United Bankshares, Inc. (NASDAQ: UBSI) (“United”), today reported earnings for the third quarter and first nine months of 2021. Earnings for the third quarter of 2021 were $92.2 million, or $0.71 per diluted share, as compared to earnings of $103.8 million, or $0.80 per diluted share, for the third quarter of 2020. Earnings for the first nine months of 2021 were $293.9 million, or $2.27 per diluted share, as compared to earnings of $196.7 million, or $1.68 per diluted share, for the first nine months of 2020.

Third quarter 2021 results produced annualized returns on average assets, average equity and average tangible equity, a non-GAAP measure, of 1.33%, 8.23% and 14.03%, respectively, compared to annualized returns on average assets, average equity and average tangible equity of 1.56%, 9.68% and 16.94%, respectively, for the third quarter of 2020. For the first nine months of 2021, United’s annualized returns on average assets, average equity and average tangible equity were 1.46%, 8.95% and 15.36%, respectively, compared to annualized returns on average assets, average equity and average tangible equity of 1.12%, 6.85% and 12.19%, respectively, for the first nine months of 2020.

“Our earnings continued to be strong in the third quarter of 2021 as we earned net income of $92.2 million, diluted earnings per share of $0.71 and delivered an annualized return on average assets of 1.33%,” stated Richard M. Adams, United’s Chairman of the Board and Chief Executive Officer. “Additionally, credit quality metrics remain strong with nonperforming assets decreasing approximately 31% from December 31, 2020 to $107.0 million, representing 0.39% of total assets, at September 30, 2021.”

United previously announced that it entered into a definitive merger agreement with Community Bankers Trust Corporation (“Community Bankers Trust”). Under the merger agreement, United will acquire 100% of the outstanding shares of Community Bankers Trust in exchange for common shares of United. The combined organization will be approximately $29 billion in assets with nearly 250 locations in some of the most desirable banking markets in the nation. All requisite regulatory approvals for the merger have been received from the Board of Governors of the Federal Reserve System and from the Virginia State Corporation Commission. The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions including approval by the shareholders of Community Bankers Trust.

As a result of the acquisition of Carolina Financial Corporation (“Carolina Financial”) on May 1, 2020, the first nine months of 2021 reflected higher average balances, income, and expense as compared to the first nine months of 2020. In addition, the third quarter and first nine months of 2020 included merger-related expenses of $5.7 million and $53.7 million, respectively, associated with the acquisition of Carolina Financial compared to $845 thousand and $1.0 million of merger-related expenses incurred in the third quarter and first nine months of 2021, respectively, related to the announced Community Bankers Trust acquisition.

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2021 was $181.6 million, which was a decrease of $4.1 million, or 2%, from the third quarter of 2020. Tax-equivalent net interest income, a non-GAAP measure which adjusts for the tax-favored status of income from certain loans and investments, for the third quarter of 2021 decreased $4.1 million, or 2%, from the third quarter of 2020 to $182.6 million. The decrease in net interest income and tax-equivalent net interest income was primarily due to a change in the mix of interest earning assets. A decrease in interest income due to the mix of interest earning assets as well as lower loan accretion on acquired loans was partially offset by lower interest expense on deposits and borrowings reflecting a decline in market interest rates and higher loan fee income from the Paycheck Protection Program (“PPP”). The net interest spread for the third quarter of 2021 decreased 10 basis points from the third quarter of 2020 due to a 41 basis point decrease in the average yield on earning assets partially offset by a 31 basis point decrease in the average cost of funds. Average earning assets for the third quarter of 2021 increased $937.4 million, or 4%, from the third quarter of 2020 due to a $1.9 billion increase in average short-term investments and a $563.2 million increase in average investment securities, partially offset by a $1.5 billion decrease in average net loans and loans held for sale mainly driven by a decline in PPP loan balances. Loan accretion on acquired loans was $8.2 million and $11.7 million for the third quarter of 2021 and 2020, respectively, a decrease of $3.5 million. Net PPP loan fee income of $7.8 million was recognized in the third quarter of 2021 driven primarily by loan forgiveness, as compared to $4.8 million for the third quarter of 2020. The net interest margin of 2.98% for the third quarter of 2021 was a decrease of 20 basis points from the net interest margin of 3.18% for the third quarter of 2020.

