, which was a decrease of $23.17 million, or 42.87%
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from the fourth quarter of 2021. The decrease in noninterest income was driven primarily by a $22.72 million decrease in income from mortgage banking activities asmainly due to lower mortgage loan origination and sale volume and a resultlower margin on loans sold in the secondary market. Noninterest expense for the fourth quarter of 2022 was $137.54 million, a decrease of $14.25 million, or 9.39%, from the Cardinalfourth quarter of 2021 primarily due to decreases of $14.01 million in employee compensation and $3.39 million in data processing expense. The decrease in employee compensation was primarily due to lower employee commissions and incentives related to mortgage banking production and the impact of $2.53 million of merger-related expenses recognized in the fourth quarter of 2021. Data processing expense for the fourth quarter of 2021 included $3.47 million of merger-related expenses associated with the Community Bankers Trust acquisition. For the secondfourth quarter of 2017, noninterest2022, income tax expense increased $47.28 million or 72.90% from the second quarter of 2016. This increase from 2016 was due mainly to the Cardinal acquisition. Income taxes for the second quarter of 2017 were $19.30$26.61 million as compared to $16.38$19.49 million for the secondfourth quarter of 2016. This2021. The increase for 2017 wereof $7.12 million was primarily due to higher earnings and a slightly higher effective tax rate.
Net income for the third quarter of 2017 United’s effective tax rate was $56.74 million or $0.54 per diluted share, as compared to $41.48 million or $0.54 per diluted share for the prior year third quarter. The third quarter of 2017 included $532 thousand of merger-related expenses from the Cardinal acquisition and the third quarter of 2016 included $924 thousand of merger-related expenses from the Bank of Georgetown acquisition. Net interest income for the third quarter of 2017 was $150.28 million, an increase of $39.21 million or 35.30% from the third quarter of 2016. The increase in net interest income occurred because total interest income increased $48.45 million while total interest expense only increased $9.24 million from the third quarter of 2016. The provision for credit losses was $7.28 million for the third quarter of 2017, as compared to $6.99 million for the third quarter of 2016. For the third quarter of 2017, noninterest income was $38.23 million, which was an increase of $19.21 million or 100.98% from the third quarter of 2016. This increase from 2016 was mainly due to additional income from mortgage banking activities as a result of the Cardinal acquisition. For the third quarter of 2017, noninterest expense increased $33.88 million or 53.96% from the third quarter of 2016. This increase from 2016 was due mainly to the Cardinal acquisition. Income taxes for the third quarter of 2017 were $27.84 million as compared to $18.85 million for the third quarter of 2016.
Net income21.06% for the fourth quarter of 2017 were $17.98 million or $0.17 per diluted share as compared to earnings of $39.11 million or $0.51 per diluted share2022 and 20.88% for the fourth quarter of 2016. The results for the fourth quarter of 2017 included additional income tax expense of $37.73 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).Tax-equivalent net interest income for the fourth quarter of 2017 was $157.12 million, an increase of $42.31 million or 36.85% from the fourth quarter of 2016 due mainly to an increase in average earning assets from the Cardinal acquisition. For the quarters ended December 31, 2017 and 2016, the provision for
loan losses was $6.98 million and $5.82 million. Noninterest income for the fourth quarter of 2017 was $32.76 million, which was an increase of $16.11 million or 96.76% from the fourth quarter of 2016. The increase was due mainly to an increase of $14.36 million in income from mortgage banking activities due to increased production and sales of mortgage loans in the secondary market. Noninterest expense for the fourth quarter of 2017 was $95.78 million, an increase of $33.27 million or 53.23% from the fourth quarter of 2016 due mainly to the Cardinal acquisition as most major categories of noninterest expense showed increases. In particular, employee compensation increased $16.85 million, employee benefits increased $2.19 million, net occupancy expenses increased $2.42 million, and data processing expense increased $1.77 million. In addition, within other expense, merger-related expenses increased $1.26 million and amortization of core deposit intangibles increased $1.23 million. For the fourth quarter of 2017, income tax expense was $66.89 million, an increase of $44.42 million from the fourth quarter of 2016 mainly due to the previously mentioned additional income tax expense of $37.73 million related to the estimated impact of the Tax Act and to higher earnings.2021.
Additional quarterly financial data for 20172022 and 20162021 may be found in Note X,Z, Notes to Consolidated Financial Statements.
The Effect of Inflation
United’s income statements generally reflect the effects of inflation. Since interest rates, loan demand and deposit levels are impacted by inflation, the resulting changes in the interest-sensitive assets and liabilities are included in net interest income. Similarly, operating expenses such as salaries, rents and maintenance include changing prices resulting from inflation. One item that would not reflect inflationary changes is depreciation expense. Subsequent to the acquisition of depreciable assets, inflation causes price levels to rise; therefore, historically presented dollar values do not reflect this inflationary condition. With inflation levels at relatively low levelsInflationary pressure on consumers and monetaryuncertainty regarding the economy could result in changes in consumer and fiscal policies being implemented to keepbusiness spending, borrowing and savings habits. Such conditions could have a material adverse effect on the inflation rate increases within an acceptable range, management expectscredit quality of our loans and our business, financial condition and results of operations. Management will monitor the impact of inflation would continue to be minimal in the near future.as conditions warrant.
The Effect of Regulatory Policies and Economic Conditions
United’s business and earnings are affected by the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities. The Federal Reserve Board regulates the supply of money in order to influence general economic conditions. Among the instruments of monetary policy available to the Federal Reserve Board are (i) conducting open market operations in United States government obligations, (ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing reserve requirements against financial institution deposits, and (iv) restricting certain borrowings and imposing or changing reserve requirements against certain borrowings by financial institutions and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits.
United’s business and earnings are also affected by general and local economic conditions. In 2014, certainCertain credit markets experiencedcan experience difficult conditions and volatility. Downturns in the credit market can cause a decline in the value of certain loans and securities, a reduction in liquidity and a tightening of credit. A downturn in the credit market often signals a weakening economy that can cause job losses and thus distress on borrowers and their ability to repay loans. Uncertainties in credit markets and the economy present significant challenges for the financial services industry.
Regulatory policies and economic conditions have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future; however, United cannot accurately predict the nature, timing or extent of any effect such policies or economic conditions may have on its future business and earnings.
Contractual Obligations, Commitments, Contingent Liabilities andOff-Balance Sheet Arrangements
United has various financial obligations, including contractual obligationsLiquidity and commitments, that may require future cash payments. The table below presents, by payment date, significant known contractual obligations to third parties as of December 31, 2017:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Total Payments Due by Period | |
| (In thousands) | | | | | One Year | | | One to | | | Three to | | | Over Five | |
| | | Total | | | or Less | | | Three Years | | | Five Years | | | Years | |
Deposits without a stated maturity (1) | | $ | 11,242,020 | | | $ | 11,242,020 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Time deposits (2) (3) | | | 2,622,199 | | | | 1,742,845 | | | | 658,230 | | | | 221,044 | | | | 80 | |
Short-term borrowings (2) | | | 477,601 | | | | 477,601 | | | | 0 | | | | 0 | | | | 0 | |
Long-term borrowings (2) (3) | | | 1,548,012 | | | | 815,721 | | | | 256,338 | | | | 94,928 | | | | 381,025 | |
Operating leases | | | 69,844 | | | | 14,753 | | | | 24,366 | | | | 15,929 | | | | 14,796 | |
| | | | | | | | | | |
(1) Excludes interest.
(2) Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based upon interest rates in effect at December 31, 2017. The interest to be paid on variable rate obligations is affected by changes in market interest rates, which materially affect the contractual obligation amounts to be paid.
(3) Excludes carrying value adjustments such as unamortized premiums or discounts.
|
As of December 31, 2017, United recorded a liability for uncertain tax positions, including interest and penalties, of $3.37 million. This liability represents an estimate of tax positions that United has taken in its tax returns which may ultimately not be sustained upon examination by tax authorities. Since the ultimate amount and timing of any future cash settlements cannot be predicted with reasonable certainty, this estimated liability is excluded from the contractual obligations table.
United also enters into derivative contracts, mainly to protect against adverse interest rate movements on the value of certain assets or liabilities, under which it is required to either pay cash to or receive cash from counterparties depending on changes in interest rates. Derivative contracts are carried at fair value and not notional value on the consolidated balance sheet. Because the derivative contracts recorded on the balance sheet at December 31, 2017 do not represent the amounts that may ultimately be paid under these contracts, they are excluded from the preceding table. Further discussion of derivative instruments is included in Note Q, Notes to Consolidated Financial Statements.
United is a party to financial instruments withoff-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does foron-balance sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The following table details the amounts of significant commitments and letters of credit as of December 31, 2017:
| | | | |
| (In thousands) | | Amount | |
Commitments to extend credit: | | | | |
| |
Revolvingopen-end secured by1-4 residential | | $ | 646,283 | |
| |
Credit card and personal revolving lines | | | 164,733 | |
| |
Commercial | | | 3,413,703 | |
| | | | |
Total unused commitments | | $ | 4,224,719 | |
| | | | |
Financial standby letters of credit | | $ | 67,693 | |
Performance standby letters of credit | | | 79,324 | |
| | | | |
Total letters of credit | | $ | 147,017 | |
| | | | |
Commitments generally have fixed expiration dates or other termination clauses, generally within one year, and may require the payment of a fee. Further discussion of commitments is included in Note P, Notes to Consolidated Financial Statements.
LiquidityCapital Resources
In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United
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is “core deposits.”deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable, and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds thatwhich are obtained as the result of a competitive bidding process.
Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet theday-to-day demands of customers and United’s cash needs. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity.
The goal of liquidity management is to ensure the ability to access funding thatwhich enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring fundsfunds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowings,borrowing and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market.
Short-term needs can be met through a wide array of outside sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances.
Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, borrowings that are secured by bank premises or stock of United’s subsidiaries and issuances of trust preferred securities. In the normal course of business, United through its Asset Liability Committee evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs. See Notes JL and K,M, Notes to Consolidated Financial Statements.
Cash flows provided by operations in 20172022 were $253.93$760.82 million due mainly to net income of $150.58$379.63 million for the year of 2017.2022. In 2016,2021, cash flows provided by operations were $170.73$609.54 million due mainly to net income of $147.08$367.74 million for the year of 2016.2021. In 2017,2022, net cash of $266.68$3.45 billion was used in investing activities which was primarily due to net loan growth of $2.37 billion and net purchases of $1.09 billion of investment securities over proceeds from sales of investment securities. In 2021, net cash of $15.65 million was provided by investing activities which was primarily due to net loan repayments of $496.03$882.15 million in loans and net cash of $39.42 million acquired in the Cardinal acquisitionCommunity Bankers Trust merger partially offset by $813.94 million of $44.53 million. Partially offsetting this increase was net purchases of $233.35investment securities over proceeds from sales of investment securities and the purchase of $85.00 million in investment securities. In 2016, net cash of $30.96 million was provided by investing activities which was primarily due to net cash acquired in the Bank of Georgetown acquisition of $29.33 million.bank-owned life insurance policies. During the year of 2017,2022, net cash of $288.97 million was used in financing activities due primarily to a decline in deposits of $313.84 million and the payment of cash dividends in the amount of $121.35 million. Partially offsetting these decreases was the net repayment of $30.21 million in long-term borrowings. During the year of 2016, net cash of $375.50$105.32 million was provided by financing activities due primarily to net advances of $1.38 billion from long-term FHLB borrowings partially offset by a decline of $1.04 billion in deposits. Other uses of cash within funding activities for the year of 2022 were $193.04 million for cash dividends paid and $79.46 million for the acquisition of treasury stock. During the year of 2021, net cash of $923.91 million was provided by financing activities due primarily to net growth of $1.25 billion in depositsdeposits. This source of $483.77 million and cash proceeds of $199.92 million from the issuance of common stock in a public offering. Partially offsetting this increasefunding activities was thepartially offset by net repayment of $294.50$40.21 million in short-term borrowings, net repayment of $97.79 million in long-term FHLB advances and the payment of cash dividends in the amountpaid of $96.35$181.28 million for the year of 2016.2021. The net effect of the cash flow activities was an increasea decrease in cash and cash equivalents of $231.64 million$2.58 billion for the year of 20172022 as compared to an increase in cash and cash equivalents of $577.19 million$1.55 billion for the year of 2016.2021. See the Consolidated Statement of Cash Flows in the Consolidated Financial Statements.
United enters into derivative contracts, mainly to protect against adverse interest rate movements on the value of certain assets or liabilities, under which it is required to either pay cash to or receive cash from counterparties depending on changes in interest rates. Derivative contracts are carried at fair value and not notional value on the consolidated balance sheet and therefore do not represent the amounts that may ultimately be paid under these contracts. Further discussion of derivative instruments is included in Note S, Notes to Consolidated Financial Statements.
United is also a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
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The following table details the amounts of significant commitments and letters of credit as of December 31, 2022:
| | | | |
| (In thousands) | | Amount | |
Commitments to extend credit: | | | | |
Revolving open-end secured by 1-4 residential | | $ | 853,539 | |
Credit card and personal revolving lines | | | 219,446 | |
Commercial | | | 6,177,170 | |
| | | | |
Total unused commitments | | $ | 7,250,155 | |
| | | | |
Financial standby letters of credit | | $ | 57,782 | |
Performance standby letters of credit | | | 89,729 | |
Commercial letters of credit | | | 16,389 | |
| | | | |
Total letters of credit | | $ | 163,900 | |
| | | | |
Commitments generally have fixed expiration dates or other termination clauses, generally within one year, and may require the payment of a fee. Further discussion of commitments is included in Note R, Notes to Consolidated Financial Statements.
United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United’s liquidity increasing or decreasing in any material way. United also has lines of credit available. See Notes JL and K,M to the accompanying unaudited Notes to Consolidated Financial Statements for more detaildetails regarding the amounts available to United under its lines of credit.
The Asset Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset and Liability Committee.
Capital Resources
United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is considered to be well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 14.22%14.37% at December 31, 20172022 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 11.95%12.30%, 11.95%12.30% and 10.08%10.79%, respectively. The December 31, 2022 ratios reflects United’s election of a five-year transition provision, allowed by the Federal Reserve Board and other federal banking agencies in response to the COVID-19 pandemic, to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. 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%. See Note T, Notes to Consolidated Financial Statements.
Total shareholders’ equity was $3.24$4.52 billion at December 31, 2017, increasing $1.00 billion2022, which was a decrease of $202.44 million or 44.94%4.29% from December 31, 20162021. This decrease is primarily due to a decrease of $327.84 million in accumulated other comprehensive income due mainly to an after-tax decrease in the Cardinal acquisition.fair value of available for sale securities as a result of a rising interest rate environment. In addition, treasury stock increased $79.79 million or 46.76% due to the repurchase of 2,259,546 shares of United common stock under stock repurchase plans approved by United’s Board of Directors. Partially offsetting these decreases was an increase of $184.65 million in retained earnings (net income less dividends declared).
United’s equity to assets ratio was 17.00%15.31% at December 31, 20172022 as compared to 15.41%16.09% at December 31, 2016.2021. The primary capital ratio, capital and reserves to total assets and reserves, was 17.34%16.11% at December 31, 20172022 as compared to 15.84%16.79% at December 31, 2016.2021. United’s average equity to average asset ratio was 16.80% and 14.34% for the years ended15.83% at December 31, 2017 and 2016, respectively.2022 as compared to 16.26% at December 31, 2021. All of these financial measurements reflect a financially sound position.
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During the fourth quarter of 2017,2022, United’s Board of Directors declared a cash dividend of $0.34$0.36 per share. Dividends per share of $1.33$1.44 for the year of 20172022 represented an increase over the $1.32$1.41 per share paid for 2016.2021. Total cash dividends declared to common shareholders were approximately $131.76$194.98 million for the year of 20172022 as compared to $98.70$182.36 million for the year of 2016.2021. The year 20172022 was the forty-fourthforty-nineth consecutive year of dividend increases to United shareholders.
The following table shows selected consolidated operating and capital ratios for each of the last three years ended December 31:
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Return on average assets | | | 0.85 | % | | | 1.10 | % | | | 1.12 | % |
Return on average equity | | | 5.09 | % | | | 7.67 | % | | | 8.10 | % |
Dividend payout ratio | | | 87.50 | % | | | 67.10 | % | | | 65.00 | % |
Average equity to average assets ratio | | | 16.80 | % | | | 14.34 | % | | | 13.88 | % |
2016 COMPARED TO 2015
FINANCIAL CONDITION SUMMARY
United’s total assets as of December 31, 2016 were $14.51 billion which was an increase of $1.93 billion or 15.35% from December 31, 2015, primarily the result of the acquisition of Bank of Georgetown on June 3, 2016. Portfolio loans increased $957.06 million or 10.20%, cash and cash equivalents increased $577.19 million or 67.32%, investment securities increased $199.46 million or 16.56%, goodwill increased $153.52 million or 21.61%, other assets increased $36.59 million or 9.67%, bank premises and equipment increased $2.82 million or 3.86% and interest receivable increased $3.60 million or 10.05% due primarily to the Bank of Georgetown merger.
Portfolio loans, net of unearned income, increased $957.06 million or 10.20% fromyear-end 2015 mainly as a result of the Bank of Georgetown acquisition which added $968.20 million, including purchase accounting amounts, in portfolio loans. Sinceyear-end 2015, commercial, financial and agricultural loans increased $662.44 million or 12.21% as commercial real estate loans increased $651.23 million and commercial loans (not secured by real estate) increased $11.22 million. In addition, residential real estate loans and other consumer loans increased $134.75 million or 5.94% and $177.89 million or 41.29%, respectively, while construction and land development loans decreased $17.32 million or 1.36%. The increases were due primarily to the Bank of Georgetown acquisition. Otherwise, portfolio loans, net of unearned income, grew organically $17.26 million fromyear-end 2015.
Investment securities at December 31, 2016 increased $199.46 million or 16.56% fromyear-end 2015. Bank of Georgetown added $219.78 million in investment securities, including purchase accounting amounts, upon consummation of the acquisition. Securities available for sale increased $192.88 million or 18.09%. This change in securities available for sale reflects $215.06 million acquired from Bank of Georgetown, $513.74 million in sales, maturities and calls of securities,
$504.98 million in purchases, and a decrease of $12.42 million in market value. Securities held to maturity decreased $5.84 million or 14.94% fromyear-end 2015 due to calls and maturities of securities. Other investment securities increased $12.42 million or 12.57% fromyear-end 2015. Bank of Georgetown added $4.72 million in other investment securities. Otherwise, Federal Reserve Bank (FRB) stock increased $7.94 million and FHLB stock decreased $1.05 million.
Other assets increased $36.59 million or 9.67% fromyear-end 2015. The cash surrender value of bank-owned life insurance policies increased $16.29 million, of which $13.03 million was acquired from Bank of Georgetown while the remaining increase was due to an increase in the cash surrender value. The remainder of the increase in other assets is the result of an increase of $10.81 million in deferred tax assets and an increase of $5.11 million in core deposit intangibles. Partially offsetting these increases in other assets is a decrease of $1.30 million in income tax receivable.
Total liabilities increased $1.41 billion or 12.96% fromyear-end 2015. This increase in total liabilities was due mainly to an increase of $1.46 billion or 15.58% in deposits, mainly due to the Bank of Georgetown acquisition. Partially offsetting these increases in liabilities, is a $56.70 million decrease in borrowings. Shareholders’ equity increased $523.11 million or 30.54% fromyear-end 2015 due primarily to the acquisition of Bank of Georgetown, a common stock offering, and earnings less dividends paid for the year of 2016.
The increase in noninterest-bearing deposits was due mainly to increases in commercial noninterest-bearing deposits of $423.39 million or 21.11%, personal noninterest-bearing deposits of $53.10 million or 10.18% and noninterest-bearing public funds of $12.26 million or 13.82% as a result of the Bank of Georgetown acquisition.
All major categories of interest-bearing deposits except time deposits under $100,000 increased fromyear-end 2015 as the result of the Bank of Georgetown acquisition. Interest-bearing checking accounts increased $94.84 million or 5.63% mainly due to a $73.72 million increase in commercial interest-bearing checking accounts and a $15.67 million increase in public interest-bearing checking accounts. In addition, personal interest-bearing checking accounts increased $5.45 million. Interest-bearing MMDAs increased $783.33 million or 33.10% as commercial MMDAs increased $486.58 million or 35.95% and personal MMDAs increased $178.85 million or 18.18%. In addition, public MMDAs increased $62.14 million and brokered MMDAs increased $56.26 million. Time deposits over $100,000 increased $177.06 million or 16.04% due to brokered deposits increasing $95.49 million, as a result of the Bank of Georgetown acquisition. In addition, Certificate of Deposit Account Registry Service (CDARS) deposits increased $82.25 million, which was partially offset by fixed rate and variable rate certificates of deposits (CDs) over $100,000 decreasing $46.39 million and $11.48 million, respectively. Regular savings increased $29.15 million or 4.21%. Time deposits under $100,000 decreased $101.42 million or 12.77%. This decrease in time deposits under $100,000 is the result of a $102.18 million decrease in fixed rate CDs and a $10.64 million decrease in variable rate CDs due to a low interest rate environment and rate competition.
Sinceyear-end 2015, short-term borrowings decreased $213.48 million or 50.46% due to decreases of $110 million and $103.48 million in short-term FHLB advances and short-term securities sold under agreements to repurchase, respectively. Long-term borrowings increased $156.78 million or 15.44% sinceyear-end 2015 as long-term FHLB advances increased $156.83 million. Bank of Georgetown added $67.66 million in long-term borrowings, including purchase accounting amounts. Accrued expenses and other liabilities at December 31, 2016 increased $9.09 million or 10.75% fromyear-end 2015. In particular, the pension liability increased $3.15 million, dividends payable increased $2.35 million, deferred compensation increased $2.22 million, and incentives payables increased $1.10 million. Partially offsetting these increases in accrued expenses and other liabilities was a decrease of $1.52 million in derivative liabilities.
Shareholders’ equity at December 31, 2016 increased $523.11 million or 30.54% from December 31, 2015 mainly as a result of the Bank of Georgetown acquisition. The Bank of Georgetown transaction added approximately $264.51 million as 6,527,746 shares were issued from United’s authorized but unissued shares for the merger at a cost of approximately $253.80 million. In addition, a common stock offering in the fourth quarter of 2016 added approximately $199.92 million as 4,330,000 shares were issued from United’s authorized but unissued shares. Earnings net of dividends for the year of 2016 were $48.39 million. Accumulated other comprehensive income decreased $6.51 million or 17.02%. United’s available for sale investment portfolio, net of deferred income taxes, decreased $8.23 million. Theafter-tax pension accounting adjustment atyear-end 2016 resulted in a decline of $1.84 million. Partially offsetting these decreases to accumulated other comprehensive income was theafter-tax accretion of pension costs of $3.11 million for the year of 2016.
EARNINGS SUMMARY
Net income for the year 2016 was $147.08 million or $1.99 per diluted share compared to $137.96 million or $1.98 per diluted share for the year of 2015. United’s return on average assets for the year of 2016 was 1.10% and return on average shareholders’ equity was 7.67% as compared to 1.12% and 8.10% for the year of 2015. 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 0.90% and 7.96%, respectively, for the first nine months of 2016. As previously mentioned, United completed its acquisition of Bank of Georgetown after the close of business on June 3, 2016. The financial results of Bank of Georgetown are included in United’s results from the acquisition date. As a result, the year of 2016 was impacted by increased levels of average balances, income, and expense as compared to the year of 2015 due to the acquisition. In addition, the year of 2016 included $6.13 million of merger and acquisition expenses related to the Bank of Georgetown acquisition and the planned merger with Cardinal Financial Corporation.
Net interest income for the year of 2016 was $425.33 million, an increase of $41.21 million or 10.73% from the prior year. The increase in net interest income occurred because total interest income increased $46.71 million while total interest expense only increased $5.50 million from the year of 2015.
The provision for credit losses was $24.51 million for the year 2016 as compared to $22.57 million for the year of 2015. Noninterest income was $70.03 million for the year of 2016, down $3.59 million or 4.88% when compared to the year of 2015 due mainly to the effect of Durbin Amendment. Noninterest expense was $248.20 million, an increase of $16.51 million or 7.13% for the year of 2016 when compared to 2015. The increase was primarily due to increased general operating and merger-related expenses from the Bank of Georgetown acquisition.
Income tax expense for the year of 2016 was $75.58 million as compared to $65.53 million for the year of 2015. United’s effective tax rate was approximately 33.9% and 32.2% for years ended December 31, 2016 and 2015, respectively, as compared to 33.35% for 2014.
The following discussion explains in more detail the results of operations by major category.
Net Interest Income
Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2016 and 2015, are presented below.
Net interest income for the year of 2016 was $425.33 million, which was an increase of $41.21 million or 10.73% from the year of 2015. The $41.21 million increase in net interest income occurred because total interest income increased $46.71 million while total interest expense only increased $5.50 million from the year of 2015.
Generally, interest income for the year of 2016 increased from prior year because of the earning assets added from the Bank of Georgetown acquisition. In addition, loan accretion on acquired loans for the year of 2016 increased from the same time period last year. For the purpose of this remaining discussion, net interest income is presented on atax-equivalent basis to provide a comparison among all types of interest earning assets. Thetax-equivalent basis adjusts for thetax-favored status of income from certain loans and investments. Although this is anon-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 andtax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.
Tax-equivalent net interest income for the year of 2016 was $431.45 million, an increase of $40.84 million or 10.46% from the year of 2015. This increase intax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Bank of Georgetown acquisition. Average earning assets increased $1.01 billion or 9.25% from the year of 2015 as average net loans increased $866.95 million or 9.58% for the year of 2016. Average investment securities increased $59.23 million or 4.70%. In addition, the average yield on earning assets increased 6 basis
points from the year of 2015 due to additional loan accretion of $10.07 million on acquired loans and higher market interest rates. Partially offsetting the increases totax-equivalent net interest income for the year of 2016 was an increase of 3 basis points in the average cost of funds as compared to the year of 2015 due to higher market interest rates. The net interest margin of 3.62% for the year of 2016 was an increase of 4 basis points from the net interest margin of 3.58% for the year of 2015.
Provision for Loan Losses
For the years ended December 31, 2016 and 2015, the provision for loan losses was $24.51 million and $22.57 million, respectively. Net charge-offs were $27.46 million for the year of 2016 as compared to net charge-offs of $22.38 million for the year of 2015. These higher amounts of provision expense and net charge-offs for 2016 compared to 2015 were due to thecharge-off of a $6.6 million relationship in the second quarter of 2016. Annualized net charge-offs as a percentage of average loans were 0.28% for the year of 2016. The reserve for lending-related commitments at December 31, 2016 was $1.04 million, an increase of $108 thousand or 11.54% from December 31, 2015.
At December 31, 2016, the allowance for loan losses was $72.77 million as compared to $75.73 million at December 31, 2015. As a percentage of loans, net of unearned income, the allowance for loan losses was 0.70% at December 31, 2016 and 0.81% at December 31, 2015. In accordance with accounting rules, United is unable to carry-over an acquired banking company’s previously established allowance for loan losses because acquired loans are recorded at fair value. Therefore, due to this acquisition accounting impact on the allowance for loans losses as well as loans, net of unearned income, management believes that excluding acquired loans in the calculation of the allowance for loan losses as a percentage of loans, net of unearned income separates the difference in the accounting rules for acquired loans and originated loans as well as provides for improved comparability to prior periods and to other financial institutions without acquired loans. The ratio of the allowance for loan losses to nonperforming loans or coverage ratio was 64.25% and 59.76% at December 31, 2016 and December 31, 2015, respectively. The Company’s detailed methodology and analysis indicated a minimal increase in the allowance for loan losses primarily because of changes within historical loss rates.
Other Income
Noninterest income for the year of 2016 was $70.03 million, which was a decrease of $3.59 million from the year of 2015 due mainly to the impact of the Durbin Amendment being effective for United on July 1, 2015. As previously mentioned, 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 were $32.86 million for the year of 2016, a decrease of $5.10 million or 13.45% from the year of 2015. This decrease was due to the impact of the Durbin Amendment. Specifically, fees from debit card transactions declined $2.90 million for the year of 2016 as compared to year of 2015. In addition, income from overdraft fees declined $1.57 million for the year of 2016.
Mortgage banking income for the year of 2016 increased $943 thousand or 37.61% due to increased production and sales of mortgage loans in the secondary market. Mortgage loan sales were $156.57 million in the year of 2016 as compared to $143.84 million in the year of 2015.
Fees from bankcard transactions increased $429 thousand or 8.96% as compared to the year of 2015 due to a higher volume of transactions.
Income from bank owned life insurance policies increased $237 thousand or 4.26% in 2016 as compared to 2015 due to death benefits recorded in the third quarter of 2016.
Other Expense
Noninterest expense for the year of 2016 was $248.20 million, an increase of $16.51 million or 7.13% from the year of 2015. Generally, the increase was primarily due to increased general operating and merger-related expenses as a result of the Bank of Georgetown acquisition.
Employee compensation for the year of 2016 increased $5.16 million or 5.85% from the year of 2015. Included in employee compensation for the year of 2016 were merger severance charges of $670 thousand. Otherwise, base salaries increased $2.52 million or 2.94% due mainly to merit increases. Also, expense for employee incentives increased $1.76 million.
Employee benefits expense increased $1.88 million or 6.94% due mainly to an increase of $1.09 million in health insurance costs due to higher premiums. Pension expense increased $308 thousand. United uses certain valuation methodologies to measure the fair value of the assets within United’s pension plan which are presented in Note N, Notes to Consolidated Financial Statements. The funded status of United’s pension plan is based upon the fair value of the plan assets compared to the projected benefit obligation. The determination of the projected benefit obligation and the associated periodic benefit expense involves significant judgment and estimation of future employee compensation levels, the discount rate and the expected long-term rate of return on plan assets. If United assumes a 1% increase or decrease in the estimation of future employee compensation levels while keeping all other assumptions constant, the benefit cost associated with the pension plan would increase by approximately $743 thousand and decrease by approximately $685 thousand, respectively. If United assumes a 1% increase or decrease in the discount rate while keeping all other assumptions constant, the benefit cost associated with the pension plan would decrease by approximately $1.95 million and increase by approximately $2.35 million, respectively. If United assumes a 1% increase or decrease in the expected long-term rate of return on plan assets while keeping all other assumptions constant, the benefit cost associated with the pension plan would decrease by approximately $1.12 million and increase by approximately $1.12 million, respectively.
Net occupancy expense increased $3.23 million or 13.28% for the year of 2016 as compared to the year of 2015 as building rental expense increased $2.13 million due to charges of $1.58 million for the termination of leases for closed offices in the Bank of Georgetown acquisition and higher lease costs.
Other real estate owned (OREO) expense increased $2.23 million or 61.75% for the year of 2016 as compared to the year of 2015 due to decreases in the fair value on OREO properties.
Equipment expense decreased $412 thousand or 4.56% due to a decline in depreciation expense.
Data processing expense increased $413 thousand due mainly to the Bank of Georgetown acquisition.
Other expenses increased $3.59 million or 6.56% for the year of 2016 as compared to the year of 2015. Included in other expense were merger-related expenses of $2.55 million.
Income Taxes
For the year ended December 31, 2016, income taxes were $75.58 million, compared to $65.53 million for 2015. United’s effective tax rate was approximately 33.9% and 32.2% for years ended December 31, 2016 and 2015, respectively, as compared to 33.4% for 2014. The lower effective tax rate in 2015 was due to the release of the income tax reserves in the third quarter due to the expiration of the statute of limitations for examinations of certain years and historical tax credits recognized in the first quarter.
| Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The objective of United’s Asset/Liability Management function is to maintain consistent growth in net interest income within United’s policy guidelines. This objective is accomplished through the management of balance sheet liquidity and interest rate risk exposures due to changes in economic conditions, interest rate levels and customer preferences.
Interest Rate Risk
Management considers interest rate risk to be United’s most significant market risk. Interest rate risk is the exposure to adverse changes in United’s net interest income as a result of changes in interest rates. United’s earnings are largely dependent on the effective management of interest rate risk.
Management of interest rate risk focuses on maintaining consistent growth in net interest income within Board-approved policy limits. United’s Asset/Liability Management Committee (ALCO)(“ALCO”), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk to maintain an acceptable level of change to net interest income as a result of changes in interest rates. Policy established for interest rate risk is stated in terms of the change in net interest income over aone-year andtwo-year horizon given an immediate and sustained increase or decrease in interest rates. The current limits approved by the Board of Directors are structured on a staged basis with each stage requiring specific actions.
United employs a variety of measurement techniques to identify and manage its exposure to changing interest rates. One such technique utilizes an earnings simulation model to analyze the sensitivity of net interest income to movements in interest rates. The model is based on actual cash flows and repricing characteristics for on andoff-balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The model also includes executive management projections for activity levels in product lines offered by United. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. Rate scenarios could involve parallel or nonparallel shifts in the yield curve, depending on historical, current, and expected conditions, as well as the need to capture any material effects of explicit or embedded options. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management’s strategies.
Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or are repriced within a designated time frame. The principal function of managing interest rate risk is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates. The difference between rate sensitive assets and rate sensitive liabilities for specified periods of time is known as the “GAP.” Earnings-simulation analysis captures not only the potential of these interest sensitive assets and liabilities to mature or reprice, but also the probability that they will do so. Moreover, earnings-simulation analysis considers the relative sensitivities of these balance sheet items and projects their behavior over an extended period of time. United closely monitors the sensitivity of its assets and liabilities on anon-going basis and projects the effect of various interest rate changes on its net interest margin.
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The following table shows United’s estimated consolidated earnings sensitivity profile as of December 31, 20172022 and 2016:December 31, 2021:
| Change in Interest Rates | | Percentage Change in Net Interest Income | | Percentage Change in Net Interest Income |
(basis points) | | December 31, 2017 | | December 31, 2016 | | December 31, 2022 | | December 31, 2021 |
+200 | | (1.22%) | | (2.05%) | | (6.83%) | | 4.61% |
+100 | | (0.48%) | | (1.05%) | | (3.00%) | | 2.70% |
-100 | | (0.18%) | | 1.87% | | 2.12% | | (0.98%) |
-200 | | —- | | —- | | 2.16% | | (2.42%) |
GivenAt December 31, 2022, given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, it is estimated that net interest income for United wouldis estimated to decrease by 0.48%3.00% over one year as compared to an increase of 2.70% at December 31, 2017, as compared to a decrease of 1.05% as of December 31, 2016.2021. A 200 basis point immediate, sustained upward shock in the yield curve would decrease net interest income by an estimated 1.22%6.83% over one year as of December 31, 2017,2022, as compared to a decreasean increase of 2.05%4.61% as of December 31, 2016.2021. A 100 basis point immediate, sustained downward shock in the yield curve would decreaseincrease net interest income by an estimated 0.18%2.12% over one year as of December 31, 2017,2022 as compared to an increasea decrease of 1.87%0.98%, over one year as of December 31, 2016. With the federal funds rate at 1.50% at December 31, 2017 and 0.75% at December 31, 2016, management believed a2021. A 200 basis point immediate, sustained declinedownward shock in rates was highly unlikely.the yield curve would increase net interest income by an estimated 2.16% over one year as of December 31, 2022 as compared to a decrease of 2.42% over one year as of December 31, 2021.
In addition to theone-year one year earnings sensitivity analysis, atwo-year analysis is also performed. Compared to the one year one analysis, United is projected to show improved performance in year two within the upward rate shock scenarios. Given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income
for United is estimated to increase by 1.73%0.75% in year two as of December 31, 2017.2022. A 200 basis point immediate, sustained upward shock in the yield curve would increase net interest income by an estimated 3.12%0.08% in year two as of December 31, 2017.2022. A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 1.67%2.32% in year two as of December 31, 2017.2022. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 8.34% in year two as of December 31, 2022.
This analysis does not include the potential increased refinancing activities, which should lessen the negative impact on net income from falling rates. While it is unlikely market rates would immediately move 100 or 200 basis points upward or downward on a sustained basis, this is another tool used by management and the Board of Directors to gauge interest rate risk. All of these estimated changes in net interest income are and were within the policy guidelines established by the Board of Directors.
To further aid in interest rate management, United’s subsidiary banks are membersbank is a member of the Federal Home Loan Bank (FHLB)(“FHLB”). The use of FHLB advances provides United with a low risk means of matching maturities of earning assets and interest-bearing funds to achieve a desired interest rate spread over the life of the earning assets. In addition, United uses credit with large regional banks and trust preferred securities to provide funding.
As part of its interest rate risk management strategy, United may use derivative instruments to protect against adverse price or interest rate movements on the value of certain assets or liabilities and on future cash flows. These derivatives commonly consist of interest rate swaps, caps, floors, collars, futures, forward contracts, written and purchased options. Interest rate swaps obligate two parties to exchange one or more payments generally calculated with reference to a fixed or variable rate of interest applied to the notional amount. United accounts for its derivative activities in accordance with the provisions of ASC topicTopic 815, “Derivatives and Hedging.”
Extension Risk
A key feature of most mortgage loans is the ability of the borrower to repay principal earlier than scheduled. This is called a prepayment. Prepayments arise primarily due to sale of the underlying property, refinancing, or foreclosure. In general, declining interest rates tend to increase prepayments, and rising interest rates tend to slow prepayments. Like other fixed-income securities, when interest rates rise, the value of mortgage- related securities generally declines. The rate of prepayments on underlying mortgages will affect the price and volatility of mortgage-related securities and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase. If interest rates rise, United’s holdings of mortgage-related securities may experience reduced returns if the borrowers of the underlying mortgages pay off their mortgages later than anticipated. This is generally referred to as extension risk.
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At December 31, 2017,2022, United’s mortgage related securities portfolio had an amortized cost of $1.3$2.1 billion, of which approximately $787$934.1 million or 61%44% were fixed rate collateralized mortgage obligations (CMOs)(“CMOs”). These fixed rate CMOs consisted primarily of planned amortization class (PACs)(“PACs”),sequential-pay and accretion directed (VADMs)(“VADMs”) bonds having an average life of approximately 4.35.5 years and a weighted average yield of 2.51%2.12%, under current projected prepayment assumptions. These securities are expected to have very littlemoderate extension risk in a rising rate environment. Current models show that an immediate, sustained upward shock of 300 basis points, the average life of these securities would only extend to 4.96.5 years. The projected price decline of the fixed rate CMO portfolio in rates up 300 basis points would be 11.9%15%, or less than the price decline of a5- year7-year treasury note. By comparison, the price decline of a30-year current 5% coupon mortgage backed security (MBS) given an immediate, sustained upward shock of(“MBS”) in rates higher by 300 basis points would be approximately 19.4%18.9%.
United had approximately $255$600.6 million in balloon and other securitiesfixed rate Commercial Mortgage Backed Securities (CMBS) with a projected yield of 2.16%2.02% and a projected average life of 4.24.7 years on December 31, 2017.2022. This portfolio consisted primarily of Freddie Mac Multifamily K securities and Fannie Mae Delegated Underwriting and Servicing (DUS) mortgage backed(“DUS”) securities (MBS) with a weighted average loan age (WALA)maturity (“WAM”) of 3.9 years and a weighted average maturity (WAM) of 4.68 years.
United had approximately $78$27.8 million in15-year mortgage backed securities with a projected yield of 2.23%2.02% and a projected average life of 3.74.8 years as of December 31, 2017.2022. This portfolio consisted of seasoned15-year mortgage paper with a weighted average loan age (WALA)(“WALA”) of 4.33.3 years and a weighted average maturity (WAM)(“WAM”) of 10.312 years.
United had approximately $76$353.7 million in20-year mortgage backed securities with a projected yield of 2.73%1.82% and a projected average life of 5.37.1 years on December 31, 2017.2022. This portfolio consisted of seasoned20-year mortgage paper with a weighted average loan age (WALA)(“WALA”) of 4.71.8 years and a weighted average maturity (WAM)(“WAM”) of 14.918.1 years.
United had approximately $67$162.1 million in30-year mortgage backed securities with a projected yield of 2.69%2.46% and a projected average life of 5.97.8 years on December 31, 2017.2022. This portfolio consisted of seasoned30-year mortgage paper and Home Equity Conversion Mortgages with a weighted average loan age (WALA)(“WALA”) of 2.22.7 years and a weighted average maturity (WAM)(“WAM”) of 26.624.6 years.
The remaining 2% of the mortgage related securities portfolio aton December 31, 2017,2022, included adjustablefloating rate securities (ARMs),10-yearCMO, CMBS and mortgage backed pass-through securities and other fixed rate mortgage backed securities.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of United Bankshares, Inc. (the Company)“Company”) is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 framework). Based on our assessment, we believe that, as of December 31, 2017,2022, the Company’s internal control over financial reporting is effective based on those criteria.
Ernst & Young LLP (“Ernst & Young”), the independent registered public accounting firm who audited the Company’s consolidated financial statements, has also issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2022. Ernst & Young’s report on the effectiveness of the Company’s internal control over financial reporting appears on the following page.
| | | | |
/s/ Richard M. Adams, Jr. | | | | /s/ W. Mark Tatterson |
Richard M. Adams, Chairman of the Board and Jr. Chief Executive Officer | | | | W. Mark Tatterson Executive Vice President and Chief Financial Officer |
| |
March 1, 2018
2023REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM67
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors and the Shareholders of United Bankshares, lnc.Inc.
Opinion on Internal Control over Financial Reporting
We have audited United Bankshares, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, United Bankshares, Inc. Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets ofthe Company as of December 31, 20172022 and 2016, 2021,and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2022, and the related notes and our report dated March 1, 20182023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions,in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Charleston, West Virginia
March 1, 2018
|
/s/ Ernst & Young LLP |
|
Charleston, West Virginia March 1, 2023 |
68
| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors and the
Shareholders of United Bankshares, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of United Bankshares, Inc. and subsidiaries (the Company) as of December 31, 20172022 and 2016,2021, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of United Bankshares, Inc. and subsidiariesthe Company at December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 20182023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
69
Allowance for Loan Losses
| | |
Description of the Matter | | The Company’s loan portfolio totaled $20.6 billion as of December 31, 2022, and the associated allowance for loan losses (ALL) for the loan portfolio was $235 million. As discussed in Notes A and F to the consolidated financial statements, the ALL is an estimate of the expected credit losses on loans at amortized cost to present the net amount expected to be collected as of the balance sheet date. The ALL is based on the credit losses expected to arise over the life of the asset. Management pools its loans based on similar risk characteristics and assigns an appropriate calculation method to estimate the expected credit losses. For loans that do not share risk characteristics, management evaluates the ALL on an individual basis based on the present value of expected future cash flows using the loan’s effective interest rate, or as a practical expedient, the fair value of the collateral if the loan is collateral-dependent. For loans not specifically reviewed on an individual basis, management measures the ALL using a probability of default/loss given default method or cohort method based on portfolio segment. Management also records qualitative adjustments to expected credit losses for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as reasonable and supportable forecast adjustments for changes in macroeconomic and environmental conditions, such as changes in unemployment rates, gross domestic product or other relevant factors, that have not been fully captured in the allowance calculation. |
| |
| | Auditing management’s estimate used in determining the ALL for the loan portfolio involved a high degree of subjectivity in evaluating management’s determination of the forecast selection used to derive the reasonable and supportable forecast qualitative adjustment. |
| |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process for the loan portfolio. Controls tested included, among others, those over the risk rating process, management’s review and approval of the calculations used to determine the ALL, including the underlying data and data inputs and outputs of those calculations, and management’s evaluation and review of the qualitative adjustments, including the reasonable and supportable forecast qualitative adjustment. |
| |
| | To test the Company’s reasonable and supportable forecast qualitative adjustment for the loan portfolio, we tested the underlying data used in the estimate calculation to determine it was accurate, complete and relevant. Further, we evaluated management’s basis for the adjustment in relation to changes in economic conditions and forecasts. Our procedures included evaluating management’s inputs and assumptions used in determining the qualitative adjustment by comparing the information to internal and external source data including, among others, the economic forecasts utilized by the Company and third-party economic outlook reports. We involved our internal modeling specialists in evaluating the model performance. In addition, we evaluated the overall ALL amount, inclusive of the qualitative adjustments, and whether the amount appropriately reflects losses expected in the loan portfolios as of the consolidated balance sheet date. For example, we evaluated the Company’s analysis of their historical loss experience and peer losses to the Company’s recorded ALL to test the ALL in totality. We also reviewed subsequent events and transactions and considered whether they corroborate or contradict the Company’s conclusion. |
|
/s/ Ernst & Young, LLP |
|
We have served as the Company’s auditor since 1986. |
Charleston, West Virginia |
March 1, 20182023 |
70
(Continued)
As of the date of filing this Annual report, neither the annual shareholders’ report for the year ended December 31, 2022, nor the proxy statement for the annual United shareholders’ meeting has been mailed to shareholders.
| | | | | | |
| | |
| | | | | | |
| Item 1. | | | | | 4 | |
| Item 1A. | | | | | 19 | |
| Item 1B. | | | | | 32 | |
| Item 2. | | | | | 32 | |
| Item 3. | | | | | 33 | |
| Item 4. | | | | | 33 | |
| | |
| | | | | | |
| Item 5. | | | | | 34 | |
| Item 6. | | | | | 36 | |
| Item 7. | | | | | 36 | |
| Item 7A. | | | | | 64 | |
| Item 8. | | | | | 69 | |
| Item 9. | | | | | 141 | |
| Item 9A. | | | | | 141 | |
| Item 9B. | | | | | 141 | |
| Item 9C. | | | | | 141 | |
| | |
| | | | | | |
| Item 10. | | | | | 142 | |
| Item 11. | | | | | 142 | |
| Item 12. | | | | | 142 | |
| Item 13. | | | | | 142 | |
| Item 14. | | | | | 143 | |
| | |
| | | | | | |
| Item 15. | | | | | 144 | |
| Item 16. | | | | | 147 | |
3
CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except par value)
| | | | | | | | |
| | | December 31
2017 | | | December 31
2016 | |
Assets | | | | | | | | |
Cash and due from banks | | $ | 196,742 | | | $ | 175,468 | |
Interest-bearing deposits with other banks | | | 1,468,636 | | | | 1,258,334 | |
Federal funds sold | | | 789 | | | | 725 | |
| | | | | | | | |
Total cash and cash equivalents | | | 1,666,167 | | | | 1,434,527 | |
Securities available for sale at estimated fair value (amortized cost-$1,900,684 at December 31, 2017 and $1,277,639 at December 31, 2016) | | | 1,888,756 | | | | 1,259,214 | |
Securities held to maturity (estimated fair value-$20,018 at December 31, 2017 and $31,178 at December 31, 2016) | | | 20,428 | | | | 33,258 | |
Other investment securities | | | 162,461 | | | | 111,166 | |
Loans held for sale (at fair value-$263,308 at December 31, 2017 and $0 at December 31, 2016) | | | 265,955 | | | | 8,445 | |
Loans | | | 13,027,337 | | | | 10,356,719 | |
Less: Unearned income | | | (15,916) | | | | (15,582) | |
| | | | | | | | |
Loans net of unearned income | | | 13,011,421 | | | | 10,341,137 | |
Less: Allowance for loan losses | | | (76,627) | | | | (72,771) | |
| | | | | | | | |
Net loans | | | 12,934,794 | | | | 10,268,366 | |
Bank premises and equipment | | | 104,894 | | | | 75,909 | |
Goodwill | | | 1,478,380 | | | | 863,767 | |
Accrued interest receivable | | | 52,815 | | | | 39,400 | |
Other assets | | | 484,309 | | | | 414,840 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 19,058,959 | | | $ | 14,508,892 | |
| | | | | | | | |
| | |
Liabilities | | | | | | | | |
Deposits: | | | | | | | | |
Noninterest-bearing | | $ | 4,294,687 | | | $ | 3,171,841 | |
Interest-bearing | | | 9,535,904 | | | | 7,625,026 | |
| | | | | | | | |
Total deposits | | | 13,830,591 | | | | 10,796,867 | |
Borrowings: | | | | | | | | |
Federal funds purchased | | | 16,235 | | | | 22,235 | |
Securities sold under agreements to repurchase | | | 311,352 | | | | 237,316 | |
Federal Home Loan Bank (FHLB) borrowings | | | 1,271,531 | | | | 897,707 | |
Other long-term borrowings | | | 242,446 | | | | 224,319 | |
Reserve for lending-related commitments | | | 679 | | | | 1,044 | |
Accrued expenses and other liabilities | | | 145,595 | | | | 93,657 | |
| | | | | | | | |
TOTAL LIABILITIES | | | 15,818,429 | | | | 12,273,145 | |
| | |
Shareholders’ Equity | | | | | | | | |
Preferred stock, $1.00 par value;Authorized-50,000,000 shares; none issued | | | 0 | | | | 0 | |
Common stock, $2.50 par value;Authorized-200,000,000 shares; issued- 105,069,821 and 81,068,252 at December 31, 2017 and 2016, respectively, including 29,173 and 28,278 shares in treasury at December 31, 2017 and 2016, respectively | | | 262,675 | | | | 202,671 | |
Surplus | | | 2,129,077 | | | | 1,205,778 | |
Retained earnings | | | 891,816 | | | | 872,990 | |
Accumulated other comprehensive loss | | | (42,025) | | | | (44,717) | |
Treasury stock, at cost | | | (1,013) | | | | (975) | |
| | | | | | | | |
TOTAL SHAREHOLDERS’ EQUITY | | | 3,240,530 | | | | 2,235,747 | |
| | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 19,058,959 | | | $ | 14,508,892 | |
| | | | | | | | |
| | | | | | | | |
| | | | | |
| | | | | |
| | | | | | | | |
| Cash and due from banks | | $ | 294,155 | | | $ | 282,878 | |
| Interest-bearing deposits with other banks | | | 881,418 | | | | 3,474,365 | |
| Federal funds sold | | | 1,079 | | | | 927 | |
| | | | | | | | | |
| Total cash and cash equivalents | | | 1,176,652 | | | | 3,758,170 | |
| Securities available for sale at estimated fair value (amortized cost-$5,011,729 at December 31, 2022 and $4,031,494 at December 31, 2021, allowance for credit losses of $0 at December 31, 2022 and December 31, 2021) | | | 4,541,925 | | | | 4,042,699 | |
| Securities held to maturity, net of allowance for credit losses of $18 at December 31, 2022 and $19 at December 31, 2021 (estimated fair value-$1,020 at December 31, 2022 and December 31, 2021) | | | 1,002 | | | | 1,001 | |
| Equity securities at estimated fair value | | | 7,629 | | | | 12,404 | |
| Other investment securities | | | 322,048 | | | | 239,645 | |
| Loans held for sale measured using fair value option | | | 56,879 | | | | 504,416 | |
| Loans and leases | | | 20,580,163 | | | | 18,051,307 | |
| Less: Unearned income | | | (21,997 | ) | | | (27,659 | ) |
| | | | | | | | | |
| Loans and leases, net of unearned income | | | 20,558,166 | | | | 18,023,648 | |
| Less: Allowance for loan and lease losses | | | (234,746 | ) | | | (216,016 | ) |
| | | | | | | | | |
| Net loans and leases | | | 20,323,420 | | | | 17,807,632 | |
| Bank premises and equipment | | | 199,161 | | | | 197,220 | |
| | | 71,144 | | | | 81,942 | |
| Goodwill | | | 1,888,889 | | | | 1,886,494 | |
| Mortgage servicing rights, net of valuation allowance of $0 at December 31, 2022 and $883 at December 31, 2021 | | | 21,022 | | | | 23,144 | |
| Bank-owned life insurance (“BOLI”) | | | 480,184 | | | | 478,067 | |
| Accrued interest receivable, net of allowance for credit losses of $0 at December 31, 2022 and $8 at December 31, 2021 | | | 94,890 | | | | 64,512 | |
| Other assets | | | 304,535 | | | | 231,556 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 29,489,380 | | | $ | 29,328,902 | |
| | | | | | | | | |
| | | | | | | | |
| Deposits: | | | | | | | | |
| Noninterest-bearing | | $ | 7,199,678 | | | $ | 7,496,560 | |
| Interest-bearing | | | 15,103,488 | | | | 15,853,703 | |
| | | | | | | | | |
| Total deposits | | | 22,303,166 | | | | 23,350,263 | |
| Borrowings: | | | | | | | | |
| Securities sold under agreements to repurchase | | | 160,698 | | | | 128,844 | |
| Federal Home Loan Bank (“FHLB”) borrowings | | | 1,910,775 | | | | 532,199 | |
| Other long-term borrowings | | | 286,881 | | | | 285,195 | |
| Reserve for lending-related commitments | | | 46,189 | | | | 31,442 | |
| Operating lease liabilities | | | 75,749 | | | | 86,703 | |
| Accrued expenses and other liabilities | | | 189,729 | | | | 195,628 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 24,973,187 | | | | 24,610,274 | |
| | | | | | | | |
Preferred stock, $1.00 par value; Authorized-50,000,000 shares, none issued | | | 0 | | | | 0 | |
Common stock, $2.50 par value; Authorized-200,000,000 shares; issued-142,011,560 and 141,360,266 at December 31, 2022 and December 31, 2021, respectively, including 7,266,438 and 4,967,508 shares in treasury at December 31, 2022 and December 31, 2021, respectively | | | 355,029 | | | | 353,402 | |
| Surplus | | | 3,168,874 | | | | 3,149,955 | |
| Retained earnings | | | 1,575,426 | | | | 1,390,777 | |
| Accumulated other comprehensive loss | | | (332,732 | ) | | | (4,888 | ) |
| Treasury stock, at cost | | | (250,404 | ) | | | (170,618 | ) |
| | | | | | | | | |
| TOTAL SHAREHOLDERS’ EQUITY | | | 4,516,193 | | | | 4,718,628 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 29,489,380 | | | $ | 29,328,902 | |
| | | | | | | | | |
See notes to consolidated
unaudited financial
statementsstatements.
