2023 UNITED BANKSHARES, INC. AND SUBSIDIARIES FORM10-Q Management’s Discussion and Analysis of Financial Condition and Results of Operations 2 Assets Cash and due from banks Interest-bearing deposits with other banks Federal funds sold Total cash and cash equivalents Securities available for sale at estimated fair value (amortized cost-$1,654,657 at September 30, 2017 and $1,277,639 at December 31, 2016) Securities held to maturity (estimated fair value-$19,909 at September 30, 2017 and $31,178 at December 31, 2016) Other investment securities Loans held for sale (at fair value-$311,186 at September 30, 2017 and $0 at December 31, 2016) Loans Less: Unearned income Loans net of unearned income Less: Allowance for loan losses Net loans Bank premises and equipment Goodwill Accrued interest receivable Other assets TOTAL ASSETS Liabilities Deposits: Noninterest-bearing Interest-bearing Total deposits Borrowings: Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank borrowings Other long-term borrowings Reserve for lending-related commitments Accrued expenses and other liabilities TOTAL LIABILITIES Shareholders’ Equity Preferred stock, $1.00 par value;Authorized-50,000,000 shares, none issued Common stock, $2.50 par value;Authorized-200,000,000 shares;issued-105,011,878 and 81,068,252 at September 30, 2017 and December 31, 2016, respectively, including 28,752 and 28,278 shares in treasury at September 30, 2017 and December 31, 2016, respectively Surplus Retained earnings Accumulated other comprehensive loss Treasury stock, at cost TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Interest income Interest and fees on loans Interest on federal funds sold and other short-term investments Interest and dividends on securities: Taxable Tax-exempt Total interest income Interest expense Interest on deposits Interest on short-term borrowings Interest on long-term borrowings Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Other income Fees from trust and brokerage services Fees from deposit services Bankcard fees and merchant discounts Other service charges, commissions, and fees Income from bank-owned life insurance Income from mortgage banking activities Other income Total other-than-temporary impairment losses Portion of loss recognized in other comprehensive income Net other-than-temporary impairment losses Net gains on sales/calls of investment securities Net investment securities gains Total other income Other expense Employee compensation Employee benefits Net occupancy expense Other real estate owned (OREO) expense Equipment expense Data processing expense Bankcard processing expense FDIC insurance expense Other expense Total other expense Income before income taxes Income taxes Net income Earnings per common share: Basic Diluted Dividends per common share Average outstanding shares: Basic Diluted Net income Change in net unrealized gain (loss) onavailable-for-sale (AFS) Accretion of the net unrealized loss on the transfer of AFS securities toheld-to-maturity (HTM) securities, net of tax Change in pension plan assets, net of tax Comprehensive income, net of tax Balance at January 1, 2017 Comprehensive income: Net income Other comprehensive income, net of tax: Total comprehensive income, net of tax Stock based compensation expense Acquisition of Cardinal Financial Corporation (23,690,589 shares) Purchase of treasury stock (82 shares) Distribution of treasury stock from deferred compensation plan (28 shares) Cash dividends ($0.99 per share) Grant of restricted stock (89,475 shares) Forfeiture of restricted stock (420 shares) Common stock options exercised (163,562 shares) Balance at September 30, 2017 NET CASH PROVIDED BY OPERATING ACTIVITIES INVESTING ACTIVITIES Proceeds from maturities and calls of securities held to maturity Proceeds from sales of securities available for sale Proceeds from maturities and calls of securities available for sale Purchases of securities available for sale Purchases of bank premises and equipment Proceeds from sales of bank premises and equipment Purchases of other investment securities Proceeds from sales and redemptions of other investment securities Proceeds from the sales of OREO properties Acquisition of subsidiaries, net of cash paid Net change in loans NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Cash dividends paid Acquisition of treasury stock Proceeds from exercise of stock options Repayment of long-term Federal Home Loan Bank borrowings Proceeds from issuance of long-term Federal Home Loan Bank borrowings Distribution of treasury stock for deferred compensation plan Changes in: Deposits Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period Supplemental information Noncash investing activities: Transfers of loans to OREO However, ASU Contractually required principal and interest at acquisition Contractual cash flows not expected to be collected Expected cash flows at acquisition Interest component of expected cash flows Basis in acquired loans at acquisition – estimated fair value Purchase price: Value of common shares issued (23,690,589 shares) Fair value of stock options assumed Cash for fractional shares Total purchase price Identifiable assets: Cash and cash equivalents Investment securities Loans held for sale Loans Premises and equipment Core deposit intangibles George Mason trade name intangible Other assets Total identifiable assets Identifiable liabilities: Deposits Short-term borrowings Long-term borrowings Unfavorable lease liability Other liabilities Total identifiable liabilities Preliminary fair value of net assets acquired including identifiable intangible assets Preliminary resulting goodwill Total Revenues (1) Net Income Contractually required principal and interest at acquisition Contractual cash flows not expected to be collected Expected cash flows at acquisition Interest component of expected cash flows Basis in acquired loans at acquisition – estimated fair value Purchase price: Value of common shares issued (6,527,746 shares) Fair value of stock options assumed Cash for fractional shares Total purchase price Identifiable assets: Cash and cash equivalents Investment securities Loans Premises and equipment Core deposit intangibles Other assets Total identifiable assets Identifiable liabilities: Deposits Short-term borrowings Long-term borrowings Other liabilities Total identifiable liabilities Fair value of net assets acquired including identifiable intangible assets Resulting goodwill Sale U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Non-agency Commercial mortgage-backed securities Agency Asset-backed securities Trust preferred collateralized debt obligations Single issue trust preferred securities Other corporate securities Marketable equity securities Total U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Non-agency Commercial mortgage-backed securities Agency Asset-backed securities Trust preferred collateralized debt obligations Single issue trust preferred securities Other corporate securities Marketable equity securities Total U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Non-agency Commercial mortgage-backed securities Agency Asset-backed securities Trust preferred collateralized debt obligations Single issue trust preferred securities Marketable equity securities Total U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Non-agency Commercial mortgage-backed securities Agency Asset-backed securities Trust preferred collateralized debt obligations Single issue trust preferred securities Marketable equity securities Total Generally, the significant amount of gross unrealized losses on available for sale securities at June 30, 2023 was the result of rising interest rates. available to the municipality. The majority of the portfolio was rated AA or higher, and by type. 2023. 2023. Class Senior – Bank Mezzanine – Bank (now in senior position) Mezzanine – Bank Mezzanine – Bank & Insurance (combination) Totals Balance of cumulative credit losses at beginning of period Additional credit losses on securities for which OTTI was previously recognized Reductions during the period for securities for which the amount previously recognized in other comprehensive income was recognized in earnings Balance of cumulative credit losses at end of period at June 30, 2023. Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Marketable equity securities Total U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Single issue trust preferred securities Other corporate securities Total U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Single issue trust preferred securities Other corporate securities Total second quarter. There were no Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total its cost method AND LEASES Commercial, financial and agricultural: Owner-occupied commercial real estate Nonowner-occupied commercial real estate Other commercial loans Total commercial, financial & agricultural Residential real estate Construction & land development Consumer: Bankcard Other consumer Total gross loans Accretable yield at the beginning of the period Accretion (including cash recoveries) Additions Net reclassifications to accretable from non-accretable Disposals (including maturities, foreclosures, and charge-offs) Accretable yield at the end of the period United considers a loan to be past due when it is 30 days or more past its contractual payment due date. 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 Commercial real estate: Owner-occupied Nonowner-occupied Other commercial Residential real estate Construction & land development Consumer: Bankcard Other consumer Total Commercial real estate: Owner-occupied Nonowner-occupied Other commercial Residential real estate Construction & land development Consumer: Bankcard Other consumer Total Troubled Debt Restructurings Commercial real estate: Owner-occupied Nonowner-occupied Other commercial Residential real estate Construction & land development Consumer: Bankcard Other consumer Total Commercial real estate: Owner-occupied Nonowner-occupied Other commercial Residential real estate Construction & land development Consumer: Bankcard Other consumer Total Commercial real estate: Owner-occupied Nonowner-occupied Other commercial Residential real estate Construction & land development Consumer: Bankcard Other consumer Total Commercial real estate: Owner-occupied Nonowner-occupied Other commercial Residential real estate Construction & land development Consumer: Bankcard Other consumer Total nonaccrual loans was insignificant during the three and six months ended June 30, 2023 and 2022. As of September 30, 2017 Grade: Pass Special mention Substandard Doubtful Total As of December 31, 2016 Grade: Pass Special mention Substandard Doubtful Total As of September 30, 2017 Grade: Pass Special mention Substandard Doubtful Total As of December 31, 2016 Grade: Pass Special mention Substandard Doubtful Total Allowance for Allowance for Loan Losses: Beginning balance Charge-offs Recoveries Provision Ending balance Amortized intangible assets: Core deposit intangible assets Non-amortized intangible assets: George Mason trade name Goodwill not subject to amortization Amortized intangible assets: Core deposit intangible assets Goodwill not subject to amortization Year 2017 2018 2019 2020 2021 and thereafter 2022: Year 2017 2018 2019 2020 2021 and thereafter Total 2023 and December 31, 2022. seven years. the following table on a net basis. The related fair value on a net basis approximates zero. Derivatives designated as hedging instruments Fair Value Hedges: Interest rate swap contracts (hedging commercial loans) Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments Interest rate swap contracts TBA mortgage-backed securities Interest rate lock commitments Total derivatives not designated as hedging instruments Total asset derivatives Derivatives designated as hedging instruments Fair Value Hedges: Interest rate swap contracts Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments Interest rate swap contracts Forward loan sales commitments Interest rate lock commitments Total derivatives not designated as hedging instruments Total liability derivatives 2022. Derivatives in hedging relationships Fair Value Hedges: Interest rate swap contracts Total derivatives in hedging relationships Derivatives not designated as hedging instruments Forward loan sales commitments TBA mortgage-backed securities Interest rate lock commitments Total derivatives not designated as hedging instruments Total derivatives Derivatives in fair value hedging relationships Fair Value Hedges: Interest rate swap contracts Cash Flow Hedges: Forward loan sales commitments Total derivatives in hedging relationships Derivatives not designated as hedging instruments Forward loan sales commitments TBA mortgage-backed securities Interest rate lock commitments Total derivatives not designated as hedging instruments Total derivatives Level 1 Level 2 Level 3 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. statements. 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 Description Assets Available for sale debt securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Non-agency Commercial mortgage-backed securities Agency Asset-backed securities Trust preferred collateralized debt obligations Single issue trust preferred securities Other corporate securities Total available for sale debt securities Available for sale equity securities: Financial services industry Equity mutual funds (1) Other equity securities Total available for sale equity securities Total available for sale securities Loans held for sale Derivative financial assets: Interest rate swap contracts Interest rate lock commitments TBA mortgage-backed securities Total derivative financial assets Liabilities Description Derivative financial liabilities: Interest rate swap contracts Forward sales commitments Interest rate lock commitments Total derivative financial liabilities Description Assets Available for sale debt securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies State and political subdivisions Residential mortgage-backed securities Agency Non-agency Asset-backed securities Commercial mortgage-backed securities Agency Trust preferred collateralized debt obligations Single issue trust preferred securities Other corporate securities Total available for sale debt securities Available for sale equity securities: Financial services industry Equity mutual funds (1) Other equity securities Total available for sale equity securities Total available for sale securities Derivative financial assets: Interest rate swap contracts Liabilities Derivative financial liabilities: Interest rate swap contracts 2022. Balance, beginning of period Total gains or losses (realized/unrealized): Included in earnings (or changes in net assets) Included in other comprehensive income Sales Balance, end of period 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 Balance, beginning of period Acquired in Cardinal merger Originations Sales Total gains or losses during the period recognized in earnings Transfers in and/or out of Level 3 Balance, end of period 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 Balance, beginning of period Acquired in Cardinal merger Transfers other Balance, end of period 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 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. Description Assets Loans held for sale Income from mortgage banking activities Description Assets Loans held for sale 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 2022. Description Assets Impaired Loans OREO Description Assets Impaired Loans OREO September 30, 2017 Cash and cash equivalents Securities available for sale Securities held to maturity Other securities Loans held for sale Loans Derivative financial assets Deposits Short-term borrowings Long-term borrowings Derivative financial liabilities December 31, 2016 Cash and cash equivalents Securities available for sale Securities held to maturity Other securities Loans held for sale Loans Derivative financial assets Deposits Short-term borrowings Long-term borrowings Derivative financial liabilities during any calendar year is Outstanding at January 1, 2017 Assumed in Cardinal merger Granted Exercised Forfeited or expired Outstanding at September 30, 2017 Exercisable at September 30, 2017 Nonvested at January 1, 2017 Granted Vested Forfeited or expired Nonvested at September 30, 2017 2023: As of June 30, 2023, the total unrecognized compensation cost related to nonvested restricted stock awards was $9,982 with a weighted-average expense recognition period of 1.2 years. Outstanding at January 1, 2017 Granted Vested Forfeited Outstanding at September 30, 2017 2022. Service cost Interest cost Expected return on plan assets Recognized net actuarial loss Net periodic pension (benefit) cost Weighted-Average Assumptions: Discount rate Expected return on assets Rate of compensation increase (prior to age 45) Rate of compensation increase Net Income Available for sale (“AFS”) securities: AFS securities with OTTI charges during the period Related income tax effect Less: OTTI charges recognized in net income Related income tax benefit Reclassification of previous noncredit OTTI to credit OTTI Related income tax benefit Net unrealized (losses) gains on AFS securities with OTTI AFS securities – all other: Change in net unrealized gain on AFS securities arising during the period Related income tax effect Net reclassification adjustment for (gains) losses included in net income Related income tax expense (benefit) Net effect of AFS securities on other comprehensive income 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 Related income tax expense Net effect of HTM securities on other comprehensive income Pension plan: Recognized net actuarial loss Related income tax benefit Net effect of change in pension plan asset on other Total change in other comprehensive income Total Comprehensive Income Balance at January 1, 2017 Other comprehensive income before reclassification Amounts reclassified from accumulated other comprehensive income Net current-period other comprehensive income, net of tax Balance at September 30, 2017 Details about AOCI Components Affected Line Item in the Statement Where Net Income is Presented Available for sale (“AFS”) securities: Reclassification of previous noncredit OTTI Net reclassification adjustment for losses Related income tax effect Pension plan: Recognized net actuarial loss Related income tax effect Total reclassifications for the period Distributed earnings allocated to common stock Undistributed earnings allocated to common stock Net earnings allocated to common shareholders Average common shares outstanding Equivalents from stock options Average diluted shares outstanding Earnings per basic common share Earnings per diluted common share At June 30, 2023 and December 31, 2022, United’s investment (maximum exposure to loss) in these trusts were $11,508 and $11,277, respectively. Description Issuance Date Interest Rate Maturity Date Century Trust United Statutory Trust III United Statutory Trust IV United Statutory Trust V United Statutory Trust VI Premier Statutory Trust II Premier Statutory Trust III Premier Statutory Trust IV Premier Statutory Trust V Centra Statutory Trust I Centra Statutory Trust II Virginia Commerce Trust II Virginia Commerce Trust III Cardinal Statutory Trust I UFBC Capital Trust I Trust preferred securities these low income housing and community development partnerships were $80,727 and $75,021, respectively, while related unfunded commitments were $63,514 and $77,143, respectively. As 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 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 third parties. These rights, which 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. Net interest income Provision for loans losses Other income Other expense Income taxes Net income (loss) Total assets (liabilities) Average assets (liabilities) Net interest income Provision for loans losses Other income Other expense Income taxes Net income (loss) Total assets (liabilities) Average assets (liabilities) Net interest income Provision for loans losses Other income Other expense Income taxes Net income (loss) Total assets (liabilities) Average assets (liabilities) Net interest income Provision for loans losses Other income Other expense Income taxes Net income (loss) Total assets (liabilities) Average assets (liabilities)SeptemberJune 30, 20170-13322 (I.R.S. Employer UBSI NASDAQ Global Select Market 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 (§and post such files). Act:Act.Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐ Indicatenumber of registrant had outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.Class - Common Stock, $2.50 Par Value;104,992,423shares outstanding as ofOctober 31, 2017.par value per share, outstanding. Page Item 1. 3 Consolidated Balance Sheets (Unaudited) SeptemberJune 30, 20172023 and December 31, 20162022 4 5 7 8 9 10 Notes to Consolidated Financial Statements 11 6156 86Item 4.8978 80 PART II. OTHER INFORMATION 9081 9081 9081 9182 9182 9182 9182 9284 -– FINANCIAL INFORMATIONItem 1. SeptemberJune 30, 20172023 and December 31, 2016,2022, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income and comprehensive income for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, the related consolidated statement of changes in shareholders’ equity for the ninethree and six months ended SeptemberJune 30, 2017,2023 and 2022, the related condensed consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, and the notes to(Dollars in thousands, except par value) September 30
2017 December 31
2016 (Unaudited) (Note 1) $ 212,692 $ 175,468 1,533,558 1,258,334 787 725 1,747,037 1,434,527 1,649,634 1,259,214 20,335 33,258 166,756 111,166 315,031 8,445 13,156,854 10,356,719 (16,386 ) (15,582 ) 13,140,468 10,341,137 (74,926 ) (72,771 ) 13,065,542 10,268,366 104,311 75,909 1,487,607 863,767 51,607 39,400 522,118 414,840 $ 19,129,978 $ 14,508,892 $ 4,134,019 $ 3,171,841 9,741,278 7,625,026 13,875,297 10,796,867 25,800 22,235 316,236 237,316 1,272,115 897,707 242,131 224,319 804 1,044 133,752 93,657 15,866,135 12,273,145 0 0 262,530 202,671 2,126,914 1,205,778 909,556 872,990 (34,163 ) (44,717 ) (994 ) (975 ) 3,263,843 2,235,747 $ 19,129,978 $ 14,508,892
2022 Cash and due from banks $ 304,337 $ 294,155 Interest-bearing deposits with other banks 1,386,902 881,418 Federal funds sold 1,118 1,079 Total cash and cash equivalents 1,692,357 1,176,652 Securities available for sale at estimated fair value (amortized cost-$4,443,106 at June 30, 2023 and $5,011,729 at December 31, 2022, allowance for credit losses of $0 at June 30, 2023 and December 31, 2022) 4,005,324 4,541,925 Securities held to maturity, net of allowance for credit losses of $19 at June 30, 2023 and $18 at December 31, 2022 (estimated fair value-$1,020 at June 30, 2023 and December 31, 2022) 1,001 1,002 Equity securities at estimated fair value 8,443 7,629 Other investment securities 327,946 322,048 Loans held for sale measured using fair value option 91,296 56,879 Loans and leases 20,781,926 20,580,163 Less: Unearned income (17,635 ) (21,997 ) Loans and leases, net of unearned income 20,764,291 20,558,166 Less: Allowance for loan and lease losses (250,721 ) (234,746 ) Net loans and leases 20,513,570 20,323,420 Bank premises and equipment 194,299 199,161 80,641 71,144 Goodwill 1,888,889 1,888,889 Mortgage servicing rights 4,627 21,022 Bank-owned life insurance (“BOLI”) 483,906 480,184 Accrued interest receivable 97,262 94,890 Other assets 305,090 304,535 TOTAL ASSETS $ 29,694,651 $ 29,489,380 Deposits: Noninterest-bearing $ 6,450,826 $ 7,199,678 Interest-bearing 15,918,927 15,103,488 Total deposits 22,369,753 22,303,166 Borrowings: Securities sold under agreements to repurchase 176,739 160,698 Federal Home Loan Bank (“FHLB”) borrowings 1,910,631 1,910,775 Other long-term borrowings 277,807 286,881 Reserve for lending-related commitments 46,768 46,189 Operating lease liabilities 85,038 75,749 Accrued expenses and other liabilities 190,872 189,729 TOTAL LIABILITIES 25,057,608 24,973,187 0 0 355,602 355,029 Surplus 3,175,284 3,168,874 Retained earnings 1,668,844 1,575,426 Accumulated other comprehensive loss (310,678 ) (332,732 ) Treasury stock, at cost (252,009 ) (250,404 ) TOTAL SHAREHOLDERS’ EQUITY 4,637,043 4,516,193 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 29,694,651 $ 29,489,380 (Dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30 September 30 2017 2016 2017 2016 $ 155,819 $ 112,273 $ 405,660 $ 314,936 4,874 1,107 11,345 2,371 9,406 8,764 26,226 24,728 1,484 993 4,057 2,685 171,583 123,137 447,288 344,720 14,227 7,723 35,281 21,278 430 553 1,149 1,132 6,650 3,792 16,717 10,232 21,307 12,068 53,147 32,642 150,276 111,069 394,141 312,078 7,279 6,988 21,429 18,690 142,997 104,081 372,712 293,388 5,052 4,891 14,683 14,552 8,744 8,306 24,978 24,669 1,332 1,551 3,432 3,754 535 500 1,533 1,725 1,403 2,541 3,878 4,913 20,385 982 43,597 2,499 311 249 1,626 1,050 0 0 (60 ) 339 0 0 0 (372 ) 0 0 (60 ) (33 ) 467 1 5,214 251 467 1 5,154 218 38,229 19,021 98,881 53,380 44,308 24,213 123,240 69,123 9,578 7,483 27,372 21,380 9,364 6,919 30,061 20,945 2,713 1,342 4,651 4,654 3,057 2,097 7,493 6,162 5,597 3,857 14,971 11,004 449 480 1,356 1,283 1,540 2,086 5,062 6,341 20,046 14,300 57,425 44,796 96,652 62,777 271,631 185,688 84,574 60,325 199,962 161,080 27,836 18,846 67,356 53,103 $ 56,738 $ 41,479 $ 132,606 $ 107,977
June 30
June 30 Interest and fees on loans $ 294,358 $ 196,165 $ 574,254 $ 377,002 Interest on federal funds sold and other short-term investments 12,706 4,841 23,689 7,170 Interest and dividends on securities: Taxable 36,721 24,558 72,980 42,063 2,147 2,207 4,312 4,331 Total interest income 345,932 227,771 675,235 430,566 Interest on deposits 91,577 9,751 160,169 18,312 Interest on short-term borrowings 1,489 237 2,646 418 Interest on long-term borrowings 25,405 2,880 50,639 5,431 Total interest expense 118,471 12,868 213,454 24,161 Net interest income 227,461 214,903 461,781 406,405 Provision for credit losses 11,440 (1,807 ) 18,330 (5,217 ) Net interest income after provision for credit losses 216,021 216,710 443,451 411,622 Fees from trust services 4,516 4,294 9,296 8,421 Fees from brokerage services 3,918 4,115 8,118 8,667 Fees from deposit services 9,325 10,830 18,687 20,978 Bankcard fees and merchant discounts 1,707 1,671 3,414 3,050 Other service charges, commissions, and fees 949 785 2,087 1,544 Income from bank-owned life insurance 2,022 4,120 3,913 6,314 Income from mortgage banking activities 7,907 12,445 14,291 31,648 Mortgage loan servicing income 9,841 2,328 12,117 4,715 Net investment securities (losses) gains (7,336 ) 1,182 (7,741 ) 931 Other income 2,329 1,838 3,740 3,365 Total other income 35,178 43,608 67,922 89,633 Employee compensation 58,502 62,632 113,916 125,253 Employee benefits 12,236 12,047 25,671 24,898 Net occupancy expense 11,409 11,206 23,242 22,393 Other real estate owned (“OREO”) expense 315 46 982 228 Net losses (gains) on the sales of OREO properties 16 (454 ) (27 ) (487 ) Equipment expense 8,026 7,310 15,022 14,645 Data processing expense 7,256 7,549 14,729 14,920 Mortgage loan servicing expense and impairment 1,699 1,783 3,583 3,426 Bankcard processing expense 536 488 1,058 912 FDIC insurance expense 4,570 3,004 9,157 5,677 Other expense 30,723 35,563 65,374 68,484 Total other expense 135,288 141,174 272,707 280,349 Income before income taxes 115,911 119,144 238,666 220,906 Income taxes 23,452 23,531 47,900 43,629 Net income $ 92,459 $ 95,613 $ 190,766 $ 177,277 -– continued(Dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30 September 30 2017 2016 2017 2016 $ 0.54 $ 0.54 $ 1.39 $ 1.49 $ 0.54 $ 0.54 $ 1.39 $ 1.48 $ 0.33 $ 0.33 $ 0.99 $ 0.99 104,760,153 76,218,573 95,040,664 72,413,246 105,068,122 76,647,773 95,450,626 72,746,363 Basic $ 0.68 $ 0.71 $ 1.42 $ 1.31 Diluted $ 0.68 $ 0.71 $ 1.41 $ 1.30 Average outstanding shares: Basic 134,683,010 134,623,061 134,472,074 135,336,729 Diluted 134,849,818 134,863,650 134,748,868 135,634,398 (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 2017 2016 2017 2016 $ 56,738 $ 41,479 $ 132,606 $ 107,977
securities, net of tax 1,964 (4,865 ) 8,443 7,944 2 2 4 4 717 777 2,107 2,235 $ 59,421 $ 37,393 $ 143,160 $ 118,160
June 30
June 30 Net income $ 92,459 $ 95,613 $ 190,766 $ 177,277 (20,595 ) (114,707 ) 24,562 (269,820 ) Change in net unrealized gain (loss) on cash flow hedge, net of tax 3,444 8,402 (3,713 ) 26,070 Change in pension plan assets, net of tax 603 640 1,205 1,281 Comprehensive income (loss), net of tax $ 75,911 $ (10,052 ) $ 212,820 $ (65,192 ) (Unaudited)(Dollars in thousands, except per share data) Nine Months Ended September 30, 2017 Accumulated Common Stock Other Total Par Retained Comprehensive Treasury Shareholders’ Shares Value Surplus Earnings Income (Loss) Stock Equity 81,068,252 $ 202,671 $ 1,205,778 $ 872,990 ($ 44,717 ) ($ 975 ) $ 2,235,747 0 0 0 132,606 0 0 132,606 0 0 0 0 10,554 0 10,554 143,160 0 0 2,589 0 0 0 2,589 23,690,589 59,226 916,028 0 0 0 975,254 0 0 0 0 0 (1 ) (1 ) 0 0 0 0 0 1 1 0 0 (96,040 ) 0 0 (96,040 ) 89,475 224 (224 ) 0 0 0 0 0 0 19 0 0 (19 ) 0 163,562 409 2,724 0 0 0 3,133 105,011,878 $ 262,530 $ 2,126,914 $ 909,556 ($ 34,163 ) ($ 994 ) $ 3,263,843 Balance at January 1, 2023 142,011,560 $ 355,029 $ 3,168,874 $ 1,575,426 $ (332,732 ) $ (250,404 ) $ 4,516,193 Comprehensive income: Net income 0 0 0 98,307 0 0 98,307 Other comprehensive income, net of tax 0 0 0 0 38,602 0 38,602 Total comprehensive income, net of tax 136,909 Stock based compensation expense 0 0 2,713 0 0 0 2,713 Stock grant forfeiture (1,506 shares) 0 0 58 0 0 (58 ) 0 Purchase of treasury stock (33,551 shares) 0 0 0 0 0 (1,374 ) (1,374 ) Cash dividends ($0.36 per share) 0 0 0 (48,720 ) 0 0 (48,720 ) Net issuance of common stock under stock-based compensation plans (226,486 shares) 226,486 566 250 0 0 0 816 Balance at March 31, 2023 142,238,046 355,595 3,171,895 1,625,013 (294,130 ) (251,836 ) 4,606,537 Comprehensive income: Net income 0 0 0 92,459 0 0 92,459 Other comprehensive loss, net of tax 0 0 0 0 (16,548 ) 0 (16,548 ) Total comprehensive income, net of tax 75,911 Stock based compensation expense 0 0 3,295 0 0 0 3,295 Purchase of treasury stock (60 shares) 0 0 0 0 0 (1 ) (1 ) Cash dividends ($0.36 per share) 0 0 0 (48,628 ) 0 0 (48,628 ) Stock grant forfeiture (4,445 shares) 0 0 172 0 0 (172 ) 0 Net issuance of common stock under stock-based compensation plans (2,812 shares) 2,812 7 (78 ) 0 0 0 (71 ) Balance at June 30, 2023 142,240,858 $ 355,602 $ 3,175,284 $ 1,668,844 $ (310,678 ) $ (252,009 ) $ 4,637,043 Balance at January 1, 2022 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 81,664 0 0 81,664 Other comprehensive loss, net of tax 0 0 0 0 (136,804 ) 0 (136,804 ) Total comprehensive loss, net of tax (55,140 ) Stock based compensation expense 0 0 2,061 0 0 0 2,061 Stock grant forfeiture (6,212 shares) 0 0 223 0 0 (223 ) 0 Purchase of treasury stock (740,873 shares) 0 0 0 0 0 (26,061 ) (26,061 ) Cash dividends ($0.36 per share) 0 0 0 (49,266 ) 0 0 (49,266 ) Net issuance of common stock under stock-based compensation plans (422,766 shares) 422,766 1,056 3,862 0 0 0 4,918 Balance at March 31, 2022 141,783,032 354,458 3,156,101 1,423,175 (141,692 ) (196,902 ) 4,595,140 Comprehensive income: Net income 0 0 0 95,613 0 0 95,613 Other comprehensive loss, net of tax 0 0 0 0 (105,665 ) 0 (105,665 ) Total comprehensive loss, net of tax (10,052 ) Stock based compensation expense 0 0 2,543 0 0 0 2,543 Purchase of treasury stock (1,548,767 shares) 0 0 0 0 0 (53,391 ) (53,391 ) Cash dividends ($0.36 per share) 0 0 0 (48,544 ) 0 0 (48,544 ) Stock grant forfeiture (2,445 shares) 0 0 88 0 0 (88 ) 0 Net issuance of common stock under stock-based compensation plans (63,419 shares) 63,419 158 1,196 0 0 0 1,354 Balance at June 30, 2022 141,846,451 $ 354,616 $ 3,159,928 $ 1,470,244 $ (247,357 ) $ (250,381 ) $ 4,487,050 Nine Months Ended September 30 2017 2016 $ 125,151 $ 125,948 12,929 5,039 245,065 103,411 386,496 264,834 (630,061 ) (385,030 ) (11,115 ) (4,150 ) 13 229 (51,941 ) (61,193 ) 14,393 47,285 4,908 15,435 44,531 29,330 369,233 (111,723 ) 384,451 (96,533 ) (86,709 ) (71,129 ) (1 ) (1 ) 3,296 4,668 (845,207 ) (725,077 ) 815,000 795,000 1 1 (269,742 ) 265,183 186,270 (36,889 ) (197,092 ) 231,756 312,510 261,171 1,434,527 857,335 $ 1,747,037 $ 1,118,506 $ 3,829 $ 19,228 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 183,091 $ 490,018 Proceeds from sales of securities available for sale 181,637 219 Proceeds from maturities and calls of securities available for sale 481,428 302,323 Purchases of securities available for sale (107,795 ) (1,434,105 ) Proceeds from sales of equity securities 98 349 Purchases of equity securities (994 ) (1,891 ) Proceeds from sales and redemptions of other investment securities 89,888 3,182 Purchases of other investment securities (102,358 ) (15,614 ) Redemption of bank-owned life insurance policies 429 9,395 Purchases of bank premises and equipment (6,725 ) (6,125 ) Proceeds from sales of bank premises and equipment 2,465 844 Proceeds from sales of mortgage servicing rights 23,450 0 Proceeds from the sales of OREO properties 1,081 2,507 Net change in loans (205,955 ) (939,329 ) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 356,649 (2,078,245 ) Cash dividends paid (97,266 ) (95,942 ) Acquisition of treasury stock (1,375 ) (79,452 ) Proceeds from exercise of stock options 1,563 6,377 Repayment of long-term Federal Home Loan Bank borrowings (1,900,000 ) (20,000 ) Proceeds from issuance of long-term Federal Home Loan Bank borrowings 1,900,000 0 Redemption of subordinated debt (10,250 ) 0 Changes in: Deposits 67,252 (321,838 ) Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings 16,041 (602 ) NET CASH USED IN FINANCING ACTIVITIES (24,035 ) (511,457 ) Increase (Decrease) in cash and cash equivalents 515,705 (2,099,684 ) Cash and cash equivalents at beginning of year 1,176,652 3,758,170 Cash and cash equivalents at end of period $ 1,692,357 $ 1,658,486 Supplemental information Noncash investing activities: Transfers of loans to OREO $ 3,672 $ 1,131 Transfers of loans to bank premises and equipment 0 4,541 Acquisition of subsidiaries and purchase price adjustments: Assets acquired, net of cash 0 (345 ) Liabilities assumed 0 2,050 Goodwill 0 2,395 (GAAP)(“GAAP”) and with the instructions for FormSeptemberJune 30, 20172023 and 20162022 and for the three-month and nine-month consolidated balance sheet as of December 31, 2016 has been extracted from the audited financial statements includedNotes to Consolidated Financial Statements appearing in United’s 20162022 Annual Report to Shareholders. Theon Formand reporting policies, followedshould be read in the presentation ofconjunction with these interim financial statements are consistent with those applied in the preparation of the 2016 Annual Report of United on Form10-K. To conform to the 2017 presentation, certain reclassifications have been made to prior period amounts, which had no impact on net income, comprehensive income, or stockholders’ equity.statements. In the opinion of management, allany adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.considers all of its principaloperates in two business activities to be bank related.segments: community banking and mortgage banking. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Dollars areInformation is presented in these notes to the unaudited consolidated interim financial statements with dollars expressed in thousands, except per share or unless otherwise noted.August 2017,March 2023, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUNo. 2017-12, “Targeting Improvement to Accounting Standards Update (“ASU”)Hedging Activities.Investments in Tax Credit Structures Using the Proportional Amortization Method.” ThisASUamends ASC 815apply to all reporting entities that hold tax equity investments that meet the conditions for and its objectives areelect to improveaccount for them using the transparencyproportional amortization method or an investment in a low income housing tax credit (“LIHTC”) structure through a limited liability entity that is not accounted for using the proportional amortization method and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligningwhich certain LIHTC-specific guidance removed from Subtopicentity’s financial reportingdisclosure requirements apply to investments that generate income tax credits and other income tax benefits from a tax credit program for hedging relationships with those risk management activities and reducewhich the complexity and simplifyentity has elected to apply the application of hedge accounting by preparers.proportional amortization method (including investments within that elected program that do not meet the conditions to apply the proportional amortization method). ASUNo. 2017-12 isinterim and annual reporting periods beginning after December 15, 2018;United on January 1, 2024 though early adoption is permitted. The amendments in this update must be applied on either a modified retrospective or a retrospective basis except for LIHTC investments not accounted for using the proportional amortization method. The adoption ofNo. 2017-12 2023-02July 2017,December 2022, the FASB issued ASUNo. 2017-11, “Part I, Accounting for Certain Financial Instruments with Down Round Features and Part II, ReplacementIndefinite Deferral for Mandatorily Redeemable Financial InstrumentsSunset Date of Certain Nonpublic Entices and Certain Mandatorily Redeemable Noncontrolling interests with a Scope Exception.Topic 848.” Part IASUthistime financial statement preparers can utilize the reference rate reform relief guidance. In 2020, the FASB issued ASU simplifiesinclude down round features whileare either directly or indirectly influenced by LIBOR. In addition, United took steps to ensure that no new contracts using LIBOR were originated after December 31, 2021. At this time, United is prioritizing the amendmentsSecured Overnight Financing Rate (“SOFR”) and Prime as the preferred alternatives to LIBOR; however, these preferred alternatives could change over time based on market developments.Part II, which do not havemeasuring fair value.accounting effect, address the difficultyentity cannot, as a separate unit of navigating the guidance in ASC 480, “Distinguishing Liabilities from Equity”, dueaccount, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to the existence of extensive pending content in the Codification. contractual sale restrictions.No. 2017-11 is 2022-03interim and annual reporting periods beginning after December 15, 2018;United on January 1, 2024 though early adoption is permitted. The adoption ofNo. 2017-11 2022-03May 2017,March 2022, the FASB issued ASU2017-09, “Stock Compensation, Scope of Modification Accounting.” This2022-02, clarifies when changes toterms of conditions of a share-based payment award must be accountedrequirements for asmodifications. Companies will applyaccounting for credit losses under ASC 326, eliminates the modification accounting guidance if the value, vesting conditions or classification of the award changes. The new guidance should reduce diversityon troubled debt restructurings for creditors in practice ASCresult in fewer changesenhances creditors’ disclosure requirements related to the terms of an award being accountedloan refinancings and restructurings for as modifications, asborrowers experiencing financial difficulty. ASUwill allow companieson “vintage disclosures” to make certainnon-substantive changes to awards without accounting for them as modifications. It does not change the accounting for modifications.require disclosure of gross write-offs by year of origination. ASU2017-09 is2022-02interim and annual reporting periodspublic business entities that have adopted Topic 326 for fiscal years beginning after December 15, 2017; early2022, including interim periods within those fiscal years. Early adoption is permitted. ASUNo. 2017-09 is not expected to have a material impact on the Company’s financial condition or results of operations.In March 2017, the FASB issued ASU2017-07, “Improving the Presentation of Net Periodic Pension Cost 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 cost in the income statement. Employers will present the service cost component 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 eligible for capitalization in assets. Employers will present the other components of the net periodic benefit cost separately fromamendment was permitted. ASUline 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. ASU2017-07 is effective for United onperiod beginning January 1, 2018, with early adoption permitted. 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 ASU2017-04, “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 is effective for United on January 1, 2018, 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 August 2016, the FASB issued ASU2016-15, “Classification of Certain Cash Receipts and Cash Payments.” ASU2016-15 amends ASC topic 230 to add and clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows as a result of diversity in practice and in certain circumstances, financial statement restatements. Entities should apply ASU2016-15 using a retrospective transition method to each period presented. ASU2016-15 is effective for United on January 1, 2018, 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 June 2016, the FASB issued ASU2016-13, “Financial Instruments – Credit Losses.” ASU2016-13 changes 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 provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reportingperiod in which the guidance is effective. ASU2016-13 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 March 2016, the FASB issued ASU2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” United adopted ASU2016-09 on January 1, 2017 utilizing the modified retrospective method. ASU2016-09 changes certain aspects of accounting for share-based payments to employees. The new guidance, amongst other things, requires 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 $146 and $960 for the three and nine months ended September 30, 2017, respectively. 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 an $2,083 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 first nine months of 2016. The recognition of excess tax benefits and deficiencies in the income statement was adopted prospectively.2023. The adoption of ASU2016-09 did not have a material impact on the Company’s financial condition or results of operations.February 2016,March 2022, the FASB issued ASU2016-02, “Leases842)”815): Fair Value Hedging – Portfolio Layer Method”. ASU2016-02 includes a lesseemodel that recognizes two types of leases, finance leases and operating leases, while lessor accounting will remain largely unchanged from the current GAAP. ASU2016-02 requires, amongst other things, that a lessee recognizeresults on the balance sheet aright-of-use assetapplication of thea lease liability for leases with termsallows more flexibility in the derivative structures used to hedge the interest rate risk. ASUmore than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease.GAAP. ASU2016-022019 and management is currently evaluating the impact this standard may have on the Company’s financial condition or results of operations.In January 2016, the FASB issued ASU2016-01, “Financial Instruments Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU2016-01 makes changes to 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. In addition, ASU2016-01 clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses onavailable-for-sale debt securities. ASU2016-01 is effective for United on January 1, 2018 and is2023. The adoption did not expected to have a significantmaterial impact on the Company’s financial condition or results of operations.May 2014,October 2021, the FASB issued ASU2014-09, “RevenueContractscontracts with Customers (Topic 606)customers”.” ASU2014-09 supersedesrevenuelist of exceptions to the recognition requirementsand measurement principles that apply to business combinations and to require that an entity acquirer recognize and measure contract assets and contract liabilities acquired in ASC topic 605, “Revenue Recognition”,a business combination in accordance with Topic 606. As a result of these amendments, it is expected that an acquirer will generally recognize and most industry-specific guidance throughoutmeasure acquired contract assets and contract liabilities in a manner consistent with how the ASC.acquiree recognized and measured them in its preacquisition financial statements. ASUrequire an entityshould be applied prospectively to recognize revenue uponbusiness combinations occurring on or after the transfereffective date of promised goods or services to customers in an amount that reflects the consideration to whichamendments. Early adoption of 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.amendments is permitted. ASU2014-09 will be effective for2018.2023. The Company intends to adopt the amendments of ASU2014-09 beginning January 1, 2018 through the modified-retrospective transition method with a cumulative effect adjustment to opening retained earnings. TheCompany’s revenue is comprised of net interest income and noninterest income. As the standard doesadoption did not apply to revenue associated with financial instruments, net interest income and gains and losses from securities are not impacted by the standard. Thus far, we have identified revenue streams within the scope of the guidance and analyzed those revenue streams to determine the impact of the standard. We have reviewed and evaluated a number of revenue contracts to determine the impact the new recognition methods will have on revenue recognition. Based on this review, ASU2014-09 may require the Company to change how it recognizes certain recurring revenue streams related to noninterest income including fees from trust and brokerage services. Although we currently do not expect this standard to have a material impact on the timingCompany’s financial condition or amount of revenue, we are still assessing the potential impact on the Company’s consolidated financial statements.2. MERGERS AND ACQUISITIONSCardinal Financial CorporationOn April 21, 2017 (Cardinal Acquisition Date), United acquired 100% of the outstanding common stock of Cardinal Financial Corporation (Cardinal), headquartered in Tysons Corner, Virginia. The acquisition of Cardinal expands United’s existing footprint in the Washington, D.C. Metropolitan Statistical Area. At consummation, Cardinal had assets of $4,136,008, loans of $3,313,033 and deposits of $3,344,740. 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 and the District of Columbia. As a result of the merger, George Mason became an indirectly-owned subsidiary of United.The merger was accounted for under the acquisition method of accounting. The results of operations of Cardinal are included in the consolidated results of operations from the Cardinal Acquisition Date.The aggregate purchase price was approximately $975,254, including common stock valued at $972,499, stock options assumed valued at $2,741, and cash paidoperations.fractional shares of $14. The number of shares issued in the transaction was 23,690,589, which were valued based on the closing market price of $41.05 for United’s common shares on April 21, 2017. The preliminary purchase price has been allocated to the identifiable tangible and intangible assets resulting in preliminary additions to goodwill, core deposit intangibles and the George Mason trade name intangible of $622,513, $28,723 and $1,230, respectively. The core deposit intangibles are expected to be amortized 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 Cardinal 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 on the loans acquired, $2,281 on leases and $8,738 on trust preferred issuances, respectively, and premiums of $4,408 on land acquired, $5,072 on interest-bearing deposits and $10,740 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 September 30, 2017, the discounts on leases and trust preferred issuances had an average estimated remaining life of 6.00 years and 16.97 years, respectively, and the premiums on the interest-bearing deposits and the FHLB advances each had an average estimated remaining life of 5.00 years and 4.81 years, respectively. United assumed approximately $1,825 of liabilities to provide severance benefits to terminated employees of Cardinal, which has no remaining balance as of September 30, 2017. The estimated fair values of theacquired assets and assumed liabilities, including identifiable intangible assets are preliminary as of September 30, 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 valuation 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: April 21, 2017 $ 4,211,734 (56,176 ) 4,155,558 (986,959 ) $ 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, $108,275, and $86,696, 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: $ 972,499 2,741 14 975,254 44,545 395,829 271,301 3,168,599 24,208 28,723 1,230 135,383 $ 4,069,818 $ 3,349,812 96,215 220,119 2,281 48,650 3,717,077 352,741 $ 622,513 The operating results of United for the nine months ended September 30, 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 $157,326 in total revenues, which represents net interest income plus other income, and $81,817 in net income from the period from the Cardinal Acquisition Date to September 30, 2017. These amounts are included in United’s consolidated financial statements as of and for the nine months ended September 30, 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 nine months ended September 30, 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
Nine Months Ended
September 30 2017 2016 $ 573,790 $ 585,223 136,104 160,731 (1)Represents net interest income plus other incomeBank of GeorgetownAfter 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, loans of $999,773, and deposits of $971,369. 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, including common stock valued at $253,799, stock options assumed valued at $10,696, and cash paid for fractional shares of $10. 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 and $9,058, 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. As a result of the merger, United recorded fair value discounts of $43,072 on the loans acquired and $1,550 on leasehold improvements, respectively, and premiums on interest-bearing deposits acquired of $316 and a premium on long-term FHLB advances of $2,659. The remaining discount and premium amounts are being amortized or accreted on an accelerated basis over each asset’s or liability’s estimated remaining life at the time of acquisition. At September 30, 2017, the premium on the interest-bearing deposits and the FHLB advances had an estimated remaining life of 0.33 years and 7.92 years, respectively. United assumed approximately $300 of liabilities to provide severance benefits to terminated employees of Bank of Georgetown, which has no remaining balance as of September 30, 2017. 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 30, 2017.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 valuation 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 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: June 3, 2016 $ 1,275,398 (33,980 ) 1,241,418 (274,548 ) $ 966,870 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, $117,564, and $95,570, respectively.The consideration paid for Bank of Georgetown’s common equity and the fair value of acquired identifiable assets and liabilities assumed as of the BOG Acquisition Date were as follows: $ 253,799 10,696 10 264,505 29,340 219,783 966,870 5,574 9,058 31,605 $ 1,262,230 $ 971,685 101,021 67,659 11,532 1,151,897 110,333 $ 154,172 3. INVESTMENT SECURITIES and all marketable equity securities are classified as available for sale and carried at estimated fair value. The amortized cost, and estimated fair values, and allowance for credit losses of securities available for sale are summarized as follows. September 30, 2017 Gross Gross Estimated Cumulative Amortized Unrealized Unrealized Fair OTTI in Cost Gains Losses Value AOCI (1) $ 115,224 $ 864 $ 222 $ 115,866 $ 0 305,096 2,567 2,522 305,141 0 715,003 3,819 4,122 714,700 0 5,259 587 0 5,846 86 420,115 2,081 1,404 420,792 0 13,422 10 3 13,429 0 38,186 317 6,844 31,659 20,770 13,404 404 1,341 12,467 0 18,998 256 0 19,254 0 9,950 541 11 10,480 0 $ 1,654,657 $ 11,446 $ 16,469 $ 1,649,634 $ 20,856 December 31, 2016 Gross Gross Estimated Cumulative Amortized Unrealized Unrealized Fair OTTI in Cost Gains Losses Value AOCI (1) $ 95,247 $ 698 $ 159 $ 95,786 $ 0 196,350 1,364 4,902 192,812 0 585,208 3,999 5,111 584,096 0 6,629 426 12 7,043 86 304,635 1,948 1,242 305,341 0 217 0 0 217 0 48,558 729 15,735 33,552 25,952 13,363 284 2,170 11,477 0 14,996 66 0 15,062 0 12,436 1,398 6 13,828 0 $ 1,277,639 $ 10,912 $ 29,337 $ 1,259,214 $ 26,038 (1)Non-credit related other-than-temporary impairment in accumulated other comprehensive income. Amounts arebefore-tax.
Cost
Unrealized
Gains
Unrealized
Losses
For
Credit
Losses
Fair Value U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 545,045 $ 13 $ 15,922 $ 0 $ 529,136 State and political subdivisions 620,356 13 90,752 0 529,617 Residential mortgage-backed securities Agency 1,298,672 2 192,449 0 1,106,225 109,373 0 10,548 0 98,825 Commercial mortgage-backed securities Agency 547,847 11 62,660 0 485,198 Asset-backed securities 909,879 26 19,837 0 890,068 Single issue trust preferred securities 17,361 0 1,886 0 15,475 Other corporate securities 394,573 0 43,793 0 350,780 Total $ 4,443,106 $ 65 $ 437,847 $ 0 $ 4,005,324
Cost
Unrealized
Gains
Unrealized
Losses
For
Credit
Losses
Fair Value 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 available-for-sale available for sale which were in an unrealized lossSeptemberJune 30, 20172023 and December 31, 2016. Less than 12 months 12 months or longer Fair Unrealized Fair Unrealized Value Losses Value Losses September 30, 2017 $ 27,053 $ 128 $ 19,932 $ 94 83,310 896 38,004 1,626 351,936 3,410 31,690 712 0 0 0 0 228,307 1,218 12,272 186 6,760 3 0 0 0 0 29,544 6,844 0 0 4,365 1,341 0 0 352 11 $ 697,366 $ 5,655 $ 136,159 $ 10,814 Less than 12 months 12 months or longer Fair Unrealized Fair Unrealized Value Losses Value Losses December 31, 2016 $ 24,101 $ 159 $ 0 $ 0 116,300 4,902 0 0 309,376 5,111 0 0 0 0 218 12 162,479 1,242 0 0 0 0 0 0 0 0 28,579 15,735 0 0 8,185 2,170 357 6 0 0 $ 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. 2022.
Losses
Losses
Losses U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 150,585 $ 2,041 $ 370,238 $ 13,881 $ 520,823 $ 15,922 State and political subdivisions 5,196 250 512,473 90,502 517,669 90,752 Residential mortgage-backed securities Agency 70,306 3,392 1,035,554 189,057 1,105,860 192,449 22,090 778 76,735 9,770 98,825 10,548 Commercial mortgage-backed securities Agency 7,752 239 474,252 62,421 482,004 62,660 Asset-backed securities 49,275 699 822,276 19,138 871,551 19,837 Single issue trust preferred securities 2,894 201 12,581 1,685 15,475 1,886 Other corporate securities 15,645 951 327,360 42,842 343,005 43,793 Total $ 323,743 $ 8,551 $ 3,631,469 $ 429,296 $ 3,955,212 $ 437,847
Losses
Losses
Losses 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 thoseany 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 Proceeds from sales and calls $ 477,317 $ 150,915 $ 663,065 $ 302,542 Gross realized gains 0 0 0 0 Gross realized losses 7,239 0 7,659 0 September2017,2023, gross unrealized losses on available for sale securities were $16,469$437,847 on 3751,138 securities of a total portfolio of 8221,179 available for sale securities. Securities in anwith the most significant gross unrealized loss positionlosses at SeptemberJune 30, 20172023 consisted primarily of pooled trust preferred collateralized debt obligations (“Trup Cdos”), single issue trust preferred securities and agency residential mortgage-backed securities. The Trup Cdos and the single issue trust preferred securities relate mainly to securities of financial institutions. The state and political subdivisions securities relate to securities issued by various municipalities. The agency residential mortgage-backed securities, relate to residential propertiesstate and provide a guaranty of fullpolitical subdivision securities, agency commercial mortgage-backed securities, asset-backed securities and timely payments of principal and interest by the issuing agency. other corporate securities.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.$305,096$620,356 at SeptemberJune 30, 2017.2023. As of SeptemberJune 30, 2017,2023, approximately 75%48% of the portfolio was supported by the general obligation of the issuing municipality, which allows for the securities to be repaid by any meansless than one percent ofno securities within the portfolio waswere rated below investment grade as of SeptemberJune 30, 2017.2023. 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 impairedhadSeptemberJune 30, 2017.Agency2023.$1,135,118$1,846,519 at SeptemberJune 30, 2017.2023. Of the $1,135,118$1,846,519 amount, $420,115$547,847 was related to agency commercial mortgage-backed securities and $715,003$1,298,672 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 impairedhad credit losses at SeptemberJune 30, 2017.Non-agency residential mortgage-backed securities$5,259$109,373 at SeptemberJune 30, 2017.2023. Of the $5,259 amount, $627$109,373, 100% was rated above investment grade and $4,632 was rated below investment grade. Approximately 18% of the portfolio includes collateral that was originated during the year of 2005 or before. The remaining 82% 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.AAA. Based upon management’s analysis and judgment, it was determined that none of thewere other-than-temporarily impairedhad credit losses at SeptemberJune 30, 2017.thirdsecond quarter of 2017,2023, it was determined that none of the single issue trust preferred securities were other-than-temporarily impaired. All single issue trust preferredhad credit losses. are currently receiving interest payments. The available for sale single issue trust preferred securities’ ratings ranged fromlow of Ba1 to a high ofBBB-. Thetotal amortized cost balance of available for sale single issue trust preferred securities as$394,573. The majority of September 30, 2017the portfolio consisted of $3,017 indebt issuances of corporations representing a variety of industries, including financial institutions. Of the $394,573, 98% had at least one rating above investment grade, bonds, $4,680 in split-rated bonds and $5,707 in unrated bonds. All of the unrated bondsnone were in an unrealized loss position for twelve months or longer as of September 30, 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 September 30, 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-specificcash 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 third 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 for the third quarter of 2017 related to these securities. The balance of noncredit-related other-than-temporary impairment recognized on United’s Trup Cdos portfolio was $20,770 at September 30, 2017.The following is a summary of the available for sale Trup Cdos as of September 30, 2017: Amortized Cost Amortized
Cost Fair
Value Unrealized
Loss Investment
Grade Split
Rated Below
Investment
Grade $ 5,208 $ 5,287 $ (79 ) $ 3,410 $ 0 $ 1,798 6,428 5,518 910 0 0 6,428 22,656 17,918 4,738 0 0 22,656 3,894 2,936 958 0 0 3,894 $ 38,186 $ 31,659 $ 6,527 $ 3,410 $ 0 $ 34,776 While a large 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,rated, 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 105.4% to a high of 414.5%, with a median of 260.0%, and a weighted average of 283.8%. 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 any2% were unrated. For other individual security with an unrealized loss as of September 30, 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 securitiesThe amortized cost of United’s equity securities was $9,950 at September 30, 2017. For equitycorporate securities, management has evaluated the near-term prospects of the investment in relation to the severity and duration of any impairmentunrealized loss. Based upon management’s analysis and based on that evaluation, managementjudgment, it was determined that no equity securities were other-than-temporarily impaired at September 30, 2017.Other investment securities (cost method)During the third quarter of 2017, United also evaluated all of its cost method investments to determine if certain events or changes in circumstances during the third quarter of 2017 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 third quarter 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 progressionnone of the other corporate securities had credit losses on securities which United has recorded other-than-temporary charges. These charges were recorded through earnings and other comprehensive income. Three Months Ended
September 30 Nine Months Ended
September 30 2017 2016 2017 2016 $ 22,162 $ 22,162 $ 22,162 $ 23,773 0 0 0 33 (4,102 ) 0 (4,102 ) (1,644 ) $ 18,060 $ 22,162 $ 18,060 $ 22,162 SeptemberJune 30, 20172023 and December 31, 20162022 by contractual maturity are shown as follows. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties. September 30, 2017 December 31, 2016 Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value $ 57,720 $ 57,622 $ 53,286 $ 53,330 370,020 371,007 296,181 297,385 342,176 343,326 213,094 213,791 874,791 867,199 702,642 680,880 9,950 10,480 12,436 13,828 $ 1,654,657 $ 1,649,634 $ 1,277,639 $ 1,259,214
Cost
Fair
Cost
Fair Due in one year or less $ 575,534 $ 565,154 $ 384,921 $ 380,575 Due after one year through five years 450,103 415,861 856,743 817,881 Due after five years through ten years 907,581 785,354 981,983 858,819 Due after ten years 2,509,888 2,238,955 2,788,082 2,484,650 Total $ 4,443,106 $ 4,005,324 $ 5,011,729 $ 4,541,925 amortized cost and estimated fair values of securities held to maturity are summarized as follows: September 30, 2017 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value $ 5,215 $ 400 $ 0 $ 5,615 5,674 12 0 5,686 26 4 0 30 9,400 0 842 8,558 20 0 0 20 $ 20,335 $ 416 $ 842 $ 19,909 December 31, 2016 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value $ 5,295 $ 570 $ 0 $ 5,865 8,598 17 0 8,615 30 5 0 35 19,315 0 2,672 16,643 20 0 0 20 $ 33,258 $ 592 $ 2,672 $ 31,178 Even though the market value of theheld-to-maturityUnited’s equity securities was $8,443 at June 30, 2023 and $7,629 at December 31, 2022.
Ended
Ended Net gains recognized during the period on equity securities sold $ 0 $ 0 $ 0 $ 0 Unrealized gains recognized during the period on equity securities still held at period end 0 6 82 25 Unrealized losses recognized during the period on equity securities still held at period end (97 ) (188 ) (164 ) (458 ) Net losses recognized during the period $ (97 ) $ (182 ) $ (82 ) $ (433 ) portfolio is less thansecuritiesunrealized loss has no impactsecond quarter of 2023 had a significant adverse effect on the net worth or regulatory capital requirementsrecorded value of United. Asany of September 30, 2017,its cost method securities. United determined that there was no individual security that experienced an adverse event during the Company’s largestheld-to-maturity single-issue trust preferred exposure was to SunTrust Bank ($7,424). The twoheld-to-maturity single-issue trust preferred exposures with at least one rating below investment grade included SunTrust Bank ($7,424) and Royal Bank of Scotland ($976).gross realized gainsother events or losseschanges in circumstances during the second quarter which would have an adverse effect on calls and sales of held to maturity securities included in earnings for the third quarter and first nine months of 2017 and 2016.The amortized cost and estimatedrecorded fair value of debt securities held to maturity at September 30, 2017 and December 31, 2016 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. September 30, 2017 December 31, 2016 Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value $ 0 $ 0 $ 1,040 $ 1,041 9,189 9,600 8,268 8,850 5,726 5,382 3,585 3,589 5,420 4,927 20,365 17,698 $ 20,335 $ 19,909 $ 33,258 $ 31,178 $1,312,813$2,799,341 and $1,137,408$2,412,820 at SeptemberJune 30, 20172023 and December 31, 2016, respectively.4.2022, respecti September 30,
2017 December 31,
2016 $ 1,364,757 $ 1,049,885 4,686,183 3,425,453 1,757,741 1,613,437 7,808,681 6,088,775 3,050,868 2,403,437 1,599,632 1,255,738 13,775 14,187 683,898 594,582 $ 13,156,854 $ 10,356,719
2022 Owner-occupied commercial real estate $ 1,707,719 $ 1,724,927 Nonowner-occupied commercial real estate 6,572,404 6,286,974 Other commercial 3,550,575 3,612,568 Total commercial, financial & agricultural 11,830,698 11,624,469 Residential real estate 4,908,633 4,662,911 Construction & land development 2,817,706 2,926,971 Consumer: Bankcard 9,192 9,273 Other consumer 1,215,697 1,356,539 Less: Unearned income (17,635 ) (21,997 ) Total gross loans $ 20,764,291 $ 20,558,166 $315,031$91,296 and $8,445$56,879 at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. The increase was due to the acquisition of Cardinal and it mortgage banking subsidiary, George Mason. 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 $227,754 or 1.73% of total gross loans at September 30, 2017 and $171,596 or 1.66% of total gross loans at December 31, 2016. The contractual principal in these acquired impaired loans was $310,609 and $231,096 at September 30, 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 first nine months of 2017 follows: $ 29,165 (11,312 ) 17,444 2,727 (2,367 ) $ 35,657 banks havebank has made loans to the directors and officers of United and its subsidiaries, and to their affiliates. The aggregate dollar amount of these loans was $364,774$68,238 and $255,476$24,901 at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.5.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 theA loan is categorized as a troubled debt restructuring (“TDR”) if a concession is granted and there is deterioration in the financial condition following table sets forth United’s troubled debt restructurings that were restructured during the three months ended September 30, 2016, segregated by class of loans: Troubled Debt Restructurings For the Three Months Ended September 30, 2016 Number of
Contracts Pre-
Modification
Outstanding
Recorded
Investment Post-
Modification
Outstanding
Recorded
Investment 0 $ 0 $ 0 0 0 0 1 110 110 0 0 0 0 0 0 0 0 0 0 0 0 1 $ 110 $ 110 The following table sets forth United’s troubled debt restructurings that were restructured during the nine months ended September 30, 2017 and 2016, segregated by class of loans: Troubled Debt Restructurings For the Nine Months Ended September 30, 2017 September 30, 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 1 $ 5,333 $ 5,333 1 $ 1,190 $ 1,184 0 0 0 0 0 0 8 24,102 22,291 5 2,250 1,725 0 0 0 1 1,400 1,400 1 1,456 1,400 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 $ 30,891 $ 29,024 7 $ 4,840 $ 4,309 During the first nine months of 2017, $29,024 of restructured loans were modified by a change in terms. During the third quarter and first nine months of 2016, $110 and $2,909, respectively, of restructured loans were modified by a change in loan terms. In addition, during the first nine months of 2016, $1,400 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 the restructured loans is larger than thepre-modification balance due to the advancement of monies for items such as delinquent taxes on real estate property. The loans 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 three months and nine months ended September 30, 2017. Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017 (In thousands) Number of
Contracts Recorded
Investment Number of
Contracts Recorded
Investment 0 $ 0 0 $ 0 0 0 0 0 1 1,495 1 1,495 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 $ 1,495 1 $ 1,495 No loans restructured during the twelve-month period ended September 30, 2016 subsequently defaulted, resulting in a principalcharge-off during the three months and first nine months ended September 30, 2016.The loans:Age Analysis of Past Due LoansAs of September 30, 2017 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 $ 9,704 $ 6,912 $ 16,616 $ 1,348,141 $ 1,364,757 $ 0 7,686 20,797 28,483 4,657,700 4,686,183 0 13,589 79,342 92,931 1,664,810 1,757,741 802 33,654 25,564 59,218 2,991,650 3,050,868 5,298 3,351 17,852 21,203 1,578,429 1,599,632 14,828 385 210 595 13,180 13,775 210 8,087 1,305 9,392 674,506 683,898 1,111 $ 76,456 $ 151,982 $ 228,438 $ 12,928,416 $ 13,156,854 $ 22,249
Past Due
more Past
Due
Due
Other
Receivables
More Past
Due &
Accruing Commercial real estate: Owner-occupied $ 4,406 $ 7,739 $ 12,145 $ 1,695,574 $ 1,707,719 $ 0 Nonowner-occupied 5,355 8,406 13,761 6,558,643 6,572,404 154 Other commercial 4,145 2,705 6,850 3,543,725 3,550,575 601 Residential real estate 23,003 17,696 40,699 4,867,934 4,908,633 10,074 Construction & land development 5,017 576 5,593 2,812,113 2,817,706 0 Consumer: Bankcard 78 67 145 9,047 9,192 67 Other consumer 29,307 4,363 33,670 1,182,027 1,215,697 4,111 Total $ 71,311 $ 41,552 $ 112,863 $ 20,669,063 $ 20,781,926 $ 15,007 (1)Other includes loans with a recorded investment of $227,754 acquired and accounted for under ASC topic310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.Age Analysis of Past Due LoansAs 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 $ 5,850 $ 3,981 $ 9,831 $ 1,040,054 $ 1,049,885 $ 94 9,288 20,847 30,135 3,395,318 3,425,453 172 15,273 42,766 58,039 1,555,398 1,613,437 2,518 29,976 25,991 55,967 2,347,470 2,403,437 4,216 3,809 7,779 11,588 1,244,150 1,255,738 33 422 141 563 13,624 14,187 141 10,015 1,712 11,727 582,855 594,582 1,412 $ 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”.
