United Bankshares, Inc. Announces Record Earnings

United Bankshares, Inc. (NASDAQ: UBSI) ("United”), today announced record earnings for the first quarter of 2018. Earnings for the first quarter of 2018 were a record $61.7 million as compared to earnings of $38.8 million for the first quarter of 2017. Diluted earnings per share were $0.59 for the first quarter of 2018 as compared to diluted earnings per share of $0.48 for the first quarter of 2017.

United’s first quarter of 2018 results produced an annualized return on average assets of 1.35% and an annualized return on average equity of 7.65%. United’s annualized returns on average assets and average equity were 1.09% and 6.98%, respectively, for the first quarter of 2017.

"United’s earnings continue to be strong as we achieved record net income of $61.7 million for the first quarter of 2018,” stated Richard M. Adams, United’s Chairman and Chief Executive Officer. "For the first quarter of 2018, we increased before tax earnings to $79.6 million from $59.0 million for last year’s first quarter and our return on average assets of 1.35% for the quarter was up significantly from 1.09% for the first quarter of 2017.”

On April 21, 2017, United completed its acquisition of Cardinal Financial Corporation ("Cardinal”) of Tysons, Virginia. The results of operations of Cardinal are included in the consolidated results of operations from the date of acquisition. As a result of the Cardinal acquisition, the first quarter of 2018 was impacted by increased levels of average balances, income, and expense as compared to the first quarter of 2017. In addition, the first quarter of 2017 included merger-related expenses of $1.2 million related to the Cardinal acquisition.

Net interest income for the first quarter of 2018 was $144.0 million, which was an increase of $36.4 million or 34% from the first quarter of 2017. The $36.4 million increase in net interest income occurred because total interest income increased $46.4 million while total interest expense only increased $10.0 million from the first quarter of 2017. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the first quarter of 2018 was $145.5 million, an increase of $36.4 million or 33% from the first quarter of 2017 due mainly to an increase in average earning assets from the Cardinal acquisition. Average earning assets for the first quarter of 2018 increased $3.4 billion or 26% from the first quarter of 2017 due mainly to a $2.9 billion or 28% increase in average net loans. Average investment securities increased $810.5 million or 59% while average short-term investments decreased $267.9 million or 21%. The first quarter of 2018 average yield on earning assets increased 34 basis points from the first quarter of 2017 due to additional loan accretion of $6.5 million on acquired loans and higher market interest rates.

Partially offsetting the increases to tax-equivalent net interest income for the first quarter of 2018 was an increase of 26 basis points in the average cost of funds as compared to the first quarter of 2017 due to the higher market interest rates. The net interest margin of 3.61% for the first quarter of 2018 was an increase of 18 basis points from the net interest margin of 3.43% for the first quarter of 2017.

On a linked-quarter basis, net interest income for the first quarter of 2018 decreased $10.8 million or 7% from the fourth quarter of 2017. The $10.8 million decrease in net interest income occurred because total interest income decreased $9.3 million while total interest expense increased $1.5 million from the fourth quarter of 2017. United’s tax-equivalent net interest income for the first quarter of 2018 decreased $11.6 million or 7% from the fourth quarter of 2017 due mainly to a decrease in the average yield on earning assets. The yield on average earning assets for the first quarter of 2018 decreased 10 basis points from the fourth quarter of 2017 due mainly to a lower yield on loans as a result of the loan accretion on acquired loans declining $6.0 million. In addition, the average cost of funds increased 8 basis points from the fourth quarter of 2017 due to higher market interest rates. Average earning assets for the first quarter of 2018 decreased $307.2 million or 2% as compared to the fourth quarter of 2017 as average short-term investments declined $391.2 million or 29% and average net loans decreased $132.6 million or 1% for the linked-quarter. Average investment securities increased $216.5 million or 11%. The net interest margin of 3.61% for the first quarter of 2018 decreased 16 basis points from the net interest margin of 3.77% for the fourth quarter of 2017.

For the quarters ended March 31, 2018 and 2017, the provision for loan losses was $5.2 million and $5.9 million, respectively. Net charge-offs were $5.2 million for the first quarter of 2018 as compared to net charge-offs of $5.8 million for the first quarter of 2017. Annualized net charge-offs as a percentage of average loans were 0.16% for the first quarter of 2018 as compared to 0.24% for United’s Federal Reserve peer group (bank holding companies with total assets over $10 billion) for the year of 2017. On a linked-quarter basis, the provision for loans losses decreased $1.8 million while net charge-offs decreased $124 thousand from the fourth quarter of 2017.