71
CONSOLIDATED STATEMENTS OF INCOME
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
| | | | | | | | | | | | |
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Interest income | | | | | | | | | | | | |
Interest and fees on loans | | $ | 565,537 | | | $ | 430,738 | | | $ | 387,713 | |
Interest on federal funds sold and other short-term investments | | | 16,035 | | | | 3,495 | | | | 1,645 | |
Interest and dividends on securities: | | | | | | | | | | | | |
Taxable | | | 36,715 | | | | 32,357 | | | | 30,744 | |
Tax-exempt | | | 5,519 | | | | 3,751 | | | | 3,528 | |
| | | | | | | | | | | | |
Total interest income | | | 623,806 | | | | 470,341 | | | | 423,630 | |
Interest expense | | | | | | | | | | | | |
Interest on deposits | | | 49,726 | | | | 29,125 | | | | 28,023 | |
Interest on short-term borrowings | | | 1,579 | | | | 1,584 | | | | 834 | |
Interest on long-term borrowings | | | 23,504 | | | | 14,301 | | | | 10,649 | |
| | | | | | | | | | | | |
Total interest expense | | | 74,809 | | | | 45,010 | | | | 39,506 | |
| | | | | | | | | | | | |
Net interest income | | | 548,997 | | | | 425,331 | | | | 384,124 | |
Provision for loan losses | | | 28,406 | | | | 24,509 | | | | 22,574 | |
| | | | | | | | | | | | |
Net interest income after provision for loan losses | | | 520,591 | | | | 400,822 | | | | 361,550 | |
Other income | | | | | | | | | | | | |
Fees from trust and brokerage services | | | 19,531 | | | | 19,037 | | | | 19,085 | |
Fees from deposit services | | | 33,622 | | | | 32,858 | | | | 37,962 | |
Bankcard fees and merchant discounts | | | 4,795 | | | | 5,215 | | | | 4,786 | |
Other service charges, commissions, and fees | | | 2,057 | | | | 2,059 | | | | 2,141 | |
Income from bank-owned life insurance | | | 5,110 | | | | 5,794 | | | | 5,557 | |
Income from mortgage banking | | | 58,907 | | | | 3,450 | | | | 2,507 | |
Other income | | | 2,039 | | | | 1,339 | | | | 1,433 | |
| | | |
Total other-than-temporary impairment losses | | | (60) | | | | 339 | | | | (113) | |
Portion of loss recognized in other comprehensive income | | | (0) | | | | (372) | | | | 66 | |
| | | | | | | | | | | | |
Net other-than-temporary impairment losses | | | (60) | | | | (33) | | | | (47) | |
Net gains on sales/calls of investment securities | | | 5,644 | | | | 313 | | | | 202 | |
| | | | | | | | | | | | |
Net investment securities gains (losses) | | | 5,584 | | | | 280 | | | | 155 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total other income | | | 131,645 | | | | 70,032 | | | | 73,626 | |
Other expense | | | | | | | | | | | | |
Employee compensation | | | 164,247 | | | | 93,281 | | | | 88,123 | |
Employee benefits | | | 37,143 | | | | 28,965 | | | | 27,086 | |
Net occupancy expense | | | 39,067 | | | | 27,529 | | | | 24,301 | |
Other real estate owned (OREO) expense | | | 6,003 | | | | 5,844 | | | | 3,613 | |
Equipment expense | | | 10,528 | | | | 8,622 | | | | 9,034 | |
Data processing expense | | | 21,019 | | | | 15,280 | | | | 14,867 | |
Bankcard processing expense | | | 1,809 | | | | 1,742 | | | | 1,505 | |
FDIC insurance expense | | | 7,051 | | | | 8,548 | | | | 8,367 | |
Other expense | | | 80,542 | | | | 58,385 | | | | 54,791 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total other expense | | | 367,409 | | | | 248,196 | | | | 231,687 | |
| | | | | | | | | | | | |
| | | |
Income before income taxes | | | 284,827 | | | | 222,658 | | | | 203,489 | |
Income taxes | | | 134,246 | | | | 75,575 | | | | 65,530 | |
| | | | | | | | | | | | |
Net income | | $ | 150,581 | | | $ | 147,083 | | | $ | 137,959 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | |
| | | | | | | |
| | | | | | | | | | | | |
| Interest and fees on loans and leases | | $ | 864,583 | | | $ | 724,493 | | | $ | 721,829 | |
| Interest on federal funds sold and other short-term investments | | | 22,950 | | | | 8,734 | | | | 9,780 | |
| Interest and dividends on securities: | | | | | | | | | | | | |
| Taxable | | | 105,780 | | | | 54,678 | | | | 61,808 | |
| | | 8,677 | | | | 7,212 | | | | 4,965 | |
| | | | | | | | | | | | | |
| Total interest income | | | 1,001,990 | | | | 795,117 | | | | 798,382 | |
| | | | | | | | | | | | |
| Interest on deposits | | | 80,237 | | | | 41,620 | | | | 78,579 | |
| Interest on short-term borrowings | | | 1,785 | | | | 693 | | | | 1,027 | |
| Interest on long-term borrowings | | | 23,537 | | | | 10,070 | | | | 29,003 | |
| | | | | | | | | | | | | |
| Total interest expense | | | 105,559 | | | | 52,383 | | | | 108,609 | |
| | | | | | | | | | | | | |
| Net interest income | | | 896,431 | | | | 742,734 | | | | 689,773 | |
| Provision for credit losses | | | 18,822 | | | | (23,970 | ) | | | 106,562 | |
| | | | | | | | | | | | | |
| Net interest income after provision for credit losses | | | 877,609 | | | | 766,704 | | | | 583,211 | |
| | | | | | | | | | | | |
| Fees from trust services | | | 17,216 | | | | 16,552 | | | | 13,903 | |
| Fees from brokerage services | | | 16,412 | | | | 15,559 | | | | 11,758 | |
| Fees from deposit services | | | 40,557 | | | | 38,689 | | | | 34,833 | |
| Bankcard fees and merchant discounts | | | 6,580 | | | | 5,485 | | | | 4,066 | |
| Other service charges, commissions, and fees | | | 3,267 | | | | 2,990 | | | | 2,596 | |
| Income from bank-owned life insurance | | | 9,188 | | | | 6,840 | | | | 7,217 | |
| Income from mortgage banking activities | | | 42,690 | | | | 171,692 | | | | 266,094 | |
| Mortgage loan servicing income | | | 9,235 | | | | 9,605 | | | | 6,213 | |
| Net gain on the sale of bank premises | | | 0 | | | | 0 | | | | 2,229 | |
| Net investment securities gains | | | 776 | | | | 2,676 | | | | 3,155 | |
| Other income | | | 7,340 | | | | 8,040 | | | | 2,711 | |
| | | | | | | | | | | | | |
| Total other income | | | 153,261 | | | | 278,128 | | | | 354,775 | |
| | | | | | | | | | | | |
| Employee compensation | | | 242,408 | | | | 279,970 | | | | 274,661 | |
| Employee benefits | | | 45,944 | | | | 53,871 | | | | 48,870 | |
| Net occupancy expense | | | 45,129 | | | | 42,034 | | | | 41,303 | |
| Other real estate owned (“OREO”) expense | | | 2,138 | | | | 5,370 | | | | 3,805 | |
| Net losses on the sales of OREO properties | | | 700 | | | | 54 | | | | 1,972 | |
| Equipment expense | | | 29,320 | | | | 25,979 | | | | 20,861 | |
| Data processing expense | | | 29,997 | | | | 31,446 | | | | 35,420 | |
| Mortgage loan servicing expense and impairment | | | 7,099 | | | | 12,246 | | | | 9,431 | |
| Bankcard processing expense | | | 1,938 | | | | 1,706 | | | | 1,735 | |
| FDIC insurance expense | | | 11,988 | | | | 8,346 | | | | 10,132 | |
| FHLB prepayment penalties | | | 0 | | | | 15 | | | | 10,385 | |
| Other expense | | | 138,426 | | | | 120,942 | | | | 119,671 | |
| | | | | | | | | | | | | |
| Total other expense | | | 555,087 | | | | 581,979 | | | | 578,246 | |
| | | | | | | | | | | | | |
| Income before income taxes | | | 475,783 | | | | 462,853 | | | | 359,740 | |
| Income taxes | | | 96,156 | | | | 95,115 | | | | 70,717 | |
| | | | | | | | | | | | | |
| Net income | | $ | 379,627 | | | $ | 367,738 | | | $ | 289,023 | |
| | | | | | | | | | | | | |
72
CONSOLIDATED STATEMENTS OF INCOME
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
| | | | | | | | | | | | |
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Earnings per common share: | | | | | | | | | | | | |
Basic | | $ | 1.54 | | | $ | 2.00 | | | $ | 1.99 | |
| | | | | | | | | | | | |
Diluted | | $ | 1.54 | | | $ | 1.99 | | | $ | 1.98 | |
| | | | | | | | | | | | |
Dividends per common share | | $ | 1.33 | | | $ | 1.32 | | | $ | 1.29 | |
| | | | | | | | | | | | |
Average outstanding shares: | | | | | | | | | | | | |
Basic | | | 97,502,633 | | | | 73,531,992 | | | | 69,334,849 | |
Diluted | | | 97,890,078 | | | | 73,893,127 | | | | 69,625,531 | |
| | | | | | | | | | | | | |
| | | |
| | | | | | | |
| Earnings per common share: | | | | | | | | | | | | |
| Basic | | $ | 2.81 | | | $ | 2.84 | | | $ | 2.40 | |
| | | | | | | | | | | | | |
| Diluted | | $ | 2.80 | | | $ | 2.83 | | | $ | 2.40 | |
| | | | | | | | | | | | | |
| Dividends per common share | | $ | 1.44 | | | $ | 1.41 | | | $ | 1.40 | |
| | | | | | | | | | | | | |
| Average outstanding shares: | | | | | | | | | | | | |
| Basic | | | 134,776,241 | | | | 129,276,452 | | | | 120,017,247 | |
| Diluted | | | 135,117,512 | | | | 129,512,853 | | | | 120,090,232 | |
See notes to consolidated financial statements
| | | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands) | |
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Net income | | $ | 150,581 | | | $ | 147,083 | | | $ | 137,959 | |
| | | |
Change in net unrealized gain (loss) onavailable-for-sale (AFS) securities, net of tax | | | 4,093 | | | | (7,782) | | | | (4,068) | |
Accretion of the net unrealized loss on the transfer of AFS securities toheld-to-maturity (HTM) securities, net of tax | | | 5 | | | | 6 | | | | 5 | |
Change in defined benefit pension plan, net of tax | | | (1,406) | | | | 1,271 | | | | 1,615 | |
| | | | | | | | | | | | |
Comprehensive income, net of tax | | $ | 153,273 | | | $ | 140,578 | | | $ | 135,511 | |
| | | | | | | | | | | | |
73
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNITED BANKSHARES, INC. AND SUBSIDIARIES
| | | | | | | | | | | | | |
| | | |
| | | | | | | |
| Net income | | $ | 379,627 | | | $ | 367,738 | | | $ | 289,023 | |
| | | | |
Change in net unrealized (loss) gain on (“AFS”) securities, net of tax | | | (368,934) | | | | (56,611 | ) | | | 57,249 | |
| Change in net unrealized gain on cash flow hedge, net of tax | | | 36,655 | | | | 13,001 | | | | 3,358 | |
| Change in defined benefit pension plan, net of tax | | | 4,435 | | | | 16,352 | | | | (3,368) | |
| | | | | | | | | | | | | |
| Comprehensive income, net of tax | | $ | 51,783 | | | $ | 340,480 | | | $ | 346,262 | |
| | | | | | | | | | | | | |
See notes to consolidated financial statements
74
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated | | | | | | | |
| | | Common Stock | | | | | | | | | Other | | | | | | Total | |
| | | | | | Par | | | | | | Retained | | | Comprehensive | | | Treasury | | | Shareholders’ | |
| | | Shares | | | Value | | | Surplus | | | Earnings | | | Income (Loss) | | | Stock | | | Equity | |
Balance at January 1, 2015 | | | 69,314,407 | | | $ | 173,286 | | | $ | 742,960 | | | $ | 776,311 | | | $ | (35,764 | ) | | $ | (633 | ) | | $ | 1,656,160 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 137,959 | | | | 0 | | | | 0 | | | | 137,959 | |
Other comprehensive income, net of tax | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (2,448 | ) | | | 0 | | | | (2,448 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | 135,511 | |
Stock based compensation expense | | | 0 | | | | 0 | | | | 2,484 | | | | 0 | | | | 0 | | | | 0 | | | | 2,484 | |
Purchase of treasury stock (17 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (1 | ) | | | (1 | ) |
Distribution of treasury stock for deferred compensation plan (24 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 1 | |
Cash dividends ($1.29 per share) | | | 0 | | | | 0 | | | | 0 | | | | (89,667 | ) | | | 0 | | | | 0 | | | | (89,667 | ) |
Grant of restricted stock (53,071 shares) | | | 53,071 | | | | 132 | | | | (132 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Forfeiture of restricted stock (5,294 shares) | | | 0 | | | | 0 | | | | 187 | | | | 0 | | | | 0 | | | | (187 | ) | | | 0 | |
Common stock options exercised (259,454 shares) | | | 259,454 | | | | 649 | | | | 7,498 | | | | 0 | | | | 0 | | | | 0 | | | | 8,147 | |
| | | | |
Balance at December 31, 2015 | | | 69,626,932 | | | | 174,067 | | | | 752,997 | | | | 824,603 | | | | (38,212 | ) | | | (820 | ) | | | 1,712,635 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 147,083 | | | | 0 | | | | 0 | | | | 147,083 | |
Other comprehensive income, net of tax | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (6,505 | ) | | | 0 | | | | (6,505 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | 140,578 | |
Stock based compensation expense | | | 0 | | | | 0 | | | | 2,817 | | | | 0 | | | | 0 | | | | 0 | | | | 2,817 | |
Issuance of common stock (4,330,000 shares) | | | 4,330,000 | | | | 10,825 | | | | 189,091 | | | | 0 | | | | 0 | | | | 0 | | | | 199,916 | |
Acquisition of Bank of Georgetown (6,527,746 shares) | | | 6,527,746 | | | | 16,319 | | | | 248,176 | | | | 0 | | | | 0 | | | | 0 | | | | 264,495 | |
Purchase of treasury stock (16 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (1 | ) | | | (1 | ) |
Issuance of treasury stock (1,500 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 52 | | | | 52 | |
Distribution of treasury stock for deferred compensation plan (28 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 1 | |
Cash dividends ($1.32 per share) | | | 0 | | | | 0 | | | | 0 | | | | (98,696 | ) | | | 0 | | | | 0 | | | | (98,696 | ) |
Grant of restricted stock (64,092 shares) | | | 64,092 | | | | 161 | | | | (161 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Forfeiture of restricted stock (5,955 shares) | | | 0 | | | | 0 | | | | 207 | | | | 0 | | | | 0 | | | | (207 | ) | | | 0 | |
Common stock options exercised (519,482 shares) | | | 519,482 | | | | 1,299 | | | | 12,651 | | | | 0 | | | | 0 | | | | 0 | | | | 13,950 | |
| | | | |
Balance at December 31, 2016 | | | 81,068,252 | | | | 202,671 | | | | 1,205,778 | | | | 872,990 | | | | (44,717 | ) | | | (975 | ) | | | 2,235,747 | |
Net income | | | 0 | | | | 0 | | | | 0 | | | | 150,581 | | | | 0 | | | | 0 | | | | 150,581 | |
Other comprehensive income, net of tax | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 2,692 | | | | 0 | | | | 2,692 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | 153,273 | |
Stock based compensation expense | | | 0 | | | | 0 | | | | 3,555 | | | | 0 | | | | 0 | | | | 0 | | | | 3,555 | |
Acquisition of Cardinal Financial Corporation (23,690,589 shares) | | | 23,690,589 | | | | 59,226 | | | | 916,028 | | | | 0 | | | | 0 | | | | 0 | | | | 975,254 | |
Purchase of treasury stock (86 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (1 | ) | | | (1 | ) |
Distribution of treasury stock for deferred compensation plan (31 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 1 | |
Cash dividends ($1.33 per share) | | | 0 | | | | 0 | | | | 0 | | | | (131,755 | ) | | | 0 | | | | 0 | | | | (131,755 | ) |
Grant of restricted stock (90,075 shares) | | | 90,075 | | | | 225 | | | | (225 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Forfeiture of restricted stock (840 shares) | | | 0 | | | | 0 | | | | 38 | | | | 0 | | | | 0 | | | | (38 | ) | | | 0 | |
Common stock options exercised (220,905 shares) | | | 220,905 | | | | 553 | | | | 3,903 | | | | 0 | | | | 0 | | | | 0 | | | | 4,456 | |
| | | | |
Balance at December 31, 2017 | | | 105,069,821 | | | $ | 262,675 | | | $ | 2,129,077 | | | $ | 891,816 | | | $ | (42,025 | ) | | $ | (1,013 | ) | | $ | 3,240,530 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2020 | | | 105,494,290 | | | $ | 263,736 | | | $ | 2,140,175 | | | $ | 1,132,579 | | | $ | (34,869 | ) | | $ | (137,788 | ) | | $ | 3,363,833 | |
Cumulative effect of adopting Accounting Standard Update 2016-13 | | | 0 | | | | 0 | | | | 0 | | | | (44,331 | ) | | | 0 | | | | 0 | | | | (44,331 | ) |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 0 | | | | 0 | | | | 0 | | | | 289,023 | | | | 0 | | | | 0 | | | | 289,023 | |
| Other comprehensive income, net of tax | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 57,239 | | | | 0 | | | | 57,239 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | 346,262 | |
| Stock based compensation expense | | | 0 | | | | 0 | | | | 5,980 | | | | 0 | | | | 0 | | | | 0 | | | | 5,980 | |
| Acquisition of Carolina Financial Corporation (28,031,501 shares) | | | 28,031,501 | | | | 70,079 | | | | 747,751 | | | | 0 | | | | 0 | | | | 0 | | | | 817,830 | |
| Purchase of treasury stock (679,331 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (21,317 | ) | | | (21,317 | ) |
| Distribution of treasury stock for deferred compensation plan (29 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 1 | |
| Cash dividends ($1.40 per share) | | | 0 | | | | 0 | | | | 0 | | | | (171,876 | ) | | | 0 | | | | 0 | | | | (171,876 | ) |
| Stock grant forfeiture (946 shares) | | | 0 | | | | 0 | | | | 35 | | | | 0 | | | | 0 | | | | (35 | ) | | | 0 | |
| Net issuance of common stock under stock-based compensation plans (283,583 shares) | | | 283,583 | | | | 708 | | | | 530 | | | | 0 | | | | 0 | | | | 0 | | | | 1,238 | |
| | | | | |
| Balance at December 31, 2020 | | | 133,809,374 | | | | 334,523 | | | | 2,894,471 | | | | 1,205,395 | | | | 22,370 | | | | (159,139 | ) | | | 4,297,620 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 0 | | | | 0 | | | | 0 | | | | 367,738 | | | | 0 | | | | 0 | | | | 367,738 | |
| Other comprehensive loss, net of tax | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (27,258 | ) | | | 0 | | | | (27,258 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | 340,480 | |
| Stock based compensation expense | | | 0 | | | | 0 | | | | 8,018 | | | | 0 | | | | 0 | | | | 0 | | | | 8,018 | |
| Acquisition of Community Bankers Trust Corporation (7,135,771 shares) | | | 7,135,771 | | | | 17,839 | | | | 242,440 | | | | 0 | | | | 0 | | | | 0 | | | | 260,279 | |
| Purchase of treasury stock (339,241 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (11,211 | ) | | | (11,211 | ) |
| Cash dividends ($1.41 per share) | | | 0 | | | | 0 | | | | 0 | | | | (182,356 | ) | | | 0 | | | | 0 | | | | (182,356 | ) |
| Stock grant forfeiture (7,400 shares) | | | 0 | | | | 0 | | | | 268 | | | | 0 | | | | 0 | | | | (268 | ) | | | 0 | |
| Net issuance of common stock under stock-based compensation plans (415,121 shares) | | | 415,121 | | | | 1,040 | | | | 4,758 | | | | 0 | | | | 0 | | | | 0 | | | | 5,798 | |
| | | | | |
| Balance at December 31, 2021 | | | 141,360,266 | | | | 353,402 | | | | 3,149,955 | | | | 1,390,777 | | | | (4,888 | ) | | | (170,618 | ) | | | 4,718,628 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 0 | | | | 0 | | | | 0 | | | | 379,627 | | | | 0 | | | | 0 | | | | 379,627 | |
| Other comprehensive loss, net of tax | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (327,844 | ) | | | 0 | | | | (327,844 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | 51,783 | |
| Stock based compensation expense | | | 0 | | | | 0 | | | | 9,881 | | | | 0 | | | | 0 | | | | 0 | | | | 9,881 | |
| Stock grant forfeiture (9,071 shares) | | | 0 | | | | 0 | | | | 326 | | | | 0 | | | | 0 | | | | (326 | ) | | | 0 | |
| Purchase of treasury stock (2,289,859 shares) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (79,460 | ) | | | (79,460 | ) |
| Cash dividends ($1.44 per share) | | | 0 | | | | 0 | | | | 0 | | | | (194,978 | ) | | | 0 | | | | 0 | | | | (194,978 | ) |
| Net issuance of common stock under stock-based compensation plans (651,294 shares) | | | 651,294 | | | | 1,627 | | | | 8,712 | | | | 0 | | | | 0 | | | | 0 | | | | 10,339 | |
| | | | | |
| Balance at December 31, 2022 | | | 142,011,560 | | | $ | 355,029 | | | $ | 3,168,874 | | | $ | 1,575,426 | | | $ | (332,732 | ) | | $ | (250,404 | ) | | $ | 4,516,193 | |
| | | | | |
See notes to consolidated financial statements
75
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
| | | | | | | | | | | | |
| (In thousands) | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
OPERATING ACTIVITIES | | | | | | | | | | | | |
Net income | | $ | 150,581 | | | $ | 147,083 | | | $ | 137,959 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Provision for loan losses | | | 28,406 | | | | 24,509 | | | | 22,574 | |
Depreciation, amortization and accretion | | | (21,567 | ) | | | (8,720 | ) | | | 746 | |
Loss (gain) on sales of bank premises, OREO and equipment | | | 4,813 | | | | 5,196 | | | | 2,059 | |
(Gain) loss on securities | | | (5,584 | ) | | | (280 | ) | | | (155 | ) |
Loans originated for sale | | | (2,373,622 | ) | | | (154,335 | ) | | | (145,836 | ) |
Proceeds from sales of loans | | | 2,455,213 | | | | 160,021 | | | | 146,342 | |
Gain on sales of loans | | | (58,907 | ) | | | (3,450 | ) | | | (2,507 | ) |
Stock-based compensation | | | 3,555 | | | | 2,817 | | | | 2,484 | |
Excess tax benefits from stock-based compensation arrangements | | | 2,201 | | | | 4,008 | | | | 1,023 | |
Deferred income tax expense | | | 60,827 | | | | 7,252 | | | | 1,729 | |
Increase in cash surrender value of bank-owned life insurance policies | | | (5,110 | ) | | | (3,837 | ) | | | (5,557 | ) |
Contribution to pension plan | | | (10,000 | ) | | | 0 | | | | 0 | |
Amortization of net periodic pension costs | | | 3,310 | | | | 5,156 | | | | 4,380 | |
Changes in: | | | | | | | | | | | | |
Loans held for sale | | | (8,893 | ) | | | 0 | | | | 0 | |
Interest receivable | | | (2,024 | ) | | | (755 | ) | | | (3,467 | ) |
Other assets | | | 32,924 | | | | (5,855 | ) | | | 14,349 | |
Accrued expenses and other liabilities | | | (2,195 | ) | | | (8,076 | ) | | | (1,222 | ) |
| | | | | | | | | | | | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | | | 253,928 | | | | 170,734 | | | | 174,901 | |
| | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | |
Proceeds from maturities and calls of held to maturity securities | | | 14,214 | | | | 5,730 | | | | 1,056 | |
Purchases of held to maturity securities | | | (1,403 | ) | | | 0 | | | | (1,000 | ) |
Proceeds from sales of securities available for sale | | | 247,131 | | | | 103,440 | | | | 7,316 | |
Proceeds from maturities and calls of securities available for sale | | | 439,181 | | | | 410,550 | | | | 183,950 | |
Purchases of securities available for sale | | | (932,474 | ) | | | (504,978 | ) | | | (85,249 | ) |
Redemption of bank-owned life insurance policies | | | 0 | | | | 630 | | | | 1,974 | |
Purchases of bank premises and equipment | | | (14,357 | ) | | | (7,271 | ) | | | (5,263 | ) |
Proceeds from sales of bank premises and equipment | | | 17 | | | | 554 | | | | 866 | |
Acquisition of subsidiaries, net of cash paid | | | 44,531 | | | | 29,330 | | | | 0 | |
Proceeds from sales and redemptions of other investment securities | | | 40,837 | | | | 64,411 | | | | 19,845 | |
Purchases of other investment securities | | | (74,090 | ) | | | (72,052 | ) | | | (22,181 | ) |
Proceeds from sales of OREO properties | | | 7,066 | | | | 17,871 | | | | 10,270 | |
Net change in loans | | | 496,025 | | | | (17,255 | ) | | | (296,882 | ) |
| | | | | | | | | | | | |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | | | 266,678 | | | | 30,960 | | | | (185,298 | ) |
| | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | |
Cash dividends paid | | | (121,354 | ) | | | (96,351 | ) | | | (88,864 | ) |
Acquisition of treasury stock | | | (1 | ) | | | (1 | ) | | | (1 | ) |
Proceeds from exercise of stock options | | | 4,619 | | | | 13,337 | | | | 7,871 | |
Proceeds from the issuance of common stock | | | 0 | | | | 199,916 | | | | 0 | |
Distribution of treasury stock for deferred compensation plan | | | 0 | | | | 1 | | | | 1 | |
Repayment of long-term Federal Home Loan Bank borrowings | | | (845,208 | ) | | | (725,673 | ) | | | (794,455 | ) |
Proceeds of long-term Federal Home Loan Bank borrowings | | | 815,000 | | | | 795,000 | | | | 705,000 | |
Changes in: | | | | | | | | | | | | |
Time deposits | | | 614,821 | | | | 75,639 | | | | (135,674 | ) |
Other deposits | | | (928,665 | ) | | | 408,127 | | | | 433,414 | |
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | | | 171,821 | | | | (294,497 | ) | | | (12,624 | ) |
| | | | | | | | | | | | |
| | | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | | | (288,967 | ) | | | 375,498 | | | | 114,668 | |
| | | | | | | | | | | | |
| | | |
INCREASE IN CASH AND CASH EQUIVALENTS | | | 231,640 | | | | 577,192 | | | | 104,271 | |
| | | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | | | 1,434,527 | | | | 857,335 | | | | 753,064 | |
| | | | | | | | | | | | |
| | | |
CASH AND CASH EQUIVALENTS AT END OF YEAR | | $ | 1,666,167 | | | $ | 1,434,527 | | | $ | 857,335 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | |
| OPERATING ACTIVITIES | | | | | | | | | | | | |
| Net income | | $ | 379,627 | | | $ | 367,738 | | | $ | 289,023 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Provision for credit losses | | | 18,822 | | | | (23,970 | ) | | | 106,562 | |
| Amortization and accretion | | | 5,433 | | | | (8,672 | ) | | | (29,900 | ) |
| Loss on sales of bank premises, OREO, leases and equipment | | | 457 | | | | 460 | | | | 1,214 | |
| Write-downs on bank premises, OREO, leases and equipment | | | 2,007 | | | | 5,100 | | | | 3,803 | |
| Depreciation | | | 18,237 | | | | 16,583 | | | | 13,464 | |
| Gain on securities | | | (776 | ) | | | (2,676 | ) | | | (3,155 | ) |
| Loans originated for sale | | | (1,903,981 | ) | | | (6,190,675 | ) | | | (6,528,080 | ) |
| Proceeds from sales of loans | | | 2,238,093 | | | | 6,566,304 | | | | 6,521,198 | |
| Gain on sales of loans | | | (41,274 | ) | | | (161,108 | ) | | | (258,784 | ) |
| Mortgage repurchase loan losses paid, net of recoveries | | | (69 | ) | | | (59 | ) | | | (888 | ) |
| Stock-based compensation | | | 9,881 | | | | 8,018 | | | | 5,980 | |
| Excess tax benefits from stock-based compensation arrangements | | | 1,040 | | | | 303 | | | | 351 | |
| Deferred income tax expense (benefit) | | | 6,887 | | | | 3,015 | | | | (174 | ) |
| Amortization of tax credit investments | | | 13,567 | | | | 12,718 | | | | 9,950 | |
| Originations of mortgage servicing rights | | | (1,417 | ) | | | (10,584 | ) | | | (7,310 | ) |
| Impairment of mortgage servicing rights | | | 0 | | | | 629 | | | | 1,383 | |
| Recoveries of impairment on mortgage servicing rights | | | (883 | ) | | | (1,129 | ) | | | 0 | |
| Increase in cash surrender value of bank-owned life insurance policies | | | (14,064 | ) | | | (6,836 | ) | | | (5,959 | ) |
| Contribution to pension plan | | | 0 | | | | 0 | | | | (20,000 | ) |
| Amortization of net periodic pension costs | | | (1,640 | ) | | | 2,073 | | | | 3,004 | |
| Changes in: | | | | | | | | | | | | |
| Interest receivable | | | (30,370 | ) | | | 2,562 | | | | 1,106 | |
| Other assets | | | 57,380 | | | | 42,704 | | | | 46,267 | |
| Accrued expenses and other liabilities | | | 3,865 | | | | (12,959 | ) | | | (8,608 | ) |
| | | | | | | | | | | | | |
| NET CASH PROVIDED BY OPERATING ACTIVITIES | | | 760,822 | | | | 609,539 | | | | 140,447 | |
| | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | |
| Proceeds from maturities and calls of held to maturity securities | | | 0 | | | | 215 | | | | 211 | |
| Proceeds from sales of securities available for sale | | | 410 | | | | 52,820 | | | | 192,085 | |
| Proceeds from maturities and calls of securities available for sale | | | 575,338 | | | | 679,082 | | | | 515,983 | |
| Purchases of securities available for sale | | | (1,572,482 | ) | | | (1,522,076 | ) | | | (596,923 | ) |
| Proceeds from sales of equity securities | | | 6,782 | | | | 1,250 | | | | 1,650 | |
| Purchases of equity securities | | | (2,596 | ) | | | (2,266 | ) | | | (1,379 | ) |
| Proceeds from sales and redemptions of other investment securities | | �� | 4,829 | | | | 11,790 | | | | 148,766 | |
| Purchases of other investment securities | | | (99,435 | ) | | | (34,755 | ) | | | (137,395 | ) |
| Purchases of bank-owned life insurance policies | | | 0 | | | | (85,000 | ) | | | 0 | |
| Redemption of bank-owned life insurance policies | | | 11,947 | | | | 1,114 | | | | 5,729 | |
| Purchases of bank premises and equipment | | | (16,862 | ) | | | (15,380 | ) | | | (19,025 | ) |
| Proceeds from sales of bank premises and equipment | | | 902 | | | | 1,618 | | | | 4,354 | |
| Acquisition of subsidiaries, net of cash paid | | | 0 | | | | 39,420 | | | | 629,107 | |
| Proceeds from sales of OREO properties | | | 10,571 | | | | 5,675 | | | | 14,398 | |
| Net change in loans and leases | | | (2,367,060 | ) | | | 882,147 | | | | (619,976 | ) |
| | | | | | | | | | | | | |
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | | | (3,447,656 | ) | | | 15,654 | | | | 137,585 | |
| | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | |
| Cash dividends paid | | | (193,041 | ) | | | (181,277 | ) | | | (162,713 | ) |
| Acquisition of treasury stock | | | (79,460 | ) | | | (11,211 | ) | | | (21,317 | ) |
| Proceeds from exercise of stock options | | | 10,295 | | | | 5,206 | | | | 1,241 | |
| Distribution of treasury stock from deferred compensation plan | | | 0 | | | | 0 | | | | 1 | |
| Repayment of long-term Federal Home Loan Bank borrowings | | | (520,000 | ) | | | (597,791 | ) | | | (1,847,000 | ) |
| Proceeds from issuance of long-term Federal Home Loan Bank borrowings | | | 1,900,000 | | | | 500,000 | | | | 500,000 | |
| Changes in: | | | | | | | | | | | | |
| Time deposits | | | (623,254 | ) | | | (275,900 | ) | | | 584,175 | |
| Other deposits | | | (421,078 | ) | | | 1,525,093 | | | | 2,271,510 | |
| Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | | | 31,854 | | | | (40,211 | ) | | | (232,354 | ) |
| | | | | | | | | | | | | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 105,316 | | | | 923,909 | | | | 1,093,543 | |
| | | | | | | | | | | | | |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | | (2,581,518 | ) | | | 1,549,102 | | | | 1,371,575 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | | | 3,758,170 | | | | 2,209,068 | | | | 837,493 | |
| | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | | $ | 1,176,652 | | | $ | 3,758,170 | | | $ | 2,209,068 | |
| | | | | | | | | | | | | |
76
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
| | | | | | | | | | | | |
| (In thousands) | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Supplemental information | | | | | | | | | | | | |
Cash paid for interest | | $ | 72,715 | | | $ | 44,609 | | | $ | 39,835 | |
Cash paid for income taxes | | | 73,096 | | | | 61,905 | | | | 52,319 | |
Noncash investing activities: | | | | | | | | | | | | |
Transfers of loans to OREO | | $ | 17,615 | | | $ | 21,776 | | | $ | 5,857 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | |
| Supplemental information | | | | | | | | | | | | |
| Cash paid for: | | | | | | | | | | | | |
| Interest on deposits and borrowed funds | | $ | 98,161 | | | $ | 54,591 | | | $ | 115,347 | |
| Income taxes | | | 93,680 | | | | 101,227 | | | | 65,378 | |
| Noncash investing activities: | | | | | | | | | | | | |
| Transfers of loans to OREO | | | 1,546 | | | | 2,769 | | | | 28,038 | |
| Acquisition of subsidiaries and purchase price adjustments: | | | | | | | | | | | | |
| Assets acquired, net of cash | | | (345 | ) | | | 1,763,843 | | | | 4,172,611 | |
| Liabilities assumed | | | 2.050 | | | | 1,619,438 | | | | 4,302,722 | |
| Goodwill | | | 2,395 | | | | 76,454 | | | | 318,834 | |
See notes to consolidated financial statements
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
United Bankshares, Inc.
(United,(“United”, the
Company)“Company”) is a financial holding company headquartered in Charleston, West Virginia. United considers all of West Virginia to be included in its market area. This area includes the five largest West Virginia Metropolitan Statistical Areas
(MSA)(“MSA”): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Morgantown MSA and the Wheeling MSA. United serves the Ohio counties of Lawrence, Belmont, Jefferson and
the Pennsylvania counties of Washington and Fayette,
county in Pennsylvania primarily because of their close proximity to the Ohio and Pennsylvania borders and United banking offices located in those counties
or in nearby West Virginia. United’s Virginia markets include the Maryland, northern Virginia and Washington, D.C. MSA, the Winchester MSA, the Harrisonburg MSA, and the Charlottesville MSA.
Through its acquisition of Carolina Financial, United’s market also includes the Coastal, Midlands, and Upstate regions of South Carolina, including the Charleston (Charleston, Dorchester and Berkeley Counties), Myrtle Beach (Horry and Georgetown Counties), Columbia (Richland and Lexington Counties), and the Upstate (Greenville and Spartanburg Counties) areas as well as areas in North Carolina including Wilmington (New Hanover County), Raleigh-Durham (Durham and Wake Counties), Charlotte-Concord-Gastonia (NC and SC) and the southeastern coastal region of North Carolina (Bladen, Brunswick, Columbus, Cumberland, Duplin and Robeson Counties). Through its acquisition of Community Bankers Trust, United added new markets in Baltimore and Annapolis, Maryland and Lynchburg and Richmond, Virginia as well as the Northern Neck of Virginia. United considers all of the above locations to be the primary market
areaareas for the business of its banking
and mortgage banking subsidiaries.
Operating Segments: As a result of the acquisition Cardinal Financial Corporation (Cardinal) at the close of business on April 21, 2017,
United
now operates in two business segments: community banking and mortgage banking.
Prior to the Cardinal acquisition, United’s business activities were confined to just one reportable segment of community banking.Through its community banking segment, United offers a full range of banking products and services through various delivery channels. Included among the banking products and services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, credit card, commercial, and floor plan loans; and the making of construction and real estate loans. Also offered are trust and brokerage services, safe deposit boxes, and wire transfers. The mortgage banking segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market thoughthrough George Mason Mortgage, LLC (George Mason)(“George Mason”) and Crescent Mortgage Company (“Crescent”), an indirectly owned subsidiarysubsidiaries of United.
In addition, United, through Crescent, may retain the rights to service a portion of the loans sold in the third-party market as part of its mortgage banking activities, for which United receives service fee income. In addition, at certain times United may purchase or sell rights to service from or to third parties. These rights are known as mortgage servicing rights, or MSRs, where the owner of the MSR acts on behalf of the mortgage loan owner and has the contractual right to receive a stream of cash flows in exchange for performing specified mortgage servicing functions.
Basis of Presentation:
The consolidated financial statements and the notes to consolidated financial statements include the accounts of United and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.
The Cardinal acquisition was accounted for using the acquisition method and their results of operations have been included in the United’s consolidated financial statements as of the acquisition date (April 21, 2017).
United determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity
(VIE)(“VIE”) under U.S. generally accepted accounting principles. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. United consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIEs are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. United’s wholly owned and indirect wholly owned statutory trust subsidiaries are VIEs for which United is not the primary beneficiary. Accordingly, its accounts are not included in United’s consolidated financial statements.
78
The accounting and reporting policies of United conform with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. To conform to the
20172022 presentation, certain reclassifications have been made to prior period amounts, which had no impact on net income, comprehensive income or shareholders’ equity. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations have been made. Such adjustments are of a normal and recurring nature.
In addition, $1,483,987,000 was reclassed from noninterest-bearing deposits to interest-bearing deposits on United’s Consolidated Balance Sheets for the period ended December 31, 2021 due to the nature of the underlying deposit accounts and a misclassification in the previous presentation. This reclassification did not impact any other amounts reported or disclosed in the consolidated financial statements. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations have been made.
The Company has evaluated events and transactions subsequent to December 31,
20172022 through the date these financial statements were issued. Based on definitions and requirements of generally accepted accounting principles for “Subsequent Events,” the Company has not identified any events that would require adjustments to, or disclosure in the financial statements.
Cash and Cash Equivalents:
United considers cash and due from banks, interest-bearing deposits with other banks and federal funds sold as cash and cash equivalents.
Securities: Management determines
Debt securities
: The Company accounts for debt securities in two categories: held to maturity (“HTM”) and available for sale (“AFS”). Premiums and discounts on debt securities are deferred and recognized into income over the
appropriate classificationcontractual life of
the asset using the effective interest method.HTM securities are accounted for at amortized cost, but the time of purchase. Debt securities that United hasCompany must have both the positive intent and the ability to hold those securities to maturitymaturity. There are carried at amortized cost. Securitiesvery limited circumstances under which securities in the HTM category can be sold without jeopardizing the cost basis of accounting for the remainder of the securities in this category. Substantially all of the Company’s HTM debt securities are issued by state and political subdivisions (municipalities). As of December 31, 2022, United considers its HTM debt securities portfolio to be held for indefinite periods of time and all marketable equityimmaterial.
AFS securities are
classified as availableaccounted for
at fair value. Gains and losses realized on the sale
and carried at estimated fairvalue.of these securities are accounted for based on the specific identification method. Unrealized gains and losses onfor AFS securities classified as available for sale are carried as a separateexcluded from earnings and reported net of the related tax effect in the accumulated other comprehensive income component of Accumulated Other Comprehensive Income (Loss), netshareholders’ equity.
Allowance for Credit Losses (HTM Debt Securities)
: For HTM debt securities, the Company is required to utilize a current expected credit losses (“CECL”) methodology to estimate expected credit losses. As of
deferred income taxes.Gains orDecember 31, 2022 and 2021, the Company recorded an allowance for credit losses of $18,000 and $19,000, respectively, on sales ofits HTM debt securities portfolio.
Allowance for Credit Losses (AFS Debt Securities)
: The impairment model for(“AFS”) debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are
recognized bymeasured at fair value rather than amortized cost. Although ASC Topic 326, “Financial Instruments – Credit Losses” replaced the
specific identification method and are reported in securities gains and losses within noninterest incomelegacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the
Consolidated Statements of Income. United reviewsavailable-for-sale andheld-to-maturitylegacy OTTI model. For AFS debt securities
on a quarterly basis for possible impairment. United determinesin an unrealized loss position, the Company first assesses whether
a decline in fair value below the amortized cost basis of a security is other-than-temporary. This determination requires significant judgment. In making this judgment, United’s review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer, recent changes in external credit ratings, and the assessment of collection of the security’s contractual amounts from the issuer or issuers. If Unitedit intends to sell, or it is more likely than not that
Unitedit will be required to sell,
an impaired debtthe security before recovery of its amortized cost
basis. If either criteria is met, the security’s amortized cost basis
is written down to fair value through income. For AFS debt securities where neither of the criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less
than amortized cost, any
current periodchanges to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss
other-than-temporary impairment is recognized in earnings. The credit loss is defined as the difference betweenexists, the present value of cash flows expected to be collected
(discounted atfrom the
contractual rate)security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and
an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis.
The amount recognized in earnings is equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. If United doesAny remaining discount that has not
intend to sell, and it is not more likely than not that United will be required to sell the impaired debt security prior to recovery of its amortized cost basis less any current-periodbeen recorded through an allowance for credit
loss, the other-than-temporary impairment is separated into the following: 1) the amount representing the credit loss, which is recognized within noninterest income of the Consolidated Statements of Income, and 2) the amount related to all other factors, whichlosses is recognized in other comprehensive
income within shareholders’ equityincome.79
An entity may no longer consider the length of time fair value has been less than amortized cost. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the
Consolidated Balance Sheets.For equitycriteria regarding intent or requirement to sell is met. As of December 31, 2022, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. United evaluateshas the near-term prospects ofintent and the investment in relation to the severity and duration of any impairment and United’s ability and intent to hold these securities until such time as the value recovers or the securities mature.
Equity securities:
Investments in equity securities
until a recovery of theirwith readily determinable fair values (marketable) are measured at fair value,
to at least the cost basis of the investment. Equity securities that are deemed to be other-than-temporarily impaired are written down towith changes in the fair value
with the write-down recognized
within noninterest income ofin Net investment securities gains in the Consolidated Statements of Income.
Other investment securities:
Certain
security investments such as Federal Reserve Bank stock and Federal Home Loan Bank stock that do not have readily determinable fair values(non-marketable)
are accounted for at cost minus impairment, if any. For other security investments that do not have readily determinable fair values
and(non-marketable),
they are accounted for
which United does not exercise significant influence are carried at cost
and are classified as other investment securities on the balance sheet. These cost-method investments are reviewed forminus impairment,
at least annuallyif any, plus or
sooner if events orminus changes resulting from observable price changes in
circumstances indicateorderly transactions for the identical or similar investment of the same issuer, also referred to as the measurement alternative. Any adjustments to the carrying value
may not be recoverable.of these investments are recorded in Other income in the Consolidated Statements of Income.
Securities Purchased Under Resale Agreements and Securities Sold Under Agreements to Repurchase:
Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized financing transactions. They are recorded at the amounts at which the securities were acquired or sold plus accrued interest. Securities, generally U.S. government and federal agency securities, pledged as collateral under these financing arrangements cannot be repledged or sold, unless replaced, by the secured party. The fair value of the collateral either received from or provided to a third party is continually monitored and additional collateral is obtained or is requested to be returned to United as deemed appropriate.
Loans:
Loans are reported at the principal amount outstanding, net of unearned
income.income, except loans acquired through transfer (see below). Interest on loans is accrued and credited to operations using methods that produce a level yield on individual principal amounts outstanding. Loan origination and commitment fees and related direct loan origination costs are deferred and amortized as an adjustment of loan yield over the estimated life of the related loan. Loan fees net of costs accreted and included in interest income were
$44,475,000, $18,471,000, $57,424,000, $92,545,000, and $15,798,000,$76,064,000, for the years of 2017, 20162022, 2021 and 2015,2020, respectively. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral exceeds the principal balance and accrued interest, and the loan is in the process of collection.
Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Consistent with United’s existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. United’s method of income recognition for impaired loans that are classified as nonaccrual is to recognize interest income on the cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt.
A loan is categorized as
restructureda troubled debt restructuring (“TDR”) if a concession is granted
to provide for a reduction of either interest or principal due to aand there is deterioration in the financial condition of the borrower. A loan classified as
restructureda TDR will generally retain such classification until the loan is paid in full. However, a
restructuredresidential mortgage TDR loan that yields a market rate and demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally one year, is removed from the restructuredTDR classification. Interest income on restructured loansTDRs is accrued at the reduced rate and the loan is returned to performing status once the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally six months. The portfolioTDRs can take the form of
restructureda reduction of the stated interest rate, splitting a loan into separate loans
and leases with market terms on one loan and concessionary terms on the other loan, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, or the reduction of accrued interest or any other concessionary type of renegotiated debt. Under United’s current loan policy, a loan is
monitored monthly.not recognized as a TDR until it becomes probable that the loan will be a TDR. In response to the coronavirus(“COVID-19”)
pandemic and its economic impact on our customers, United implemented a short-term modification program that complied with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide temporary payment relief to those borrowers directly impacted byCOVID-19
who were not more than 30 days past due as of December 31, 2019. This program allowed for a deferral of payments from the period beginning March 1, 2020 until January 1, 2022. As provided for under the CARES Act, these loan modifications were exempt by law from classification as a TDR as defined by GAAP.
80
Loans Acquired Through Transfer: Loans acquired through
Acquired loans are recorded at fair value at the
completiondate of
acquisition based on a
transfer,discounted cash flow methodology that considers various factors including
the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. Certain purchased loans
are individually evaluated while certain purchased loans are grouped together according to similar risk characteristics and are treated in the aggregate when applying various valuation techniques. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.Loans acquired in a business combination that have evidence ofexperienced more-than-insignificant deterioration ofin credit quality since origination and for which it is probable, atare considered purchased credit deteriorated (“PCD”) loans. At the acquisition that United will be unable to collect all contractually required payment receivable are initially recorded at fair value (as determined by the present valuedate, an estimate of expected future cash flows)credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no valuation allowance. Thecredit loss expense recognized upon acquisition of a PCD loan. Any difference between the undiscounted cash flows expected at acquisitionunpaid principal balance of PCD loans and the investmentamortized cost basis is considered to relate to noncredit factors and results in the loan,a discount or the “accretable yield,” ispremium. Discounts and premiums are recognized asthrough interest income on a level-yield method over the life of the loan. Contractually required paymentsloans.
For loans and leases acquired after the adoption of ASC Topic 326, United will likely take several factors into consideration when determining if loans and leases meet the definition of PCD. ASC Topic 326 lists some, but not all, factors for
interest and principal that exceedconsideration in the
undiscounted cash flows expectedbifurcation of PCD versusnon-PCD
assets: | · | | Financial assets that are delinquent as of the acquisition date |
| · | | Financial assets that have been downgraded since origination |
| · | | Financial assets that have been placed on nonaccrual status |
For acquired loans not deemed purchased credit deteriorated at acquisition,
or the
“nonaccretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent todifferences between the initial
investment are recognized prospectively through adjustment offair value and the
yield on the loan over its remaining life. Decreases in expected cash flowsunpaid principal balance are recognized as
impairment. Valuation allowancesinterest income on
these impaired loans reflect only losses incurred aftera level-yield basis over the
acquisition (meaninglives of the
present value of all cash flows expected at acquisition that ultimately are not to be received).related loans.
Loans Held for Sale:
Loans held for sale consist of
family conforming residential real estate loans originated for sale in the secondary market.Loans held for sale
within the mortgage banking segment are recorded under the fair value option at a fair value measured using valuations from investors for loans with similar characteristics adjusted for the Company’s actual sales experience versus the investor’s indicated pricing.
Loans held for sale within the community banking segment are carried at the lower of cost or fair value. The fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale.
Gains and losses on sale of loans are recorded within income from mortgage banking activities.
Allowance for
CreditLoan and Lease Losses:
United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. The combined allowance for loan losses and reserve for lending-related commitments are referred to as the allowance for credit losses.The allowance for loan losses is
management’san estimate of the
probableexpected credit losses
inherent inon financial assets measured at amortized cost to present the
loan portfolio. Management’s evaluationnet amount expected to be collected as of the
adequacybalance sheet date. Such allowance is based on the credit losses expected to arise over the life of
the asset (contractual term). Assets are charged off when United determines that such financial assets are deemed uncollectible or based on regulatory requirements, whichever is earlier. Charge-offs are recognized as a deduction from the allowance for loan
losses andlosses. Expected recoveries of amounts previouslycharged-off,
not to exceed the
appropriate provision for credit losses isbased upon a quarterly evaluationaggregate of the portfolio. This evaluation is inherently subjectiveamount previouslycharged-off,
are included in determining the necessary reserve at the balance sheet date.
United made a policy election to present the accrued interest receivable balance separately in its consolidated balance sheets from the amortized cost of a loan. United estimates the allowance balance using relevant available information, from internal and
requires significant estimates, includingexternal sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the
amounts and timingbasis for the estimation of
estimated future cash flows, estimated losses on pools of loans based onexpected credit losses. Adjustments to historical loss
experience,information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as reasonable and
considerationsupportable forecast adjustments for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. A reversion to historical loss data occurs via a straight-line method during the year following theone-year
reasonable and supportable forecast period. 81
United pools its loans and significant change. The amounts allocated to specific credits and loan pools grouped byleases based on similar risk characteristics are reviewed on a quarterly basisin estimating expected credit losses. United has identified the following portfolio segments and adjusted as necessary based upon subsequent changes in circumstances. In determining the components ofmeasures the allowance for credit losses management considersusing the risk arisingfollowing methods:
| · | | Method: Probability of Default/Loss Given Default (PD/LGD) |
| | | Commercial Real Estate Owner-Occupied |
| | | Commercial Real Estate Nonowner-Occupied |
| | | Construction & Land Development |
Risk characteristics of commercial real estate owner-occupied loans and commercial other loans and leases are similar in partthat they are normally dependent upon the borrower’s internal cash flow from but not limitedoperations tocharge-off service debt. Commercial real estate nonowner-occupied loans differ in that cash flow to service debt is normally dependent on external income from third parties for use of the real estate such as rents, leases and delinquency trends, currentroom rates. Residential real estate loans are dependent upon individual borrowers who are affected by changes in general economic conditions, demand for housing and business conditions, lending policiesresulting residential real estate valuation. Construction and procedures, the sizeland development loans are impacted mainly by demand whether for new residential housing or for retail, industrial, office and other types of commercial construction within a given area. Consumer loan pool risk characteristics are influenced by general, regional and local economic conditions.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the
loan portfolio, concentrations ofcollateral but may also include othernon-performing
loans or TDRs, expected credit
and other various factors. Loans deemed to be uncollectible are charged against the allowance for loan losses
while recoveries of previouslycharged-off amounts are credited to the allowance for loan losses.In determining the adequacy of the allowance for loan losses, management makes allocations to specific commercial loans classified by management as to risk. Management determines the loan’s risk by considering the borrowers’ ability to repay, the collateral securing the credit and other borrower-specific factors that may impact collectibility. For impaired loans, specific allocations are based on the present value of expected future cash flows using the loan’s effective interest rate, or as a practical expedient, at the loan’s observable market price or the fair value of the collateral ifat the reporting date, adjusted for selling costs as appropriate. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans. In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a loan is collateral-dependent. Other commercialexpected to be classified as a TDR.
Expected credit losses are estimated over the contractual term of the loans not specifically reviewed onand leases, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual basisborrower, or the extension or renewal options are evaluated based on loan pools, whichincluded in the original or modified contract at the reporting date and are groupednot unconditionally cancelable by similar risk characteristics using management’s internal risk ratings. AllocationsUnited.
At the acquisition date, an initial allowance for
these commercial loan pools are determined based upon historicalexpected credit losses fornon-PCD
loans is estimated and recorded as credit loss
experience adjusted for current environmental conditions and risk factors and the estimate period it takes forexpense. The subsequent measurement of expected credit losses
to result in acharge-off. Allocations for loans, other than commercial loans, are developed by applying historical loss experience adjusted for current environmental conditions and risk factors to loan pools grouped by similar risk characteristics. The environmental factors considered for each of the loan portfolios includes estimated probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. While allocations are made to specific loans and pools of loans, the allowance is available for all
loan losses. Management believes thatacquired loans is the
same as the subsequent measurement of expected credit losses for originated loans. For allowance for credit losses
is adequate to provide for probable losses on existingunder ASC Topic 326 calculation purposes, United includes its acquired loans and
loan-related commitments based on information currently available.leases in their relevant pool unless they meet the criteria for specific review.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost, less allowances for depreciation and amortization. The provision for depreciation is computed principally by the straight-line method over the estimated useful lives of the respective assets. Useful lives range primarily from
three to 15 years for furniture, fixtures and equipment and
five to 40 years for buildings and improvements. Leasehold improvements are generally amortized over the lesser of the term of the respective leases or the estimated useful lives of the improvements.
Other Real Estate Owned
: At December 31,
20172022 and
2016,2021, other real estate owned
(OREO)(“OREO”) included in other assets in the Consolidated Balance Sheets was
$24,348,000$2,052,000 and
$31,510,000,$14,823,000,
respectively. OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Any adjustment to the fair value at the date of transfer is charged against the
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allowance for loan losses. Any subsequent valuation adjustments as well as any costs relating to operating, holding or disposing of the property are recorded in other expense in the period incurred. At December 31,
2017 2022and 2016,2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $873,000 $
1,309,000and $660,000,$
13,000Intangible Assets:
Intangible assets relating to the estimated fair value of the deposit base of the acquired institutions are being amortized on an accelerated basis over a one toten-year
period. Management reviews intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. United incurred amortization expense of $5,516,000,
$5,908,000,
and $6,605,000, in 2022, 2021, and 2020, respectively, related to all intangible assets.Goodwill is tested for impairment at least annually or sooner if indicators of impairment exist. United may elect to perform a qualitative analysis to determine whether or not it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount. If United elects to bypass this qualitative analysis, or concludes via qualitative analysis that it ismore-likely-than-not
that the fair value of a reporting unit is less than its carrying value, United may use either a market or income quantitative approach, whichever is more practical, to determine the fair value of the reporting unit to compare to its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, an impairment charge would be recorded for the excess, not to exceed the amount of goodwill allocated to the reporting unit. At each reporting date, the Company considers potential indicators of impairment. United utilized a qualitative approach to test goodwill for impairment as of September 30, 2022. The goodwill impairment test did not identify any indicators of goodwill impairment. As of December 31, 2022, and 2021, total goodwill approximated $1,888,889 and $1,886,494,000
, respectively. Mortgage Servicing Rights, Fees and Costs:
The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“MSRs”) at fair value. For subsequent measurement purposes, the Company measures servicing assets and liabilities using the amortization method.MSRs are amortized in proportion to, and over the period of, estimated net servicing income. The amortization of the MSRs is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates.
The Company evaluates potential impairment of MSRs based on the difference between the carrying amount and current estimated fair value of the servicing rights. In determining impairment, the Company aggregates all servicing rights and stratifies them into tranches based on predominant risk characteristics. If impairment exists, a valuation allowance is established for any excess of amortized cost over the current estimated fair value by a charge to income. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income.
Service fee income is recorded for fees earned for servicing mortgage loans under servicing agreements with the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), Government National Mortgage Association (“GNMA”) and certain private investors. The fees are based on a contractual percentage of the outstanding principal balance of the loans serviced and are recorded in noninterest income. Amortization of MSRs and mortgage servicing costs are charged to expense when incurred.
Accrued Interest Receivable
:In accordance with ASC Topic 326, the Company made the following elections regarding accrued interest receivable (“AIR”):Presenting accrued interest receivable balances separately from their underlying instruments within the consolidated statements of financial condition.
Excluding accrued interest receivable that is included in the amortized cost of financing receivables from related disclosure requirements.
Continuing our policy to write off accrued interest receivable by reversing interest income in cases where the Company does not reasonably expect to receive payment.
Generally, not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner. However, due to loan interest payment deferrals on certain loans and leases granted by United under the CARES Act, United assessed the collectability of the accrued interest receivables on these deferring loans and leases. As a result of this assessment, United did not record an allowance for credit losses for accrued interest receivables not expected to be collected as of December 31, 2022 as compared to an allowance for credit losses of $8,000 as of December 31, 2021
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Revenue Recognition
: Interest and dividend income, loans fees, fees from trust and brokerage services, deposit services and bankcard fees are recognized and accrued as earned.
Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our Consolidated Statements of Income as components of Other Income are discussed below. There are no significant judgements relating to the amount and timing of revenue recognition for those revenue streams under the scope of ASC Topic 606.
Revenue from trust services primarily is comprised of fees earned from the management and administration of trusts and other customer assets. Trust services include custody of assets, investment management, escrow services, and similar fiduciary activities. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon themonth-end
market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. Fees from Brokerage Services
Revenue from brokerage services are recorded as the income is earned at the time the related service is performed. In return for such services, the Company charges a commission for the sales of various securities products primarily consisting of investment company shares, annuity products, and corporate debt and equity securities, for its selling and administrative efforts. For account supervision, advisory and administrative services, revenue is recognized over a period of time as earned based on customer account balances and activity.
Fees from Deposit Services
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, ATM activity fees, debit card fees, and other deposit account related fees. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (ATM or debit card activity).
Bankcard Fees and Merchant Discounts
Bankcard fees and merchant discounts are primarily comprised of credit card income and merchant services income. Credit card income is primarily comprised of interchange fees earned whenever the Company’s credit cards are processed through card payment networks such as Visa. Merchant services income mainly represents fees charged to merchants to process their credit card transactions. The Company’s performance obligation for bankcard fees and interchange are largely satisfied, and related revenue recognized at the time services are rendered. Payment is typically received immediately or in the following month.
Advertising Costs:
Advertising costs are generally expensed as incurred and included in Other Expense on the Consolidated Statements of Income. Advertising expense was
$4,519,000, $3,410,000,$8,160,000, $5,781,000, and
$4,111,000$5,611,000, for the years of
2017, 2016,2022, 2021, and
2015,2020, respectively.
Income Taxes:
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities (excluding deferred tax assets and liabilities related to business combinations or components of other comprehensive income). Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is
more likely than not more-likely-than-not
that all of the deferred tax assets will be realized. Interest and/or penalties related to income taxes are reported as a component of income tax expense.
84
For uncertain income tax positions, United records a liability based on a recognition threshold of
more-likely-than-not,
and a measurement attribute for all tax positions taken on a tax return, in order for those tax positions to be recognized in the financial statements.United files a consolidated income tax return with its subsidiaries. Federal income tax expense or benefit has been allocated to subsidiaries on a separate return basis.
Intangible Assets: Intangible assets relating to the estimated fair value of the deposit base of the acquired institutions are being amortized on an accelerated basis over a one to seven-year period. Management reviews intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. United incurred amortization expense of $7,772,000, $3,944,000, and $3,420,000 in 2017, 2016, and 2015, respectively, related to all intangible assets.
Goodwill and intangible assets with indefinite lives (such as a trade name intangible) are not amortized, but are tested for impairment at least annually or sooner if indicators of impairment exist. Intangible assets with definite useful lives (such as core deposit intangibles) are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment at least annually or as indicators of impairment are identified. Based on the most recent goodwill impairment test, no impairment was noted. As of December 31, 2017, and 2016, total goodwill approximated $1,478,380,000 and $863,767,000, respectively.
Derivative Financial Instruments:
United accounts for its derivative financial instruments in accordance with
the Derivatives and Hedging topic of the FASB Accounting Standards Codification. The Derivatives and Hedging topicASC Topic 815 which requires all derivative instruments to be carried at fair value on the balance sheet. United has designated certain derivative instruments
used to manage interest rate risk as hedge relationships with certain assets, liabilities or cash flows being hedged. Certain derivatives used for interest rate risk management are not designated in a hedge relationship.
Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period
earnings.earnings either in interest income or interest expense depending on the nature of the hedged financial instrument. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to
accumulated other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to
accumulated other comprehensive income, net of
tax. The portion of a hedge that is ineffective is recognized immediatelytax and reclassified into earnings in
the same line associated with the forecasted transaction when the forecasted transaction affects earnings.
Fair value hedges may be eligible for offset on the consolidated balance sheets because they are subject to master netting arrangements or similar agreements. United has elected not to offset the assets and liabilities subject to such arrangements on the consolidated financial statements.
At inception of a hedge relationship, United formally documents the hedged item, the particular risk management objective, the nature of the risk being hedged, the derivative being used, how effectiveness of the hedge will be assessed and how the ineffectiveness of the hedge will be measured. United also assesses hedge effectiveness at inception and on an ongoing basis using regression analysis. Hedge ineffectiveness is measured by using the change in fair value method. The change in fair value method compares the change in the fair value of the hedging derivative to the change in the fair value of the hedged exposure, attributable to changes in the benchmark rate.
United through
George Masonits mortgage banking subsidiaries enters into interest rate lock commitments to finance residential mortgage loans with its customers. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by United. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Market risk on interest rate lock commitments and mortgage loans held for sale is managed using corresponding forward mortgage loan sales contracts. United is a party to these forward mortgage loan sales contracts to sell loans
with servicing
either released
or retained and short sales of mortgage-backed securities. When the interest rate is locked with the borrower, the rate lock commitment, forward sale agreement, and mortgage-backed security position are undesignated derivatives and marked to fair value through earnings. The fair value of the rate lock derivative
includesis measured using valuations from investors for loans with similar characteristics as well as considering the
servicing premium andprobability of the
interest spreadloan closing (i.e. the “pull-through” rate) with some adjusted for the
difference between retail and wholesale mortgage rates.Company’s actual sales experience versus the investor’s indicated pricing. Fair values of TBA mortgage-backed securities are measured using valuations from investors for mortgage-backed securities with similar characteristics. Income from mortgage banking activities includes the gain recognized for the period presented and associated elements of fair value.
United
sells mortgage loansis subject to the Dodd-Frank Act clearing requirement for eligible derivatives. United has executed and cleared eligible derivatives through the London Clearing House (“LCH”). Variation margin at the LCH is distinguished asand settled daily based on
either a best efforts or mandatory delivery basis. For loans sold on a mandatory delivery basis, United enters into forward mortgage-backed securities (the “residual hedge”) to mitigate the
effect of interest rate risk. Both the rate lock commitment for mandatory delivery loans and the residual hedge are recorded at fairprior day value,
through earnings and are not designated as accounting hedges. At the closingrather thancollateralized-to-market.
of the
loan,derivative exposure does not change or reset the
loan commitment derivative expires and United records a loan held for sale at fair value and continues to mark these assets to market under the electioncontractual terms of the
fair value option. United closes outinstrument.85
For derivatives that are not designated in a hedge relationship, changes in the fair value of the derivatives are recognized in earnings in the same period as the change in the fair value.