Past Due
more Past
Due
Due
Other
Receivables
More Past
Due &
Accruing 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 loans:Loansloans and leases:
Allowance for
Credit Losses
Allowance for
Credit Losses Commercial Real Estate: Owner-occupied $ 7,739 $ 7,739 $ 8,345 $ 8,345 Nonowner-occupied 8,252 8,252 8,916 8,916 Other Commercial 2,104 2,104 2,392 2,392 Residential Real Estate 7,622 6,850 10,393 8,564 Construction 576 576 475 475 Consumer: Bankcard 0 0 0 0 Other consumer 252 252 350 350 Total $ 26,545 $ 25,773 $ 30,871 $ 29,042 Nonaccrual Status September 30,
2017 December 31,
2016 $ 6,912 $ 3,887 20,797 20,675 78,540 40,248 20,266 21,775 3,024 7,746 0 0 194 300 $ 129,733 $ 94,631 assignswill modify a loan to a borrower experiencing financial difficulty by providing multiple types of concessions such as a term extension, principal forgiveness, an interest rate reduction or a combination thereof. The
Extension
Reduction
Financing Receivable Commercial real estate: Owner-occupied $ 504 $ 0 0.03 % Nonowner-occupied 0 0 0.00 % Other commercial 23 0 0.00 % Residential real estate 425 0 0.01 % Construction & land development 0 0 0.00 % Consumer: Bankcard 0 0 0.00 % Other consumer 0 0 0.00 % Total $ 952 $ 0 0.00 %
Extension
Rate
Reduction
Class of
Financing
Receivable Owner-occupied $ 504 $ 0 0.03 % Nonowner-occupied 0 1,767 0.03 % Other commercial 23 0 0.00 % Residential real estate 519 0 0.01 % Construction & land development 0 0 0.00 % Consumer: Bankcard 0 0 0.00 % Other consumer 0 0 0.00 % Total $ 1,046 $ 1,767 0.01 % quality indicatorslosses uses a lifetime methodology, derived from modeled loan performance based on the extensive historical experience of pass, special mention, substandardloans with similar risk characteristics, adjusted to reflect current conditions and doubtfulreasonable and supportable forecasts. The historical loss experience used in United’s credit loss models includes the impact of loan modifications provided to borrowers experiencing financial difficulty, and also includes the impact of projected loss severities as a result of loan defaults.loans. modification efforts. The following table presents an aging analysis of loans and leases to borrowers experiencing financial difficulty modified on or after January 1, 2023 through June 30, 2023, presented by class of financing receivable:
Past Due
Past Due Commercial real estate: Owner-occupied $ 504 $ 0 $ 0 Nonowner-occupied 1,767 0 0 Other commercial 23 0 0 Residential real estate 519 0 0 Construction & land development 0 0 0 Consumer: Bankcard 0 0 0 Other consumer 0 0 0 Total $ 2,813 $ 0 $ 0
June 30, 2023
Average
Interest Rate
Reduction
Average Term
Extension
Average
Interest Rate
Reduction
Average Term
Extension Owner-occupied 0.00 % 1.0 0.00 % 1.0 Nonowner-occupied 0.00 % 0 1.50 % 0 Other Commercial 0.00 % 1.0 0.00 % 1.0 Residential Real Estate 0.00 % 5.0 0.00 % 4.6 Construction & land development 0.00 % 0 0.00 % 0 Consumer: Bankcard 0.00 % 0 0.00 % 0 Other consumer 0.00 % 0 0.00 % 0
Property
Assets
Property Owner-occupied $ 36 $ 0 $ 0 $ 10,169 $ 9,106 $ 19,311 Nonowner-occupied 3,138 0 0 5,564 4,266 12,968 Other commercial 0 2,205 0 0 39 2,244 Residential real estate 11,424 0 0 0 0 11,424
Property
Assets
Property Construction & land development 1,104 0 1,266 0 854 3,224 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total $ 15,702 $ 2,205 $ 1,266 $ 15,733 $ 14,265 $ 49,171
Property
Assets
Property 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 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 or greater) and classified (substandard-rated and worse in the amount of $500 and greater) loans is completed once per quarter. Review of notes with committed exposure of $2,000 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.questionable and improbable.questionable. A doubtful loan has a high probability of total or substantial loss, but 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 Loans classifieddoubtful are also considered impaired.The following tables set forth United’s credit quality indicators information,well as charge-offs and recoveries by class of loans:Credit Quality IndicatorsCorporate Credit Exposure Commercial Real Estate Other
Commercial Construction
& Land
Development Owner-
occupied Nonowner-
occupied $ 1,282,657 $ 4,544,799 $ 1,611,250 $ 1,498,656 23,827 44,080 47,450 19,872 58,273 97,304 98,933 81,104 0 0 108 0 $ 1,364,757 $ 4,686,183 $ 1,757,741 $ 1,599,632 Commercial Real Estate Other
Commercial Construction
& Land
Development Owner-
occupied Nonowner-
occupied $ 963,503 $ 3,284,497 $ 1,463,797 $ 1,126,742 20,490 36,462 26,537 52,327 65,892 104,494 122,893 76,669 0 0 210 0 $ 1,049,885 $ 3,425,453 $ 1,613,437 $ 1,255,738 Credit Quality IndicatorsConsumer Credit Exposure Residential
Real Estate Bankcard Other
Consumer $ 2,999,614 $ 13,180 $ 674,447 18,953 385 8,134 32,301 210 1,317 0 0 0 $ 3,050,868 $ 13,775 $ 683,898 Residential
Real Estate Bankcard Other
Consumer $ 2,348,017 $ 13,624 $ 582,704 18,240 422 10,132 36,995 141 1,746 185 0 0 $ 2,403,437 $ 14,187 $ 594,582 Loans are designatedloans is as impaired when, in the opinionfollows:
amortized cost
basis
term loans $ 64,945 $ 339,741 $ 260,113 $ 272,258 $ 116,170 $ 566,784 $ 30,817 $ 324 $ 1,651,152 0 280 0 0 2,508 15,100 0 0 17,888 0 142 293 506 453 36,895 0 132 38,421 0 0 0 0 0 258 0 0 258 $ 64,945 $ 340,163 $ 260,406 $ 272,764 $ 119,131 $ 619,037 $ 30,817 $ 456 $ 1,707,719 0 0 0 0 0 (697 ) 0 0 (697 ) 0 7 0 0 0 111 0 0 118 $ 0 $ 7 $ 0 $ 0 $ 0 $ (586 ) $ 0 $ 0 $ (579 )
amortized cost
basis
term loans $ 339,765 $ 276,667 $ 284,091 $ 122,582 $ 112,126 $ 504,485 $ 32,465 $ 350 $ 1,672,531 0 0 0 496 1,158 5,358 920 0 7,932 143 936 522 417 642 41,301 0 233 44,194 0 0 0 0 0 270 0 0 270 $ 339,908 $ 277,603 $ 284,613 $ 123,495 $ 113,926 $ 551,414 $ 33,385 $ 583 $ 1,724,927 0 0 0 0 0 (68 ) 0 0 (68 ) 0 0 0 0 0 489 0 0 489 $ 0 $ 0 $ 0 $ 0 $ 0 $ 421 $ 0 $ 0 $ 421
amortized cost
basis
term loans $ 214,056 $ 1,426,186 $ 1,627,691 $ 698,480 $ 678,034 $ 1,502,971 $ 171,286 $ 120 $ 6,318,824 0 513 2,401 22,016 92,085 90,582 0 0 207,597 0 0 0 547 3,521 41,614 301 0 45,983 0 0 0 0 0 0 0 0 0 $ 214,056 $ 1,426,699 $ 1,630,092 $ 721,043 $ 773,640 $ 1,635,167 $ 171,587 $ $ 6,572,404 0 0 0 0 0 (24 ) 0 0 (24 ) 0 0 0 0 0 757 0 0 757 $ 0 $ 0 $ 0 $ 0 $ 0 $ 733 $ 0 $ 0 $ 733
amortized cost
basis
loans and leases
term loans $ 1,415,465 $ 1,399,023 $ 739,474 $ 687,755 $ 341,367 $ 1,297,076 $ 183,779 $ 135 $ 6,064,074 557 2,401 6,852 84,781 980 23,137 0 0 118,708 0 0 673 34,079 17,180 51,897 363 0 104,192 0 0 0 0 0 0 0 0 0 $ 1,416,022 $ 1,401,424 $ 746,999 $ 806,615 $ 359,527 $ 1,372,110 $ 184,142 $ 135 $ 6,286,974 0 0 0 0 0 0 0 0 0 0 0 0 0 0 234 0 0 234 $ 0 $ 0 $ 0 $ 0 $ 0 $ 234 $ 0 $ 0 $ 234
and leases
amortized cost
basis
term loans $ 234,990 $ 727,072 $ 510,825 $ 316,730 $ 213,168 $ 429,766 $ 1,027,635 $ 29 $ 3,460,215 224 2,317 2,615 535 1,920 3,495 20,117 27 31,250 5 14,504 184 843 1,218 11,753 30,603 0 59,110 0 0 0 0 0 0 0 0 0 $ 235,219 $ 743,893 $ 513,624 $ 318,108 $ 216,306 $ 445,014 $ 1,078,355 $ 56 $ 3,550,575 0 (9 ) (97 ) 0 (13 ) (478 ) (58 ) (78 ) (733 ) 0 0 0 0 14 1,128 2 0 1,144 $ 0 $ (9 ) $ (97) $ 0 $ 1 $ 650 $ (56 ) $ (78 ) $ 411
and leases
amortized cost
basis
term loans $ 749,919 $ 581,588 $ 398,682 $ 230,209 $ 75,577 $ 426,406 $ 1,033,459 $ 1,596 $ 3,497,436 14,244 3,652 331 2,115 936 2,799 35,997 38 60,112 4,023 432 29 871 5,603 6,182 37,778 42 54,960 0 0 0 0 0 60 0 0 60 $ 768,186 $ 585,672 $ 399,042 $ 233,195 $ 82,116 $ 435,447 $ 1,107,234 $ 1,676 $ 3,612,568 0 (364 ) (202 ) (211 ) (2,490 ) (1,041 ) 0 0 (4,308 ) 0 0 84 17 705 4,561 0 0 5,367 $ 0 $ (364) $ (118 ) $ (194 ) $ (1,785 ) $ 3,520 $ 0 $ 0 $ 1,059
amortized cost
basis
term loans $ 369,675 $ 1,566,005 $ 864,864 $ 463,396 $ 274,138 $ 921,087 $ 420,664 $ 2,636 $ 4,882,465 0 0 0 0 139 3,948 1,801 0 5,888 0 0 406 385 673 17,544 1,179 93 20,280 0 0 0 0 0 0 0 0 0 $ 369,675 $ 1,566,005 $ 865,270 $ 463,781 $ 274,950 $ 942,579 $ 423,644 $ 2,729 $ 0 0 0 0 (86 ) 0 0 0 (86 ) 0 0 6 0 409 0 0 0 415 $ 0 $ 0 $ 6 $ 0 $ 323 $ 0 $ 0 $ 0 $ 329
amortized cost
basis
term loans $ 1,525,762 $ 847,177 $ 492,628 $ 291,334 $ 245,158 $ 791,366 $ 439,800 $ 2,683 $ 4,635,908 0 0 0 0 11 4,418 1,888 0 6,317 0 1,448 68 445 866 17,001 858 0 20,686 0 0 0 0 0 0 0 0 0 $ 1,525,762 $ 848,625 $ 492,696 $ 291,779 $ 246,035 $ 812,785 $ 442,546 $ 2,683 $ 4,662,911 0 (809 ) 0 0 (284 ) (453 ) 0 0 (1,546 ) 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 ) events, the collectionLand Development
amortized cost
basis
term loans $ 227,029 1,052,489 $ 865,025 $ 235,828 $ 20,074 $ 81,555 $ 321,022 $ 0 $ 2,803,022 0 2,172 2,290 2,534 3,410 323 200 0 10,929 0 1,247 161 0 11 2,336 0 0 3,755 0 0 0 0 0 0 0 0 0 $ 227,029 1,055,908 $ 867,476 $ 238,362 $ 23,495 $ 84,214 $ 321,222 $ 0 $ 2,817,706 0 0 0 0 0 (14 ) 0 0 (14 ) 0 0 0 0 0 49 0 0 49 $ 0 $ 0 $ 0 $ 0 $ 0 $ 35 $ 0
0 $ 35
amortized cost
basis
term loans $ 806,442 $ 1,109,601 $ 389,751 $ 133,711 $ 117,934 $ 109,320 $ 252,604 $ 0 $ 2,919,363 0 0 65 3,421 0 1,447 0 0 4,933 0 219 0 13 0 2,443 0 0 2,675 0 0 0 0 0 0 0 0 0 $ 806,442 $ 1,109,820 $ 389,816 $ 137,145 $ 117,934 $ 113,210 $ 252,604 $ 0 $ 2,926,971 0 0 0 0 0 (2 ) 0 0 (2 ) 0 0 0 0 0 1,414 0 0 1,414 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,412 $ 0 $ 0 $ 1,412
amortized cost
basis
term loans $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,047 $ 0 $ 9,047 0 0 0 0 0 0 78 0 78 0 0 0 0 0 0 67 0 67 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,192 $ 0 $ 9,192 0 0 0 0 0 0 (171 ) 0 (171 ) 0 0 0 0 0 0 16 0 16 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ (155 ) $ 0 $ (155 )
amortized cost
basis
term loans $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,101 $ 0 $ 9,101 0 0 0 0 0 0 63 0 63 0 0 0 0 0 0 109 0 109 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,273 $ 0 $ 9,273 0 0 0 0 0 0 (355 ) 0 (355 ) 0 0 0 0 0 0 9 0 9 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ (346) $ 0 $ (346)
amortized cost
basis
term loans $ 127,264 $ 525,077 $ 261,903 $ 136,679 $ 91,814 $ 36,623 $ 2,668 $ 0 $ 1,182,028 88 12,029 9,607 4,082 2,158 1,312 30 0 29,306 38 1,550 1,841 707 160 66 1 0 4,363 0 0 0 0 0 0 0 0 0 $ 127,390 $ 538,656 $ 273,351 $ 141,468 $ 94,132 $ 38,001 $ 2,699 $ 0 $ 1,215,697 0 (1,367 ) (1,306 ) (530 ) (205 ) (77 ) 0 0 (3,485 ) 0 97 84 15 30 131 0 0 357 $ 0 $ (1,270 ) $ (1,222 ) $ (515 ) $ (175 ) $ 54 $ 0 $ 0 $ (3,128)
amortized cost
basis
term loans $ 626,666 $ 319,719 $ 176,423 $ 128,176 $ 55,147 $ 9,202 $ 2,644 $ 0 $ 1,317,977 9,891 13,449 5,769 3,075 1,295 464 50 0 33,993 1,144 2,214 927 167 89 28 0 0 4,569 0 0 0 0 0 0 0 0 0 $ 637,701 $ 335,382 $ 183,119 $ 131,418 $ 56,531 $ 9,694 $ 2,694 $ 0 $ 1,356,539 (394 ) (1,435 ) (851 ) (331 ) (162 ) (198 ) 0 0 (3,371 ) 12 102 61 87 60 207 0 0 529 $ (382 ) $ (1,333 ) $ (790 ) $ (244 ) $ (102 ) $ 9 $ 0 $ 0 $ (2,842 ) SeptemberJune 30, 20172023 and December 31, 2016,2022, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $26,826$3,756 and $31,510,$2,052SeptemberJune 30, 20172023 and December 31, 2016,2022, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $116$$660,$1,309, respectively.6.management’san estimate of the probableexpected credit losses inherenton financial assets measured at amortized cost to present the 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). 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 credit losses. Expected recoveries of amounts previouslyloan portfolio.consolidated balance sheets. For purposesall classes of determiningloans and leases receivable, the general allowance,accrual of interest is discontinued when the contractual payment of principal or interest has become Owner-occupied $ 4,639 $ 4,855 Nonowner-occupied 21,380 19,801 Other Commercial 13,212 10,904 Residential Real Estate 17,013 16,117 Construction 15,150 15,195 Consumer: Bankcard 0 0 Other consumer 2,990 3,460 Total $ 74,384 $ 70,332 Owner-occupied $ 16 $ 6 $ 16 $ 6 Nonowner-occupied 0 0 0 0 Other commercial 15 22 28 22 Residential real estate 95 55 145 75 Construction & land development 0 0 2 0 Consumer: Bankcard 0 0 0 0 Other consumer 88 56 182 123 Total $ 214 $ 139 $ 373 $ 226 is segregated by product typemix, delinquency level or term as well as reasonable and supportable forecast adjustments for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. A reversion 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 occurs via a straight-line method during the loss emergence period (which isyear following the periodtime 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. Default/Loss Given Default (PD/LGD)owner-occupied commercial real estate owner-occupied loans and commercial other commercial loans and leases are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Nonowner-occupied commercialCommercial 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 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.deemedthat 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 uncollectibleprovided substantially through the operation or sale of the collateral but may also include othercharged againstbased on 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 liquidationfair value of the collateral when payment of principalat the reporting date, adjusted for selling costs as appropriate. These individually evaluated loans are removed from their respective pools 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 thattypically represent collateral dependent loans.past due 120 cumulative days delinquent fromestimated over 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 valueterm of the collateral. On retail creditsloans and leases, adjusted for whichexpected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless management has a reasonable expectation at the borrowerreporting date that the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by United.in bankruptcy,estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for allamounts deemed unrecoverable are charged off within 60 days of acquired loans is 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 soonsame 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 payments receivable are initially recorded at fair value (as determined by the present valuesubsequent measurement of expected future cash flows) with no valuation allowance. The difference betweencredit losses for originated loans. For allowance for credit losses under ASC Topic 326 calculation purposes, United includes its acquired loans and leases in their relevant pool unless they meet 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 method over the lifecriteria for specific review.$804$46,768 and $1,044$46,189 at SeptemberJune 30, 20172023 and December 31, 2016,2022, 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.Allowance for Loan LossesFor the Three Months Ended September 30, 2017 Commercial Real Estate Construction Owner-
occupied Nonowner-
occupied Other
Commercial Residential Real
Estate & Land
Development Consumer Estimated
Imprecision Total $ 5,129 $ 7,099 $ 37,287 $ 12,479 $ 7,514 $ 2,715 $ 760 $ 72,983 518 0 4,854 299 54 632 0 6,357 397 168 156 60 89 151 0 1,021 230 (472 ) 8,782 (1,385 ) 452 281 (609 ) 7,279 $ 5,238 $ 6,795 $ 41,371 $ 10,855 $ 8,001 $ 2,515 $ 151 $ 74,926 Allowance for Loan Losses and Carrying Amount
Commercial
Real
Estate
Land
Development
occupied
occupied
Consumer Beginning balance $ 13,547 $ 42,672 $ 79,011 $ 38,476 $ 50,036 $ 537 $ 16,212 $ 240,491 Charge-offs (227 ) 0 (106 ) (46 ) 0 (79 ) (1,816 ) (2,274 ) Recoveries 71 16 572 234 17 13 142 1,065 Provision (1,404 ) 6,251 739 2,761 3,205 96 (209 ) 11,439 Ending balance $ 11,987 $ 48,939 $ 80,216 $ 41,425 $ 53,258 $ 567 $ 14,329 $ 250,721
Commercial
Real
Estate
Land
Development
occupied
occupied
Consumer Beginning balance $ 13,945 $ 38,543 $ 79,706 $ 36,227 $ 48,390 $ 561 $ 17,374 $ 234,746 Charge-offs (697 ) (24 ) (733 ) (86 ) (14 ) (171 ) (3,485 ) (5,210 ) Recoveries 118 757 1,144 415 49 16 357 2,856 Provision (1,379 ) 9,663 99 4,869 4,833 161 83 18,329 Ending balance $ 11,987 $ 48,939 $ 80,216 $ 41,425 $ 53,258 $ 567 $ 14,329 $ 250,721
Commercial
Real
Estate
Land
Development
occupied
occupied
Consumer 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 September 30, 2017 Community Banking Mortgage Banking Total Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization $ 98,358 ($ 52,062 ) $ 0 ($ 0 ) $ 98,358 ($ 52,062 ) $ 0 $ 1,230 $ 1,230 $ 1,466,152 $ 21,455 $ 1,487,607 December 31, 2016 Community Banking Total Gross Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization $ 69,635 ($ 46,681 ) $ 69,635 ($ 46,681 ) $ 863,767 $ 863,767 The following table provides a reconciliation
Carrying
Amount
Amortization
Carrying
Amount
Amortization
Carrying
Amount
Amortization Core deposit intangible assets $ 105,165 ($ 90,102 ) $ 0 $ 0 $ 105,165 ($ 90,102 ) 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
Carrying
Amount
Amortization
Carrying
Amount
Amortization
Carrying
Amount
Amortization Core deposit intangible assets $ 105,165 ($ 87,544 ) $ 0 $ 0 $ 105,165 ($ 87,544 ) 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 on intangible assets of $2,240$1,279 and $5,381$2,558 for the quarterthree and ninesix months ended SeptemberJune 30, 2017, respectively,2023 as compared to $1,379 and $1,122 and $2,786$2,758 for the quarterthree and ninesix months ended SeptemberJune 30, 2016,2022, respectively.2016: Amount $ 7,772 8,039 7,015 6,309 22,542 2023 $ 5,116 2024 3,639 2025 3,282 2026 2,758 2027 1,152 2028 and thereafter 1,674 MSRs beginning balance $ 19,987 $ 23,089 $ 21,022 $ 24,027 Amount sold (14,766 ) 0 (15,001 ) 0 Amount capitalized 150 423 295 1,110 Amount amortized (744 ) (919 ) (1,689 ) (2,544 ) MSRs ending balance $ 4,627 $ 22,593 $ 4,627 $ 22,593 MSRs valuation allowance beginning balance $ 0 $ 0 $ 0 $ (883 ) Aggregate additions charged and recoveries credited to operations 0 0 0 883 MSRs impairment 0 0 0 0 MSRs valuation allowance ending balance $ 0 $ 0 $ 0 $ 0 MSRs, net of valuation allowance $ 4,627 $ 22,593 $ 4,627 $ 22,593
Ended
Ended Operating lease cost Net occupancy expense $ 5,343 $ 5,251 Sublease income Net occupancy expense (60 ) (40 ) Net lease cost $ 5,283 $ 5,211
Ended
2023
2022 Operating lease cost Net occupancy expense $ 10,735 $ 10,380 Sublease income Net occupancy expense (121 ) (207 ) Net lease cost $ 10,614 $ 10,173 $ 80,641 $ 71,144 Operating lease liabilities Operating lease liabilities $ 85,038 $ 75,749 Weighted-average remaining lease term: Operating leases 7.03 years Weighted-average discount rate: Operating leases 2.67 % Cash paid for amounts in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,456 $ 5,187 ROU assets obtained in the exchange for lease liabilities 8,172 2,523 Cash paid for amounts in the measurement of lease liabilities: Operating cash flows from operating leases $ 10,942 $ 10,497 ROU assets obtained in the exchange for lease liabilities 18,365 4,123 2023 $ 9,934 2024 16,606 2025 13,205 2026 11,950 2027 10,142 Thereafter 31,655 Total lease payments 93,492 Less: imputed interest (8,454 ) Total $ 85,038 Federal funds purchasedsecuritiesDecember 31, 2022, short-term borrowings were as follows: Federal funds purchased $ 0 $ 0 Securities sold under agreements to repurchase 176,739 160,698 Total short-term borrowings $ 176,739 $ 160,698 arehave 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 $264,000. 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. At September 30, 2017, federal funds purchased were $25,800 while total securities sold under agreements to repurchase (“REPOs”) were$316,236. Included in the $316,236 of total REPOs is a wholesale REPOs of $50,000, assumed in the Virginia Commerce merger. This wholesale REPO is scheduled to mature in May of 2018.company. The securities sold under agreements to repurchase were accounted for as collateralized financial transactions. They were recorded at the amounts at which the securities were acquired or sold plus accrued interest.will beis renewable on a360-day 360 day basis and will carrycarries an indexed, floating-rate of interest. The line requires compliance with various financial and nonfinancial covenants. At SeptemberJune 30, 2017,2023, United had no outstanding balance under this line of credit.9.banks are membersbank is a member of the Federal Home Loan Bank (“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 SeptemberJune 30, 2017,2023, United had an unused borrowing amount of approximately $3,724,772$6,653,985 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.SeptemberJune 30, 2017, $1,272,1152023, $1,910,631 of FHLB advances with a weighted-average contractual interest rate of 1.43%5.19% and a weighted-average effective interest rate of 3.92% are scheduled to mature within the next eighttwo years. Overnight fundsThe weighted-average effective rate considers the effect of $200,000 with anany interest rate swaps designated as cash flow hedges outstanding at June 30, 2023 to manage interest rate risk on its long-term debt. Amount $ 815,000 131,776 187,809 42,247 95,283 $ 1,272,115 2023 $ 1,900,000 2024 0 2025 10,631 2026 0 2027 and thereafter 0 Total $ 1,910,631 SeptemberJune 30, 2017,2023, 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”) with the proceeds invested in junior subordinated debt securities (“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 $10,000 in aggregate principal amount ofSeptemberDecember 31, 2022, the outstanding balance of the subordinated notes was $9,892. At June 30, 20172023 and December 31, 2016,2022, the outstanding balance of the Debentures was $242,131$277,807 and $224,319,$276,989, respectively, and 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.For reporting periods prior to June 30, 2017,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 lessthan $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.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 are no longer included in United’s Tier 1 capital but are included as a component of Tier 2 capital on a permanent basis withoutphase-out. This new requirement was reflected in United’s regulatory capital amounts for June 30, 2017, the first reporting period after the Cardinal acquisition.10.basis.$4,118,868$7,171,216 and $2,823,396$7,250,155 of loan commitments outstanding as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively, approximately halfIncludedExcluded in the SeptemberJune 30, 2017 amount2023 and December 31, 2022 amounts above are commitments to extend credit of $407,610$410,696 and $719,841 respectively, related to George Mason’s mortgage loan funding commitments andof United’s mortgage banking segment which are of a short-term nature.SeptemberJune 30, 2017,2023 and December 31, 2022, United had no outstanding$16,389 of commercial letters of credit and $9 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 $148,742$158,193 and $121,584$147,511 as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. In accordance with 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 MasonGeorge Mason has aUnited’s mortgage banking segment reserve of $575was immaterial as of SeptemberJune 30, 2017.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.position.11.statements.manageaid against adverse pricesprice changes or interest rate movements on the value ofUnited accounts for its derivative financial instruments in accordance with the Derivatives and Hedging topic 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. 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.For a fairhedge,hedges may be eligible for offset on the fair value ofconsolidated 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.is recognized on the balance sheetderivatives designated as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair valuecash flow hedges. The notional amount of a derivative that qualifies as a fair value hedge are offset in current period earnings. For athese 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 adjustmentderivatives totaled $500,000. The derivatives are intended to other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due tohedge the changes in the fair valuecash flows associated with floating rate FHLB borrowings. As of a derivativeJune 30, 2023, United has determined that qualifies as ano forecasted transactions related to its 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 $24,421 will be reclassified from AOCI as a decrease to interest expense over the nextoffset to other comprehensive income, net of tax. The portion of a hedge thathedged is ineffective is recognized immediately in earnings.portiondaily settlement of the derivative exposure does not change or reset the contractual terms of the instrument. The total notional amount of interest rate swap derivatives designated as cash flow hedges cleared through the LCH include $500,000 for asset derivatives as of June 30, 2023. Balances related to LCH are presented as a hedge that is ineffective is recognized immediatelysingle unit of account with the fair value of the designated cash flow interest rate swap asset being reduced by variation margin posted by (with) the applicable counterparty and reported in earnings.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 loans 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 effectSeptemberJune 30, 20172023 and December 31, 2016. Asset Derivatives September 30, 2017 December 31, 2016 Balance
Sheet
Location Notional
Amount Fair
Value Balance
Sheet
Location Fair
Value Other assets $ 14,762 $ 40 Other assets $ 24 $ 14,762 $ 40 $ 24 Other assets $ 0 $ 0 Other assets $ 2,267 Other assets 322,500 501 Other assets 0 Other assets 169,588 7,027 Other assets 0 $ 492,088 $ 7,528 $ 2,267 $ 506,850 $ 7,568 $ 2,291 Liability Derivatives September 30, 2017 December 31, 2016 Balance
Sheet
Location Notional
Amount Fair
Value Balance
Sheet
Location Fair
Value
(hedging commercial loans) Other liabilities $ 76,869 $ 480 Other liabilities $ 338 $ 76,869 $ 480 $ 338 Other liabilities $ 0 $ 0 Other liabilities $ 2,267 Other liabilities 50,063 257 Other liabilities 0 Other liabilities 65,862 291 Other liabilities 0 $ 115,925 $ 548 $ 2,267 $ 192,794 $ 1,028 $ 2,605 Interest rate swap contracts (hedging commercial loans) Other assets $ 52,854 $ 3,944 Other assets $ 55,073 $ 4,038 $ 52,854 $ 3,944 $ 55,073 $ 4,038 Interest rate swap contracts (hedging FHLB borrowings) Other assets $ 500,000 $ 0 Other assets $ 500,000 $ 0 $ 500,000 $ 0 $ 500,000 $ 0 $ 552,854 $ 3,944 $ 555,073 $ 4,038 Forward loan sales commitments Other assets $ 8,255 $ 105 Other assets $ 15,475 $ 220 TBA mortgage-backed securities Other assets 109,102 861 Other assets 22,649 146 Interest rate lock commitments Other assets 106,178 1,568 Other assets 73,412 1,146 $ 223,535 $ 2,534 $ 111,536 $ 1,512 Total asset derivatives $ 776,389 $ 6,478 $ 666,609 $ 5,550 Forward loan sales commitments Other liabilities $ 8,673 $ 42 Other liabilities $ 0 $ 0 TBA mortgage-backed securities Other liabilities 0 0 Other liabilities 63,000 213 Interest rate lock commitments Other liabilities 64,256 50 Other liabilities 48,949 348 $ 72,929 $ 92 $ 111,949 $ 561 Total liability derivatives $ 72,929 $ 92 $ 111,949 $ 561
Condition
the Hedged
of Fair Value Hedging
Adjustment Included
in the Carrying
Amount of the Hedged
Assets/(Liabilities)
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 $ 53,524 $ (3,025 ) $ 0
of Condition
the Hedged
of Fair Value Hedging
Adjustment Included
in the Carrying
Amount of the Hedged
Assets/(Liabilities)
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 $ 55,770 $ (3,069 ) $ 0 ninesix months ended SeptemberJune 30, 20172023 and 20162022 are presented as follows: Three Months Ended Income Statement
Location September 30,
2017 September 30,
2016 Interest income/(expense ) $ (208 ) $ (385 ) $ (208 ) $ (385 ) Income from Mortgage
Banking Activities
(257 ) 0 Income from Mortgage
Banking Activities
123 0 Income from Mortgage
Banking Activities
(4,484 ) 0 $ (4,618 ) $ 0 $ (4,826 ) $ (385 ) Nine Months Ended Income Statement
Location September 30,
2017 September 30,
2016 Interest income/(expense ) $ (648 ) $ 353 Other income 0 0 $ (648 ) $ 353 Income from Mortgage
Banking Activities
(427 ) 0 Income from Mortgage
Banking Activities
2,907 0 Income from Mortgage
Banking Activities
(3,465 ) 0 $ (985 ) $ 0 $ (1,633 ) $ 353 12.