Net interest income for the first nine months of 2021 was $559.1 million, which was an increase of $61.3 million, or 12%, from the first nine months of 2020. Tax-equivalent net interest income for the first nine months of 2021 was $562.2 million, an increase of $61.6 million, or 12%, from the first nine months of 2020. The increase in net interest income and tax-equivalent net interest income was primarily due to an increase in average earning assets from the Carolina Financial acquisition and PPP loans as well as lower interest expense on deposits and borrowings. Average earning assets for the first nine months of 2021 increased $3.1 billion, or 15%, from the first nine months of 2020 due to a $1.6 billion increase in average short-term investments, a $989.3 million increase in average net loans and loans held for sale and a $558.5 million increase in average investment securities. The net interest spread for the first nine months of 2021 increased 11 basis points from the first nine months of 2020 due to a 54 basis point decrease in the average cost of funds partially offset by a 43 basis point decrease in the average yield on earning assets. Net PPP loan fee income of $28.2 million was recognized in the first nine months of 2021 driven primarily by loan forgiveness, as compared to $9.3 million for the first nine months of 2020. Loan accretion on acquired loans was $27.6 million and $30.8 million for the first nine months of 2021 and 2020, respectively, a decrease of $3.2 million. The net interest margin of 3.14% for the first nine months of 2021 was a decrease of 7 basis points from the net interest margin of 3.21% for the first nine months of 2020.

On a linked-quarter basis, net interest income for the third quarter of 2021 decreased $4.9 million, or 3%, from the second quarter of 2021. Tax-equivalent net interest income for the third quarter of 2021 decreased $5.0 million, or 3%, from the second quarter of 2021. The net interest spread for the third quarter of 2021 of 2.83% decreased 15 basis points from the second quarter of 2021 due to a 19 basis point decrease in the average yield on earning assets partially offset by a 4 basis point decrease in the average cost of funds. Average earning assets increased approximately $394.6 million, or 2%, from the second quarter of 2021 due to increases in average short-term investments of $919.7 million and average investment securities of $111.6 million partially offset by a decrease in average net loans and loans held for sale of $636.6 million mainly driven by a decline in PPP loan balances. Net PPP loan fee income for the third quarter of 2021 decreased $1.2 million from the second quarter of 2021 to $7.8 million. Loan accretion on acquired loans decreased $1.5 million from the second quarter of 2021 to $8.2 million for the third quarter of 2021. The net interest margin of 2.98% for the third quarter of 2021 was a decrease of 16 basis points from the net interest margin of 3.14% for the second quarter of 2021.

Credit Quality

United’s asset quality continues to be sound. At September 30, 2021, nonperforming loans were $90.3 million, or 0.54% of loans & leases, net of unearned income, down from $132.2 million, or 0.75% of loans & leases, net of unearned income, at December 31, 2020. Total nonperforming assets of $107.0 million, including other real estate owned (“OREO”) of $16.7 million at September 30, 2021, represented 0.39% of total assets as compared to nonperforming assets of $154.8 million, including OREO of $22.6 million, or 0.59% of total assets at December 31, 2020.

The provision for credit losses was a net benefit of $7.8 million and $16.6 million for the third quarter and first nine months of 2021, respectively, while the provision for credit losses was an expense of $16.8 million and $89.8 million, respectively, for the third quarter and first nine months of 2020. The first nine months of 2020 included a provision for loan losses of $29.0 million recorded on purchased non-credit deteriorated (“non-PCD”) loans from Carolina Financial. The decrease in the provision in relation to the prior year quarter and first nine months of 2020 was also driven by the impact of better performance trends within the loan portfolio and improvements in the reasonable and supportable forecasts of future macroeconomic conditions on the estimate of expected credit losses under CECL. On a linked-quarter basis, the provision for credit losses for the third quarter of 2021 was a net benefit of $7.8 million compared to a net benefit of $8.9 million for the second quarter of 2021.