Off-balance-sheet
credit exposuresoff-balance
sheet credit exposures is recorded as other expense in the consolidated statements of income. The reserve for lending-related commitments is separately classified on the balance sheet and is included in other liabilities. The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses on loans and leases.Stock-Based Compensation
: Compensation expense related to stock options,
restricted stock awards (“RSA”) and restricted stock
awardsunits (“RSU”) issued to participants is based upon the fair value of the award at the date of grant. The fair value of stock options is estimated at the date of grant using a binomial lattice option pricing model, while the fair value of
restricted stock awardsRSAs is based upon the stock price at the date of grant.
RSU grants could be time-vested RSUs, performance-vested RSUs, or a combination of both. The value of the time-vested RSUs and the performance-vested, based on a performance condition, RSUs awarded is established as the fair market value of the stock at the time of the grant. The value of the performance-vested, based on a market condition, RSUs awarded is estimated through the use of a Monte Carlo valuation model as of the grant date. Compensation expense is recognized on a straight-line basis over the vesting period for
optionsall stock-based awards and
the respective period for stock awards.grants.
Stock-based compensation expense was
$3,555,000$9,881,000 in
2017, $2,817,0002022, $8,018,000 in
2016,2021, and
$2,484,000$5,980,000 in
2015.2020.
Treasury Stock
: United records common stock purchased for treasury at cost. At the date of subsequent reissuance, the treasury stock account is reduced by the cost of such stock using the weighted-average cost method.
Trust Assets and Income:
Assets held in a fiduciary or agency capacity for customers are not included in the balance sheets since such items are not assets of the company. Trust income is reported on an accrual basis.
Earnings Per Common Share:
United calculates earnings per common share in accordance with ASC
topicTopic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the
two-class
method. United has determined that its outstandingnon-vested
restricted stock awards are participating securities.Under the
two-class
method, basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. Antidilutive stock options and restricted stock outstanding of 656,432, 1,024,612, and 1,926,840 for the years ended December 31, 2022, 2021 and 2020, respectively, were excluded from the earnings per diluted common share calculation.
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The reconciliation of the numerator and denominator of basic earnings per share with that of diluted earnings per share is presented as follows:
| | | | | | | | | | | | |
| | | Year Ended December 31 | |
| (Dollars in thousands, except per share) | | 2017 | | | 2016 | | | 2015 | |
Distributed earnings allocated to common stock | | $ | 131,527 | | | $ | 98,510 | | | $ | 89,497 | |
Undistributed earnings allocated to common stock | | | 18,816 | | | | 48,317 | | | | 48,218 | |
| | | | | | | | | | | | |
Net earnings allocated to common shareholders | | $ | 150,343 | | | $ | 146,827 | | | $ | 137,715 | |
| | | | | | | | | | | | |
Average common shares outstanding | | | 97,502,633 | | | | 73,531,992 | | | | 69,334,849 | |
Dilutive effect of stock compensation | | | 387,445 | | | | 361,135 | | | | 290,682 | |
| | | | | | | | | | | | |
Average diluted shares outstanding | | | 97,890,078 | | | | 73,893,127 | | | | 69,625,531 | |
| | | | | | | | | | | | |
Earnings per basic common share | | $ | 1.54 | | | $ | 2.00 | | | $ | 1.99 | |
Earnings per diluted common share | | $ | 1.54 | | | $ | 1.99 | | | $ | 1.98 | |
| | | | | | | | | | | | |
| | | | |
(Dollars in thousands, except per share) | | | | | | | | | |
| Distributed earnings allocated to common stock | | $ | 194,052 | | | $ | 181,614 | | | $ | 171,403 | |
| Undistributed earnings allocated to common stock | | | 184,572 | | | | 185,082 | | | | 116,879 | |
| | | | | | | | | | | | | |
| Net earnings allocated to common shareholders | | $ | 378,624 | | | $ | 366,696 | | | $ | 288,282 | |
| | | | | | | | | | | | | |
| Average common shares outstanding | | | 134,776,241 | | | | 129,276,452 | | | | 120,017,247 | |
| Dilutive effect of stock compensation | | | 341,271 | | | | 236,401 | | | | 72,985 | |
| | | | | | | | | | | | | |
| Average diluted shares outstanding | | | 135,117,512 | | | | 129,512,853 | | | | 120,090,232 | |
| | | | | | | | | | | | | |
| Earnings per basic common share | | $ | 2.81 | | | $ | 2.84 | | | $ | 2.40 | |
| Earnings per diluted common share | | $ | 2.80 | | | $ | 2.83 | | | $ | 2.40 | |
Fair Value Measurements
: United determines the fair values of its financial instruments based on the fair value hierarchy established in ASC
topicTopic 820, which also clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
The Fair Value Measurements and Disclosures topic
ASC Topic 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect United’s market assumptions.
The three levels of the fair value hierarchy based on these two types of inputs are as follows:
| | | | | | |
Level 1 | | | - | | | Valuation is based on quoted prices in active markets for identical assets and liabilities. |
| | |
Level 2 | | | - | | | Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. |
| | |
Level 3 | | | - | | | Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. |
When determining the fair value measurements for assets and liabilities, United looks to active and observable markets to price identical assets or liabilities whenever possible and classifies such items in Level 1. When identical assets and liabilities are not traded in active markets, United looks to market observable data for similar assets and liabilities and classifies such items as Level 2. Nevertheless, certain assets and liabilities are not actively traded in observable markets and United must use alternative valuation techniques using unobservable inputs to determine a fair value and classifies such items as Level 3. For assets and liabilities that are not actively traded, the fair value measurement is based primarily upon estimates that require significant judgment. Therefore, the results may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there are inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.
Recent Accounting Pronouncements
:
In
February 2018,December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2022-06,
“Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” ASU2022-06
extends the period of time financial statement preparers can utilize the reference rate reform relief guidance. In 2020, the FASB issued ASU
No. 2018-02, “Reclassification2020-04
to provide temporary, optional expedients related to the accounting for contract modifications and hedging transactions as a result of
Certain Tax Effects from Accumulated Other Comprehensive Income,” to help organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resultingthe global markets’ anticipated transition away from the
Tax Cutsuse of LIBOR and
Jobs Act (the “Tax Act”). Thisother interbank offered rates to alternative reference rates. At the time ASU
provides financial statement preparers with an option2020-04
was issued, the United Kingdom’s Financial Conduct Authority (FCA) had established the intent that it would no longer be necessary to
reclassify stranded tax effects within AOCIpersuade, or compel, banks to
retained earnings in each period in whichsubmit to LIBOR after December 31, 2021. As a result, the
effectsunset provision was set for December 31, 2022; 12 months after the87
expected cessation date of all currencies and tenors of LIBOR. In March 2021, the
changeFCA announced that the intended cessation date of LIBOR in the
U.S. federal corporate income tax rate inUnited States would be June 30, 2023. Accordingly, ASU2022-06
defers the
Tax Act (or portion thereof) is recorded.expiration date of ASU 848 to December 31, 2024. The
amendmentsCompany has implemented a transition plan to identify and modify its loans and other financial instruments with attributes that are
effective for all organizations for fiscal years beginningeither directly or indirectly influenced by LIBOR. In addition, the Company took steps to ensure that no new contracts using LIBOR were originated after December
15, 2018,31, 2021. At this time, the Company is prioritizing the Secured Overnight Financing Rate (“SOFR”) and
interim periods within those fiscal years. Early adoption is permitted. Organizations should applyPrime as the
proposed amendments either in the period of adoption or retrospectivelypreferred alternatives to
each period (or periods) in which the effect of theLIBOR; however, these preferred alternatives could change
in the U.S. federal corporate income tax rate in the Tax Act is recognized. United expects to adopt ASUNo. 2018-02 in the first quarter of 2018 and reclassify the stranded income tax effected amounts in AOCI to retained earnings in the period of adoption.over time based on market developments.
In
August 2017,June 2022, the FASB issued ASU
No. 2017-12, “Targeting Improvement 202203, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to
AccountingContractual Sale Restrictions.”ASU 2022-03
clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.ASU 2022-03
also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for
Hedging Activities.” This equity securities subject to contractual sale restrictions.ASU
amends ASC 815 and its objectives are to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and reduce the complexity and simplify the application ofhedge accounting by preparers. ASUNo. 2017-12 is2022-03
effective for
interim and annual reporting periods beginning after December 15, 2018;United on January 1, 2024 though early adoption is permitted.
The adoption ofASUNo. 2017-12 2022-03
is not expected to have a material impact on the Company’s financial condition or results of operations.
In
July 2017,March 2022, the FASB issued ASU
No. 2017-11, “Part I, Accounting2022-02,
“Troubled Debt Restructurings and Vintage Disclosures”. ASU2022-02
updates the requirements for Certain Financial Instruments with Down Round Features and Part II, Replacement of the Indefinite Deferralaccounting for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entices and Certain Mandatorily Redeemable Noncontrolling interests with a Scope Exception.” Part I of this ASU simplifiescredit losses under ASC 326, eliminates the accounting guidance on troubled debt restructurings for creditors in ASC310-40,
and enhances creditors’ disclosure requirements related to loan refinancings and restructurings for borrowers experiencing financial instruments that include down round features while the amendments in Part II, which do not have an accounting effect, address the difficulty of navigatingdifficulty. ASU2022-02
also amends the guidance in ASC 480, “Distinguishing Liabilities from Equity”, dueon “vintage disclosures” to the existencerequire disclosure of extensive pending content in the Codification.gross write-offs by year of origination. ASUNo. 2017-112022-02
is effective for interim and annual reporting periodspublic business entities that have adopted Topic 326 for fiscal years beginning after December 15, 2018. ASUNo. 2017-11 is not expected to have a material impact on the Company’s financial condition or results of operations.In May 2017, the FASB issued ASUNo. 2017-09, “Stock Compensation, Scope of Modification Accounting.” This ASU clarifies when changes to the terms of conditions of a share-based payment award must be accounted for as modifications. Companies will apply the modification accounting guidance if the value, vesting conditions or classification2022, including interim periods within those fiscal years. Early adoption of the award changes.amendment is permitted. ASUNo. 2022-02
was adopted by United on January 1, 2023. The new guidance should reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications, as the guidance will allow companies to make certainnon-substantive changes to awards without accounting for them as modifications. It does not change the accounting for modifications. ASUNo. 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption was permitted. ASUNo. 2017-09 did not have a material impact on the Company’s financial condition or results of operations.
However, ASUNo. 2022-02
will have an effect on the Company’s disclosures for United’s March 31, 2023 Form10-Q.
In March
2017,2022, the FASB issued ASU
2017-07, “ImprovingNo. 2022-01,
“Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”. ASU2022-01
further aligns risk management objectives with hedge accounting results on the
Presentationapplication of
Net Periodic Pension Costthemethod, which was first introduced in ASUNo. 2017-12.
The enhanced guidance further improves theconcepts to expand to nonprepayable financial assets and
Net Periodic Postretirement Benefit Cost.” ASU2017-07 amends ASC 715, “Compensation - Retirement Benefits” and will change how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit costallows more flexibility in the
income statement. Employers will presentderivative structures used to hedge the
service cost componentinterest rate risk. ASU2022-01
also provides guidance on the relationship between the portfolio layer method requirements and other areas of
net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligibleGAAP. ASUNo. 2022-01
is effective for
capitalization in assets. Employers will present the other componentspublic business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the
net periodic benefit cost separately fromamendment is permitted if an entity has adopted ASU2017-12
for the
line item that includes the service cost and outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets.corresponding period. ASU
2017-07No. 2022-01
was
effective foradopted by United on January 1,
2018.2023. The adoption
of ASU2017-07 will have a slight change in presentation but not materially impact the Company’s financial condition or results of operations.In January 2017, the FASB issued ASU2017-04, “Intangibles – Goodwill and Other (topic 350).” ASU2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU2017-04 is effective for United on January 1, 2020, with early adoption permitted, and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.
In January 2017, the FASB issued ASU2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU2017-01 changes the definition of a business to assist entities with evaluation when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASU2017-01 was effective for United on January 1, 2018 and did not have a material impact on the Company’s financial condition or results of operations.
In
August 2016,October 2021, the FASB issued ASU
2016-15, “Classification of Certain Cash ReceiptsNo. 2021-08,
“Business Combinations (Topic 805): Accounting for contract assets and
Cash Payments.”contract liabilities from contracts with customers”. ASU
2016-152021-08
amends ASC
topic 230805 to add
contract assets and
clarify guidance oncontract liabilities to the
classificationlist of
certain cash receiptsexceptions to the recognition and
paymentsmeasurement principles that apply to business combinations and to require that an entity acquirer recognize and measure contract assets and contract liabilities acquired in
the statement of cash flows asa business combination in accordance with Topic 606. As a result of
diversitythese amendments, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in
practicea manner consistent with how the acquiree recognized and
measured them in
certain circumstances,its preacquisition financial
statement restatements. Entities should applystatements. ASU
2016-15 using a retrospective transition method to each period presented. ASU2016-15 wasNo. 2021-08
is effective for
public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted. ASUNo. 2020-08
was adopted by United on January 1,
2018 and2023. The adoption did not have a material impact on the Company’s financial condition or results of operations.
In
June 2016,July 2021, the FASB issued ASU
2016-13, “Financial Instruments – Credit Losses.No. 2021-05,
“Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments (Topic 848)”
ASU2016-13 changes. This new guidance requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the
impairment model for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances foravailable-for-sale debt securities rather than reduce the carrying amount under the current other-than-temporary impairment (OTTI) model. ASU2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard’s provisionslease would have been classified as a
cumulative-effect adjustmentsales-type lease or direct financing lease in accordance with the classification criteria in ASCand25-3,
respectively and if the lessor would have recognized a selling loss at lease commencement. When applying the guidance in ASCthe lessor would not derecognize the underlying asset over its useful life. ASUNo. 2021-05
is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.88
Entities may elect to
retained earnings as ofadopt the amendments through either a retrospective application to leases that commenced or were modified after the beginning of the
first reporting period in which
ASC 842 was adopted or a prospective application to leases that commence or are modified subsequent to the
guidance is effective.date the amendments in ASU
2016-13 is effective for2021-05
are first applied. ASUNo. 2021-05
was adopted by United on January 1,
2020, with early adoption permitted, and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.In March 2016, the FASB issued ASU2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU2016-09 will change certain aspects of accounting for share-based payments to employees. The new guidance will, amongst other things, require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The requirement to report those income tax effects in earnings was applied to settlements occurring on or after January 1, 2017 and the impact of applying that guidance reduced reporting income tax expense by $1,048,000 for the year of 2017. ASU2016-09 also allows an employer to repurchase more of an employee’s shares than it could previously for tax withholding purposes without triggering liability accounting and make a policy election to account for forfeitures as they occur. The Company will continue to estimate the number of awards expected to be forfeited and adjust the estimate when it is no longer probable that the employee will fulfill the service condition, as was previously required. ASU2016-09 also requires that all incometax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award’s vesting period. United elected to apply that change in cash flow classification on a retrospective basis, which resulted in a $4,008,000 and $1,023,000 increase to net cash from operating activities and a corresponding decrease to net cash from financing activities in the accompanying Consolidated Statement of Cash Flows for the year of 2016 and 2015, respectively. The recognition of excess tax benefits and deficiencies in the income statement was adopted prospectively.2022. The adoption of ASU2016-09 did not have a material impact on the Company’s financial condition or results of operations.
In
February 2016,January 2021, the FASB issued ASU
2016-02, “LeasesNo. 2021-01,
“Reference Rate Reform (Topic
842)848).”
. This update to ASU
2016-02 includes a lesseeNo. 2020-04,
“Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” refines the scope of ASC Topic 848 and permits entities to elect certain optional expedients and exceptions when accounting
model that recognizes two types of leases, finance leasesfor derivative contracts and
operating leases, while lessor accounting will remain largely unchanged fromcertain hedging relationships affected by change in the
current GAAP. ASU2016-02 requires, amongst other things, that a lessee recognize on the balance sheet aright-of-use asset and a lease liabilityinterest rates used for
leases with terms of more than twelve months. The recognition, measurement, and presentation of expenses anddiscounting cash flows,
arising from a lease by a lessee will depend on its classification as a finance or operating lease.for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. ASU
2016-02No. 2021-01
is effective for
public business entities upon issuance through December 31, 2022. The Company has implemented a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. In addition, the Company took steps to ensure that no new contracts using LIBOR were originated after December 31, 2021. At this time, United
is prioritizing the Secured Overnight Financing Rate (“SOFR”) and Prime as the preferred alternatives to LIBOR; however, these preferred alternatives could change over time based on
January 1, 2019 and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.market developments.
In
January 2016,August 2020, the FASB issued
No. 2020-06,
“Debt – Debt with Conversion and Other Options (Subtopic470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic815-40).”
The amendments in the ASU
2016-01, “Financial Instruments Overall: Recognition remove certain separation models for convertible debt instruments and
Measurementconvertible preferred stock that require the separation of
Financial Assetsa convertible debt instrument into a debt component and
Financial Liabilities.”an equity or derivative component. The ASU
2016-01 makes changes also amends the derivative scope exception guidance for contracts in an entity’s own equity. The amendments remove three settlement conditions that are required for equity contracts to
qualify for the
classification and measurement of investments in equity securities, the presentation of certain fair value changes for financial liabilities measured at fair value under the fair value option and disclosure of fair value of instruments.derivative scope exception. In addition,
the ASU
2016-01 clarifies expands disclosure requirements for convertible instruments and simplifies areas of the guidance
relatedfor dilutedcalculations that are impacted by the amendments. ASUNo. 2020-06
is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Entities may elect to
adopt the
valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses onavailable-for-sale debt securities.amendments through either a modified retrospective method of transition or a fully retrospective method of transition. ASU
2016-01No. 2020-06
was adopted by United on January 1,
2018 and2022. The adoption did
not have a significant impact on the Company’s financial condition or results of operations.In May 2014, the FASB issued ASU2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU2014-09 supersedes the revenue recognition requirements in ASC topic 605, “Revenue Recognition”, and most industry-specific guidance throughout the ASC. The amendments require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new revenue recognition standard sets forth a five-step principle-based approach for determining revenue recognition. For United, revenue is comprised of net interest income and noninterest income. As the standard does not apply to revenue associated with financial instruments, net interest income and gains and losses from securities are not impacted by the standard. Based on a review and evaluation of a number of revenue contracts, United’s management determined that ASU2014-09 impacts certain recurring revenue streams related to noninterest income such as fees from trust and brokerage services. However, based on an
assessment of these revenue streams under the standard, management concluded that ASU2014-09 does not have a material impact on the Company’s financial condition or results of operations.
In March 2020, the FASB issued ASU
2014-09No. 2020-04,
“Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides “optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.” ASUNo. 2020-04
is effective for public business entities on March 12, 2020 through December 31, 2022. United is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company is assessing ASUNo. 2020-04
and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments. In February 2020, FASB issued ASUNo. 2020-03,
“Codification Improvements to Financial Instruments.” This update makes narrow-scope changes that are intended to improve the board’s standards for financial instruments accounting, including the credit losses standard issued in 2016, as part of FASB’s ongoing project to improve and clarify its Accounting Standards Codification and avoid unintended application. ASUNo. 2020-03
was effective for public business entities upon issuance of this final update in March 2020. ASUNo. 2020-03
did not have a material impact on the Company’s financial condition or results of operations. In January 2020, the FASB issued ASUNo. 2020-01,
“Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. ASUNo. 2020-01
is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2020; early adoption is permitted. ASUNo. 2020-01
was adopted by United on January 1,
2018 using2021. The adoption did not have a material impact on the
modified-retrospective transition method. No cumulative effect adjustment was made to the opening balanceCompany’s financial condition or results of
retained earnings because the amount was considered immaterial.operations.
89
NOTE B—MERGERS AND ACQUISITIONS
Cardinal Financial Corporation
On April 21, 2017 (Cardinal Acquisition Date)December 3, 2021 (the “Acquisition Date”), United acquired 100%completed its acquisition of Community Bankers Trust Corporation (“Community Bankers Trust”). Community Bankers Trust was merged with and into United (the “Merger”), pursuant to the terms of the Agreement and Plan of Reorganization, dated June 2, 2021, by and between United and Community Bankers Trust (the “Agreement”).
Under the terms of the Agreement, each outstanding share of common stock of Cardinal Financial Corporation (Cardinal), headquartered in Tysons Corner, Virginia. The acquisitionCommunity Bankers Trust was converted into the right to receive 0.3173 shares of Cardinal expands United’s existing footprint inUnited common stock, par value $2.50 per share. Also, pursuant to the Washington, D.C. Metropolitan Statistical Area. At consummation, Cardinal had assets of $4,136,008,000, loans of $3,313,033,000 and deposits of $3,344,740,000. Cardinal also operated George Mason Mortgage, LLC (George Mason), a residential mortgage lending company based in Fairfax, Virginia with offices located in Virginia, Maryland, North Carolina, South Carolina andAgreement, at the District of Columbia. As a resulteffective time of the merger, George Mason becameMerger, each outstanding Community Bankers Trust stock option granted under a Community Bankers Trust stock plan, whether vested or unvested as of the date of the Merger, vested as provided pursuant to the terms of such Community Bankers Trust stock plan and converted into an indirectly-ownedoption to acquire United common stock adjusted based on the 0.3173 exchange ratio. Also, at the effective time of the Merger, each restricted stock unit granted under a Community Bankers Trust stock plan that was outstanding immediately prior to the effective time of the Merger vested in accordance with the formula and other terms of the Community Bankers Trust stock plan and converted into the right to receive shares of United common stock based on the 0.3173 exchange ratio.
Immediately following the Merger, Essex Bank, a wholly-owned subsidiary of
United.Community Bankers Trust, merged with and into United Bank, a wholly-owned subsidiary of United (the “Bank Merger”) pursuant to an Agreement and Plan of Merger, dated June 2, 2021. United Bank survived the Bank Merger and continues to exist as a Virginia banking corporation.
The
mergerMerger was accounted for under the acquisition method of accounting. The results of operations of
CardinalCommunity Bankers Trust are included in the consolidated results of operations from the
Cardinal Acquisition Date.
The acquisition of Community Bankers Trust enhanced United’s existing presence in the DC Metro MSA and took United into new markets including Baltimore, Annapolis, Lynchburg, Richmond, and the Northern Neck of Virginia. It also strategically connected our
Mid-Atlantic
and Southeast footprints. As of the Acquisition Date, Community Bankers Trust had $1,788,013,000 in total assets, $1,282,997,000 in loans and leases, net of unearned income and $1,517,502,000 in deposits. For the year of 2022, United recorded acquisition-related costs for the Community Bankers Trust merger of $537,000 as compared to acquisition-related costs of $21,418,000, including a provision for credit losses of $12,288,000 fornon-PCD
loans, for the year of 2021.The aggregate purchase price was approximately
$975,254,000,$260,304,000, including common stock valued at
$972,499,$252,321,000, stock options assumed valued at
$2,741,000,$7,958,000, and cash paid for fractional shares of
$14,000.$25,000. The number of shares issued in the transaction was
23,690,589,7,135,771, which were valued based on the closing market price of
$41.05$35.36 for United’s common shares on
April 21, 2017.December 3, 2021. The
preliminary purchase price
has beenwas allocated to the identifiable tangible and intangible assets resulting in
preliminary additions to goodwill,
and core deposit intangibles
of $78,849,000 and
$3,398,000, respectively. The goodwill recognized results from the
George Mason trade name intangibleexpected synergies and potential earnings from the combination of
$613,286,000, $28,724,000United and
$1,080,000, respectively.Community Bankers Trust. The core deposit
intangibles areintangible is expected to be amortized
on an accelerated basis over ten years.
The George Mason trade name provides a source of market recognition to attract potential clients and retain existing relationships. United believes the George Mason trade name provides a competitive advantage and is likely going to be used into perpetuity and thus will not be subject to amortization, but rather be evaluated for impairment.Because the consideration paid was greater than the net fair value of the acquired assets and liabilities, the Company recorded goodwill as part of the acquisition. None of the goodwill from the
CardinalCommunity Bankers Trust acquisition is expected to be deductible for tax purposes. United used an independent third party to help determine the fair values of the assets and liabilities acquired from
Cardinal. As a result of the merger, United recorded preliminary fair value discounts of $144,434,000 on the loans acquired, $2,281,000 on leases and $8,738,000 on trust preferred issuances, respectively, and premiums of $4,408,000 on land acquired, $5,072,000 on interest-bearing deposits and $10,740,000 on long-term FHLB advances, respectively. The remaining discount and premium amounts are being accreted or amortized on an accelerated or straight-line basis over each asset’s or liability’s estimated remaining life at the time of acquisition except for loans and land. The discount on loans will be accreted into income based on the effective yield method. The premium on land will not be amortized. At December 31, 2017, the discounts on leases and trust preferred issuances had an average estimated remaining life of 5.75 years and 16.72 years, respectively, and the premiums on the interest-bearing deposits and the FHLB advances each had an average estimated remaining life of 4.75 years and 4.56 years, respectively. United assumed approximately $1,825,000 of liabilities to provide severance benefits to terminated employees of Cardinal, which has no remaining balance as of December 31, 2017. The estimated fair values of the acquired assets and assumed liabilities, including identifiable intangible assets and goodwill are preliminary as of December 31, 2017 and are subject to refinement as additional information relative to closing date fair values becomes available. Any subsequent adjustments to the fair values of acquired assets and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill within the measurement period following the date of acquisition.In many cases, determining the estimated fair value of the acquired assets and assumed liabilities required United to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations related to the fair value of acquired loans. The fair value of the acquired loans was based on the present value of the expected cash flows. Periodic principal and interest cash flows were adjusted for expected losses and prepayments, then discounted to determine the present value and summed to arrive at the estimated fair value. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is
recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry-over of Cardinal’s previously established allowance for loan losses.
The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC topic310-30 (acquired impaired) and loans that do not meet this criteria, which are accounted for under ASC topic310-20 (acquired performing). Acquired impaired loans have experienced a deterioration of credit quality from origination to acquisition for which it is probable that United will be unable to collect all contractually required payments receivable, including both principal and interest. Subsequent decreases in the expected cash flows require United to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows generally result in the recognition of additional interest income over the then remaining lives of the loans.
In conjunction with the Cardinal merger, the acquired loan portfolio was accounted for at fair value as follows:
| | | | |
(In thousands) | | April 21,
2017 | |
Contractually required principal and interest at acquisition
| | $ | 4,211,734 | |
Contractual cash flows not expected to be collected
| | | (56,176 | ) |
| | | | |
Expected cash flows at acquisition
| | | 4,155,558 | |
Interest component of expected cash flows
| | | (986,959 | ) |
| | | | |
Basis in acquired loans at acquisition – estimated fair value
| | $ | 3,168,599 | |
| | | | |
Included in the above table is information related to acquired impaired loans. Specifically, contractually required principal and interest, cash flows expected to be collected and estimated fair value of acquired impaired loans were $132,837,000, $108,275,000, and $86,696,000, respectively.
The consideration paid for Cardinal’s common equity and the preliminary amounts of acquired identifiable assets and liabilities assumed as of the Cardinal Acquisition Date were as follows:
| | | | |
(In thousands) | | | |
Purchase price:
| | | | |
Value of common shares issued (23,690,589 shares)
| | $ | 972,499 | |
Fair value of stock options assumed
| | | 2,741 | |
Cash for fractional shares
| | | 14 | |
| | | | |
Total purchase price
| | | 975,254 | |
| | | | |
Identifiable assets:
| | | | |
Cash and cash equivalents
| | | 44,545 | |
Investment securities
| | | 395,829 | |
Loans held for sale
| | | 271,301 | |
Loans
| | | 3,168,599 | |
Premises and equipment
| | | 24,208 | |
Core deposit intangibles
| | | 28,724 | |
George Mason trade name intangible
| | | 1,080 | |
Other assets
| | | 135,383 | |
| | | | |
Total identifiable assets
| | $ | 4,069,669 | |
Identifiable liabilities:
| | | | |
Deposits
| | $ | 3,349,812 | |
Short-term borrowings
| | | 96,215 | |
Long-term borrowings
| | | 220,119 | |
Unfavorable lease liability
| | | 2,281 | |
Other liabilities
| | | 39,274 | |
| | | | |
Total identifiable liabilities
| | | 3,707,701 | |
| | | | |
Preliminary fair value of net assets acquired including identifiable intangible assets
| | | 361,968 | |
| | | | |
Preliminary resulting goodwill
| | $ | 613,286 | |
| | | | |
The operating results of United for year of December 31, 2017 include operating results of acquired assets and assumed liabilities subsequent to the Cardinal Acquisition Date. The operations of United’s metropolitan Washington D.C. geographic area, which primarily includes the acquired operations of Cardinal, provided $252,293,000 in total revenues, which represents net interest income plus other income, and $101,505,000 in net income from the period from the Cardinal Acquisition Date to December 31, 2017. These amounts are included in United’s consolidated financial statements as of and for the year ended December 31, 2017. Cardinal’s results of operations prior to the Cardinal Acquisition Date are not included in United’s consolidated financial statements.
The following table presents certain unaudited pro forma information for the results of operations for the year ended December 31, 2017 and 2016, as if the Cardinal merger had occurred on January 1, 2017 and 2016, respectively. These results combine the historical results of Cardinal into United’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of Cardinal’s provision for credit losses for 2017 and 2016 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2017 and 2016. Additionally, United expects to achieve operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts.
| | | | | | | | |
| | | Proforma
Year Ended
December 31 | |
| (In thousands) | | 2017 | | | 2016 | |
Total Revenues (1) | | $ | 763,807 | | | $ | 784,198 | |
Net Income | | | 153,810 | | | | 216,335 | |
(1) | Represents net interest income plus other income
|
Bank of Georgetown
After the close of business on June 3, 2016 (BOG Acquisition Date), United acquired 100% of the outstanding common stock of Bank of Georgetown, a privately held community bank headquartered in Washington, D.C. With this transaction, United continues to expand its existing footprint in the D.C. Metro Region. The results of operations of Bank of Georgetown are included in the consolidated results of operations from the BOG Acquisition Date.
At consummation, Bank of Georgetown had assets of $1,278,837,000, loans of $999,773,000, and deposits of $971,369,000. The transaction was accounted for under the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the BOG Acquisition Date.
The aggregate purchase price was $264,505,000, including common stock valued at $253,799,000, stock options assumed valued at $10,696,000, and cash paid for fractional shares of $10,000. The number of shares issued in the transaction was 6,527,746, which were valued based on the closing market price of $38.88 for United’s common shares on June 3, 2016. The purchase price has been allocated to the identifiable tangible and intangible assets resulting in additions to goodwill and core deposit intangibles of $152,845,000 and $9,058,000, respectively. The core deposit intangibles are being amortized over ten years.
Because the consideration paid was greater than the net fair value of the acquired assets and liabilities, the Company recorded goodwill as part of the acquisition. None of the goodwill from the Bank of Georgetown acquisition is expected to be deductible for tax purposes. United used an independent third party to help determine the fair values of the assets and liabilities acquired from the Bank of Georgetown.Community Bankers Trust. As a result of the merger, United recorded fair value discounts of $43,072,000$7,744,000 on the loans and leases acquired, $230,000 on land acquired, $50,000 on OREO properties acquired and $1,550,000$415,000 on leasehold improvements, respectively,a trust preferred issuance, and premiums of $6,766,000 on investment securities acquired, $492,000 on buildings acquired, $2,741,000 on interest-bearing deposits, acquired of $316,000 and a premium$457,000 on long-term FHLB advances, respectively. United also recorded an allowance for credit losses, including a reserve for unfunded commitments, of $2,659,000.$25,920,000 on the loans and commitments acquired split between $12,788,000 for purchased credit deteriorated (“PCD”) loans which is part of the acquisition date fair value, $12,288,000 for
non-PCD
loans recorded to the provision for credit losses and $844,000 for commitments acquired onnon-PCD
loans recorded in other expense. The
remaining discountdiscounts and premium amounts,
except for discount on the land, OREO and FHLB advances acquired, are being
amortizedaccreted or
accretedamortized on an accelerated
or straight-line basis,
based on the type of asset or liability, over each asset’s or liability’s estimated remaining life at the time of acquisition.
The FHLB advances acquired were subsequently repaid prior to year-end. At December 31,
2017,2022, the
premiumdiscount on the
interest-bearing deposits and the FHLB advancestrust preferred issuance had an estimated remaining life of
0.0811.25 years and
7.67the premiums on the buildings, and interest-bearing deposits each had an average estimated remaining life of 30.25 years,
and 4.25 years, respectively.
United assumed approximately $300,00090
Portfolio loans and leases acquired from Community Bankers Trust were recorded at their fair value at the Acquisition Date based on a discounted cash flow methodology. The
measurement period has closed and the estimated fair values of the acquired assets and assumed liabilities, including identifiable intangible assets were considered final as of June 3, 2017.In many cases, determining the estimated fair value of the acquiredincorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and assumed liabilities required other market factors such as liquidity from the perspective of a market participant. Also, acquired portfolio loans and leases were evaluated upon acquisition and classified as either PCD, which indicates that the loan has experienced a more-than-insignificant deterioration in credit quality since origination, or
non-PCD.
United
to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate ratesconsidered a variety of
interest. The most significant of those determinations related to the fair valuation of acquired loans. The fair value offactors in evaluating the acquired loans
wasand leases for a more-than-insignificant deterioration in credit quality, including but not limited to risk grades, delinquency, nonperforming status, current or previous troubled debt restructurings or bankruptcies, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination. For PCD loans and leases, an initial allowance is determined based on the
presentsame methodology as other portfolio loans and leases. This initial allowance for credit losses is allocated to individual PCD loans and leases and added to the acquisition date fair values to establish the initial amortized cost basis for the PCD loans and leases. The difference between the unpaid principal balance (“UPB”), or par value, of
PCD loans and leases and the
expected cash flows. Periodic principalamortized cost basis is considered to relate to noncredit factors and
resulted in a discount of $3,559,000 at Acquisition Date. This discount will be recognized through interest
cash flows were adjusted for expected lossesincome on a level-yield method over the life of the loans which is estimated to be a weighted-average of 5.5 years. Fornon-PCD
acquired loans and
prepayments, then discounted to determineleases, the
presentdifferences between the initial fair value and
summed to arrive at the
estimated fair value. For such loans, the excess of cash flows expected at acquisition over the estimated fairUPB, or par value,
isare recognized as interest income
on a level-yield basis over the
remaining lives of the
loans.related loans and leases which is estimated to be a weighted-average of 5.6 years. The
total fair value mark on thenon-PCD
loans and leases at the Acquisition Date was $4,186,000. At the Acquisition Date, an initial allowance for expected credit losses of $12,288,000 was recorded with a corresponding charge to the provision for credit losses in the Consolidated Statements of Income. Subsequent changes in the allowance for credit losses related to PCD andnon-PCD
loans and leases are recognized in the provision for credit losses. The following table provides a reconciliation of the difference between
contractually required payments at acquisitionthe purchase price and the
cash flows expected to be collected at acquisition reflectspar value of portfolio PCD loans and leases acquired from Community Bankers Trust as of the
impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry-over of Bank of Georgetown’s previously established allowance for loan losses.In conjunction with the Bank of Georgetown merger, the acquired loan portfolio was accounted for at fair value as follows:
Acquisition Date: | | | | |
| | June 3,
2016 | |
Contractually required principalPurchase price of PCD loans and interestleases at acquisition
| | $ | 1,275,398360,638 | |
Contractual cash flows not expected to be collected
Allowance for credit losses at acquisition | | | (33,980 | ) |
| | | 12,629 | |
Expected cash flows
Non-credit discount at acquisition | | | 1,241,4183,559 | |
Interest component of expected cash flows
| | | (274,548 | ) |
| | | | |
Basis inPar value (UPB) of acquired PCD loans and leases at acquisition – estimated fair value
| | $ | 966,870376,826 | |
| | | | |
Included in the above table is information related to acquired impaired loans. Specifically, contractually required principal and interest, cash flows expected to be collected and estimated fair value of acquired impaired loans were $138,125,000, $117,564,000, and $95,570,000, respectively.
The consideration paid for
Bank of Georgetown’sCommunity Bankers Trust’s common equity and the
fair valueamounts of acquired identifiable assets and liabilities assumed as of the
BOGCommunity Bankers Trust Acquisition Date were as follows:
| | | | |
| | | |
Purchase price: | | | | |
Value of common shares issued (6,527,746(7,135,771 shares) | | $ | 253,799252,321 | |
Fair value of stock options assumed | | | 10,6967,958 | |
Cash for fractional shares | | | 1025 | |
| | | | |
Total purchase price
| | | 264,505 | |
| | | | |
Identifiable assets:
| | | | |
Cash and cash equivalents
Total purchase price | | | 29,340260,304 | |
Investment securities
| | | 219,783 | |
Loans
Identifiable assets: | | | 966,870 | |
PremisesCash and equipment
cash equivalents | | | 5,57439,445 | |
Core deposit intangibles
Investment securities | | | 9,058395,249 | |
Other assets
Net loans and leases | | | 31,6051,280,016 | |
| Premises and equipment | | | 25,857 | |
| | | 8,127 | |
| Core deposit intangible | | | 3,398 | |
| Other assets | | | 50,851 | |
| | | | |
| Total identifiable assets | | $ | 1,262,2301,802,943 | |
Identifiable liabilities:
| | | | |
Identifiable liabilities: | | | | |
| Deposits | | $ | 971,6851,520,243 | |
Short-term borrowings | | | 101,02126,755 | |
Long-term borrowings | | | 67,65951,500 | |
Other liabilities
Operating lease liability | | | 11,5328,127 | |
| | | | |
Total identifiableOther liabilities
| | | 1,151,89714,863 | |
| | | | |
Total identifiable liabilities | | | 1,621,488 | |
| | | | |
| Fair value of net assets acquired including identifiable intangible assets | | | 110,333181,455 | |
| | | | |
Resulting goodwill | | $ | 154,17278,849 | |
| | | | |
91
NOTE C—INVESTMENT SECURITIES
The following is a summary
Securities Available for Sale
Securities held for indefinite periods of
thetime are classified as available for sale and carried at estimated fair value. The amortized cost and estimated fair values of securities available for
sale. | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | |
| (In thousands) | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Estimated
Fair Value | | | Cumulative
OTTI in
AOCI (1) | |
| | | | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 114,735 | | | $ | 385 | | | $ | 362 | | | $ | 114,758 | | | $ | 0 | |
State and political subdivisions | | | 303,101 | | | | 3,197 | | | | 2,429 | | | | 303,869 | | | | 0 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
Agency | | | 821,857 | | | | 2,096 | | | | 9,360 | | | | 814,593 | | | | 0 | |
Non-agency | | | 4,969 | | | | 543 | | | | 0 | | | | 5,512 | | | | 86 | |
Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
Agency | | | 457,107 | | | | 1,059 | | | | 3,309 | | | | 454,857 | | | | 0 | |
Asset-backed securities | | | 109,829 | | | | 148 | | | | 7 | | | | 109,970 | | | | 0 | |
Trust preferred collateralized debt obligations | | | 37,856 | | | | 542 | | | | 4,129 | | | | 34,269 | | | | 20,770 | |
Single issue trust preferred securities | | | 13,417 | | | | 368 | | | | 1,225 | | | | 12,560 | | | | 0 | |
Other corporate securities | | | 28,101 | | | | 407 | | | | 18 | | | | 28,490 | | | | 0 | |
Marketable equity securities | | | 9,712 | | | | 179 | | | | 13 | | | | 9,878 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,900,684 | | | $ | 8,924 | | | $ | 20,852 | | | $ | 1,888,756 | | | $ | 20,856 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2016 | |
| (In thousands) | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Estimated
Fair Value | | | Cumulative
OTTI in
AOCI (1) | |
| | | | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 95,247 | | | $ | 698 | | | $ | 159 | | | $ | 95,786 | | | $ | 0 | |
State and political subdivisions | | | 196,350 | | | | 1,364 | | | | 4,902 | | | | 192,812 | | | | 0 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
Agency | | | 585,208 | | | | 3,999 | | | | 5,111 | | | | 584,096 | | | | 0 | |
Non-agency | | | 6,629 | | | | 426 | | | | 12 | | | | 7,043 | | | | 86 | |
Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
Agency | | | 304,635 | | | | 1,948 | | | | 1,242 | | | | 305,341 | | | | 0 | |
Asset-backed securities | | | 217 | | | | 0 | | | | 0 | | | | 217 | | | | 0 | |
Trust preferred collateralized debt obligations | | | 48,558 | | | | 729 | | | | 15,735 | | | | 33,552 | | | | 25,952 | |
Single issue trust preferred securities | | | 13,363 | | | | 284 | | | | 2,170 | | | | 11,477 | | | | 0 | |
Other corporate securities | | | 14,996 | | | | 66 | | | | 0 | | | | 15,062 | | | | 0 | |
Marketable equity securities | | | 12,436 | | | | 1,398 | | | | 6 | | | | 13,828 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,277,639 | | | $ | 10,912 | | | $ | 29,337 | | | $ | 1,259,214 | | | $ | 26,038 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | Other-than-temporary impairment in accumulated other comprehensive income. Amounts arebefore-tax. |
sale are summarized as follows.
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | |
| U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 548,407 | | | $ | 12 | | | $ | 18,927 | | | $ | 0 | | | $ | 529,492 | |
| State and political subdivisions | | | 820,167 | | | | 36 | | | | 110,673 | | | | 0 | | | | 709,530 | |
| Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 1,369,471 | | | | 4 | | | | 194,531 | | | | 0 | | | | 1,174,944 | |
| | | 121,336 | | | | 66 | | | | 9,429 | | | | 0 | | | | 111,973 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 627,768 | | | | 8 | | | | 65,223 | | | | 0 | | | | 562,553 | |
| Asset-backed securities | | | 943,813 | | | | 0 | | | | 32,202 | | | | 0 | | | | 911,611 | |
| Single issue trust preferred securities | | | 17,342 | | | | 88 | | | | 1,146 | | | | 0 | | | | 16,284 | |
| Other corporate securities | | | 563,425 | | | | 44 | | | | 37,931 | | | | 0 | | | | 525,538 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 5,011,729 | | | $ | 258 | | | $ | 470,062 | | | $ | 0 | | | $ | 4,541,925 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | |
| U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 82,136 | | | $ | 51 | | | $ | 337 | | | $ | 0 | | | $ | 81,850 | |
| State and political subdivisions | | | 831,499 | | | | 19,608 | | | | 3,809 | | | | 0 | | | | 847,298 | |
| Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 1,120,423 | | | | 9,173 | | | | 15,822 | | | | 0 | | | | 1,113,774 | |
| | | 74,965 | | | | 306 | | | | 726 | | | | 0 | | | | 74,545 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 633,802 | | | | 12,731 | | | | 6,608 | | | | 0 | | | | 639,925 | |
| Asset-backed securities | | | 659,830 | | | | 49 | | | | 3,307 | | | | 0 | | | | 656,572 | |
| Single issue trust preferred securities | | | 17,291 | | | | 146 | | | | 626 | | | | 0 | | | | 16,811 | |
| Other corporate securities | | | 611,548 | | | | 3,558 | | | | 3,182 | | | | 0 | | | | 611,924 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 4,031,494 | | | $ | 45,622 | | | $ | 34,417 | | | $ | 0 | | | $ | 4,042,699 | |
| | | | | | | | | | | | | | | | | | | | | |
For the adoption of ASC Topic 326, “Financial Instruments—Credit Losses,” United made a policy election to exclude accrued interest from the amortized cost basis ofdebt securities and report accrued interest separately in “Accrued interest receivable” in the consolidated balance sheets.debt securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed onnon-accrual
status. Accordingly, United does not currently recognize an allowance for credit loss against accrued interest receivable ondebt securities. The table above excludes accrued interest receivable of $23,955,000 and $15,353,000 at December 31, 2022 and December 31, 2021, respectively, that is recorded in “Accrued interest receivable.” 92
The following is a summary of securities available for sale which were in an unrealized loss position at December 31,
20172022 and
2016. | | | | | | | | | | | | | | | | |
| | | Less than 12 months | | | 12 months or longer | |
| (In thousands) | | Fair
Value | | | Unrealized
Losses | | | Fair
Value | | | Unrealized
Losses | |
December 31, 2017 | | | | | | | | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 36,678 | | | $ | 230 | | | $ | 22,920 | | | $ | 132 | |
State and political subdivisions | | | 82,896 | | | | 566 | | | | 59,432 | | | | 1,863 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 460,414 | | | | 4,621 | | | | 182,482 | | | | 4,739 | |
Non-agency | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 282,858 | | | | 2,386 | | | | 70,763 | | | | 923 | |
Asset-backed securities | | | 27,931 | | | | 7 | | | | 0 | | | | 0 | |
Trust preferred collateralized debt obligations | | | 0 | | | | 0 | | | | 28,629 | | | | 4,129 | |
Single issue trust preferred securities | | | 0 | | | | 0 | | | | 4,485 | | | | 1,225 | |
Other corporate securities | | | 6,975 | | | | 18 | | | | 0 | | | | 0 | |
Marketable equity securities | | | 0 | | | | 0 | | | | 363 | | | | 13 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 897,752 | | | $ | 7,828 | | | $ | 369,074 | | | $ | 13,024 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Less than 12 months | | | 12 months or longer | |
| (In thousands) | | Fair
Value | | | Unrealized
Losses | | | Fair
Value | | | Unrealized
Losses | |
December 31, 2016 | | | | | | | | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 24,101 | | | $ | 159 | | | $ | 0 | | | $ | 0 | |
State and political subdivisions | | | 116,300 | | | | 4,902 | | | | 0 | | | | 0 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 309,376 | | | | 5,111 | | | | 0 | | | | 0 | |
Non-agency | | | 0 | | | | 0 | | | | 218 | | | | 12 | |
Commercial mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 162,479 | | | | 1,242 | | | | 0 | | | | 0 | |
Asset-backed securities | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Trust preferred collateralized debt obligations | | | 0 | | | | 0 | | | | 28,579 | | | | 15,735 | |
Single issue trust preferred securities | | | 0 | | | | 0 | | | | 8,185 | | | | 2,170 | |
Marketable equity securities | | | 357 | | | | 6 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 612,613 | | | $ | 11,420 | | | $ | 36,982 | | | $ | 17,917 | |
| | | | | | | | | | | | | | | | |
Marketable equity securities consist mainly of equity securities of financial institutions and mutual funds within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 473,025 | | | $ | 13,628 | | | $ | 48,793 | | | $ | 5,299 | | | $ | 521,818 | | | $ | 18,927 | |
| State and political subdivisions | | | 496,328 | | | | 63,019 | | | | 192,234 | | | | 47,654 | | | | 688,562 | | | | 110,673 | |
| Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 623,587 | | | | 70,744 | | | | 550,135 | | | | 123,787 | | | | 1,173,722 | | | | 194,531 | |
| | | 58,839 | | | | 2,083 | | | | 42,901 | | | | 7,346 | | | | 101,740 | | | | 9,429 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 396,380 | | | | 27,469 | | | | 163,226 | | | | 37,754 | | | | 559,606 | | | | 65,223 | |
| Asset-backed securities | | | 425,482 | | | | 14,134 | | | | 486,129 | | | | 18,068 | | | | 911,611 | | | | 32,202 | |
| Single issue trust preferred securities | | | 0 | | | | 0 | | | | 13,109 | | | | 1,146 | | | | 13,109 | | | | 1,146 | |
| Other corporate securities | | | 195,425 | | | | 18,064 | | | | 261,170 | | | | 19,867 | | | | 456,595 | | | | 37,931 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 2,669,066 | | | $ | 209,141 | | | $ | 1,757,697 | | | $ | 260,921 | | | $ | 4,426,763 | | | $ | 470,062 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 75,106 | | | $ | 334 | | | $ | 213 | | | $ | 3 | | | $ | 75,319 | | | $ | 337 | |
| State and political subdivisions | | | 223,754 | | | | 2,872 | | | | 24,067 | | | | 937 | | | | 247,821 | | | | 3,809 | |
| Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 680,320 | | | | 13,167 | | | | 71,392 | | | | 2,655 | | | | 751,712 | | | | 15,822 | |
| | | 55,336 | | | | 726 | | | | 0 | | | | 0 | | | | 55,336 | | | | 726 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency | | | 136,071 | | | | 2,912 | | | | 70,543 | | | | 3,696 | | | | 206,614 | | | | 6,608 | |
| Asset-backed securities | | | 532,373 | | | | 2,620 | | | | 82,222 | | | | 687 | | | | 614,595 | | | | 3,307 | |
| Single issue trust preferred securities | | | 0 | | | | 0 | | | | 13,594 | | | | 626 | | | | 13,594 | | | | 626 | |
| Other corporate securities | | | 307,912 | | | | 3,182 | | | | 0 | | | | 0 | | | | 307,912 | | | | 3,182 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | $ 2,010,872 | | | $ | 25,813 | | | $ | 262,031 | | | $ | 8,604 | | | $ | 2,272,903 | | | $ | 34,417 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table shows the proceeds from maturities, sales and calls of available for sale securities and the gross realized gains and losses on sales and calls of those securities that have been included in earnings as a result of any sales and calls. Gains or losses on sales and calls of available for sale securities were recognized by the specific identification method.
The realized losses relate to sales of securities within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers and its subsidiaries. | | | | | | | | | | | | |
| | | Year Ended | |
| (In thousands) | | 2017 | | | 2016 | | | 2015 | |
Proceeds from maturities, sales and calls | | $ | 686,312 | | | $ | 513,990 | | | $ | 191,266 | |
Gross realized gains | | | 3,274 | | | | 268 | | | | 143 | |
Gross realized losses | | | 1,400 | | | | 13 | | | | 10 | |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | |
| Proceeds from maturities, sales and calls | | $ | 575,748 | | | $ | 731,902 | | | $ | 708,068 | |
| Gross realized gains | | | 2 | | | | 1,673 | | | | 4,618 | |
| Gross realized losses | | | 0 | | | | 122 | | | | 2,116 | |
At December 31,
2017,2022, gross unrealized losses on available for sale securities were
$20,852,000$470,062,000 on
4631,427 securities of a total portfolio of
8381,502 available for sale securities. Securities
in anwith the most significant gross unrealized
loss positionlosses at December 31,
20172022 consisted
primarily of pooled trust preferred collateralized debt obligations (Trup Cdos), single issue trust preferred securities and agency commercial and residential mortgage-backed securities. The Trup Cdos and the single issue trust preferred securities relate mainly to securities of financial institutions. The agency commercial and residential mortgage-backed securities, relate tostate and political subdivision securities, agency commercial mortgage-backed securities, asset-backed securities and residential properties and provide a guaranty of full and timely payments of principal and interest by the issuing agency. other corporate securities.
In determining whether or not a security is
other-than-temporarily impaired,
(OTTI), management considered the severity
and the duration of the loss in conjunction with United’s positive intent and the more likely than not ability to hold these securities to recovery of their cost basis or maturity.
93
State and political subdivisions
United’s state and political subdivisions portfolio relates to securities issued by various municipalities located throughout the United States. The total amortized cost of available for sale state and political subdivision securities was
$303,101,000$820,167,000 at December 31,
2017.2022. As of December 31,
2017,2022, approximately
75%53% of the portfolio was supported by the general obligation of the issuing municipality, which allows for the securities to be repaid by any means available to the municipality. The majority of the portfolio was rated AA or higher, and
less than one percent ofno securities within the portfolio
waswere rated below investment grade as of December 31,
2017.2022. In addition to monitoring the credit ratings of these securities, management also evaluates the financial performance of the underlying issuers on an ongoing basis. Based upon management’s analysis and judgment, it was determined that none of the state and political subdivision securities
were other-than-temporarily impairedhad credit losses at December 31,
2017.Agency mortgage-backed2022.
Mortgage-backed securities
United’s agency mortgage-backed securities portfolio relates to securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. The total amortized cost of available for sale agency mortgage-backed securities was $1,278,964,000 at December 31, 2017. Of the $1,278,964,000 amount, $457,107,000 was related to agency commercial mortgage-backed securities and $821,857,000 was related to agency residential mortgage-backed securities. Each of the agency mortgage-backed securities provides a guarantee of full and timely payments of principal and interest by the issuing agency. Based upon management’s analysis and judgment, it was determined that none of the agency mortgage-backed securities were other-than-temporarily impaired at December 31, 2017.
Non-agency residential mortgage-backed securities
United’snon-agency residential mortgage-backed securities portfolio relates to securities of various private label issuers. The total amortized cost of available for salenon-agency residential mortgage-backed securities was $4,969,000 at December 31, 2017. Of the $4,969,000 amount, $546,000 was rated above investment grade and $4,423,000 was rated below investment grade. Approximately 17% of the portfolio includes collateral that was originated during the year of 2005 or before. The remaining 83% includes collateral that was originated in the years of 2006 and 2007. The entire portfolio of thenon-agency residential mortgage-backed securities are either the senior or super-senior tranches of their respective structure. Based upon management’s analysis and judgment, it was determined that none of thenon-agency mortgage-backed securities were other-than-temporarily impaired at December 31, 2017.
Single issue trust preferred securities
The majority of United’s single issue trust preferred portfolio consists of obligations from large cap banks (i.e. banks with market capitalization in excess of $10 billion). Management reviews each issuer’s current and projected earnings trends, asset quality, capitalization levels, and other key factors. Upon completing the review for the fourth quarter of 2017, it was determined that none of the single issue trust preferred securities were other-than-temporarily impaired. All single issue trust preferred securities are currently receiving interest payments. The amortized cost of available for sale single issue trust preferred securities as of December 31, 2017 consisted of $7,707,000 in investment grade bonds and $5,710,000 in unrated bonds. The investment grade bonds were rated either Baa3 orBBB-. All of the unrated bonds were in an unrealized loss position for twelve months or longer as of December 31, 2017.
Trust preferred collateralized debt obligations (Trup Cdos)
In order to determine how and when the Company recognizes OTTI, the Company first assesses its intentions regarding any sale of securities as well as the likelihood that it would be required to sell prior to recovery of the amortized cost. As of December 31, 2017, the Company has determined that it does not intend to sell any pooled trust preferred security and that it is not more likely than not that the Company will be required to sell such securities before recovery of their amortized cost.
To determine a net realizable value and assess whether other-than-temporary impairment existed, management performed detailed cash flow analysis to determine whether, in management’s judgment, it was more likely that United would not recover the entire amortized cost basis of the security. The Company discounts the security-specific cash flow projection at the security-specific interest rate and compares the present value to the amortized cost. Management’s cash flow analysis was performed for each security and considered the current deferrals and defaults within the underlying collateral, the likelihood that current deferrals would cure or ultimately default, potential future deferrals and defaults, potential prepayments, cash reserves, excess interest spread, credit analysis of the underlying collateral and the priority of payments in the cash flow structure. The underlying collateral analysis for each issuer took into consideration multiple factors including capital adequacy, earnings trends and asset quality. After completing its analysis of estimated cash flows, management determined that none of the Trup Cdos experienced an adverse change in cash flows during the fourth quarter of 2017, as the expected discounted cash flows from these particular securities were greater than or equal to the discounted cash flows originally expected at purchase or from the previous date of other-than-temporary impairment (cash flows are discounted at the contractual coupon rate for purposes of assessing OTTI).
There was no credit-related other-than-temporary impairment recognized in earnings during 2017 and 2016 related to these securities. At December 31, 2017 and 2016, the balance of noncredit-related other-than-temporary impairment recognized on United’s Trup Cdo portfolio was $20,770,000 and $25,952,000, respectively.
The amortized cost of available for sale Trup Cdos in an unrealized loss position for twelve months or longer as of December 31, 2017 consisted of $3,065,000 in investment grade bonds and $29,693,000 in below investment grade bonds.
The following is a summary of the available for sale Trup Cdos as of December 31, 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | | | | | | | | | | | Amortized Cost | |
| Class | | Amortized Cost | | | Fair Value | | | Unrealized (Gain)
Loss | | | | | | Investment
Grade | | | Split
Rated | | | Below
Investment
Grade | |
Senior – Bank | | $ | 4,863 | | | $ | 4,965 | | | $ | (102 | ) | | | | | | $ | 3,065 | | | $ | 0 | | | $ | 1,798 | |
Mezzanine —Bank (now in senior position) | | | 6,428 | | | | 6,226 | | | | 202 | | | | | | | | 0 | | | | 0 | | | | 6,428 | |
Mezzanine – Bank | | | 22,668 | | | | 19,967 | | | | 2,701 | | | | | | | | 0 | | | | 0 | | | | 22,668 | |
Mezzanine – Bank & Insurance (combination) | | | 3,897 | | | | 3,111 | | | | 786 | | | | | | | | 0 | | | | 0 | | | | 3,897 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Totals | | $ | 37,856 | | | $ | 34,269 | | | $ | 3,587 | | | | | | | $ | 3,065 | | | $ | 0 | | | $ | 34,791 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
While a difference remains between the fair value and amortized cost, the Company believes the remaining unrealized losses are related to the illiquid market for Trup Cdos rather than an adverse change in expected cash flows. The expected future cash flow substantiates the return of the remaining amortized cost of the security. The Company believes the following evidence supports the position that the remaining unrealized loss is related to the illiquid market for Trup Cdos:
The market for new issuance of Trup Cdos was robust from 2000 to 2007 with an estimated $60 billion in new issuance. The new market issuances came to an abrupt halt in 2007.
The secondary market for Trup Cdos ultimately became illiquid and although the market has improved, trading activity remains limited on these securities. In making this determination, the Company holds discussions with institutional traders to identify trends in the number and type of transactions related to the Trup Cdos.
The presence of a below-investment grade rating severely limits the pool of available buyers and contributes to the illiquidity of the market.
Trup Cdos have a more complex structure than most debt instruments, making projections of tranche returns difficult fornon-specialists in the product. Deferral features available to the underlying issuers within each pool are unique to these securities. Additionally, it can be difficult for market participants to predict whether deferrals will ultimately cure or ultimately default. Due to the lack of transparency, market participants will require a higher risk premium, thus resulting in higher required discount rates.
The variability of cash flows at the time the securities were originated was expected to be very limited. Due to the financial crisis, Trup Cdos have experienced more substantive variability of cash flows compared to expectations, resulting in a higher risk premium when evaluating discount rates.
The limited, yet relevant, observable inputs indicate that market yield requirements for Trup Cdos, on a credit-adjusted basis, remained very high relative to discount rates at purchase and compared to other similarly rated debt securities.
Overall, the Company believes the lack of new issuances, illiquid secondary market, limited pool of buyers, below investment grade ratings, and complex structures are the key drivers of the remaining unrealized losses in the Company’s Trup Cdos and the robust expected cash flow analysis substantiates the return of the remaining amortized cost under ASC topic 320.