2023
2022 Interest rate swap contracts $ 6,028 $ 263 Interest rate swap contracts Interest and fees on loans $ 38 $ (169 ) $ 6,066 $ 94 Forward loan sales commitments Income from Mortgage Banking Activities $ (64 ) $ 723 TBA mortgage-backed securities Income from Mortgage Banking Activities 1,426 (10,303 ) Interest rate lock commitments Income from Mortgage Banking Activities (183 ) (1,631 ) $ 1,179 $ (11,211 ) $ 7,245 $ (11,117 )
2023
2022 Interest rate swap contracts Interest on long-term borrowings $ 10,943 $ (79 ) Interest rate swap contracts Interest and fees on loans $ (51 ) $ (334 ) $ 10,892 $ (413 ) Forward loan sales commitments Income from Mortgage Banking Activities $ (157) $ (324 ) TBA mortgage-backed securities Income from Mortgage Banking Activities 927 1,107 Interest rate lock commitments Income from Mortgage Banking Activities 424 (5,337 ) $ 1,194 $ (4,554 ) $ 12,086 $ (4,967 ) byin 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 -— Valuation is based on quoted prices in active markets for identical assets and liabilities. -— 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. -— Valuation is based on prices, inputs and model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. not not not notAssets and Liabilities Measured at Fair Value on a Recurring BasistopicTopic 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:(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 itsSeptemberJune 30, 2017,2023, 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 SeptemberJune 30, 2017.2023. 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 theconsiders its valuation ofdoes not have any 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, excessspread, priority of claims, principal and interest. Discount margins used in the valuation at September 30, 2017 ranged from LIBOR plus 3.25% to LIBOR plus 6.00%. 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 $5,741.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 June 30, 2023, the range of historical sales prices increased the investor’s indicated pricing by a range of 0.27%0.06% to 0.40%0.81% with a weighted average increase of 0.36%0.22%.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.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.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 borrowersMarketInterest rate 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 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, the 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 valuepricing. These valuations fall into thepricing (“Level 3”). Thecategory. The unobservable inputvaluations is the Company’s historical sales prices. TheFor June 30, 2023, the range of historical sales prices increased the investor’s indicated pricing by a range of 0.27%0.06% to 0.40%0.81% with a weighted average increase of 0.36%0.22%.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 relationshiprelationships are included in noninterest income and noninterest expense, respectively.SeptemberJune 30, 20172023 and December 31, 2016,2022, segregated by the level of the valuation inputs within the fair value hierarchy. Fair Value at September 30, 2017 Using Balance as of
September 30,
2017 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 115,866 $ 0 $ 115,866 $ 0 305,141 0 305,141 0 714,700 0 714,700 0 5,846 0 5,846 0 420,792 0 420,792 0 13,429 0 13,429 0 31,659 0 0 31,659 12,467 0 12,467 0 19,254 0 19,254 0 1,639,154 0 1,607,495 31,659 3,016 401 2,615 0 6,250 6,250 0 0 1,214 1,214 0 0 10,480 7,865 2,615 0 1,649,634 7,865 1,610,110 31,659 311,186 0 0 311,186 40 0 40 0 7,027 0 0 7,027 501 501 0 0 7,568 501 40 7,027 Fair Value at September 30, 2017 Using Balance as of
September 30,
2017 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) 480 0 480 0 257 0 257 0 291 0 291 0 1,028 0 1,028 0 Assets Available for sale debt securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 529,136 $ 0 $ 529,136 $ 0 State and political subdivisions 529,617 0 529,617 0 Residential mortgage-backed securities Agency 1,106,225 0 1,106,225 0 98,825 0 98,825 0 Commercial mortgage-backed securities Agency 485,198 0 485,198 0 Asset-backed securities 890,068 0 890,068 0 Single issue trust preferred securities 15,475 0 15,475 0 Other corporate securities 350,780 5,275 345,505 0 Total available for sale securities 4,005,324 5,275 4,000,049 0 Equity securities: Financial services industry 189 189 0 0 Equity mutual funds (1) 3,116 3,116 0 0 Fixed income mutual funds 5,138 5,138 0 0 Total equity securities 8,443 8,443 0 0 Loans held for sale 91,296 0 17,613 73,683 Derivative financial assets: Interest rate swap contracts 3,944 0 3,944 0 Forward sales commitments 105 0 105 0 TBA mortgage-backed securities 861 0 104 757 Interest rate lock commitments 1,568 0 535 1,033 Total derivative financial assets 6,478 0 4,688 1,790 42 0 0 42 50 0 0 50 92 0 0 92 Assets Available for sale debt securities: $ 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: 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 (1) The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain keyofficers of United and its subsidiaries. Fair Value at December 31, 2016 Using 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) $ 95,786 $ 0 $ 95,786 $ 0 192,812 0 192,812 0 584,096 0 584,096 0 7,043 0 7,043 0 217 0 217 0 305,341 0 305,341 0 33,552 0 0 33,552 11,477 0 11,477 0 15,062 0 15,062 0 1,245,386 0 1,211,834 33,552 10,735 1,372 9,363 0 1,820 1,820 0 0 1,273 1,273 0 0 13,828 4,465 9,363 0 1,259,214 4,465 1,221,197 33,552 2,291 0 2,291 0 2,605 0 2,605 0 (1)ninesix months ended SeptemberJune 30, 20172023 and the year ended December 31, 2016.table presentstables present additional information about financial assets and liabilities measured at fair value at SeptemberJune 30, 20172023 and December 31, 20162022 on a recurring basis and for which United has utilized Level 3 inputs to determine fair value: Available-for-sale
Securities Trust preferred
collateralized debt obligations September 30,
2017 December 31,
2016 $ 33,552 $ 34,686 9 0 6,148 (1,134 ) (8,050 ) 0 $ 31,659 $ 33,552 $ 0 $ 0 Loans held for sale September 30,
2017 December 31,
2016 $ 0 $ 0 271,301 0 1,644,943 0 (1,639,737 ) 0 41,929 0 (7,250 ) 0 $ 311,186 $ 0 $ 0 $ 0 Derivative Financial Assets
Interest Rate Lock Commitments September 30,
2017 December 31,
2016 $ 0 $ 0 10,393 0 (3,366 ) 0 $ 7,027 $ 0 $ 0 $ 0 Balance, beginning of period $ 44,871 $ 464,109 Originations 601,207 2,360,908 Sales (588,153 ) (2,673,795 ) Transfers to portfolio loans 0 (154,699 ) Total gains during the period recognized in earnings 15,758 48,348 Balance, end of period $ 73,683 $ 44,871 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 $ 241 $ (9,852 )
2022 Balance, beginning of period $ 26 $ 61 Transfers other 731 (35 ) Balance, end of period $ 757 $ 26 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 $ 757 $ 26
2022 Balance, beginning of period $ 6 $ 0 Transfers other (6 ) 6 Balance, end of period $ 0 $ 6 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 $ 6
commitments
2022 Balance, beginning of period $ 844 $ 9,444 Transfers other 189 (8,600 ) Balance, end of period $ 1,033 $ 844 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 $ 1,033 $ 844
2022 Balance, beginning of period $ 0 $ 36 Transfers other 42 (36 ) Balance, end of period $ 42 $ 0 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 $ 42 $ 0
2022 Balance, beginning of period $ 213 $ 470 Transfers other (213 ) (257 ) Balance, end of period $ 0 $ 213
assets) attributable to the change in unrealized gains or losses relating to
assets still held at reporting date $ 0 $ 213
commitments
2022 Balance, beginning of period $ 348 $ 25 Transfers other (298 ) 323 Balance, end of period $ 50 $ 348 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 $ 50 $ 348 Income from mortgage banking activities $ (431 ) $ 1,744 Income from mortgage banking activities $ 357 $ (10,138 )
Principal
Balance
Value
Over/(Under)
Unpaid
Principal
Balance
Principal
Balance
Value
Over/(Under)
Unpaid
Principal
Balance Loans held for sale $ 90,230 $ 91,296 $ 1,066 $ 56,170 $ 56,879 $ 709 Fair Value OptionUnited 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: Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017 $ (5,090 ) $ (7,529 ) 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: September 30, 2017 December 31, 2016 Unpaid
Principal
Balance Fair
Value Fair Value
Over/(Under)
Unpaid
Principal
Balance Unpaid
Principal
Balance Fair
Value Fair Value
Over/(Under)
Unpaid
Principal
Balance $ 303,953 $ 311,186 $ 7,233 $ 0 $ 0 $ 0 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basisheld 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 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 (Level 2). As such, United records any fair value adjustments for these loans held for sale on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the nine months ended September 30, 2017. Gains and losses on sale of loansthe collateral, expected credit losses are recorded within income from mortgage banking activities 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 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(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:(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 aAssets:AssetsGoodwill 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 is 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 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 acquisitions of Cardinal in the second quarter of 2017 and Bank of Georgetown in the second quarter of 2016, no otherninesix months of 20172023 and 2016. Carrying value at September 30, 2017 Balance as of
September 30,
2017 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) YTD
Losses $ 105,900 $ 0 $ 74,852 $ 31,048 $ 9,045 26,826 0 26,743 83 2,904 Carrying value at December 31, 2016 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) YTD
Losses $ 80,505 $ 0 $ 27,609 $ 52,896 $ 5,119 31,510 0 31,510 0 2,086
(Losses) Assets Individually assessed loans $ 3,169 $ 0 $ 1,767 $ 1,402 $ 58 OREO 3,756 0 3,234 522 (721 ) Assets Individually assessed loans $ 6,125 $ 0 $ 1,801 $ 4,324 $ 327 OREO 2,052 0 2,013 39 (96 ) securities:securitiesconsidersconsider 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: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: Fair Value Measurements 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) $ 1,747,037 $ 1,747,037 $ 0 $ 1,747,037 $ 0 1,649,634 1,649,634 7,865 1,610,110 31,659 20,335 19,909 0 16,889 3,020 166,756 158,418 0 0 158,418 315,031 315,031 0 3,845 311,186 13,065,542 12,550,352 0 0 12,550,352 7,568 7,568 501 40 7,027 13,875,297 13,859,205 0 13,859,205 0 492,036 492,036 0 492,036 0 1,364,246 1,328,753 0 1,328,753 0 1,028 1,028 0 1,028 0 $ 1,434,527 $ 1,434,527 $ 0 $ 1,434,527 $ 0 1,259,214 1,259,214 4,465 1,221,197 33,552 33,258 31,178 0 28,158 3,020 111,166 105,608 0 0 105,608 8,445 8,445 0 8,445 0 10,268,366 10,122,486 0 0 10,122,486 2,291 2,291 0 2,291 0 10,796,867 10,785,294 0 10,785,294 0 209,551 209,551 0 209,551 0 1,172,026 1,142,782 0 1,142,782 0 2,605 2,605 0 2,605 0 13.
Amount Cash and cash equivalents $ 1,692,357 $ 1,692,357 $ 0 $ 1,692,357 $ 0 Securities available for sale 4,005,324 4,005,324 5,275 4,000,049 0 Securities held to maturity 1,001 1,020 0 0 1,020 Equity securities 8,443 8,443 8,443 0 0 Other securities 327,946 311,549 0 0 311,549 Loans held for sale 91,296 91,296 0 17,613 73,683 Net loans 20,513,570 19,390,097 0 0 19,390,097 Derivative financial assets 6,478 6,478 0 4,688 1,790 Mortgage servicing rights 4,627 13,950 0 0 13,950 Deposits 22,369,753 22,326,132 0 22,326,132 0 Short-term borrowings 176,739 176,739 0 176,739 0 Long-term borrowings 2,188,438 2,159,394 0 2,159,394 0 Derivative financial liabilities 92 92 0 0 92 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
Amount 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 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 and replaced the 2011 Long-Term Incentive Plan (2011 LTI Plan) which expired during the second quarter of 2016.13, 2020. An award granted under the 20162020 LTI Plan may consist of anystock s(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 any10,000.10,000 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 granted50,000225,000 shares to any individual key employee and 5,00010,000 shares to any individual20162020 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 FormJulyMay 29, 20162020 with the Securities and Exchange Commission to register all the shares which were available for the 20162020 LTI Plan. During the first nine months of 2017, a total of 253,417non-qualified stock options and 89,475 shares of restricted stock were granted underThe 2020 LTI Plan replaces the 2016 LTI Plan.$909$3,295 and $2,589$6,008 related to the nonvested awards under United’s Long-Term Incentive Plans was incurred for the thirdsecond quarter and first ninesix months of 2017,2023, respectively, as compared to the compensation expense of $720$2,543 and $2,050$4,604 related to the nonvested awards under United’s Long-Term Incentive Plans incurred for the thirdsecond quarter and first ninesix months of 2016,2022, respectively. Compensation expense was included in employee compensation in the unaudited Consolidated Statements of Income.20162020 LTI Plan (the Prior Plans)“Prior Plans”); however,(10)(SeptemberJune 30, 2017,2023, and the changes during the first ninesix months of 20172023 are presented below: Nine Months Ended September 30, 2017 Weighted Average Shares Aggregate
Intrinsic
Value Remaining
Contractual
Term (Yrs.) Exercise
Price 1,411,735 $ 28.05 153,602 21.47 253,417 45.27 (163,562 ) 20.93 (2,962 ) 38.81 1,652,230 $ 12,602 5.8 $ 30.76 1,138,309 $ 11,964 4.5 $ 26.64
Intrinsic
Value
Contractual
Term (Yrs.)
Price Outstanding at January 1, 2023 1,501,212 $ 34.64 Exercised (58,608 ) 27.77 Forfeited or expired (14,428 ) 24.18 Outstanding at June 30, 2023 1,428,176 $ 1,629,611 4.1 $ 35.03 Exercisable at June 30, 2023 1,371,451 $ 1,629,611 4.0 $ 35.13 ninesix months of 2017: Shares Weighted-Average
Grant Date Fair Value
Per Share 430,278 $ 6.84 253,417 8.85 (168,274 ) 6.64 (1,500 ) 8.85 513,921 $ 7.89 Nonvested at January 1, 2023 170,892 $ 6.16 Vested (114,053 ) 6.41 Forfeited or expired 114 5.65 Nonvested at June 30, 2023 56,725 $ 5.65 ninesix months ended SeptemberJune 30, 20172023 and 2016, 163,5622022, 58,608 and 248,677319,573 shares, respectively, were issued in connection with stock option exercises. All shares issued in connection with stock option exercises for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 were issued from authorized and unissued stock. The total intrinsic value of options exercised under the Plans during the ninesix months ended SeptemberJune 30, 20172023 and 20162022 was $3,078$763 and $4,670$4,619 respectively.20112020 LTI Plan, United may award restricted common shares to key employees andhave 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.SeptemberJune 30, 2017: Number of
Shares Weighted-Average
Grant Date Fair Value
Per Share 137,268 $ 33.61 89,475 45.27 (53,950 ) 32.23 (420 ) 45.30 172,373 $ 40.07 14.2023:
Grant Date Fair Value
Per Share Nonvested at January 1, 2023 373,220 $ 35.43 Granted 150,697 40.98 Vested (175,815 ) 35.69 Forfeited (5,951 ) 38.58 Nonvested at June 30, 2023 342,151 $ 37.68
Grant Date Fair Value
Per Share Nonvested at January 1, 2023 266,159 $ 35.45 Granted 177,368 40.40 Vested (37,912 ) 36.64 Forfeited or expired (42,113 ) 37.19 Nonvested at June 30, 2023 363,502 $ 37.53 a majority of all employees.qualified employees hired prior to October 1, 2007. Pension benefits are based on years of service serDuringNo discretionary contributions were made during the third quarter of 2017, United made a discretionary contribution of $10,000 to the Plan.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) 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 had taken similar steps. The amendment provides that employees hired on or after October 1, 2007, will not be eligible to participate in the Plan. However, new employees will 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 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. This does not have any impact on the present value of the PBO as the PBO was originally discounted with spot rates. The adoption of this method concerns the manner in which it affects interest and service 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 third quarter and first ninesix months of 2017 was a decline of $2522023 and $748, respectively, in expense from the amount that would have been recorded under the previous method.20162022 are unrecognized actuarial losses of $53,991$38,530 ($34,01429,553 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, 2017 is $4,411 ($2,779 net of tax).ninesix months ended SeptemberJune 30, 20172023 and 20162022 included the following components: Three Months Ended
September 30 Nine Months Ended
September 30 2017 2016 2017 2016 $ 574 $ 614 $ 1,705 $ 1,829 1,293 1,471 3,837 4,383 (2,072 ) (2,034 ) (6,148 ) (6,058 ) 1,111 1,161 3,298 3,458 $ 906 $ 1,212 $ 2,692 $ 3,612 4.49 % 4.75 % 4.49 % 4.75 % 7.00 % 7.25 % 7.00 % 7.25 % 3.50 % 3.50 % 3.50 % 3.50 % 3.00 % 3.00 % 3.00 % 3.00 % 15. Service cost $ 467 $ 710 $ 928 $ 1,413 Interest cost 1,756 1,222 3,492 2,430 Expected return on plan assets (2,929 ) (3,229 ) (5,826 ) (6,422 ) Recognized net actuarial loss 783 832 1,558 1,656 Net periodic pension cost $ 77 $ (465 ) $ 152 $ (923 ) Discount rate 5.25 % 3.08 % 5.25 % 3.08 % Expected return on assets 7.25 % 6.25 % 7.25 % 6.25 % Rate of compensation increase (prior to age 40) 5.00 % 5.00 % 5.00 % 5.00 % 4.00 % 4.00 % 4.00 % 4.00 % Rate of compensation increase (otherwise) 3.50 % 3.50 % 3.50 % 3.50 % SeptemberJune 30, 2017, United has provided a liability for $2,405 of unrecognized tax benefits related to various federal2023 and state income tax matters. 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 periods. However, at this time, United cannot reasonably estimate the amount of tax benefits 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, 2015 and 2016 and certain State Taxing authorities for the years ended December 31, 2014 through 2016.As of September 30, 2017 and 2016,2022, the total amount of accrued interest related to uncertain tax positions was $548$788 and $792,$780, respectively. United accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.16.ninesix months ended SeptemberJune 30, 20172023 and 20162022 are as follows: Three Months Ended
September 30 Nine Months Ended
September 30 2017 2016 2017 2016 $ 56,738 $ 41,479 $ 132,606 $ 107,977 0 0 (60 ) (77 ) 0 0 22 28 0 0 60 33 0 0 (22 ) (12 ) 0 0 0 415 0 0 0 (150 ) 0 0 0 237 3,584 (7,599 ) 14,846 12,356 (1,326 ) 2,735 (5,493 ) (4,489 ) (467 ) (1 ) (1,444 ) (251 ) 173 0 534 91 1,964 (4,865 ) 8,443 7,707 1,964 (4,865 ) 8,443 7,944 2 2 6 6 (0 ) (0 ) (2 ) (2 ) 2 2 4 4 1,111 1,161 3,298 3,458 (394 ) (384 ) (1,191 ) (1,223 )
comprehensive income 717 777 2,107 2,235 2,683 (4,086 ) 10,554 10,183 $ 59,421 $ 37,393 $ 143,160 $ 118,160 (34,090 ) (149,552 ) 24,365 (351,786 ) 7,943 34,845 (5,677 ) 81,966 7,239 0 7,659 0 (1,687 ) 0 (1,785 ) 0 10,518 11,216 6,102 33,910 (2,451 ) (2,613 ) (1,422 ) (7,901 ) (6,028 ) (263 ) (10,943 ) 79 1,405 62 2,550 (18 ) Pension plan: 783 832 1,558 1,656 (180 ) (192 ) (353 ) (375 ) ninesix months ended SeptemberJune 30, 20172023 are as follows:Changes in Accumulated Other Comprehensive Income (AOCI) by Component(a)For the Nine Months Ended September 30, 2017 Unrealized
Gains/Losses
on AFS
Securities Accretion on
the unrealized
loss for
securities
transferred
from AFS to
the HTM Defined
Benefit
Pension
Items Total ($ 10,297 ) ($ 51 ) ($ 34,369 ) ($ 44,717 ) 9,353 4 0 9,357 (910 ) 0 2,107 1,197 8,443 4 2,107 10,554 ($ 1,854 ) ($ 47 ) ($ 32,262 ) ($ 34,163 ) Reclassifications out of Accumulated Other Comprehensive Income (AOCI)For the Nine Months Ended September 30, 2017 Amount
Reclassified
from AOCI
to credit OTTI $ 0 Total other-than-temporary impairment losses
(gains) included in net income (1,444 ) Net gains on sales/calls of investment securities (1,444 ) Total before tax 534 Tax expense (910 ) Net of tax 3,298 (a) 3,298 Total before tax (1,191 ) Tax expense 2,107 Net of tax $ 1,197
Gains/Losses
on AFS
Securities
Gains/Losses
on Cash Flow
Hedges
Benefit
Pension Balance at January 1, 2023 $ (360,340 ) $ 53,014 $ (25,406 ) $ (332,732 ) Other comprehensive income before reclassification 18,688 4,680 0 23,368 Amounts reclassified from accumulated other comprehensive income 5,874 (8,393 ) 1,205 (1,314 ) Net current-period other comprehensive income (loss), net of tax 24,562 (3,713 ) 1,205 22,054 Balance at June 30, 2023 $ (335,778 ) $ 49,301 $ (24,201 ) $ (310,678 ) (a)
Reclassified
from AOCI Available for sale (“AFS”) securities: Net reclassification adjustment for losses included in net income $ 7,659 Net investment securities (losses) gains 7,659 Total before tax Related income tax effect (1,785 ) Tax expense 5,874 Net of tax Cash flow hedge: Net reclassification adjustment for gains included in net
income $ (10,943 ) Interest expense (10,943 ) Total before tax Related income tax effect 2,550 Tax expense (8,393 ) Net of tax Pension plan: Recognized net actuarial loss 1,558
(a) 1,558 Total before tax Related income tax effect (353 ) Tax expense 1,205 Net of tax Total reclassifications for the period $ (1,314 ) (a) This AOCI component is included in the computation of net periodic pension costchanges in plan assets (see Note 14,16, Employee Benefit Plans)17. Three Months Ended Nine Months Ended September 30 September 30 2017 2016 2017 2016 $ 34,587 $ 25,174 $ 95,871 $ 73,242 22,065 16,234 36,518 34,545 $ 56,652 $ 41,408 $ 132,389 $ 107,787 104,760,153 76,218,573 95,040,664 72,413,246 307,969 429,200 409,962 333,117 105,068,122 76,647,773 95,450,626 72,746,363 $ 0.54 $ 0.54 $ 1.39 $ 1.49 $ 0.54 $ 0.54 $ 1.39 $ 1.48 18. Distributed earnings allocated to common stock $ 48,454 $ 48,288 $ 96,904 $ 97,345 Undistributed earnings allocated to common stock 43,782 47,071 93,393 79,462 Net earnings allocated to common shareholders $ 92,236 $ 95,359 $ 190,297 $ 176,807 Average common shares outstanding 134,683,010 134,623,061 134,472,074 135,336,729 Equivalents from stock options 166,808 240,589 276,794 297,669 Average diluted shares outstanding 134,849,818 134,863,650 134,748,868 135,634,398 Earnings per basic common share $ 0.68 $ 0.71 $ 1.42 $ 1.31 Earnings per diluted common share $ 0.68 $ 0.71 $ 1.41 $ 1.30 (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. fifteen with the acquisition of Cardinal, 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. Amount of
Capital
Securities Issued March 23, 2000 $ 8,800 10.875% Fixed March 8, 2030 December 17, 2003 $ 20,000 3-month LIBOR + 2.85% December 17, 2033 December 19, 2003 $ 25,000 3-month LIBOR + 2.85% January 23, 2034 July 12, 2007 $ 50,000 3-month LIBOR + 1.55% October 1, 2037 September 20, 2007 $ 30,000 3-month LIBOR + 1.30% December 15, 2037 September 25, 2003 $ 6,000 3-month LIBOR + 3.10% October 8, 2033 May 16, 2005 $ 8,000 3-month LIBOR + 1.74% June 15, 2035 June 20, 2006 $ 14,000 3-month LIBOR + 1.55% September 23, 2036 December 14, 2006 $ 10,000 3-month LIBOR + 1.61% March 1, 2037 September 20, 2004 $ 10,000 3-month LIBOR + 2.29% September 20, 2034 June 15, 2006 $ 10,000 3-month LIBOR + 1.65% July 7, 2036 December 19, 2002 $ 15,000 6-month LIBOR + 3.30% December 19, 2032 December 20, 2005 $ 25,000 3-month LIBOR + 1.42% February 23, 2036 July 27, 2004 $ 20,000 3-month LIBOR + 2.40% September 15, 2034 December 30, 2004 $ 5,000 3-month LIBOR + 2.10% March 15, 2035
Capital 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 January 23, 2034 United Statutory Trust V July 12, 2007 $ 50,000 October 1, 2037 United Statutory Trust VI September 20, 2007 $ 30,000 December 15, 2037 Premier Statutory Trust II September 25, 2003 $ 6,000 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 September 23, 2036 Premier Statutory Trust V December 14, 2006 $ 10,000 March 1, 2037 Centra Statutory Trust I September 20, 2004 $ 10,000 September 20, 2034 Centra Statutory Trust II June 15, 2006 $ 10,000 July 7, 2036 VCBI Capital Trust II December 19, 2002 $ 15,000 December 19, 2032 VCBI Capital Trust III December 20, 2005 $ 25,000 February 23, 2036 Cardinal Statutory Trust I July 27, 2004 $ 20,000 September 15, 2034 UFBC Capital Trust I December 30, 2004 $ 5,000 March 15, 2035
Capital 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 January 7, 2034 Greer Capital Trust I October 12, 2004 $ 6,000 October 18, 2034 Greer Capital Trust II December 28, 2006 $ 5,000 January 30, 2037 First South Preferred Trust I September 26, 2003 $ 10,000 September 30, 2033 BOE Statutory Trust I December 12, 2003 $ 4,000 December 12, 2033 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;immaterial; however, these partnerships are not consolidated as United is not deemed to be the primary beneficiary.The following table summarizes quantitative information about At June 30, 2023 and December 31, 2022, United’s significant involvementinvestment (maximum exposure to loss) in unconsolidated VIEs: As of September 30, 2017 As of December 31, 2016 Aggregate
Assets Aggregate
Liabilities Risk Of
Loss(1) Aggregate
Assets Aggregate
Liabilities Risk Of
Loss(1) $ 266,560 $ 257,605 $ 8,955 $ 240,668 $ 232,583 $ 8,085 (1)Represents investment in VIEs.19. SEGMENT INFORMATIONa resultof June 30, 2023, United expects to recover its remaining investments through the use of the Cardinal acquisition, tax credits that are generated by the investments. 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.Mason.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.ninesix months ended SeptemberJune 30, 20172023 and 20162022 is as follows:
Banking
Banking Net interest income $ 229,309 $ 2,155 $ (5,567 ) $ 1,564 $ 227,461 Provision for credit losses 11,440 0 0 0 11,440 Other income 17,615 19,946 536 (2,919 ) 35,178 Other expense 120,275 15,706 662 (1,355 ) 135,288 Income taxes 23,316 1,270 (1,134 ) 0 23,452 Net income (loss) $ 91,893 $ 5,125 $ (4,559 ) $ 0 $ 92,459 Total assets (liabilities) $ 29,325,314 $ 461,088 $ 70,068 $ (161,819 ) $ 29,694,651 Average assets (liabilities) 29,100,618 436,286 55,484 (153,576 ) 29,438,812
Banking
Banking Net interest income $ 211,592 $ 2,870 $ (2,662 ) $ 3,103 $ 214,903 Provision for credit losses (1,807 ) 0 0 0 (1,807 ) Other income 26,899 21,468 2,222 (6,981 ) 43,608 Other expense 119,249 25,776 27 (3,878 ) 141,174 Income taxes 23,907 (285 ) (91 ) 0 23,531 Net income (loss) $ 97,142 $ (1,153 ) $ (376 ) $ 0 $ 95,613 Total assets (liabilities) $ 28,444,813 $ 477,673 $ 42,074 $ (186,664 ) $ 28,777,896 Average assets (liabilities) 28,680,546 488,230 30,511 (189,839 ) 29,009,448
Banking
Banking Net interest income $ 465,572 $ 4,277 $ (10,877 ) $ 2,809 $ 461,781 Provision for credit losses 18,330 0 0 0 18,330 Other income 41,785 30,807 779 (5,449 ) 67,922 Other expense 243,062 30,791 1,494 (2,640 ) 272,707 Income taxes 49,380 846 (2,326 ) 0 47,900 Net income (loss) $ 196,585 $ 3,447 $ (9,266 ) $ 0 $ 190,766 Total assets (liabilities) $ 29,325,314 $ 461,088 $ 70,068 $ (161,819 ) $ 29,694,651 Average assets (liabilities) 29,139,140 414,070 51,950 (131,228 ) 29,473,932
Banking
Banking Net interest income $ 401,274 $ 5,187 $ (4,787 ) $ 4,731 $ 406,405 Provision for credit losses (5,217 ) 0 0 0 (5,217 ) Other income 51,800 44,865 2,162 (9,194 ) 89,633 Other expense 233,788 51,224 (200 ) (4,463 ) 280,349 Income taxes 44,336 (228 ) (479 ) 0 43,629 Net income (loss) $ 180,167 $ (944 ) $ (1,946 ) $ 0 $ 177,277 Total assets (liabilities) $ 28,444,813 $ 477,673 $ 42,074 $ (186,664 ) $ 28,777,896 Average assets (liabilities) 28,851,275 481,773 32,358 (188,915 ) 29,176,491 At and For the Three Months Ended September 30, 2017 Community
Banking Mortgage
Banking Other Consolidated $ 152,886 $ (36 ) $ (2,574 ) $ 150,276 7,279 0 0 7,279 18,373 19,936 (80 ) 38,229 74,553 24,036 (1,937 ) 96,652 29,490 (1,332 ) (322 ) 27,836 $ 59,937 $ (2,804 ) $ (395 ) $ 56,738 $ 18,780,395 $ 350,483 $ (900 ) $ 19,129,978 18,620,035 321,744 (13,994 ) 18,927,785 At and For the Three Months Ended September 30, 2016 Community
Banking Other Consolidated $ 113,033 $ (1,964 ) $ 111,069 6,988 0 6,988 19,666 (645 ) 19,021 63,009 (232 ) 62,777 19,729 (883 ) 18,846 $ 42,973 $ (1,494 ) $ 41,479 $ 14,364,797 $ (20,101 ) $ 14,344,696 14,182,202 (22,633 ) 14,159,569 At and For the Nine Months Ended September 30, 2017 Community
Banking Mortgage
Banking Other Consolidated $ 401,044 $ 54 $ (6,957 ) $ 394,141 21,429 0 0 21,429 53,409 42,329 3,143 98,881 215,935 42,744 12,952 271,631 73,214 (39 ) (5,819 ) 67,356 $ 143,875 $ (322 ) $ (10,947 ) $ 132,606 $ 18,780,395 $ 350,483 $ (900 ) $ 19,129,978 17,020,928 187,118 (20,402 ) 17,187,644 At and For the Nine Months Ended September 30, 2016 Community
Banking Other Consolidated $ 317,835 $ (5,757 ) $ 312,078 18,690 0 18,690 55,323 (1,943 ) 53,380 186,322 (634 ) 185,688 55,580 (2,477 ) 53,103 $ 112,566 $ (4,589 ) $ 107,977 $ 14,364,797 $ (20,101 ) $ 14,344,696 13,125,973 (21,575 ) 13,104,398
| Item 2. | 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 harborhaven for such disclosure,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 couldmay differ materially from those containedcontemplated in or implied by United’sthese “forward-looking statements.” United undertakes no obligation to publicly update any forward-looking statements, for a variety of factors including, but not limited to: changes in economic conditions; business conditions in the banking industry; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.