As of September 30, 2021, the allowance for loan losses was $210.9 million, or 1.26% of loans & leases, net of unearned income, as compared to $235.8 million, or 1.34% of loans & leases, net of unearned income, at December 31, 2020. Net recoveries were $1.2 million for the third quarter of 2021 compared to net charge-offs of $5.6 million for the third quarter of 2020. Net charge-offs were $8.6 million for the first nine months of 2021 compared to net charge-offs of $16.7 million for the first nine months of 2020. Annualized net (recoveries) charge-offs as a percentage of average loans & leases, net of unearned income were (0.03)% and 0.07% for the third quarter and first nine months of 2021, respectively, compared to annualized net charge-offs of 0.12% and 0.13% for the third quarter and first nine months of 2020. Net charge-offs were $5.2 million for the second quarter of 2021.

Noninterest Income

Noninterest income for the third quarter of 2021 was $68.6 million, which was a decrease of $66.8 million, or 49%, from the third quarter of 2020 primarily driven by a $67.4 million decrease in income from mortgage banking activities due primarily to lower mortgage loan origination and sale volume and the mark-to-market impact of a declining locked pipeline. The third quarter of 2020 also included a $2.2 million gain on the sale of a bank premises. Partially offsetting the decreases in noninterest income were increases in fees from brokerage services of $817 thousand, fees from trust services of $695 thousand and fees from deposit services of $568 thousand.

Noninterest income for the first nine months of 2021 was $224.0 million, which was a decrease of $36.6 million, or 14%, from the first nine months of 2020. The decrease was driven primarily by a $51.0 million decrease in income from mortgage banking activities due primarily to the mark-to-market impact of a declining locked pipeline although originations and sales of mortgage loans in the secondary market increased. Mortgage loan servicing income for the first nine months of 2021 was $7.2 million compared to $3.9 million for the first nine months of 2020 as a result of the Carolina Financial acquisition. The first nine months of 2021 also included fees from deposit services of $28.2 million, an increase of $2.8 million from the first nine months of 2020, fees from trust services of $12.2 million, an increase of $1.9 million from the first nine months of 2020 and fees from brokerage services of $11.9 million, an increase of $3.2 million from the first nine months of 2020.

On a linked-quarter basis, noninterest income for the third quarter of 2021 increased $5.8 million, or 9%, from the second quarter of 2021 primarily due to an increase of $5.1 million in income from mortgage banking activities due primarily to a higher loan pipeline valuation. Income from bank-owned life insurance (BOLI) for the third quarter of 2021 was $2.6 million, an increase of $898 thousand from the linked quarter primarily due to the recognition of death benefits. Fees from deposit services for the third quarter of 2021 were $9.9 million, an increase of $492 thousand from the linked quarter.

Noninterest Expense

Noninterest expense for the third quarter of 2021 was $142.3 million, a decrease of $29.3 million, or 17%, from the third quarter of 2020, primarily due to a decrease of $17.0 million in employee compensation due to lower employee incentives and commissions related to mortgage banking production as well as a lower employee headcount. The third quarter of 2020 also included $10.4 million in prepayment penalties on the early payoff of three long-term FHLB advances.

Noninterest expense for the first nine months of 2021 was $430.2 million, an increase of $8.1 million, or 2%, from the first nine months of 2020. Employee compensation increased $10.8 million from the first nine months of 2020 primarily due to the Carolina Financial acquisition. Additionally, noninterest expense increased from the first nine months of 2020 due to increases of $6.3 million in employee benefits, $4.7 million in equipment expense, $4.1 million in mortgage loan servicing expense and impairment, $1.7 million in OREO expense and $1.1 million in net occupancy expense. The increase in OREO expense was due mainly to declines in the fair value of OREO properties. The increases in employee benefits, mortgage loan servicing expense and impairment, equipment expense and net occupancy expense were mainly from the Carolina Financial acquisition. Partially offsetting the increases in noninterest expense was a decrease in data processing expense of $7.5 million, primarily due to a penalty of $9.7 million to terminate Carolina Financial’s data processing contract in the second quarter of 2020. The first nine months of 2020 also included $10.4 million in prepayment penalties on the early payoff of FHLB advances.