Management also considered the ratings of the Company’s bonds in its portfolio and the extent of downgrades in United’s impairment analysis. However, management considered it imperative to independently perform its own credit analysis based on cash flows as described. The ratings of the investment grade Trup Cdos in the table above range from a low of AA to a high of Aaa. The below investment grade Trup Cdos range from a low of C to a high of Ba2.
On the Trup Cdos that have not been deemed to be other-than-temporarily impaired, the collateralization ratios range from a low of 106.0% to a high of 461.3%, with a median of 283.6%, and a weighted average of 301.6%. The collateralization ratio is defined as the current performing collateral in a security, divided by the current balance of the specific tranche the Company owns, plus any debt which is senior or pari passu with the Company’s security’s priority level. Performing collateral excludes the balance of any issuer that has either defaulted or has deferred its interest payment. It is not uncommon for the collateralization of a security that is not other-than-temporarily impaired to be less than 100% due to the excess spread built into the securitization structure.
Except for the debt securities that have already been deemed to be other-than-temporarily impaired, management does not believe any other individual security with an unrealized loss as of December 31, 2017 is other-than-temporarily impaired. For these securities, United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not a change in the expected contractual cash flows. Based on a review of each of the securities in the investment portfolio, management concluded that it expected to recover the amortized cost basis of the investment in such securities.
Equity securities
The cost of United’s equity securities was $9,712,000 at December 31, 2017. For equity securities, management has evaluated the near-term prospects of the investment in relation to the severity and duration of any impairment and based on that evaluation, management determined that no equity securities were other-than-temporarily impaired at December 31, 2017.
Other investment securities (cost method)
During the fourth quarter of 2017, United also evaluated all of its cost method investments to determine if certain events or changes in circumstances during the quarter had a significant adverse effect on the fair value of any of its cost method securities. United determined that there were no events or changes in circumstances during the fourth quarter of 2017 which would have an adverse effect on the fair value of any of its cost method securities. Therefore, no impairment was recorded.
Below is a progression of the credit losses on securities which United has recorded other-than-temporary charges. These charges were recorded through earnings and other comprehensive income.
| | | | | | | | | | | | |
| (In thousands) | | Year Ended
December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Balance of cumulative credit losses at beginning of period | | $ | 22,162 | | | $ | 23,773 | | | $ | 23,739 | |
Additional credit losses on securities for which OTTI was previously recognized | | | 0 | | | | 33 | | | | 34 | |
Reductions for securities sold or paid off during the period | | | (4,102) | | | | (1,644) | | | | 0 | |
| | | | | | | | | | | | |
Balance of cumulative credit losses at end of period | | $ | 18,060 | | | $ | 22,162 | | | $ | 23,773 | |
| | | | | | | | | | | | |
The amortized cost and estimated fair value of securities available for sale at December 31, 2017 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.
Maturities of mortgage-backed securities with an amortized cost of $1,283,933,000 and an estimated fair value of $1,274,962,000 at December 31, 2017 are included below based upon contractual maturity.
| | | | | | | | |
| | | | | | Estimated | |
| (In thousands) | | Amortized | | | Fair | |
| | | Cost | | | Value | |
Due in one year or less | | $ | 50,311 | | | $ | 50,212 | |
Due after one year through five years | | | 386,039 | | | | 384,585 | |
Due after five years through ten years | | | 400,129 | | | | 398,208 | |
Due after ten years | | | 1,054,493 | | | | 1,045,873 | |
Marketable equity securities | | | 9,712 | | | | 9,878 | |
| | | | | | | | |
Total | | $ | 1,900,684 | | | $ | 1,888,756 | |
| | | | | | | | |
The following is a summary of the amortized cost and estimated fair values of securities held to maturity.
| | | | | | | | | | | | | | | | |
| | | December 31, 2017 | |
| (In thousands) | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Estimated
Fair
Value | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 5,187 | | | $ | 308 | | | $ | 0 | | | $ | 5,495 | |
State and political subdivisions | | | 5,797 | | | | 10 | | | | 0 | | | | 5,807 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 23 | | | | 3 | | | | 0 | | | | 26 | |
Single issue trust preferred securities | | | 9,401 | | | | 0 | | | | 731 | | | | 8,670 | |
Other corporate securities | | | 20 | | | | 0 | | | | 0 | | | | 20 | |
| | | | |
Total | | $ | 20,428 | | | $ | 321 | | | $ | 731 | | | $ | 20,018 | |
| | | | |
| | | | | | | | | | | | | | | | |
| | | December 31, 2016 | |
| (In thousands) | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Estimated
Fair
Value | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 5,295 | | | $ | 570 | | | $ | 0 | | | $ | 5,865 | |
State and political subdivisions | | | 8,598 | | | | 17 | | | | 0 | | | | 8,615 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 30 | | | | 5 | | | | 0 | | | | 35 | |
Single issue trust preferred securities | | | 19,315 | | | | 0 | | | | 2,672 | | | | 16,643 | |
Other corporate securities | | | 20 | | | | 0 | | | | 0 | | | | 20 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 33,258 | | | $ | 592 | | | $ | 2,672 | | | $ | 31,178 | |
| | | | | | | | | | | | | | | | |
Even though the market value of theheld-to-maturity investment portfolio is less than its cost, the unrealized loss has no impact on the net worth or regulatory capital requirements of United. As of December 31, 2017, the Company’s largestheld-to-maturity single-issue trust preferred exposure was to SunTrust Bank ($7,426,000). The twoheld-to-maturity single-issue trust preferred exposures with at least one rating below investment grade included SunTrust Bank ($7,426,000) and Royal Bank of Scotland ($976,000).
No gross realized gains and losses on calls and sales of held to maturity securities have been included in earnings for the years ended December 31, 2017, 2016 and 2015.
The amortized cost and estimated fair value of debt securities held to maturity at December 31, 2017 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities with an amortized cost of $23,000 and an estimated fair value of $26,000 at December 31, 2017 are included below based upon contractual maturity.
| | | | | | | | |
| | | | | | Estimated | |
| (In thousands) | | Amortized | | | Fair | |
| | | Cost | | | Value | |
Due in one year or less | | $ | 0 | | | $ | 0 | |
Due after one year through five years | | | 9,344 | | | | 9,660 | |
Due after five years through ten years | | | 5,663 | | | | 5,343 | |
Due after ten years | | | 5,421 | | | | 5,015 | |
| | | | | | | | |
Total | | $ | 20,428 | | | $ | 20,018 | |
| | | | | | | | |
The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $1,403,565,000 and $1,137,408,000 at December 31, 2017 and 2016, respectively.
The fair value ofmortgage-backed
securities is affected by changes in interest rates and prepayment speeds. When interest rates decline, prepayment speeds generally accelerate due to homeowners refinancing their mortgages at lower interest rates. This may result in the proceeds being reinvested at lower interest rates. Rising interest rates may decrease the assumed prepayment speed. Slower prepayment speeds may extend the maturity of the security beyond its estimated maturity. Therefore, investors may not be able to invest at current higher market rates due to the extended expected maturity of the security. United had a net unrealized loss of $8,968,000$269,105,000 at December 31, 20172022 and a net unrealized gainloss of $13,000$946,000 at December 31, 20162021 on allmortgage-backed
securities.
Below is a detailed discussion of mortgage-backed securities by type.
United’s agency mortgage-backed securities portfolio relates to securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. The following table sets forth the maturitiestotal amortized cost of allavailable for sale agency mortgage-backed securities (based on amortized cost)was $1,997,239,000 at December 31, 2017,2022. Of the $1,997,239,000 amount, $627,768,000 was related to agency commercial mortgage-backed securities and theweighted-average yields$1,369,471,000 was related to agency residential mortgage-backed securities. Each of suchthe agency mortgage-backed securities (calculatedprovides a guarantee of full and timely payments of principal and interest by the issuing agency. Based upon management’s analysis and judgment, it was determined that none of the agency mortgage-backed securities had credit losses at December 31, 2022.
United’snon-agency
residential mortgage-backed securities portfolio relates to securities of various private label issuers. The total amortized cost of available for salenon-agency
residential mortgage-backed securities was $121,336,000 at December 31, 2022. Of the $121,336,000, 100% was rated AAA. Based upon management’s analysis and judgment, it was determined that none of thenon-agency
residential mortgage-backed securities had credit losses at December 31, 2022. As of December 31, 2022, United’s asset-backed securities portfolio had a total amortized cost balance of $943,813,000. 100% of the portfolio was investment grade rated as of December 31, 2022. Approximately 27% of the portfolio relates to securities that are backed by Federal Family Education Loan Program (“FFELP”) student loan collateral which includes a minimum of a 97% government repayment guaranty, as well as additional credit support and subordination in excess of the government guaranteed portion. Approximately 73% of the portfolio relates to collateralized loan obligation securities that are all AAA rated. Upon reviewing this portfolio as of December 31, 2022, it was determined that none of the asset-backed securities had credit losses.
Single issue trust preferred securities
The majority of United’s single issue trust preferred portfolio consists of obligations from large cap banks (i.e. banks with market capitalization in excess of $10 billion). All single issue trust preferred securities are currently receiving interest payments. The amortized cost of available for sale single issue trust preferred securities as of December 31, 2022 consisted of $8,468,000 in investment grade bonds, $3,086,000 in split rated bonds, and $5,788,000 in unrated bonds. Management reviews each issuer’s current and projected earnings trends, asset quality, capitalization levels, and other key factors. Upon completing the review for the fourth quarter of 2022, it was determined that none of the single issue trust preferred securities had credit losses.
94
As of December 31, 2022, United’s Corporate securities portfolio had a total amortized cost balance of $563,425,000. The majority of the portfolio consisted of debt issuances of corporations representing a variety of industries, including financial institutions. Of the $563,425,000, 98% had at least one rating above investment grade, none were below investment grade rated, and 2% was unrated. For corporate securities, management has evaluated the near-term prospects of the investment in relation to the severity of any unrealized loss. Based upon management’s analysis and judgment, it was determined that none of the corporate securities had credit losses at December 31, 2022.
The amortized cost and estimated fair value of securities available for sale at December 31, 2022 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.
Maturities of mortgage-backed securities with an amortized cost of $2,118,575,000 and an estimated fair value of $1,849,470,000 at December 31, 2022 are included below based upon contractual maturity.
| | | | | | | | |
| | | | | |
| | | | |
| | | | | |
| Due in one year or less | | $ | 384,921 | | | $ | 380,575 | |
| Due after one year through five years | | | 856,743 | | | | 817,881 | |
| Due after five years through ten years | | | 981,983 | | | | 858,819 | |
| Due after ten years | | | 2,788,082 | | | | 2,484,650 | |
| | | | | | | | | |
| Total | | $ | 5,011,729 | | | $ | 4,541,925 | |
| | | | | | | | | |
Equity securities at fair value
Equity securities consist mainly of equity securities of mutual funds within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. The fair value of United’s equity securities was $7,629,000 at December 31, 2022 and $12,404,000 at December 31, 2021.
| | | | | | | | |
| | | | |
| | | | | | |
| Net gains recognized during the period on equity securities sold | | $ | 0 | | | $ | 788 | |
| Unrealized gains recognized during the period on equity securities still held at period end | | | 94 | | | | 69 | |
| Unrealized losses recognized during the period on equity securities still held at period end | | | (684 | ) | | | (187 | ) |
| | | | | | | | | |
| Net gains recognized during the period | | $ | (590) | | | $ | 670 | |
| | | | | | | | | |
Other investment securities
During the fourth quarter of 2022, United evaluated all of its cost method investments to determine if certain events or changes in circumstances during the fourth quarter of 2022 had a significant adverse effect on the
basis of the cost and the effective yields weighted for the scheduled maturity of each security). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | After 1 But | | | After 5 But | | | | |
| (Dollars in thousands) | | Within 1 Year | | | Within 5 Years | | | Within 10 Years | | | After 10 Years | |
| | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | |
U.S. Treasury and other U.S. Government agencies and corporations | | $ | 20,018 | | | | 0.71 | % | | $ | 58,560 | | | | 2.43 | % | | $ | 9,882 | | | | 2.50 | % | | $ | 31,462 | | | | 2.84 | % |
States and political subdivisions (1) | | | 20,711 | | | | 2.76 | % | | | 68,543 | | | | 2.53 | % | | | 45,399 | | | | 2.97 | % | | | 174,245 | | | | 3.72 | % |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency | | | 160 | | | | 3.68 | % | | | 2,535 | | | | 4.40 | % | | | 157,860 | | | | 2.30 | % | | | 661,325 | | | | 2.49 | % |
Non-agency | | | 121 | | | | 5.01 | % | | | 547 | | | | 5.00 | % | | | 0 | | | | 0.00 | % | | | 4,301 | | | | 5.84 | % |
Commercial mortgage-backed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency | | | 9,300 | | | | 1.11 | % | | | 258,207 | | | | 2.03 | % | | | 168,964 | | | | 2.57 | % | | | 20,636 | | | | 2.81 | % |
Asset-backed securities | | | 0 | | | | 0.00 | % | | | 0 | | | | 0.00 | % | | | 0 | | | | 0.00 | % | | | 109,829 | | | | 2.03 | % |
Trust preferred collateralized debt obligations | | | 0 | | | | 0.00 | % | | | 0 | | | | 0.00 | % | | | 0 | | | | 0.00 | % | | | 37,856 | | | | 3.89 | % |
Single issue trust preferred securities | | | 0 | | | | 0.00 | % | | | 0 | | | | 0.00 | % | | | 9,687 | | | | 2.70 | % | | | 13,131 | | | | 4.72 | % |
Marketable equity securities | | | 0 | | | | 0.00 | % | | | 0 | | | | 0.00 | % | | | 0 | | | | 0.00 | % | | | 9,712 | | | | 0.27 | % |
Other Corporate securities | | | 0 | | | | 0.00 | % | | | 6,993 | | | | 2.32 | % | | | 14,000 | | | | 5.21 | % | | | 7,128 | | | | 0.75 | % |
| (1) | Tax-equivalent adjustments (using a 35% federal rate) have been made in calculating yields on obligations of states and political subdivisions.
|
There are no securities with a single issuer, other than the U.S. government and its agencies and corporations, the bookrecorded value of any of its cost method securities. United determined that there was no individual security that experienced an adverse event during the fourth quarter. There were no other events or changes in circumstances during the fourth quarter which inwould have an adverse effect on the aggregate exceeds 10%recorded fair value of United’s total shareholders’ equity.
its cost method securities.
The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $2,412,820,000 and $1,871,328,000 at December 31, 2022 and December 31, 2021, respectively.
95
Major classes of loans
and leases are as follows:
| | | | | | | | |
| | | December 31 | |
| (In thousands) | | 2017 | | | 2016 | |
Commercial, financial, and agricultural | | | | | | | | |
Owner-occupied | | $ | 1,361,629 | | | $ | 1,049,885 | |
Nonowner-occupied | | | 4,451,298 | | | | 3,425,453 | |
Other commercial | | | 1,998,979 | | | | 1,613,437 | |
| | | | | | | | |
Total commercial, financial & agricultural | | | 7,811,906 | | | | 6,088,775 | |
Residential real estate | | | 2,996,171 | | | | 2,403,437 | |
Construction & land development | | | 1,504,907 | | | | 1,255,738 | |
Consumer: | | | | | | | | |
Bankcard | | | 10,314 | | | | 14,187 | |
Other Consumer | | | 704,039 | | | | 594,582 | |
Less: Unearned interest | | | (15,916) | | | | (15,582) | |
| | | | | | | | |
Total Loans, net of unearned interest | | $ | 13,011,421 | | | $ | 10,341,137 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | |
| | | | | | |
| Commercial, financial and agricultural: | | | | | | | | |
| Owner-occupied commercial real estate | | $ | 1,724,927 | | | $ | 1,733,176 | |
| Nonowner-occupied commercial real estate | | | 6,286,974 | | | | 5,957,288 | |
| Other commercial | | | 3,612,568 | | | | 3,462,361 | |
| | | | | | | | | |
| Total commercial, financial & agricultural | | | 11,624,469 | | | | 11,152,825 | |
| Residential real estate | | | 4,662,911 | | | | 3,691,560 | |
| Construction & land development Consumer: | | | 2,926,971 | | | | 2,014,165 | |
| Bankcard | | | 9,273 | | | | 8,913 | |
| Other consumer | | | 1,356,539 | | | | 1,183,844 | |
| Less: Unearned income | | | (21,997 | ) | | | (27,659 | ) |
| | | | | | | | | |
| Total gross loans | | $ | 20,558,166 | | | $ | 18,023,648 | |
| | | | | | | | | |
The table above does not include loans held for sale of
$265,955,000$56,879,000 and
$8,445,000$504,416,000 at December 31,
20172022 and December 31,
2016,2021, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.
The outstanding balances in the table above include previously acquired impaired loans with a recorded investment of $210,521,000 or 1.62% of total gross loans at December 31, 2017 and $171,596,000 or 1.66% of total gross loans at December 31, 2016. The contractual principal in these acquired impaired loans was $285,964,000 and $231,096,000 at December 31, 2017 and December 31, 2016, respectively. The balances above do not include future accretable net interest (i.e. the difference between the undiscounted expected cash flows and the recorded investment in the loan) on the acquired impaired loans.
Activity for the accretable yield for the year of 2017 follows.
| | | | |
| (In thousands) | | | |
| |
Accretable yield at the beginning of the period | | $ | 29,165 | |
Accretion (including cash recoveries) | | | (15,490 | ) |
Additions | | | 17,444 | |
Net reclassifications to accretable fromnon-accretable | | | 13,424 | |
Disposals (including maturities, foreclosures, and charge-offs) | | | (5,445 | ) |
| | | | |
Accretable yield at the ending of the period | | $ | 39,098 | |
| | | | |
At December 31,
20172022 and
2016,2021,of $37,738,000 $62,691,000
and $38,591,000$112,109,000
and overdrafts from deposit accounts of $24,714,000 $36,209,000
and $7,971,000,$14,270,000, respectively, are included within the appropriate loan classifications above. The outstanding loan balances in the table above also include unamortized net discounts of $47,134
,000
and $66,081,000
at December 31, 2022 and December 31, 2021, respectively.United’s subsidiary bank has made loans, in the normal course of business, to the directors and officers of United and its subsidiaries, and to their associates. The aggregate dollar amount of these loans was
$36,360,000$24,901,000
and
$255,476,000 $32,990,000
at December 31,
20172022 and
2016,2021, respectively. During
2017, $17,837,0002022, $1,963,000 of new loans were made and repayments totaled
$64,556,000. There was also a reduction of $172,397,000 in loans due to a merger of United’s banking subsidiaries in 2017 and the resulting change in the composition of the bank’s board of directors.$10,052,000
.
Management monitors the credit quality of its loans
and leases on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.
United considers a loan to be past due when it is 30 days or more past its contractual payment due date.
For all loan classes, past due loans
and leases are reviewed on a monthly basis to identify loans
and leases for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on nonaccrual status. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. However, regardless of delinquency status, if a loan is fully secured and in the process of collection and resolution of collection is expected in the near term (generally less than 90 days), then the loan will not be placed on nonaccrual status. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for
loancredit losses. United’s method of income recognition for loans
and leases that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. Nonaccrual loans
and leases will not normally be returned to accrual status unless all past due principal and interest has been paid and the borrower has evidenced their ability to meet the contractual provisions of the note.
A Generally, a loan is categorized as a troubled debt restructuring (TDR)TDR if a concession is granted and there is deterioration in the financial condition of the borrower. TDRs can takeThe portfolio of TDR loans is monitored monthly.
In response to the
formcoronavirus(“COVID-19”)
pandemic and its economic impact on our customers, United implemented a short-term modification program that complied with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide temporary payment relief, primarily deferral of
payments, to those borrowers directly impacted byCOVID-19
who were not more than 30 days past due as of December 31, 2019. This program ended on January 1, 2022. As provided for 96
under the CARES Act, these loan modifications were exempt by law from classification as a
reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary terms on the other loan, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity amount of the debtTDR as
stated in the instrument or other agreement, the reduction of accrued interest or any other concessionary type of renegotiated debt.defined by GAAP. As of December 31,
2017,2022, United no longer has any eligible loan modifications in deferral under section 4013, “Temporary Relief from Troubled Debt Restructurings,” of the CARES Act as compared to 188 eligible loan modifications in deferral on $18,039,000
of loans outstanding at December 31, 2021. As of December 31, 2022, United had TDRs of
$50,129,000 as compared to $21,152,000 as of December 31, 2016.$19,388,000
. Of the
$50,129,000 $19,388,000
aggregate balance of TDRs at December 31,
2017, $30,868,000 2022, $7,186,000
was on nonaccrual,
$95,000 were$3,075,000
was 90 days or more
days past due and
$1,254,000 were 30 to 89 $37,000 was30-89
days past due. As of December 31,
2016,2021, United had TDRs of
$21,152,000.$35,856,000
. Of the
$21,152,000$35,856,000
aggregate balance of TDRs at December 31,
2016, $11,106,000 2021, $22,421,000
was on nonaccrual
status.and $102,000 was 90 days or more days past due. All these amounts are included in the appropriate categories in the “Age Analysis of Past Due Loans” table on a subsequent page. As of December 31,
2017,2022, there
were no commitmentswas a commitment to lend additional funds
of $57,000 to
debtorsa debtor owing
receivablesa receivable whose terms have been modified in
TDRs. Ata TDR. During the year of 2022, advances of $76,000 were made to this debtor under a loan that had been previously modified. The following tables sets forth the balances of TDRs at December 31,
2017, United had restructured loans in the amount of $2,001,000 that were modified by a reduction in the interest rate, $1,898,000 that were modified by a combination of a reduction in the interest rate2022 and December 31, 2021 and the
principal and $46,230,000 that were modified by a change in terms.A loan acquired and accountedreasons for under ASC topic310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” is reported as an accruing loan and a performing asset unless it does not perform in accordance with its restructured contractual provisions.
modification:
| | | | | | | | |
| | | | | | |
| | | | | | |
| Interest rate reduction | | $ | 736 | | | $ | 3,163 | |
| Interest rate reduction and change in terms | | | 792 | | | | 1,412 | |
| Forgiveness of principal | | | 0 | | | | 0 | |
| Concession of principal and term | | | 15 | | | | 19 | |
| Extended maturity | | | 4,616 | | | | 4,831 | |
| Transfer of asset | | | 0 | | | | 5,407 | |
| Change in terms | | | 13,229 | | | | 21,024 | |
| | | | | | | | | |
| Total | | $ | 19,388 | | | $ | 35,856 | |
| | | | | | | | | |
The following table sets forth United’s troubled debt restructurings that have been restructured during the year ended December 31,
20172022 and
2016,2021, segregated by class of loans:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Troubled Debt Restructurings | |
| | | For the Year Ended | |
| | | December 31, 2017 | | | December 31, 2016 | |
| | | Number of
Contracts | | | Pre-
Modification
Outstanding
Recorded
Investment | | | Post-
Modification
Outstanding
Recorded
Investment | | | Number of
Contracts | | | Pre-
Modification
Outstanding
Recorded
Investment | | | Post-
Modification
Outstanding
Recorded
Investment | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied | | | 1 | | | $ | 5,333 | | | $ | 5,327 | | | | 1 | | | $ | 1,190 | | | $ | 1,178 | |
Nonowner-occupied | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other commercial | | | 13 | | | | 32,211 | | | | 29,411 | | | | 7 | | | | 2,803 | | | | 2,213 | |
Residential real estate | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 1,400 | | | | 1,400 | |
Construction & land development | | | 1 | | | | 1,456 | | | | 1,383 | | | | 0 | | | | 0 | | | | 0 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 15 | | | $ | 39,000 | | | $ | 36,121 | | | | 9 | | | $ | 5,393 | | | $ | 4,791 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
During 2017, $36,121,000
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Troubled Debt Restructurings | |
| | | | |
| | | | | | | |
| | | | |
Modification
Outstanding
Recorded
Investment | | | Post-
Modification
Outstanding
Recorded
Investment | | | | | |
Modification
Outstanding
Recorded
Investment | | | Post-
Modification
Outstanding
Recorded
Investment | |
| Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
| Owner-occupied | | | 2 | | | $ | 2,945 | | | $ | 2,817 | | | | 5 | | | $ | 2,155 | | | $ | 2,293 | |
| Nonowner-occupied | | | 0 | | | | 0 | | | | 0 | | | | 3 | | | | 6,362 | | | | 6,130 | |
| Other commercial | | | 1 | | | | 132 | | | | 0 | | | | 2 | | | | 328 | | | | 328 | |
| Residential real estate | | | 0 | | | | 0 | | | | 0 | | | | 9 | | | | 1,660 | | | | 1,651 | |
| Construction & land development | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
| Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 3 | | | $ | 3,077 | | | $ | 2,817 | | | | 19 | | | $ | 10,505 | | | $ | 10,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table sets forth United’s troubled debt restructurings, based on their post-modification outstanding recorded balance, that have been restructured during the year ended December 31, 2022 and 2021, segregated by the reason for modification:
| | | | | | | | |
| | | | |
| | | | | | |
| Interest rate reduction | | $ | 143 | | | $ | 155 | |
| Interest rate reduction and change in terms | | | 0 | | | | 1,412 | |
| Forgiveness of principal | | | 0 | | | | 0 | |
97
| | | | | | | | |
| | | | |
| | | | | | |
| Concession of principal and term | | | 0 | | | | 0 | |
| Transfer of asset | | | 0 | | | | 5,407 | |
| Extended maturity | | | 0 | | | | 2,754 | |
| Change in terms | | | 2,674 | | | | 674 | |
| | | | | | | | | |
| Total | | $ | 2,817 | | | $ | 10,402 | |
| | | | | | | | | |
The loans
were modified by a change in terms. During 2016, $2,887,000 of restructured loans were modified by a change in loan terms and
$1,904,000 of restructured loans were modified by a combination of a reduction in the interest rate and an extension of the maturity date. In some instances, the post-modification balance on a restructured loan is larger than thepre-modification balance due to the advancement of monies for items such as delinquent taxes on real estate property. The loansleases were evaluated individually for allocation within United’s allowance for loan losses. The modifications had an immaterial impact on the financial condition and results of operations for United.
The following table presents troubled debt restructurings, by class of loan, that had charge-offs during the year ended December 31,
20172022 and
2016.2021. These loans were restructured during the twelve months ended December 31,
20172022 and
20162021 and subsequently defaulted, resulting in principal charge-offs during the year of
20172022 and
2016. | | | | | | | | | | | | | | | | |
| | | Year Ended
December 31, 2017 | | | Year Ended
December 31, 2016 | |
| (In thousands) | | Number of
Contracts | | | Recorded
Investment | | | Number of
Contracts | | | Recorded
Investment | |
Troubled Debt Restructurings | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | |
Owner-occupied | | | 0 | | | $ | 0 | | | | 0 | | | $ | 0 | |
Nonowner-occupied | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other commercial | | | 1 | | | | 1,495 | | | | 1 | | | | 37 | |
Residential real estate | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Construction & land development | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Consumer: | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total | | | 1 | | | $ | 1,495 | | | | 1 | | | $ | 37 | |
| | | | | | | | | | | | | | | | |
2021. The recorded investment amounts presented were as of the December 31, 2022 and 2021 balance sheet dates.
| | | | | | | | | | | | | | | | |
| | |
| | |
| |
| | | | | | | | | | | | |
Troubled Debt Restructurings | | | | | | | | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | | | | | | | |
| Owner-occupied | | | 0 | | | $ | 0 | | | | 0 | | | $ | 0 | |
| Nonowner-occupied | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Other commercial | | | 1 | | | | 96 | | | | 0 | | | | 0 | |
| Residential real estate | | | 1 | | | | 0 | | | | 1 | | | | 0 | |
| Construction & land development | | | 0 | | | | 0 | | | | 2 | | | | 0 | |
| Consumer: | | | | | | | | | | | | | | | | |
| Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Total | | | 2 | | | $ | 96 | | | | 3 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | |
The following table sets forth United’s age analysis of its past due loans
and leases, segregated by class of
loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Age Analysis of Past Due Loans As of December 31, 2017 | |
| (In thousands) | | 30-89
Days Past
Due | | 90 Days or
more
Past Due | | | Total Past
Due | | | Current &
Other (1) | | | Total
Financing
Receivables | | | Recorded
Investment
>90 Days &
Accruing | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 7,968 | | | $ | 13,663 | | | $ | 21,631 | | | $ | 1,339,998 | | | $ | 1,361,629 | | | $ | 458 | |
Nonowner-occupied | | | 10,398 | | | | 20,448 | | | | 30,846 | | | | 4,420,452 | | | | 4,451,298 | | | | 634 | |
Other commercial | | | 11,533 | | | | 68,476 | | | | 80,009 | | | | 1,918,970 | | | | 1,998,979 | | | | 940 | |
Residential real estate | | | 35,300 | | | | 28,637 | | | | 63,937 | | | | 2,932,234 | | | | 2,996,171 | | | | 6,519 | |
Construction & land development | | | 1,615 | | | | 17,190 | | | | 18,805 | | | | 1,486,102 | | | | 1,504,907 | | | | 385 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Bankcard | | | 449 | | | | 186 | | | | 635 | | | | 9,679 | | | | 10,314 | | | | 186 | |
Other consumer | | | 9,288 | | | | 968 | | | | 10,256 | | | | 693,783 | | | | 704,039 | | | | 775 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 76,551 | | | $ | 149,568 | | | $ | 226,119 | | | $ | 12,801,218 | | | $ | 13,027,337 | | | $ | 9,897 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Other includes loans with a recorded investment of $210,521 acquired and accounted for under ASC topic310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Age Analysis of Past Due Loans As of December 31, 2016 | |
| (In thousands) | | 30-89
Days Past
Due | | 90 Days or
more
Past Due | | | Total Past
Due | | | Current &
Other (1) | | | Total
Financing
Receivables | | | Recorded
Investment
>90 Days &
Accruing | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 5,850 | | | $ | 3,981 | | | $ | 9,831 | | | $ | 1,040,054 | | | $ | 1,049,885 | | | $ | 94 | |
Nonowner-occupied | | | 9,288 | | | | 20,847 | | | | 30,135 | | | | 3,395,318 | | | | 3,425,453 | | | | 172 | |
Other commercial | | | 15,273 | | | | 42,766 | | | | 58,039 | | | | 1,555,398 | | | | 1,613,437 | | | | 2,518 | |
Residential real estate | | | 29,976 | | | | 25,991 | | | | 55,967 | | | | 2,347,470 | | | | 2,403,437 | | | | 4,216 | |
Construction & land development | | | 3,809 | | | | 7,779 | | | | 11,588 | | | | 1,244,150 | | | | 1,255,738 | | | | 33 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Bankcard | | | 422 | | | | 141 | | | | 563 | | | | 13,624 | | | | 14,187 | | | | 141 | |
Other consumer | | | 10,015 | | | | 1,712 | | | | 11,727 | | | | 582,855 | | | | 594,582 | | | | 1,412 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 74,633 | | | $ | 103,217 | | | $ | 177,850 | | | $ | 10,178,869 | | | $ | 10,356,719 | | | $ | 8,586 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Other includes loans with a recorded investment of $171,596 acquired and accounted for under ASC topic310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.
|
loans and leases:
| | | | | | | | | | | | | | | | | | | | | | | | |
Age Analysis of Past Due Loans and Leases | |
| | | | |
| | | | | | | | |
| | |
| |
| Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
| Owner-occupied | | $ | 5,643 | | | $ | 12,368 | | | $ | 18,011 | | | $ | 1,706,916 | | | $ | 1,724,927 | | | $ | 4,023 | |
| Nonowner-occupied | | | 9,996 | | | | 8,916 | | | | 18,912 | | | | 6,268,062 | | | | 6,286,974 | | | | 0 | |
| Other commercial | | | 13,466 | | | | 5,338 | | | | 18,804 | | | | 3,593,764 | | | | 3,612,568 | | | | 2,946 | |
| Residential real estate | | | 25,315 | | | | 17,735 | | | | 43,050 | | | | 4,619,861 | | | | 4,662,911 | | | | 7,342 | |
| Construction & land development | | | 3,060 | | | | 475 | | | | 3,535 | | | | 2,923,436 | | | | 2,926,971 | | | | 0 | |
| Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
| Bankcard | | | 63 | | | | 109 | | | | 172 | | | | 9,101 | | | | 9,273 | | | | 109 | |
| Other consumer | | | 33,993 | | | | 4,570 | | | | 38,563 | | | | 1,317,976 | | | | 1,356,539 | | | | 4,220 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 91,536 | | | $ | 49,511 | | | $ | 141,047 | | | $ | 20,439,116 | | | $ | 20,580,163 | | | $ | 18,640 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
98
| | | | | | | | | | | | | | | | | | | | | | | | |
Age Analysis of Past Due Loans and Leases | |
| |
| | |
| | |
| | | | | |
| | |
| |
| Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
| Owner-occupied | | $ | 7,522 | | | $ | 13,325 | | | $ | 20,847 | | | $ | 1,712,329 | | | $ | 1,733,176 | | | $ | 611 | |
| Nonowner-occupied | | | 5,791 | | | | 18,829 | | | | 24,620 | | | | 5,932,668 | | | | 5,957,288 | | | | 545 | |
| Other commercial | | | 21,444 | | | | 15,883 | | | | 37,327 | | | | 3,425,034 | | | | 3,462,361 | | | | 6,569 | |
| Residential real estate | | | 19,488 | | | | 23,495 | | | | 42,983 | | | | 3,648,577 | | | | 3,691,560 | | | | 8,241 | |
| Construction & land development | | | 6,599 | | | | 3,096 | | | | 9,695 | | | | 2,004,470 | | | | 2,014,165 | | | | 383 | |
| Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
| Bankcard | | | 100 | | | | 187 | | | | 287 | | | | 8,626 | | | | 8,913 | | | | 187 | |
| Other consumer | | | 17,264 | | | | 2,615 | | | | 19,879 | | | | 1,163,965 | | | | 1,183,844 | | | | 2,445 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 78,208 | | | $ | 77,430 | | | $ | 155,638 | | | $ | 17,895,669 | | | $ | 18,051,307 | | | $ | 18,981 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table sets forth United’s nonaccrual loans
and leases, segregated by class of
loans: | | | | | | | | |
| Loans on Nonaccrual Status | |
| (In thousands) | | December 31,
2017 | | | December 31,
2016 | |
Commercial real estate: | | | | | | | | |
Owner-occupied | | $ | 13,205 | | | $ | 3,887 | |
Nonowner-occupied | | | 19,814 | | | | 20,675 | |
Other commercial | | | 67,536 | | | | 40,248 | |
Residential real estate | | | 22,118 | | | | 21,775 | |
Construction & land development | | | 16,805 | | | | 7,746 | |
Consumer: | | | | | | | | |
Bankcard | | | 0 | | | | 0 | |
Other consumer | | | 193 | | | | 300 | |
| | | | | | | | |
Total | | $ | 139,671 | | | $ | 94,631 | |
| | | | | | | | |
loans and leases:
| | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | With No
Related
Allowance
for Credit
Losses | | | | | | With No
Related
Allowance
for Credit
Losses | |
| Commercial Real Estate: | | | | | | | | | | | | | | | | |
| Owner-occupied | | $ | 8,345 | | | $ | 8,345 | | | $ | 12,714 | | | $ | 12,714 | |
| Nonowner-occupied | | | 8,916 | | | | 8,916 | | | | 18,284 | | | | 18,284 | |
| Other Commercial | | | 2,392 | | | | 2,392 | | | | 9,314 | | | | 8,261 | |
| Residential Real Estate | | | 10,393 | | | | 8,564 | | | | 15,254 | | | | 14,298 | |
| Construction | | | 475 | | | | 475 | | | | 2,713 | | | | 2,713 | |
| Consumer: | | | | | | | | | | | | | | | | |
| Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Other consumer | | | 350 | | | | 350 | | | | 170 | | | | 170 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 30,871 | | | $ | 29,042 | | | $ | 58,449 | | | $ | 56,440 | |
| | | | | | | | | | | | | | | | | |
Interest income recognized on nonaccrual loans was insignificant during the year ended December 31, 2022 and 2021.
For the adoption of ASC Topic 326, United assignselected the practical expedient to measure expected credit quality indicatorslosses on collateral dependent loans and leases based on the difference between the loan’s amortized cost and the collateral’s fair value, adjusted for selling costs. The following table presents the amortized cost basis of pass, special mention, substandardcollateral-dependent loans and doubtfulleases in which repayment is expected to its loans. be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty, by class of loans and leases as of December 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Collateral Dependent Loans and Leases | |
| | | | |
| | | | | | | | | | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
| Owner-occupied | | $ | 46 | | | $ | 22 | | | $ | 0 | | | $ | 15,718 | | | $ | 9,635 | | | $ | 25,421 | |
| Nonowner-occupied | | | 3,245 | | | | 0 | | | | 0 | | | | 2,784 | | | | 7,619 | | | | 13,649 | |
| Other commercial | | | 0 | | | | 5,444 | | | | 0 | | | | 0 | | | | 140 | | | | 5,584 | |
| Residential real estate | | | 11,858 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 11,858 | |
| Construction & land development | | | 14 | | | | 0 | | | | 1,312 | | | | 0 | | | | 738 | | | | 2,063 | |
| Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
| Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 15,163 | | | $ | 5,466 | | | $ | 1,312 | | | $ | 18,502 | | | $ | 18,132 | | | $ | 58,575 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
99
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Collateral Dependent Loans and Leases | |
| | | | |
| | | | | | | | | | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
| Owner-occupied | | $ | 0 | | | $ | 38 | | | $ | 0 | | | $ | 9,775 | | | $ | 11,223 | | | $ | 21,036 | |
| Nonowner-occupied | | | 7,085 | | | | 0 | | | | 703 | | | | 8,665 | | | | 52,299 | | | | 68,752 | |
| Other commercial | | | 2,093 | | | | 15,225 | | | | 0 | | | | 0 | | | | 732 | | | | 18,050 | |
| Residential real estate | | | 16,749 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 16,749 | |
| Construction & land development | | | 0 | | | | 0 | | | | 4,770 | | | | 0 | | | | 1,103 | | | | 5,873 | |
| Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
| Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 25,927 | | | $ | 15,263 | | | $ | 5,473 | | | $ | 18,440 | | | $ | 65,357 | | | $ | 130,460 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
United categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt: current financial information, historical payment experience, credit documentation, underlying collateral (if any), public information and current economic trends, among other factors.
United uses the following definitions for risk ratings:
For United’s loans with a corporate credit exposure, United
internally assigns a grade based onanalyzes loans individually to classify the
creditworthinessloans as to credit risk. Review and analysis of
criticized (special mention-rated loans in the
borrower.amount of $1,000,000 or greater) and classified (substandard-rated and worse in the amount of $500,000 and greater) loans is completed once per quarter. Review of notes with committed exposure of $2,000,000 or greater is completed at least annually. For loans with a consumer credit exposure, United internally assigns a grade based upon an individual loan’s delinquency status. United reviews and updates, as necessary, these grades on a quarterly basis.
Special mention loans, with a corporate credit exposure, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company’s credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. For loans with a consumer credit exposure, loans that are past due
30-89
days are generally considered special mention.A substandard loan with a corporate credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard.
A loan with corporate credit exposure is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.questionable. A doubtful loan has a high probability of total or substantial loss, but
100
because of specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, there are not any loans with a consumer credit exposure that are classified as doubtful. Usually, they are
charged-off
prior to such a classification. Loans classified as doubtful are also considered impaired.The following tables set forth United’s credit quality indicators information,
Based on the most recent analysis performed, the risk category of loans and leases by class of
loans:Credit Quality Indicators
| | | | | | | | | | | | | | | | |
Corporate Credit Exposure | |
| As of December 31, 2017 | |
| | | Commercial Real Estate | | | | | | | |
| (In thousands) | | Owner-
occupied | | | Nonowner-
occupied | | | Other
Commercial | | | Construction &
Land
Development | |
Grade: | | | | | | | | | | | | | | | | |
Pass | | $ | 1,276,088 | | | $ | 4,312,985 | | | $ | 1,848,868 | | | $ | 1,413,706 | |
Special mention | | | 20,165 | | | | 57,618 | | | | 55,564 | | | | 5,196 | |
Substandard | | | 65,376 | | | | 80,695 | | | | 90,625 | | | | 86,005 | |
Doubtful | | | 0 | | | | 0 | | | | 3,922 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,361,629 | | | $ | 4,451,298 | | | $ | 1,998,979 | | | $ | 1,504,907 | |
| | | | | | | | | | | | | | | | |
Credit Quality Indicators
| | | | | | | | | | | | | | | | |
Corporate Credit Exposure | |
| As of December 31, 2016 | |
| | | Commercial Real Estate | | | | | | | |
| (In thousands) | | Owner-
occupied | | | Nonowner-
occupied | | | Other
Commercial | | | Construction &
Land
Development | |
Grade: | | | | | | | | | | | | | | | | |
Pass | | $ | 963,503 | | | $ | 3,284,497 | | | $ | 1,463,797 | | | $ | 1,126,742 | |
Special mention | | | 20,490 | | | | 36,462 | | | | 26,537 | | | | 52,327 | |
Substandard | | | 65,892 | | | | 104,494 | | | | 122,893 | | | | 76,669 | |
Doubtful | | | 0 | | | | 0 | | | | 210 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,049,885 | | | $ | 3,425,453 | | | $ | 1,613,437 | | | $ | 1,255,738 | |
| | | | | | | | | | | | | | | | |
Credit Quality Indicators
| | | | | | | | | | | | |
Consumer Credit Exposure | |
| As of December 31, 2017 | |
| (In thousands) | | Residential
Real Estate | | | Bankcard | | | Other
Consumer | |
Grade: | | | | | | | | | | | | |
Pass | | $ | 2,945,266 | | | $ | 9,679 | | | $ | 693,727 | |
Special mention | | | 18,025 | | | | 449 | | | | 9,334 | |
Substandard | | | 32,880 | | | | 186 | | | | 978 | |
Doubtful | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | |
Total | | $ | 2,996,171 | | | $ | 10,314 | | | $ | 704,039 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| As of December 31, 2016 | |
| (In thousands) | | Residential
Real Estate | | | Bankcard | | | Other
Consumer | |
Grade: | | | | | | | | | | | | |
Pass | | $ | 2,348,017 | | | $ | 13,624 | | | $ | 582,704 | |
Special mention | | | 18,240 | | | | 422 | | | | 10,132 | |
Substandard | | | 36,995 | | | | 141 | | | | 1,746 | |
Doubtful | | | 185 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | |
Total | | $ | 2,403,437 | | | $ | 14,187 | | | $ | 594,582 | |
| | | | | | | | | | | | |
Loans are designatedloans is as impaired when, in the opinionfollows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate – Owner-occupied | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 339,765 | | | $ | 276,667 | | | $ | 284,091 | | | $ | 122,582 | | | $ | 112,126 | | | $ | 504,485 | | | $ | 32,465 | | | $ | 350 | | | $ | 1,672,531 | |
| Special Mention | | | 0 | | | | 0 | | | | 0 | | | | 496 | | | | 1,158 | | | | 5,358 | | | | 920 | | | | 0 | | | | 7,932 | |
| Substandard | | | 143 | | | | 936 | | | | 522 | | | | 417 | | | | 642 | | | | 41,301 | | | | 0 | | | | 233 | | | | 44,194 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 270 | | | | 0 | | | | 0 | | | | 270 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 339,908 | | | $ | 277,603 | | | $ | 284,613 | | | $ | 123,495 | | | $ | 113,926 | | | $ | 551,414 | | | $ | 33,385 | | | $ | 583 | | | $ | 1,724,927 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (68 | ) | | | 0 | | | | 0 | | | | (68 | ) |
| Current-period recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 489 | | | | 0 | | | | 0 | | | | 489 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period net recoveries | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 421 | | | $ | 0 | | | $ | 0 | | | $ | 421 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 319,007 | | | $ | 310,893 | | | $ | 161,075 | | | $ | 135,472 | | | $ | 168,874 | | | $ | 539,640 | | | $ | 39,117 | | | $ | 401 | | | $ | 1,674,479 | |
| Special Mention | | | 0 | | | | 0 | | | | 51 | | | | 5,399 | | | | 712 | | | | 20,672 | | | | 959 | | | | 0 | | | | 27,793 | |
| Substandard | | | 0 | | | | 55 | | | | 38 | | | | 661 | | | | 1,304 | | | | 27,458 | | | | 839 | | | | 244 | | | | 30,599 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 305 | | | | 0 | | | | 0 | | | | 305 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 319,007 | | | $ | 310,948 | | | $ | 161,164 | | | $ | 141,532 | | | $ | 170,890 | | | $ | 588,075 | | | $ | 40,915 | | | $ | 645 | | | $ | 1,733,176 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (44 | ) | | | (370 | ) | | | 0 | | | | 0 | | | | (414 | ) |
| YTD recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 13 | | | | 856 | | | | 0 | | | | 0 | | | | 869 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD net (charge-offs) recoveries | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (31 | ) | | $ | 486 | | | $ | 0 | | | $ | 0 | | | $ | 455 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate – Nonowner-occupied | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 1,415,465 | | | $ | 1,399,023 | | | $ | 739,474 | | | $ | 687,755 | | | $ | 341,367 | | | $ | 1,297,076 | | | $ | 183,779 | | | $ | 135 | | | $ | 6,064,074 | |
| Special Mention | | | 557 | | | | 2,401 | | | | 6,852 | | | | 84,781 | | | | 980 | | | | 23,137 | | | | 0 | | | | 0 | | | | 118,708 | |
| Substandard | | | 0 | | | | 0 | | | | 673 | | | | 34,079 | | | | 17,180 | | | | 51,897 | | | | 363 | | | | 0 | | | | 104,192 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,416,022 | | | $ | 1,401,424 | | | $ | 746,999 | | | $ | 806,615 | | | $ | 359,527 | | | $ | 1,372,110 | | | $ | 184,142 | | | $ | 135 | | | $ | 6,286,974 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Current-period recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 234 | | | | 0 | | | | 0 | | | | 234 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period net recoveries | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 234 | | | $ | 0 | | | $ | 0 | | | $ | 234 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 1,558,474 | | | $ | 925,508 | | | $ | 707,570 | | | $ | 460,660 | | | $ | 397,003 | | | $ | 1,490,548 | | | $ | 102,561 | | | $ | 2,039 | | | $ | 5,644,363 | |
| Special Mention | | | 819 | | | | 2,953 | | | | 113,655 | | | | 5,826 | | | | 372 | | | | 40,534 | | | | 2,793 | | | | 0 | | | | 166,952 | |
| Substandard | | | 0 | | | | 714 | | | | 13,042 | | | | 28,411 | | | | 1,095 | | | | 102,711 | | | | 0 | | | | 0 | | | | 145,973 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,559,293 | | | $ | 929,175 | | | $ | 834,267 | | | $ | 494,897 | | | $ | 398,470 | | | $ | 1,633,793 | | | $ | 105,354 | | | $ | 2,039 | | | $ | 5,957,288 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (3,531 | ) | | | 0 | | | | 0 | | | | (3,531 | ) |
| YTD recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,907 | | | | 0 | | | | 0 | | | | 1,097 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD net charge-offs | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (1,624 | ) | | $ | 0 | | | $ | 0 | | | $ | (1,624 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
101
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 749,919 | | | $ | 581,588 | | | $ | 398,682 | | | $ | 230,209 | | | $ | 75,577 | | | $ | 426,406 | | | $ | 1,033,459 | | | $ | 1,596 | | | $ | 3,497,436 | |
| Special Mention | | | 14,244 | | | | 3,652 | | | | 331 | | | | 2,115 | | | | 936 | | | | 2,799 | | | | 35,997 | | | | 38 | | | | 60,112 | |
| Substandard | | | 4,023 | | | | 432 | | | | 29 | | | | 871 | | | | 5,603 | | | | 6,182 | | | | 37,778 | | | | 42 | | | | 54,960 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 60 | | | | 0 | | | | 0 | | | | 60 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 768,186 | | | $ | 585,672 | | | $ | 399,042 | | | $ | 233,195 | | | $ | 82,116 | | | $ | 435,447 | | | $ | 1,107,234 | | | $ | 1,676 | | | $ | 3,612,568 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period charge-offs | | | 0 | | | | (364 | ) | | | (202 | ) | | | (211 | ) | | | (2,490 | ) | | | (1,041 | ) | | | 0 | | | | 0 | | | | (4,308 | ) |
| Current-period recoveries | | | 0 | | | | 0 | | | | 84 | | | | 17 | | | | 705 | | | | 4,561 | | | | 0 | | | | 0 | | | | 5,367 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period net (charge- offs) recoveries | | $ | 0 | | | $ | (364 | ) | | $ | (118 | ) | | $ | (194 | ) | | $ | (1,785 | ) | | $ | 3,520 | | | $ | 0 | | | $ | 0 | | | $ | 1,059 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 924,726 | | | $ | 557,422 | | | $ | 306,945 | | | $ | 107,426 | | | $ | 87,090 | | | $ | 76,032 | | | $ | 1,211,865 | | | $ | 2,038 | | | $ | 3,273,544 | |
| Special Mention | | | 1,880 | | | | 0 | | | | 31,614 | | | | 3,012 | | | | 1,801 | | | | 3,390 | | | | 76,987 | | | | 61 | | | | 118,745 | |
| Substandard | | | 793 | | | | 11 | | | | 1,561 | | | | 4,930 | | | | 2,146 | | | | 18,963 | | | | 41,357 | | | | 205 | | | | 69,966 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 106 | | | | 0 | | | | 0 | | | | 106 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 927,399 | | | $ | 557,433 | | | $ | 340,120 | | | $ | 115,368 | | | $ | 91,037 | | | $ | 98,491 | | | $ | 1,330,209 | | | $ | 2,304 | | | $ | 3,462,361 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD charge-offs | | | 0 | | | | (87 | ) | | | (31 | ) | | | (200 | ) | | | (174 | ) | | | (5,650 | ) | | | (40 | ) | | | 0 | | | | (6,182 | ) |
| YTD recoveries | | | 0 | | | | 3 | | | | 30 | | | | 86 | | | | 34 | | | | 4,154 | | | | 0 | | | | 0 | | | | 4,307 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD net charge-offs | | $ | 0 | | | $ | (84 | ) | | $ | (1 | ) | | $ | (114 | ) | | $ | (140 | ) | | $ | (1,496 | ) | | $ | (40 | ) | | $ | 0 | | | $ | (1,875 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 1,525,762 | | | $ | 847,177 | | | $ | 492,628 | | | $ | 291,334 | | | $ | 245,158 | | | $ | 791,366 | | | $ | 439,800 | | | $ | 2,683 | | | $ | 4,635,908 | |
| Special Mention | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 11 | | | | 4,418 | | | | 1,888 | | | | 0 | | | | 6,317 | |
| Substandard | | | 0 | | | | 1,448 | | | | 68 | | | | 445 | | | | 866 | | | | 17,001 | | | | 858 | | | | 0 | | | | 20,686 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,525,762 | | | $ | 848,625 | | | $ | 492,696 | | | $ | 291,779 | | | $ | 246,035 | | | $ | 812,785 | | | $ | 442,546 | | | $ | 2,683 | | | $ | 4,662,911 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period charge-offs | | | 0 | | | | (809 | ) | | | 0 | | | | 0 | | | | (284 | ) | | | (453 | ) | | | 0 | | | | 0 | | | | (1,546 | ) |
| Current-period recoveries | | | 0 | | | | 1 | | | | 0 | | | | 0 | | | | 16 | | | | 1,483 | | | | 7 | | | | 0 | | | | 1,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period net (charge- offs) recoveries | | $ | 0 | | | $ | (808 | ) | | $ | 0 | | | $ | 0 | | | $ | (268 | ) | | $ | 1,030 | | | $ | 7 | | | $ | 0 | | | $ | (39 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 815,693 | | | $ | 568,323 | | | $ | 383,250 | | | $ | 315,211 | | | $ | 178,101 | | | $ | 931,730 | | | $ | 455,705 | | | $ | 2,972 | | | $ | 3,650,985 | |
| Special Mention | | | 0 | | | | 0 | | | | 0 | | | | 223 | | | | 91 | | | | 12,251 | | | | 2,339 | | | | 0 | | | | 14,904 | |
| Substandard | | | 464 | | | | 0 | | | | 444 | | | | 617 | | | | 2,763 | | | | 19,773 | | | | 1,497 | | | | 113 | | | | 25,671 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 816,157 | | | $ | 568,323 | | | $ | 383,694 | | | $ | 316,051 | | | $ | 180,955 | | | $ | 963,754 | | | $ | 459,541 | | | $ | 3,085 | | | $ | 3,691,560 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD charge-offs | | | 0 | | | | 0 | | | | (37 | ) | | | (38 | ) | | | (167 | ) | | | (5,774 | ) | | | 0 | | | | 0 | | | | (6,016 | ) |
| YTD recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 3 | | | | 2,384 | | | | 13 | | | | 0 | | | | 2,400 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD net charge-offs | | $ | 0 | | | $ | 0 | | | $ | (37 | ) | | $ | (38 | ) | | $ | (164 | ) | | $ | (3,390 | ) | | $ | 13 | | | $ | 0 | | | $ | (3,616 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
102
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and Land Development | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 806,442 | | | $ | 1,109,601 | | | $ | 389,751 | | | $ | 133,711 | | | $ | 117,934 | | | $ | 109,320 | | | $ | 252,604 | | | $ | 0 | | | $ | 2,919,363 | |
| Special Mention | | | 0 | | | | 0 | | | | 65 | | | | 3,421 | | | | 0 | | | | 1,447 | | | | 0 | | | | 0 | | | | 4,933 | |
| Substandard | | | 0 | | | | 219 | | | | 0 | | | | 13 | | | | 0 | | | | 2,443 | | | | 0 | | | | 0 | | | | 2,675 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 806,442 | | | $ | 1,109,820 | | | $ | 389,816 | | | $ | 137,145 | | | $ | 117,934 | | | $ | 113,210 | | | $ | 252,604 | | | $ | 0 | | | $ | 2,926,971 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (2 | ) | | | 0 | | | | 0 | | | | (2 | ) |
| Current-period recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,414 | | | | 0 | | | | 0 | | | | 1,414 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period net recoveries | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,412 | | | $ | 0 | | | $ | 0 | | | $ | 1,412 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 767,351 | | | $ | 518,291 | | | $ | 278,020 | | | $ | 152,062 | | | $ | 18,371 | | | $ | 74,532 | | | $ | 192,421 | | | $ | 0 | | | $ | 2,001,048 | |
| Special Mention | | | 0 | | | | 69 | | | | 3,261 | | | | 0 | | | | 0 | | | | 1,237 | | | | 995 | | | | 0 | | | | 5,562 | |
| Substandard | | | 332 | | | | 0 | | | | 280 | | | | 925 | | | | 0 | | | | 5,272 | | | | 746 | | | | 0 | | | | 7,555 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 767,683 | | | $ | 518,360 | | | $ | 281,561 | | | $ | 152,987 | | | $ | 18,371 | | | $ | 81,041 | | | $ | 194,162 | | | $ | 0 | | | $ | 2,014,165 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (177 | ) | | | (383 | ) | | | 0 | | | | 0 | | | | (560 | ) |
| YTD recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 133 | | | | 471 | | | | 0 | | | | 0 | | | | 604 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD net (charge-offs) recoveries | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (44 | ) | | $ | 88 | | | $ | 0 | | | $ | 0 | | | $ | 44 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9,101 | | | $ | 0 | | | $ | 9,101 | |
| Special Mention | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 63 | | | | 0 | | | | 63 | |
| Substandard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 109 | | | | 0 | | | | 109 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9,273 | | | $ | 0 | | | $ | 9,273 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (355 | ) | | | 0 | | | | (355 | ) |
| Current-period recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 9 | | | | 0 | | | | 9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period net charge-offs | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (346 | ) | | $ | 0 | | | $ | (346 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 8,626 | | | $ | 0 | | | $ | 8,626 | |
| Special Mention | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 100 | | | | 0 | | | | 100 | |
| Substandard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 187 | | | | 0 | | | | 187 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 8,913 | | | $ | 0 | | | $ | 8,913 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (190 | ) | | | 0 | | | | (190 | ) |
| YTD recoveries | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 42 | | | | 0 | | | | 42 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD net charge-offs | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (148 | ) | | $ | 0 | | | $ | (148 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
103
Table of delinquency (i.e.90-plus days) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent foreclosure proceedings, etc.). Impairment is evaluated in total forsmaller-balance loans of a similar nature and on an individual loan basis for other loans. Consistent with United’s existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.The following table set forth United’s impaired loans information, by class of loans:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Impaired Loans |
| | | December 31, 2017 | | December 31, 2016 |
| (In thousands) | | Recorded
Investment | | Unpaid
Principal
Balance | | Related
Allowance | | Recorded
Investment | | Unpaid
Principal
Balance | | Related
Allowance |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 61,897 | | | $ | 62,661 | | | $ | 0 | | | $ | 46,575 | | | $ | 47,108 | | | $ | 0 | |
Nonowner-occupied | | | 107,476 | | | | 107,927 | | | | 0 | | | | 92,654 | | | | 93,104 | | | | 0 | |
Other commercial | | | 86,477 | | | | 90,610 | | | | 0 | | | | 46,064 | | | | 48,308 | | | | 0 | |
Residential real estate | | | 36,923 | | | | 38,863 | | | | 0 | | | | 22,747 | | | | 24,404 | | | | 0 | |
Construction & land development | | | 76,845 | | | | 79,110 | | | | 0 | | | | 19,863 | | | | 21,746 | | | | 0 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 59 | | | | 59 | | | | 0 | | | | 36 | | | | 36 | | | | 0 | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 9,132 | | | $ | 9,132 | | | $ | 2,251 | | | $ | 1,787 | | | $ | 2,082 | | | $ | 815 | |
Nonowner-occupied | | | 3,957 | | | | 3,956 | | | | 1,592 | | | | 17,938 | | | | 17,938 | | | | 2,524 | |
Other commercial | | | 60,471 | | | | 74,792 | | | | 16,721 | | | | 43,774 | | | | 46,188 | | | | 13,441 | |
Residential real estate | | | 9,813 | | | | 11,152 | | | | 1,552 | | | | 12,066 | | | | 12,801 | | | | 3,431 | |
Construction & land development | | | 1,383 | | | | 5,881 | | | | 229 | | | | 4,940 | | | | 7,899 | | | | 3,206 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 71,029 | | | $ | 71,793 | | | $ | 2,251 | | | $ | 48,362 | | | $ | 49,190 | | | $ | 815 | |
Nonowner-occupied | | | 111,433 | | | | 111,883 | | | | 1,592 | | | | 110,592 | | | | 111,042 | | | | 2,524 | |
Other commercial | | | 146,948 | | | | 165,402 | | | | 16,721 | | | | 89,838 | | | | 94,496 | | | | 13,441 | |
Residential real estate | | | 46,736 | | | | 50,015 | | | | 1,552 | | | | 34,813 | | | | 37,205 | | | | 3,431 | |
Construction & land development | | | 78,228 | | | | 84,991 | | | | 229 | | | | 24,803 | | | | 29,645 | | | | 3,206 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 59 | | | | 59 | | | | 0 | | | | 36 | | | | 36 | | | | 0 | |
| | | | | | | | | | | | | | | | |
| | | Impaired Loans |
| | | For the Year Ended |
| | | December 31, 2017 | | December 31, 2016 |
| (In thousands) | | Average
Recorded
Investment | | Interest
Income
Recognized | | Average
Recorded
Investment | | Interest
Income
Recognized |
With no related allowance recorded: | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 56,202 | | | $ | 2,013 | | | $ | 36,800 | | | $ | 1,038 | |
Nonowner-occupied | | | 96,318 | | | | 4,264 | | | | 75,848 | | | | 1,108 | |
Other commercial | | | 61,223 | | | | 3,861 | | | | 39,776 | | | | 1,540 | |
Residential real estate | | | 23,618 | | | | 986 | | | | 25,964 | | | | 538 | |
Construction & land development | | | 32,396 | | | | 1,830 | | | | 24,902 | | | | 133 | |
Consumer: | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 36 | | | | 0 | | | | 33 | | | | 0 | |
With an allowance recorded: | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 9,541 | | | $ | 610 | | | $ | 3,138 | | | $ | 97 | |
Nonowner-occupied | | | 12,593 | | | | 539 | | | | 11,920 | | | | 564 | |
Other commercial | | | 63,963 | | | | 2,208 | | | | 36,511 | | | | 1,615 | |
Residential real estate | | | 13,298 | | | | 185 | | | | 9,585 | | | | 342 | |
Construction & land development | | | 2,597 | | | | 85 | | | | 8,994 | | | | 83 | |
Consumer: | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Total: | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | |
Owner-occupied | | $ | 65,743 | | | $ | 2,623 | | | $ | 39,938 | | | $ | 1,135 | |
Nonowner-occupied | | | 108,911 | | | | 4,803 | | | | 87,768 | | | | 1,672 | |
Other commercial | | | 125,186 | | | | 6,069 | | | | 76,287 | | | | 3,155 | |
Residential real estate | | | 36,916 | | | | 1,171 | | | | 35,549 | | | | 880 | |
Construction & land development | | | 34,993 | | | | 1,915 | | | | 33,896 | | | | 216 | |
Consumer: | | | | | | | | | | | | | | | | |
Bankcard | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Other consumer | | | 36 | | | | 0 | | | | 33 | | | | 0 | |
NOTEF--ALLOWANCEContents
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 626,666 | | | $ | 319,719 | | | $ | 176,423 | | | $ | 128,176 | | | $ | 55,147 | | | $ | 9,202 | | | $ | 2,644 | | | $ | 0 | | | $ | 1,317,977 | |
| Special Mention | | | 9,891 | | | | 13,449 | | | | 5,769 | | | | 3,075 | | | | 1,295 | | | | 464 | | | | 50 | | | | 0 | | | | 33,993 | |
| Substandard | | | 1,144 | | | | 2,214 | | | | 927 | | | | 167 | | | | 89 | | | | 28 | | | | 0 | | | | 0 | | | | 4,569 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 637,701 | | | $ | 335,382 | | | $ | 183,119 | | | $ | 131,418 | | | $ | 56,531 | | | $ | 9,694 | | | $ | 2,694 | | | $ | 0 | | | $ | 1,356,539 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period charge-offs | | | (394 | ) | | | (1,435 | ) | | | (851 | ) | | | (331 | ) | | | (162 | ) | | | (198 | ) | | | 0 | | | | 0 | | | | (3,371 | ) |
| Current-period recoveries | | | 12 | | | | 102 | | | | 61 | | | | 87 | | | | 60 | | | | 207 | | | | 0 | | | | 0 | | | | 529 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current-period net (charge- offs) recoveries | | $ | (382 | ) | | $ | (1,333 | ) | | $ | (790 | ) | | $ | (244 | ) | | $ | (102 | ) | | $ | 9 | | | $ | 0 | | | $ | 0 | | | $ | (2,842 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Internal Risk Grade: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 473,430 | | | $ | 293,023 | | | $ | 234,340 | | | $ | 119,678 | | | $ | 29,697 | | | $ | 10,335 | | | $ | 3,465 | | | $ | 0 | | | $ | 1,163,968 | |
| Special Mention | | | 5,600 | | | | 5,630 | | | | 2,948 | | | | 2,036 | | | | 569 | | | | 466 | | | | 13 | | | | 0 | | | | 17,262 | |
| Substandard | | | 903 | | | | 930 | | | | 456 | | | | 211 | | | | 22 | | | | 87 | | | | 5 | | | | 0 | | | | 2,614 | |
| Doubtful | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 479,933 | | | $ | 299,583 | | | $ | 237,744 | | | $ | 121,925 | | | $ | 30,288 | | | $ | 10,888 | | | $ | 3,483 | | | $ | 0 | | | $ | 1,183,844 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD charge-offs | | | (101 | ) | | | (776 | ) | | | (709 | ) | | | (483 | ) | | | (126 | ) | | | (203 | ) | | | (6 | ) | | | 0 | | | | (2,404 | ) |
| YTD recoveries | | | 5 | | | | 86 | | | | 51 | | | | 101 | | | | 18 | | | | 186 | | | | 2 | | | | 0 | | | | 449 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD net charge-offs | | $ | (96 | ) | | $ | (690 | ) | | $ | (658 | ) | | $ | (382 | ) | | $ | (108 | ) | | $ | (17 | ) | | $ | (4 | ) | | $ | 0 | | | $ | (1,955 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NOTE F—ALLOWANCE FOR CREDIT LOSSES
The allowance for loan losses is
management’san estimate of the
probableexpected credit losses
inherent inon financial assets measured at amortized cost to present the
loan portfolio. For purposes of determining the general allowance, the loan portfolio is segregated by product typenet amount expected to
recognize differing risk profiles among categories. It is further segregated by credit grade fornon-homogenous loan pools and delinquency for homogeneous loan pools. The outstanding principal balance within each pool is multiplied by historical loss data, the loss emergence period (which is the period of time between the event that triggers a loss and the confirmation and/or charge off of that loss) and certain qualitative factors to derive the general loss allocation per pool. Specific loss allocations are calculated for commercial loans in excess of $500,000 in accordance with ASC topic 310. Risk characteristics of owner-occupied commercial real estate loans and other commercial loans are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Nonowner-occupied commercial real estate loans differ in that cash flow to service debt is normally dependent on external income from third parties for usebe collected as of the
real estate such as rents, leases and room rates. Residential real estate loans are dependent upon individual borrowers who are affected by changes in general economic conditions, demand for housing and resulting residential real estate valuation. Construction and land development loans are impacted mainly by demand whether for new residential housing or for retail, industrial, office and other types of commercial construction within a given area. Consumer loan pool risk characteristics are influenced by general, regional and local economic conditions.Loans deemedbalance sheet date. Such allowance is based on the credit losses expected to be uncollectible are charged against the allowance for loan losses, while recoveries of previouslycharged-off amounts are credited to the allowance for loan losses. For commercial loans, when a loan or a portion of a loan is identified to contain a loss, acharge-off recommendation is directed to management tocharge-off all or a portion of that loan. Generally, any unsecured commercial loan more than six months delinquent in payment of interest must becharged-off in full. If secured, thecharge-off is generally made to reduce the loan balance to a level equal to the liquidation value of the collateral when payment of principal and interest is six months delinquent. Any commercial loan, secured or unsecured, on which a principal or interest payment has not been made within 90 days, is reviewed monthly for appropriate action.