ACQUISITIONS
On April 21, 2017, United acquired 100% of the outstanding common stock of Cardinal Financial Corporation (“Cardinal”), headquartered in Tysons Corner, Virginia. The acquisition of Cardinal expands United’s existing footprint 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 Carolina and the District of Columbia. Aswhether as a result of new information, future events, or otherwise.
POSSIBLE FEDERAL DEPOSIT INSURANCE CORPORATION (“FDIC”) SPECIAL ASSESSMENT
On May 11, 2023, the merger, George Mason became an indirectly-owned subsidiaryFDIC released a proposed rule that would impose special assessments to recover the losses to the deposit insurance fund (“DIF”) resulting from the FDIC’s use, in March 2023, of United. The Cardinal merger was accounted forthe systemic risk exception to the least-cost resolution test under the acquisition methodFederal Deposit Insurance Act in connection with the receiverships of accounting. At consummation, Cardinal had assets of $4.14 billion, portfolio loans of $3.31Silicon Valley Bank and Signature Bank. The FDIC stated that it currently estimates those assessed losses to total $15.8 billion and that the amount of the special assessments would be adjusted as the loss estimate changes. Under the proposed rule, the assessment base would be an insured depository institution’s (“IDI”) estimated uninsured deposits, as reported in the IDI’s December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. The special assessments would be collected at an annual rate of approximately 12.5 basis points per year (3.13 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024 (with the first assessment payment due by June 28, 2024). Under the proposed rule, the estimated loss pursuant to the systemic risk determination would be periodically adjusted, and the FDIC would retain the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. In its December 31, 2022 Call Report, United Bank, United’s only IDI, reported estimated uninsured deposits of $3.34approximately $9.5 billion. United expects the special assessments would be tax deductible. Although the proposal could be changed and the timing of accounting recognition is still under consideration, if the assessments, as proposed, were recorded as an expense in a single quarter, United estimates that expense would be approximately $11 million.
TRANSITION FROM THE LONDON INTERBANK OFFERED RATE (LIBOR)
In addition,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 closeone-week and two-month U.S. Dollar LIBOR settings on December 31, 2021, and will cease the publication of businessovernight, one-month, three-month, six-month, and twelve-month U.S. Dollar LIBOR settings on June 3, 2016, United acquired 100%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 outstanding common stockComptroller 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.
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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 Georgetown, a privately held community bank headquartered in Washington, D.C.New York. The acquisitionARRC 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 Bank of Georgetown enhances United’s existing footprint in the Washington, D.C. MSA. The merger was accounted for under the acquisition method of accounting. At consummation, Bank of Georgetown had assets of approximately $1.28 billion, loans of $999.77 million, and deposits of $971.37 million.
Both the results of operations of Cardinal and Bank of Georgetown are included in the consolidated results of operations from their respective dates of acquisition. As a result of the Cardinal acquisition, the third quarter and first nine months of 2017 were impacted by increased levels of average balances, income, and expense as compared to the third quarter and first nine months of 2016 which were impacted by increased levels of average balances, income, and expense due to the Bank of Georgetown acquisition.guidance. In addition, the third quarterAdjustable 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 first nine monthsin December 2022, the Federal Reserve Board adopted related implementing rules.
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 2017 included $532 thousandexisting contracts. United will also be subject to risks surrounding changes to models and $24.99 million, respectively, of merger-related expensessystems that currently use LIBOR reference rates, as well as market and strategic risks that could arise from the Cardinal acquisitionuse 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 the third quarter and first nine monthsresults of 2016 included $924 thousand and $5.61 million, respectively, of merger-related expenses to the Bank of Georgetown acquisition.operations.
INTRODUCTION
The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the unaudited consolidated financial statements and the notes to unaudited 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 SeptemberJune 30, 2017,2023, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements.
This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and accompanying notes thereto, which are included elsewhere in this document.
USE OFNON-GAAP FINANCIAL MEASURES
This discussion and analysis contains a certain financial measuremeasures that isare 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 thisa non-GAAP financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of thisa non-GAAP financial measure is consistent with how United’s management evaluates its performance internally and thisnon-GAAP financial measure 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 a financial measuremeasures identified astax-equivalent (“FTE”) net interest income.income and return on average tangible equity. Management believes thisthese non-GAAP financial measure, if significant,measures to be helpful in understanding United’s results of operations or financial position.
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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 thenon-GAAP financial measure 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 thisnon-GAAP financial measure might not be comparable to a similarly titled measure 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 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 creditloan 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.
Allowance for Credit Losses
As explainedUnited’s critical accounting policies involving the significant judgments and assumptions used in Note 6, Allowance for Credit Losses to the unauditedpreparation of the Consolidated Financial Statements as of June 30, 2023 were unchanged from the
allowance policies disclosed in United’s Annual Report on Form 10-K for loan losses represents management’s estimate of the probable credit losses inherent inyear ended December 31, 2022 within the lending portfolio.
Determining the allowance for loan losses requires management to make estimates of losses that are highly uncertain and require a high degree of judgment. At September 30, 2017, the allowance for loan losses was $74.9 million and is subject to periodic adjustment based on management’s assessment of current probable 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 $7.5 million in additional allowance (funded by additional provision for credit losses), which would have negatively impacted the third quarter of 2017 net income by approximately $4.9 million,after-tax or $0.05 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 based on historical loss experience, and consideration of 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,charge-off and delinquency trends, current economic and business conditions, 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 6. A discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the Provision for Credit Losses section of this Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Additional information relating to United’s loans is included in Note 4, Loans to the unaudited Consolidated Financial Statements.Operations.”
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 3, Investment Securities, and Note 12, Fair Value Measurements, to the unaudited 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 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 2, Merger and Acquisitions, and Note 4, Loans, to the unaudited Consolidated Financial Statements for 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 topic 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 15, Income Taxes, to the unaudited Consolidated Financial Statements for information regarding United’s ASC topic 740 disclosures.
Use of Fair Value Measurements
United determines the fair value of its financial instruments based on the fair value hierarchy established in ASC topic 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 topic 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 September 30, 2017, approximately 10.98% of total assets, or $2.10 billion, consisted of financial instruments recorded at fair value. Of this total, approximately 81.87% or $1.72 billion of these financial instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. Approximately $381.00 million or 18.13% 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 pooled trust preferred investment securities classified asavailable-for-sale. At September 30, 2017, only $1.03 million 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 12, Fair Value Measurements, to the unaudited Consolidated Financial Statements for additional information regarding ASC topic 820 and its impact on United’s financial statements.
Any material effect on the financial statements related to these critical accounting areas are further discussed in this MD&A.
FINANCIAL CONDITION
United’s total assets as of SeptemberJune 30, 20172023 were $19.13$29.69 billion, which was an increase of $4.62 billion$205.27 million or 31.85%less than 1% from December 31, 2016, primarily the result2022. This increase was mainly due to an increase of the acquisition of Cardinal on April 21, 2017. Portfolio loans increased $2.80 billion$515.71 million or 27.07%,43.83% in cash and cash equivalents, increased $312.51an increase of $206.13 million or 21.78%,1% in portfolio loans, and a $34.42 million or 60.51% increase in loans held for sale. These increases in assets were offset by a $529.89 million or 10.87% decrease in investment securities increased $433.09and a $16.40 million or 30.85%, goodwill increased $623.84 million or 72.22%, other assets increased $107.28 million or 25.86%, bank premises and equipment increased $28.40 million or 37.42% and interest receivable increased $12.21 million or 30.98% due primarily to the Cardinal merger.77.99% decrease in mortgage servicing rights. Total liabilities increased $3.59 billion or
29.28% fromyear-end 2016. This increase in total liabilities was due mainly to an increase of $3.08 billion or 28.51% and $474.71$84.42 million or 34.36% in depositsless than 1% from year-end 2022. Deposits increased $66.59 million or less than 1%, borrowings also remained flat, increasing $6.82 million or less than 1%, and borrowings, respectively, mainly due to the Cardinal acquisition.operating lease liability increased $9.29 million or 12.26%. Shareholders’ equity increased $1.03 billion$120.85 million or 45.98% fromyear-end 2016 due primarily to the acquisition of Cardinal.2.68%.
The following discussion explains in more detail the changes in financial condition by major category.
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Cash and Cash Equivalents
Cash and cash equivalents at SeptemberJune 30, 20172023 increased $312.51$515.71 million or 21.78%43.83% fromyear-end 2016. Of this total increase, 2022. In particular, interest-bearing deposits with other banks increased $275.22$505.48 million or 21.87%57.35% as United placed more cash in an interest-bearing account with the Federal Reserve while cash and due from banks increased $37.22$10.18 million or 21.21% and fed3.46%. Federal funds sold increased $62$39 thousand or 8.55%3.61%. During the first ninesix months of 2017,2023, net cash of $125.15$183.09 million and $384.45$356.65 million waswere provided by operating activities and investing activities, respectively, while $197.09net cash of $24.04 million was used in financing activities. See the unaudited Consolidated Statements of Cash Flows for data on cash and cash equivalents provided and used in operating, investing and financing activities for the first ninesix months of 20172023 and 2016.2022.
Securities
Total investment securities at SeptemberJune 30, 2017 increased $433.092023 decreased $529.89 million or 30.85% fromyear-end 2016. Cardinal added $395.83million in investment securities, including purchase accounting amounts, upon consummation of the acquisition.10.87%. Securities available for sale increased $390.42decreased $536.60 million or 31.01%11.81%. This change in securities available for sale reflects $378.05$107.80 million acquired from Cardinal, $630.12in purchases, $663.07 million in sales, maturities and calls of securities $630.06 million in purchases, and an increase of $13.40$32.02 million in market value. Securities heldThe majority of the sales activity was related to maturity decreased $12.92state and political subdivision securities. Equity securities were $8.44 million at June 30, 2023, an increase of $814 thousand or 38.86% fromyear-end 201610.67% due mainly to calls and maturities of securities.net purchases. Other investment securities increased $55.59$5.90 million or 50.01%1.83% fromyear-end 2016. Cardinal added $14.27 million 2022 due to investments in other investment securities. Otherwise, Federal Reserve Bank (FRB) stock increased $33.28 million and FHLB stock increased $7.30 million.low income housing tax credits.
The following table summarizes the changes in the available for sale securities sinceyear-end 2016: 2022:
| September 30 | December 31 | |||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||||
U.S. Treasury securities and obligations of U.S. | $ | 115,866 | $ | 95,786 | $ | 20,080 | 20.96 | % | ||||||||
State and political subdivisions | 305,141 | 192,812 | 112,329 | 58.26 | % | |||||||||||
Mortgage-backed securities | 1,141,338 | 896,480 | 244,858 | 27.31 | % | |||||||||||
Asset-backed securities | 13,429 | 217 | 13,212 | 6,088.48 | % | |||||||||||
Marketable equity securities | 10,480 | 13,828 | (3,348 | ) | (24.21 | %) | ||||||||||
Trust preferred collateralized debt obligations | 31,659 | 33,552 | (1,893 | ) | (5.64 | %) | ||||||||||
Single issue trust preferred securities | 12,467 | 11,477 | 990 | 8.63 | % | |||||||||||
Corporate securities | 19,254 | 15,062 | 4,192 | 27.83 | % | |||||||||||
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Total available for sale securities, at fair value | $ | 1,649,634 | $ | 1,259,214 | $ | 390,420 | 31.01 | % | ||||||||
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| (Dollars in thousands) | June 30 2023 | December 31 2022 | $ Change | % Change | ||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | $ | 529,136 | $ | 529,492 | $ | (356 | ) | (0.07 | %) | |||||||
State and political subdivisions | 529,617 | 709,530 | (179,913 | ) | (25.36 | %) | ||||||||||
Mortgage-backed securities | 1,690,248 | 1,849,470 | (159,222 | ) | (8.61 | %) | ||||||||||
Asset-backed securities | 890,068 | 911,611 | (21,543 | ) | (2.36 | %) | ||||||||||
Single issue trust preferred securities | 15,475 | 16,284 | (809 | ) | (4.97 | %) | ||||||||||
Other corporate securities | 350,780 | 525,538 | (174,758 | ) | (33.25 | %) | ||||||||||
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Total available for sale securities, at fair value | $ | 4,005,324 | $ | 4,541,925 | $ | (536,601 | ) | (11.81 | %) | |||||||
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The following table summarizes the changes in the held to maturity securities sinceyear-end 2016: 2022:
| June 30 | December 31 | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30 2017 | December 31 2016 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. | $ | 5,215 | $ | 5,295 | $ | (80 | ) | (1.51 | %) | |||||||||||||||||||||||
State and political subdivisions | 5,674 | 8,598 | (2,924 | ) | (34.01 | %) | $ | 981 | (1) | $ | 982 | (2) | $ | (1 | ) | (0.10 | %) | |||||||||||||||
Mortgage-backed securities | 26 | 30 | (4 | ) | (13.33 | %) | ||||||||||||||||||||||||||
Single issue trust preferred securities | 9,400 | 19,315 | (9,915 | ) | (51.33 | %) | ||||||||||||||||||||||||||
Other corporate securities | 20 | 20 | 0 | 0.00 | % | 20 | 20 | 0 | 0.00 | % | ||||||||||||||||||||||
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Total held to maturity securities, at amortized cost | $ | 20,335 | $ | 33,258 | $ | (12,923 | ) | (38.86 | %) | $ | 1,001 | $ | 1,002 | $ | (1 | ) | (0.10 | %) | ||||||||||||||
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| (1) | net of allowance for credit losses of $19 thousand. |
| (2) | net of allowance for credit losses of $18 thousand. |
At SeptemberJune 30, 2017,2023, gross unrealized losses on available for sale securities were $16.47$437.85 million. Securities in anwith the most significant gross unrealized loss positionlosses at SeptemberJune 30, 20172023 consisted primarily of Trup Cdos, single issue trust preferred securities and agency residential mortgage-backed securities. The Trup Cdos and the single issue trust preferred securities relate mainly to securities of financial institutions. The agency residential mortgage-backed securities, relate to residential propertiesstate and provide a guaranty of fullpolitical subdivision securities, agency commercial mortgage-backed securities, asset-backed securities and timely payments of principal and interest by the issuing agency.other corporate securities.
As of SeptemberJune 30, 2017,2023, United’s available for sale mortgage-backed securities had an amortized cost of $1.14$1.96 billion, with an estimated fair value of $1.14$1.69 billion. The portfolio consisted primarily of $715.03 million$1.30 billion in agency residential mortgage-backed securities with a fair value of $714.73$1.11 billion, $109.37 million $5.26 million innon-agency residential mortgage-backed securities with an estimated fair value of $5.85$98.83 million, and $420.12$547.85 million in commercial agency mortgage-backed securities with an estimated fair value of $420.79$485.20 million.
59
As of June 30, 2023, United’s available for sale state and political subdivisions securities had an amortized cost of $620.36 million, with an estimated fair value of $529.62 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 June 30, 2023.
As of SeptemberJune 30, 2017,2023, United’s available for sale corporate securities had an amortized cost of $103.38 million,$1.32 billion, with an estimated fair value of $95.87 million.$1.26 billion. The portfolio consisted primarily of $38.19 million in Trup Cdos with a fair value of $31.66 million and $22.80$17.36 million in single issue trust preferred securities with an estimated fair value of $21.03$15.48 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 $13.42$909.88 million and a fair value of $13.43$890.07 million and marketable equityother corporate securities, with an amortized cost of $9.95$394.57 million and a fair value of $10.48 million, only one of which was individually significant.$350.78 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 $5.29 million of the Company’s pooled securities, while mezzanine tranches represent $26.37 million. Of the $26.37 million in mezzanine tranches, $5.52 million are now in the Senior position as the Senior notes have been paid to a zero balance. As of September 30, 2017, Trup Cdos with a fair value of $3.17 million were investment grade, and the remaining $28.49 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 September 30, 2017, United’s available for sale single issue trust preferred securities had a fair value of $21.00 million.$15.48 million as of June 30, 2023. Of the $21.03$15.48 million, $4.12$7.73 million or 19.60%49.95% were investment grade; $9.42$2.90 million or 44.85%18.70% were split rated; $3.10and $4.85 million or 14.77% were below investment grade; and $4.36 million or 20.78%31.35% were unrated. The two largest exposures accounted for 53.50%74.87% of the $21.03$15.48 million. These included SunTrustTruist Bank at $6.87$6.74 million and Emigrant Bank at $4.36$4.85 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 September 30, 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 | 6,429 | 5,519 | 910 | 7,398 | |||||||||||||||||||||||||||
SECURITY 5 | Mezzanine | C-2 | Caa1 | NR | C | 1,978 | 1,300 | 678 | 184 | |||||||||||||||||||||||||||
SECURITY 6 | Mezzanine | C-1 | Ca | NR | C | 1,916 | 1,636 | 280 | 1,316 | |||||||||||||||||||||||||||
SECURITY 7 | Mezzanine | B-1 | Caa1 | NR | C | 4,493 | 3,601 | 892 | 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 | 2,625 | 675 | 422 | |||||||||||||||||||||||||||
SECURITY 15 | Mezzanine | B | Caa3 | NR | C | 6,436 | 5,000 | 1,436 | 3,531 | |||||||||||||||||||||||||||
SECURITY 17 | Mezzanine | B-1 | Caa1 | NR | C | 2,250 | 1,920 | 330 | 750 | |||||||||||||||||||||||||||
SECURITY 18 | Senior | A-3 | Aaa | NR | AA | 3,410 | 3,171 | 239 | 0 | |||||||||||||||||||||||||||
SECURITY 22 | Mezzanine | B-1 | B1 | NR | CCC | 2,500 | 1,650 | 850 | 0 | |||||||||||||||||||||||||||
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| $ | 38,186 | $ | 31,659 | $ | 6,527 | $ | 16,512 | |||||||||||||||||||||||||||||
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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 | % | 5.7 | % | N/A | 0.2 | % | 91.3% | 8.7 | % | ||||||||||||||
6 | 39 | 0.0% | 15.9 | % | 5.6 | % | N/A | (21.9 | )% | 58.5% | 41.5 | % | ||||||||||||||
7 | 18 | 0.0% | 12.0 | % | 5.4 | % | N/A | (7.8 | )% | 84.8% | 15.2 | % | ||||||||||||||
8 | 22 | 0.0% | 22.4 | % | 5.2 | % | N/A | (28.5 | )% | 68.3% | 31.7 | % | ||||||||||||||
14 | 37 | 3.1% | 7.1 | % | 6.0 | % | 0 - 90% | 10.5 | % | 88.0% | 12.0 | % | ||||||||||||||
15 | 18 | 0.8% | 13.2 | % | 6.7 | % | 90% | (33.1 | )% | 64.4% | 35.6 | % | ||||||||||||||
17 | 26 | 0.0% | 7.4 | % | 6.1 | % | N/A | (1.6 | )% | 75.0% | 25.0 | % | ||||||||||||||
18 | 28 | 1.0% | 15.2 | % | 5.4 | % | 15% | 76.2 | % | 100.0% | 0.0 | % | ||||||||||||||
22 | 28 | 1.5% | 4.8 | % | 5.5 | % | 50% | 6.6 | % | 100.0% | 0.0 | % | ||||||||||||||
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 320. The standard specifies that a cash flow projection can 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
Excess interest spread
Cash reserves
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 of available for sale single-issue trust preferred securities as of September 30, 2017:
Security | Moodys | S&P | Fitch | Amortized Cost | Fair Value | Unrealized Loss/ (Gain) | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Emigrant Bank | NR | NR | WD | $ | 5,707 | $ | 4,366 | $ | 1,341 | |||||||||||||||
Bank of America | Ba1 | NR | BBB- | 4,680 | 4,819 | (139 | ) | |||||||||||||||||
M&T Bank | NR | BBB- | BBB- | 3,017 | 3,282 | (265 | ) | |||||||||||||||||
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| $ | 13,404 | $ | 12,467 | $ | 937 | |||||||||||||||||||
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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 ($7.42 million) and Royal Bank of Scotland ($976 thousand).
During the thirdsecond quarter of 2017,2023, United did not recognize any other-than-temporary impairment charges.credit losses on its available for sale investment securities. Management does not believe that any individual security with an unrealized loss as of SeptemberJune 30, 20172023 is other-than-temporarily impaired. United believes the decline in value 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 June 30, 2023, 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 32 to the unaudited Notes to Consolidated Financial Statements.
Loans Held for Sale
Loans held for sale
Loans held for sale increased $306.59were $91.30 million at June 30, 2023, an increase of $34.42 million or 3,630.38% due mainly to the acquisition of Cardinal and its mortgage banking subsidiary, George Mason.60.51% from year-end 2022. Loan originations exceeded loan sales in the secondary market exceeded sales during the first ninesix months of 2017.2023. Loan originations for the first ninesix months of 20172023 were $1.72 billion$449.64 million while loans sales were $1.67 billion. Loans held for sale were $315.03 million at September 30, 2017 as compared to $8.45 million atyear-end 2016.$415.22 million.
Portfolio Loans
Loans, net of unearned income, increased $2.80 billion$206.13 million or 27.07% from1%. 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, 2022, commercial, financial and agricultural loans increased $1.72 billion$206.23 million or 28.25%1.77% as a result of a $268.22 million or 3.35% increase in commercial real estate loans increased $1.58 billionwhich was partially offset by a $61.99 million or 35.21% and1.72% decrease in commercial loans (not secured by real estate) increased $144.30. Construction and land development loans decreased $109.27 million or 8.94%. In addition,3.73%, residential real estate loans increased $245.72 million or 5.27%, and other consumer loans increased $647.43decreased $140.92 million or 26.94% and $88.90 million or 14.60%, respectively, while construction and land development loans increased $343.89 million or 27.39%. These increases were10.32% due primarily to the Cardinal acquisition. Otherwise, portfolio loans, net of unearned income, declined $369.23 million fromyear-end 2016.a decrease in indirect automobile financing.
60
The following table summarizes the changes in the major loan classes sinceyear-end 2016: 2022:
| September 30 | December 31 | |||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||||
Loans held for sale | $ | 315,031 | $ | 8,445 | $ | 306,586 | 3,630.38 | % | ||||||||
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Commercial, financial, and agricultural: | ||||||||||||||||
Owner-occupied commercial real estate | $ | 1,364,757 | $ | 1,049,885 | $ | 314,872 | 29.99 | % | ||||||||
Nonowner-occupied commercial real estate | 4,686,183 | 3,425,453 | 1,260,730 | 36.80 | % | |||||||||||
Other commercial loans | 1,757,741 | 1,613,437 | 144,304 | 8.94 | % | |||||||||||
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Total commercial, financial, and agricultural | $ | 7,808,681 | $ | 6,088,775 | $ | 1,719,906 | 28.25 | % | ||||||||
Residential real estate | 3,050,868 | 2,403,437 | 647,431 | 26.94 | % | |||||||||||
Construction & land development | 1,599,632 | 1,255,738 | 343,894 | 27.39 | % | |||||||||||
Consumer: | ||||||||||||||||
Bankcard | 13,775 | 14,187 | (412 | ) | (2.90 | %) | ||||||||||
Other consumer | 683,898 | 594,582 | 89,316 | 15.02 | % | |||||||||||
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Total gross loans | $ | 13,156,854 | $ | 10,356,719 | $ | 2,800,135 | 27.04 | % | ||||||||
Less: Unearned income | (16,386 | ) | (15,582 | ) | (804 | ) | 5.16 | % | ||||||||
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Total Loans, net of unearned income | $ | 13,140,468 | $ | 10,341,137 | $ | 2,799,331 | 27.07 | % | ||||||||
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The following table summarizes the outstanding balances of portfolio loans originated and acquired, by type, as of September 30, 2017 and December 31, 2016:
| September 30, 2017 | ||||||||||||||||||||
| (In thousands) | Commercial, financial and agricultural | Residential real estate | Construction & land development | Consumer | Total | |||||||||||||||
Originated | $ | 4,459,221 | $ | 1,973,839 | $ | 1,056,959 | $ | 690,711 | $ | 8,180,730 | ||||||||||
Acquired | 3,349,460 | 1,077,029 | 542,673 | 6,962 | 4,976,124 | |||||||||||||||
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Total gross loans | $ | 7,808,681 | $ | 3,050,868 | $ | 1,599,632 | $ | 697,673 | $ | 13,156,854 | ||||||||||
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| 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 | |||||||||||||||
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Total gross loans | $ | 6,088,775 | $ | 2,403,437 | $ | 1,255,738 | $ | 608,769 | $ | 10,356,719 | ||||||||||
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| (Dollars in thousands) | June 30 2023 | December 31 2022 | $ Change | % Change | ||||||||||||
Loans held for sale | $ | 91,296 | $ | 56,879 | $ | 34,417 | 60.51 | % | ||||||||
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Commercial, financial, and agricultural: | ||||||||||||||||
Owner-occupied commercial real estate | $ | 1,707,719 | $ | 1,724,927 | $ | (17,208 | ) | (1.00 | %) | |||||||
Nonowner-occupied commercial real estate | 6,572,404 | 6,286,974 | 285,430 | 4.54 | % | |||||||||||
Other commercial loans | 3,550,575 | 3,612,568 | (61,993 | ) | (1.72 | %) | ||||||||||
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Total commercial, financial, and agricultural | $ | 11,830,698 | $ | 11,624,469 | $ | 206,229 | 1.77 | % | ||||||||
Residential real estate | 4,908,633 | 4,662,911 | 245,722 | 5.27 | % | |||||||||||
Construction & land development | 2,817,706 | 2,926,971 | (109,265 | ) | (3.73 | %) | ||||||||||
Consumer: | ||||||||||||||||
Bankcard | 9,192 | 9,273 | (81 | ) | (0.87 | %) | ||||||||||
Other consumer | 1,215,697 | 1,356,539 | (140,842 | ) | (10.38 | %) | ||||||||||
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Total gross loans | $ | 20,781,926 | $ | 20,580,163 | $ | 201,763 | 0.98 | % | ||||||||
Less: Unearned income | (17,635 | ) | (21,997 | ) | 4,362 | (19.83 | %) | |||||||||
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Total Loans, net of unearned income | $ | 20,764,291 | $ | 20,558,166 | $ | 206,125 | 1.00 | % | ||||||||
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For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements.
