United Bankshares, Inc. (NASDAQ: UBSI) (“United”), today reported earnings for the third quarter of 2023 of $96.2 million, or $0.71 per diluted share, as compared to earnings of $92.5 million, or $0.68 per diluted share, for the second quarter of 2023. Earnings for the third quarter of 2022 were $102.6 million, or $0.76 per diluted share.

“Third quarter results saw accelerated growth and profitability, while maintaining our strong capital, liquidity, and asset quality positions,” stated Richard M. Adams, Jr., United’s Chief Executive Officer. “I’m pleased with the resilient performance we continue to deliver in this environment.”

Third quarter of 2023 results produced annualized returns on average assets, average equity and average tangible equity, a non-GAAP measure, of 1.31%, 8.14% and 13.71%, respectively, compared to annualized returns on average assets, average equity and average tangible equity of 1.26%, 7.96% and 13.47%, respectively, for the second quarter of 2023. Annualized returns on average assets, average equity and average tangible equity were 1.41%, 8.96% and 15.46%, respectively, for the third quarter of 2022.

Third quarter of 2023 compared to the second quarter of 2023

Net interest income for the third quarter of 2023 increased $992 thousand, or less than 1%, from the second quarter of 2023. 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 2023 increased $717 thousand, or less than 1%, from the second quarter of 2023. Net interest income and tax-equivalent net interest income for the third quarter of 2023 benefited from the impact of rising market interest rates on earning assets, a change in the asset mix to higher earning assets and lower average balances of long-term borrowings. Partially offsetting the increase in net interest income and tax-equivalent net interest income was higher interest expense primarily driven by the impact of deposit rate repricing and higher average balances of interest-bearing deposits. The yield on average earning assets increased 19 basis points from the second quarter of 2023 to 5.52%. Average net loans and loans held for sale increased $245.6 million from the second quarter of 2023 and the yield on average net loans and loans held for sale increased 14 basis points to 5.92% for the third quarter of 2023. Average investment securities decreased $456.8 million from the second quarter of 2023 and average short-term investments decreased $141.8 million from the second quarter of 2023. Average long-term borrowings decreased $716.7 million from the second quarter of 2023. The yield on average interest-bearing deposits increased 33 basis points to 2.70% and average interest-bearing deposits increased $473.5 million from the second quarter of 2023. The net interest margin of 3.54% for the third quarter of 2023 was an increase of 3 basis points from the net interest margin of 3.51% for the second quarter of 2023.

The provision for credit losses was $5.9 million for the third quarter of 2023 as compared to $11.4 million for the second quarter of 2023. The lower amount of provision expense for the third quarter of 2023 as compared to the second quarter of 2023 was mainly due to a decrease in qualitative adjustments and the impact of reasonable and supportable forecasts of future macroeconomic conditions, partially offset by additional provision expense due to loan growth.

Noninterest income for the third quarter of 2023 decreased $1.5 million, or 4%, from the second quarter of 2023. The decrease in noninterest income was primarily due to a decrease in mortgage loan servicing income of $9.0 million partially offset by lower net losses on investment securities of $7.2 million. During the second quarter of 2023, United sold mortgage servicing rights (“MSRs”) with an aggregate unpaid principal balance of approximately $2.0 billion at a gain of $8.1 million. The remaining decrease in mortgage loan servicing income from the second quarter of 2023 was due to lower MSR balances in the third quarter of 2023 as a result of the sale. Additionally, during the second quarter of 2023, United sold approximately $187.0 million of available for sale (“AFS”) investment securities at a loss of $7.2 million.

Noninterest expense for the third quarter of 2023 decreased $58 thousand, or less than 1%, from the second quarter of 2023. The decrease in noninterest expense from the second quarter of 2023 was primarily due to a decrease in the expense for the reserve for unfunded loan commitments of $981 thousand mainly driven by a decrease in the outstanding balance of loan commitments at quarter-end. This decrease in noninterest expense was partially offset by an increase in other noninterest expense of $966 thousand mainly driven by higher amounts of certain general operating expenses.

For the third quarter of 2023, income tax expense was $24.8 million as compared to $23.5 million for the second quarter of 2023. The increase of $1.3 million was due to higher earnings and a higher effective tax rate. United’s effective tax rate was 20.5% and 20.2% for the third quarter of 2023 and second quarter of 2023, respectively.

Third quarter of 2023 compared to the third quarter of 2022

Earnings for the third quarter of 2023 were $96.2 million, or $0.71 per diluted share, as compared to earnings of $102.6 million, or $0.76 per diluted share, for the third quarter of 2022.