For consumer loans,closed-end retail loans that are past due 120 cumulative days delinquent from the contractual due date andopen-end loans 180 cumulative days delinquent from the contractual due date arecharged-off. Any consumer loan on which a principal or interest payment has not been made within 90 days is reviewed monthly for appropriate action. For aone-to-four familyopen-end orclosed-end residential real estate loan, home equity loan, orhigh-loan-to-value loan that has reached 180 or more days past due, management evaluates the collateral position andcharges-off any amount that exceeds the value of the collateral. On retail credits for which the borrower is in bankruptcy, all amounts deemed unrecoverable are charged off within 60 days of the receipt of the notification. On retail credits effected by fraud, a loan ischarged-off within 90 days of the discovery of the fraud. In the event of the borrower’s death and if repayment within the required timeframe is uncertain, the loan is generallycharged-off as soon as the amount of the loss is determined.
For loans acquired through the completion of a transfer, including loans acquired in a business combination, that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that United will be unable to collect all contractually required payment receivable are initially recorded at fair value (as determined by the
present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield methodarise over the life of the loan. Contractually required payments for interest and principalasset (contractual term). Assets are charged off when United determines that exceed the undiscounted cash flows expected at acquisition,such financial assets are deemed uncollectible or the “nonaccretable difference,”based on regulatory requirements, whichever is earlier. Charge-offs are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequentdeduction from the allowance for credit losses. Expected recoveries of amounts previously
charged-off,
not to
exceed the
initial investment are recognized prospectively through adjustmentaggregate of the
yield onamount previouslycharged-off,
are included in determining the
loan overnecessary reserve at the balance sheet date.United made a policy election to present the accrued interest receivable balance separately in its
remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect onlyconsolidated balance sheets from the amortized cost of a loan. Accrued interest receivable was $70,332,000 (no allowance for credit losses) and $49,029,000 (net of an allowance for credit losses
incurred after the acquisition (meaning the present value of
all cash flows expected$8,000) at
acquisition that ultimately are not to be received). The amount of provision for loan lossesDecember 31, 2022 and December 31, 2021, respectively, related to loans
acquired that have evidence of deterioration of credit quality resultedand leases are included separately in
a reversal of provision for“Accrued interest receivable” in the consolidated balance sheets. Due to loan
losses expense of $1,106,000 forinterest payment deferrals granted by United under the
year of 2017 and provision for loan losses expense of $1,676,000, and $5,321,000 forCARES Act, United assessed the
years of 2016, and 2015, respectively.A progressioncollectability of the accrued interest receivables on these deferring loans and leases. As a result of this assessment, United did not record an allowance for credit losses for accrued interest receivables not expected to be collected as of December 31, 2022 as compared to an allowance for credit losses of $8,000 as of December 31, 2021. For all classes of loans and leases receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due, unless the loan losses,is well secured and in the process of collection. Interest received on nonaccrual loans and leases, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.
The following table represents the accrued interest receivable as of December 31, 2022 and December 31, 2021:
| | | | | | | | |
| | | Accrued Interest Receivable | |
| | | | | | |
| Commercial Real Estate: | | | | | | | | |
| Owner-occupied | | $ | 4,855 | | | $ | 4,172 | |
| Nonowner-occupied | | | 19,801 | | | | 14,901 | |
| Other Commercial | | | 10,904 | | | | 9,335 | |
104
| | | | | | | | |
| | | Accrued Interest Receivable | |
| | | | | | |
| Residential Real Estate | | | 16,117 | | | | 10,347 | |
| Construction | | | 15,195 | | | | 7,411 | |
| Consumer: | | | | | | | | |
| Bankcard | | | 0 | | | | 0 | |
| Other consumer | | | 3,460 | | | | 2,871 | |
| | | | | | | | | |
| | | $ | 70,332 | | | $ | 49,037 | |
| Less: Allowance for credit losses | | | 0 | | | | (8 | ) |
| | | | | | | | | |
| Total | | $ | 70,332 | | | $ | 49,029 | |
| | | | | | | | | |
The following table represents the accrued interest receivables written off by
portfolio segment,reversing interest income for the year ended December 31,
20172022 and
2016 is summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for Loan Losses and Carrying Amount of Loans For the Year Ended December 31, 2017 | |
| (In thousands) | | Commercial Real
Estate | | | Other
Commercial | | | Residential
Real
Estate | | | Construction
& Land
Development | | | Consumer | | | Allowance
for
Estimated
Imprecision | | | Total | |
| | Owner-
occupied | | | Nonowner-
occupied | | | | | | | |
Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 5,273 | | | $ | 6,883 | | | $ | 33,087 | | | $ | 13,770 | | | $ | 10,606 | | | $ | 2,805 | | | $ | 347 | | | $ | 72,771 | |
Charge-offs | | | 2,246 | | | | 296 | | | | 21,189 | | | | 2,973 | | | | 3,337 | | | | 2,822 | | | | 0 | | | | 32,863 | |
Recoveries | | | 2,599 | | | | 244 | | | | 3,395 | | | | 601 | | | | 726 | | | | 748 | | | | 0 | | | | 8,313 | |
Provision | | | (225) | | | | (462) | | | | 29,896 | | | | (1,471) | | | | (808) | | | | 1,750 | | | | (274) | | | | 28,406 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 5,401 | | | $ | 6,369 | | | $ | 45,189 | | | $ | 9,927 | | | $ | 7,187 | | | $ | 2,481 | | | $ | 73 | | | $ | 76,627 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: individually evaluated for impairment | | $ | 2,251 | | | $ | 1,592 | | | $ | 16,721 | | | $ | 1,552 | | | $ | 229 | | | $ | 0 | | | $ | 0 | | | $ | 22,345 | |
Ending Balance: collectively evaluated for impairment | | $ | 3,150 | | | $ | 4,777 | | | $ | 28,468 | | | $ | 8,375 | | | $ | 6,958 | | | $ | 2,481 | | | $ | 73 | | | $ | 54,282 | |
Ending Balance:
loans acquired with deteriorated credit quality | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Financing receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 1,361,629 | | | $ | 4,451,298 | | | $ | 1,998,979 | | | $ | 2,996,171 | | | $ | 1,504,907 | | | $ | 714,353 | | | $ | 0 | | | $ | 13,027,337 | |
Ending Balance: individually evaluated for impairment | | $ | 36,721 | | | $ | 21,851 | | | $ | 78,715 | | | $ | 14,316 | | | $ | 16,921 | | | $ | 0 | | | $ | 0 | | | $ | 168,524 | |
Ending Balance: collectively evaluated for impairment | | $ | 1,291,379 | | | $ | 4,320,997 | | | $ | 1,892,706 | | | $ | 2,967,666 | | | $ | 1,461,206 | | | $ | 714,338 | | | $ | 0 | | | $ | 12,648,292 | |
Ending Balance:
loans acquired with deteriorated credit quality | | $ | 33,529 | | | $ | 108,450 | | | $ | 27,558 | | | $ | 14,189 | | | $ | 26,780 | | | $ | 15 | | | $ | 0 | | | $ | 210,521 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for Loan Losses and Carrying Amount of Loans For the Year Ended December 31, 2016 | |
| (In thousands) | | Commercial Real
Estate | | | Other
Commercial | | | Residential
Real
Estate | | | Construction
& Land
Development | | | Consumer | | | Allowance
for
Estimated
Imprecision | | | Total | |
| | Owner-
occupied | | | Nonowner-
occupied | | | | | | | |
Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 3,637 | | | $ | 5,309 | | | $ | 31,328 | | | $ | 15,148 | | | $ | 18,205 | | | $ | 1,995 | | | $ | 104 | | | $ | 75,726 | |
Charge-offs | | | 5,281 | | | | 419 | | | | 20,430 | | | | 4,597 | | | | 2,659 | | | | 2,794 | | | | 0 | | | | 36,180 | |
Recoveries | | | 3,071 | | | | 675 | | | | 3,452 | | | | 639 | | | | 433 | | | | 446 | | | | 0 | | | | 8,716 | |
Provision | | | 3,846 | | | | 1,318 | | | | 18,737 | | | | 2,580 | | | | (5,373) | | | | 3,158 | | | | 243 | | | | 24,509 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 5,273 | | | $ | 6,883 | | | $ | 33,087 | | | $ | 13,770 | | | $ | 10,606 | | | $ | 2,805 | | | $ | 347 | | | $ | 72,771 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: individually evaluated for impairment | | $ | 815 | | | $ | 2,524 | | | $ | 13,441 | | | $ | 3,431 | | | $ | 3,206 | | | $ | 0 | | | $ | 0 | | | $ | 23,417 | |
Ending Balance: collectively evaluated for impairment | | $ | 4,458 | | | $ | 4,359 | | | $ | 19,646 | | | $ | 10,339 | | | $ | 7,400 | | | $ | 2,805 | | | $ | 347 | | | $ | 49,354 | |
Ending Balance:
loans acquired with deteriorated credit quality | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Financing receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 1,049,885 | | | $ | 3,425,453 | | | $ | 1,613,437 | | | $ | 2,403,437 | | | $ | 1,255,738 | | | $ | 608,769 | | | $ | 0 | | | $ | 10,356,719 | |
Ending Balance: individually evaluated for impairment | | $ | 18,976 | | | $ | 26,835 | | | $ | 56,091 | | | $ | 14,766 | | | $ | 8,152 | | | $ | 0 | | | $ | 0 | | | $ | 124,820 | |
Ending Balance: collectively evaluated for impairment | | $ | 1,005,999 | | | $ | 3,323,117 | | | $ | 1,527,479 | | | $ | 2,373,969 | | | $ | 1,221,006 | | | $ | 608,733 | | | $ | 0 | | | $ | 10,060,303 | |
Ending Balance:
loans acquired with deteriorated credit quality | | $ | 24,910 | | | $ | 75,501 | | | $ | 29,867 | | | $ | 14,702 | | | $ | 26,580 | | | $ | 36 | | | $ | 0 | | | $ | 171,596 | |
December 31, 2021:
| | | | | | | | |
| | | Accrued Interest Receivables Written Off
by Reversing Interest Income | |
| | | |
| | | | | | | |
| Commercial Real Estate: | | | | | | | | |
| Owner-occupied | | $ | 20 | | | $ | 33 | |
| Nonowner-occupied | | | 4 | | | | 114 | |
| Other Commercial | | | 77 | | | | 40 | |
| Residential Real Estate | | | 105 | | | | 419 | |
| Construction | | | 0 | | | | 8 | |
| Consumer: | | | | | | | | |
| Bankcard | | | 0 | | | | 0 | |
| Other consumer | | | 304 | | | | 176 | |
| | | | | | | | | |
| Total | | $ | 510 | | | $ | 790 | |
| | | | | | | | | |
United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit.
For a detailed discussion of the methodology used to estimate the reserve for lending-related commitments, see Note A, “Summary of Significant Accounting Policies.” The reserve for lending-related commitments of
$679,000$46,189,000 and
$1,044,000$31,442,000 at December 31,
20172022 and December 31,
2016,2021, respectively, is separately classified on the balance sheet and is included in other liabilities. The combined allowance for loan losses and reserve for lending-related commitments
are referred to asis considered the allowance for credit losses.
United continuously evaluates any risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then any qualitative adjustments are applied to account for the Company’s view of the future and other factors. If current conditions underlying any qualitative adjustment factor were deemed to be materially different than historical conditions, then an adjustment was made for that factor.
United’s allowance for loan and lease losses at December 31, 2022 increased $18,730,000
or 8.67% from December 31, 2021. The overall increase in the allowance was driven primarily by increases in outstanding loan balances as well as lower forecasted Gross Domestic Product (“GDP”) and a higher forecasted unemployment rate within the reasonable and supportable forecast. This increase was offset slightly due to improvement in historical loss rates and a decrease in allocations established for individually assessed loans. The year of 2022 qualitative adjustments include analyses of the following:
| · | | Current conditions – United considered the impact of inflation, rising interest rates, increased oil and gas prices and the potential impact of the geopolitical situation when making determinations related to factor adjustments, such as changes in economic and business conditions; collateral values for dependent loans; past due, nonaccrual and adversely classified loans and leases; concentrations of credit and external factors. |
105
| · | | Reasonable and supportable forecasts – The forecast is determined on abasis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following: |
| | | The forecast for real GDP shifted downward in the fourth quarter, from a projection of 1.20% for 2023 as ofmid-September 2022 to 0.50% for 2023 as ofmid-December with projections of 1.60% for 2024 and 1.80% for 2025. The unemployment rate forecast shifted slightly upward compared to the third quarter of 2022 with an increasing trend expected throughout 2024 and 2025. |
| | | Reversion to historical loss data occurs via a straight-line method during the year following theone-year reasonable and supportable forecast period. |
A progression of the allowance for loan losses, by portfolio segment, for the periods indicated is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases For the Year Ended December 31, 2022 | |
| | | | | | | | | | | Construction &
Land
Development | | | | | | | | | | |
| | | | | | | | | |
| |
Allowance for Loan and Lease Losses: | |
| Beginning balance | | $ | 14,443 | | | $ | 42,156 | | | $ | 78,432 | | | $ | 26,404 | | | $ | 39,395 | | | $ | 317 | | | $ | 14,869 | | | $ | 216,016 | |
| Charge-offs | | | (68) | | | | (0) | | | | (4,308) | | | | (1,546) | | | | (2) | | | | (355) | | | | (3,371) | | | | (9,650) | |
| Recoveries | | | 489 | | | | 234 | | | | 5,367 | | | | 1,507 | | | | 1,414 | | | | 9 | | | | 529 | | | | 9,549 | |
| Provision | | | (919) | | | | (3,847) | | | | 215 | | | | 9,862 | | | | 7,583 | | | | 590 | | | | 5,347 | | | | 18,831 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ending balance | | $ | 13,945 | | | $ | 38,543 | | | $ | 79,706 | | | $ | 36,227 | | | $ | 48,390 | | | $ | 561 | | | $ | 17,374 | | | $ | 234,746 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases For the Year Ended December 31, 2021 | |
| | | | | | | | Construction &
Land
Development | | | | | | |
| | | | | | |
| |
Allowance for Loan and Lease Losses: | |
| Beginning balance | | $ | 23,354 | | | $ | 49,150 | | | $ | 78,138 | | | $ | 29,125 | | | $ | 39,077 | | | $ | 322 | | | $ | 16,664 | | | $ | 235,830 | |
| Allowance for PCD loans (acquired during the period) | | | 1,241 | | | | 4,363 | | | | 5,009 | | | | 1,192 | | | | 823 | | | | 0 | | | | 1 | | | | 12,629 | |
| Charge-offs | | | (414) | | | | (3,531) | | | | (6,182) | | | | (6,016) | | | | (560) | | | | (190) | | | | (2,404) | | | | (19,297) | |
| Recoveries | | | 869 | | | | 1,907 | | | | 4,307 | | | | 2,400 | | | | 604 | | | | 42 | | | | 449 | | | | 10,578 | |
| Provision | | | (10,607) | | | | (9,733) | | | | (2,840) | | | | (297) | | | | (549) | | | | 143 | | | | 159 | | | | (23,724) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ending balance | | $ | 14,443 | | | $ | 42,156 | | | $ | 78,432 | | | $ | 26,404 | | | $ | 39,395 | | | $ | 317 | | | $ | 14,869 | | | $ | 216,016 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
A progression of the allowance for credit losses, which includes the allowance for loan losses and the reserve for lending-related commitments, for the periods presented is summarized as follows:
| | | | | | | | | | | | |
| | | Year Ended December 31 | |
| (In thousands) | | 2017 | | | 2016 | | | 2015 | |
Balance of allowance for loan losses at beginning of period | | $ | 72,771 | | | $ | 75,726 | | | $ | 75,529 | |
Provision for loan losses | | | 28,406 | | | | 24,509 | | | | 22,574 | |
| | | | | | | | | | | | |
| | | 101,177 | | | | 100,235 | | | | 98,103 | |
| | | | | | | | | | | | |
Loans charged off | | | 32,863 | | | | 36,180 | | | | 25,499 | |
Less recoveries | | | (8,313) | | | | (8,716) | | | | (3,122) | |
| | | | | | | | | | | | |
Net charge-offs | | | 24,550 | | | | 27,464 | | | | 22,377 | |
| | | | | | | | | | | | |
Balance of allowance for loan losses at end of period | | $ | 76,627 | | | $ | 72,771 | | | $ | 75,726 | |
Reserve for lending-related commitments | | | 679 | | | | 1,044 | | | | 936 | |
| | | | | | | | | | | | |
Balance of allowance for credit losses at end of period | | $ | 77,306 | | | $ | 73,815 | | | $ | 76,662 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | |
| Balance of allowance for loan and lease losses at beginning of period | | $ | 216,016 | | | $ | 235,830 | | | $ | 77,057 | |
| Cumulative effect adjustment for CECL | | | 0 | | | | 0 | | | | 57,442 | |
| | | | | | | | | | | | | |
| | | | 216,016 | | | | 235,830 | | | | 134,499 | |
| Initial allowance for acquired PCD loans | | | 0 | | | | 12,629 | | | | 18,635 | |
| Gross charge-offs | | | (9,650 | ) | | | (19,297 | ) | | | (32,983 | ) |
| Recoveries | | | 9,549 | | | | 10,578 | | | | 9,386 | |
| | | | | | | | | | | | | |
| Net charge-offs | | | (101 | ) | | | (8,719 | ) | | | (23,597 | ) |
| Provision for loan and lease losses | | | 18,831 | | | | (23,724 | ) | | | 106,293 | |
| | | | | | | | | | | | | |
106
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | |
| Balance of allowance for loan and lease losses at end of period | | $ | 234,746 | | | $ | 216,016 | | | $ | 235,830 | |
| Reserve for lending-related commitments | | | 46,189 | | | | 31,442 | | | | 19,250 | |
| | | | | | | | | | | | | |
| Balance of allowance for credit losses at end of period | | $ | 280,935 | | | $ | 247,458 | | | $ | 255,080 | |
| | | | | | | | | | | | | |
NOTE G—BANK PREMISES AND EQUIPMENT
AND LEASESBank premises and equipment are summarized as follows:
| | | | | | | | |
| | | December 31 | |
| (In thousands) | | 2017 | | | 2016 | |
| | |
Land | | $ | 34,970 | | | $ | 24,238 | |
Buildings and improvements | | | 103,914 | | | | 89,302 | |
Leasehold improvements | | | 44,684 | | | | 33,194 | |
Furniture, fixtures and equipment | | | 99,232 | | | | 65,598 | |
| | | | | | | | |
| | | 282,799 | | | | 212,332 | |
Less allowance for depreciation and amortization | | | 177,905 | | | | 136,423 | |
| | | | | | | | |
Net bank premises and equipment | | $ | 104,894 | | | $ | 75,909 | |
| | | | | | | | |
| | | | | | | | |
| | | | |
| | | | | | |
| Land | | $ | 63,594 | | | $ | 60,551 | |
| Buildings and improvements | | | 204,255 | | | | 194,053 | |
| Leasehold improvements | | | 42,309 | | | | 38,568 | |
| Furniture, fixtures and equipment | | | 113,900 | | | | 105,554 | |
| | | | | | | | | |
| | | | 424,058 | | | | 398,726 | |
| Less allowance for depreciation and amortization | | | (224,897 | ) | | | (201,506 | ) |
| | | | | | | | | |
| Net bank premises and equipment | | $ | 199,161 | | | $ | 197,220 | |
| | | | | | | | | |
Depreciation expense was
$8,914,000, $7,889,000,$18,237,000, $16,583,000, and
$8,385,000$13,464,000 for years ending December 31,
2017, 20162022, 2021 and
2015,2020, respectively, while amortization expense was
$122,000 for the year ended December 31, 2017$343,000, $331,000 and
$136,000$251,000 for the years ended December 31,
20162022, 2021 and
2015,2020, respectively.
United determines if an arrangement is a lease at inception. United and certain subsidiaries have entered into various noncancelable-operating
leases for branch and loan production offices as well as operating facilities. Operating leases are included in operating lease(“ROU”) assets and operating lease liabilities on the Consolidated Balance Sheets. Operating leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. Presently, United does not have any finance leases.
These noncancelable United’s operating leases are subject to renewal options under various terms. United’s operating leases have remaining terms of 1 to 15 years, some of which include options to extend leases generally for periods of 5 years. United rents or subleases certain real estate to third parties. Our sublease portfolio generally consists of operating leases to other organizations for former branch offices.
ROU assets represent United’s right to use an underlying asset for the lease term and some leases provide for periodic rate adjustmentslease liabilities represent United’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based oncost-of-living index changes. Rent the present value of lease payments over the lease term. As most of United’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend the lease when it is reasonably certain that United will exercise that option. Lease expense for noncancelable operatinglease payments is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
| Operating lease cost | | Net occupancy expense | | $ | 20,987 | | | $ | 21,466 | |
| Sublease income | | Net occupancy expense | | | (328 | ) | | | (1,256 | ) |
| | | | | | | | | | | |
| Net lease cost | | | | $ | 20,659 | | | $ | 20,210 | |
| | | | | | | | | | | |
107
Supplemental balance sheet information related to leases
approximated $24,740,000, $14,661,000, and $12,528,000 for the years ended December 31, 2017, 2016 and 2015, respectively.Future minimumwas as follows:
| | | | | | | | | | |
| | | | | | | | |
| | Operating leaseassets | | $ | 71,144 | | | $ | 81,942 | |
| Operating lease liabilities | | Operating lease liabilities | | $ | 75,749 | | | $ | 86,703 | |
Other information related to leases was as follows:
| | | | |
| | | |
| Weighted-average remaining lease term: | | | | |
| Operating leases | | | 6.70 years | |
| Weighted-average discount rate: | | | | |
| Operating leases | | | 2.25 | % |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | |
| | | | |
| | | | | | |
| Cash paid for amounts in the measurement of lease liabilities: | | | | | | | | |
| Operating cash flows from operating leases | | $ | 21,240 | | | $ | 22,153 | |
| ROU assets obtained in the exchange for lease liabilities | | | 9,184 | | | | 22,719 | |
Maturities of lease
payments,liabilities by year and in the aggregate, under
noncancelable operating leases with initial or remaining terms of one year or more, for years subsequent to December 31,
2017, consisted2022, consists of the following:
| | | | |
Year | | Amount | |
| (In thousands) | | | | |
2018 | | $ | 14,753 | |
2019 | | | 13,117 | |
2020 | | | 11,249 | |
2021 | | | 9,529 | |
2022 | | | 6,400 | |
Thereafter | | | 14,796 | |
| | | | |
Total minimum lease payments | | $ | 69,844 | |
| | | | |
| | | | |
| | | |
| |
| 2023 | | $ | 19,157 | |
| 2024 | | | 13,795 | |
| 2025 | | | 10,167 | |
| 2026 | | | 8,872 | |
| 2027 | | | 7,036 | |
| Thereafter | | | 22,447 | |
| | | | | |
| Total lease payments | | | 81,474 | |
| Less: imputed interest | | | (5,725 | ) |
| | | | | |
| Total | | $ | 75,749 | |
| | | | | |
NOTE
H—GOODWILL AND OTHER INTANGIBLESI—INTANGIBLE ASSETS
The following is a summary of intangible assets subject to amortization and those not subject to amortization:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | |
| | | Community Banking | | | Mortgage Banking | | | Total | |
| (In thousands) | | | | Gross Carrying
Amount | | | Accumulated
Amortization | | | Gross Carrying
Amount | | | Accumulated
Amortization | | | Gross Carrying
Amount | | | Accumulated
Amortization | |
Amortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Core deposit intangible assets | | $ | 98,359 | | | ($ | 54,453 | ) | | $ | 0 | | | $ | 0 | | | $ | 98,359 | | | ($ | 54,453) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-amortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
George Mason trade name | | $ | 0 | | | | | | | $ | 1,080 | | | | | | | $ | 1,080 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill not subject to amortization | | $ | 1,473,265 | | | | | | | $ | 5,115 | | | | | | | $ | 1,478,380 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | December 31, 2016 | |
| | | Community Banking | | | Total | |
| (In thousands) | | Gross Carrying
Amount | | | Accumulated
Amortization | | | Gross Carrying
Amount | | | Accumulated
Amortization | |
Amortized intangible assets: | | | | | | | | | | | | | | | | |
Core deposit intangible assets | | $ | 69,635 | | | ($ | 46,681) | | | $ | 69,635 | | | ($ | 46,681) | |
| | | | | | | | | | | | | | | | |
Goodwill not subject to amortization | | $ | 863,767 | | | | | | | $ | 863,767 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Amortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Core deposit intangible assets | | $ | 105,165 | | | ($ | 87,544 | ) | | $ | 0 | | | $ | 0 | | | $ | 105,165 | | | ($ | 87,544 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Non-amortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| George Mason trade name | | $ | 0 | | | | | | | $ | 1,080 | | | | | | | $ | 1,080 | | | | | |
| Crescent trade name | | | 0 | | | | | | | | 196 | | | | | | | | 196 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 0 | | | | | | | $ | 1,276 | | | | | | | $ | 1,276 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill not subject to amortization | | $ | 1,883,574 | | | | | | | $ | 5,315 | | | | | | | $ | 1,888,889 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
108
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Amortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Core deposit intangible assets | | $ | 105,165 | | | ($ | 82,028 | ) | | $ | 0 | | | $ | 0 | | | $ | 105,165 | | | ($ | 82,028 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Non-amortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| George Mason trade name | | $ | 0 | | | | | | | $ | 1,080 | | | | | | | $ | 1,080 | | | | | |
| Crescent trade name | | | 0 | | | | | | | | 196 | | | | | | | | 196 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 0 | | | | | | | $ | 1,276 | | | | | | | $ | 1,276 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill not subject to amortization | | $ | 1,881,179 | | | | | | | $ | 5,315 | | | | | | | $ | 1,886,494 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides a reconciliation of goodwill:
| | | | | | | | | | | | |
| (In thousands) | | Community
Banking | | | Mortgage
Banking | | | Total | |
Goodwill at December 31, 2016 | | $ | 863,767 | | | $ | 0 | | | $ | 863,767 | |
Addition to goodwill from Bank of Georgetown acquisition | | | 1,327 | | | | 0 | | | | 1,327 | |
Preliminary addition to goodwill from Cardinal acquisition | | | 608,171 | | | | 5,115 | | | | 613,286 | |
| | | | | | | | | | | | |
Goodwill at December 31, 2017 | | $ | 1,473,265 | | | $ | 5,115 | | | $ | 1,478,380 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | |
| Goodwill at December 31, 2021 | | $ | 1,881,179 | | | $ | 5,315 | | | $ | 1,886,494 | |
| Addition to goodwill from Community Bankers Trust acquisition | | | 2,395 | | | | 0 | | | | 2,395 | |
| | | | | | | | | | | | | |
| Goodwill at December 31, 2022 | | $ | 1,883,574 | | | $ | 5,315 | | | $ | 1,888,889 | |
| | | | | | | | | | | | | |
The addition during the year of 2022 to goodwill from the Community Bankers Trust acquisition was due mainly to a measurement period adjustment to establish a reserve for income tax contingencies that existed at the time of the acquisition.
The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to
2017: | | | | |
Year | | Amount | |
| (In thousands) | | | | |
2018 | | $ | 8,039 | |
2019 | | | 7,016 | |
2020 | | | 6,309 | |
2021 | | | 5,369 | |
2022 and thereafter | | | 17,173 | |
2022:
| | | | |
| | | |
| | | | |
| 2023 | | $ | 5,116 | |
| 2024 | | | 3,639 | |
| 2025 | | | 3,282 | |
| 2026 | | | 2,758 | |
| 2027 | | | 1,152 | |
| 2028 and thereafter | | | 1,674 | |
NOTE I—J—MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The value of mortgage servicing rights (“MSRs”) is included on the Company’s Consolidated Balance Sheets.
The unpaid principal balances of loans serviced for others were approximately $3,381,485,000 and $3,698,998,000 at December 31, 2022 and 2021, respectively.
The estimated fair value of the mortgage servicing rights was $41,880,000 and $27,355,000 at December 31, 2022 and December 31, 2021, respectively. The estimated fair value of servicing rights at December 31, 2022 was determined using a net servicing fee of 0.25%, average discount rates ranging from 10.50% to 10.74% with a weighted average discount rate of 10.62%, average constant prepayment rates (“CPR”) ranging from 5.66% to 7.62% with a weighted average prepayment rate of 6.30%, depending upon the stratification of the specific servicing right, and a delinquency rate, including loans on forbearance of 2.19%. The estimated fair value of servicing rights at December 31, 2021 was determined using a net servicing fee of 0.26%, average discount rates ranging from 10.50% to 11.71% with a weighted average discount rate of
109
10.60%, CPR ranging from 12.59% to 21.20% with a weighted average prepayment rate of 16.56%, depending upon the stratification of the specific servicing right, and a delinquency rate, including loans on forbearance of 2.09%. Please refer to Note W in these Notes to Consolidated Financial Statements for additional information concerning the fair value of MSRs.
The following presents the activity in mortgage servicing rights, including their valuation allowance for the year ended December 31, 2022 and 2021:
| | | | | | | | |
| |
| | |
| |
| MSRs beginning balance | | $ | 24,027 | | | $ | 22,338 | |
| Amount capitalized | | | 1,417 | | | | 10,584 | |
| Amount amortized | | | (4,422 | ) | | | (8,895 | ) |
| | | | | | | | | |
| MSRs ending balance | | $ | 21,022 | | | $ | 24,027 | |
| | | | | | | | | |
| MSRs valuation allowance beginning balance | | $ | (883 | ) | | $ | (1,383 | ) |
| Aggregate additions charged and recoveries credited to operations | | | 883 | | | | 1,129 | |
| MSRs impairment | | | 0 | | | | (629 | ) |
| | | | | | | | | |
| MSRs valuation allowance ending balance | | $ | 0 | | | $ | (883 | ) |
| | | | | | | | | |
| MSRs, net of valuation allowance | | $ | 21,022 | | | $ | 23,144 | |
| | | | | | | | | |
In determining impairment, the Company aggregates all servicing rights and stratifies them into tranches based on predominant risk characteristics. The estimated amortization expense is based on current information regarding future loan payments and prepayments. Amortization expense could change in future periods based on changes in the volume of prepayments and economic factors.
The book value of deposits consisted of the following:
| | | | | | | | |
| (In thousands) | | December 31 | |
| | | 2017 | | | 2016 | |
Demand deposits | | $ | 4,294,687 | | | $ | 3,171,841 | |
Interest-bearing checking | | | 2,156,974 | | | | 1,778,156 | |
Regular savings | | | 1,034,100 | | | | 721,224 | |
Money market accounts | | | 3,756,259 | | | | 3,151,896 | |
Time deposits under $100,000 | | | 795,137 | | | | 693,005 | |
Time deposits over $100,000 | | | 1,793,434 | | | | 1,280,745 | |
| | | | | | | | |
| | |
Total deposits | | $ | 13,830,591 | | | $ | 10,796,867 | |
| | | | | | | | |
| | | | | | | | |
| | | |
| | | | | | | |
| Noninterest-bearing accounts | | $ | 7,199,678 | | | $ | 7,496,560 | (1) |
| Interest-bearing transaction accounts | | | 5,116,966 | | | | 5,218,342 | (1) |
| Regular savings | | | 1,678,302 | | | | 1,641,404 | |
| Interest-bearing money market accounts | | | 6,299,404 | | | | 6,361,887 | |
| Time deposits under $100,000 | | | 843,950 | | | | 1,031,008 | |
| Time deposits over $100,000 | | | 1,164,866 | | | | 1,601,062 | |
| | | | | | | | | |
| | | |
| Total deposits | | $ | 22,303,166 | | | $ | 23,350,263 | |
| | | | | | | | | |
| (1) | For December 31, 2021, $1,483,987 was reclassed from noninterest-bearing accounts to interest-bearing transaction accounts. |
Included in time deposits over $100,000 at December 31,
20172022 and
20162021 were time deposits of $250,000 or more of
$790,703,000$454,477,000 and
$357,468,000,$640,752,000, respectively. Interest paid on deposits approximated
$48,887,000, $29,048,000,$77,271,000, $43,562,000, and
$28,447,000$81,080,000 in
2017, 20162022, 2021 and
2015,2020, respectively.
United’s subsidiary banks have received deposits, in the normal course of business, from the directors and officers of United and its subsidiaries, and their associates. Such related party deposits were accepted on substantially the same terms, including interest rates and maturities, as those prevailing at the time for comparable transactions with unrelated persons. The aggregate dollar amount of these deposits was $19,318,000$36,476,000 and $92,310,000$25,889,000 at December 31, 20172022 and 2016,2021, respectively. The decline was due mainly to a merger
110
NOTE
J—L—SHORT-TERM BORROWINGS
At December 31,
20172022 and
2016,2021, short-term borrowings
and the related weighted-average interest rates were as follows:
| | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| | | | | | Weighted- | | | | | | Weighted- | |
| (Dollars in thousands) | | | | | Average | | | | | | Average | |
| | | Amount | | | Rate | | | Amount | | | Rate | |
Federal funds purchased | | $ | 16,235 | | | | 1.40 | % | | $ | 22,235 | | | | 0.65 | % |
Securities sold under agreements to repurchase | | | 261,352 | (1) | | | 0.36 | %(1) | | | 187,316 | (1) | | | 0.25 | %(1) |
| | | | | | | | | | | | | | | | |
Total | | $ | 277,587 | | | | | | | $ | 209,551 | | | | | |
| | | | | | | | | | | | | | | | |
| (1) | Excludes a wholesale security sold under an agreement to repurchase assumed in the Virginia Commerce merger of $50,000 with an interest rate of 4.37% at December 31, 2017 and 2016 and scheduled to mature in May of 2018.
|
| | | | | | | | |
| | | | |
| | | | | | |
| Federal funds purchased | | $ | 0 | | | $ | 0 | |
| Securities sold under agreements to repurchase | | | 160,698 | | | | 128,844 | |
| | | | | | | | | |
| Total short-term borrowings | | $ | 160,698 | | | $ | 128,844 | |
| | | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase have
not been a significant source of funds for the company. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of
$180,000,000.$230,000,000. These lines of credit, which bear interest at prevailing market rates, permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions.
The following table shows the distribution of United’s federal funds purchased and securities sold under agreements to repurchase and the weighted-average interest rates thereon at the end of each of the last three years. Also provided are the maximum amount of borrowings and the average amounts of borrowings as well as weighted-average interest rates for the last three years. The table does not include the long-term wholesale security sold under an agreement to repurchase mentioned above assumed in the Virginia Commerce merger.
| | | | | | | | |
| (Dollars in thousands) | | Federal
Funds
Purchased | | | Securities Sold
Under
Agreements
To Repurchase | |
At December 31: | | | | | | | | |
2017 | | $ | 16,235 | | | $ | 261,352 | |
2016 | | | 22,235 | | | | 187,316 | |
2015 | | | 22,230 | | | | 290,798 | |
| | | | | | | | |
| (Dollars in thousands) | | Federal
Funds
Purchased | | | Securities Sold
Under
Agreements
To Repurchase | |
Weighted-average interest rate atyear-end: | | | | | | | | |
2017 | | | 1.40 | % | | | 0.36 | % |
2016 | | | 0.65 | % | | | 0.25 | % |
2015 | | | 0.25 | % | | | 0.15 | % |
Maximum amount outstanding at any month’s end: | | | | | | | | |
2017 | | $ | 25,800 | | | $ | 377,687 | |
2016 | | | 32,200 | | | | 353,833 | |
2015 | | | 52,000 | | | | 379,818 | |
Average amount outstanding during the year: | | | | | | | | |
2017 | | $ | 18,433 | | | $ | 287,663 | |
2016 | | | 22,717 | | | | 298,494 | |
2015 | | | 38,526 | | | | 283,011 | |
Weighted-average interest rate during the year: | | | | | | | | |
2017 | | | 0.88 | % | | | 0.33 | % |
2016 | | | 0.32 | % | | | 0.17 | % |
2015 | | | 0.21 | % | | | 0.10 | % |
At December 31,
2017,2022, all the repurchase agreements were in overnight accounts. The rates offered on these funds vary according to movements in the federal funds and
short-term
investment market rates.United has a $20,000,000 line of credit with an unrelated financial institution to provide for general liquidity needs. The line is an unsecured, revolving line of credit. The line is renewable on a 360 day basis and carries an indexed, floating-rate of interest. The line requires compliance with various financial and nonfinancial covenants. At December 31,
2017,2022, United had no outstanding balance under this credit.
Interest paid on short-term borrowings approximated
$1,574,000, $1,587,000,$1,747,000, $693,000, and
$835,000$1,027,000 in
2017, 20162022, 2021 and
2015,2020, respectively.
NOTE
K—M—LONG-TERM BORROWINGS
United’s subsidiary
banks are membersbank is a member of the Federal Home Loan Bank
(FHLB)(“FHLB”). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a mix of single-family residential mortgage loans, commercial loans and investment securities. At December 31,
2017,2022, the total carrying value of loans pledged as collateral for FHLB advances approximated
$4,511,587,000.$5,188,745,000. United had an unused borrowing amount as of December 31,
20172022 of approximately
$2,244,843,000$6,248,366,000 available subject to delivery of collateral after certain trigger points.
Advances may be called by the FHLB or redeemed by United based on predefined factors and penalties.
At December 31,
20172022 and
2016,2021, FHLB advances and the related weighted-average interest rates were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| (Dollars in thousands) | | Amount | | | Weighted-
Average
Contractual
Rate | | | Weighted-
Average
Effective
Rate | | | Amount | | | Weighted-
Average
Contractual
Rate | | | Weighted-
Average
Effective
Rate | |
FHLB advances | | $ | 1,271,531 | | | | 1.60 | % | | | 1.60 | % | | $ | 897,707 | | | | 0.72 | % | | | 0.72 | % |
Overnight
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| FHLB advances | | $ | 1,910,775 | | | | 4.18 | % | | | 3.19 | % | | $ | 532,199 | | | | 0.35 | % | | | 0.55 | % |
No overnight funds
of $200,000,000 were included in the
$1,271,531,000$1,910,775,000 and $532,199,000 above at December 31,
2017. No overnight fundswere included in the $897,707,000 above at2022 and 2021, respectively. At December 31, 2016.2022, FHLB advances of $1,900,000,000 mature in 2023 while $10,775,000 mature in 2025. The weighted-average effective rate considers the effect of any interest rate swaps designated as fair value hedges outstanding atyear-end 2017
2022 and 20162021 to manage interest rate risk on its long-term debt. Additional information is provided in Note Q,S, Notes to Consolidated Financial Statements.
A long-term wholesale security sold under an agreement to repurchase was assumed in the Virginia Commerce merger.
At December 31,
2017 and 2016, the balance of the wholesale security sold under an agreement to repurchase was $50,000,000. The repurchase agreement had an interest rate of 4.37% at December 31, 2017 and 2016 and is scheduled to mature in May of 2018.At December 31, 2017,2022, United had a total of fifteentwenty statutory business trusts that were formed for the purpose of issuing or participating in pools of trust preferred capital securities (Capital Securities)(“Capital Securities”) with the proceeds invested in junior subordinated debt securities (Debentures)(“Debentures”) of United. The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of United, are the sole assets of the trusts and United’s payment under the Debentures is the sole source of revenue for the trusts. United assumed $4,124,000 in aggregate principal amount of a LIBOR-indexed floating rate Debentures in the Community Bankers Trust
111
merger. At December 31,
20172022 and
2016,2021, the outstanding balance of the Debentures was
$242,446,000$276,989,000 and
$224,319,000, respectively,$275,323,000, respectively. United also assumed $10,000,000 in aggregate principal amount ofrate subordinated note in the Community Bankers Trust merger. At December 31, 2022 and
2021, the outstanding balance of the subordinated note was $9,892,000 and $9,872,000, respectively. The amount of the Debentures and the subordinated note was included in the category of long-term debt on the Consolidated Balance Sheets entitled “Other long-term borrowings.” The Capital Securities are not included as a component of shareholders’ equity in the Consolidated Balance Sheets. United fully and unconditionally guarantees each individual trust’s obligations under the Capital Securities.
Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the subordinated debt is cumulative.
For reporting periods prior to June 30, 2017,
In accordance with the
Trust Preferred Securities qualified as Tier 1 regulatory capital under thefully-phased in “Basel III Capital Rules” as published by United’s primary federal regulator, the Federal Reserve,
in July of 2013. The “Basel IIIUnited is unable to consider the Capital
Rules” established a new comprehensive capital framework for U.S. banking organizations. Because United was less than $15 billion in total consolidated assets, the Basel III Capital Rules grandfathered United’s Trust Preferred Securities as Tier 1 capital,
underbut rather the
limitations for restricted capital elements in the general risk-based capital rules. As a result, beginning in 2015 (the adoption date), United’s Trust PreferredCapital Securities
was subject to a limit of 25 percent of Tier 1 capital elements excluding anynon-qualifying capital instruments and after all regulatory capital deductions and adjustments applied to Tier 1 capital, which is substantially similar to the limit in the general risk-based capital rules. Trust preferred securities no longer included in United’s Tier 1 capital could beare included as a component of
United’s Tier 2 capital. United can include the Capital Securities in its Tier 2 capital on a permanent
basis withoutphase-out.basis.
Information related to United’s statutory trusts is presented in the table below:
| | | | | | | | |
(Dollars in thousands)
Description
| | Issuance Date | | Amount of
Capital
Securities
Issued | | Interest Rate | | Maturity Date |
Century Trust
| | March 23, 2000 | | $ 8,800 | | 10.875% Fixed | | March 8, 2030 |
United Statutory Trust III
| | December 17, 2003 | | $20,000 | | 3-month LIBOR + 2.85% | | December 17, 2033 |
United Statutory Trust IV
| | December 19, 2003 | | $25,000 | | 3-month LIBOR + 2.85% | | January 23, 2034 |
United Statutory Trust V
| | July 12, 2007 | | $50,000 | | 3-month LIBOR + 1.55% | | October 1, 2037 |
United Statutory Trust VI
| | September 20, 2007 | | $30,000 | | 3-month LIBOR + 1.30% | | December 15, 2037 |
Premier Statutory Trust II
| | September 25, 2003 | | $ 6,000 | | 3-month LIBOR + 3.10% | | October 8, 2033 |
Premier Statutory Trust III
| | May 16, 2005 | | $ 8,000 | | 3-month LIBOR + 1.74% | | June 15, 2035 |
Premier Statutory Trust IV
| | June 20, 2006 | | $14,000 | | 3-month LIBOR + 1.55% | | September 23, 2036 |
Premier Statutory Trust V
| | December 14, 2006 | | $10,000 | | 3-month LIBOR + 1.61% | | March 1, 2037 |
Centra Statutory Trust I
| | September 20, 2004 | | $10,000 | | 3-month LIBOR + 2.29% | | September 20, 2034 |
Centra Statutory Trust II
| | June 15, 2006 | | $10,000 | | 3-month LIBOR + 1.65% | | July 7, 2036 |
Virginia Commerce Trust II
| | December 19, 2002 | | $15,000 | | 6-month LIBOR + 3.30% | | December 19, 2032 |
Virginia Commerce Trust III
| | December 20, 2005 | | $25,000 | | 3-month LIBOR + 1.42% | | February 23, 2036 |
Cardinal Statutory Trust I
| | July 27, 2004 | | $20,000 | | 3-month LIBOR + 2.40% | | September 15, 2034 |
UFBC Capital Trust I
| | December 30, 2004 | | $ 5,000 | | 3-month LIBOR + 2.10% | | March 15, 2035 |
| | | | | | | | | | |
| | | | Amount of
Capital
Securities
Issued | | | | | |
| United Statutory Trust III | | December 17, 2003 | | $ | 20,000 | | | 3-month LIBOR + 2.85% | | December 17, 2033 |
| United Statutory Trust IV | | December 19, 2003 | | $ | 25,000 | | | 3-month LIBOR + 2.85% | | January 23, 2034 |
| United Statutory Trust V | | July 12, 2007 | | $ | 50,000 | | | 3-month LIBOR + 1.55% | | October 1, 2037 |
| United Statutory Trust VI | | September 20, 2007 | | $ | 30,000 | | | 3-month LIBOR + 1.30% | | December 15, 2037 |
| Premier Statutory Trust II | | September 25, 2003 | | $ | 6,000 | | | 3-month LIBOR + 3.10% | | October 8, 2033 |
| Premier Statutory Trust III | | May 16, 2005 | | $ | 8,000 | | | 3-month LIBOR + 1.74% | | June 15, 2035 |
| Premier Statutory Trust IV | | June 20, 2006 | | $ | 14,000 | | | 3-month LIBOR + 1.55% | | September 23, 2036 |
| Premier Statutory Trust V | | December 14, 2006 | | $ | 10,000 | | | 3-month LIBOR + 1.61% | | March 1, 2037 |
| Centra Statutory Trust I | | September 20, 2004 | | $ | 10,000 | | | 3-month LIBOR + 2.29% | | September 20, 2034 |
| Centra Statutory Trust II | | June 15, 2006 | | $ | 10,000 | | | 3-month LIBOR + 1.65% | | July 7, 2036 |
| Virginia Commerce Trust II | | December 19, 2002 | | $ | 15,000 | | | 6-month LIBOR + 3.30% | | December 19, 2032 |
| Virginia Commerce Trust III | | December 20, 2005 | | $ | 25,000 | | | 3-month LIBOR + 1.42% | | February 23, 2036 |
| Cardinal Statutory Trust I | | July 27, 2004 | | $ | 20,000 | | | 3-month LIBOR + 2.40% | | September 15, 2034 |
| UFBC Capital Trust I | | December 30, 2004 | | $ | 5,000 | | | 3-month LIBOR + 2.10% | | March 15, 2035 |
| Carolina Financial Capital Trust I | | December 19, 2002 | | $ | 5,000 | | | Prime + 0.50% | | December 31, 2032 |
| Carolina Financial Capital Trust II | | November 5, 2003 | | $ | 10,000 | | | 3-month LIBOR + 3.05% | | January 7, 2034 |
| Greer Capital Trust I | | October 12, 2004 | | $ | 6,000 | | | 3-month LIBOR + 2.20% | | October 18, 2034 |
| Greer Capital Trust II | | December 28, 2006 | | $ | 5,000 | | | 3-month LIBOR + 1.73% | | January 30, 2037 |
| First South Preferred Trust I | | September 26, 2003 | | $ | 10,000 | | | 3-month LIBOR + 2.95% | | September 30, 2033 |
| BOE Statutory Trust I | | December 12, 2003 | | $ | 4,000 | | | 3-month LIBOR + 3.00% | | December 12, 2033 |
At December 31,
20172022 and
2016,2021, the Debentures and their related weighted-average interest rates were as follows:
| | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| (Dollars in thousands) | | Amount | | | Weighted-
Average
Rate | | | Amount | | | Weighted-
Average
Rate | |
Century Trust | | $ | 8,800 | | | | 10.88 | % | | $ | 8,800 | | | | 10.88 | % |
United Statutory Trust III | | | 20,619 | | | | 4.45 | % | | | 20,619 | | | | 3.84 | % |
United Statutory Trust IV | | | 25,774 | | | | 4.23 | % | | | 25,774 | | | | 3.74 | % |
United Statutory Trust V | | | 51,547 | | | | 2.89 | % | | | 51,547 | | �� | | 2.40 | % |
United Statutory Trust VI | | | 30,928 | | | | 2.89 | % | | | 30,928 | | | | 2.26 | % |
Premier Statutory Trust II | | | 6,186 | | | | 4.46 | % | | | 6,186 | | | | 3.98 | % |
Premier Statutory Trust III | | | 8,248 | | | | 3.33 | % | | | 8,248 | | | | 2.70 | % |
Premier Statutory Trust IV | | | 14,433 | | | | 3.23 | % | | | 14,433 | | | | 2.55 | % |
Premier Statutory Trust V | | | 10,310 | | | | 3.09 | % | | | 10,310 | | | | 2.54 | % |
Centra Statutory Trust I | | | 10,000 | | | | 3.92 | % | | | 10,000 | | | | 3.29 | % |
Centra Statutory Trust II | | | 10,000 | | | | 3.01 | % | | | 10,000 | | | | 2.53 | % |
Virginia Commerce Trust II | | | 12,014 | | | | 5.14 | % | | | 11,784 | | | | 4.62 | % |
Virginia Commerce Trust III | | | 16,216 | | | | 2.87 | % | | | 15,690 | | | | 2.34 | % |
Cardinal Statutory Trust I | | | 14,031 | | | | 3.99 | % | | | 0 | | | | 0.00 | % |
UFBC Capital Trust I | | | 3,340 | | | | 3.69 | % | | | 0 | | | | 0.00 | % |
| | | | | | | | | | | | | | | | |
Total | | $ | 242,446 | | | | | | | $ | 224,319 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | |
| | | | | |
| |
| United Statutory Trust III | | $ | 20,619 | | | | 7.59 | % | | $ | 20,619 | | | | 3.07 | % |
| United Statutory Trust IV | | | 25,774 | | | | 7.27 | % | | | 25,774 | | | | 2.98 | % |
| United Statutory Trust V | | | 51,547 | | | | 5.29 | % | | | 51,547 | | | | 1.68 | % |
| United Statutory Trust VI | | | 30,928 | | | | 6.07 | % | | | 30,928 | | | | 1.50 | % |
| Premier Statutory Trust II | | | 6,186 | | | | 7.18 | % | | | 6,186 | | | | 3.22 | % |
| Premier Statutory Trust III | | | 8,248 | | | | 6.51 | % | | | 8,248 | | | | 1.94 | % |
| Premier Statutory Trust IV | | | 14,433 | | | | 6.28 | % | | | 14,433 | | | | 1.77 | % |
| Premier Statutory Trust V | | | 10,310 | | | | 6.37 | % | | | 10,310 | | | | 1.78 | % |
| Centra Statutory Trust I | | | 10,000 | | | | 7.04 | % | | | 10,000 | | | | 2.50 | % |
| Centra Statutory Trust II | | | 10,000 | | | | 5.73 | % | | | 10,000 | | | | 1.77 | % |
| Virginia Commerce Trust II | | | 13,166 | | | | 8.45 | % | | | 12,936 | | | | 3.57 | % |
| Virginia Commerce Trust III | | | 18,847 | | | | 6.11 | % | | | 18,320 | | | | 1.58 | % |
112
| | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | |
| | | | | |
| |
| Cardinal Statutory Trust I | | | 16,017 | | | | 7.17 | % | | | 15,620 | | | | 2.60 | % |
| UFBC Capital Trust I | | | 3,866 | | | | 6.87 | % | | | 3,761 | | | | 2.30 | % |
| Carolina Financial Capital Trust I | | | 5,022 | | | | 8.00 | % | | | 5,010 | | | | 3.75 | % |
| Carolina Financial Capital Trust II | | | 9,498 | | | | 7.13 | % | | | 9,420 | | | | 3.17 | % |
| Greer Capital Trust I | | | 5,256 | | | | 6.39 | % | | | 5,167 | | | | 3.17 | % |
| Greer Capital Trust II | | | 4,087 | | | | 6.15 | % | | | 3,983 | | | | 2.32 | % |
| First South Preferred Trust I | | | 9,432 | | | | 7.68 | % | | | 9,348 | | | | 1.86 | % |
| BOE Statutory Trust I | | | 3,753 | | | | 7.75 | % | | | 3,713 | | | | 3.22 | % |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 276,989 | | | | | | | $ | 275,323 | | | | | |
| | | | | | | | | | | | | | | | | |
At December 31,
2017,2022, the scheduled maturities of long-term borrowings were as follows:
| | | | |
Year | | Amount | |
(In thousands) | | | | |
2018 | | $ | 795,439 | |
2019 | | | 186,404 | |
2020 | | | 40,871 | |
2021 | | | 51,453 | |
2022 and thereafter | | | 289,810 | |
| | | | |
Total | | $ | 1,363,977 | |
| | | | |
| | | | |
| | | |
| |
| 2023 | | $ | 1,898,393 | |
| 2024 | | | 0 | |
| 2025 | | | 9,153 | |
| 2026 | | | 8,268 | |
| 2027 | | | 0 | |
| 2028 and thereafter | | | 281,842 | |
| | | | | |
| Total | | $ | 2,197,656 | |
| | | | | |
Interest paid on long-term borrowings approximated
$22,254,000, $13,974,000,$19,143,000, $10,336,000, and
$10,553,000$33,240,000 in
2017, 20162022, 2021 and
2015,2020, respectively.