Other Assets
Other assets remained flat, increasing $555 thousand or less than 1% from year-end 2022. Income taxes receivable increased $107.28$11.99 million or 25.86% fromyear-end 2016. The Cardinal acquisition added $135.38due to timing differences, other real estate owned properties (“OREO”) increased $1.75 million and the pension asset increased $1.42 million. In addition, accounts receivable increased $1.28 million while derivative assets increased $1.13 million due to a net increase in otherfair value. Mostly offsetting these increases were decreases in deferred tax assets plus an additional $28.72of $9.38 million in core deposit intangibles and $1.23 million for the George Mason trade name intangible. The cash surrender value of bank-owned life insurance policies increased $37.66 million, of which $33.50 million was acquired from Cardinal while the remaining increase was due to an increase in the cash surrender value. Deferred tax assets increased $30.77fair value of available-for-sale securities, dealer reserve of $4.78 million due mainly to the deferred taxes recorded on the purchase accounting adjustments in the Cardinal acquisition. The remainder of the increase in other assets is the result of an increase of $5.28 million in derivative assets from George Mason, an increase of $4.26 million in income taxes receivable due to a timing differencedecrease in paymentsindirect automobile financing, and an increasecore deposit intangibles of $4.94$2.56 million in accounts receivable. Partially offsetting these increases was a decrease of $4.68 million in OREO due to sales and declines in the fair values of properties.amortization.
Deposits
Deposits represent United’s primary source of funding. Total deposits at SeptemberJune 30, 20172023 increased $3.08 billion$66.59 million or 28.51% fromyear-end 2016 as a result of the Cardinal acquisition. Cardinal added $3.35 billion in deposits, including purchase accounting amounts.less than 1%. In terms of composition, noninterest-bearing deposits increased $962.18decreased $748.85 million or 30.34%10.40% while interest-bearing deposits increased $2.12 billion$815.44 million or 27.75%5.40% from December 31, 2016. Organically,2022.
Noninterest-bearing deposits declined $269.74consist of demand deposit and noninterest bearing money market (“MMDA”) account balances. The $748.85 million fromyear-end 2016.
The increasedecrease in noninterest-bearing deposits was due mainly to increasesa $595.96 million or 11.02% decrease in commercial noninterest-bearing deposits, of $793.09a $82.66 million or 32.65% and5.53% decrease in personal noninterest-bearing deposits, of $92.09and a $39.57 million or 16.03%20.85% decrease in public noninterest-bearing deposits.
Interest-bearing deposits consist of interest-bearing transaction (“NOW”) accounts, regular savings, interest-bearing MMDA, and time deposit account balances. NOW accounts increased $128.65 million or 2.51% since year-end 2022 as the result of an increase of $558.82 million in commercial NOW accounts. This increase was mostly offset by a $405.40 million decrease in personal NOW accounts and a $24.77 million decrease in public funds NOW accounts. Regular savings accounts decreased $193.81 million or 11.55% mainly as a result of the Cardinal acquisition. Public funds noninterest-bearing deposits increased $37.42a $179.06 million or 37.07%.
All major categories of interest-bearing deposits increased fromyear-end 2016 as the result of the Cardinal acquisition. Interest-bearing checking accounts increased $418.90 million or 23.56% mainly due to a $110.68 million increasedecrease in commercial interest-bearing checkingpersonal savings accounts and a $252.31$15.26 million increasedecrease in commercial savings accounts. Interest-bearing MMDAs decreased $221.82 million or 3.52%. In particular, personal interest-bearing checking accounts. Regular savings increased $342.61MMDAs decreased $354.12 million or 47.50% due to the Cardinal acquisition. Interest-bearingwhile commercial interest-bearing MMDAs increased $617.08 million or 19.58% as commercial$117.20 million. Public funds interest-bearing MMDAs increased $526.03 million or 28.59% and personal MMDAs increased $81.74 million or 7.03%. $15.09 million.
Time deposits under $100,000 increased $128.41$130.44 million or 18.53% due mainly to an15.46% from year-end 2022. This increase in time deposits
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under $100,000 was the result of a $134.85 million increase in fixed rate certificatesCertificates of deposits (CDs) of $89.24Deposits (“CDs”) under $100,000, and a $3.02 million due to the Cardinal acquisition. Time deposits over $100,000 increased $609.25 million or 47.57% due to increasesincrease in brokered deposits of $163.45 million, fixed rate CDs of $255.88 million, Certificate of Deposit Account Registry Service (CDARS) balances(“CDARS”) under $100,000. CDs under $100,000 obtained through the use of $88.09deposit listing services decreased $3.34 million.
Since year-end 2022, time deposits over $100,000 increased $971.99 million or 83.44% as brokered certificates of deposits increased $391.01 million, fixed rate CDs increased $510.51 million, and public funds CDs of $95.64 million, all as a result of the Cardinal acquisition.
The following table below summarizes the changes in theby deposit categoriescategory sinceyear-end 2016: 2022:
| (Dollars in thousands) | September 30 2017 | December 31 2016 | $ Change | % Change | June 30 2023 | December 31 2022 | $ Change | % Change | ||||||||||||||||||||||||
Demand deposits | $ | 4,134,019 | $ | 3,171,841 | $ | 962,178 | 30.33 | % | ||||||||||||||||||||||||
Interest-bearing checking | 2,197,058 | 1,778,156 | 418,902 | 23.56 | % | |||||||||||||||||||||||||||
Noninterest-bearing accounts | $ | 6,450,826 | $ | 7,199,678 | $ | (748,852 | ) | (10.40 | %) | |||||||||||||||||||||||
Interest-bearing transaction accounts | 5,245,618 | 5,116,966 | 128,652 | 2.51 | % | |||||||||||||||||||||||||||
Regular savings | 1,063,830 | 721,224 | 342,606 | 47.50 | % | 1,484,492 | 1,678,302 | (193,810 | ) | (11.55 | %) | |||||||||||||||||||||
Money market accounts | 3,768,979 | 3,151,896 | 617,083 | 19.58 | % | |||||||||||||||||||||||||||
Interest-bearing money market accounts | 6,077,581 | 6,299,404 | (221,823 | ) | (3.52 | %) | ||||||||||||||||||||||||||
Time deposits under $100,000 | 821,417 | 693,005 | 128,412 | 18.53 | % | 974,385 | 843,950 | 130,435 | 15.46 | % | ||||||||||||||||||||||
Time deposits over $100,000(1) | 1,889,994 | 1,280,745 | 609,249 | 47.57 | % | 2,136,851 | 1,164,866 | 971,985 | 83.44 | % | ||||||||||||||||||||||
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Total deposits | $ | 13,875,297 | $ | 10,796,867 | $ | 3,078,430 | 28.51 | % | $ | 22,369,753 | $ | 22,303,166 | $ | 66,587 | 0.30 | % | ||||||||||||||||
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| (1) | Includes time deposits of $250,000 or more of |
Borrowings
Total borrowings at SeptemberJune 30, 20172023 increased $474.71$6.82 million or 34.36% duringless than 1% since year-end 2022. During the first ninesix months of 2017. Cardinal added $316.33 million, including purchase accounting amounts, upon consummation of the acquisition. Sinceyear-end 2016,2023, short-term borrowings increased $282.49$16.04 million or 134.80%9.98% due to increases of $200.00 million and $78.92 millionan increase in short-term FHLB advances and short-term securities sold under agreements to repurchase, respectively. In addition, federal funds purchased increased $3.57 million. Cardinal added $96.21repurchase. Long-term borrowings decreased $9.22 million or less than 1% from year-end 2022 due to the redemption of $9.89 million in short-term borrowings, allsubordinated debt during the first six months of which was repaid prior toquarter-end.2023. Long-term borrowings increased $192.22 million or 16.40% sinceyear-end 2016 as long-term FHLB advances increased $174.41 million and issuances of trust preferred capital securities increased $17.81 million. Cardinal added $220.12 million in long-term borrowings, $20 million of which was repaid prior toquarter-end.remained flat, decreasing merely $144 thousand or less than 1%.
The table below summarizes the change in the borrowing categories sinceyear-end 2016: 2022:
| (Dollars in thousands) | September 30 2017 | December 31 2016 | $ Change | % Change | June 30 2023 | December 31 2022 | $ Change | % Change | ||||||||||||||||||||||||
Federal funds purchased | $ | 25,800 | $ | 22,235 | $ | 3,565 | 16.03 | % | ||||||||||||||||||||||||
Short-term securities sold under agreements to repurchase | 266,236 | 187,316 | 78,920 | 42.13 | % | $ | 176,739 | $ | 160,698 | $ | 16,041 | 9.98 | % | |||||||||||||||||||
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 | 1,072,115 | 897,707 | 174,408 | 19.43 | % | 1,910,631 | 1,910,775 | (144 | ) | (0.01 | %) | |||||||||||||||||||||
Subordinated debt | 0 | 9,892 | (9,892 | ) | (100.00 | %) | ||||||||||||||||||||||||||
Issuances of trust preferred capital securities | 242,131 | 224,319 | 17,812 | 7.94 | % | 277,807 | 276,989 | 818 | 0.30 | % | ||||||||||||||||||||||
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Total borrowings | $ | 1,856,282 | $ | 1,381,577 | $ | 474,705 | 34.36 | % | $ | 2,365,177 | $ | 2,358,354 | $ | 6,823 | 0.29 | % | ||||||||||||||||
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For a further discussion of borrowings see Notes 89 and 910 to the unaudited Notes to Consolidated Financial Statements.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at SeptemberJune 30, 20172023 increased $40.10$1.14 million or 42.81%less than 1% fromyear-end 2016. Cardinal added $50.93 million including an unfavorable lease liability of $2.28 million. 2022. In particular, deferred compensation increased $14.33 million, dividendsinterest payable increased $9.33$9.46 million accrueddue to an increase in CDs and brokered deposits as well as rising interest rates and mortgage escrow liabilities increased $6.05$6.48 million other accrued expenses increased $8.12 million and income taxes payable increased $6.75 million.due to a growth in mortgage loans since year-end 2022. Partially offsetting these increases in accrued expenses and other liabilities was a decrease of $10.72$8.65 million in the pension liabilityincentives payable due to a $10payments and decreases of $2.71 million payment in the third quarter of 2017 and a decline of $1.58$4.81 million in derivative liabilitiesincome tax payable and business franchise taxes, respectively, due to a change in fair value.
Shareholders’ Equity
Shareholders’ equity at SeptemberJune 30, 20172023 was $4.64 billion, which was an increase of $120.85 million or 2.68% from year-end 2022.
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Retained earnings increased $1.03 billion$93.42 million or 45.98%5.93% 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 2022. Earnings net of dividends for the first ninesix months of 20172023 were $36.57$93.42 million.
Accumulated other comprehensive income increased $10.55$22.05 million or 6.63% from year-end 2022 due mainly to an increase of $8.44$24.56 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes. Partially offsetting this increase was a $3.71 million decrease in the fair value of cash flow hedges, net of deferred income taxes. The after taxnon-credit portionafter-tax amortization of the pension costsnet actuarial loss was $2.11$1.20 million for the first ninesix months of 2017.2023.
RESULTS OF OPERATIONS
Overview
Below is a summary of United’s consolidated results of operations for the time periods presented:
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| (Dollars in thousands except per share amounts) | June 2023 | June 2022 | March 2023 | June 2023 | June 2022 | |||||||||||||||
Interest income | $ | 345,932 | $ | 227,771 | $ | 329,303 | $ | 675,235 | $ | 430,566 | ||||||||||
Interest expense | 118,471 | 12,868 | 94,983 | 213,454 | 24,161 | |||||||||||||||
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Net interest income | 227,461 | 214,903 | 234,320 | 461,781 | 406,405 | |||||||||||||||
Provision for credit losses | 11,440 | (1,807 | ) | 6,890 | 18,330 | (5,217 | ) | |||||||||||||
Noninterest income | 35,178 | 43,608 | 32,744 | 67,922 | 89,633 | |||||||||||||||
Noninterest expense | 135,288 | 141,174 | 137,419 | 272,707 | 280,349 | |||||||||||||||
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Income before income taxes | 115,911 | 119,144 | 122,755 | 238,666 | 220,906 | |||||||||||||||
Income taxes | 23,452 | 23,531 | 24,448 | 47,900 | 43,629 | |||||||||||||||
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Net income | $ | 92,459 | $ | 95,613 | $ | 98,307 | $ | 190,766 | $ | 177,277 | ||||||||||
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Net income for the thirdsecond quarter of 20172023 was $56.74$92.46 million or $0.54$0.68 per diluted share, as compared to $41.48$95.61 million or $0.54$0.71 per diluted share for the prior year thirdsecond quarter. Net income for the first ninequarter of 2023 was $98.31 million or $0.73 per diluted share. Net income for the first six months of 20172023 was $132.61$190.77 million or $1.39$1.41 per diluted share compared to $107.98$177.28 million or $1.48$1.30 per share for the first ninesix months of 2016.2022.
As previously mentioned, United completed its acquisition of Cardinal on April 21, 2017. The financial results of Cardinal are included in United’s results from the acquisition date. As a result of the acquisition, the first nine months and third quarter of 2017 were impacted for increased levels of average balances, income, and expense as compared to the first nine months and third quarter of 2016 and two full months inFor the second quarter of 2017.
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 first nine months and third quarter of 2016 were impacted by increased levels of average balances, income, and expense. The third quarter and first nine months of 2017 included $532 thousand and $24.99 million, respectively, of merger-related expenses from the Cardinal acquisition and the third quarter and first nine months of 2016 included $924 thousand and $5.61 million, respectively, of merger-related expenses from the Bank of Georgetown acquisition.
For the third quarter of 2017,2023, United’s annualized return on average assets was 1.19%1.26% and return on average shareholders’ equity was 6.89%7.96% as compared to 1.17%1.32% and 8.10%8.33% for the thirdsecond quarter of 2016.2022. United’s annualized return on average assets was 1.35% and return on average shareholders’ equity was 8.72% for the first quarter of 2023. United’s annualized return on average assets for the first ninesix months of 20172023 was 1.03%1.31% and return on average shareholders’ equity was 6.22%8.34% as compared to 1.10%1.23% and 7.73% for the first nine months of 2016. 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 0.96% and 8.28%, respectively,7.63% for the first six months of 2017.2022. For the second quarter and first half of 2023, United’s annualized return on average tangible equity was 13.47% and 14.20%, respectively, as compared to 14.23% and 12.90% for the second quarter and first half of 2022, respectively. United’s annualized return on average tangible equity was 14.97% for the first quarter of 2023.
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| (Dollars in thousands) | June 30, 2023 | June 30, 2022 | March 31, 2023 | June 30, 2023 | June 30, 2022 | |||||||||||||||
Return on Average Tangible Equity: | ||||||||||||||||||||
(a) Net Income (GAAP) | $ | 92,459 | $ | 95,613 | $ | 98,307 | $ | 190,766 | $ | 177,277 | ||||||||||
(b) Number of Days | 91 | 91 | 90 | 181 | 181 | |||||||||||||||
Average Total Shareholders’ Equity (GAAP) | $ | 4,659,094 | $ | 4,606,186 | $ | 4,570,288 | $ | 4,614,909 | $ | 4,682,991 | ||||||||||
Less: Average Total Intangibles | (1,906,053 | ) | (1,911,705 | ) | (1,907,331 | ) | (1,906,689 | ) | (1,911,416 | ) | ||||||||||
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(c) Average Tangible Equity (non-GAAP) | $ | 2,753,041 | $ | 2,694,481 | $ | 2,662,957 | $ | 2,708,220 | $ | 2,771,575 | ||||||||||
Return on Average Tangible Equity (non-GAAP) | 13.47 | % | 14.23 | % | 14.97 | % | 14.20 | % | 12.90 | % | ||||||||||
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During the second quarter of 2023, United sold mortgage servicing rights (“MSRs”) with an aggregate unpaid principal balance of approximately $2 billion at a net gain of $8.15 million. Additionally, during the second quarter of 2023, United sold approximately $187 million of available for sale (“AFS”) investment securities at a net loss of $7.24 million.
Net interest income for the thirdsecond quarter of 20172023 was $394.14$227.46 million, which was an increase of $39.21$12.56 million, or 35.30%5.84%, from the thirdsecond quarter of 2016.2022. The increase of $12.56 million in net interest income occurred because total interest income increased $48.45$118.16 million while total interest expense only increased $9.24$105.60 million from the thirdsecond quarter of 2016.2022. Net interest income for the first nine monthshalf of 20172023 was $394.14$461.78 million, an increase of $82.06$55.38 million or 26.30%13.63% from the prior year’s first nine months.half of 2022. The increase of $55.38 million in net interest income occurred because total interest income increased $102.57$244.67 million while total interest expense only increased $20.51$189.29 million from the first nine monthshalf of 2016.2022.
The provision for credit losses was $7.28$11.44 million and $21.43$18.33 million for the thirdsecond quarter and first nine monthshalf of 2017,2023, respectively, as compared to $6.99while the provision for credit losses was a net benefit of $1.81 million and $18.69$5.22 million for the thirdsecond quarter and first nine monthshalf of 2016, respectively. 2022. The provision for credit losses was $6.89 million for the first quarter of 2023. The increase in the provision for credit losses was mainly due to a change in qualitative factors and the impact of reasonable and supportable forecasts of future macroeconomic conditions.
For the thirdsecond quarter of 2017,2023, noninterest income was $38.23$35.18 million, which was an increasea decrease of $19.21$8.43 million or 100.98%19.33% from the thirdsecond quarter of 2016.2022. Noninterest income for the first ninesix months of 20172023 was $98.88$67.92 million which was an increasea decrease of $45.50$21.71 million or 85.24%24.22% from the first ninesix months of 2016.2022. These
increases decreases in noninterest income were due mainly to lower mortgage loan origination and sale volume and a lower margin on loans sold in the secondary market as well as the previously mentioned net losses on the sales of securities in 2023. Noninterest income for the second quarter of 2023 increased $2.43 million, or 7.43%, from 2016 were mainlythe first quarter of 2023. This increase in noninterest income for the linked-quarter was primarily due to additional incomethe previously mentioned net gain on the sale of MSRs in the second quarter of 2023.
For the second quarter of 2023, noninterest expense decreased $5.89 million or 4.17% from mortgage banking activitiesthe second quarter of 2022 due mainly to a decrease in the expense for the reserve for unfunded loan commitments within other expenses. For the first six months of 2023, noninterest expense decreased $7.64 million or 2.73% from the first six months of 2022 due mainly to lower employee compensation expense as a result of lower employee commissions and incentives related to mortgage banking production and a lower employee incentives. Noninterest expense for the Cardinal acquisition. For the thirdsecond quarter of 2017, noninterest expense increased $33.882023 decreased $2.13 million, or 53.96% from the third quarter of 2016. For the first nine months of 2017, noninterest expense increased $85.94 million or 46.28%1.55%, from the first nine monthsquarter of 2016. These increases from 2016 were2023 due mainly to a decrease in the Cardinal acquisition.expense for reserve for unfunded loan commitments within other expense.
Income taxes for the thirdsecond quarter of 20172023 were $27.84$23.45 million as compared to $18.85$23.53 million for the thirdsecond quarter of 2016.2022. Income tax expense was $24.45 million for the first quarter of 2023. For the first ninesix months of 20172023 and 2016,2022 income tax expense was $67.36$47.90 million and $53.10$43.63 million, respectively. These increases for 2017 were due to higher earnings and a higher effective tax rate. For the quarters ended SeptemberJune 30, 20172023 and 2016,March 31, 2023, United’s effective tax rate was 32.91%20.23% and 31.24%19.92%, respectively. For the quarter ended June 30, 2022, United’s effective tax rate was 19.75%. The effective tax rate for the first ninesix months of 20172023 and 20162022 was 33.68%20.07% and 32.97%19.75%, respectively.
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 thirdsecond quarter of 20172023 was $59.94$91.89 million compared to net income of $42.97$97.14 million for the thirdsecond quarter of 2016.
Net interest2022. The lower net income increased $39.85 million to $152.89 millionwithin the community banking segment for the thirdsecond quarter of 2017, compared to $113.03 million for the same period of 2016. Generally, net interest income for the third quarter of 2017 increased from the third quarter of 2016 because of the earning assets added from the Cardinal acquisition. Provision for loan losses2023 was $7.28 million for the three months ended September 30, 2017 compareddue primarily to a provision of $6.99 million for the same period of 2016. Noninterest income decreased $1.29 million for the third quarter of 2017 to $18.37 million as compared to $19.67 million for the third quarter of 2016. The decrease was mainly due to a decline of $1.14 million in income from bank-owned life insurance policies due to death benefits recorded in the third quarter of 2016. Noninterest expense was $74.55 million for the third quarter of 2017, compared to $63.01 million for the same period of 2016. The increase of $11.54 million in noninterest expense was primarily attributable to increases in branches, staffing and merger-related expenses from the Cardinal acquisition.
income. Net income attributable to the community banking segment for the first nine monthshalf of 20172023 was $143.88$196.59 million compared to net income of $112.57$180.17 million for the first nine monthshalf of 2016.2022. The higher net income within the community banking segment for the first half of 2023 was due primarily to increased net interest income. On a linked quarter basis, net income attributable to the community banking segment for the second quarter of 2023 decreased $12.80 million from the first quarter of 2023 primarily due to a net interest margin compression, a decline noninterest income and an increase in provision for credit losses.
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Net interest income of $229.31 million for the second quarter of 2023 was an increase of $17.72 million or 8.37% from $211.59 million for the second quarter of 2022. Net interest income increased $83.21$64.30 million to $401.04$465.57 million for the first nine monthshalf of 2017,2023, compared to $317.84$401.27 million for the same period of 2016.2022. Generally, net interest income for the second quarter and first ninesix months of 20172023 increased from the second quarter and first ninesix months of 2016 because2022 due mainly the impact of therising market interest rates on earning assets, addedorganic loan growth and a change in the asset mix to higher earning assets. On a linked quarter basis, net interest income for the second quarter of 2023 decreased $6.95 million from the Cardinal acquisition. Provisionfirst quarter of 2023 primarily due to higher interest expense driven by deposit rate repricing and a higher average balance of interest-bearing deposits.
The provision for loancredit losses was $21.43$11.44 million for the ninethree months ended SeptemberJune 30, 20172023 compared to a net benefit of $1.81 million for the three months ended June 30, 2022. The provision for credit losses was $18.33 million for the six months ended June 30, 2023, compared to a net benefit of $18.69$5.22 million for the six months ended June 30, 2022. As previously mentioned, the increase in the provision for credit losses was mainly due to a change in qualitative factors and the impact of reasonable and supportable forecasts of future macroeconomic conditions. The provision for credit losses was $6.89 million for the first quarter of 2023.
Noninterest income decreased $9.28 million for the second quarter of 2023 to $17.62 million as compared to $26.90 million for the second quarter of 2022. Noninterest income for the first half of 2023 decreased $10.02 million to $41.79 million for the first half of 2023 as compared to $51.80 million for the first half of 2022. These decreases from 2022 were due mainly to net losses on the sales of AFS investment securities and declines in fees from deposit services and income from bank-owned life insurance. On a linked quarter basis, noninterest income for the second quarter of 2023 decreased $6.56 million from the first quarter of 2023 due to the previously mentioned net losses on the sales of AFS investment securities.
Noninterest expense was $120.28 million for the second quarter of 2023, compared to $119.25 million for the same period of 2016.2022. Noninterest income decreased by $1.91 million to $53.41expense was $243.06 million for the first ninesix months of 2017 asended June 30, 2023, compared to $55.32 million for the first nine months of 2016. The decrease was mainly due to a decline of $1.04 million in income from bank-owned life insurance policies due to death benefits recorded in the third quarter of 2016. Noninterest expense was $215.94 million for the nine months ended September 30, 2017, compared to $186.32$233.79 million for the same period of 2016. The increase of $29.61 million2022. These increases in noninterest expense wasfor the first six months of 2023 were primarily attributable to increasesan increase in branches, staffing and merger-related expensesFederal Deposit Insurance Corporation (“FDIC”) expense due to a higher assessment rate. On a linked quarter basis, noninterest expense for the second quarter of 2023 decreased $2.51 million from the Cardinal acquisition.
Mortgage Banking
The mortgage banking segment reported net income of $5.13 million and $3.45 million for the second quarter and the first half of 2023, respectively, as compared to net losses of $1.15 million and $944 thousand for the second quarter and first half of 2022. The mortgage banking segment reported a net loss of $2.80$1.68 million and $322 thousand for the thirdfirst quarter and first nine months of 2017, respectively. 2023.
Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $19.94 million and $42.33$19.95 million for the thirdsecond quarter andof 2023 as compared to $21.47 million for the second quarter of 2022. Noninterest income for the first nine monthshalf of 2017, respectively. 2023 was $30.81 million as compared to $44.87 million for the first half of 2022. These decreases in noninterest income from 2022 were due mainly to decreased sales of mortgage loans in the secondary market primarily as a result of a rising interest rate environment. On a linked quarter basis, noninterest income for the second quarter of 2023 increased $9.09 million from the first quarter of 2023. This increase in noninterest income for the linked-quarter was primarily due to the previously mentioned net gain on the sale of MSRs in the second quarter of 2023.
Noninterest expense was $24.04 million and $42.74$15.71 million for the thirdsecond quarter andof 2023, a decrease of $10.07 million from $25.78 million for the second quarter of 2022. Noninterest expense for the first nine monthshalf of 2017, respectively.2023 was $30.79 million, a decrease of $20.43 million from the first half of 2022. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage
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segment employees. There is no comparisonThe decreases mentioned above were due mainly to results for 2016 because United did not have alower employee commissions and incentives related to the decreased mortgage banking segment in 2016.production. On a linked quarter basis, noninterest expense for the second quarter of 2023 increased $621 thousand from the first quarter of 2023 due to higher employee commissions and incentives related to the increased mortgage banking 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 20172023 and 2016,2022, are presented below.
Net interest income for the thirdsecond quarter of 20172023 was $150.28$227.46 million, which was an increase of $39.21$12.56 million or 35.30%5.84% from the thirdsecond quarter of 2016.2022. The $39.21$12.56 million increase in net interest income occurred because total interest income increased $48.45$118.16 million while total interest expense only increased $9.24$105.60 million from the thirdsecond quarter of 2016.2022. Net interest income for the first nine monthshalf of 20172023 was $394.14$461.78 million, which was an increase of $82.06$55.38 million or 26.30%13.63% from the first nine monthshalf of 2016.2022. The $82.06$55.38 million increase in net interest income occurred because total interest income increased $102.57$244.67 million while total interest expense only increased $20.51$189.29 million from the first nine monthshalf of 2016.2022. On a linked-quarter basis, net interest income for the third quarter of 2017 increased $14.03 million or 10.30% from the second quarter of 2017.2023 decreased $6.86 million or 2.93% from the first quarter of 2023. The $14.03$6.86 million increasedecrease in net interest income occurred because total interest income increased $16.64$16.63 million while total interest expense only increased $2.61$23.49 million from the secondfirst quarter of 2017. Generally, interest income for the third quarter and first nine months of 2017 increased from the third quarter and first nine months of 2016 because of the earning assets added from the Cardinal acquisition. In addition, loan accretion on acquired loans for the third quarter and first nine months of 2017 increased from the same time periods last year and the second quarter of 2017. 2023.
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 thirdsecond quarter of 20172023 was $152.37$228.61 million, an increase of $39.74$12.60 million or 35.29%5.83% from the thirdsecond quarter of 20162022. The increase in tax-equivalent net interest income was primarily due mainly to an increasethe impact of rising market interest rates on earning assets, organic loan growth and a change in the asset mix to higher earning assets. These increases were partially offset by higher interest expense primarily driven by deposit rate repricing, higher average balances and cost of long-term borrowings, lower income from Paycheck Protection Program (“PPP”) loan fees and lower acquired loan accretion. The yield on average earning assets increased 175 basis points from the Cardinal acquisition.second quarter of 2022 to 5.33%. Average earning assets for the thirdsecond quarter of 20172023 increased $3.97 billion$494.60 million, or 31.53%1.93%, from the thirdsecond quarter of 20162022 due mainly to a $3.18$1.66 billion or 30.66% increase in average net loans. Averageloans partially offset by a $743.07 million decrease in average short-term investments increased $436.66and a $423.13 million or 53.90% whiledecrease in average investment securitiessecurities. The average cost of funds increased $360.25 million or 25.15%. The third quarter of 2017 average yield on earning assets increased 22233 basis points from the thirdsecond quarter of 20162022 to 2.64% primarily due to additionalincreases in the yield on average interest-bearing deposits of 212 basis points and in the yield on average long-term borrowings of 300 basis points. Average long-term borrowings increased $1.50 billion from the second quarter of 2022. Net PPP loan fee income decreased $3.45 million from the second quarter of 2022. Acquired loan accretion of $7.68income was $3.08 million on acquired loans and higher market interest rates. Partially offsetting the increases totax-equivalent net interest income$5.40 million for the thirdsecond quarter of 2017 was an increase2023 and 2022, respectively, a decrease of 19 basis points in the average cost of funds as compared to the third quarter of 2016 due to the higher market interest rates.$2.32 million. The net interest margin of 3.65%3.51% for the thirdsecond quarter of 20172023 was an increase of 913 basis points from the net interest margin of 3.56%3.38% for the thirdsecond quarter of 2016.