Net interest income for the third quarter of 2023 decreased $12.2 million, or 5%, from the third quarter of 2022. Tax-equivalent net interest income for the third quarter of 2023 decreased $12.4 million, or 5%, from the third quarter of 2022. The decrease in net interest income and tax-equivalent net interest income was primarily due to higher interest expense driven by deposit rate repricing, higher average balances and cost of long-term borrowings, lower acquired loan accretion income and lower income from Paycheck Protection Program (“PPP”) loan fees. These decreases were partially offset by the impact of rising market interest rates on earning assets, organic loan growth and a change in the asset mix to higher earning assets. The average cost of funds increased 231 basis points from the third quarter of 2022 to 2.87% primarily due to increases in the yield on average interest-bearing deposits of 224 basis points and in the yield on average long-term borrowings of 227 basis points. Average long-term borrowings increased $695.8 million from the third quarter of 2022. Acquired loan accretion income decreased $1.7 million from the third quarter of 2022 to $2.3 million. Net PPP loan fee income decreased $1.5 million from the third quarter of 2022. The yield on average earning assets increased 138 basis points from the third quarter of 2022 to 5.52%. Average earning assets for the third quarter of 2023 increased $329.7 million, or 1%, from the third quarter of 2022 due to a $1.3 billion increase in average net loans and loans held for sale partially offset by an $882.7 million decrease in average investment securities. The net interest margin of 3.54% for the third quarter of 2023 was a decrease of 24 basis points from the net interest margin of 3.78% for the third quarter of 2022.

The provision for credit losses was $5.9 million for the third quarter of 2023 as compared to $7.7 million for the third quarter of 2022. The lower amount of provision expense for the third quarter of 2023 as compared to the third quarter of 2022 was mainly due to the impact of reasonable and supportable forecasts of future macroeconomic conditions.

Noninterest income for the third quarter of 2023 was $33.7 million, an increase of $912 thousand, or 3%, from the third quarter of 2022 primarily due to increases of $1.1 million in income from mortgage banking activities and $1.1 million in income from bank-owned life insurance (“BOLI”) partially offset by a decrease in mortgage loan servicing income of $1.5 million. The increase in income from mortgage banking activities was mainly due to a higher quarter-end valuation of our mortgage derivatives and mortgage loans held for sale. The increase in BOLI income was primarily due to the impact of lower market values of underlying investments in the third quarter of 2022 and due to higher amounts of death benefits recognized in the third quarter of 2023. The decrease in mortgage loan servicing income was mainly driven by lower MSR balances primarily as a result of the sale.

Noninterest expense for the third quarter of 2023 was $135.2 million, a decrease of $2.0 million, or 1%, from the third quarter of 2022 primarily due to decreases of $1.9 million in other noninterest expense, $1.5 million in other real estate owned (“OREO”) expense and $796 thousand in mortgage loan servicing expense partially offset by increases in employee benefits of $2.2 million, FDIC insurance expense of $1.5 million and higher amounts of certain general operating expenses. Other noninterest expense for the third quarter of 2022 included an accrual of $5.0 million related to a litigation matter with a former commercial customer. The decrease in OREO expense was primarily due to fewer write-downs on OREO properties. The decrease in mortgage loan servicing expense was mainly driven by lower MSR balances. The increase in employee benefits was primarily due to higher postretirement benefit costs and higher health insurance costs. The increase in FDIC insurance expense was primarily due to a higher assessment rate.

For the third quarter of 2023, income tax expense was $24.8 million as compared to $25.9 million for the third quarter of 2022. The decrease of $1.1 million was due to lower earnings partially offset by a higher effective tax rate. United’s effective tax rate was 20.5% and 20.2% for the third quarter of 2023 and third quarter of 2022, respectively.

First nine months of 2023 compared to the first nine months of 2022

Earnings for the first nine months of 2023 were $286.9 million, or $2.12 per diluted share, as compared to earnings of $279.9 million, or $2.06 per diluted share, for the first nine months of 2022.

Net interest income for the first nine months of 2023 increased $43.2 million, or 7%, from the first nine months of 2022. 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 first nine months of 2023 increased $43.0 million, or 7%, from the first nine months of 2022. The increase in net interest income and tax-equivalent net interest income was primarily due to the 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 PPP loan fees and lower acquired loan accretion income. The yield on average earning assets increased 169 basis points from the first nine months of 2022 to 5.32%. Average earning assets for the first nine months of 2023 increased $317.3 million, or 1%, from the first nine months of 2022 due to a $1.7 billion increase in average net loans and loans held for sale partially offset by a $959.9 million decrease in average short-term investments and a $411.1 million decrease in average investment securities. The average cost of funds increased 218 basis points from the first nine months of 2022 to 2.56% primarily due to increases in the yield on average interest-bearing deposits of 200 basis points and in the yield on average long-term borrowings of 272 basis points. Average long-term borrowings increased $1.3 billion from the first nine months of 2022. Net PPP loan fee income decreased $8.8 million from the first nine months of 2022. Acquired loan accretion income was $8.5 million and $13.6 million for the first nine months of 2023 and 2022, respectively, a decrease of $5.1 million. The net interest margin of 3.56% for the first nine months of 2023 was an increase of 18 basis points from the net interest margin of 3.38% for the first nine months of 2022.