Noninterest income for the first quarter of 2018 was $31.2 million, which was an increase of $11.0 million or 55% from the first quarter of 2017. The increase was due mainly to an increase of $13.9 million in income from mortgage banking activities due to increased production and sales of mortgage loans in the secondary market. As part of the Cardinal acquisition, United acquired Cardinal’s mortgage banking subsidiary, George Mason Mortgage, LLC (George Mason). Partially offsetting this increase was a net gain of $3.8 million on the redemption of an investment security included in the results for the first quarter of 2017. Otherwise, fees from deposit services increased $524 thousand mainly due to higher income from overdraft, debit card and automated teller machine (ATM) fees.

On a linked-quarter basis, noninterest income for the first quarter of 2018 decreased $1.6 million or 5% from the fourth quarter of 2017 due mainly to a net loss of $485 thousand on investment securities transactions as compared to a net gain of $430 thousand for the fourth quarter of 2017. In addition, income from mortgage banking activities declined $740 thousand due to decreased production and sales of mortgage loans in the secondary market and fees from deposit services declined $414 thousand because of a decrease in overdraft fees, due to seasonality. Partially offsetting these decreases was an increase of $467 thousand in income from trust and brokerage services due to increased volume.

Noninterest expense for the first quarter of 2018 was $90.5 million, an increase of $27.6 million or 44% from the first quarter of 2017 due mainly to the additional employees and branch offices from the Cardinal acquisition as most major categories of noninterest expense showed increases. In particular, employee compensation increased $16.8 million, employee benefits increased $2.7 million, net occupancy expenses increased $2.6 million, and data processing expense increased $1.8 million. In addition, within other expense, amortization of core deposit intangibles increased $962 thousand and business franchise taxes increased $649 thousand while merger-related expenses decreased $1.2 million.

On a linked-quarter basis, noninterest expense decreased $5.3 million or 6% from the fourth quarter of 2017 due mainly to decreases of $1.5 million each in merger-related expenses and business franchise taxes within other expense. In addition, employee compensation decreased $612 thousand due mainly to a decrease in commissions expense related to the decrease in production and sales of mortgage loans in the secondary market. Other real estate owned (OREO) expense decreased $406 thousand due to a decline in net losses on the sales of OREO properties. Partially offsetting these decreases was an increase in net occupancy expense of $421 thousand due mainly to increased building maintenance costs.

For the first quarter of 2018, income tax expense was $17.9 million, a decrease of $2.3 million from the first quarter of 2017 mainly due to a decline in the effective tax rate as a result of the Tax Cuts and Jobs Act of 2017 (the Tax Act). On a linked-quarter basis, income tax expense decreased $49.0 million mainly due to a decline in the effective tax rate and additional income tax expense of $37.7 million related to the estimated impact of the Tax Act recorded in the fourth quarter of 2017 due to a revaluation of United’s deferred tax assets and liabilities using a lower enacted corporate tax rate. United’s effective tax rate was approximately 22.5% for the first quarter of 2018 and 34.3% and 78.8% for the first and fourth quarters of 2017, respectively. The higher effective tax rate for the fourth quarter of 2017 was due to the impact of the Tax Act.

United’s asset quality continues to be sound. At March 31, 2018, nonperforming loans were $157.6 million, or 1.21% of loans, net of unearned income, down from nonperforming loans of $168.7 million, or 1.30% of loans, net of unearned income, at December 31, 2017. As of March 31, 2018, the allowance for loan losses was $76.7 million or 0.59% of loans, net of unearned income, as compared to $76.6 million or 0.59% of loans, net of unearned income, at December 31, 2017. Total nonperforming assets of $180.4 million, including OREO of $22.8 million at March 31, 2018, represented 0.97% of total assets as compared to nonperforming assets of $193.1 million or 1.01% at December 31, 2017.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 14.6% at March 31, 2018 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.4%, 12.4% and 10.5%, respectively. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.

As of March 31, 2018, United had consolidated assets of approximately $18.6 billion with full service offices in West Virginia, Virginia, Maryland, Ohio, Pennsylvania and Washington, D.C. United Bankshares 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 March 31, 2018 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 March 31, 2018 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, the allowance for loan losses as a percentage of non-acquired loans, 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 35%.

In accordance with accounting rules, United is unable to carry-over an acquired banking company’s previously established allowance for loan losses because acquired loans are recorded at fair value. Therefore, due to this acquisition accounting impact on the allowance for loans losses as well as loans, net of unearned income, management believes that excluding acquired loans in the calculation of the allowance for loan losses as a percentage of loans, net of unearned income reflects the difference in the accounting rules for acquired loans and originated loans as well as provides for improved comparability to prior periods and to other financial institutions without acquired loans.

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

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

Forward-Looking Statements

This press release contains certain forward-looking statements, including certain plans, expectations, goals and projections, which are subject to numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by such statements for a variety of factors including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.

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