Tax-equivalent net interest income for the first ninesix months of 20172023 was $400.31$464.06 million, an increase of $83.67$55.44 million or 26.42%13.57% from the first ninesix months of 2016. This2022. The increase intax-equivalent net interest income was primarily attributabledue to anthe impact of rising market interest rates on earning assets, organic loan growth and a change in the asset mix to higher earning assets. These increases were partially offset by higher interest expense primarily driven by deposit rate repricing and higher average balances and cost of long-term borrowings as well as lower income from PPP loan fees and acquired loan accretion. The yield on average earning assets increased 184 basis points from the first six months of 2022 to 5.21%. Average earning
66
assets for the first six months of 2023 increased $310.98 million, or 1.20%, from the first six months of 2022 due to a $1.90 billion increase in average earning assets from the Cardinal acquisition. Average earning assets increased $3.53 billion or 30.25% from the first nine months of 2016 as average net loans increased $2.51partially offset by a $1.41 billion or 25.66% for the first nine months of 2017. Averagedecrease in average short-term investments and a $171.38 million decrease in average investment securities increased $340.92 million or 26.26%. Partially offsetting the increases totax-equivalent net interest income for the first nine months of 2017 was an increase of 15 basis points in thesecurities. The average cost of funds as compared to the first nine months of 2016 due to higher market interest rates. In addition, the first nine months of 2017 average yield on earning assets decreased aincreased 212 basis pointpoints from the first ninesix months of 20162022 to 2.41% primarily due to increases in the replacementyield on average interest-bearing deposits of maturing higher-yielding investment securities with those at a lower current interest rate despite an increase187 basis points and in the yield on average long-term borrowings of $11.64298 basis points. Average long-term borrowings increased $1.55 billion from the first six months of 2022. Net PPP loan fee income decreased $7.35 million from the first six months of 2022. Acquired loan accretion on acquired loans.income was $6.20 million and $9.54 million for the first six months of 2023 and 2022, respectively, a decrease of $3.34 million. The net interest margin of 3.52%3.57% for the first ninesix months of 20172023 was a decreasean increase of 1039 basis points from the net interest margin of 3.62%3.18% for the first ninesix months of 2016.2022.
On a linked-quarter basis, United’stax-equivalent net interest income for the thirdsecond quarter of 2017 increased $13.612023 decreased $6.85 million, or 9.81% due mainly to increases in2.91%, from the average yield on and the average balance of earning assets. The thirdfirst quarter of 2017 average yield2023. The decrease in net interest income and tax-equivalent net interest income was primarily due to higher interest expense driven by deposit rate repricing partially offset by higher interest income on earning assets increased 25net loans and loans held for sale driven by rising market interest rates. The interest rate spread for the second quarter of 2023 decreased 24 basis points from the secondfirst quarter of 20172023 to 2.69% due to additional loan accretion of $5.45 million on acquired loans. Average earning assets increased $426.47 million or 2.64% for the linked-quarter due to the Cardinal acquisition. Average net loans increased $492.64 million or 3.78% while average investment securities increased $40.60 million or 2.32%. Average short-term investments decreased $106.77 million or 7.89%. Partially offsetting the increases totax-equivalent net interest income for the third quarter of 2017 was ana 47 basis point increase of 7 basis points in the average cost of funds as comparedpartially offset by a 23 basis point increase in the yield on earning assets. The yield on average interest-bearing deposits increased 54 basis points to 2.37% from the secondfirst quarter of 2017 due2023. The yield on average net loans and loans held for sale increased 23 basis points to higher market interest rates.5.78% from the first quarter of 2023. The net interest margin of 3.65%3.51% for the thirdsecond quarter of 20172023 was an increasea decrease of 2112 basis points from the net interest margin of 3.44%3.63% for the secondfirst quarter of 2017.2023.
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 three months ended SeptemberJune 30, 2017, September2023, June 30, 20162022 and March 31, 2023 and the six months ended June 30, 2023 and June 30, 2017 and the nine months ended September 30, 2017 and September 30, 2016:2022:
| Three Months Ended | ||||||||||||||||||||||||
| September 30 | September 30 | June 30 | Three Months Ended | |||||||||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | 2017 | June 30 2023 | June 30 2022 | March 31 2023 | ||||||||||||||||||
Loan accretion | $ | 12,805 | $ | 5,121 | $ | 7,355 | $ | 3,077 | $ | 5,398 | $ | 3,119 | ||||||||||||
Certificates of deposit | 817 | 63 | 776 | 309 | 738 | 356 | ||||||||||||||||||
Long-term borrowings | 268 | 22 | 197 | (335 | ) | 274 | (353 | ) | ||||||||||||||||
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| |||||||||||||||||||
Total | $ | 13,890 | $ | 5,206 | $ | 8,328 | $ | 3,051 | $ | 6,410 | $ | 3,122 | ||||||||||||
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| Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | Six Months Ended | ||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | June 30 2023 | June 30 2022 | ||||||||||||
Loan accretion | $ | 24,395 | $ | 12,750 | $ | 6,196 | $ | 9,537 | ||||||||
Certificates of deposit | 1,640 | 63 | 665 | 1,776 | ||||||||||||
Long-term borrowings | 348 | 328 | (688 | ) | 433 | |||||||||||
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| |||||||||||||
Tax-equivalent net interest income | $ | 26,383 | $ | 13,141 | $ | 6,173 | $ | 11,746 | ||||||||
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| |||||||||||||
67
The following tables reconcile the difference between net interest income andtax-equivalent net interest income for the three months ended SeptemberJune 30, 2017, September2023, June 30, 20162022 and March 31, 2023 and the six months ended June 30, 2023 and June 30, 2017 and the nine months ended September 30, 2017 and September 30, 2016.2022.
| Three Months Ended | ||||||||||||||||||||||||
| September 30 | September 30 | June 30 | Three Months Ended | |||||||||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | 2017 | June 30 2023 | June 30 2022 | March 31 2023 | ||||||||||||||||||
Net interest income, GAAP basis | $ | 150,276 | $ | 111,069 | $ | 136,245 | $ | 227,461 | $ | 214,903 | $ | 234,320 | ||||||||||||
Tax-equivalent adjustment (1) | 2,092 | 1,556 | 2,512 | 1,144 | 1,104 | 1,135 | ||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||
Tax-equivalent net interest income | $ | 152,368 | $ | 112,625 | $ | 138,757 | $ | 228,605 | $ | 216,007 | $ | 235,455 | ||||||||||||
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| Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | Six Months Ended | ||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | June 30 2023 | June 30 2022 | ||||||||||||
Net interest income, GAAP basis | $ | 394,141 | $ | 312,078 | $ | 461,781 | $ | 406,405 | ||||||||
Tax-equivalent adjustment (1) | 6,168 | 4,562 | 2,279 | 2,213 | ||||||||||||
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|
|
| |||||||||||||
Tax-equivalent net interest income | $ | 400,309 | $ | 316,640 | $ | 464,060 | $ | 408,618 | ||||||||
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| |||||||||||||
| (1) | Thetax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of |
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The following tables showtable shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month andsix-monthperiods ended SeptemberJune 30, 20172023 and 2016,2022, respectively, with the 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 three-month period ended June 30, 2023 and 2022. Interest income on all loans and investment securities was subject to state income taxes.
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2017 | September 30, 2016 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||
| (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) | ||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Federal funds sold and securities purchased under agreements to resell and other short-term investments | $ | 1,246,742 | $ | 4,874 | 1.55 | % | $ | 810,081 | $ | 1,107 | 0.54 | % | $ | 994,072 | $ | 12,706 | 5.13 | % | $ | 1,737,146 | $ | 4,841 | 1.12 | % | ||||||||||||||||||||||||
Investment Securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 1,533,444 | 9,406 | 2.45 | % | 1,270,734 | 8,764 | 2.76 | % | 4,274,123 | 36,721 | 3.44 | % | 4,665,307 | 24,558 | 2.11 | % | ||||||||||||||||||||||||||||||||
Tax-exempt | 259,189 | 2,284 | 3.52 | % | 161,651 | 1,527 | 3.78 | % | 387,918 | 2,718 | 2.80 | % | 419,865 | 2,794 | 2.66 | % | ||||||||||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||||||||||
Total Securities | 1,792,633 | 11,690 | 2.61 | % | 1,432,385 | 10,291 | 2.87 | % | 4,662,041 | 39,439 | 3.38 | % | 5,085,172 | 27,352 | 2.15 | % | ||||||||||||||||||||||||||||||||
Loans, net of unearned income (2) | 13,607,933 | 157,111 | 4.59 | % | 10430,449 | 113,295 | 4.32 | % | ||||||||||||||||||||||||||||||||||||||||
Loans, net of unearned income (2)(3) | 20,705,509 | 294,931 | 5.71 | % | 19,018,717 | 196,682 | 4.15 | % | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | (73,031 | ) | (71,493 | ) | (240,611 | ) | (214,624 | ) | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||
Net loans | 13,534,902 | 4.61 | % | 10,358,956 | 4.35 | % | 20,464,898 | 5.78 | % | 18,804,093 | 4.19 | % | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total earning assets | 16,574,277 | $ | 173,675 | 4.16 | % | 12,601,422 | $ | 124,693 | 3.94 | % | 26,121,011 | $ | 347,076 | 5.33 | % | 25,626,411 | $ | 228,875 | 3.58 | % | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||
Other assets | 2,353,508 | 1,558,147 | 3,317,801 | 3,383,037 | ||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||
TOTAL ASSETS | $ | 18,927,785 | $ | 14,159,569 | $ | 29,438,812 | $ | 29,009,448 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-Bearing Funds: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-Bearing Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits | $ | 9,837,967 | $ | 14,227 | 0.57 | % | $ | 7,255,184 | $ | 7,723 | 0.42 | % | $ | 15,520,461 | $ | 91,577 | 2.37 | % | $ | 15,588,089 | $ | 9,751 | 0.25 | % | ||||||||||||||||||||||||
Short-term borrowings | 325,631 | 430 | 0.52 | % | 519,807 | 553 | 0.42 | % | 177,315 | 1,489 | 3.37 | % | 136,025 | 237 | 0.70 | % | ||||||||||||||||||||||||||||||||
Long-term borrowings | 1,364,417 | 6,650 | 1.93 | % | 1,171,599 | 3,792 | 1.29 | % | 2,307,485 | 25,405 | 4.42 | % | 811,924 | 2,880 | 1.42 | % | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total Interest-Bearing Funds | 11,528,015 | 21,307 | 0.73 | % | 8,946,590 | 10,068 | 0.54 | % | ||||||||||||||||||||||||||||||||||||||||
Total Interest-Bearing Liabilities | 18,005,261 | 118,471 | 2.64 | % | 16,536,038 | 12,868 | 0.31 | % | ||||||||||||||||||||||||||||||||||||||||
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Noninterest-bearing deposits | 4,036,653 | 3,105,273 | 6,500,259 | 7,587,565 | ||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and other liabilities | 97,575 | 71,670 | 274,198 | 279,659 | ||||||||||||||||||||||||||||||||||||||||||||
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TOTAL LIABILITIES | 15,662,243 | 12,123,533 | 24,779,718 | 24,403,262 | ||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS’ EQUITY | 3,265,542 | 2,036,036 | 4,659,094 | 4,606,186 | ||||||||||||||||||||||||||||||||||||||||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 18,927,785 | $ | 14,159,569 | $ | 29,438,812 | $ | 29,009,448 | ||||||||||||||||||||||||||||||||||||||||
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NET INTEREST INCOME | $ | 152,368 | $ | 112,625 | $ | 228,605 | $ | 216,007 | ||||||||||||||||||||||||||||||||||||||||
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INTEREST SPREAD | 3.43 | % | 3.40 | % | ||||||||||||||||||||||||||||||||||||||||||||
INTEREST RATE SPREAD | 2.69 | % | 3.27 | % | ||||||||||||||||||||||||||||||||||||||||||||
NET INTEREST MARGIN | 3.65 | % | 3.56 | % | 3.51 | % | 3.38 | % | ||||||||||||||||||||||||||||||||||||||||
| (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 |
| (2) | Nonaccruing loans are included in the daily average loan amounts outstanding. |
| (3) | Loans held for sale and leases are included in the daily average loan amounts outstanding. |
ASSETS Earning Assets: Federal funds sold and securities repurchased under agreements to resell and other short-term investments Investment Securities: Taxable Tax-exempt Total Securities Loans, net of unearned income (2) Allowance for loan losses Net loans Total earning assets Other assets TOTAL ASSETS LIABILITIES Interest-Bearing Funds: Interest-bearing deposits Short-term borrowings Long-term borrowings Total Interest-Bearing Funds Non-interest bearing deposits Accrued expenses and other liabilities TOTAL LIABILITIES SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY NET INTEREST INCOME INTEREST SPREAD NET INTEREST MARGIN Nine Months Ended Nine Months Ended September 30, 2017 September 30, 2016 (Dollars in thousands) Average
Balance Interest
(1) Avg. Rate
(1) Average
Balance Interest
(1) Avg. Rate
(1) $ 1,282,589 $ 11,345 1.18 % $ 599,695 $ 2,371 0.53 % 1,412,221 26,226 2.48 % 1,162,082 24,728 2.84 % 227,171 6,242 3.66 % 136,386 4,130 4.04 % 1,639,392 32,468 2.64 % 1,298,468 28,858 2.96 % 12,360,252 409,643 4.43 % 9,852,670 318,053 4.31 % (72,904 ) (74,198 ) 12,287,348 4.46 % 9,778,472 4.34 % 15,209,329 $ 453,456 3.99 % 11,676,635 $ 349,282 4.00 % 1,978,315 1,427,763 $ 17,187,644 $ 13,104,398 $ 9,024,232 $ 35,281 0.52 % $ 6,815,863 $ 21,278 0.42 % 298,213 1,149 0.52 % 396,769 1,132 0.38 % 1,286,583 16,717 1.74 % 1,100,741 10,232 1.24 % 10,609,028 53,147 0.67 % 8,313,373 32,642 0.52 % 3,639,507 2,856,807 90,112 67,820 14,338,647 11,238,000 2,848,997 1,866,398 $ 17,187,644 $ 13,104,398 $ 400,309 $ 316,640 3.32 % 3.48 % 3.52 % 3.62 %
The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended June 30, 2023 and March 31, 2023, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended June 30, 2023 and March 31, 2023. Interest income on all loans and investment securities was subject to state income taxes.
| Three Months Ended June 30, 2023 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||
| (Dollars in thousands) | Average Balance | Interest (1) | Avg. Rate (1) | Average Balance | Interest (1) | Avg. Rate (1) | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||||
Federal funds sold and securities purchased under agreements to resell and other short-term investments | $ | 994,072 | $ | 12,706 | 5.13 | % | $ | 936,394 | $ | 10,983 | 4.76 | % | ||||||||||||
Investment Securities: | ||||||||||||||||||||||||
Taxable | 4,274,123 | 36,721 | 3.44 | % | 4,404,864 | 36,259 | 3.29 | % | ||||||||||||||||
Tax-exempt | 387,918 | 2,718 | 2.80 | % | 387,671 | 2,740 | 2.83 | % | ||||||||||||||||
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| |||||||||||||
Total Securities | 4,662,041 | 39,439 | 3.38 | % | 4,792,535 | 38,999 | 3.26 | % | ||||||||||||||||
Loans, net of unearned income (2)(3) | 20,705,509 | 294,931 | 5.71 | % | 20,683,610 | 280,456 | 5.49 | % | ||||||||||||||||
Allowance for loan losses | (240,611 | ) | (234,809 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||
Net loans | 20,464,898 | 5.78 | % | 20,448,801 | 5.55 | % | ||||||||||||||||||
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|
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| |||||||||||||
Total earning assets | 26,121,011 | $ | 347,076 | 5.33 | % | 26,177,730 | $ | 330,438 | 5.10 | % | ||||||||||||||
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Other assets | 3,317,801 | 3,334,559 | ||||||||||||||||||||||
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| |||||||||||||||||||||
TOTAL ASSETS | $ | 29,438,812 | $ | 29,512,289 | ||||||||||||||||||||
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| |||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Interest-Bearing Liabilities: | ||||||||||||||||||||||||
Interest-bearing deposits | $ | 15,520,461 | $ | 91,577 | 2.37 | % | $ | 15,186,632 | $ | 68,592 | 1.83 | % | ||||||||||||
Short-term borrowings | 177,315 | 1,489 | 3.37 | % | 166,614 | 1,157 | 2.82 | % | ||||||||||||||||
Long-term borrowings | 2,307,485 | 25,405 | 4.42 | % | 2,417,999 | 25,234 | 4.23 | % | ||||||||||||||||
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|
|
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| |||||||||||||
Total Interest-Bearing Liabilities | 18,005,261 | 118,471 | 2.64 | % | 17,771,245 | 94,983 | 2.17 | % | ||||||||||||||||
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| |||||||||||||||||
Noninterest-bearing deposits | 6,500,259 | 6,897,030 | ||||||||||||||||||||||
Accrued expenses and other liabilities | 274,198 | 273,726 | ||||||||||||||||||||||
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TOTAL LIABILITIES | 24,779,718 | 24,942,001 | ||||||||||||||||||||||
SHAREHOLDERS’ EQUITY | 4,659,094 | 4,570,288 | ||||||||||||||||||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 29,438,812 | $ | 29,512,289 | ||||||||||||||||||||
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NET INTEREST INCOME | $ | 228,605 | $ | 235,455 | ||||||||||||||||||||
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INTEREST RATE SPREAD | 2.69 | % | 2.93 | % | ||||||||||||||||||||
NET INTEREST MARGIN | 3.51 | % | 3.63 | % | ||||||||||||||||||||
| (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 |
| (2) | Nonaccruing loans are included in the daily average loan amounts outstanding. |
| (3) | Loans held for sale and leases are included in the daily average loan amounts outstanding. |
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The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the six-month periods ended June 30, 2023 and 2022, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the six-month period ended June 30, 2023 and 2022. Interest income on all loans and investment securities was subject to state income taxes.
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||||||
| (Dollars in thousands) | Average Balance | Interest (1) | Avg. Rate (1) | Average Balance | Interest (1) | Avg. Rate (1) | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||||
Federal funds sold and securities repurchased under agreements to resell and other short-term investments | $ | 965,393 | $ | 23,689 | 4.95 | % | $ | 2,379,418 | $ | 7,170 | 0.61 | % | ||||||||||||
Investment Securities: | ||||||||||||||||||||||||
Taxable | 4,339,132 | 72,980 | 3.36 | % | 4,466,170 | 42,063 | 1.88 | % | ||||||||||||||||
Tax-exempt | 387,795 | 5,458 | 2.81 | % | 432,135 | 5,483 | 2.54 | % | ||||||||||||||||
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Total Securities | 4,726,927 | 78,438 | 3.32 | % | 4,898,305 | 47,546 | 1.94 | % | ||||||||||||||||
Loans, net of unearned income (2)(3) | 20,694,619 | 575,387 | 5.60 | % | 18,775,823 | 378,063 | 4.06 | % | ||||||||||||||||
Allowance for loan losses | (237,726 | ) | (215,316 | ) | ||||||||||||||||||||
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Net loans | 20,456,893 | 5.67 | % | 18,560,507 | 4.10 | % | ||||||||||||||||||
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Total earning assets | 26,149,213 | $ | 677,514 | 5.21 | % | 25,838,230 | $ | 432,779 | 3.37 | % | ||||||||||||||
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Other assets | 3,324,719 | 3,338,261 | ||||||||||||||||||||||
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TOTAL ASSETS | $ | 29,473,932 | $ | 29,176,491 | ||||||||||||||||||||
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LIABILITIES | ||||||||||||||||||||||||
Interest-Bearing Liabilities: | ||||||||||||||||||||||||
Interest-bearing deposits | $ | 15,354,468 | $ | 160,169 | 2.10 | % | $ | 15,747,191 | $ | 18,312 | 0.23 | % | ||||||||||||
Short-term borrowings | 171,994 | 2,646 | 3.10 | % | 135,012 | 418 | 0.62 | % | ||||||||||||||||
Long-term borrowings | 2,362,437 | 50,639 | 4.32 | % | 814,628 | 5,431 | 1.34 | % | ||||||||||||||||
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Total Interest-Bearing Liabilities | 17,888,899 | 213,454 | 2.41 | % | 16,696,831 | 24,161 | 0.29 | % | ||||||||||||||||
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Non-interest bearing deposits | 6,697,549 | 7,527,570 | ||||||||||||||||||||||
Accrued expenses and other liabilities | 272,575 | 269,099 | ||||||||||||||||||||||
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TOTAL LIABILITIES | 24,859,023 | 24,493,500 | ||||||||||||||||||||||
SHAREHOLDERS’ EQUITY | 4,614,909 | 4,682,991 | ||||||||||||||||||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 29,473,932 | $ | 29,176,491 | ||||||||||||||||||||
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NET INTEREST INCOME | $ | 464,060 | $ | 408,618 | ||||||||||||||||||||
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INTEREST RATE SPREAD | 2.80 | % | 3.08 | % | ||||||||||||||||||||
NET INTEREST MARGIN | 3.57 | % | 3.18 | % | ||||||||||||||||||||
| (1) | The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. |
| (2) | Nonaccruing loans are included in the daily average loan amounts outstanding. |
| (3) | Loans held for sale and leases are included in the daily average loan amounts outstanding. |
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Provision for LoanCredit Losses
The provision for credit losses was $11.44 million and $18.33 million for the second quarter and first half of 2023, respectively, as compared to net benefits of $1.81 million and $5.22 million for the second quarter and first half of 2022, respectively. On a linked-quarter basis, the provision for credit losses for the first quarter of 2023 was $6.89 million. 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.
For the quartersquarter ended SeptemberJune 30, 2017 and 2016,2023, the provision for loan and lease losses was $7.28$11.44 million and $6.99as compared to a net benefit of $1.81 million respectively.for the quarter ended June 30, 2022. The provision for loan and lease losses for the first ninesix months of 20172023 was $18.33 million as compared to a net benefit of $5.21 million for the first six months of 2022. The higher amount of provision expense for 2023 compared to 2022 was mainly due to an increase in qualitative adjustments pertaining to economic and 2016 was $21.43 millionbusiness conditions, collateral values for dependent loans, loan trends, concentrations of credit, and $18.69 million, respectively.the reasonable and supportable forecasts of future macroeconomic conditions. Net charge-offs were $5.34$1.21 million for the thirdsecond quarter of 20172023 as compared to net charge-offsrecoveries of $6.78 million$941 thousand for the same quarter in 2016.2022. Net charge-offs for the first ninesix months of 20172023 were $19.27$2.35 million as compared to $21.76net recoveries of $2.92 million for the first ninesix months of 2016.2022. The higher amountsamount of provision expensenet charge-offs for the periods in 20172023 as compared to the same periods in 2016 were2022 was primarily due to an increase in impaired loans necessitating specific allowance allocation. The lower amounts of net charge-offs in 2023 for the periodsconsumer loan segment as well as a lower amount of recoveries in 2017 compared to
2023 of previously charged-off amounts for the same periods in 2016 were due to thecharge-off in 2016 of a largeother commercial loan relationship which had deteriorated to the point ofnon-collectability.segment. On a linked-quarter basis, the provision for loan and lease losses andfor the first quarter of 2023 was $6.89 million while net charge-offs decreased $972 thousand and $2.81 million, respectively, from the second quarter of 2017 due mainly to providing for additional allowance allocation needs within the existing portfolio and recognition of charge-offs on previously impaired loans.were $1.15 million. Annualized net charge-offs as a percentage of average loans were 0.16% and 0.21% for the third quarter and first nine months of 2017, respectively.
At September 30, 2017, nonperforming loans were $168.40 million or 1.28% of loans,leases, net of unearned income were 0.02% both for the second quarter and first half of 2023 compared to nonperformingannualized net recoveries of (0.02%) and (0.03%) for the second quarter and first half of 2022. Annualized net charge-offs as a percentage of average loans of $113.26 million or 1.10% of loans,and leases, net of unearned income for the first quarter of 2023 were 0.02%.
The following table shows a summary of United’s nonperforming assets including nonperforming loans and other real estate owned (“OREO”) at June 30, 2023 and December 31, 2022:
| (In thousands) | June 30 2023 | December 31 2022 | ||||||
Nonaccrual loans | $ | 26,545 | $ | 23,685 | ||||
Loans past due 90 days of more | 15,007 | 15,565 | ||||||
Restructured loans (1) | n/a | 19,388 | ||||||
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Total nonperforming loans | $ | 41,552 | $ | 58,638 | ||||
Other real estate owned | 3,756 | 2,052 | ||||||
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Total nonperforming assets | $ | 45,308 | $ | 60,690 | ||||
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Note:
| (1) | On January 1, 2023, United adopted ASU 2022-02, “Troubled Debt Restructurings and Vintage Disclosures” prospectively which eliminated the accounting guidance on troubled debt restructurings and enhanced creditors’ disclosure requirements related to loan refinancings and restructurings for borrowers experiencing financial difficulty. After the adoption of ASU 2022-02, United no longer considers accruing restructured loans that are fewer than 90 days past due as nonperforming loans or nonperforming assets. Nonperforming loans and nonperforming assets at December 31, 2022 included $9,127 of restructured loans that were on accruing status and fewer than 90 days past due but classified as nonperforming loans and nonperforming assets. Restructured loans that are on nonaccrual or 90-day past due are included in the above nonperforming loan and nonperforming asset categories at June 30, 2023. |
Restructured loans with an aggregate balance of $7,186 at December 31, 2016. The components2022 were on nonaccrual status, but are not included in “Nonaccrual loans” above. Restructured loans with an aggregate balance of nonperforming loans include: 1) nonaccrual loans, 2) loans which are contractually$3,075 at December 31, 2022 were 90 days past due, but not included in “Loans past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis and 3) loans whose terms have been restructured for economic or legal reasons due to financial difficulties of the borrowers.
Loans past due 90 days or more and still on accrual were $22.25 million at September 30, 2017 which was an increase of $13.66 million or 159.13% from $8.59 million atyear-end 2016. The increase was due to the delinquency of a $14.83 million credit atquarter-end. At September 30, 2017, nonaccrual loans were $100.02 million, an increase of $16.49 million or 19.74% from $83.53 million atyear-end 2016. This increase was due to the downgrade and transfer to nonaccrual of several oil, gas and coal industry relationships within the Company’s loan portfolio. Restructured loans were $46.13 million at September 30, 2017, an increase of $24.98 million or 118.10% from $21.15 million atyear-end 2016. Ten loans totaling $30.89 million were restructured during the first nine months of 2017. Two of the restructured loans totaling $20.99 million were associated with an oil, gas and coal industry-related relationship. The remaining difference was mainly due to repayments and acharge-off. 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 real estate acquired in foreclosure or other settlement of loans (OREO). Total nonperforming assets of $195.22 million, including OREO of $26.83 million at September 30, 2017, represented 1.02% of total assets.
The following table summarizes nonperforming assets for the indicated periods.
| September 30, | December 31, | |||||||||||||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Nonaccrual Loans | ||||||||||||||||||||||||
Originated | $ | 93,731 | $ | 77,111 | $ | 83,146 | $ | 64,312 | $ | 58,121 | $ | 66,711 | ||||||||||||
Acquired | 6,285 | 6,414 | 8,043 | 10,739 | 3,807 | 4,848 | ||||||||||||||||||
Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest | ||||||||||||||||||||||||
Originated | 21,464 | 7,763 | 11,462 | 10,868 | 10,015 | 13,819 | ||||||||||||||||||
Acquired | 785 | 823 | 166 | 807 | 1,029 | 4,249 | ||||||||||||||||||
Restructured loans | ||||||||||||||||||||||||
Originated | 44,695 | 21,115 | 23,890 | 22,234 | 8,157 | 3,175 | ||||||||||||||||||
Acquired | 1,437 | 37 | 0 | 0 | 0 | 0 | ||||||||||||||||||
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Total nonperforming loans | $ | 168,397 | $ | 113,263 | $ | 126,707 | $ | 108,960 | $ | 81,129 | $ | 92,802 | ||||||||||||
Other real estate owned | 26,826 | 31,510 | 32,228 | 38,778 | 38,182 | 49,484 | ||||||||||||||||||
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TOTAL NONPERFORMING ASSETS | $ | 195,223 | $ | 144,773 | $ | 158,935 | $ | 147,738 | $ | 119,311 | $ | 142,286 | ||||||||||||
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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 September 30, 2017, impaired loans were $420.46 million, which was an increase of $112.02 million or 36.32% from $308.44 million 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 $227.75 million and $310.61 million, respectively, at September 30, 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 the non-accretable difference (the credit mark). The credit mark is not recognized in income. The remaining credit mark was $70.75 million and $58.88 million at September 30, 2017 and December 31, 2016, respectively. For further details regarding impaired loans, see Note 5 to the unaudited Consolidated Financial Statements.more” above.
United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments are referred to asis considered the allowance for credit losses. At SeptemberJune 30, 2017 and December 31, 2016,2023, the allowance for credit losses was $75.73$297.49 million and $73.82as compared to $280.94 million respectively.at December 31, 2022.
At SeptemberJune 30, 2017,2023, the allowance for loan and lease losses was $74.93$250.72 million as compared to $72.78$234.75 million at December
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31, 2016.2022. The increase in the allowance for loan and lease losses was due mainly to increased reserves for several loan segments including nonowner-occupied commercial real estate, residential real estate, and construction and land development. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 0.57%1.21% at SeptemberJune 30, 20172023 and 0.70%1.14% at December 31, 2016, respectively.2022. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 44.49%603.39% and 64.25%400.33% at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. The Company’s detailed methodology and analysis indicated a minimal increase in this ratio was due mainly to a decline in nonperforming loans.