On a linked-quarter basis, noninterest expense for the third quarter of 2021 increased $3.3 million, or 2%, from the second quarter of 2021 primarily due to an increase of $4.6 million in other expense. Within other expense, the largest drivers of the variance were increases in the expense for the reserve for unfunded commitments of $3.4 million primarily due to an increase in outstanding loan commitments and merger-related expenses of $662 thousand associated with the announced Community Bankers Trust acquisition. Partially offsetting the increases in other expense were decreases in employee compensation of $1.1 million and employee benefits of $1.3 million, primarily due to lower commissions, and associated taxes, related to mortgage banking production.

Income Tax Expense

For the third quarter of 2021, income tax expense was $23.6 million as compared to $29.0 million for the third quarter of 2020 primarily due to lower earnings and a lower effective tax rate. For the first nine months of 2021, income tax expense was $75.6 million as compared to $49.9 million for the first nine months of 2020 primarily due to higher earnings. On a linked-quarter basis, income tax expense decreased $851 thousand primarily due to lower earnings and a slightly lower effective tax rate. United’s effective tax rate was 20.4% for the third quarter of 2021, 21.8% for the third quarter of 2020 and 20.5% for the second quarter of 2021. For the first nine months of 2021 and 2020, United’s effective tax rate was 20.5% and 20.2%, respectively.

Regulatory Capital

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 15.7% at September 30, 2021, while estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.5%, 13.5% and 10.4%, respectively. The September 30, 2021 ratios reflect 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%.

About United Bankshares, Inc.

As of September 30, 2021, United had consolidated assets of approximately $27.5 billion. United is the parent company of United Bank which has 222 offices in Virginia, Maryland, Washington, D.C., North Carolina, South Carolina, Georgia, Pennsylvania, West Virginia, and Ohio. United’s stock is traded on the NASDAQ Global Select Market under the quotation symbol "UBSI".

Cautionary Statements

The Company is required under generally accepted accounting principles to evaluate subsequent events through the filing of its September 30, 2021 consolidated financial statements on Form 10-Q. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of September 30, 2021 and will adjust amounts preliminarily reported, if necessary.

Use of non-GAAP Financial Measures

This press release contains certain financial measures that are not recognized under U.S. generally accepted accounting principles ("GAAP"). Generally, United has presented these “non-GAAP” financial measures because it believes that these measures provide meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of these non-GAAP financial measures is consistent with how United’s management evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry.

Specifically, this press release contains certain references to financial measures identified as tax-equivalent (FTE) net interest income, tangible equity, return on tangible equity and tangible book value per share. Management believes these non-GAAP financial measures to be helpful in understanding United’s results of operations or financial position.

Net interest income is presented in this press release on a tax-equivalent basis. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 21%.

Tangible equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible equity can thus be considered the most conservative valuation of the company. Tangible equity is also presented on a per common share basis and considering net income, a return on average tangible equity. Management provides these amounts to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. By removing the effect of intangible assets that result from merger and acquisition activity, the “permanent” items of equity are presented. These measures, along with others, are used by management to analyze capital adequacy and performance.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure can be found in the attached financial information tables to this press release. Investors should recognize that United’s presentation of these non-GAAP financial measures might not be comparable to similarly titled measures at other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and United strongly encourages a review of its condensed consolidated financial statements in their entirety.

Forward-Looking Statements

In this report, we have made various statements regarding current expectations or forecasts of future events, which speak only as of the date the statements are made. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are also made from time-to-time in press releases and in oral statements made by the officers of the Company. Forward-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. Therefore, undue reliance should not be placed upon these estimates and statements. United cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.” The following factors, among others, could cause the actual results of United’s operations to differ materially from its expectations: the uncertainty as to the extent of the duration, scope and impacts of the COVID-19 pandemic, on United, its colleagues, the communities United serves, and the domestic and global economy; uncertainty in U.S .fiscal and monetary policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets, reform of LIBOR; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those involving the OCC, Federal Reserve, FDIC, and CFPB; the effect of changes in the level of checking or savings account deposits on United’s funding costs and net interest margin; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; risks relating to the merger with Community Bankers Trust, including the successful integration of operations of Community Bankers Trust; competition; and changes in legislation or regulatory requirements. For more information about factors that could cause actual results to differ materially from United’s expectations, refer to its reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Further, any forward-looking statement speaks only as of the date on which it is made, and United undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised to consult further disclosures United may make on related subjects in our filings with the SEC.