The following details certain items of other expense for the periods indicated:
| | | | | | | | | | | | |
| | | Year Ended December 31 | |
| (In thousands) | | 2017 | | | 2016 | | | 2015 | |
Legal, consulting & other professional services | | $ | 11,844 | | | $ | 9,763 | | | $ | 9,310 | |
Franchise & other taxes not on income | | | 12,586 | | | | 7,778 | | | | 7,055 | |
Automated Teller Machine (ATM) expenses | | | 6,686 | | | | 7,365 | | | | 7,107 | |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | |
| Legal, consulting & other professional services | | $ | 24,403 | | | $ | 17,616 | | | $ | 16,482 | |
| Franchise & other taxes not on income | | | 13,537 | | | | 12,412 | | | | 12,122 | |
| Expense for reserve on lending-related commitments | | | 14,747 | | | | 12,034 | | | | 11,315 | |
| Automated Teller Machine (“ATM”) expenses | | | 10,250 | | | | 10,519 | | | | 9,295 | |
The income tax provisions included in the consolidated statements of income are summarized as follows:
| | | | | | | | | | | | |
| (In thousands) | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
Current (benefit) expense: | | | | | | | | | | | | |
Federal | | $ | 65,459 | | | $ | 63,169 | | | $ | 58,373 | |
State | | | 7,960 | | | | 5,154 | | | | 5,428 | |
Deferred expense: | | | | | | | | | | | | |
Federal | | | 20,920 | | | | 8,844 | | | | 1,657 | |
Tax Act remeasurement | | | 37,732 | | | | 0 | | | | 0 | |
State | | | 2,175 | | | | (1,592 | ) | | | 72 | |
| | | | | | | | | | | | |
Total income taxes | | $ | 134,246 | | | $ | 75,575 | | | $ | 65,530 | |
| | | | | | | | | | | | |
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act lowered the Federal corporate tax rate from 35% to 21% effective January 1, 2018 and made numerous other tax law changes. U.S. generally accepted accounting principles (GAAP) requires companies to recognize the effect
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | |
| Current expense: | | | | | | | | | | | | |
| Federal | | $ | 86,799 | | | $ | 76,574 | | | $ | 60,508 | |
| State | | | 16,244 | | | | 14,516 | | | | 10,656 | |
| Deferred expense: | | | | | | | | | | | | |
| Federal | | | (6,016 | ) | | | 2,742 | | | | (174 | ) |
| State | | | (871 | ) | | | 1,283 | | | | (273 | ) |
| | | | | | | | | | | | | |
| Total income taxes | | $ | 96,156 | | | $ | 95,115 | | | $ | 70,717 | |
| | | | | | | | | | | | | |
113
The following is a reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to income before income
taxes. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31 | |
| (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | |
| | | Amount | | | % | | | Amount | | | % | | | Amount | | | % | |
Tax on income before taxes at statutory federal rate | | $ | 99,689 | | | | 35.0% | | | $ | 77,930 | | | | 35.0% | | | $ | 71,222 | | | | 35.0% | |
Plus: State income taxes net of federal tax benefits | | | 6,207 | | | | 2.2 | | | | 4,084 | | | | 1.8 | | | | 3,516 | | | | 1.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 105,896 | | | | 37.2 | | | | 82,014 | | | | 36.8 | | | | 74,738 | | | | 36.7 | |
Increase (decrease) resulting from: | | | | | | | | | | | | | | | | | | | | | | | | |
Tax-exempt interest income | | | (5,362 | ) | | | (1.9 | ) | | | (3,919 | ) | | | (1.8 | ) | | | (4,158 | ) | | | (2.0 | ) |
Deferred taxes due to the Tax Act | | | 37,732 | | | | 13.2 | | | | 0 | | | | 0.0 | | | | 0 | | | | 0.0 | |
Historic tax credit | | | 0 | | | | 0.0 | | | | 0 | | | | 0.0 | | | | (1,262 | ) | | | (0.6 | ) |
Otheritems-net | | | (4,020 | ) | | | (1.4 | ) | | | (2,520 | ) | | | (1.1 | ) | | | (3,788 | ) | | | (1.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income taxes | | $ | 134,246 | | | | 47.1% | | | $ | 75,575 | | | | 33.9% | | | $ | 65,530 | | | | 32.2% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
taxes:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Tax on income before taxes at statutory federal rate | | $ | 99,914 | | | | 21.0 | % | | $ | 97,199 | | | | 21.0 | % | | $ | 75,546 | | | | 21.0 | % |
| Plus: State income taxes net of federal tax benefits | | | 12,431 | | | | 2.6 | | | | 11,520 | | | | 2.5 | | | | 8,202 | | | | 2.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 112,345 | | | | 23.6 | | | | 108,719 | | | | 23.5 | | | | 83,748 | | | | 23.3 | |
| Increase (decrease) resulting from: | | | | | | | | | | | | | | | | | | | | | | | | |
Tax-exempt interest income | | | (3,477 | ) | | | (0.7 | ) | | | (3,303 | ) | | | (0.7 | ) | | | (3,011 | ) | | | (0.8 | ) |
| Tax credits | | | (14,326 | ) | | | (3.0 | ) | | | (11,893 | ) | | | (2.6 | ) | | | (9,860 | ) | | | (2.7 | ) |
| | | 1,614 | | | | 0.3 | | | | 1,592 | | | | 0.4 | | | | (160 | ) | | | (0.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income taxes | | $ | 96,156 | | | | 20.2 | % | | $ | 95,115 | | | | 20.6 | % | | $ | 70,717 | | | | 19.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
For years ended
2017, 20162022, 2021 and
2015,2020, United incurred federal income tax expense
of $287,000, $587,000, and $663,000, respectively, applicable to the sales and calls of
securities of $2,088,000, $114,000, and $73,000, respectively.securities. Income taxes paid approximated
$73,096,000, $61,905,000,$93,680,000, $101,227,000, and
$52,319,000$65,378,000 in
2017, 20162022, 2021 and
2015,2020, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31,
2017,2022, United had no federal or state net operating loss carryforwards.
Taxes not on income, which consists mainly of business franchise taxes, were
$12,586,000, $7,778,000,$13,537,000, $12,412,000, and
$7,055,000$12,122,000, for the years ended December 31,
2017, 20162022, 2021 and
2015,2020, respectively. These amounts are recorded in other expense in the Consolidated Statements of Income.
Significant components of United’s deferred tax assets and liabilities (included in other assets in the Consolidated Balance Sheets) at December 31,
20172022 and
20162021 are as follows:
| | | | | | | | |
| (In thousands) | | 2017 | | | 2016 | |
Deferred tax assets: | | | | | | | | |
Allowance for credit losses | | $ | 18,012 | | | $ | 26,941 | |
Accrued benefits payable | | | 12,175 | | | | 0 | |
Other accrued liabilities | | | 779 | | | | 3,478 | |
Unrecognized components of net periodic pension costs | | | 13,443 | | | | 20,166 | |
Unrealized loss on securities available for sale | | | 2,797 | | | | 1,436 | |
Premises and equipment | | | 0 | | | | 93 | |
Other real estate owned | | | 3,169 | | | | 6,724 | |
Deferred mortgage points | | | 3,028 | | | | 0 | |
Purchase accounting intangibles | | | 14,855 | | | | 41,392 | |
| | | | | | | | |
Total deferred tax assets | | | 68,258 | | | | 100,230 | |
| | | | | | | | |
| | |
Deferred tax liabilities: | | | | | | | | |
Deferred mortgage points | | | 2,994 | | | | 3,608 | |
Accrued benefits payable | | | 0 | | | | 4,061 | |
Premises and equipment | | | 0 | | | | 0 | |
Other | | | 1,627 | | | | 13,687 | |
| | | | | | | | |
Total deferred tax liabilities | | | 4,621 | | | | 21,356 | |
| | | | | | | | |
Net deferred tax assets | | $ | 63,637 | | | $ | 78,874 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | |
| Deferred tax assets: | | | | | | | | |
| Allowance for credit losses | | $ | 65,453 | | | $ | 57,659 | |
| Accrued benefits payable | | | 17,333 | | | | 17,204 | |
| Other accrued liabilities | | | 655 | | | | 655 | |
| Unrealized loss on securities available for sale | | | 109,185 | | | | 0 | |
| Other real estate owned | | | 531 | | | | 1,706 | |
| Lease liabilities under operating leases | | | 17,650 | | | | 20,202 | |
| Deferred mortgage points | | | 4,094 | | | | 5,413 | |
| | | | | | | | | |
| Total deferred tax assets | | | 214,901 | | | | 102,839 | |
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Premises and equipment | | | 6,707 | | | | 6,750 | |
| Unrealized gain on securities available for sale | | | 0 | | | | 2,890 | |
assets under operating leases | | | 16,576 | | | | 19,092 | |
| Pension plan accruals | | | 5,858 | | | | 4,497 | |
| Derivatives | | | 16,104 | | | | 4,970 | |
| Purchase accounting intangibles | | | 5,241 | | | | 6,369 | |
| Other | | | 365 | | | | 957 | |
| | | | | | | | | |
| Total deferred tax liabilities | | | 50,851 | | | | 45,525 | |
| | | | | | | | | |
| Net deferred tax assets | | $ | 164,050 | | | $ | 57,314 | |
| | | | | | | | | |
At December 31,
20172022 and
2016,2021, United believes that all of the deferred tax amounts shown above are more likely than not to be realized based on an assessment of all available positive and negative evidence and therefore no valuation allowance has been recorded.
114
In accordance with ASC
topicTopic 740, “Income Taxes,” United records a liability for uncertain income tax positions based on a recognition threshold of
more-likely-than-not,
and a measurement attribute for all tax positions taken on a tax return, in order for those tax positions to be recognized in the financial statements.Below is a reconciliation of the total amounts of unrecognized tax benefits:
| | | | | | | | |
| | | December 31 | |
| (In thousands) | | 2017 | | | 2016 | |
Unrecognized tax benefits at beginning of year | | $ | 2,442 | | | $ | 2,102 | |
Increase in unrecognized tax benefits as a result of tax positions taken during the current period | | | 972 | | | | 673 | |
Decreases in the unrecognized tax benefits as a result of a lapse of the applicable statute of limitations | | | (520) | | | | (333) | |
| | | | | | | | |
Unrecognized tax benefits at end of year | | $ | 2,894 | | | $ | 2,442 | |
| | | | | | | | |
| | | | | | | | |
| | | | |
| | | | | | |
| Unrecognized tax benefits at beginning of year | | $ | 1,667 | | | $ | 2,203 | |
| Increase in unrecognized tax benefits as a result of tax positions taken during the current period | | | 1,423 | | | | 199 | |
| Decreases in the unrecognized tax benefits as a result of a lapse of the applicable statute of limitations | | | (569 | ) | | | (735 | ) |
| | | | | | | | | |
| Unrecognized tax benefits at end of year | | $ | 2,521 | | | $ | 1,667 | |
| | | | | | | | | |
The entire amount of unrecognized tax benefits, if recognized, would impact United’s effective tax rate. Over the next 12 months, the statute of limitations will close on certain income tax returns. However, at this time, United cannot reasonably estimate the amount of tax benefits, if any, it may recognize over the next 12 months.
United is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31,
2014, 20152019, 2020 and
20162021 and certain State Taxing authorities for the years ended December 31,
20142019 through
2016.2021.
As of December 31,
20172022, and
2016,2021, the total amount of accrued interest related to uncertain tax positions was
$670,000$525,000 and
$569,000,$727,000, respectively. United accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. No interest or penalties were recognized in the results of operations for the years of
2017, 20162022, 2021 and
2015.2020.
NOTE
N—P—EMPLOYEE BENEFIT PLANS
United has a defined benefit retirement plan covering
a majority of allqualified employees. Pension benefits are based on years of service and the average of the employee’s highest five consecutive plan years of basic compensation paid during the ten plan years preceding the date of determination. Contributions by United are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.
In September of 2007, after a recommendation by United’s Pension Committee and approval by United’s Board of Directors, the United Bankshares, Inc. Pension Plan (the
Plan)“Plan”) was amended to change the participation rules. The decision to change the participation rules for the Plan followed current industry trends, as many large and medium size companies have taken similar steps. The amendment provided that employees hired on or after October 1, 2007, will not be eligible to participate in the Plan. However, new employees will continue to be eligible to participate in United’s Savings and Stock Investment
401(k) plan. This change had no impact on current employees hired prior to October 1, 2007 as they will continue to participate in the Plan, with no change in benefit provisions, and will continue to be eligible to participate in United’s Savings and Stock Investment 401(k) Plan.
As of December 31, 2016, United changed the method used to estimate the interest
Net periodic pension costs, except for service cost,
component of net periodic benefit cost for the Plan. Under the previous method, appropriate spot rates were used to discount the projected benefit obligation (PBO) cash flows based on date of measurement. Then, a single aggregated discount rate was calculated such that the present value of the PBO remained the same. This rate is technically a weighted-average of the spot rates. This single discount rate was applied to the interest and service costs as well. Under the full yield curve approach, separate discount rates are
used to calculate the present value for each projected cash flow. That is, individual spot rates are applied to the cash flowsrecognized in
each time period. This does not have any impactemployee benefits on the
present valueconsolidated statements of
the PBO as the PBO was originally discounted with spot rates. The adoption of this method concerns the mannerincome. Service cost is recognized in
which it affects interest and service costs. Interest costs typically decrease when using this method because of the different weightings applied to the cash flows; that is, interest costs closer to the current period will be discounted with a smaller rate than those further in the future based on a typical yield curve, and greater future Interest Costs values are discounted with greater longer-term spot rates. Similarly, service costs typically have longer durations and will thus be subject to longer-term spot rates, decreasing the present value of these costs. As a result, the full yield curve method is preferable as it provides a more granular, and thus a more accurate, determination of costs. This new method constitutes a change in an accounting estimate under the provisions of ASC topic 250, “Accounting Changes and Error Corrections,” that is inseparable from a change in accounting principle and was accounted for prospectively, with the resulting change impacting the recognition of net periodic pension cost beginning January 1, 2017. The impact of this accounting change on United’s net periodic pension cost for the year of 2017 was a decline of $1,000,000 in expense from the amount that would have been recorded under the previous method.employee compensation. Net consolidated periodic pension cost included the following components:
| | | | | | | | | | | | |
| (Dollars in thousands) | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Service cost | | $ | 2,146 | | | $ | 2,374 | | | $ | 2,787 | |
Interest cost | | | 5,149 | | | | 5,950 | | | | 5,902 | |
Expected return on plan assets | | | (8,538) | | | | (8,089) | | | | (9,290) | |
Recognized net actuarial loss | | | 4,553 | | | | 4,921 | | | | 4,980 | |
Amortization of prior service cost | | | 0 | | | | 0 | | | | 1 | |
| | | | | | | | | | | | |
Net periodic pension cost | | $ | 3,310 | | | $ | 5,156 | | | $ | 4,380 | |
| | | | | | | | | | | | |
Weighted-Average Assumptions: | | | | | | | | | | | | |
Discount rate | | | 4.49% | | | | 4.75% | | | | 4.35% | |
Expected return on assets | | | 7.00% | | | | 7.25% | | | | 7.50% | |
Rate of Compensation Increase (prior to age 45) | | | 3.50% | | | | 3.50% | | | | 3.50% | |
Rate of Compensation Increase (otherwise) | | | 3.00% | | | | 3.00% | | | | 3.00% | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | |
| Service cost | | $ | 2,669 | | | $ | 2,936 | | | $ | 2,742 | |
| Interest cost | | | 4,988 | | | | 4,241 | | | | 5,222 | |
| Expected return on plan assets | | | (12,942 | ) | | | (11,874 | ) | | | (11,010 | ) |
| Recognized net actuarial loss | | | 3,645 | | | | 6,770 | | | | 6,050 | |
| | | | | | | | | | | | | |
| Net periodic pension (income) cost | | $ | (1,640 | ) | | $ | 2,073 | | | $ | 3,004 | |
| | | | | | | | | | | | | |
Weighted-Average Assumptions: | | | | | | | | | | | | |
| Discount rate | | | 3.08 | % | | | 2.81 | % | | | 3.42 | % |
| Expected return on assets | | | 6.25 | % | | | 6.25 | % | | | 6.75 | % |
| Rate of compensation increase (prior to age 40) | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % |
Rate of compensation increase (ages 40-54) | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % |
| Rate of compensation increase (otherwise) | | | 3.50 | % | | | 3.50 | % | | | 3.50 | % |
115
Amounts related to the Plan recognized as a component of other comprehensive income were as follows:
| | | | | | | | | | | | |
| (In thousands) | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Net actuarial loss | | $ | 6,784 | | | $ | 2,914 | | | $ | 2,402 | |
Amortization of: | | | | | | | | | | | | |
Prior service cost | | | 0 | | | | 0 | | | | (1) | |
Actuarial loss | | | (4,553) | | | | (4,921) | | | | (4,980) | |
| | | | | | | | | | | | |
Total recognized in other comprehensive income | | $ | 2,231 | | | $ | (2,007) | | | $ | (2,579) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | |
| Net actuarial (gain) loss | | $ | (2,195 | ) | | $ | (14,286 | ) | | $ | 10,583 | |
| Amortization of actuarial loss | | | (3,645 | ) | | | (6,770 | ) | | | (6,050 | ) |
| | | | | | | | | | | | | |
| Total recognized in other comprehensive income | | $ | (5,840 | ) | | $ | (21,056 | ) | | $ | 4,533 | |
| | | | | | | | | | | | | |
Included in accumulated other comprehensive income at December 31,
20172022 are unrecognized actuarial losses of
$56,222,000$38,530,000 ($
35,420,00029,553,000 net of tax) that have not yet been recognized in net periodic pension cost.
The amortization of this item expected to be recognized in net periodic pension cost during the fiscal year ended December 31, 2018 is $4,653,000 ($2,932,000 net of tax).The reconciliation of the beginning and ending balances of the projected benefit obligation and the fair value of plan assets for the years ended December 31,
20172022 and
20162021 and the accumulated benefit obligation at December 31,
20172022 and
20162021 are as follows:
| | | | | | | | |
| (Dollars in thousands) | | December 31, | |
| | | 2017 | | | 2016 | |
Change in Projected Benefit Obligation | | | | | | | | |
Projected Benefit Obligation at the Beginning of the Year | | $ | 134,515 | | | $ | 125,403 | |
Service Cost | | | 2,146 | | | | 2,374 | |
Interest Cost | | | 5,149 | | | | 5,950 | |
Actuarial Loss (Gain) | | | 15,367 | | | | 5,114 | |
Benefits Paid | | | (4,437 | ) | | | (4,326 | ) |
| | | | | | | | |
Projected Benefit at the End of the Year | | $ | 152,740 | | | $ | 134,515 | |
Accumulated Benefit Obligation at the End of the Year | | $ | 139,025 | | | $ | 121,548 | |
| | |
Change in Plan Assets | | | | | | | | |
Fair Value of Plan Assets at the Beginning of the Year | | $ | 119,711 | | | $ | 113,748 | |
Actual Return on Plan Assets | | | 17,121 | | | | 10,289 | |
Benefits Paid | | | (4,437 | ) | | | (4,326 | ) |
Employer Contributions | | | 10,000 | | | | 0 | |
| | | | | | | | |
Fair value of plan assets at end of year | | $ | 142,395 | | | $ | 119,711 | |
| | |
Net Amount Recognized | | | | | | | | |
Funded Status | | $ | (10,346 | ) | | $ | (14,804 | ) |
Unrecognized Transition Asset | | | 0 | | | | 0 | |
Unrecognized Prior Service Cost | | | 0 | | | | 0 | |
Unrecognized Net Loss | | | 56,222 | | | | 53,991 | |
| | | | | | | | |
Net Amount Recognized | | $ | 45,876 | | | $ | 39,187 | |
| | | | | | | | |
Weighted-Average Assumptions at the End of the Year | | | | | | | | |
Discount Rate | | | 3.83 | % | | | 4.49 | % |
Rate of Compensation Increase (prior to age 45) | | | 3.50 | % | | | 3.50 | % |
Rate of Compensation Increase (otherwise) | | | 3.00 | % | | | 3.00 | % |
| | | | | | | | |
| | | |
| | | | | | | |
Change in Projected Benefit Obligation | | | | | | | | |
| Projected Benefit Obligation at the Beginning of the Year | | $ | 192,973 | | | $ | 194,775 | |
| Service Cost | | | 2,669 | | | | 2,936 | |
| Interest Cost | | | 4,988 | | | | 4,241 | |
| Actuarial Gain | | | (46,617 | ) | | | (2,369 | ) |
| Annuity Purchase Payment | | | (7,312 | ) | | | 0 | |
| Benefits Paid | | | (6,092 | ) | | | (6,610 | ) |
| | | | | | | | | |
| Projected Benefit at the End of the Year | | $ | 140,609 | | | $ | 192,973 | |
| Accumulated Benefit Obligation at the End of the Year | | $ | 129,927 | | | $ | 175,953 | |
| | | | | | | | |
| Fair Value of Plan Assets at the Beginning of the Year | | $ | 210,204 | | | $ | 193,022 | |
| Actual Return on Plan Assets | | | (31,480 | ) | | | 23,792 | |
| Annuity Purchase Payment | | | (7,312 | ) | | | 0 | |
| Benefits Paid | | | (6,092 | ) | | | (6,610 | ) |
| | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 165,320 | | | $ | 210,204 | |
| | | | | | | | |
| Funded Status | | $ | 24,710 | | | $ | 17,230 | |
| Unrecognized Net Loss | | | 38,530 | | | | 44,370 | |
| | | | | | | | | |
| Net Amount Recognized | | $ | 63,240 | | | $ | 61,600 | |
| | | | | | | | | |
Weighted-Average Assumptions at the End of the Year | | | | | | | | |
| Discount Rate | | | 5.25 | % | | | 3.08 | % |
| Rate of compensation Increase (prior to age 40) | | | 5.00 | % | | | 5.00 | % |
Rate of compensation Increase (ages 40-54) | | | 4.00 | % | | | 4.00 | % |
| Rate of compensation Increase (otherwise) | | | 3.50 | % | | | 3.50 | % |
116
Asset allocation for the defined benefit pension plan as of the measurement date, by asset category, is as follows:
| | | | | | | | | | | | | | | | |
| Plan Assets | | Target Allocation 2018 | | | Allowable Allocation Range | | | Percentage of Plan Assets at | |
| | | | | | | | | December 31,
2017 | | | December 31,
2016 | |
Equity Securities | | | 68 | % | | | 50-70 | % | | | 71 | % | | | 71% | |
Debt Securities | | | 25 | % | | | 20-50 | % | | | 26 | % | | | 26% | |
Other | | | 7 | % | | | 3-15 | % | | | 3 | % | | | 3% | |
| | | | | | | | | | | | |
Total | | | | | | | | | | | 100 | % | | | 100% | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| Equity Securities | | | 60 | % | | | 50-70 | % | | | 66% | | | | 65% | |
| Debt Securities | | | 30 | % | | | 20-50 | % | | | 32% | | | | 34% | |
| Other | | | 10 | % | | | 3-15 | % | | | 2% | | | | 1% | |
| | | | | | | | | | | | | | | | | |
| Total | | | | | | | | | | | 100% | | | | 100% | |
| | | | | | | | | | | | | | | | | |
Equity securities include United common stock in the amounts of
$3,677,000$4,285,000 (4%) at December 31, 2022 and $3,839,000 (3%) at December 31,
2017 and $4,894,000 (4%) at December 31, 20162021The policy, as established by the Pension Committee, primarily consisting of United’s Executive Management, is to invest assets based upon the target allocations stated above. The assets are reallocated periodically to meet the above target allocations. The investment policy is reviewed at least annually, subject to the approval of the Pension Committee, to determine if the policy should be changed. Prohibited investments include, but are not limited to, futures contracts, private placements, uncovered options, real estate, the use of margin, short sales, derivatives for speculative purposes, and other investments that are speculative in nature. In order to achieve a prudent level of portfolio diversification, the securities of any one company are not to exceed 10% of the total plan assets, and no more than the 15% of total plan assets is to be invested in any one industry (other than securities of U.S. Government or Agencies). Additionally, no more than 15% of the plan assets is to be invested in foreign securities, both equity and fixed. The expected long-term rate of return for the plan’s total assets is based on the expected return of each of the above categories, weighted based on the median of the target allocation for each class. United uses the corridor approach based on 10% of the greater of the projected benefit obligation and the market-related value of plan assets to amortize actuarial gains and losses.
At December 31,
2017,2022, the benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five years thereafter are as follows:
| | | | |
Year | | Amount | |
(In thousands) | | | | |
2018 | | $ | 5,314 | |
2019 | | | 5,304 | |
2020 | | | 5,632 | |
2021 | | | 6,012 | |
2022 | | | 6,377 | |
2023 through 2027 | | | 36,991 | |
During the third quarter of 2017,
| | | | |
| | | |
| |
| 2023 | | $ | 6,671 | |
| 2024 | | | 6,727 | |
| 2025 | | | 7,206 | |
| 2026 | | | 7,650 | |
| 2027 | | | 8,104 | |
| 2028 through 2032 | | | 45,637 | |
United made a discretionary contribution of
$10,000,000.United$20,000,000 during the third quarter of 2020. United did not contribute to the plan in
2016 and 20152022 or in 2021 as no contributions were required by funding regulations or law. For
2018,2023, no contributions to the plan are required by funding regulations or law. However, United may make a discretionary contribution in
2018,2023, the amount of which cannot be reasonably estimated at this time.
In accordance with ASC
topicTopic 715 and using the guidance contained in ASC
topicTopic 820, the following is a description of the valuation methodologies used to measure the plan assets at fair value.
Cash and Cash Equivalents:
These underlying assets are highly liquid U.S. government obligations. The fair value of cash and cash equivalents approximates cost (Level 1).
Debt Securities
: Securities of the U.S. Government, municipalities, private issuers and corporations are valued at the closing price reported in the active market in which the individual security is traded, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Using a market approach valuation methodology, third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2).
Common and Preferred Stock:
These securities are valued at the closing price on the respective stock exchange (Level 1).
117
Mutual Funds:
Generally, these securities are valued at the closing price reported in the active market in which the individual mutual fund is traded (Level 1).
However, certain funds are valued by the fund administrator using pricing models that considers observable market data (Level 2).The following tables present the balances of the plan assets, by fair value hierarchy level, as of December 31,
20172022 and
2016: | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at December 31, 2017 Using | |
(In thousands) Description | | Balance as of
December 31,
2017 | | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | Significant
Other
Observable
Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | |
Cash and Cash equivalents | | $ | 4,549 | | | $ | 4,549 | | | $ | 0 | | | $ | 0 | |
| | | | |
Fixed Income Mutual Funds: | | | | | | | | | | | | | | | | |
Taxable | | | 30,752 | | | | 30,752 | | | | 0 | | | | 0 | |
Alternative | | | 6,302 | | | | 6,302 | | | | 0 | | | | 0 | |
Equity Securities: | | | | | | | | | | | | | | | | |
Common stock | | | 24,003 | | | | 24,003 | | | | 0 | | | | 0 | |
Equity Mutual Funds: | | | | | | | | | | | | | | | | |
Domestic equity large cap | | | 28,936 | | | | 28,936 | | | | 0 | | | | 0 | |
Domestic equity mid cap | | | 13,108 | | | | 13,108 | | | | 0 | | | | 0 | |
Domestic equity small cap | | | 9,520 | | | | 9,520 | | | | 0 | | | | 0 | |
Domestic equity other | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
International emerging equity | | | 5,264 | | | | 5,264 | | | | 0 | | | | 0 | |
International equity developed | | | 15,752 | | | | 15,752 | | | | 0 | | | | 0 | |
Alternative equity | | | 4,209 | | | | 4,209 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 142,395 | | | $ | 142,395 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at December 31, 2016 Using | |
(In thousands) Description | | Balance as of
December 31,
2016 | | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | Significant
Other
Observable
Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | |
Cash and Cash equivalents | | $ | 1,778 | | | $ | 1,778 | | | $ | 0 | | | $ | 0 | |
| | | | |
Fixed Income Securities: | | | | | | | | | | | | | | | | |
Mortgage backed securities | | | 47 | | | | 0 | | | | 47 | | | | 0 | |
Collateralized mortgage obligations | | | 48 | | | | 0 | | | | 48 | | | | 0 | |
Municipal obligations | | | 670 | | | | 0 | | | | 670 | | | | 0 | |
Corporate bonds | | | 1,169 | | | | 0 | | | | 1,169 | | | | 0 | |
Foreign bonds, notes and debentures | | | 96 | | | | 0 | | | | 96 | | | | 0 | |
| | | | |
Fixed Income Mutual Funds: | | | | | | | | | | | | | | | | |
Taxable | | | 26,816 | | | | 26,816 | | | | 0 | | | | 0 | |
Alternative | | | 3,898 | | | | 3,898 | | | | 0 | | | | 0 | |
| | | | |
Equity Securities: | | | | | | | | | | | | | | | | |
Common stock | | | 20,629 | | | | 20,629 | | | | 0 | | | | 0 | |
Equity Mutual Funds: | | | | | | | | | | | | | | | | |
Domestic equity large cap | | | 23,063 | | | | 23,063 | | | | 0 | | | | 0 | |
Domestic equity mid cap | | | 6,457 | | | | 6,457 | | | | 0 | | | | 0 | |
Domestic equity small cap | | | 13,087 | | | | 13,087 | | | | 0 | | | | 0 | |
Domestic equity other | | | 910 | | | | 910 | | | | 0 | | | | 0 | |
International emerging equity | | | 3,120 | | | | 3,120 | | | | 0 | | | | 0 | |
International equity developed | | | 12,619 | | | | 12,619 | | | | 0 | | | | 0 | |
Alternative equity | | | 3,456 | | | | 3,456 | | | | 0 | | | | 0 | |
Domestic Balanced Mutual Funds | | | 1,848 | | | | 1,848 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 119,711 | | | $ | 117,681 | | | $ | 2,030 | | | $ | 0 | |
| | | | | | | | | | | | | | | | |
2021:
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at December 31, 2022 Using | |
| |
| | |
| | |
| | |
| |
| Cash and Cash equivalents | | $ | 3,384 | | | $ | 3,384 | | | $ | 0 | | | $ | 0 | |
| | | | | |
| Fixed Income Debt Securities: | | | | | | | | | | | | | | | | |
| U.S. Government and agencies | | | 3,882 | | | | 3,882 | | | | | | | | | |
| | | | | |
| Fixed Income Mutual Funds: | | | | | | | | | | | | | | | | |
| General | | | 49,107 | | | | 49,107 | | | | 0 | | | | 0 | |
| | | | | |
| Equity Securities: | | | | | | | | | | | | | | | | |
| Common stock | | | 28,765 | | | | 28,765 | | | | 0 | | | | 0 | |
| | | | | |
| Equity Mutual Funds: | | | | | | | | | | | | | | | | |
| Global equity | | | 1,953 | | | | 1,953 | | | | 0 | | | | 0 | |
| Domestic equity large cap | | | 35,738 | | | | 35,738 | | | | 0 | | | | 0 | |
| Domestic equity small cap | | | 15,750 | | | | 15,750 | | | | 0 | | | | 0 | |
| Alternative equity | | | 8,277 | | | | 8,277 | | | | | | | | | |
| International emerging equity | | | 4,925 | | | | 4,925 | | | | 0 | | | | 0 | |
| International equity developed | | | 13,539 | | | | 13,539 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 165,320 | | | $ | 165,320 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at December 31, 2021 Using | |
| |
| | |
| | |
| | |
| |
| Cash and Cash equivalents | | $ | 1,641 | | | $ | 1,641 | | | $ | 0 | | | $ | 0 | |
| Fixed Income Mutual Funds: | | | | | | | | | | | | | | | | |
| General | | | 72,075 | | | | 72,075 | | | | 0 | | | | 0 | |
| Equity Securities: | | | | | | | | | | | | | | | | |
| | | | | |
| Common stock | | | 34,198 | | | | 34,198 | | | | 0 | | | | 0 | |
| Equity Mutual Funds: | | | | | | | | | | | | | | | | |
| Global equity | | | 5,407 | | | | 5,407 | | | | 0 | | | | 0 | |
| Domestic equity large cap | | | 47,387 | | | | 47,387 | | | | 0 | | | | 0 | |
| Domestic equity small cap | | | 30,176 | | | | 30,176 | | | | 0 | | | | 0 | |
| International emerging equity | | | 5,435 | | | | 5,435 | | | | 0 | | | | 0 | |
| International equity developed | | | 13,885 | | | | 13,885 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 210,204 | | | $ | 210,204 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | |
Common stock investments are diversified amongst various industries with no industry representing more than 5% of the total plan assets.
The United Bankshares, Inc. Savings and Stock Investment Plan (the Plan) is a defined contribution plan under Section 401(k) of the Internal Revenue Code. Each employee of United, who completes ninety (90) days of qualified service, is eligible to participate in the Plan. Each participant may contribute from 1% to 100% of compensation to his/her account, subject to Internal Revenue Service maximum deferral limits. United matches 100% of the first
4%5% of salary deferred with United
stock.stock, subject to certain imposed limitations. Vesting is 100% for employee deferrals and the company match at the time the employee makes his/her deferral. United’s expense relating to the Plan approximated
$3,201,000, $2,069,000,$8,242,000, $7,984,000, and
$1,894,000$6,531,000 in
2017, 20162022, 2021 and
2015,2020, respectively.
The assets of United’s defined benefit plan and 401(k) Plan each include investments in United common stock. At December 31,
20172022 and
2016,2021, the combined plan assets included
998,0411,662,179 and
893,4401,578,389 shares, respectively, of United common stock with an approximate fair value of
$34,682,000$67,302,000 and
$41,322,000,$57,264,000, respectively. Dividends paid on United common stock held by the plans approximated
$1,218,000, $1,173,000,$2,340,000, $2,060,000, and
$1,139,000$1,776,000 for the years ended December 31,
2017, 2016,2022, 2021, and
2015,2020, respectively.
United has certain other supplemental deferred compensation plans covering various key employees. Periodic charges are made to operations so that the liability due each employee is fully recorded as of the date of their retirement. Amounts charged to expense have not been significant in any year.
NOTE
O—Q—STOCK BASED COMPENSATION
On May
18, 2016,12, 2020, United’s shareholders approved the
20162020 Long-Term Incentive Plan
(2016(“2020 LTI
Plan)Plan”). The
20162020 LTI Plan became effective
as of May
18, 2016.13, 2020. An award granted under the
20162020 LTI Plan may consist of any
non-qualified
stock options or incentive stock options, stock appreciation rights (SARs)(“SARs”), restricted stock, restricted stock units, performance units or other-stock-based award. These awards all relate to the common stock of United. The maximum number of shares of United common stock which may be issued under the 20162020 LTI Plan is 1,700,000.2,300,000. The 20162020 LTI Plan will be administered by a board committee appointed by United’s Board of Directors (the Board)“Board”). Unless otherwise determined by the Board, the Compensation Committee of the Board (the Committee)“Committee”) shall administer the 20162020 LTI Plan. Any and all shares may be issued in respect of any of the types of Awards, provided that (1) the aggregate number of shares that may be issued in respect of restricted stock awards, and restricted stock unit awards which are settled in shares is 500,000, and (2) the aggregate number of shares that may be issued pursuant to stock options is 1,200,000. The shares to be offered under the 2016 LTI Plan may be authorized and unissued shares or treasury shares. The maximum number of options and SARs,stock appreciation rights, in the aggregate, which may be awarded to any individual key employee during any calendar year is 100,000. The maximum number of stock options and SARs,stock appreciation rights, in the aggregate, which may be awarded to anynon-employee
director during any calendar year is 10,000.10,000 or, if such Award is payable in cash, the Fair Market Value equivalent thereof. The maximum number of shares of restricted stock or shares subject to a restricted stock units award that may be granted during any calendar year is 50,000225,000 shares to any individual key employee and 5,00010,000 shares to any individualnon-employee
director. Subject to certain change in control provisions, the 20162020 LTI Plan provides that all awards of restricted stock and restricted stock units will vest as the Committee determines in the award agreement, provided that no awards will vest sooner than 1/3 per year over the first three anniversaries of the award. Awards grantedUnited adopted a clawback policy that applies to named executive officers ofand other executive officers and permits the Committee to cancel certain awards and to recoup gains realized from previous awards should United typically will havebe required to prepare an accounting restatement due to materially inaccurate performance based vesting conditions.metrics. A FormS-8
was filed on JulyMay 29, 20162020 with the Securities and Exchange Commission to register all the shares which were available for the 20162020 LTI Plan.The 20162020 LTI Plan replaces the 2011 Long-Term Incentive Plan (20112016 LTI Plan) which expired during the second quarter of 2016. Plan.
During the year of
2017,2022, a total of
255,217non-qualified stock options and 90,075156,988 shares of restricted stock
and 147,511 of restricted stock units were granted under the
20162020 LTI Plan.
A total of 967,285 Nonon-qualified
stock options
and 289,637 restricted shares of common stock were granted under the
20112020 LTI
Plan.Plan during the year of 2022. Compensation expense of
$3,555,000, $2,817,000,$9,881,000, $8,018,000, and
$2,484,000$5,980,000 related to
the nonvestedall share-based grants and awards under United’s Long-Term Incentive Plans was incurred for the years
2017, 20162022, 2021 and
2015,2020, respectively. Compensation expense was included in employee compensation in the Consolidated Statements of Income.
United currently has options outstanding from various option plans other than the
20112020 LTI Plan (the
Prior Plans)“Prior Plans”); however, no common shares of United stock are available for grants under the Prior Plans as these plans have expired. Awards outstanding under the Prior Plans will remain in effect in accordance with their respective terms. The maximum term for options granted under the plans is ten (10) years.
The fair value
119
A summary of activity under the United’s stock option plans as of December 31,
2017,2022, and the changes during the year of
20172022 are presented below:
| | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2017 | |
| | | | | | | | | Weighted Average | |
| (Dollars in thousands, except per share data) | | | | | Aggregate | | | Remaining | | | | |
| | | | | | Intrinsic | | | Contractual | | | Exercise | |
| | | Shares | | | Value | | | Term (Yrs.) | | | Price | |
Outstanding at January 1, 2017 | | | 1,411,735 | | | | | | | | | | | $ | 28.05 | |
Assumed in acquisition of subsidiary | | | 153,602 | | | | | | | | | | | | 21.47 | |
Granted | | | 255,217 | | | | | | | | | | | | 45.20 | |
Exercised | | | (220,905 | ) | | | | | | | | | | | 22.00 | |
Forfeited or expired | | | (41,211 | ) | | | | | | | | | | | 27.38 | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2017 | | | 1,558,438 | | | $ | 8,761 | | | | 5.8 | | | $ | 31.09 | |
| | | | | | | | | | | | | | | | |
| | | | |
Exercisable at December 31, 2017 | | | 1,050,567 | | | $ | 8,528 | | | | 4.6 | | | $ | 26.86 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2022 | |
| | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Outstanding at January 1, 2022 | | | 2,149,117 | | | | | | | | | | | $ | 32.01 | |
| Exercised | | | (484,682 | ) | | | | | | | | | | | 25.16 | |
| Forfeited or expired | | | (163,223 | ) | | | | | | | | | | | 27.88 | |
| | | | | | | | | | | | | | | | | |
| Outstanding at December 31, 2022 | | | 1,501,212 | | | $ | 9,911 | | | | 4.5 | | | $ | 34.64 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Exercisable at December 31, 2022 | | | 1,330,320 | | | $ | 8,890 | | | | 4.2 | | | $ | 34.66 | |
| | | | | | | | | | | | | | | | | |
The following table summarizes the status of United’s nonvested awards for the year ended December 31,
2017: | | | | | | |
| | | Shares | | | Weighted-Average
Grant Date Fair Value
Per Share |
Nonvested at January 1, 2017 | | | 430,278 | | | $ 6.84 |
Granted | | | 255,217 | | | 8.85 |
Vested | | | (174,624 | ) | | 6.69 |
Forfeited or expired | | | (3,000 | ) | | 8.85 |
| | | | | | |
Nonvested at December 31, 2017 | | | 507,871 | | | $ 7.89 |
| | | | | | |
2022:
| | | | | | |
| | | | | | Weighted-Average
Grant Date Fair Value
Per Share |
| Nonvested at January 1, 2022 | | | 395,034 | | | $ 7.33 |
| Vested | | | (215,926 | ) | | 8.11 |
| Forfeited or expired | | | (8,216 | ) | | 11.06 |
| | | | | | | |
| Nonvested at December 31, 2022 | | | 170,892 | | | $ 6.16 |
| | | | | | | |
As of December 31,
2017,2022, the total unrecognized compensation cost related to nonvested option awards was
$2,597,000$410,000 with a weighted-average expense recognition period of
1.20.5 years. The total fair value of awards vested during the year ended December 31,
2017,2022, was
$1,168,000.$1,751,000.
Cash received from options exercised under the Plans for the years ended December 31,
2017, 20162022, 2021 and
20152020 was
$4,619,000, $13,337,000,$10,295,000, $5,206,000, and
$7,871,000,$1,241,000, respectively. During
20172022 and
2016, 220,9052021, 484,682 and
519,482232,777 shares, respectively, were issued in connection with stock option exercises. All shares issued in connection with stock option exercises for
20172022 and
20162021 were issued from authorized and unissued stock.
No options were granted in 2022. The weighted-average grant-date fair value of options granted in the year of
2017, 2016,2021 and
20152020 was
$8.85, $6.97,$5.83 and
$7.23,$5.65, respectively. The total intrinsic value of options exercised under the Plans during the years ended December 31,
2017, 2016,2022, 2021, and
20152020 was
$3,721,000, $11,001,000,$6,325,000, $2,337,000, and
$2,380,000,$1,917,000, respectively.
ASC
topicTopic 230, “Statement of Cash Flows,” requires the benefits of tax deductions in excess of recognized compensation cost to be reported as an operating cash flow. This requirement reduces net operating cash flows. While the company cannot estimate what those amounts will be in the future (because they depend on, among other things, the date employees exercise stock options), United recognized cash flows used in operating activities of
$2,201,000, $4,008,000,$1,040,000, $303,000, and
$1,023,000$351,000 from excess tax benefits related to share-based compensation arrangements for the year of
2017, 20162022, 2021 and
2015,2020, respectively.
Under the
20112020 LTI Plan, United may award restricted common shares to key employees and
non-employee
directors. Restricted shares granted to participants have a four-year time-based vesting period. Recipientswill vest no sooner than 1/3 per year over the first three anniversaries of the award. Unless determined by the Committee or the Board and provided in the award agreement, recipients of restricted shares do not pay any consideration to United for the shares, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have vested. Presently, these nonvested participating securities have an immaterial impact on diluted earnings per share. As of December 31, 2017,2022, the total unrecognized compensation cost related to nonvested restricted stock awards was $4,297,000$7,566,000 with a weighted-average expense recognition period of 1.30.8 years.
The following summarizes the changes to United’s restricted common shares for the year ended December 31,
2017: | | | | | | |
| | | Number of
Shares | | | Weighted-Average
Grant Date Fair Value
Per Share |
Outstanding at January 1, 2017 | | | 137,268 | | | $ 33.61 |
Granted | | | 90,075 | | | 45.21 |
Vested | | | 56,007 | | | 32.48 |
Forfeited | | | 840 | | | 45.30 |
| | | | | | |
Outstanding at December 31, 2017 | | | 170,496 | | | $ 40.05 |
| | | | | | |
2022:
| | | | | | |
| | | | | |
|
| Outstanding at January 1, 2022 | | | 383,971 | | | $ 35.21 |
| Granted | | | 156,988 | | | 36.23 |
| Vested | | | (158,668 | ) | | 35.67 |
| Forfeited | | | (9,071 | ) | | 35.98 |
| | | | | | | |
| Outstanding at December 31, 2022 | | | 373,220 | | | $ 35.43 |
| | | | | | | |
Under the 2020 LTI Plan, United may grant restricted stock units (“RSUs”) to key employees. These awards help align the interests of these employees with the interests of the shareholders of United by providing economic value directly related to the performance of the Company. These RSU grants could be time-vested RSUs, performance-vested RSUs, or a combination of both. Currently, time-vested RSUs vest ratably over three years from the date of grant. Performance-vested RSUs cliff-vest after assessment of the Company’s performance over a period of three years. The number of performance-vested RSUs that vest is determined by two metrics measured relative to peers: Return on Average Tangible Common Equity (“ROATCE”) and Total Shareholder Return (“TSR”). Based on ASC Topic 718, the ROATCE comparison is considered a performance condition while the TSR comparison is considered a market condition. There will be no payout of the performance-vested awards if the threshold performance is not achieved. United communicates the specific threshold, target, and maximum performance-vested RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Dividends are accrued but not paid in respect to the awards until the RSUs vest. The holder does not have the right to vote the shares during the time and performance periods. The value of the time-vested RSUs and the performance-vested, based on the performance condition, RSUs awarded is established as the fair market value of the stock at the time of the grant. The value of the performance-vested, based on the market condition, RSUs awarded is estimated through the use of a Monte Carlo valuation model as of the grant date. The Company recognizes expense on the RSUs in accordance with ASC Topic 718.
The following table summarizes the status of United’s nonvested RSUs during the year ended December 31, 2022:
| | | | | | |
| | | | | | Weighted-Average
Grant Date Fair Value
Per Share |
| Nonvested at January 1, 2022 | | | 136,896 | | | $ 35.65 |
| Granted | | | 147,511 | | | 35.46 |
| Vested | | | (18,248 | ) | | 37.05 |
| | | | | | | |
| Nonvested at December 31, 2022 | | | 266,159 | | | $ 35.45 |
| | | | | | | |
As of December 31, 2022, the total unrecognized compensation cost related to nonvested restricted stock units was $5,259,000 with a weighted-average expense recognition period of 0.9 years.
NOTE
P—R—COMMITMENTS AND CONTINGENT LIABILITIES
Lending-related Commitments
United is a party to financial instruments with
off-balance-sheet
risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, and interest rate swap agreements. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for
on-balance
sheet instruments. Collateral may be obtained, if deemed necessary, based on management’s credit evaluation of the counterparty.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily, and historically do not, represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation of the counterparty. United had approximately
$4,224,719,000$7,250,155,000 and
$2,823,396,000$7,419,342,000 of loan commitments outstanding as of December 31,
20172022 and
2016,December 31, 2021, respectively,
the majorityapproximately 34% of which contractually expire within one year.
IncludedExcluded in the December 31,
2017 amount2022 and December 31, 2021 amounts above are commitments to extend credit of
$229,630,000$719,841,000 and $571,792,000, respectively, related to
George Mason’s mortgage loan funding commitments
of United’s mortgage banking segment and are of a
shot-termshort-term nature.
Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. A commercial letter of credit is issued specifically to facilitate trade or commerce. Typically, under the terms of a commercial letter of credit, a commitment is drawn upon when the underlying transaction is consummated as intended between the customer and a third party. As of December 31,
2017,2022 and December 31, 2021, United had
no outstanding$16,389,000 and $14,774,000 of commercial letters of credit
and $9,000 as of December 31, 2016.outstanding. A standby letter of credit is generally contingent upon the failure of a customer to perform according to the terms of an underlying contract with a third party. United has issued standby letters of credit of
$147,017,000$147,511,000 and
$121,584,000$164,743,000 as of December 31,
20172022 and
2016,December 31, 2021, respectively. In accordance with
ASC topic 450, “Contingencies,”the Contingencies Topic of the FASB Accounting Standards Codification, United has determined that substantially all of its letters of credit are renewed on an annual basis and the fees associated with these letters of credit are immaterial.
George Mason
United’s mortgage banking segment provides for its estimated exposure to repurchase loans previously sold to investors for which borrowers failed to provide full and accurate information on their loan application or for which appraisals have not been acceptable or where the loan was not underwritten in accordance with the loan program specified by the loan investor, and for other
exposure to its investors related to loan sales activities. United evaluates the merits of each claim and estimates its reserve based on actual and expected claims received and considers the historical amounts paid to settle such claims. During 2017, George Mason settled with investors on such loans forUnited’s mortgage banking segment has a totalreserve of $59,000. This reserve had a balance$1,081,000 and $1,150,000 as of $516,000 for the year ended December 31, 2017. No expense related to this reserve was recorded for the year ended December 31, 2017. George Mason had a reserve balance of $575,000 on the Cardinal Acquisition Date.
2022 and 2021, respectively.
United has derivative counter-party risk that may arise from the possible inability of
George Mason’sUnited’s mortgage banking segment’s third party investors to meet the terms of their forward sales contracts.
George MasonUnited’s mortgage banking segment works with third-party investors that are generally well-capitalized, are investment grade and exhibit strong financial performance to mitigate this risk. United does not expect any third-party investor to fail to meet its obligation.
United and its subsidiaries are currently involved in various legal proceedings in the normal course of business.
On at least a quarterly basis, United assesses its liabilities and contingencies in connection with all pending or threatened claims and litigation, utilizing the most recent information available. On abasis, an accrual for loss is established for those matters which United believes it is probable that a loss may be incurred and that the amount of such loss can be reasonably estimated. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments. Accordingly, management’s estimate will change from time to time, and actual losses may be more or less than the current estimate. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established.At September 30, 2022, United accrued a $5,000,000 estimated liability related to a litigation matter with a former commercial customer. This accrual was based upon available information at that time and was subject to adjustment to reflect any subsequent developments. During the fourth quarter of 2022, the litigation was settled resulting in a reduction of $3,905,000 in the estimated liability related to this matter.
Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United’s financial
position.statements.
122
A variety of consumer products, including mortgage and deposit products, and certain fees and charges related to such products, have come under increased regulatory scrutiny. It is possible that regulatory authorities could bring enforcement actions, including civil money penalties, or take other actions against United in regard to these consumer products. United could also determine of its own accord, or be required by regulators, to refund or otherwise make remediation payments to customers in connection with these products. It is not possible at this time for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss related to such matters.
NOTE
Q—S—DERIVATIVE FINANCIAL INSTRUMENTS
United uses derivative instruments to help aid against adverse price changes or interest rate movements on the value of certain assets or liabilities and on future cash flows. These derivatives may consist of interest rate swaps, caps, floors, collars, futures, forward contracts, written and purchased options. United also executes derivative instruments with its commercial banking customers to facilitate its risk management strategies.
During 2020, United
accounts for its derivative financial instrumentsentered into two interest rate swap derivatives designated as cash flow hedges. The notional amount of these cash flow hedge derivatives totaled $500,000,000. The derivatives are intended to hedge the changes in
accordancecash flows associated with
the Derivatives and Hedging topicfloating rate FHLB borrowings. As of
the FASB Accounting Standards Codification. The Derivatives and Hedging topic require all derivative instruments to be carried at fair value on the balance sheet.December 31, 2022, United has
designated certain derivative instruments useddetermined that no forecasted transactions related to
manageits cash flow hedges resulted in gains or losses pertaining to cash flow hedge reclassification from AOCI to income because the forecasted transactions became probable of not occurring. United estimates that $22,043,000 will be reclassified from AOCI as a decrease to interest
rate risk as hedge relationships with certain assets, liabilities orexpense over the next12-months
following December 31, 2022 related to the cash
flows being hedged. Certain derivatives used for interest rate risk management are not designated in a hedge relationship.Derivative instruments designated in a hedge relationship to mitigate exposure to changes inflow hedges. As of December 31, 2022, the fair valuemaximum length of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types oftime over which forecasted transactions are consideredhedged is eight years.
United is subject to the Dodd-Frank Act clearing requirement for eligible derivatives. United has executed and cleared eligible derivatives through the London Clearing House (“LCH”). Variation margin at the LCH is distinguished asand settled daily based on the prior day value, rather thancollateralized-to-market.
cash flow
hedges.Forhedges cleared through the LCH include $500,000,000 for asset derivatives as of December 31, 2022. Balances related to LCH are presented as a fair value hedge,single unit of account with the fair value of the designated cash flow interest rate swap is recognized onasset being reduced by variation margin posted by (with) the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changesapplicable counterparty and reported in the following table on a net basis. The related fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to other comprehensive income, net of tax. The portion of a hedge that is ineffective is recognized immediately in earnings.
At inception of a hedge relationship, United formally documents the hedged item, the particular risk management objective, the nature of the risk being hedged, the derivative being used, how effectiveness of the hedge will be assessed and how the ineffectiveness of the hedge will be measured. United also assesses hedge effectiveness at inception and on an ongoing basis using regression analysis. Hedge ineffectiveness is measured by using the change in fair value method. The change in fair value method compares the change in the fair value of the hedging derivative to the change in the fair value of the hedged exposure, attributable to changes in the benchmark rate. The portion of a hedge that is ineffective is recognized immediately in earnings.
United through George Mason enters into interest rate lock commitments to finance residential mortgage loans with its customers. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by United. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Market risk on interest rate lock commitments and mortgage loans held for sale is managed using corresponding forward mortgage loan sales contracts. United is a party to these forward mortgage loan sales
contracts to sell loans servicing released and short sales of mortgage-backed securities. When the interest rate is locked with the borrower, the rate lock commitment, forward sale agreement, and mortgage-backed security position are undesignated derivatives and marked to fair value through earnings. The fair value of the rate lock derivative includes the servicing premium and the interest spread for the difference between retail and wholesale mortgage rates. Income from mortgage banking activities includes the gain recognized for the period presented and associated elements of fair value.
United sells mortgage loans on either a best efforts or mandatory delivery basis. For loans sold on a mandatory deliverynet basis United enters into forward mortgage-backed securities (the “residual hedge”) to mitigate the effect of interest rate risk. Both the rate lock commitment under mandatory delivery and the residual hedge are recorded at fair value through earnings and are not designated as accounting hedges. At the closing of the loan, the loan commitment derivative expires and United records a loan held for sale at fair value and continues to mark these assets to market under the election of fair value option. United closes out of the trading mortgage-backed securities assigned within the residual hedge and replaces the securities with a forward sales contract once a price has been accepted by an investor and recorded at fair value. For those loans selected to be sold under best efforts delivery, at the closing of the loan, the rate lock commitment derivative expires and the Company records a loan held for sale at fair value under the election of fair value option and continues to be obligated under the same forward loan sales contract entered into at inception of the rate lock commitment.
The derivative portfolio also includes derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. For derivatives that are not designated in a hedge relationship, changes in the fair value of the derivatives are recognized in earnings in the same period as the change in fair value. Gains and losses on other derivative financial instruments are included in noninterest income and noninterest expense, respectively.
approximates zero.