The provision for credit losses was $24.3 million for the first nine months 2023 as compared to $2.5 million for the first nine months of 2022. The higher amount of provision expense for the first nine months of 2023 as compared to the first nine months of 2022 was mainly due to an increase in qualitative adjustments and the impact of reasonable and supportable forecasts of future macroeconomic conditions.

Noninterest income for the first nine months of 2023 was $101.6 million, which was a decrease of $20.8 million, or 17%, from the first nine months of 2022. Income from mortgage banking activities decreased $16.2 million from the first nine months of 2022 mainly due to lower mortgage loan origination and sale volume and a lower margin on loans sold. Additionally, net losses on investment securities were $7.9 million for the first nine months of 2023 as compared to net gains on investment securities of $725 thousand for the first nine months of 2022 mainly driven by the loss on sale of AFS investment securities in the second quarter of 2023. The decrease in noninterest income was partially offset by a $5.9 million increase in mortgage loan servicing income mainly driven by the gain on sale of MSRs in the second quarter of 2023.

Noninterest expense for the first nine months of 2023 was $407.9 million, a decrease of $9.6 million, or 2%, from the first nine months of 2022 driven by decreases in employee compensation of $11.9 million and in the expense for the reserve for unfunded loan commitments of $10.7 million partially offset by increases in other noninterest expense of $5.9 million and FDIC insurance expense of $5.0 million. The decrease in employee compensation was primarily due to lower employee commissions and incentives related to mortgage banking production. The increase in other noninterest expense was primarily driven by higher amounts of certain general operating expenses. The increase in FDIC insurance expense was primarily due to a higher assessment rate.

For the first nine months of 2023, income tax expense was $72.7 million as compared to $69.5 million for the first nine months of 2022 primarily due to higher earnings and a higher effective tax rate. United’s effective tax rate was 20.2% for the first nine months of 2023 and 19.9% for the first nine months of 2022.

Credit Quality

United’s asset quality continues to be sound. At September 30, 2023, non-performing loans were $42.7 million, or 0.20% of loans & leases, net of unearned income. Total non-performing assets were $45.9 million, including OREO of $3.2 million, or 0.16% of total assets at September 30, 2023. At December 31, 2022, non-performing loans were $58.6 million, or 0.29% of loans & leases, net of unearned income. Total non-performing assets were $60.7 million, including OREO of $2.1 million, or 0.21% of total assets at December 31, 2022.

On January 1, 2023, United adopted ASU 2022-02, “Troubled Debt Restructurings and Vintage Disclosures” 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 non-performing loans or non-performing assets. December 31, 2022 non-performing loans and non-performing assets noted above included $9.1 million of troubled debt restructurings that were on accruing status and fewer than 90 days past due but classified as non-performing loans and non-performing assets. Restructured loans that are on non-accrual or 90-day past due are included in the respective non-performing loan and non-performing asset categories for periods subsequent to adoption.

As of September 30, 2023, the allowance for loan & lease losses was $254.9 million, or 1.21% of loans & leases, net of unearned income, as compared to $234.7 million, or 1.14% of loans & leases, net of unearned income, at December 31, 2022. Net charge-offs were $1.8 million for both the third quarter of 2023 and 2022. Net charge-offs were $4.1 million for the first nine months of 2023 compared to net recoveries of $1.1 million for the first nine months of 2022. Annualized net charge-offs as a percentage of average loans & leases, net of unearned income were 0.03% and 0.04% for the third quarter of 2023 and 2022, respectively. Annualized net charge-offs (recoveries) as a percentage of average loans & leases, net of unearned income were 0.03% and (0.01)% for the first nine months of 2023 and 2022, respectively. Net charge-offs were $1.2 million for the second quarter of 2023.

Capital

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 15.2% at September 30, 2023, while estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.0%, 13.0% and 11.3%, respectively. The September 30, 2023 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%.

During the first nine months of 2022, United repurchased, under a previously announced stock repurchase plan, approximately 2.3 million shares of its common stock at an average price per share of $34.69. United did not repurchase any shares of its common stock during the first nine months of 2023.

About United Bankshares, Inc.

As of September 30, 2023, United had consolidated assets of approximately $29.2 billion. United is the parent company of United Bank which comprises nearly 250 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, 2023 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, 2023 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, average tangible equity, return on average 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, interest rate, securities market and monetary supply fluctuations; increasing rates of inflation and slower growth rates; reform of LIBOR; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those involving the 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; competition; changes in legislation or regulatory requirements; and the impact of natural disasters, extreme weather events, military conflict (including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas, the possible expansion of such conflicts and potential geopolitical consequences), terrorism or other geopolitical events. 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, 2022, 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.