United continues to evaluate risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the allowancePD/LGD and Cohort models which utilize the Company’s historical information. Then, any qualitative adjustments are applied to account for loan losses primarily becausethe Company’s view of current conditions, the future and other factors.
The second quarter of 2023 qualitative adjustments include analyses of the offsetting factorsfollowing:
| • | Current conditions – United considered the impact of inflation, risinginterest rates, the regulatory environment due to recent bank failures and geopolitical conflict when making determinations related to factor adjustments for the external environment. United also considered portfolio trends related to economic and business conditions, collateral values for dependent loans; past due, nonaccrual and graded loans and leases; and concentrations of credit. |
| • | 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: |
The forecast for real GDP in 2023 improved in the second quarter, from a projection of changes within historical0.40% for 2023 in the first quarter to 1.00% for 2023 with a slight downward shift for 2024, from a projection of 1.20% for 2024 in the first quarter to 1.10% for 2024 in the second quarter. The unemployment rate improved for 2023 between first and second quarter, 4.50% to 4.10%, while remaining fairly consistent for 2024 with a slight improvement from 4.60% to 4.50%. The forecast for 2025 changed minimally for both real GDP and the unemployment rate – both experienced a 10 bps decrease compared to the first quarter.
Greater risk of loss rates and reduced loss allocations on impaired loans.
Allocations are made for specific commercial loans based upon management’s estimate ofis probable in 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 theoffice portfolio due to uncertainties incontinued hybrid and remote work that may be exacerbated by future 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.commercial other and construction portfolios due to weakened economic conditions.
| • | Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period. |
United’s company-wide review of the allowance for loan and lease losses at SeptemberJune 30, 20172023 produced increased allocationsreserves in onethree of the four loan categories.categories as compared to December 31, 2022. The allowance related to the commercial, financial & agricultural loan pool allocation increased $8.16$8.95 million primarily due to an increase in other commercial loans deemed impaired necessitating specific allowance allocation. Offsetting these increases was a decrease in the allocation relatedincreased outstanding balances and increased reasonable and supportable forecast adjustment particularly as it pertains to theoffice loans. The residential real estate reserve increased $5.20 million due to increased outstanding balances and increased risk of loss for past due, nonaccrual and graded loans. The real estate construction and development loan pool of $2.60reserve increased $4.87 million due to recognitionincreased risk of losses previously allocated. The residential real estate loan pool allocation decreased $2.92 million due to improvement in the Bank’sloss for collateral positionvalue for a significant relationshipdependent loans and reduction of impairment allocation required.increased reasonable and supportable forecast adjustment. The consumer loan pool also experiencedreserve decreased $3.04 million primarily due to a decrease of $290 thousand due to an improvement in historical loss rates. In summary, the overall level of the allowance for loan losses was relatively stable in comparison toyear-end 2016 as a result of offsetting factors within the portfolio as described above.outstanding balances.
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
73
leases that were individually assessed was $26.75 million$803 thousand at SeptemberJune 30, 20172023 and $23.42$1.27 million at December 31, 2016.2022. In comparison to the prioryear-end, this element of the allowance increased by $3.33 million primarilydecreased $471 thousand due to improved borrowers’ financial condition and increased specific allocationscollateral valuation such that individual assessments were no longer necessary as well as charge-offs taken for commercial, financial & agricultural loans.previously reserved losses.
Management believes that the allowance for credit losses of $75.73$297.49 million at SeptemberJune 30, 20172023 is adequate to provide for probableexpected losses on existing loans and lending-related commitments based on information currently available. Note 6 to the accompanying unaudited Notes to Consolidated Financial Statements provides a progression of the allowance for loan losses by portfolio segment.
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 second quarter and first half of 2023 and 2022 was immaterial. The allowance for credit losses related to held to maturity securities was $19 thousand as of June 30, 2023 and $18 thousand as December 31, 2022. There was no provision for credit losses recorded on available for sale investment securities for the second quarter and first half of 2023 and 2022 and no allowance for credit losses on available for sale investment securities as of June 30, 2023 and December 31, 2022.
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 thirdsecond quarter of 20172023 was $38.23$35.18 million, an increasea decrease of $19.21$8.43 million or 100.98%19.33% from the thirdsecond quarter of 2016.2022. Noninterest income for the first nine monthshalf of 20172023 was $98.88$67.92 million, which was an increasea decrease of $45.50$21.71 million or 85.24%24.22% from the first ninehalf of 2022. Both decreases were due mainly to net losses recognized on the sales of AFS investment securities and a decrease in income from mortgage banking activities primarily as a result of a rising interest rate environment and a lower margin on loans sold in the secondary market. Partially offsetting the decreases was a net gain of $8.15 million during the second quarter of 2023 on the sale of MSRs within mortgage loan servicing income.
Net losses on investment securities were $7.34 million for the second quarter of 2023 as compared to net gains on investment securities of $1.18 million for the second quarter of 2022. For the first six months of 2016.2023, net losses on investment securities were $7.74 million as compared to net gains on investment securities of $931 thousand for the first six months of 2022. The net losses in 2023 were mainly due to the previously mentioned net loss of $7.24 million on the sale of approximately $187 million of AFS investment securities in the second quarter of 2023.
Income from mortgage banking activities totaled $20.39$7.91 million for the thirdsecond quarter of 20172023 compared to $982 thousand$12.45 million for the same period of 2016.2022, a decline of $4.54 million or 36.46%. For the first nine monthshalf of 20172023 and 2016,2022, income from mortgage banking activities was $43.60$14.29 million and $2.50$31.65 million, respectively. The increasesdecreases for 2017 are2023 as compared to 2022 were due to decreased loan sales driven by the result of the acquisition of Cardinalrising rate environment and in particular, the acquisition of its mortgage banking subsidiary, George Mason.a lower margin on loans sold. For the three months ended SeptemberJune 30, 20172023 and 2016,2022, mortgage loan sales were $908.60$248.71 million and $43.32$674.12 million, respectively. For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, mortgage loan sales were $1.67$415.22 million and $1.74 billion, respectively. Mortgage loans originated for sale were $271.83 million and $112.70$449.64 million for the second quarter and first half of 2023, respectively, as compared to $554.50 million and $1.46 billion for the second quarter and first half of 2022, respectively.
For the third quarter of 2017, fees from deposit services were $8.74 million, an increase of $438 thousand or 5.27% from the third quarter of 2016. In particular, overdraft fees and ATM income increased $167 thousand and $160 thousand, respectively.
74
Fees from deposit services for the second quarter and first nine monthshalf of 2017 were $24.982023 decreased $1.51 million an increase of $309 thousand or 1.25%13.90% and $2.29 million or 10.92%, respectively, from the second quarter and first nine monthshalf of 2016. In particular, debit card2022. These decreases were due mainly to lower income increased $236 thousandfrom overdraft fees primarily as a result of implemented changes to United’s overdraft policy during the first nine monthsthird quarter of 2017.
Partially offsetting these increases to noninterest income was a decline in income from bank-owned life insurance policies. Income from bank-owned life insurance (“BOLI”) for the thirdsecond quarter and first nine monthshalf of 20172023 decreased $1.14$2.10 million or 44.79% and $1.04$2.40 million, or 21.07%, respectively, from the thirdsecond quarter and first nine monthshalf of 2016. These2022. For the second quarter and first half of 2023, United recognized death benefits from BOLI of $41 thousand as compared to $2.48 million and $2.76 million for the second quarter and first half of 2022, respectively.
Partially offsetting the decreases mentioned above for the second quarter and first half of 2023 were increases of $7.51 million and $7.40 million from the second quarter and first half of 2023 in mortgage loan servicing income. The increases were due mainly to death benefits recorded in the thirdpreviously mentioned net gain of $8.15 million during the second quarter of 2016.2023 on the sale of MSRs with an aggregate unpaid principal balance approximately $2 billion.
On a linked-quarter basis, noninterest income for the third quarter of 2017 decreased $2.28 million or 5.62% from the second quarter of 20172023 increased $2.43 million, or 7.43%, from the first quarter of 2023. The increase in noninterest income was primarily due to increases in mortgage loan servicing income of $7.57 million mainly to a declinedriven by the net gain on sale of $2.15 million inMSRs and income from mortgage banking activities despite increased production and sales of mortgage loans in the secondary market. The decline was due mainly to the impact of Accounting Standards Codification (ASC) 815 “Derivatives and Hedging” (ASC815-10-S99-1), formerly Staff Accounting Bulletin (SAB) 109, accounting requirement to record unrealized gains associated with George Mason’s locked$1.52 million driven by higher mortgage loan pipeline which createsorigination and sale volume and a timing differencehigher margin on loans sold. This increase in noninterest income was partially offset by higher net losses on investment securities of $6.93 million mainly driven by the recognitionloss on sale of income as the loans are sold. The impact of ASC815-10-S99-1 resulted in a decline of $4.48 million in income for the third quarter of 2017 versus an increase of $1.02 million in income for the second quarter of 2017.AFS investment securities.
Other Expenses
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 expenses include all items of expense other than interest expense, the provision for loancredit losses, and income taxes. Noninterest expense increased $33.88was $135.29 million for the second quarter of 2023, a decrease of $5.89 million or 53.96% for the third quarter of 2017 compared to4.17% from the same period in 2016.2022. For the first nine monthshalf of 2017,2023, noninterest expense increased $85.94was $272.71 million, which was a decrease of $7.64 million or 46.28%2.73% from the first nine monthshalf of 2016. Generally, these increases in 2017 from 2016 were the result of additional general operating expenses and increased merger-related charges from the Cardinal acquisition.2022.
Employee compensation for the third quarter of 2017 increased $20.10 million or 82.99% from the third quarter of 2016. Employee compensation increased $54.12 million or 78.29% for the first nine months of 2017 when compared to the first nine months of 2016. Merger severance charges of $12.78 million from the Cardinal acquisition were included in first nine months of 2017 as compared to $670 thousand in the first nine of 2016 from the Bank of Georgetown acquisition. Otherwise, base salaries for the thirdsecond quarter and first nine monthshalf of 2017 increased $9.372023 decreased $4.13 million or 44.67%6.59% and $19.49$11.34 million or 32.41%9.05%, respectively, from the second quarter and first half of 2022. The decreases for 2023 were due mainly to lower employee commissions related to a decline in mortgage banking production and lower employee incentives.
Other expense for the second quarter of 2023 decreased $4.84 million or 13.61% from the second quarter of 2022. For the first half of 2023, other expense decreased $3.11 million or 4.54% from the first half of 2022. Within other expenses, the most significant decrease for second quarter and first half of 2023 as compared to the same time periods in 2016 due mainly to additional employees from2022 was in the Cardinal acquisition. The remainder of the increase in employee compensationexpense for the third quarterreserve for unfunded loan commitments of $7.92 million and first nine months of 2017 was due mainly to higher employee incentives$10.56 million, respectively. Partially offsetting these decreases were increases in consulting and commissions expense mainly related to the mortgage banking production of George Mason.legal expenses as well as business franchise taxes.
Employee benefits expense for the third quarterfirst half of 20172023 increased $2.10 million$773 thousand or 28.00% from the third quarter of 2016. Employee benefits expense for the first nine months of 2017 increased $5.99 million or 28.03%3.10% as compared to the first nine monthshalf of 2016. The increases for third quarter and first nine months of 2017 were due in large part to additional health insurance expense of $1.11 million and $2.68 million, respectively, from the same time periods last year2022. This increase was primarily due to higher premiums and additional employees from the Cardinal acquisition. In addition, Federal Insurance Contributions Act (FICA)amounts of expense for third quarter and first nine months of 2017 increased $784 thousand and $2.69 million, respectively, from the third quarter and first nine months of 2016 due mainly to the additional employees from the Cardinal acquisitionpostretirement benefits.
Net occupancy expense increased $2.45 million or 35.34% and $9.12 million or 43.52% for the third quarter and first nine months of 2017, respectively, as compared to the same periods in the prior year. The increases were due mainly to additional building rental expense from the offices added in the Cardinal acquisition. Included in net occupancy expense for the first nine monthshalf of 2017 were charges of $5.93 million for the termination of leases and the reduction in the value of leasehold improvements for closed offices in the Cardinal acquisition2023 increased $849 thousand or 3.79% as compared to chargesthe first half of $1.58 million in the third quarter2022. These increases were primarily due to higher amounts of building rental, depreciation and first nine months of 2016 for the termination of leases for closed offices in the Bank of Georgetown acquisition.maintenance expense.
Other real estate owned (OREO)OREO expense for the third quarterfirst half of 20172023 increased $1.37 million$754 thousand or 102.16%330.70% from the third quarterfirst half of 20162022 due to declinesa decline in the fair value onof OREO properties.
Data processingEquipment expense increased $1.74 million or 45.11% and $3.97 million or 36.05% for the thirdsecond quarter and first nine months of 2017, respectively,2023 increased $716 thousand or 9.79% as compared to the same periods in prior yearsecond quarter of 2022. This increase was primarily due to additional processing as a result of the Cardinal acquisition. In addition, the results for first nine months of 2017 included a penalty of $525 thousand for the termination of Cardinal’s data processing contract.an increase in maintenance expense.
Federal Deposit Insurance Corporation (FDIC) insurance
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FDIC expense for the thirdsecond quarter and first nine monthshalf of 2017 decreased $546 thousand or 26.17% and $1.282023 increased $1.57 million or 20.17%52.13% and $3.48 million or 61.30%, respectively, from the third quarter and first nine months of 2016 due to lower premiums.
Other expense for the third quarter of 2017 increased $5.75 million or 40.18% from the third quarter of 2016. Other expense for the first nine months of 2017 increased $12.63 million or 28.19% from the first nine months of 2016. Included in other expense for the third quarter and first nine months of 2017 were merger-related expenses of $434 thousand and $5.83 million, respectively, as compared to merger-related expenses of $620 thousand and $2.78 million, respectively for the third quarter and first nine months of 2016. Amortization of core deposit intangibles increased $1.12 million and $2.60 million for the third quarter and first nine months of 2017, respectively, as compared to the same periods in 2016 due to the additional core deposit intangibles added in the Cardinal acquisition. Business and occupation (B&O) taxes increased $1.32 million and $2.47 million for the third quarter and first nine months of 2017, respectively, as compared to the same periods in 2016.a higher assessment rate.
On a linked-quarter basis, noninterest expense for the thirdsecond quarter of 20172023 decreased $15.49$2.13 million, or 13.81%1.55%, from the first quarter of 2023. The decrease in noninterest expense was primarily driven by a decrease in the expense for the reserve for unfunded loan commitments of $4.62 million within other expense partially offset by an increase in employee compensation of $3.09 million. The decrease in the expense for the reserve for unfunded loan commitments was driven by a decrease in the outstanding balance of loan commitments at quarter-end. The increase in employee compensation was primarily driven by higher employee incentives as well as higher employee commissions related to mortgage banking production.
Income Taxes
For the second quarter of 2017 generally due to a decline of $22.62 million in merger-related expenses. Partially offsetting this decrease was an increase in OREO expense of $2.19 million due to declines in the fair value of OREO properties.
Income Taxes
For the third quarter of 2017,2023, income tax expense was $27.84$23.45 million as compared to $18.85$23.53 million forin the thirdsecond quarter of 2016. This increase was mainly due to higher earnings and a higher effective tax rate as the result of a reduction in the income tax expense for the third quarter of 2016 due to an increase in United’s deferred tax rate. For the first nine months of 2017, income tax expense was $67.36 million as compared to $53.10 million for the first nine months of 2016 due to higher earnings and a higher effective tax rate.2022. On a linked-quarter basis, income tax expense increased $8.53 milliondecreased $996 thousand from the first quarter of 2023. These decreases were due to higherlower earnings partially offset by a declinehigher effective tax rate. For the first half of 2023, income tax expense was $47.90 million as compared to $43.63 million in the effective tax rate due to the Cardinal acquisition.second quarter of 2022. United’s effective tax rate was 32.91% for the third quarter of 2017, 34.25%20.23% for the second quarter of 2017 and 31.24%2023, 19.75% for the thirdsecond quarter of 2016.2022 and 19.92% for the first quarter of 2023. For the first nine monthshalf of 20172023 and 2016,2022, United’s effective tax rate was 33.68%20.07% and 32.97%19.75%, respectively. For further details related to income taxes, see Note 1516 of the unaudited Notes to Consolidated Financial Statements contained within this document.
Contractual Obligations, Commitments, Contingent LiabilitiesLiquidity andOff-Balance Sheet Arrangements
United has various financial obligations, including contractual obligations and commitments, that may require future cash payments. Please refer to United’s Annual Report on Form10-K for the year ended December 31, 2016 for disclosures with respect to United’s fixed and determinable contractual obligations. As previously mentioned, United completed its acquisition of Cardinal during the second quarter of 2017. As such, United assumed the financial obligations of Cardinal, including contractual obligations and commitments, which also may require future payments. Otherwise, there have been no material changes outside the ordinary course of business sinceyear-end 2016 in the specified contractual obligations disclosed in United’s Annual Report on Form10-K.
As of September 30, 2017, United recorded a liability for uncertain tax positions, including interest and penalties, of $2.41 million in accordance with ASC topic 740. 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 in the 2016 Form10-K report.
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 September 30, 2017 do not present the amounts that may ultimately be paid under these contracts, they are excluded from the contractual obligations table in the 2016 Form10-K report. Further discussion of derivative instruments is presented in Note 11 to the unaudited 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 amount does not necessarily represent future cash requirements. Further discussion ofoff-balance sheet commitments is included in Note 10 to the unaudited Notes to Consolidated Financial Statements.
Liquidity Capital 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 is “core 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 which 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 which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term 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.(“FHLB”) advances and the Federal Reserve Bank’s (“FRB”) Discount Window or its newly established Bank Term Funding program during the first quarter of 2023.
Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances and FRB programs, 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.
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During the first half of 2023, United increased its interest-bearing deposit balance at the FRB by $489.88 million to $1.30 billion. The change in the balance at the FRB was mostly the result of $555.27 million of net sales, maturities, and paydowns in the available for sale debt securities portfolio and a $66.59 million increase in total deposits.
For the ninesix months ended SeptemberJune 30, 2017,2023, cash of $125.15$183.09 million was provided by operating activities due mainly to net income of $132.61 million for the first nine months of 2017.$190.77 million. Net cash of $384.45$356.65 million was provided by investing activities which was primarily due to $541.90 million of net repayments on loansproceeds from the sales of $369.23 million andinvestment securities over purchases partially offset by portfolio loan growth of $205.96 million. During the first six months of 2023, net cash of $44.53 million provided in the acquisition of Cardinal. During the first nine months of 2017, net cash of $197.09$24.04 million was used in financing activities due primarily to a declinecash dividends paid of $97.27 million and cash paid of $10.25 million to redeem subordinated debt partially offset by growth in deposits of $269.74 million, net repayment of long-term borrowings of $30.21$67.25 million and the paymentan increase in securities sold under agreements to repurchase of cash dividends in the amount of $86.71$16.04 million. Partially offsetting these decreases to cash were net proceeds of $200.00 million in short-term FHLB borrowings. The net effect of the cash flow activities was an increase in cash and cash equivalents of $312.51$515.71 million for the first nine monthshalf of 2017.2023.
At June 30, 2023, United had an unused borrowing amount at the FHLB of approximately $6.65 billion subject to delivery of collateral after certain trigger points and $2.39 billion without the delivery of additional collateral. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $230 million, all of which was available at June 30, 2023. United also has a $20 million unsecured, revolving line of credit with an unrelated financial institution to provide for general liquidity needs, all of which was available at June 30, 2023. At June 30, 2023, United’s borrowing capacity for the FRB Discount Window was $2.86 billion. United did not have any borrowings from the FRB’s Discount Window, or its new Bank Term Funding Program, during the first half of 2023.
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 89 and 910 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under 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 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 well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 14.26%15.06% at SeptemberJune 30, 20172023 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 11.99%12.83%, 11.99%12.83% and 10.09%10.99%, respectively. The June 30, 2023 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%.
Total shareholders’ equity was $3.26$4.64 billion at SeptemberJune 30, 2017, increasing $1.03 billion2023, which was an increase of $120.85 million or 45.98%2.68% from December 31, 20162022. This increase is primarily due to increases of $93.42 million in retained earnings (net income less dividends declared) and $22.05 million in accumulated other comprehensive income due mainly to an after-tax increase in the Cardinal acquisition. fair value of available for sale securities.
United’s equity to assets ratio was 17.06%15.62% at SeptemberJune 30, 20172023 as compared to 15.41%15.31% at December 31, 2016.2022. The primary capital ratio, capital and reserves to total assets and reserves, was 17.39%16.45% at SeptemberJune 30, 20172023 as compared to 15.84%16.11% at December 31, 2016.2022. United’s average equity to average asset ratio was 17.25%15.83% for the thirdsecond quarter of 20172023 as compared to 14.38%15.88% the thirdsecond quarter of 2016.2022. United’s average equity to average asset ratio was 16.58% for the first nine months of 2017 as compared to 14.24%15.66% for the first half of 2016.2023 as compared to 16.05% for the first half of 2022. All of these financial measurements reflect a financially sound position.
During the thirdsecond quarter of 2017,2023, United’s Board of Directors declared a cash dividend of $0.33$0.36 per share. Cash dividends were $0.99$0.72 per common share for the first ninesix months of 2017.2023. Total cash dividends declared were $34.64$48.63 million for the thirdsecond quarter of 20172023 and $96.04$97.35 million for the first ninesix months of 20172023 as compared to $25.22$48.54 million and $73.38 million, respectively, for the thirdsecond quarter of 2022 and $97.81 million for the first ninesix months of 2016.2022.
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| Item 3. | 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.
The following table shows United’s estimated earnings sensitivity profile as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
Change in Interest Rates (basis points) | Percentage Change in Net Interest Income | Percentage Change in Net Interest Income | ||||||
| September 30, 2017 | December 31, 2016 | June 30, 2023 | December 31, 2022 | |||||
+200 | (0.22%) | (2.05%) | (3.89%) | (6.83%) | ||||
+100 | (0.02%) | (1.05%) | (1.56%) | (3.00%) | ||||
-100 | 0.22% | 1.87% | 1.53% | 2.12% | ||||
-200 | — | — | 1.53% | 2.16% | ||||
At SeptemberJune 30, 2017,2023, 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 decrease by 0.02%1.56% over one year as compared to a decrease of 1.05% by 3.00%
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at December 31, 2016.2022. A 200 basis point immediate, sustained upward shock in the yield curve would decrease net interest income by an estimated 0.22%3.89% over one year as of SeptemberJune 30, 2017,2023 as compared to a decrease of 2.05%6.83% as of December 31, 2016.2022. A 100 basis point immediate, sustained downward shock in the yield curve would increase net interest income by an estimated 0.22%1.53% over one year as of SeptemberJune 30, 20172023 as compared to an increase of 1.87%2.12%, over one year as of December 31, 2016. With the federal funds rate at 1.25% at September 30, 2017 and 0.75% at December 31, 2016, management believed a2022. A 200 basis point immediate, sustained declinedownward shock in rates was highly unlikely.
In addition to the one year earnings sensitivity analysis, atwo-year analysis is also performed. Compared to the one year 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 2.58%0.66% in year two as of SeptemberJune 30, 2017.2023. A 200 basis point immediate, sustained upward shock in the yield curve would increase net interest income by an estimated 4.80%0.69% in year two as of SeptemberJune 30, 2017.2023. A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 1.95%1.80% in year two as of SeptemberJune 30, 2017.2023. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 5.10% in year two as of June 30, 2023.
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.
At SeptemberJune 30, 2017,2023, United’s mortgage related securities portfolio had an amortized cost of $1.1$2 billion, of which approximately $664$867.2 million or 58%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 3.95.8 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 4.66.8 years. The projected price decline of the fixed rate CMO portfolio in rates up 300 basis points would be 11.3%15.6%, or less than the price decline of a5- year7-year treasury note. By comparison, the price decline of a30-year 5.5% current coupon mortgage backed security (MBS) given an immediate, sustained upward shock of(“MBS”) in rates higher by 300 basis points would be approximately 16.9%12.2%.
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United had approximately $257$525.3 million in balloon and otherfixed rate commercial mortgage backed securities (“CMBS”) with a projected yield of 2.12% and a projected average life of 4.1 years on September 30, 2017. This portfolio consisted primarily of Fannie Mae Delegated Underwriting and Servicing (DUS) mortgage backed securities (MBS) with a weighted average loan age (WALA) of 3.8 years and a weighted average maturity (WAM) of 4.4 years.
United had approximately $63 million in15-year mortgage backed securities with a projected yield of 2.20% and a projected average life of 3.7 years as of September 30, 2017. This portfolio consisted of seasoned15-year mortgage paper with a weighted average loan age (WALA) of 4.7 years and a weighted average maturity (WAM) of 9.9 years.
United had approximately $69 million in20-year mortgage backed securities with a projected yield of 2.68%1.97% and a projected average life of 5 years on SeptemberJune 30, 2017.2023. This portfolio consisted primarily of Freddie Mac Multifamily K securities and Fannie Mae Delegated Underwriting and Servicing (“DUS”) securities with a weighted average maturity (“WAM”) of 8.3 years.
United had approximately $25.8 million in 15-year mortgage backed securities with a projected yield of 2.01% and a projected average life of 4.8 years as of June 30, 2023. This portfolio consisted of seasoned20-year15-year mortgage paper with a weighted average loan age (WALA)(“WALA”) of 5.13.6 years and a weighted average maturity (WAM)WAM of 14.511.7 years.
United had approximately $65$340.1 million in30-year20-year mortgage backed securities with a projected yield of 2.60%1.82% and a projected average life of 5.57.3 years on SeptemberJune 30, 2017.2023. This portfolio consisted of seasoned30-year20-year mortgage paper and Home Equity Conversion Mortgages with a weighted average loan age (WALA)WALA of 2.3 years and a weightedWAM of 17.5 years.
United had approximately $163.6 million in 30-year mortgage backed securities with a projected yield of 2.61% and a projected average maturity (WAM)life of 26.38.3 years on June 30, 2023. This portfolio consisted of seasoned 30-year mortgage paper with a WALA of 3.8 years and a WAM of 24.3 years.
The remaining 2% of the mortgage related securities portfolio at Septemberon June 30, 2017,2023, included adjustablefloating rate securities (ARMs),10-yearCMO, CMBS and mortgage backed pass-through securitiessecurities.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and other fixed rate mortgage backed securities.Procedures
As of SeptemberJune 30, 2017,2023, an evaluation was performed under the supervision of and with the participation of United’s management, including the Chief Executive Officer (CEO)(“CEO”) and Chief Financial Officer (CFO)(“CFO”), of the effectiveness of the design and operation of United’s disclosure controls and procedures. Based on that evaluation, United’s management, including the CEO and CFO, concluded that United’s disclosure controls and procedures as of SeptemberJune 30, 20172023 were effective in ensuring that information required to be disclosed in the Quarterly Report on Form10-Q was recorded, processed, summarized and reported within the time period required by the Securities and Exchange Commission’s rules and forms.
Limitations on the Effectiveness of Controls
United’s management, including the CEO and CFO, does not expect that United’s disclosure controls and internal controls will prevent all errors and fraud. While United’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.
Changes in Internal Controls
There have been no changes in United’s internal control over financial reporting (as defined in Rules 13a-15(e) and 15d- 15(f) under the Exchange Act) that occurred during the quarter ended SeptemberJune 30, 2017,2023, or in other factors that have materially affected or are reasonably likely to materially affect United’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. 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 1A. RISK FACTORS
In addition to the other information set forth in this report, please refer to United’s Annual Report on Form10-K for the year ended December 31, 20162022 for disclosures with respect to United’s risk factors which could materially affect United’s business, financial condition or future results. The risks described in the Annual Report on Form10-K are not the only risks facing United. Additional risks and uncertainties not currently known to United or that United currently deems to be immaterial also may materially adversely affect United’s business, financial condition and/or operating results. There are no material changes from the risk factors disclosed in United’s Annual Report on Form10-K for the year ended December 31, 2016.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There have been no United equity securities sales during the quarter ended SeptemberJune 30, 20172023 that were not registered. The table below includes certain information regarding United’s purchase of its common shares during the quarter ended SeptemberJune 30, 2017:2023:
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) | ||||||||||||
7/01 – 7/31/2017 | 0 | $ | 00.00 | 0 | 2,000,000 | |||||||||||
8/01 – 8/31/2017 | 4 | $ | 41.58 | 0 | 2,000,000 | |||||||||||
9/01 – 9/30/2017 | 0 | $ | 00.00 | 0 | 2,000,000 | |||||||||||
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Total | 4 | $ | 41.58 | 0 | ||||||||||||
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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) | ||||||||||||
4/01 – 4/30/2023 | 0 | $ | 00.00 | 0 | 4,371,239 | |||||||||||
5/01 – 5/31/2023 | 60 | $ | 28.95 | 0 | 4,371,239 | |||||||||||
6/01 – 6/30/2023 | 0 | $ | 00.00 | 0 | 4,371,239 | |||||||||||
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Total | 60 | $ | 28.95 | 0 | ||||||||||||
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| (1) | Includes shares exchanged in connection with the exercise of stock options or the vesting of restricted stock under United’s |
| (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. |
| (3) | In |
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| Item 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| Item 4. | MINE SAFETY DISCLOSURES |
None.
| Item 5. | OTHER INFORMATION |
| (a) | None. |
| (b) | No changes were made to the procedures by which security holders may recommend nominees to United’s Board of Directors. |
Item 6. EXHIBITS
Index to exhibits required by Item 601 of RegulationS-K
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Exhibit | Description | |
| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer (furnished herewith) | |
| 32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer (furnished herewith) | |
| 101 | Interactive data file | |
| 104 | Cover Page (embedded in inline XBRL and contained in Exhibit 101) | |
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SIGNATURES
Pursuant to the requirements 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. | ||||||
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/s/ Richard M. Adams, Jr. | ||||||
| Date: | August 9, 2023 | Richard M. Adams, Jr. | ||||
| Chief Executive Officer | ||||||
| /s/ W. Mark Tatterson | |||||
| Date: | August 9, 2023 | W. Mark Tatterson, Executive | ||||
| Vice President and Chief Financial Officer | ||||||
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