The following tables disclose the derivative instruments’ location on the Company’s Consolidated Balance Sheets and the notional amount and fair value of those instruments at December 31,
20172022 and
2016. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Asset Derivatives | |
| | | December 31, 2017 | | | December 31, 2016 | |
| (In thousands) | | Balance
Sheet
Location | | | Notional
Amount | | | Fair
Value | | | Balance
Sheet
Location | | | Notional
Amount | | | Fair
Value | |
| Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swap contracts (hedging commercial loans) | | | Other assets | | | $ | 71,831 | | | $ | 538 | | | | Other assets | | | $ | 74,783 | | | $ | 24 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total derivatives designated as hedging instruments | | | | | | $ | 71,831 | | | $ | 538 | | | | | | | $ | 74,783 | | | $ | 24 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swap contracts | | | Other assets | | | $ | 0 | | | $ | 0 | | | | Other assets | | | $ | 14,583 | | | $ | 2,267 | |
Forward loan sales commitments | | | Other assets | | | | 31,024 | | | | 2 | | | | Other assets | | | | 0 | | | | 0 | |
Interest rate lock commitments | | | Other assets | | | | 148,866 | | | | 4,559 | | | | Other assets | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total derivatives not designated as hedging instruments | | | | | | $ | 179,890 | | | $ | 4,561 | | | | | | | $ | 14,583 | | | $ | 2,267 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total asset derivatives | | | | | | $ | 251,721 | | | $ | 5,099 | | | | | | | $ | 89,366 | | | $ | 2,291 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Liability Derivatives | |
| | | December 31, 2017 | | | December 31, 2016 | |
| (In thousands) | | Balance
Sheet
Location | | | Notional
Amount | | | Fair
Value | | | Balance
Sheet
Location | | | Notional
Amount | | | Fair
Value | |
| Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swap contracts (hedging commercial loans) | | | Other liabilities | | | $ | 18,795 | | | $ | 165 | | | | Other liabilities | | | $ | 19,799 | | | $ | 338 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | | | | $ | 18,795 | | | $ | 165 | | | | | | | $ | 19,799 | | | $ | 338 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swap contracts | | | Other liabilities | | | $ | 0 | | | $ | 0 | | | | Other liabilities | | | $ | 14,583 | | | $ | 2,267 | |
TBA mortgage-backed securities | | | Other liabilities | | | | 236,500 | | | | 312 | | | | Other liabilities | | | | 0 | | | | 0 | |
Interest rate lock commitments | | | Other liabilities | | | | 0 | | | | 0 | | | | Other liabilities | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | | | | $ | 236,500 | | | $ | 312 | | | | | | | $ | 14,583 | | | $ | 2,267 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total liability derivatives | | | | | | $ | 255,295 | | | $ | 477 | | | | | | | $ | 34,382 | | | $ | 2,605 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate swap contracts (hedging commercial loans) | | | Other assets | | | $ | 55,073 | | | $ | 4,038 | | | | Other assets | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 55,073 | | | $ | 4,038 | | | | | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate swap contracts (hedging FHLB borrowings) | | | Other assets | | | $ | 500,000 | | | $ | 0 | | | | Other assets | | | $ | 500,000 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 500,000 | | | $ | 0 | | | | | | | $ | 500,000 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | | | | $ | 555,073 | | | $ | 4,038 | | | | | | | $ | 500,000 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward loan sales commitments | | | Other assets | | | $ | 15,475 | | | $ | 220 | | | | Other assets | | | $ | 33,349 | | | $ | 430 | |
| TBA mortgage-backed securities | | | Other assets | | | | 22,649 | | | | 146 | | | | Other assets | | | | 133,747 | | | | 127 | |
| Interest rate lock commitments | | | Other assets | | | | 73,412 | | | | 1,146 | | | | Other assets | | | | 467,472 | | | | 10,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | | | | $ | 111,536 | | | $ | 1,512 | | | | | | | $ | 634,568 | | | $ | 10,937 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total asset derivatives | | | | | | $ | 666,609 | | | $ | 5,550 | | | | | | | $ | 1,134,568 | | | $ | 10,937 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
123
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate swap contracts (hedging commercial loans) | | | Other liabilities | | | $ | 0 | | | $ | 0 | | | | Other liabilities | | | $ | 72,447 | | | $ | 3,197 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 0 | | | $ | 0 | | | | | | | $ | 72,447 | | | $ | 3,197 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | | | | $ | 0 | | | $ | 0 | | | | | | | $ | 72,447 | | | $ | 3,197 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward loan sales commitments | | | Other liabilities | | | $ | 0 | | | $ | 0 | | | | Other liabilities | | | $ | 15,005 | | | $ | 36 | |
| TBA mortgage-backed securities | | | Other liabilities | | | | 63,000 | | | | 213 | | | | Other liabilities | | | | 550,000 | | | | 470 | |
| Interest rate lock commitments | | | Other liabilities | | | | 48,949 | | | | 348 | | | | Other liabilities | | | | 24,743 | | | | 25 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | | | | $ | 111,949 | | | $ | 561 | | | | | | | $ | 589,748 | | | $ | 531 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liability derivatives | | | | | | $ | 111,949 | | | $ | 561 | | | | | | | $ | 662,195 | | | $ | 3,728 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The following table represents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value accounting relationship as of December 31, 2022 and December 31, 2021.
| | | | | | | | | | | | | | |
| | | | | | |
Derivatives in Fair Value
Hedging Relationships | | Location in the Statement
of Condition | | Carrying Amount
of the Hedged
Assets/(Liabilities) | | |
Amount of the Hedged
Assets/(Liabilities) | | |
Adjustment Remaining for
any Hedged Assets/
| |
| Interest rate swaps | | Loans, net of unearned income | | $ | 55,770 | | | $ | (3,069) | | | $ | 0 | |
| | | | | | | | | | | | | | |
| | | | | | |
Derivatives in Fair Value | | Location in the Statement
of Condition | | Carrying Amount of
the Hedged
| | | Cumulative Amount
of Fair Value Hedging
Adjustment Included
in the Carrying
Amount of the Hedged
Assets/(Liabilities) | | | Cumulative Amount of
Fair Value Hedging
Adjustment Remaining for
any Hedged Assets/
(Liabilities) for which
Hedge Accounting has
been Discontinued | |
| Interest rate swaps | | Loans, net of unearned income | | $ | 73,232 | | | $ | 3,795 | | | $ | 0 | |
Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. United’s exposure is limited to the replacement value of the contracts rather than the notional amount of the contract. The Company’s agreements generally contain provisions that limit the unsecured exposure up to an agreed upon threshold. Additionally, the Company attempts to minimize credit risk through certain approval processes established by management.
124
The effect of United’s
derivativederivat
ive financial instruments on its Consolidated Statements of Income for the years ended December 31,
2017, 20162022, 2021 and
20152020 is presented as follows:
| | | | | | | | | | | | | | |
| | | | | Year Ended | |
| (In thousands) | | Income Statement Location | | December 31,
2017 | | | December 31,
2016 | | | December 31,
2015 | |
Derivatives in hedging relationships Fair Value Hedges: | | | | | | | | | | | | | | |
Interest rate swap contracts | | Interest income/ (expense) | | $ | (781 | ) | | $ | (30 | ) | | $ | (813 | ) |
| | | | | | | | | | | | | | |
Total derivatives in hedging relationships | | | | $ | (781 | ) | | $ | (30 | ) | | $ | (813 | ) |
| | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | |
Forward loan sales commitments | | Income from Mortgage Banking Activities | | | (426 | ) | | | 0 | | | | 0 | |
TBA mortgage-backed securities | | Income from Mortgage Banking Activities | | | 1,547 | | | | 0 | | | | 0 | |
Interest rate lock commitments | | Income from Mortgage Banking Activities | | | (7,730 | ) | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | | $ | (6,609) | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | |
Total derivatives | | | | $ | (7,390) | | | $ | (30) | | | $ | (813) | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | |
Derivatives in hedging relationships | | | | | | | | | | | | | | |
Interest rate swap contracts | | borrowings | | $ | 5,782 | | | $ | (1,354) | | | $ | (578) | |
| | | | | | | | | | | | | | |
| Interest rate swap contracts | | Interest and fees on loans and leases | | $ | (177 | ) | | $ | (1,744) | | | $ | (1,414) | |
| | | | | | | | | | | | | | | |
Total derivatives in hedging relationships | | | | $ | 5,605 | | | $ | (3,098) | | | $ | (1,992) | |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | |
| Forward loan sales commitments | | Income from Mortgage Banking Activities | | | (174 | ) | | | (1,187 | ) | | | (725 | ) |
| TBA mortgage-backed securities | | Income from Mortgage Banking Activities | | | 276 | | | | 5,932 | | | | (3,825 | ) |
| Interest rate lock commitments | | Income from Mortgage Banking Activities | | | (8,373 | ) | | | (22,219 | ) | | | 21,299 | |
| | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | $ | (8,271 | ) | | $ | (17,474 | ) | | $ | 16,749 | |
| | | | | | | | | | | | | | | |
| Total derivatives | | $ | (2,666 | ) | | $ | (20,572 | ) | | $ | 14,757 | |
| | | | | | | | | | | | | |
For the years ended December 31,
2017, 20162022, 2021 and
2015,2020, changes in the fair value of any interest rate swaps attributed to hedge ineffectiveness were recorded, but not significant to United’s Consolidated Statements of Income.
NOTE
R—T—COMPREHENSIVE INCOME
The changes in accumulated other comprehensive income are as follows:
| | | | | | | | | | | | |
| | | For the Years Ended December 31 | |
| (In thousands) | | 2017 | | | 2016 | | | 2015 | |
Net Income | | $ | 150,581 | | | $ | 147,083 | | | $ | 137,959 | |
Available for sale (“AFS”) securities: | | | | | | | | | | | | |
AFS securities with OTTI charges during the period | | | (60) | | | | (77) | | | | (113) | |
Related income tax effect | | | 22 | | | | 28 | | | | 41 | |
Income tax rate change | | | 0 | | | | 208 | | | | 316 | |
Less : OTTI charges recognized in net income | | | 60 | | | | 33 | | | | 47 | |
Related income tax benefit | | | (22) | | | | (12) | | | | (17) | |
Reclassification of previous noncredit OTTI to credit OTTI | | | 0 | | | | 415 | | | | 0 | |
Related income tax benefit | | | 0 | | | | (150) | | | | 0 | |
| | | | | | | | | | | | |
Net unrealized gains on AFS securities with OTTI | | | 0 | | | | 445 | | | | 274 | |
AFS securities – all other: | | | | | | | | | | | | |
Change in net unrealized (losses) gains on AFS securities arising during the period | | | 8,371 | | | | (12,931) | | | | (6,672) | |
Related income tax effect | | | (3,097) | | | | 4,867 | | | | 2,415 | |
Net reclassification adjustment for gains included in net income | | | (1,874) | | | | (255) | | | | (133) | |
Related income tax expense | | | 693 | | | | 92 | | | | 48 | |
| | | | | | | | | | | | |
| | | 4,093 | | | | (8,227 | ) | | | (4,342 | ) |
| | | | | | | | | | | | |
Net effect of AFS securities on other comprehensive income | | | 4,093 | | | | (7,782) | | | | (4,068) | |
| | | |
Held to maturity (“HTM”) securities: | | | | | | | | | | | | |
Accretion on the unrealized loss for securities transferred from AFS to the HTM investment portfolio prior to call or maturity | | | 8 | | | | 9 | | | | 8 | |
Related income tax expense | | | (3) | | | | (3) | | | | (3) | |
| | | | | | | | | | | | |
Net effect of HTM securities on other comprehensive income | | | 5 | | | | 6 | | | | 5 | |
| | | |
Defined benefit pension plan: | | | | | | | | | | | | |
Net actuarial loss during the period | | | (6,784) | | | | (2,914) | | | | (2,402) | |
Related income tax expense (benefit) | | | 2,510 | | | | 1,077 | | | | 944 | |
Amortization of prior service cost recognized in net income | | | 0 | | | | 0 | | | | 1 | |
Related income tax benefit | | | 0 | | | | 0 | | | | 0 | |
Amortization of net actuarial loss recognized in net income | | | 4,553 | | | | 4,921 | | | | 4,980 | |
Related income tax benefit | | | (1,685) | | | | (1,813) | | | | (1,908) | |
| | | | | | | | | | | | |
Net effect of change in defined benefit pension plan on other comprehensive income | | | (1,406) | | | | 1,271 | | | | 1,615 | |
| | | | | | | | | | | | |
Total change in other comprehensive income, net of tax | | | 2,692 | | | | (6,505 | ) | | | (2,448 | ) |
| | | | | | | | | | | | |
Total Comprehensive Income | | $ | 153,273 | | | $ | 140,578 | | | $ | 135,511 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | For the Years Ended December 31 | |
| | | | | | | | | |
| | | | | | | | | | | | |
| Available for sale (“AFS”) securities: | | | | | | | | | | | | |
| Change in net unrealized gains (losses) on AFS securities arising during the period | | | (481,007 | ) | | | (72,257 | ) | | | 77,142 | |
| Related income tax effect | | | 112,075 | | | | 16,836 | | | | (17,974 | ) |
| Net reclassification adjustment for (gains) losses included in net income | | | (2 | ) | | | (1,552 | ) | | | (2,502 | ) |
| Related income tax effect | | | 0 | | | | 362 | | | | 583 | |
| | | | | | | | | | | | | |
| | | | (368,934 | ) | | | (56,611 | ) | | | 57,249 | |
| | | | | | | | | | | | | |
Net effect of AFS securities on other comprehensive income | | | | | | | | | | | | |
| Cash flow hedge derivatives: | | | | | | | | | | | | |
| Unrealized gain on cash flow hedge before reclassification to interest expense | | | 53,572 | | | | 15,597 | | | | 3,800 | |
| Related income tax effect | | | (12,482 | ) | | | (3,634 | ) | | | (885 | ) |
| Net reclassification adjustment for (gains) losses included in net income | | | (5,782 | ) | | | 1,354 | | | | 578 | |
| Related income tax effect | | | 1,347 | | | | (316 | ) | | | (135 | ) |
| | | | | | | | | | | | | |
Net effect of cash flow hedge derivatives on other comprehensive income | | | | | | | | | | | | |
125
| | | | | | | | | | | | |
| | | For the Years Ended December 31 | |
| | | | | | | | | |
| Defined benefit pension plan: | | | | | | | | | | | | |
| Net actuarial loss during the period | | | 2,195 | | | | 14,286 | | | | (10,583 | ) |
| Related income tax expense | | | (512 | ) | | | (483 | ) | | | 3,263 | |
| Amortization of net actuarial loss recognized in net income | | | 3,645 | | | | 6,770 | | | | 6,050 | |
| Related income tax effect | | | (893 | ) | | | (4,221 | ) | | | (2,098 | ) |
| | | | | | | | | | | | | |
Net effect of change in defined benefit pension plan on other comprehensive income | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total change in other comprehensive income, net of tax | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total Comprehensive Income | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The components of accumulated other comprehensive income for the year ended December 31,
20172022 are as follows:
| | | | | | | | | | | | | | | | |
| Changes in Accumulated Other Comprehensive Income (AOCI) by Component(a) | |
| For the Year Ended December 31, 2017 | |
(Dollars in thousands) | | Unrealized
Gains/
Losses on
AFS
Securities | | | Accretion
on the
unrealized
loss for
securities
transferred
from AFS
to the
HTM | | | Defined
Benefit
Pension
Items | | | Total | |
Balance at January 1, 2017 | | ($ | 10,297 | ) | | ($ | 51 | ) | | ($ | 34,369 | ) | | ($ | 44,717 | ) |
Other comprehensive income before reclassification | | | 5,274 | | | | 5 | | | | 0 | | | | 5,279 | |
Amounts reclassified from accumulated other comprehensive income | | | (1,181 | ) | | | 0 | | | | (1,406 | ) | | | (2,587 | ) |
| | | | | | | | | | | | | | | | |
Net current-period other comprehensive income, net of tax | | | 4,093 | | | | 5 | | | | (1,406 | ) | | | 2,692 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | | ($ | 6,204 | ) | | ($ | 46 | ) | | ($ | 35,775 | ) | | ($ | 42,025 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Changes in Accumulated Other Comprehensive Income (AOCI) by Component (a) For the Year Ended December 31, 2022 | |
| | Unrealized
Gains/
Losses on
AFS
Securities | | | Unrealized
Gains/
Losses on
Cash Flow
Hedges | | |
| | | | |
| Balance at January 1, 2022 | | $ | 8,594 | | | $ | 16,359 | | | $ | (29,841 | ) | | $ | (4,888 | ) |
| Other comprehensive (loss) income before reclassification | | | (368,932 | ) | | | 41,090 | | | | 0 | | | | (327,842 | ) |
| Amounts reclassified from accumulated other comprehensive income | | | (2 | ) | | | (4,435 | ) | | | 4,435 | | | | (2 | ) |
| | | | | | | | | | | | | | | | | |
| Net current-period other comprehensive (loss) income, net of tax | | | (368,934 | ) | | | 36,655 | | | | 4,435 | | | | (327,844 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2022 | | $ | (360,340 | ) | | $ | 53,014 | | | $ | (25,406 | ) | | $ | (332,732 | ) |
| | | | | | | | | | | | | | | | | |
(a)All amounts are
net-of-tax.
| | | | | | | | |
Reclassifications out of Accumulated Other Comprehensive Income (AOCI) For the Year Ended December 31, 2017 | |
(Dollars in thousands) Details about AOCI Components | | Amount
Reclassified
from AOCI | | | Affected Line Item in the Statement Where
Net Income is Presented | |
Available for sale (“AFS”) securities: | | | | | | | | |
Reclassification of previous noncredit OTTI to credit OTTI | | $ | 0 | | | | Total other-than-temporary impairment losses | |
Net reclassification adjustment for losses (gains) included in net income | | | (1,874 | ) | |
| Net gains on sales/calls of investment
securities |
|
| | | | | | | | |
| | | (1,874 | ) | | | Total before tax | |
Related income tax effect | | | 693 | | | | Tax expense | |
| | | | | | | | |
| | | (1,181 | ) | | | Net of tax | |
Pension plan: | | | | | | | | |
Net actuarial loss | | | (6,784 | )(a) | | | | |
Amortization of net actuarial loss | | | 4,553 | (b) | | | | |
| | | | | | | | |
| | | (2,231 | ) | | | Total before tax | |
Related income tax effect | | | 825 | | | | Tax expense | |
| | | | | | | | |
| | | (1,406 | ) | | | Net of tax | |
| | | | | | | | |
Total reclassifications for the period | | $ | (2,587 | ) | | | | |
| | | | | | | | |
|
(a) This AOCI component is included in the computation of changes in plan assets (see Note N, Employee Benefit Plans) | |
(b) This AOCI component is included in the computation of net periodic pension cost (see Note N, Employee Benefit Plans) | |
| | | | | | | | |
Reclassifications out of Accumulated Other Comprehensive Income (AOCI) For the Year Ended December 31, 2022 | |
Details about AOCI Components | | Amount
Reclassified
from AOCI | | | Affected Line Item in the Statement Where
| |
| Available for sale (“AFS”) securities: | | | | | | | | |
| Net reclassification adjustment for gains included in net income | | $ | (2 | ) | | | Net investment securities gains | |
| | | | | | | | | |
| | | | (2 | ) | | | Total before tax | |
| Related income tax effect | | | 0 | | | | Tax expense | |
| | | | | | | | | |
| | | | (2 | ) | | | Net of tax | |
| Cash flow hedge: | | | | | | | | |
| Net reclassification adjustment for gains included in net income | | $ | (5,782 | ) | | | Interest expense | |
| | | | | | | | | |
| | | | (5,782 | ) | | | Total before tax | |
| Related income tax effect | | | 1,347 | | | | Tax expense | |
| | | | | | | | | |
| | | | (4,435 | ) | | | Net of tax | |
| | | | | | | | | |
| Pension plan: | | | | | | | | |
| Recognized net actuarial loss | | | 2,195 | (a) | | | | |
| Amortization of net actuarial loss | | | 3,645 | (b) | | | | |
| | | | | | | | | |
| | | | 5,840 | | | | Total before tax | |
| Related income tax effect | | | (1,405 | ) | | | Tax expense | |
| | | | | | | | | |
| | | | 4,435 | | | | Net of tax | |
| | | | | | | | | |
| Total reclassifications for the period | | $ | (2 | ) | | | | |
| | | | | | | | | |
(a) This AOCI component is included in the computation of changes in plan assets (see Note P, Employee Benefit Plans)
(b) This AOCI component is included in the computation of net periodic pension cost (see Note P, Employee Benefit Plans)
126
NOTE
S—U—UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
| | | | | | | | | | | | |
| Condensed Balance Sheets | | | | | | | | | |
| | | December 31 | | |
| (In thousands) | | 2017 | | | 2016 | | |
Assets | | | | | | | | | |
Cash and due from banks | | $ | 93,198 | | | $ | 130,304 | | |
Securities available for sale | | | 22,066 | | | | 4,881 | | |
Securities held to maturity | | | 996 | | | | 20 | | |
Other investment securities | | | 163 | | | | 100 | | |
Investment in subsidiaries: | | | | | | | | | |
Bank subsidiaries | | | 3,437,036 | | | | 2,372,783 | | |
Nonbank subsidiaries | | | 12,535 | | | | 10,535 | | |
Goodwill | | | (16,008 | ) | | | (10,453 | ) | | | | |
Other assets | | | 10,309 | | | | 15,699 | | | | | |
| | | | | | | | | | | | |
Total Assets | | $ | 3,560,295 | | | $ | 2,523,869 | | | | | |
| | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | |
Junior subordinated debentures of subsidiary trusts | | $ | 242,446 | | | $ | 224,319 | | | | | |
Accrued expenses and other liabilities | | | 77,319 | | | | 63,803 | | | | | |
Shareholders’ equity (including other accumulated comprehensive loss of $42,025 and $44,717 at December 31, 2017 and 2016, respectively) | | | 3,240,530 | | | | 2,235,747 | | | | | |
| | | | | | | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 3,560,295 | | | $ | 2,523,869 | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Condensed Statements of Income | | | | | | | | | |
| | | Year Ended December 31 | |
| (In thousands) | | 2017 | | | 2016 | | | 2015 | |
Income | | | | | | | | | | | | |
Dividends from banking subsidiaries: | | | | | | | | | | | | |
Bank subsidiaries | | $ | 115,000 | | | $ | 75,600 | | | $ | 70,500 | |
Nonbank subsidiaries | | | 58 | | | | 10 | | | | 433 | |
Net interest income | | | 437 | | | | 86 | | | | 76 | |
Management fees: | | | | | | | | | | | | |
Bank subsidiaries | | | 45,693 | | | | 35,792 | | | | 28,955 | |
Nonbank subsidiaries | | | 27 | | | | 27 | | | | 27 | |
Other income | | | 1,766 | | | | 8 | | | | 78 | |
| | | | | | | | | | | | |
Total Income | | | 162,981 | | | | 111,523 | | | | 100,069 | |
| | | | | | | | | | | | |
Expenses | | | | | | | | | | | | |
Operating expenses | | | 71,653 | | | | 42,249 | | | | 31,619 | |
| | | | | | | | | | | | |
Income Before Income Taxes and Equity in Undistributed Net Income of Subsidiaries | | | 91,328 | | | | 69,274 | | | | 68,450 | |
Applicable income tax benefit | | | (6,126 | ) | | | (3,061 | ) | | | (1,655 | ) |
| | | | | | | | | | | | |
Income Before Equity in Undistributed Net Income of Subsidiaries | | | 97,454 | | | | 72,335 | | | | 70,105 | |
Equity in undistributed net income of subsidiaries: | | | | | | | | | | | | |
Bank subsidiaries | | | 50,560 | | | | 74,656 | | | | 68,012 | |
Nonbank subsidiaries | | | 2,567 | | | | 92 | | | | (158 | ) |
| | | | | | | | | | | | |
Net Income | | $ | 150,581 | | | $ | 147,083 | | | $ | 137,959 | |
| | | | | | | | | | | | |
| | | |
| Condensed Statements of Cash Flows | | | | | | | | | |
| | | Year Ended December 31 | |
| (In thousands) | | 2017 | | | 2016 | | | 2015 | |
Operating Activities | | | | | | | | | | | | |
Net income | | $ | 150,581 | | | $ | 147,083 | | | $ | 137,959 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Equity in undistributed net income of subsidiaries | | | (53,127) | | | | (74,748) | | | | (67,854) | |
Amortization of net periodic pension costs | | | 228 | | | | 393 | | | | 384 | |
Stock-based compensation | | | 3,555 | | | | 2,817 | | | | 2,484 | |
Excess tax benefits from stock-based compensation arrangements | | | 2,201 | | | | 4,008 | | | | 1,023 | |
Net gain on securities transactions | | | (1,185) | | | | (8) | | | | (54) | |
Net change in other assets and liabilities | | | 8,764 | | | | (8,344) | | | | 7,420 | |
| | | | | | | | | | | | |
Net Cash Provided by Operating Activities | | | 111,017 | | | | 71,201 | | | | 81,362 | |
| | | | | | | | | | | | |
Investing Activities | | | | | | | | | | | | |
Net purchases of securities | | | (19,268) | | | | (234) | | | | (1,047) | |
Net cash paid in acquisition of subsidiary | | | 22,146 | | | | (10) | | | | 0 | |
Increase in investment in subsidiaries | | | (34,203) | | | | (100,000) | | | | 0 | |
Change in other investment securities | | | (63) | | | | 0 | | | | 2 | |
| | | | | | | | | | | | |
Net Cash Used in Investing Activities | | | (31,388) | | | | (100,244) | | | | (1,045) | |
| | | | | | | | | | | | |
Financing Activities | | | | | | | | | | | | |
Proceeds from issuance of common stock | | | 0 | | | | 199,916 | | | | 0 | |
Cash dividends paid | | | (121,354) | | | | (96,351) | | | | (88,864) | |
Acquisition of treasury stock | | | (1) | | | | (1) | | | | (1) | |
Proceeds from sale of treasury stock from deferred compensation plan | | | 1 | | | | 1 | | | | 1 | |
Proceeds from exercise of stock options | | | 4,619 | | | | 13,337 | | | | 7,871 | |
| | | | | | | | | | | | |
| | | |
Net Cash Provided by (Used in) Financing Activities | | | (116,735) | | | | 116,902 | | | | (80,993) | |
| | | | | | | | | | | | |
| | | |
Increase (Decrease) in Cash and Cash Equivalents | | | (37,106) | | | | 87,859 | | | | (676) | |
| | | |
Cash and Cash Equivalents at Beginning of Year | | | 130,304 | | | | 42,445 | | | | 43,121 | |
| | | | | | | | | | | | |
| | | |
Cash and Cash Equivalents at End of Year | | $ | 93,198 | | | $ | 130,304 | | | $ | 42,445 | |
| | | | | | | | | | | | |
| | | | | | | | |
| | | | | | |
| | | | |
| | | | | | |
| Assets | | | | | | | | |
| Cash and due from banks | | $ | 253,411 | | | $ | 262,067 | |
| Securities available for sale | | | 6,184 | | | | 5,758 | |
| Securities held to maturity | | | 20 | | | | 20 | |
| Equity securities | | | 2,490 | | | | 6,593 | |
| Other investment securities | | | 19,179 | | | | 13,055 | |
| Investment in subsidiaries: | | | | | | | | |
| Bank subsidiaries | | | 4,575,098 | | | | 4,784,480 | |
| Nonbank subsidiaries | | | 43,349 | | | | 33,449 | |
| Goodwill | | | (16,715 | ) | | | (16,715 | ) |
| Other assets | | | 24,993 | | | | 19,471 | |
| | | | | | | | | |
| Total Assets | | $ | 4,908,009 | | | $ | 5,108,158 | |
| | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | |
| Subordinated notes | | $ | 9,892 | | | $ | 9,872 | |
| Junior subordinated debentures of subsidiary trusts | | | 276,989 | | | | 275,323 | |
| Accrued expenses and other liabilities | | | 104,935 | | | | 104,335 | |
| Shareholders’ equity (including other accumulated comprehensive loss of $332,732 at December 31, 2022 and other accumulated comprehensive loss of $4,888 at December 31, 2021) | | | 4,516,193 | | | | 4,718,628 | |
| | | | | | | | | |
| Total Liabilities and Shareholders’ Equity | | $ | 4,908,009 | | | $ | 5,108,158 | |
| | | | | | | | | |
| | | | | | | | | | | | |
Condensed Statements of Income | | | | | | | | | |
| | | | |
| | | | | | | | | |
| Income | | | | | | | | | | | | |
| Dividends from banking subsidiaries | | $ | 272,500 | | | $ | 287,500 | | | $ | 232,000 | |
| Net interest income | | | 446 | | | | 335 | | | | 202 | |
| Management fees: | | | | | | | | | | | | |
| Bank subsidiaries | | | 35,931 | | | | 39,678 | | | | 30,464 | |
| Nonbank subsidiaries | | | 27 | | | | 27 | | | | 27 | |
| Other income | | | 3,053 | | | | 3,418 | | | | 556 | |
| | | | | | | | | | | | | |
| Total Income | | | 311,957 | | | | 330,958 | | | | 263,249 | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | |
| Operating expenses | | | 50,242 | | | | 47,273 | | | | 53,880 | |
| | | | | | | | | | | | | |
| Income Before Income Taxes and Equity in Undistributed Net Income of Subsidiaries | | | 261,715 | | | | 283,685 | | | | 209,369 | |
| Applicable income tax benefit | | | (2,196 | ) | | | (779 | ) | | | (4,196 | ) |
| | | | | | | | | | | | | |
| Income Before Equity in Undistributed Net | | | | | | | | | | | | |
| Income of Subsidiaries | | | 263,911 | | | | 284,464 | | | | 213,565 | |
| Equity in undistributed net income of subsidiaries: | | | | | | | | | | | | |
| Bank subsidiaries | | | 117,594 | | | | 83,507 | | | | 75,054 | |
| Nonbank subsidiaries | | | (1,878 | ) | | | (233 | ) | | | 404 | |
| | | | | | | | | | | | | |
| Net Income | | $ | 379,627 | | | $ | 367,738 | | | $ | 289,023 | |
| | | | | | | | | | | | | |
127
| | | | | | | | | | | | |
Condensed Statements of Cash Flows | | | | | | | | | |
| | | | |
| | | | | | | | | |
| Operating Activities | | | | | | | | | | | | |
| Net income | | $ | 379,627 | | | $ | 367,738 | | | $ | 289,023 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Equity in undistributed net income of subsidiaries | | | (115,716 | ) | | | (83,274 | ) | | | (75,458 | ) |
| Amortization of net periodic pension costs | | | 220 | | | | 203 | | | | 315 | |
| Stock-based compensation | | | 9,881 | | | | 8,018 | | | | 5,980 | |
| Excess tax benefits from stock-based compensation arrangements | | | 1,040 | | | | 303 | | | | 351 | |
| Net change in other assets and liabilities | | | (6,118 | ) | | | 2,519 | | | | (7 | ) |
| | | | | | | | | | | | | |
| Net Cash Provided by Operating Activities | | | 268,934 | | | | 295,507 | | | | 220,204 | |
| | | | | | | | | | | | | |
| Investing Activities | | | | | | | | | | | | |
| Net (purchases) proceeds from sales of debt securities | | | (426 | ) | | | 1,449 | | | | 380 | |
| Net proceeds from sales (purchases) of equity securities | | | 4,186 | | | | (1,016 | ) | | | (54 | ) |
| Net cash received (paid) in acquisition of subsidiary | | | 0 | | | | 1,072 | | | | (47 | ) |
| Increase in investment in subsidiaries | | | (13,000 | ) | | | (3,500 | ) | | | (5,573 | ) |
| Change in other investment securities | | | (6,144 | ) | | | (2,310 | ) | | | (672 | ) |
| | | | | | | | | | | | | |
| Net Cash Used in Investing Activities | | | (15,384 | ) | | | (4,305 | ) | | | (5,966 | ) |
| | | | | | | | | | | | | |
| Financing Activities | | | | | | | | | | | | |
| Cash dividends paid | | | (193,041 | ) | | | (181,277 | ) | | | (162,713 | ) |
| Acquisition of treasury stock | | | (79,460 | ) | | | (11,211 | ) | | | (21,317 | ) |
| Distribution of treasury stock from deferred compensation plan | | | 0 | | | | 0 | | | | 1 | |
| Proceeds from exercise of stock options | | | 10,295 | | | | 5,206 | | | | 1,241 | |
| | | | | | | | | | | | | |
| Net Cash Used in Financing Activities | | | (262,206 | ) | | | (187,282 | ) | | | (182,788 | ) |
| | | | | | | | | | | | | |
| (Decrease) Increase in Cash and Cash Equivalents | | | (8,656 | ) | | | 103,920 | | | | 31,450 | |
| Cash and Cash Equivalents at Beginning of Year | | | 262,067 | | | | 158,147 | | | | 126,697 | |
| | | | | | | | | | | | | |
| Cash and Cash Equivalents at End of Year | | $ | 253,411 | | | $ | 262,067 | | | $ | 158,147 | |
| | | | | | | | | | | | | |
NOTE
T—V—REGULATORY MATTERS
The subsidiary banks are required to maintain
United Bank maintains average reserve balances with
their respectiveits Federal Reserve Bank. The average amount of those consolidated reserve balances maintained
and required for the year ended December 31,
2017,2022 and 2021 were approximately
$1,251,806,000$1,577,485,000 and
$471,763,000,$3,119,391,000, respectively.
The average amount of those consolidatedNo reserve
balances maintained and requiredbalance for the year ended December 31,
2016,2022 and 2021 was
approximately $606,898,000 and $361,521,000, respectively.required.
The primary source of funds for the dividends paid by United to its shareholders is dividends received from
its subsidiary banks.United Bank. Dividends paid by
United’s subsidiary banksUnited Bank are subject to certain regulatory limitations. Generally, the most restrictive provision requires regulatory approval if dividends declared in any year exceed that year’s net income, as defined, plus the retained net profits of the two preceding years.
During
2018,2023, the retained net profits available for distribution to United by United Bank as dividends without regulatory approval, are approximately
$127,674,000,$201,101,000, plus net income for the interim period through the date of declaration.
Under Federal Reserve regulation, United Bank is also limited as to the amount they may loan to affiliates, including the parent company. Loans from United Bank to the parent company are limited to 10% of the banking subsidiaries’ capital and surplus, as defined, or
$282,863,000$395,066,000 at December 31,
2017,2022, and must be secured by qualifying collateral.
United’s subsidiary banks are subject to various regulatory capital requirements administered by federal banking agencies. Pursuant to capital adequacy guidelines, United’s subsidiary banks must meet specific capital guidelines that involve various quantitative measures of the banks’ assets, liabilities, and certain
off-balance-sheet
items as calculated under regulatory accounting practices. United’s subsidiary banks’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.As previously mentioned, the new Basel III Capital Rules became effective for United and United Bank on January 1, 2015 (subject to a
phase-in
period). These new quantitative measures established by regulation to ensure capital adequacy require United and United Bank to maintain minimum amounts and ratios of total, Tier I capital, and common Tier I capital as defined in the regulations, to risk-weighted assets, as defined, and of Tier I capital, as defined, to average assets, as defined.128
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on United’s financial statements. As of December 31,
2017,2022, United exceeds all capital adequacy requirements to which it is subject.
At December 31,
2017,2022, the most recent notification from its regulators, United and United Bank were categorized as well-capitalized. To be categorized as well-capitalized, United must maintain minimum total risk-based, Tier I risk-based,
Common Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would impact United’s well-capitalized status.
United’s and United
Bank,Bank’s capital amounts (in thousands of dollars) and ratios are presented in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Actual | | | For Capital
Adequacy Purposes | | | To Be Well-
Capitalized | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
As of December 31, 2017: | | | | | | | | | | | | | | | | | | | | | | | | |
Total Capital (to Risk- Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 2,093,369 | | | | 14.2 | % | | $ | 1,177,952 | | | | ³8.0% | | | $ | 1,472,439 | | | | ³10.0% | |
United Bank | | | 2,013,852 | | | | 13.7 | % | | | 1,174,099 | | | | ³8.0% | | | | 1,467,624 | | | | ³10.0% | |
Tier I Capital (to Risk- Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 1,759,189 | | | | 12.0 | % | | $ | 883,464 | | | | ³6.0% | | | $ | 1,177,952 | | | | ³8.0% | |
United Bank | | | 1,936,546 | | | | 13.2 | % | | | 880,575 | | | | ³6.0% | | | | 1,174,099 | | | | ³8.0% | |
Common Tier I Capital (to Risk Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 1,759,189 | | | | 12.0 | % | | $ | 662,598 | | | | ³4.5% | | | $ | 957,086 | | | | ³6.5% | |
United Bank | | | 1,936,546 | | | | 13.2 | % | | | 660,431 | | | | ³4.5% | | | | 953,956 | | | | ³6.5% | |
Tier I Capital (to Average Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 1,759,189 | | | | 10.1 | % | | $ | 698,388 | | | | ³4.0% | | | $ | 872,985 | | | | ³5.0% | |
United Bank | | | 1,936,546 | | | | 11.0 | % | | | 702,311 | | | | ³4.0% | | | | 877,888 | | | | ³5.0% | |
As of December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | |
Total Capital (to Risk- | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 1,699,984 | | | | 14.9 | % | | $ | 915,479 | | | | ³8.0% | | | $ | 1,144,348 | | | | ³10.0% | |
United Bank | | | 1,592,647 | | | | 13.9 | % | | | 915,956 | | | | ³8.0% | | | | 1,144,945 | | | | ³10.0% | |
Tier I Capital (to Risk- | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 1,625,543 | | | | 14.2 | % | | $ | 686,609 | | | | ³6.0% | | | $ | 915,479 | | | | ³8.0% | |
United Bank | | | 1,518,831 | | | | 13.3 | % | | | 686,967 | | | | ³6.0% | | | | 915,956 | | | | ³8.0% | |
Common Tier I Capital (to Risk Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 1,393,743 | | | | 12.2 | % | | $ | 514,957 | | | | ³4.5% | | | $ | 743,826 | | | | ³6.5% | |
United Bank | | | 1,518,831 | | | | 13.3 | % | | | 515,225 | | | | ³4.5% | | | | 744,214 | | | | ³6.5% | |
Tier I Capital (to Average Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
United Bankshares | | $ | 1,625,543 | | | | 12.2 | % | | $ | 535,227 | | | | ³4.0% | | | $ | 669,033 | | | | ³5.0% | |
United Bank | | | 1,518,831 | | | | 11.4 | % | | | 535,361 | | | | ³4.0% | | | | 669,201 | | | | ³5.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | |
| |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Capital (to Risk- Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 3,494,723 | | | | 14.4 | % | | $ | 1,945,020 | | | ≥ | 8.0 | % | | $ | 2,431,275 | | | ≥ | 10.0 | % |
| United Bank | | | 3,236,554 | | | | 13.4 | % | | | 1,939,250 | | | ≥ | 8.0 | % | | | 2,424,062 | | | ≥ | 10.0 | % |
| Tier I Capital (to Risk- Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 2,990,026 | | | | 12.3 | % | | $ | 1,458,765 | | | ≥ | 6.0 | % | | $ | 1,945,020 | | | ≥ | 8.0 | % |
| United Bank | | | 3,029,857 | | | | 12.5 | % | | | 1,454,437 | | | ≥ | 6.0 | % | | | 1,939,250 | | | ≥ | 8.0 | % |
| Common Tier I Capital (to Risk Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 2,990,026 | | | | 12.3 | % | | $ | 1,094,074 | | | ≥ | 4.5 | % | | $ | 1,580,329 | | | ≥ | 6.5 | % |
| United Bank | | | 3,029,857 | | | | 12.5 | % | | | 1,090,828 | | | ≥ | 4.5 | % | | | 1,575,640 | | | ≥ | 6.5 | % |
| Tier I Capital (to Average Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 2,990,026 | | | | 10.8 | % | | $ | 1,108,785 | | | ≥ | 4.0 | % | | $ | 1,385,981 | | | ≥ | 5.0 | % |
| United Bank | | | 3,029,857 | | | | 11.0 | % | | | 1,106,184 | | | ≥ | 4.0 | % | | | 1,382,730 | | | ≥ | 5.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Capital (to Risk- Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 3,317,133 | | | | 15.4 | % | | $ | 1,719,342 | | | ≥ | 8.0 | % | | $ | 2,149,177 | | | ≥ | 10.0 | % |
| United Bank | | | 3,066,779 | | | | 14.3 | % | | | 1,715,234 | | | ≥ | 8.0 | % | | | 2,144,042 | | | ≥ | 10.0 | % |
| Tier I Capital (to Risk- Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 2,877,791 | | | | 13.4 | % | | $ | 1,289,506 | | | ≥ | 6.0 | % | | $ | 1,719,342 | | | ≥ | 8.0 | % |
| United Bank | | | 2,925,437 | | | | 13.6 | % | | | 1,286,425 | | | ≥ | 6.0 | % | | | 1,715,234 | | | ≥ | 8.0 | % |
| Common Tier I Capital (to Risk Weighted Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 2,877,791 | | | | 13.4 | % | | $ | 967,130 | | | ≥ | 4.5 | % | | $ | 1,396,965 | | | ≥ | 6.5 | % |
| United Bank | | | 2,925,437 | | | | 13.6 | % | | | 964,819 | | | ≥ | 4.5 | % | | | 1,393,627 | | | ≥ | 6.5 | % |
| Tier I Capital (to Average Assets): | | | | | | | | | | | | | | | | | | | | | | | | |
| United Bankshares | | $ | 2,877,791 | | | | 11.0 | % | | $ | 1,050,891 | | | ≥ | 4.0 | % | | $ | 1,313,614 | | | ≥ | 5.0 | % |
| United Bank | | | 2,925,437 | | | | 11.2 | % | | | 1,049,526 | | | ≥ | 4.0 | % | | | 1,311,907 | | | ≥ | 5.0 | % |
United’s mortgage banking
entity,entities, George Mason
isand Crescent, are subject to net worth requirements issued by the U.S. Department of Housing and Urban Development
(HUD)(“HUD”). Failure to meet minimum capital requirements of HUD can result in certain mandatory and possibly additional discretionary actions that, if undertaken, could have a direct material effect on George Mason’s
and Crescent’s operations.
The minimum
For George Mason and Crescent, the maximum net worth requirement of HUD at December 31,
20172022 was $2,500,000. George Mason’s net worth
was $4,955,000and Crescent’s net worth were $154,700,000 and $101,116,000 at December 31,
2017,2022, which
both exceeded the HUD requirements.
129
NOTE
U—W—FAIR VALUES OF FINANCIAL INSTRUMENTS
In accordance with ASC
topicTopic 820, the following describes the valuation techniques used by United to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.
Securities available for sale and equity securities
: Securities available for sale
and equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available
(Level 1)(“Level 1”). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant
assumptions are derived primarily from or corroborated by observable market data. Using a market approach valuation methodology, third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considersbased on observable market data (Level 2)inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, and “To Be Announced” prices (“Level 2”). Management internally reviews the fair values provided by third party vendors on a monthly basis. Management’s review consists of comparing fair values assignedManagement also performs a quarterly price testing analysis at the individual security level which compares the pricing provided by the third party vendors to trades and offerings observed by management. The review requires some degreean independent pricing source’s valuation of judgment as to the number or percentage of securities to review on the part of management which could fluctuate based on results of past reviews and in comparison to current expectations. Exceptionssame securities. Variances that are deemed to be material are reviewed by management. Additionally, to further assess the reliability of the information received from third party vendors, management obtains documentation from third party vendors related to the sources, methodologies, and inputs utilized in valuing securities classified as Level 2. Management analyzes this information to ensure the underlying assumptions appear reasonable. Management also obtains an independent service auditor’s report from third party vendors to provide reasonable assurance that appropriate controls are in place over the valuation process. Upon completing its review of the pricing from third party vendors at December 31, 2017,2022, management determined that the prices provided by its third party pricing sourcesources were reasonable and in line with management’s expectations for the market values of these securities. Therefore, prices obtained from third party vendors that did not reflect forced liquidation or distressed sales were not adjusted materially by management at December 31, 2017.2022. Management utilizes a number of factors to determine if a market is inactive, all of which may require a significant level of judgment. Factors that management considers include: a significant widening of thebid-ask
spread, a considerable decline in the volume and level of trading activity in the instrument, a significant variance in prices among market participants, and a significant reduction in the level of observable inputs. Any securities available for sale not valued based upon quoted market prices or third party pricing models that consider observable market data are considered Level 3. Currently, United considers its valuation ofdoes not have anyavailable-for-sale Trup Cdos
The Fair Value Measurements and Disclosures topic assumes that fair values of financial assets are determined in an orderly transaction and not a forced liquidation or distressed sale at the measurement date. Based on financial market conditions, United feels that the fair values obtained from its third party vendor reflect forced liquidation or distressed sales for these Trup Cdos due to decreased volume and trading activity. Additionally, management held discussions with institutional traders to identify trends in the number and type of transactions related to the Trup Cdos sector. Based upon management’s review of the market conditions for Trup Cdos, it was determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is more representative of fair value than the valuation technique used by United’s third party vendor. The present value technique discounts expected future cash flows of a security to arrive at a present value. Management considers the following items when calculating the appropriate discount rate: the implied rate of return when the market was last active, changes in the implied rate of return as markets moved from very active to inactive, recent changes in credit ratings, and recent activity showing that the market has built in increased liquidity and credit premiums. Management’s internal credit review of each security was also factored in to determine the appropriate discount rate. The credit review considered each security’s collateral, subordination, excess spread, priority of claims, principal and interest. Discount margins used in the valuation at December 31, 2017 ranged from LIBOR plus 2.25% to LIBOR plus 5.75%. Management completed a sensitivity analysis on the fair value of its Trup Cdos. Given a comprehensive 200 basis point increase in the discount rates, the total fair value of these securities would decline by approximately 18%, or $6,177.
Loans held for sale
: For residential mortgage loans sold in the mortgage banking segment, the loans closed are recorded at fair value using the fair value option which is measured using valuations from investors for loans with similar characteristics
(“Level 2”) with some adjusted for the Company’s actual sales experience versus the investor’s indicated
pricing. These valuations fall into thepricing (“Level 3”). The unobservable input for Level 3
category. The unobservable inputvaluations is the Company’s historical sales prices.
TheFor December 31, 2022, the range of historical sales prices increased the investor’s indicated pricing by a range of
0.27%0.11% to
0.40%0.72% with a weighted average increase of
0.37%0.39%.
Derivatives
: United utilizes interest rate swaps to hedge exposure to interest rate risk and variability of cash flows associated to changes in the underlying interest rate of the hedged item. These hedging interest rate swaps are classified as either a fair value hedge or a cash flow hedge.
United’s derivative portfolio also includes derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. United utilizes third-party vendors for derivative valuation purposes. These vendors determine the appropriate fair value based on a net present value calculation of the cash flows related to the interest rate swaps using primarily observable market inputs such as interest rate yield curves
(Level 2)(“Level 2”). Valuation adjustments to derivative fair values for liquidity and credit risk are also taken into consideration, as well as the likelihood of default by United and derivative counterparties, the net counterparty exposure and the remaining maturities of the positions. Values obtained from third
party vendors are typically not adjusted by management. Management internally reviews the derivative values provided by third party vendors on a quarterly basis. All derivative values are tested for reasonableness by management utilizing a net present value calculation.
For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings either in interest income or interest expense depending on the nature of the hedged financial instrument. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to accumulated other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to accumulated other comprehensive income, net of tax. The portiontax and reclassified into earnings in the same line associated with the forecasted transaction when the forecasted transaction affects earnings.
130
The Company records its interest rate lock commitments and forward loan sales commitments at fair value determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business,
George Mason entersUnited’s mortgage banking subsidiaries enter into contractual interest rate lock commitments to extend credit to borrowers with fixed expiration dates. The commitments become effective when the borrowers
“lock-in”
a specified interest rate within the timeframes established by the mortgage companies. All borrowers are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to the investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, George Mason entersUnited’s mortgage banking subsidiaries may enter into either a forward sales contract to sell loans to investors when using best efforts or a TBA mortgage-backed security under mandatory delivery. Assecurity. Fair values of TBA mortgage-backed securities are actively traded in an open market, TBAmeasured using valuations from investors for mortgage-backed securities fall into a with similar characteristics (“Level 1 category.2”). The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. Under the Company’s best efforts model, theThe rate lock commitments to borrowers and the forward sales contracts to investors through to the date the loan closes are undesignated derivatives and accordingly, are marked to fair value through earnings. These valuations fall into a Level 2 category. For residential mortgage loans sold in the mortgage banking segment, theThe interest rate lock commitments are recorded at fair value which is measured using valuations from investors for loans with similar characteristics as well as considering the probability of the loan closing (i.e. the “pull-through” rate) (“Level 2”) with some adjusted for the Company’s actual sales experience versus the investor’s indicated pricing. These valuations fall into thepricing (“Level 3”). The unobservable input for Level 3 category. The unobservable inputvaluations is the Company’s historical sales prices. TheFor December 31, 2022, the range of historical sales prices increased the investor’s indicated pricing by a range of 0.27%0.11% to 0.40%0.72% with a weighted average increase of 0.37%0.39%.For
interest rate swap derivatives that are not designated in a hedge relationship
within the mortgage banking segment, changes in the fair value of
thethese derivatives are recognized in
earningsincome from mortgage banking activities in the same period as the change in the fair value. Unrealized gains and losses due to changes in the fair value of other derivative financial instruments not in hedge relationship,
if any, are included in noninterest income and noninterest expense, respectively.
The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31,
20172022 and
2016,2021, segregated by the level of the valuation inputs within the fair value hierarchy:
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value at December 31, 2017 Using | |
(In thousands) Description | | Balance as of
December 31,
2017 | | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | Significant
Other
Observable
Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | |
Assets | | | | | | | | | | | | | | | | |
Available for sale debt securities: | | | | | | | | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 114,758 | | | $ | 0 | | | $ | 114,758 | | | $ | 0 | |
State and political subdivisions | | | 303,869 | | | | 0 | | | | 303,869 | | | | 0 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 814,593 | | | | 0 | | | | 814,593 | | | | 0 | |
Non-agency | | | 5,512 | | | | 0 | | | | 5,512 | | | | 0 | |
Commercial mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 454,857 | | | | 0 | | | | 454,857 | | | | 0 | |
Asset-backed securities | | | 109,970 | | | | 0 | | | | 109,970 | | | | 0 | |
Trust preferred collateralized debt obligations | | | 34,269 | | | | 0 | | | | 0 | | | | 34,269 | |
Single issue trust preferred securities | | | 12,560 | | | | 0 | | | | 12,560 | | | | 0 | |
Other corporate securities | | | 28,490 | | | | 0 | | | | 28,490 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total available for sale debt securities | | | 1,878,878 | | | | 0 | | | | 1,844,609 | | | | 34,269 | |
Available for sale equity securities: | | | | | | | | | | | | | | | | |
Financial services industry | | | 3,545 | | | | 331 | | | | 3,214 | | | | 0 | |
Equity mutual funds (1) | | | 6,332 | | | | 6,332 | | | | 0 | | | | 0 | |
Other equity securities | | | 1 | | | | 1 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total available for sale equity securities | | | 9,878 | | | | 6,664 | | | | 3,214 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total available for sale securities | | | 1,888,756 | | | | 6,664 | | | | 1,847,823 | | | | 34,269 | |
Loans held for sale | | | 263,308 | | | | 0 | | | | 0 | | | | 263,308 | |
Derivative financial assets: | | | | | | | | | | | | | | | | |
Interest rate swap contracts | | | 538 | | | | 0 | | | | 538 | | | | 0 | |
Interest rate lock commitments | | | 4,561 | | | | 0 | | | | 2 | | | | 4,559 | |
| | | | | | | | | | | | | | | | |
Total derivative financial assets | | | 5,099 | | | | 0 | | | | 540 | | | | 4,559 | |
Liabilities | | | | | | | | | | | | | | | | |
Derivative financial liabilities: | | | | | | | | | | | | | | | | |
Interest rate swap contracts | | | 165 | | | | 0 | | | | 165 | | | | 0 | |
TBA mortgage-backed securities | | | 312 | | | | 0 | | | | 312 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total derivative financial liabilities | | | 477 | | | | 0 | | | | 477 | | | | 0 | |
(1) The equity mutual funds are within a rabbi trust for the payment
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value at December 31, 2022 Using | |
| |
| | |
| | |
| | |
| |
| Assets | | | | | | | | | | | | | | | | |
| Available for sale debt securities: | | | | | | | | | | | | | | | | |
| U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 529,492 | | | $ | 0 | | | $ | 529,492 | | | $ | 0 | |
| State and political subdivisions | | | 709,530 | | | | 0 | | | | 709,530 | | | | 0 | |
| Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
| Agency | | | 1,174,944 | | | | 0 | | | | 1,174,944 | | | | 0 | |
| | | 111,973 | | | | 0 | | | | 111,973 | | | | 0 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | |
| Agency | | | 562,553 | | | | 0 | | | | 562,553 | | | | 0 | |
| Asset-backed securities | | | 911,611 | | | | 0 | | | | 911,611 | | | | 0 | |
| Single issue trust preferred securities | | | 16,284 | | | | 0 | | | | 16,284 | | | | 0 | |
| Other corporate securities | | | 525,538 | | | | 5,367 | | | | 520,171 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Total available for sale securities | | | 4,541,925 | | | | 5,367 | | | | 4,536,558 | | | | 0 | |
| Equity securities: | | | | | | | | | | | | | | | | |
| Financial services industry | | | 270 | | | | 270 | | | | 0 | | | | 0 | |
| Equity mutual funds (1) | | | 2,221 | | | | 2,221 | | | | 0 | | | | 0 | |
| Fixed income mutual funds | | | 5,138 | | | | 5,138 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Total equity securities | | | 7,629 | | | | 7,629 | | | | 0 | | | | 0 | |
| Loans held for sale | | | 56,879 | | | | 0 | | | | 12,008 | | | | 44,871 | |
| Derivative financial assets: | | | | | | | | | | | | | | | | |
131
Table of benefits under a deferred compensation plan for certain keyofficers of United and its subsidiaries.
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value at December 31, 2016 Using | |
(In thousands) Description | | Balance as of
December 31,
2016 | | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | Significant
Other
Observable
Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | |
Assets | | | | | | | | | | | | | | | | |
Available for sale debt securities: | | | | | | | | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 95,786 | | | $ | 0 | | | $ | 95,786 | | | $ | ��0 | |
State and political subdivisions | | | 192,812 | | | | 0 | | | | 192,812 | | | | 0 | |
Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 584,096 | | | | 0 | | | | 584,096 | | | | 0 | |
Non-agency | | | 7,043 | | | | 0 | | | | 7,043 | | | | 0 | |
Asset-backed securities | | | 217 | | | | 0 | | | | 217 | | | | 0 | |
Commercial mortgage-backed securities | | | | | | | | | | | | | | | | |
Agency | | | 305,341 | | | | 0 | | | | 305,341 | | | | 0 | |
Trust preferred collateralized debt obligations | | | 33,552 | | | | 0 | | | | 0 | | | | 33,552 | |
Single issue trust preferred securities | | | 11,477 | | | | 0 | | | | 11,477 | | | | 0 | |
Other corporate securities | | | 15,062 | | | | 0 | | | | 15,062 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total available for sale debt securities | | | 1,245,386 | | | | 0 | | | | 1,211,834 | | | | 33,552 | |
Available for sale equity securities: | | | | | | | | | | | | | | | | |
Financial services industry | | | 10,735 | | | | 1,372 | | | | 9,363 | | | | 0 | |
Equity mutual funds (1) | | | 1,820 | | | | 1,820 | | | | 0 | | | | 0 | |
Other equity securities | | | 1,273 | | | | 1,273 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total available for sale equity securities | | | 13,828 | | | | 4,465 | | | | 9,363 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Total available for sale securities | | | 1,259,214 | | | | 4,465 | | | | 1,221,197 | | | | 33,552 | |
Derivative financial assets: | | | | | | | | | | | | | | | | |
Interest rate contracts | | | 2,291 | | | | 0 | | | | 2,291 | | | | 0 | |
Liabilities | | | | | | | | | | | | | | | | |
Derivative financial liabilities: | | | | | | | | | | | | | | | | |
Interest rate contracts | | | 2,605 | | | | 0 | | | | 2,605 | | | | 0 | |
Contents | | | | | | | | | | | | | | | | |
| | | | | | Fair Value at December 31, 2022 Using | |
| |
| | |
| | |
| | |
| |
| Interest rate swap contracts | | | 4,038 | | | | 0 | | | | 4,038 | | | | 0 | |
| Forward sales commitments | | | 220 | | | | 0 | | | | 214 | | | | 6 | |
| TBA mortgage-backed securities | | | 146 | | | | 0 | | | | 120 | | | | 26 | |
| Interest rate lock commitments | | | 1,146 | | | | 0 | | | | 302 | | | | 844 | |
| | | | | | | | | | | | | | | | | |
| Total derivative financial assets | | | 5,550 | | | | 0 | | | | 4,674 | | | | 876 | |
| Liabilities | | | | | | | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | | | | | | |
| TBA mortgage-backed securities | | | 213 | | | | 0 | | | | 0 | | | | 213 | |
| Interest rate lock commitments | | | 348 | | | | 0 | | | | 0 | | | | 348 | |
| | | | | | | | | | | | | | | | | |
| Total derivative financial liabilities | | | 561 | | | | 0 | | | | 0 | | | | 561 | |
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value at December 31, 2021 Using | |
| |
| | |
| | |
| | |
| |
| Assets | | | | | | | | | | | | | | | | |
| Available for sale debt securities: | | | | | | | | | | | | | | | | |
| U.S. Treasury securities and obligations of U.S. Government corporations and agencies | | $ | 81,850 | | | $ | 0 | | | $ | 81,850 | | | $ | 0 | |
| State and political subdivisions | | | 847,298 | | | | 0 | | | | 847,298 | | | | 0 | |
| Residential mortgage-backed securities | | | | | | | | | | | | | | | | |
| Agency | | | 1,113,774 | | | | 0 | | | | 1,113,774 | | | | 0 | |
| | | 74,545 | | | | 0 | | | | 74,545 | | | | 0 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | |
| Agency | | | 639,925 | | | | 0 | | | | 639,925 | | | | 0 | |
| Asset-backed securities | | | 656,572 | | | | 0 | | | | 656,572 | | | | 0 | |
| Single issue trust preferred securities | | | 16,811 | | | | 0 | | | | 16,811 | | | | 0 | |
| Other corporate securities | | | 611,924 | | | | 5,758 | | | | 606,166 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Total available for sale securities | | | 4,042,699 | | | | 5,758 | | | | 4,036,941 | | | | 0 | |
| Equity securities: | | | | | | | | | | | | | | | | |
| Financial services industry | | | 187 | | | | 187 | | | | 0 | | | | 0 | |
| Equity mutual funds (1) | | | 6,406 | | | | 6,406 | | | | 0 | | | | 0 | |
| Fixed income mutual funds | | | 5,811 | | | | 5,811 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Total equity securities | | | 12,404 | | | | 12,404 | | | | 0 | | | | 0 | |
| Loans held for sale | | | 504,416 | | | | 0 | | | | 40,307 | | | | 464,109 | |
| Derivative financial assets: | | | | | | | | | | | | | | | | |
| Forward sales commitments | | | 430 | | | | 0 | | | | 430 | | | | 0 | |
| TBA mortgage-backed securities | | | 127 | | | | 0 | | | | 66 | | | | 61 | |
| Interest rate lock commitments | | | 10,380 | | | | 0 | | | | 936 | | | | 9,444 | |
| | | | | | | | | | | | | | | | | |
| Total derivative financial assets | | | 10,937 | | | | 0 | | | | 1,432 | | | | 9,505 | |
| Liabilities | | | | | | | | | | | | | | | | |
| Derivative financial liabilities: | | | | | | | | | | | | | | | | |
| Interest rate swap contracts | | | 3,197 | | | | 0 | | | | 3,197 | | | | 0 | |
| Forward sales commitments | | | 36 | | | | 0 | | | | 0 | | | | 36 | |
| TBA mortgage-backed securities | | | 470 | | | | 0 | | | | 0 | | | | 470 | |
| Interest rate lock commitments | | | 25 | | | | 0 | | | | 0 | | | | 25 | |
| | | | | | | | | | | | | | | | | |
| Total derivative financial liabilities | | | 3,728 | | | | 0 | | | | 3,197 | | | | 531 | |
| (1) | The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. |
officers
132
There were no transfers between Level 1, Level 2 and Level 3 for financial assets and liabilities measured at fair value on a recurring basis during the year ended December 31,
20172022 and
2016.2021.
