United Bankshares(UBSI) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis of financial condition and operations, market risk disclosures, and internal controls Financial Statements Financial statements reflect significant asset and equity growth, driven by the Carolina Financial acquisition, with Q3 2020 net income rising to $103.78 million Consolidated Balance Sheets Total assets significantly increased to $25.93 billion by September 30, 2020, primarily driven by the Carolina Financial acquisition, leading to substantial growth in loans, deposits, and equity Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $25,931,308 | $19,662,324 | | Total cash and cash equivalents | $1,656,533 | $837,493 | | Net loans and leases | $17,704,419 | $13,635,072 | | Goodwill | $1,794,886 | $1,478,014 | | Total Liabilities | $21,663,867 | $16,298,491 | | Total deposits | $20,251,539 | $13,852,421 | | FHLB borrowings | $645,249 | $1,851,865 | | Total Shareholders' Equity | $4,267,441 | $3,363,833 | Consolidated Statements of Income Q3 2020 net income increased to $103.8 million, driven by strong mortgage banking income, while nine-month net income remained flat due to higher credit loss provisions and merger expenses Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $185,664 | $141,918 | $497,784 | $436,639 | | Provision for credit losses | $16,781 | $5,033 | $89,811 | $15,446 | | Total other income | $135,468 | $42,224 | $260,664 | $113,242 | | Income from mortgage banking | $109,457 | $24,019 | $195,301 | $59,404 | | Total other expense | $171,593 | $96,134 | $422,100 | $285,754 | | Net Income | $103,784 | $65,965 | $196,653 | $196,814 | | Diluted EPS | $0.80 | $0.65 | $1.68 | $1.93 | Consolidated Statement of Changes in Shareholders' Equity Shareholders' equity increased by $903.6 million to $4.27 billion, primarily driven by share issuance for the Carolina Financial acquisition, partially offset by CECL adoption and dividends - The acquisition of Carolina Financial Corporation in Q2 2020 added $817.8 million to equity through the issuance of 28,031,501 shares[18] - The adoption of the new credit loss standard (ASU 2016-13) on January 1, 2020, resulted in a cumulative effect adjustment that reduced retained earnings by $44.3 million[18] - Cash dividends paid to common shareholders totaled $117.3 million for the nine months ended September 30, 2020[18][23] Condensed Consolidated Statements of Cash Flows Cash and cash equivalents increased by $819.0 million for the nine months ended September 30, 2020, primarily driven by financing activities, offsetting uses in operating and investing activities Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(45,337) | $90,956 | | Net Cash Used in Investing Activities | $(24,637) | $(286,845) | | Net Cash Provided by Financing Activities | $889,014 | $151,647 | | Increase (decrease) in cash and cash equivalents | $819,040 | $(44,242) | Notes to Consolidated Financial Statements The notes detail significant accounting policies, the Carolina Financial acquisition, CECL adoption, and provide breakdowns of investment portfolio, loan quality, and segment performance Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of COVID-19, the Carolina Financial acquisition, and CECL adoption on financial condition and operating results, highlighting asset growth and Q3 2020 net income - The COVID-19 pandemic severely impacted operations, increasing credit loss provisions, with United processing nearly 9,000 PPP loans totaling over $1.29 billion[261][266] - The Carolina Financial acquisition on May 1, 2020, added $5.0 billion in assets and resulted in $53.68 million in merger-related expenses for the first nine months of 2020[276][278] - The adoption of the CECL standard (ASU 2016-13) on January 1, 2020, increased the allowance for credit losses by $57.44 million and decreased retained earnings by $44.33 million[274] Financial Condition Total assets grew 31.9% to $25.93 billion by September 30, 2020, driven by the Carolina Financial acquisition and PPP loans, with significant increases in loans, deposits, and equity Change in Key Balance Sheet Items (in billions) | Account | Sep 30, 2020 | Dec 31, 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $25.93 | $19.66 | $6.27 | 31.88% | | Portfolio Loans & Leases | $17.93 | $13.71 | $4.22 | 30.76% | | Deposits | $20.25 | $13.85 | $6.40 | 46.19% | | Borrowings | $1.07 | $2.21 | $(1.14) | (51.51%) | | Shareholders' Equity | $4.27 | $3.36 | $0.91 | 26.86% | Results of Operations Q3 2020 net income rose to $103.8 million due to strong noninterest income, primarily mortgage banking, offsetting higher credit loss provisions and noninterest expenses - Net interest income for Q3 2020 increased 30.8% to $185.7 million, driven by higher earning assets from the Carolina Financial acquisition and lower funding costs[337] - Provision for credit losses for the first nine months of 2020 significantly increased to $89.8 million due to CECL adoption and adverse COVID-19 economic forecasts[339] - Noninterest income for Q3 2020 grew 220.8% to $135.5 million, primarily due to an $85.4 million increase in mortgage banking income[387][388] - Noninterest expense for the first nine months of 2020 increased 47.7% to $422.1 million, driven by $53.7 million in merger-related expenses and $10.4 million in FHLB prepayment penalties[394][403][404] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, with simulations showing sensitivity to rate changes, and management actively monitors extension risk in its mortgage-related securities portfolio Estimated Net Interest Income Sensitivity | Change in Interest Rates (bps) | % Change in NII (Sep 30, 2020) | % Change in NII (Dec 31, 2019) | | :--- | :--- | :--- | | +200 | (2.90%) | (2.37%) | | +100 | (1.80%) | (1.09%) | | -100 | 0.50% | 0.86% | - The company's $1.4 billion mortgage-related securities portfolio is structured to mitigate extension risk, with fixed-rate CMOs having a limited average life extension even in a significant rate shock[438][439] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2020[446] - No material changes to internal control over financial reporting occurred during the third quarter of 2020[448] PART II. OTHER INFORMATION This section provides disclosures on legal proceedings, updated risk factors, unregistered equity sales, and a list of filed exhibits Legal Proceedings The company is involved in various legal proceedings, which management expects to resolve without material effect on its financial position - United and its subsidiaries are involved in various legal proceedings arising from the normal course of business, which are not expected to have a material effect on the company's financial position[450] Risk Factors The company supplements existing risk factors with new disclosures concerning the COVID-19 pandemic, mortgage servicing obligations, and Paycheck Protection Program participation - The COVID-19 pandemic continues to pose a significant risk, with potential adverse effects on business, financial condition, and results of operations due to economic uncertainty and market volatility[452] - The company faces risks related to its mortgage servicing operations, including potential termination as a servicer or requirements to repurchase loans if servicing obligations are not met[458][462] - As a participating lender in the Paycheck Protection Program (PPP), the company is subject to litigation risk and the risk that the SBA may not fully honor loan guarantees[464][466] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, United repurchased 6 shares of common stock for a deferred compensation plan, with 4,000,000 shares remaining available under the 2019 repurchase plan Share Repurchases in Q3 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 2020 | 0 | $0.00 | | Aug 2020 | 6 | $26.08 | | Sep 2020 | 0 | $0.00 | | Total | 6 | $26.08 | - As of September 30, 2020, 4,000,000 shares may yet be purchased under the 2019 publicly announced repurchase plan[469] Exhibits This section lists exhibits filed with the Form 10-Q, including the merger agreement, corporate governance documents, and CEO/CFO certifications - Key exhibits filed include the CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and the Interactive Data File (iXBRL)[474]