The following
table presentstables present additional information about financial assets and liabilities measured at fair value at December 31,
20172022 and
20162021 on a recurring basis and for which United has utilized Level 3 inputs to determine fair
value: | | | | | | | | |
| | | Available-for-sale
Securities | |
| (In thousands) | | Trust preferred
collateralized debt obligations | |
| | | 2017 | | | 2016 | |
Balance, beginning of year | | $ | 33,552 | | | $ | 34,686 | |
| | |
Total gains or losses (realized/unrealized): | | | | | | | | |
| | |
Included in earnings (or changes in net assets) | | | 9 | | | | 0 | |
| | |
Included in other comprehensive income | | | 8,757 | | | | (1,134 | ) |
| | |
Purchases, issuances, and settlements | | | 0 | | | | 0 | |
| | |
Sales | | | (8,049 | ) | | | 0 | |
| | |
Transfers in and/or out of Level 3 | | | 0 | | | | 0 | |
| | | | | | | | |
Balance, ending of year | | $ | 34,269 | | | $ | 33,552 | |
| | | | | | | | |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | | 0 | | | | 0 | |
| | | | | | | | |
| (In thousands) | | Loans held for sale | |
| | | 2017 | | | 2016 | |
Balance, beginning of period | | $ | 0 | | | $ | 0 | |
Acquired in Cardinal merger | | | 271,301 | | | | 0 | |
Originations | | | 2,333,927 | | | | 0 | |
Sales | | | (2,408,945) | | | | 0 | |
Total gains or losses during the period recognized in earnings | | | 58,132 | | | | 0 | |
Transfers in and/or out of Level 3 | | | 8,893 | | | | 0 | |
| | | | | | | | |
Balance, end of period | | $ | 263,308 | | | $ | 0 | |
| | | | | | | | |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
| (In thousands) | | Derivative Financial Assets
Interest Rate Lock Commitments | |
| | | 2017 | | | 2016 | |
Balance, beginning of period | | $ | 0 | | | $ | 0 | |
Acquired in Cardinal merger | | | 10,393 | | | | 0 | |
Transfers other | | | (5,834 | ) | | | 0 | |
| | | | | | | | |
Balance, end of period | | $ | 4,559 | | | $ | 0 | |
| | | | | | | | |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | 0 | | | $ | 0 | |
value. The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses related to assets still held at the reporting date are recorded in Income from mortgage banking activities in the Consolidated Statements of Income.
| | | | | | | | |
| | | | |
| |
| | | | |
| Balance, beginning of period | | $ | 464,109 | | | $ | 654,733 | |
| Originations | | | 2,360,908 | | | | 4,984,363 | |
| Sales | | | (2,673,795 | ) | | | (5,313,758 | ) |
| Transfers to portfolio loans | | | (154,699 | ) | | | 0 | |
| Total gains during the period recognized in earnings | | | 48,348 | | | | 138,771 | |
| | | | | | | | | |
| Balance, end of period | | $ | 44,871 | | | $ | 464,109 | |
| | | | | | | | | |
| The amount of total (losses) gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | (9,852 | ) | | $ | 10,506 | |
| | | | | | | | |
| | | Derivative Financial Assets
| |
| |
| | | | |
| Balance, beginning of period | | $ | 61 | | | $ | 0 | |
| Transfers other | | | (35 | ) | | | 61 | |
| | | | | | | | | |
| Balance, end of period | | $ | 26 | | | $ | 61 | |
| | | | | | | | | |
| The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | 26 | | | $ | 61 | |
| | | | | | | | | |
| | | Derivative Financial Assets
Interest Rate Lock
Commitments | |
| |
| | | | |
| Balance, beginning of period | | $ | 9,444 | | | $ | 32,011 | |
| Transfers other | | | (8,600 | ) | | | (22,567 | ) |
| | | | | | | | | |
| Balance, end of period | | $ | 844 | | | $ | 9,444 | |
| | | | | | | | | |
| The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | 844 | | | $ | 9,444 | |
| | | | | | | | |
| | | Derivative Financial Liabilities
Forward Sales Commitments | |
| |
| | | | |
| Balance, beginning of period | | $ | 36 | | | $ | 0 | |
| Transfers other | | | (36 | ) | | | 36 | |
| | | | | | | | | |
| Balance, end of period | | $ | 0 | | | $ | 36 | |
| | | | | | | | | |
| The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | 0 | | | $ | 36 | |
133
| | | | | | | | |
| | | Derivative Financial Liabilities
| |
| |
| | | | |
| Balance, beginning of period | | $ | 470 | | | $ | 0 | |
| Transfers other | | | (257 | ) | | | 470 | |
| | | | | | | | | |
| Balance, end of period | | $ | 213 | | | $ | 470 | |
| | | | | | | | | |
| The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | 213 | | | $ | 470 | |
| | | | | | | | |
| | | Derivative Financial Liabilities
Interest Rate Lock
Commitments | |
| |
| | | | |
| Balance, beginning of period | | $ | 25 | | | $ | 0 | |
| Transfers other | | | 323 | | | | 25 | |
| | | | | | | | | |
| Balance, end of period | | $ | 348 | | | $ | 25 | |
| | | | | | | | | |
| The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date | | $ | 348 | | | $ | 25 | |
The following table reflects the change in fair value included in earnings of financial instruments for which the fair value option has been elected:
| | | | |
| |
| |
|
| Income from mortgage banking activities | | $ (10,367) | | $ (15,267) |
The following table reflects the difference between the aggregate fair value and the remaining contractual principal outstanding for financial instruments for which the fair value option has been elected:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | Fair Value
Over/(Under)
Unpaid
Principal
Balance | | | | | | | | | Fair Value
Over/(Under)
Unpaid
Principal
Balance | |
| Loans held for sale | | $ | 56,170 | | | $ | 56,879 | | | $ | 709 | | | $ | 493,340 | | | $ | 504,416 | | | $ | 11,076 | |
No loans held for sale were past due or on nonaccrual status as of December 31, 2022 and 2021.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of
accounting or write-downs of individual assets.Fair Value Option
United elected the fair value option for the loans held for sale in its mortgage banking segment to mitigate a divergence between accounting losses and economic exposure.
The following table reflects the change in fair value included in earnings of financial instruments for which the fair value option has been elected:
| | | | | | | | |
(In thousands) Description | | Year Ended
December 31, 2017 | | | Year Ended
December 31, 2016 | |
Assets | | | | | | | | |
Loans held for sale | | | | | | | | |
Income from mortgage banking activities | | $ | (10,497 | ) | | $ | 0 | |
The following table reflects the difference between the aggregate fair value and the remaining contractual principal outstanding for financial instruments for which the fair value option has been elected:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | | December 31, 2016 | |
(In thousands) Description | | Unpaid
Principal
Balance | | | Fair Value | | | Fair Value
Over/(Under)
Unpaid
Principal
Balance | | | Unpaid
Principal
Balance | | | Fair
Value | | | Fair Value
Over/(Under)
Unpaid
Principal
Balance | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | | $ | 257,674 | | | $ | 263,308 | | | $ | 5,634 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following describes the valuation techniques used by United to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements.
Individually assessed loans
: In the determination of the allowance for loan losses, loans that do not share risk characteristics are evaluated on an individual basis. Loans
held for sale: Loans held for sale withinevaluated individually are not also included in the
community banking segmentcollective evaluation. When management determines that
are delivered on a best efforts basis are carriedforeclosure is probable or when the borrower is experiencing financial difficulty at the
lower of costreporting date and repayment is expected to be provided substantially through the operation or
market value. These loans currently consist ofone-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, United records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the year ended December 31, 2017. Gains and losses on sale of
loansthe collateral, expected credit losses are
recorded within income from mortgage banking on the Consolidated Statements of Income.Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate and the loan’s observable market price or the fair value of the collateral ifat the loan is collateral dependent.reporting date, adjusted for selling costs as
134
appropriate. Fair value is measured using a market approach based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an appraisal conducted by an independent, licensed appraiser outside of the Company using comparable property sales
(Level 2)(“Level 2”). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports
(Level 3)(“Level 3”). For
impairedindividually assessed loans, a specific reserve is established through the
Allowanceallowance for
Loan Losses,loan losses, if necessary, by estimating the fair value of the underlying collateral on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses expense on the Consolidated Statements of Income.
OREO
: OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried on the balance sheet at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Fair value is determined by one of two market approach methods depending on whether the property has been vacated and an appraisal can be conducted. If the property has yet to be vacated and thus an appraisal cannot be performed, a Brokers Price Opinion (i.e. BPO), is obtained. A BPO represents a best estimate valuation performed by a realtor based on knowledge of current property values and a visual examination of the exterior condition of the property. Once the property is subsequently vacated, a formal appraisal is obtained and the recorded asset value appropriately adjusted. On the other hand, if the OREO property has been vacated and an appraisal can be conducted, the fair value of the property is determined based upon the appraisal using a market approach. An authorized independent appraiser conducts appraisals for United. Appraisals for property other than ongoing construction are based on consideration of comparable property sales
(Level 2)(“Level 2”). In contrast, valuation of ongoing construction assets requires some degree of professional judgment. In conducting an appraisal for ongoing construction property, the appraiser develops two appraised amounts: an “as is” appraised value and a “completed” value. Based on professional judgment and their knowledge of the particular situation, management determines the appropriate fair value to be utilized for such property
(Level 3)(“Level 3”). As a matter of policy, valuations are reviewed at least annually and appraisals are generally updated on a
bi-annual
basis with values lowered as necessary.
Intangible Assets:Assets
: For United, intangible assets consist of goodwill and core deposit intangibles. Goodwill is tested for impairment at least annually or sooner if indicators of impairment exist.
Goodwill impairment would be defined asUnited may elect to perform a qualitative analysis to determine whether or not it is more-likely-than not that the
difference between the recorded value of goodwill (i.e. book value) and the implied fair value of
goodwill. In determininga reporting unit is less than its carrying amount. If United elects to bypass this qualitative analysis, or concludes via qualitative analysis that it ismore-likely-than-not
that the
implied fair value of
goodwill for purposesa reporting unit is less than its carrying value, United may use either a market or income quantitative approach to determine the fair value of
evaluating goodwill impairment, United determinesthe reporting unit. If the fair value of the reporting unit
using a market approach and compares the fair value tois less than its carrying
value. Ifvalue, an impairment charge would be recorded for the difference, not to exceed the amount of goodwill allocated to the reporting unit. At each reporting date, the Company considers potential indicators of impairment. United performed its annual goodwill impairment test on the Company’s reporting units as of September 30, 2022. The goodwill impairment test did not identify any goodwill impairment. In subsequent periods, economic uncertainty and volatility surroundingCOVID-19
and the performance of the Company’s stock as well as possible other impairment indicators could cause us to perform a goodwill impairment test which could result in an impairment charge being recorded for that period if the carrying value
exceeds theof goodwill was found to exceed fair
value, a step two test is performed whereby the implied fair value is computed by deducting the fair value of all tangible and intangible net assets from the fair value of the reporting unit.value. Core deposit intangibles relate to the estimated value of the deposit base of acquired institutions. Management reviews core deposit intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. Other than those intangible assets recorded in the
acquisitionsacquisition of
CardinalCommunity Bankers Trust in the
secondfourth quarter of
2017 and Bank of Georgetown in the second quarter of 2016,2021, no other fair value measurement of intangible assets was made during the year of
20172022 and
2016.2021.
Mortgage Servicing Rights (“MSRs”):
A mortgage servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“mortgage servicing rights”) at fair value. For subsequent measurement purposes, the Company measures servicing assets and liabilities using the amortization method on a quarterly basis. The quarterly determination of fair value of servicing rights is provided by a third party and is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants,135
some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. The unobservable inputs for Level 3 valuations are market discount rates, anticipated prepayment speeds, projected delinquency rates, and ancillary fee income net of servicing costs. For the unobservable inputs used in the valuation of mortgage servicing rights at December 31, 2022 and 2021, refer to Note J of these Notes to Consolidated Financial Statements.
The following table summarizes United’s financial assets that were measured at fair value on a nonrecurring basis during the period:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Carrying value at December 31, 2017 | | | | |
(In thousands) Description | | Balance as of
December 31,
2017 | | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | Significant
Other
Observable
Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | | | YTD
Losses | |
Assets | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | | $ | 2,647 | | | $ | 0 | | | $ | 2,647 | | | $ | 0 | | | $ | 14 | |
Impaired Loans | | | 84,756 | | | | 0 | | | | 67,111 | | | | 17,645 | | | | 12,291 | |
OREO | | | 24,348 | | | | 0 | | | | 24,151 | | | | 197 | | | | 4,200 | |
| | | |
(In thousands) Description | | Balance as of
December 31,
2016 | | | Carrying value at December 31, 2016 | | | YTD
Losses | |
| | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | Significant
Other
Observable
Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | | |
| | | | | |
Assets | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | | $ | 8,445 | | | $ | 0 | | | $ | 8,445 | | | $ | 0 | | | $ | 4 | |
Impaired Loans | | | 80,505 | | | | 0 | | | | 27,609 | | | | 52,896 | | | | 5,119 | |
OREO | | | 31,510 | | | | 0 | | | | 31,510 | | | | 0 | | | | 2,086 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Fair value at December 31, 2022 | | | | |
| |
| | |
| | |
| | |
| | |
| |
| Assets | | | | | | | | | | | | | | | | | | | | |
| Individually assessed loans | | $ | 6,125 | | | $ | 0 | | | $ | 1,801 | | | $ | 4,324 | | | $ | 327 | |
| OREO | | | 2,052 | | | | 0 | | | | 2,013 | | | | 39 | | | | (96 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | Fair value at December 31, 2021 | | | | |
| |
| | |
| | |
| | |
| | |
| |
| Assets | | | | | | | | | | | | | | | | | | | | |
| Individually assessed loans | | $ | 65,431 | | | $ | 0 | | | $ | 46,830 | | | $ | 18,601 | | | $ | (601 | ) |
| OREO | | | 14,823 | | | | 0 | | | | 3,209 | | | | 11,614 | | | | (4,020 | ) |
| Mortgage servicing rights | | | 27,355 | | | | 0 | | | | 0 | | | | 27,355 | | | | (629 | ) |
Fair Value of Other Financial Instruments
The following methods and assumptions were used by United in estimating its fair value disclosures for other financial instruments:
Cash and Cash Equivalents:
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.
Securities held to maturity and other securities
: The estimated fair values of securities held to maturity are based on quoted market prices, where available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that
considersconsider observable market data. Any securities held to maturity, not valued based upon the methods above, are valued based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Other securities consist mainly of shares of Federal Home Loan Bank and Federal Reserve Bank stock that do not have readily determinable fair values and are carried at cost.
Loans:
Loans and leases
: The fair values of certain mortgage loans (e.g.,
family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values of other loans and leases (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans and agricultural loans) are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans and leases with similar terms to borrowers of similar creditworthiness, which include adjustments for liquidity concerns. For acquired impairedPCD loans, fair value is assumed to equal United’s carrying value, which represents the present value of expected future principal and interest cash flows, as adjusted for any Allowance for LoanCredit Losses recorded for these loans.Deposits:
136
Deposits
: The fair values of demand deposits (e.g., interest and noninterest checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Short-term Borrowings:
The carrying amounts of federal funds purchased, borrowings under repurchase agreements and any other short-term borrowings approximate their fair values.
Long-term Borrowings:
The fair values of United’s Federal Home Loan Bank borrowings and trust preferred securities are estimated using discounted cash flow analyses, based on United’s current incremental borrowing rates for similar types of borrowing arrangements.
Summary of Fair Values for All Financial Instruments
The estimated fair values of United’s financial instruments are summarized below:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Fair Value Measurements | |
(In thousands) | | Carrying
Amount | | | Fair
Value | | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | | Significant
Other
Observable
Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | |
December 31, 2017 | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,666,167 | | | $ | 1,666,167 | | | $ | 0 | | | $ | 1,666,167 | | | $ | 0 | |
Securities available for sale | | | 1,888,756 | | | | 1,888,756 | | | | 6,664 | | | | 1,847,823 | | | | 34,269 | |
Securities held to maturity | | | 20,428 | | | | 20,018 | | | | 0 | | | | 16,998 | | | | 3,020 | |
Other securities | | | 162,461 | | | | 154,338 | | | | 0 | | | | 0 | | | | 154,338 | |
Loans held for sale | | | 265,955 | | | | 265,955 | | | | 0 | | | | 2,647 | | | | 263,308 | |
Loans | | | 12,934,794 | | | | 12,437,797 | | | | 0 | | | | 0 | | | | 12,437,797 | |
Derivative financial assets | | | 5,099 | | | | 5,099 | | | | 0 | | | | 540 | | | | 4,559 | |
Deposits | | | 13,830,591 | | | | 14,024,720 | | | | 0 | | | | 14,024,720 | | | | 0 | |
Short-term borrowings | | | 477,587 | | | | 477,587 | | | | 0 | | | | 477,587 | | | | 0 | |
Long-term borrowings | | | 1,363,977 | | | | 1,338,754 | | | | 0 | | | | 1,338,754 | | | | 0 | |
Derivative financial liabilities | | | 477 | | | | 477 | | | | 0 | | | | 477 | | | | 0 | |
| | | | | |
December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,434,527 | | | $ | 1,434,527 | | | $ | 0 | | | $ | 1,434,527 | | | $ | 0 | |
Securities available for sale | | | 1,259,214 | | | | 1,259,214 | | | | 4,465 | | | | 1,221,197 | | | | 33,552 | |
Securities held to maturity | | | 33,258 | | | | 31,178 | | | | 0 | | | | 28,158 | | | | 3,020 | |
Other securities | | | 111,166 | | | | 105,608 | | | | 0 | | | | 0 | | | | 105,608 | |
Loans held for sale | | | 8,445 | | | | 8,445 | | | | 0 | | | | 8,445 | | | | 0 | |
Loans | | | 10,268,366 | | | | 10,122,486 | | | | 0 | | | | 0 | | | | 10,122,486 | |
Derivative financial assets | | | 2,291 | | | | 2,291 | | | | 0 | | | | 2,291 | | | | 0 | |
Deposits | | | 10,796,867 | | | | 10,785,294 | | | | 0 | | | | 10,785,294 | | | | 0 | |
Short-term borrowings | | | 209,551 | | | | 209,551 | | | | 0 | | | | 209,551 | | | | 0 | |
Long-term borrowings | | | 1,172,026 | | | | 1,142,782 | | | | 0 | | | | 1,142,782 | | | | 0 | |
Derivative financial liabilities | | | 2,605 | | | | 2,605 | | | | 0 | | | | 2,605 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,176,652 | | | $ | 1,176,652 | | | $ | 0 | | | $ | 1,176,652 | | | $ | 0 | |
| Securities available for sale | | | 4,541,925 | | | | 4,541,925 | | | | 5,367 | | | | 4,536,558 | | | | 0 | |
| Securities held to maturity | | | 1,002 | | | | 1,020 | | | | 0 | | | | 0 | | | | 1,020 | |
| Equity securities | | | 7,629 | | | | 7,629 | | | | 7,629 | | | | 0 | | | | 0 | |
| Other securities | | | 322,048 | | | | 305,946 | | | | 0 | | | | 0 | | | | 305,946 | |
| Loans held for sale | | | 56,879 | | | | 56,879 | | | | 0 | | | | 12,008 | | | | 44,871 | |
| Net loans | | | 20,323,420 | | | | 19,030,221 | | | | 0 | | | | 0 | | | | 19,030,221 | |
| Derivative financial assets, | | | 5,550 | | | | 5,550 | | | | 0 | | | | 4,674 | | | | 876 | |
| Mortgage servicing rights | | | 21,022 | | | | 41,880 | | | | 0 | | | | 0 | | | | 41,880 | |
| Deposits | | | 22,303,186 | | | | 22,249,061 | | | | 0 | | | | 22,249,061 | | | | 0 | |
| Short-term borrowings | | | 160,698 | | | | 160,698 | | | | 0 | | | | 160,698 | | | | 0 | |
| Long-term borrowings | | | 2,197,656 | | | | 2,161,108 | | | | 0 | | | | 2,161,108 | | | | 0 | |
| Derivative financial liabilities | | | 561 | | | | 561 | | | | 0 | | | | 0 | | | | 561 | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 3,758,170 | | | $ | 3,758,170 | | | $ | 0 | | | $ | 3,758,170 | | | $ | 0 | |
| Securities available for sale | | | 4,042,699 | | | | 4,042,699 | | | | 5,758 | | | | 4,036,941 | | | | 0 | |
| Securities held to maturity | | | 1,001 | | | | 1,020 | | | | 0 | | | | 0 | | | | 1,020 | |
| Equity securities | | | 12,404 | | | | 12,404 | | | | 12,404 | | | | 0 | | | | 0 | |
| Other securities | | | 239,645 | | | | 227,663 | | | | 0 | | | | 0 | | | | 227,663 | |
| Loans held for sale | | | 504,416 | | | | 504,416 | | | | 0 | | | | 40,307 | | | | 464,109 | |
| Net loans | | | 17,807,632 | | | | 17,119,202 | | | | 0 | | | | 0 | | | | 17,119,202 | |
| Derivative financial assets | | | 10,937 | | | | 10,937 | | | | 0 | | | | 1,432 | | | | 9,505 | |
| Mortgage servicing rights | | | 23,144 | | | | 27,355 | | | | 0 | | | | 0 | | | | 27,355 | |
| Deposits | | | 23,350,263 | | | | 23,334,431 | | | | 0 | | | | 23,334,431 | | | | 0 | |
| Short-term borrowings | | | 128,844 | | | | 128,844 | | | | 0 | | | | 128,844 | | | | 0 | |
| Long-term borrowings | | | 817,394 | | | | 773,291 | | | | 0 | | | | 773,291 | | | | 0 | |
| Derivative financial liabilities | | | 3,728 | | | | 3,728 | | | | 0 | | | | 3,197 | | | | 531 | |
137
NOTE
V—X—VARIABLE INTEREST ENTITIES
Variable interest entities
(VIEs)(“VIEs”) are entities that either have a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions, through voting rights, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). VIEs can be structured as corporations, trusts, partnerships, or other legal entities. United’s business practices include relationships with certain VIEs. For United, the business purpose of these relationships primarily consists of funding activities in the form of issuing trust preferred securities.
United currently sponsors
fifteentwenty statutory business trusts that were created for the purpose of raising funds that
qualifyoriginally qualified for Tier I
regulatory capital. As previously discussed, these trusts now are considered Tier II regulatory capital. These trusts, of which several were acquired through bank acquisitions, issued or participated in pools of trust preferred capital securities to third-party investors with the proceeds invested in junior subordinated debt securities of United. The Company, through a small capital contribution, owns 100% of the voting equity shares of each trust. The assets, liabilities, operations, and cash flows of each trust are solely related to the issuance, administration, and repayment of the preferred equity securities held by third-party investors. United fully and unconditionally guarantees the obligations of each trust and is obligated to redeem the junior subordinated debentures upon maturity.
The trusts utilized in these transactions are variable interest entities (VIEs) as the third-party equity holders lack a controlling financial interest in the trusts through their inability to make decisions that have a significant effect on the operations and success of the entities.
United does not consolidate these trusts as it is not the primary beneficiary of these entities because
United doesUnited’s wholly owned and indirect wholly owned statutory trust subsidiaries do not
holdhave a controlling financial interest
as evidenced byin the VIEs. A controlling financial interest is present when an enterprise has both the power to direct the activities of the
VIEsVIE that most significantly impact
theirthe VIE’s economic performance and
thean obligation to absorb losses
of, or the right to receive benefits
from, the VIEs that could potentially be significant to the
VIEs. Information relatedVIE. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. At December 31, 2022 and 2021, United’s investment (maximum exposure to
United’s statutoryloss) in these trusts
is presented in Note K, Notes to Consolidated Financial Statements.were $11,277,000 and $11,032,000, respectively.
United, through its banking
subsidiaries,subsidiary, also makes limited partner equity investments in various low income housing and community development partnerships sponsored by independent third-parties. United invests in these partnerships to either realize tax credits on its consolidated federal income tax return or for purposes of earning a return on its investment. These partnerships are considered VIEs as the limited partners lack a controlling financial interest in the entities through their inability to make decisions that have a significant effect on the operations and success of the partnerships.
United’s limited partner interests in these entities is immaterial, however; theseThese partnerships are not consolidated as United is not deemed to be the primary beneficiary.
The following table summarizes quantitative information about At December 31, 2022 and 2021, United’s significant involvementinvestment (maximum exposure to loss) in unconsolidated VIEs:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2017 | | | As of December 31, 2016 | |
| (In thousands) | | Aggregate
Assets | | | Aggregate
Liabilities | | | Risk Of
Loss(1) | | | Aggregate
Assets | | | Aggregate
Liabilities | | | Risk Of
Loss(1) | |
Trust preferred securities | | $ | 266,669 | | | $ | 257,674 | | | $ | 8,995 | | | $ | 240,668 | | | $ | 232,583 | | | $ | 8,085 | |
|
(1) Represents investment in VIEs. | |
NOTE W—SEGMENT INFORMATION
these low income housing and community development partnerships were $75,021,000 and $62,235,000, respectively, while related unfunded commitments were $77,143,000 and $69,894,000, respectively. As a resultof December 31, 2022, United expects to recover its remaining investments through the use of the Cardinal acquisition, tax credits that are generated by the investments.
NOTE Y—SEGMENT INFORMATION
United
now operates in two business segments: community banking and mortgage banking.
Prior to the Cardinal acquisition, United’s business activities were confined to just one reportable segment of community banking.Through its community banking segment, United offers a full range of products and services through various delivery channels. In particular, the community banking segment includes both commercial and consumer lending and provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. In addition, this segment provides customers with several choices of deposit products including demand deposit accounts, savings accounts and certificates of deposit as well as investment and financial advisory services to businesses and individuals, including financial planning, retirement/estate planning, and investment management. The mortgage banking segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market though United’s mortgage banking subsidiaries, George Mason.
Mason and Crescent. Crescent may retain servicing rights on their mortgage loans sold. At certain times, Crescent may purchase or sell rights to service loans from or to third parties. These rights are known as mortgage servicing rights provide the owner with the contractual right to receive a stream of cash flows in exchange for performing specified mortgage servicing functions.
138
The community banking segment provides the mortgage banking segment (George
Mason)Mason and Crescent) with short-term funds to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on
the primea Fed Funds target rate. These transactions are eliminated in the consolidation process.
The Company does not have any operating segments other than those reported. The “Other” category consists of financial information not directly attributable to a specific segment, including interest income from investments and net securities gains or losses of parent companies and their
non-banking
subsidiaries, interest expense related to subordinated notes of unconsolidated subsidiaries as well as the elimination ofnon-segment
related intercompany transactions such as management fees. The “Other” represents an overhead function rather than an operating segment.Information about the reportable segments and reconciliation of this information to the consolidated financial statements at and for the years ended December 31,
2017, 20162022, 2021 and
20152020 is as follows:
| | | | | | | | | | | | | | | | |
| | | At and For the Year Ended December 31, 2017 | |
| (In thousands) | | Community
Banking | | | Mortgage
Banking | | | Other | | | Consolidated | |
Net interest income | | $ | 558,622 | | | $ | (69 | ) | | $ | (9,556 | ) | | $ | 548,997 | |
Provision for loans losses | | | 28,406 | | | | 0 | | | | 0 | | | | 28,406 | |
Other income | | | 69,615 | | | | 58,532 | | | | 3,498 | | | | 131,645 | |
Other expense | | | 291,584 | | | | 62,072 | | | | 13,753 | | | | 367,409 | |
Income taxes | | | 139,980 | | | | (901 | ) | | | (4,833 | ) | | | 134,246 | |
| | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 168,267 | | | $ | (2,708 | ) | | $ | (14,978 | ) | | $ | 150,581 | |
| | | | | | | | | | | | | | | | |
Total assets (liabilities) | | $ | 18,761,508 | | | $ | 280,293 | | | $ | 17,158 | | | $ | 19,058,959 | |
Average assets (liabilities) | | | 17,385,448 | | | | 212,212 | | | | 19,769 | | | | 17,617,429 | |
| | | | | | | | | | | | |
| | | At and For the Year Ended December 31, 2016 | |
| (In thousands) | | Community
Banking | | | Other | | | Consolidated | |
Net interest income | | $ | 433,140 | | | $ | (7,809 | ) | | $ | 425,331 | |
Provision for loans losses | | | 24,509 | | | | 0 | | | | 24,509 | |
Other income | | | 72,618 | | | | (2,586 | ) | | | 70,032 | |
Other expense | | | 249,894 | | | | (1,698 | ) | | | 248,196 | |
Income taxes | | | 78,640 | | | | (3,065 | ) | | | 75,575 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 152,715 | | | $ | (5,632 | ) | | $ | 147,083 | |
| | | | | | | | | | | | |
Total assets (liabilities) | | $ | 14,528,394 | | | $ | (19,502 | ) | | $ | 14,508,892 | |
Average assets (liabilities) | | | 13,398,861 | | | | (22,058 | ) | | | 13,376,803 | |
| | | | | | | | | | | | |
| | | At and For the Year Ended December 31, 2015 | |
| (In thousands) | | Community
Banking | | | Other | | | Consolidated | |
Net interest income | | $ | 390,775 | | | $ | (6,651 | ) | | $ | 384,124 | |
Provision for loans losses | | | 22,574 | | | | 0 | | | | 22,574 | |
Other income | | | 75,656 | | | | (2,030 | ) | | | 73,626 | |
Other expense | | | 235,644 | | | | (3,957 | ) | | | 231,687 | |
Income taxes | | | 67,109 | | | | (1,579 | ) | | | 65,530 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 141,104 | | | $ | (3,145 | ) | | $ | 137,959 | |
| | | | | | | | | | | | |
Total assets (liabilities) | | $ | 12,592,321 | | | $ | (14,377 | ) | | $ | 12,577,944 | |
Average assets (liabilities) | | | 12,277,023 | | | | (11,908 | ) | | | 12,265,115 | |
| | | | | | | | | | | | | | | | | | | | |
| | | At and For the Year Ended December 31, 2022 | |
| | | | | | | | | | |
| | | | |
| Net interest income | | $ | 890,575 | | | $ | 10,599 | | | $ | (13,274 | ) | | $ | 8,531 | | | $ | 896,431 | |
| Provision for credit losses | | | 18,822 | | | | 0 | | | | 0 | | | | 0 | | | | 18,822 | |
| Other income | | | 99,133 | | | | 69,307 | | | | 3,294 | | | | (18,473 | ) | | | 153,261 | |
| Other expense | | | 472,813 | | | | 88,983 | | | | 3,233 | | | | (9,942 | ) | | | 555,087 | |
| Income taxes | | | 100,758 | | | | (1,858 | ) | | | (2,744 | ) | | | 0 | | | | 96,156 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 397,315 | | | $ | (7,219 | ) | | $ | (10,469 | ) | | $ | 0 | | | $ | 379,627 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets (liabilities) | | $ | 29,106,176 | | | $ | 428,727 | | | $ | 58,971 | | | $ | (104,494 | ) | | $ | 29,489,380 | |
| Average assets (liabilities) | | | 28,726,395 | | | | 442,184 | | | | 34,876 | | | | (129,607 | ) | | | 29,073,848 | |
| | | | | | | | | | | | | | | | | | | | |
| | | At and For the Year Ended December 31, 2021 | |
| | | | | | | | | | |
| | | | |
| Net interest income | | $ | 731,305 | | | $ | 10,497 | | | $ | (8,378 | ) | | $ | 9,310 | | | $ | 742,734 | |
| Provision for credit losses | | | (23,970 | ) | | | 0 | | | | 0 | | | | 0 | | | | (23,970 | ) |
| Other income | | | 100,010 | | | | 183,216 | | | | 3,769 | | | | (8,867 | ) | | | 278,128 | |
| Other expense | | | 443,493 | | | | 138,508 | | | | (465 | ) | | | 443 | | | | 581,979 | |
| Income taxes | | | 84,715 | | | | 11,275 | | | | (875 | ) | | | 0 | | | | 95,115 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 327,077 | | | $ | 43,930 | | | $ | (3,269 | ) | | $ | 0 | | | $ | 367,738 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets (liabilities) | | $ | 29,022,170 | | | $ | 691,642 | | | $ | 39,182 | | | $ | (424,092 | ) | | $ | 29,328,902 | |
| Average assets (liabilities) | | | 26,910,956 | | | | 659,105 | | | | 27,445 | | | | (341,411 | ) | | | 27,256,095 | |
| | | | | | | | | | | | | | | | | | | | |
| | | At and For the Year Ended December 31, 2020 | |
| | | | | | | | | | |
| | | | |
| Net interest income | | $ | 677,907 | | | $ | 8,853 | | | $ | (9,658 | ) | | $ | 12,671 | | | $ | 689,773 | |
| Provision for credit losses | | | 106,562 | | | | 0 | | | | 0 | | | | 0 | | | | 106,562 | |
| Other income | | | 90,121 | | | | 276,185 | | | | 730 | | | | (12,261 | ) | | | 354,775 | |
| Other expense | | | 423,963 | | | | 140,628 | | | | 13,245 | | | | 410 | | | | 578,246 | |
| Income taxes | | | 47,162 | | | | 27,698 | | | | (4,143 | ) | | | 0 | | | | 70,717 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 190,341 | | | $ | 116,712 | | | $ | (18,030 | ) | | $ | 0 | | | $ | 289,023 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets (liabilities) | | $ | 25,892,396 | | | $ | 870,151 | | | $ | 31,623 | | | $ | (609,923 | ) | | $ | 26,184,247 | |
| Average assets (liabilities) | | | 23,927,889 | | | | 651,778 | | | | 7,283 | | | | (449,880 | ) | | | 24,137,070 | |
NOTE
X—Z—QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 20172022 and 20162021 is summarized below (dollarsbelow:
| | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share data) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest income | | $ | 202,795 | | | $ | 227,771 | | | $ | 263,683 | | | $ | 307,741 | |
| Interest expense | | | 11,293 | | | | 12,868 | | | | 23,061 | | | | 58,337 | |
| Net interest income | | | 191,502 | | | | 214,903 | | | | 240,622 | | | | 249,404 | |
| Provision for credit losses | | | (3,410 | ) | | | (1,807 | ) | | | 7,671 | | | | 16,368 | |
139
| | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share data) | | | | | | | | | | | | |
| Mortgage banking income | | | 19,203 | | | | 12,445 | | | | 6,422 | | | | 4,620 | |
| Securities gains (losses), net | | | (251 | ) | | | 1,182 | | | | (206 | ) | | | 51 | |
| Other noninterest income | | | 27,073 | | | | 29,981 | | | | 26,533 | | | | 26,208 | |
| Noninterest expense | | | 139,175 | | | | 141,174 | | | | 137,196 | | | | 137,542 | |
| Income taxes | | | 20,098 | | | | 23,531 | | | | 25,919 | | | | 26,608 | |
| | | 81,664 | | | | 95,613 | | | | 102,585 | | | | 99,765 | |
| | | | | |
| | | | | | | | | | | | | | | | |
| Average shares outstanding (000s): | | | | | | | | | | | | | | | | |
| Basic | | | 136,058 | | | | 134,623 | | | | 134,182 | | | | 134,268 | |
| Diluted | | | 136,435 | | | | 134,864 | | | | 134,554 | | | | 134,799 | |
| Net income per share: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.60 | | | $ | 0.71 | | | $ | 0.76 | | | $ | 0.74 | |
| Diluted | | $ | 0.60 | | | $ | 0.71 | | | $ | 0.76 | | | $ | 0.74 | |
| Dividends per share | | $ | 0.36 | | | $ | 0.36 | | | $ | 0.36 | | | $ | 0.36 | |
| | | | | |
| | | | | | | | | | | | | | | | |
| Interest income | | $ | 205,657 | | | $ | 200,186 | | | $ | 194,080 | | | $ | 195,194 | |
| Interest expense | | | 14,697 | | | | 13,669 | | | | 12,501 | | | | 11,516 | |
| Net interest income | | | 190,960 | | | | 186,517 | | | | 181,579 | | | | 183,678 | |
| Provision for credit losses | | | 143 | | | | (8,879 | ) | | | (7,829 | ) | | | (7,405 | ) |
| Mortgage banking income | | | 65,395 | | | | 36,943 | | | | 42,012 | | | | 27,342 | |
| Securities losses, net | | | 2,609 | | | | 24 | | | | 82 | | | | (39 | ) |
| Other noninterest income | | | 24,576 | | | | 25,897 | | | | 26,537 | | | | 26,750 | |
| Noninterest expense | | | 148,934 | | | | 138,969 | | | | 142,283 | | | | 151,793 | |
| Income taxes | | | 27,565 | | | | 24,455 | | | | 23,604 | | | | 19,491 | |
| | | 106,898 | | | | 94,836 | | | | 92,152 | | | | 73,852 | |
| | | | | |
| | | | | | | | | | | | | | | | |
| Average shares outstanding (000s): | | | | | | | | | | | | | | | | |
| Basic | | | 128,636 | | | | 128,751 | | | | 128,763 | | | | 130,940 | |
| Diluted | | | 128,891 | | | | 129,034 | | | | 128,960 | | | | 131,296 | |
| Net income per share: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.83 | | | $ | 0.73 | | | $ | 0.71 | | | $ | 0.56 | |
| Diluted | | $ | 0.83 | | | $ | 0.73 | | | $ | 0.71 | | | $ | 0.56 | |
| Dividends per share | | $ | 0.35 | | | $ | 0.35 | | | $ | 0.35 | | | $ | 0.36 | |
(1) For further information, see the related discussion “Quarterly Results” included in thousands, except for per share data):Management’s Discussion and Analysis.
140
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 1st Quarter | | | 2nd Quarter | | | 3rd Quarter | | | 4th Quarter | |
2017 | | | | | | | | | | | | | | | | |
Interest income | | $ | 120,758 | | | $ | 154,947 | | | $ | 171,583 | | | $ | 176,518 | |
Interest expense | | | 13,138 | | | | 18,702 | | | | 21,307 | | | | 21,662 | |
Net interest income | | | 107,620 | | | | 136,245 | | | | 150,276 | | | | 154,856 | |
Provision for credit losses | | | 5,899 | | | | 8,251 | | | | 7,279 | | | | 6,977 | |
Mortgage banking income | | | 675 | | | | 22,537 | | | | 20,385 | | | | 15,310 | |
Securities gains (losses), net | | | 3,940 | | | | 747 | | | | 467 | | | | 430 | |
Other noninterest income | | | 15,531 | | | | 17,222 | | | | 17,377 | | | | 17,024 | |
Noninterest expense | | | 62,842 | | | | 112,137 | | | | 96,652 | | | | 95,778 | |
Income taxes | | | 20,216 | | | | 19,304 | | | | 27,836 | | | | 66,890 | |
Net income(1) | | | 38,809 | | | | 37,059 | | | | 56,738 | | | | 17,975 | |
| | | | |
Per share data: | | | | | | | | | | | | | | | | |
Average shares outstanding (000s): | | | | | | | | | | | | | | | | |
Basic | | | 80,902 | | | | 99,198 | | | | 104,760 | | | | 104,808 | |
Diluted | | | 81,307 | | | | 99,620 | | | | 105,068 | | | | 105,125 | |
Net income per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.48 | | | $ | 0.37 | | | $ | 0.54 | | | $ | 0.17 | |
Diluted | | $ | 0.48 | | | $ | 0.37 | | | $ | 0.54 | | | $ | 0.17 | |
Dividends per share | | $ | 0.33 | | | $ | 0.33 | | | $ | 0.33 | | | $ | 0.34 | |
2016 | | | | | | | | | | | | | | | | |
Interest income | | $ | 108,496 | | | $ | 113,087 | | | $ | 123,137 | | | $ | 125,621 | |
Interest expense | | | 10,212 | | | | 10,362 | | | | 12,068 | | | | 12,368 | |
Net interest income | | | 98,284 | | | | 102,725 | | | | 111,069 | | | | 113,253 | |
Provision for credit losses | | | 4,035 | | | | 7,667 | | | | 6,988 | | | | 5,819 | |
Mortgage banking income | | | 728 | | | | 789 | | | | 982 | | | | 951 | |
Securities losses, net | | | 4 | | | | 213 | | | | 1 | | | | 62 | |
Other noninterest income | | | 15,660 | | | | 16,965 | | | | 18,038 | | | | 15,639 | |
Noninterest expense | | | 58,056 | | | | 64,855 | | | | 62,777 | | | | 62,508 | |
Income taxes | | | 17,879 | | | | 16,378 | | | | 18,846 | | | | 22,472 | |
Net income(1) | | | 34,706 | | | | 31,792 | | | | 41,479 | | | | 39,106 | |
| | | | |
Per share data: | | | | | | | | | | | | | | | | |
Average shares outstanding (000s): | | | | | | | | | | | | | | | | |
Basic | | | 69,497 | | | | 71,484 | | | | 76,219 | | | | 76,864 | |
Diluted | | | 69,714 | | | | 71,809 | | | | 76,648 | | | | 77,303 | |
Net income per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.50 | | | $ | 0.44 | | | $ | 0.54 | | | $ | 0.51 | |
Diluted | | $ | 0.50 | | | $ | 0.44 | | | $ | 0.54 | | | $ | 0.51 | |
Dividends per share | | $ | 0.33 | | | $ | 0.33 | | | $ | 0.33 | | | $ | 0.33 | |
(1) | For further information, see the related discussion “Quarterly Results” included in Management’s Discussion and Analysis. |
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
This item is omitted since it is not applicable.
| Item 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
United Bankshares, Inc. (the Company)“Company”) maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this report conducted by the Company’s management, with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer believe that these controls and procedures are effective to ensure that the Company is able to collect, process and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.
Management’s Report on Internal Control over Financial Reporting
Management’s Report on internal control over financial reporting and the audit report of Ernst & Young LLP, the Company’s independent registered public accounting firm, on internal control over financial reporting is included on pages 69-7067-68 of this report and are incorporated in this Item 9A by reference.
Changes In Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined inRule 13a-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| Item 9B. | OTHER INFORMATION |
United entered into an employment contract with Richard M. Adams, the Chairman of the Board of Directors and Chief Executive Officer of the Company effective February 28, 2011. The original term of Mr. Adams’ employment contract was for three years, with the provision that the contract could be extended annually for one (1) year to maintain a rolling three (3) year contract.
At the Compensation Committee (the “Committee”) meeting of the Company on February 26, 2018, the Committee approved the extension of the employment contract with Mr. Adams for an additional year until March 31, 2021.
The Committee also approved amendments to the United Bankshares, Inc. Supplemental Executive Retirement Plan Agreements (“SERPs”) with Richard M. Adams, Jr., James J. Consagra, Jr., Mark Tatterson and Craige Smith at its meeting on February 26, 2018 to revise the vesting and non-competition provisions in the SERPs as follows:
The SERP benefit will be deemed to be 100% vested and the executive will not be subject to the one- year non-compete restrictions under the SERP following a change of control in the event of (i) an involuntary termination other than for “Cause,” or (ii) any resignation (whether voluntary, with or without Good Reason, upon retirement, etc.).
Even if no change of control occurs, the SERP benefit will be deemed to be 100% vested and the executive will not be subject to the one- year non-compete restrictions under the SERP in the event of (i) a voluntary resignation at any time for “Good Reason” or (ii) an involuntary termination of the executive other than for “Cause.”
The applicable SERP benefit will be deemed to be 100% vested executive if the executive becomes Disabled.
If no change of control has occurred, an executive who resigns without “Good Reason” will remain subject to the applicable vesting schedule and the one year non-compete provisions in the SERP.
In all cases, whether or not a change of control has occurred, a termination for “Cause” will result in a forfeiture of the SERP benefit.
Provisions in the SERPs which provide for forfeiture due to suicide or misstatement were deleted.
At its meeting on November 10, 2017, the Committee approved amendments to the SERPs with Richard M. Adams, Jr., James J. Consagra, Jr., Mark Tatterson and Craige Smith and the Amended and Restated Change of Control Agreements with Richard M. Adams, Jr. and James C. Consagra, Jr. to amend the definition of disability to comply with the final rules related to disability claims procedures recently issued by the U.S. Department of Labor.
The above amendments are set forth in the following documents, attached hereto as follows: (i) Form of 2017 Amendment to Amended and Restated Change of Control Agreement for Richard M. Adams, Jr. and James J. Consagra, Jr. attached hereto as Exhibit 10.6; (ii) Form of Second Amendment to 2008 Amended and Restated United Bankshares, Inc. Supplemental Executive Retirement Agreement for Richard M. Adams, Jr. and James J. Consagra, Jr. attached hereto as Exhibit 10.8; and (iii) Form of First Amendment to United Bankshares, Inc. Supplemental Executive Retirement Agreement for Craige Smith and Mark Tatterson attached hereto as Exhibit 10.12.
UNITED BANKSHARES, INC.
FORM10-K, PART IIINone
| Item 9C. | DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
None
141
UNITED BANKSHARES, INC.
FORM 10-K, PART III
| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information regarding directors and executive officers of the registrant including their reporting compliance under Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference from United’s definitive proxy statement for the 20182023 Annual Meeting of Shareholders under the caption “Directors Whose Terms Expire in 20182023 and Nominees for Directors” under the heading “PROPOSAL 1: ELECTION OF DIRECTORS”, under the caption “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” under the heading “COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and under the captions “Executive Officers” and “Family Relationships” under the heading “GOVERNANCE OF THE COMPANY.”
United has adopted a code of ethics for its Chief Executive Officer, Chief Financial Officer, Controller and persons performing similar functions of the registrant in accordance with Section 406 of the Sarbanes-Oxley Act of 2002. A copy of the code of ethics is posted on United’s web site atwww.ubsi-inc.com.
Information related to the registrant’s audit committee and its financial expert in accordance with Section 407 of the Sarbanes-Oxley Act of 2002 is incorporated by reference from United’s definitive proxy statement for the 20182023 Annual Meeting of Shareholders under the captions “The Audit Committee” and the “Audit Committee Financial Expert” under the heading “GOVERNANCE OF THE COMPANY.”
Since the disclosure of the procedures in the definitive proxy statement for the 20172022 Annual Meeting of Shareholders, United has not adopted any changes to the procedures by which shareholders may recommend nominees to United’s Board of Directors as set forth in Article II, Section 5 of the Restated Bylaws of United.
| Item 11. | EXECUTIVE COMPENSATION |
Information regarding executive compensation is incorporated by reference from United’s definitive proxy statement for the 20182023 Annual Meeting of Shareholders under the heading of “EXECUTIVE COMPENSATION”, under the heading “COMPENSATION DISCUSSION AND ANALYSIS (CD&A)”, and under the heading “REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.”
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information regarding security ownership of certain beneficial owners and management and securities authorized under equity compensation plans is incorporated by reference from United’s definitive proxy statement for the 20182023 Annual Meeting of Shareholders under the caption “Directors Whose Terms Expire in 20182023 and Nominees for Directors” under the heading “PROPOSAL 1: ELECTION OF DIRECTORS” and under the captions “Beneficial Ownership of Directors and Named Executive Officers”, “Principal Shareholders of United” and “Related Shareholder Matters” under the heading “COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.”
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information regarding certain relationships and related transactions is incorporated by reference from United’s definitive proxy statement for the 20182023 Annual Meeting of Shareholders under the captions of “Related Party Transactions” and “Independence of Directors” under the heading “GOVERNANCE OF THE COMPANY.”
142
| Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Information regarding approval of audit andnon-audit services by the Audit Committee as well as fees paid to auditors is incorporated by reference from United’s definitive proxy statement for the 20182023 Annual Meeting of Shareholders under the captions“Pre-Approval Policies and Procedures” and “Independent Registered Public Accounting Firm Fees Information” under the heading “AUDIT COMMITTEE AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.”
143
UNITED BANKSHARES, INC.
FORM10-K, PART IV
| Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| | (a) | List of Documents Filed as Part of This Report: |
United’s consolidated financial statements required in response to this Item are incorporated by reference from Item 8 of this Annual Report on Form10-K.
| | (2) | Financial Statement Schedules |
United is not filing separate financial statement schedules because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto.
| | (3) | Exhibits Required by Item 601 |
Listing of Exhibits—Exhibits - See the Exhibits’ Index to Exhibits on page147145 of this Form10-K.
| | (b) | Exhibits — The exhibits to this Form10-K begin on page151149. |
| | (c) | Consolidated Financial Statement Schedules —-- All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable or pertain to items as to which the required disclosures have been made elsewhere in the financial statements and notes thereto, and therefore have been omitted. |
All reports filed electronically by United with the Securities and Exchange Commission (SEC), including the annual report on Form10-K, quarterly reports on Form10-Q, and current reports on Form8-K, as well as any amendments to those reports, are accessible at no cost on United’s web site atwww.ubsi-inc.com. These filings are also accessible on the SEC’s web site at www.sec.gov.
144
UNITED BANKSHARES, INC.
FORM10-K
INDEX TO EXHIBITS
| | |
Exhibit
No. | | Description |
| |
| 2.1 | | Agreement and Plan of ReorganizationMerger, dated November 17, 2019, by and amongbetween United Bankshares, UBV Holding Company, LLCInc. and CardinalCarolina Financial Corporation (incorporated into this filing by reference to Exhibit 2.1 to the Form8-K dated AugustNovember 17, 20162019 and filed AugustNovember 18, 20162019 for United Bankshares, Inc., File No. 0-13322) 002-86947) |
| |
| 2.2 | | Agreement and Plan of Reorganization, dated June 2, 2021, by and between United Bankshares, Inc. and Community Bankers Trust Corporation (incorporated into this filing by reference to Exhibit 2.1 to the Form 8-K dated December 3, 2021 and filed December 3, 2021 for United Bankshares, Inc., File No. 002-86947) |
| |
| 3.1 | | Amended and Restated Articles of Incorporation (incorporated into this filing by reference to aExhibit 3.1 to the Quarterly Report on Form10-Q dated March 31, 2017 and filed May 9, 2017 for United Bankshares, Inc., FileNo.0-13322)No.002-86947) |
| |
| 3.2 | | Restated Bylaws (incorporated into this filing by reference to aExhibit 3.1 to the Current Report on Form8-K dated January 25, 2010 and filed January 29, 2010on March 20, 2020 for United Bankshares, Inc., FileNo.0-13322)No.002-86947) |
| |
10.14.1 | | Fourth Amended Employment Agreement for Richard M. AdamsDescription of Registrant’s Securities (incorporated into this filing by reference to Exhibit 10.5 to the 2011Annual Report on Form10-K dated February 28, 2012December 31, 2019 and filed February 29, 2012March 2, 2020 for United Bankshares, Inc., File No. 0-13322)No.002-86947) |
| |
10.210.1 | | ThirdFifth Amended and Restated Employment Agreement forbetween United Bankshares, Inc. and Richard M. Adams (incorporated into this filing by reference to Exhibit 10.1 to the Current Report on Form8-K dated November 24, 2008February 28, 2022 and filed November 26, 2008March 1, 2022 for United Bankshares, Inc., File No. 0-13322) 002-86947) |
| |
10.310.2 | | Second Amended and Restated Supplemental Retirement Agreement for Richard M. Adams (incorporated into this filing by reference to Exhibit 10.4 to the Form8-K dated November 24, 2008 and filed November 26, 2008 for United Bankshares, Inc., File No. 0-13322) 002-86947) |
| |
10.410.3 | | First Amendment to Second Amended and Restated Supplemental Retirement Agreement for Richard M. Adams (incorporated into this filing by reference to Exhibit 10.6 to the 2011 Form10-K dated February 28, 2012December 31, 2011 and filed February 29, 2012 for United Bankshares, Inc., File No. 0-13322) 002-86947) |
| |
10.510.4 | | Amended and Restated Change of Control Agreement for Richard M. Adams, Jr. and James J. Consagra, Jr. (incorporated into this filing by reference to Exhibit 10.9 to the Form8-K dated November 24, 2008 and filed November 26, 2008 for United Bankshares, Inc., File No. 0-13322) 002-86947) |
| |
10.610.5 | | Form of 2017 Amendment to Amended and Restated Change of Control Agreement for Richard M. Adams, Jr. and James J. Consagra, Jr. (filed herewith)(incorporated into this filing by reference to Exhibit 10.6 to the 2017 Form 10-K dated December 31, 2017 and filed March 1, 2018 for United Bankshares, Inc. File No.002-86947) |
145
| | |
Exhibit
No. | | Description |
| |
10.710.6 | | Form of the Amendment and First Restatement of the United Bankshares, Inc. Supplemental Executive Retirement Agreement (Tier 2 SERP) for Richard M. Adams, Jr. and James J. Consagra, Jr., Executive Vice PresidentVice-President (incorporated into this filing by reference to Exhibit 10.6 to theForm 8-K dated November 24, 2008 and filed November 26, 2008 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
| |
10.810.7 | | Form of Second Amendment to 2008 Amended and Restated United Bankshares, Inc. Supplemental Executive Retirement Agreement for Richard M. Adams, Jr. and James J. Consagra, Jr. (filed herewith)(incorporated into this filing by reference to Exhibit 10.8 to the 2017 Form 10-K dated December 31, 2017 and filed March 1, 2018 for United Bankshares, Inc. File No.002-86947) |
| | |
Exhibit
No. | | Description
|
| |
10.910.8 | | Employment Agreement with J. Paul McNamara (incorporated into this filing by reference to Exhibit 10.110.3 toForm S-4 Registration Statement of United Bankshares, Inc., RegistrationNo. 33-106890 filed July 9, 2003) |
| |
10.1010.9 | | Supplemental Executive Retirement Agreement for Craige Smith (incorporated into this filing by reference to Exhibit 10.1 to the 2013Form 10-K dated and filed on March 3, 2014 for United Bankshares, Inc., FileNo. 0-13322)
|
| |
10.11 | | Supplemental Executive Retirement Agreement for Mark Tatterson (incorporated into this filing by reference to Exhibit 10.2 to the 2013Form 10-K dated December 31, 2013 and filed on March 3, 2014 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
| |
10.1210.10 | | Form of First Amendment to United Bankshares, Inc. Supplemental Executive Retirement Agreement for Craige Smith and Mark Tatterson (filed herewith)(incorporated into this filing by reference to Exhibit 10.12 to the 2017 Form 10-K dated December 31, 2017 and filed March 1, 2018 for United Bankshares, Inc. File No.002-86947) |
| |
10.1310.11 | | Form of Independent Contractor Agreement with Peter A. Converse (incorporated into this filing by reference to Exhibit 10.2 to theForm 8-K dated January 31, 2014 and filed February 3, 2014 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
| |
10.1410.12 | | Amended and Restated Employment Agreement by and between United Bankshares, Inc., United Bank and Michael P. Fitzgerald (incorporated into this filing by reference to Exhibit 10.2 to theForm 8-K dated June 3, 2016 and filed June 6, 2016 for United Bankshares, Inc., FileNo. 0-13322) No.002-86947) |
| |
10.1510.13 | | Form of Supplemental Executive Retirement Agreement with Darren K. Williams and Douglas B. Ernest (filed herewith)(incorporated into this filing by reference to Exhibit 10.15 to the 2017 Form 10-K dated December 31, 2017 and filed March 1, 2018 for United Bankshares, Inc. File No.002-86947) |
| |
10.1610.14 | | Second Amended and Restated United Bankshares, Inc. Non-Qualified Retirement and Savings Plan (incorporated into this filing by reference to Exhibit 10.3 to theForm 8-K dated November 24, 2008 and filed November 26, 2008 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
| |
10.1710.15 | | Amended and Restated United Bankshares, Inc. Management Stock Bonus Plan (incorporated into this filing by reference to Exhibit 10.10 to theForm 8-K dated November 24, 2008 and filed November 26, 2008 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
| |
10.1810.16 | | United Bankshares, Inc., United Bank, Inc. and United Bank Deferred Compensation Plan for Directors (incorporated into this filing by reference to Exhibit 10.12 to theForm 8-K dated November 24, 2008 and filed November 26, 2008 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
| |
10.19
10.17 | | United Bankshares, Inc., United Bank, Inc. and United Bank Rabbi Trust Agreement for Deferred Compensation Plan for Directors (incorporated into this filing by reference to Exhibit 10.13 to theForm 8-K dated November 24, 2008 and filed November 26, 2008 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
146
| | |
Exhibit
No. | | Description |
| |
10.2010.18 | | United Bankshares, Inc. 2011 Long-term Incentive Plan (incorporated into this filing by reference to Exhibit A to 2011 Proxy Statement dated April 8, 2011 and filed April 8, 2011 for United Bankshares, Inc., FileNo. 0-13322) |
| |
10.21 | | United Bankshares, Inc. 2016 Long-term Incentive Plan (incorporated into this filing by reference to Exhibit A to 2016 Proxy Statement dated April 4, 2016 and filed April 1, 2016 for United Bankshares, Inc., FileNo. 0-13322)002-86947) |
| |
12.110.19 | | United Bankshares, Inc. 2020 Long-term Incentive Plan (incorporated into this filing by reference to Exhibit A to 2020 Proxy Statement Re: Computation of Ratios (filed herewith)dated March 30, 2020 and filed March 30, 2020 for United Bankshares, Inc., File No. 002-86947) |
| |
| 21.1 | | Subsidiaries of the Registrant (filed herewith) |
| |
| 23.1 | | Consent of Ernst & Young LLP (filed herewith) |
| |
| 31.1 | | Certification as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer (filed herewith) |
| |
| 31.2 | | Certification as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer (filed herewith) |
| Item 16. | FORM 10-K SUMMARY |
None
147
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNITED BANKSHARES, INC.
(Registrant)
|
UNITED BANKSHARES, INC. |
(Registrant) |
|
| /s/ Richard M. Adams, Jr. |
Chairman of the BoardChief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | |
| Signatures | | | | Title | | Date |
| | | |
/s/ Richard M. Adams, Jr. | | | | Chairman of the Board, Director, and Chief Executive Officer Director | | March 1, 20182023 |
| | | |
/s/ W. Mark Tatterson | | | | Chief Financial Officer Chief Accounting Officer | | March 1, 20182023 |
| | | |
/s/ Theodore J. GeorgelasRichard M. Adams | | | | Executive Chairman Director | | March 1, 20182023 |
| | | |
/s/ J. Paul McNamara | | | | Director | | March 1, 20182023 |
| | | |
/s/ Jerold L. Rexroad | | | | Director | | March 1, 2023 |
| | | |
/s/ Charles L. Capito, Jr. | | | | Director | | March 1, 2023 |
| | | |
/s/ Michael P. Fitzgerald | | | | Director | | March 1, 20182023 |
| | | |
/s/ Peter A. Converse | | | | Director | | March 1, 2023 |
| | | |
/s/ Gary G. White | | | | Director | | March 1, 2023 |
| | | |
/s/ Mary K. Weddle | | | | Director | | March 1, 2023 |
| | | |
/s/ Diana Lewis Jackson | | | | Director | | March 1, 2023 |
| | | |
/s/ Mark R. Nesselroad | | | | Director | | March 1, 2018 |
| | | |
/s/ Peter A. Converse
| | | | Director | | March 1, 20182023 |
| | | |
/s/ P. Clinton Winter | | | | Director | | March 1, 20182023 |
| | | |
/s/ Mary K. WeddleLacy I. Rice, III | | | | Director | | March 1, 20182023 |
| | | |
/s/ Robert G. AstorgAlbert H. Small, Jr. | | | | Director | | March 1, 2018 |
| | | |
/s/ Gary G. White
| | | | Director | | March 1, 20182023 |
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