United Bankshares(UBSI) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the unaudited consolidated interim financial statements and management's discussion and analysis for United Bankshares, Inc Item 1. Financial Statements (Unaudited) This section presents United Bankshares' unaudited consolidated interim financial statements and comprehensive notes for Q1 2023 and year-end 2022 Consolidated Balance Sheets (Unaudited) Total assets increased to $30.18 billion at March 31, 2023, driven by higher cash and loans, with corresponding increases in liabilities and equity | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Total Assets | $30,182,241 | $29,489,380 | | Total Liabilities | $25,575,704 | $24,973,187 | | Total Shareholders' Equity | $4,606,537 | $4,516,193 | - Cash and cash equivalents significantly increased from $1,176.65 million at December 31, 2022, to $1,918.69 million at March 31, 2023[12] - Total deposits slightly decreased from $22,303.17 million at December 31, 2022, to $22,284.59 million at March 31, 2023, while FHLB borrowings increased from $1,910.78 million to $2,510.70 million[12] Consolidated Statements of Income (Unaudited) Net income rose to $98.31 million in Q1 2023, primarily due to increased net interest income, despite higher credit loss provisions | Metric (Dollars in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Interest income | $329,303 | $202,795 | | Interest expense | $94,983 | $11,293 | | Net interest income | $234,320 | $191,502 | | Provision for credit losses | $6,890 | $(3,410) | | Other income | $32,744 | $46,025 | | Other expense | $137,419 | $139,175 | | Net income | $98,307 | $81,664 | | Basic EPS | $0.73 | $0.60 | | Diluted EPS | $0.73 | $0.60 | - Net interest income increased by $42.82 million (22.36%) year-over-year, primarily due to a significant rise in interest income on loans and short-term investments, partially offset by higher interest expense on deposits and borrowings[13] - The provision for credit losses shifted from a net benefit of $3.41 million in Q1 2022 to an expense of $6.89 million in Q1 2023[13] Consolidated Statements of Comprehensive Income (Unaudited) Comprehensive income significantly improved to $136.91 million in Q1 2023, driven by positive changes in available-for-sale securities | Metric (Dollars in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $98,307 | $81,664 | | Change in net unrealized gain (loss) on AFS securities, net of tax | $45,157 | $(155,113) | | Change in net unrealized (loss) gain on cash flow hedge, net of tax | $(7,157) | $17,668 | | Change in defined benefit pension plan, net of tax | $602 | $641 | | Comprehensive income (loss), net of tax | $136,909 | $(55,140) | - The substantial improvement in comprehensive income was primarily due to a positive swing of $45.16 million in net unrealized gain on available-for-sale securities in Q1 2023, compared to a $155.11 million loss in Q1 2022[15] Consolidated Statement of Changes in Shareholders' Equity (Unaudited) Shareholders' equity increased to $4.61 billion, primarily from net income and other comprehensive income, offset by dividends and stock repurchases | Metric (Dollars in thousands) | March 31, 2023 | January 1, 2023 | | :---------------------------- | :------------- | :-------------- | | Total Shareholders' Equity | $4,606,537 | $4,516,193 | | Net income | $98,307 | N/A | | Other comprehensive income, net of tax | $38,602 | N/A | | Cash dividends | $(48,720) | N/A | | Purchase of treasury stock | $(1,374) | N/A | - Accumulated other comprehensive loss improved from $(332.73 million) at January 1, 2023, to $(294.13 million) at March 31, 2023[16] Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flow decreased, while investing activities shifted to a net inflow and financing activities increased due to FHLB borrowings | Metric (Dollars in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $118,154 | $283,607 | | Net cash provided by (used in) investing activities | $91,434 | $(1,303,597) | | Net cash provided by financing activities | $532,453 | $64,913 | | Increase (Decrease) in cash and cash equivalents | $742,041 | $(955,077) | | Cash and cash equivalents at end of period | $1,918,693 | $2,803,093 | - Investing activities saw a major turnaround, moving from a net outflow of $1.30 billion in Q1 2022 (due to $1.08 billion in purchases of securities available for sale) to a net inflow of $91.43 million in Q1 2023 (with only $7.86 million in purchases)[18] - Financing activities were significantly boosted by $2.50 billion in proceeds from issuance of long-term Federal Home Loan Bank borrowings in Q1 2023, compared to none in Q1 2022[18] Notes to Consolidated Financial Statements (Unaudited) Detailed notes cover accounting policies, financial instruments, credit quality, and segment performance, including new accounting standard adoptions 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the basis of presentation for interim financial statements and the adoption of new accounting standards with no material impact - United operates in two business segments: community banking and mortgage banking[21] - ASU 2022-02, 'Troubled Debt Restructurings and Vintage Disclosures,' was adopted on January 1, 2023, and did not materially impact financial condition or results but affected disclosures[27] - United is prioritizing SOFR and Prime as preferred alternatives to LIBOR, with a transition plan in place to modify LIBOR-influenced financial instruments[25][31] 2. INVESTMENT SECURITIES Available-for-sale securities decreased to $4.42 billion, with significant unrealized losses due to rising interest rates, though no credit impairment is expected | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Securities available for sale (Fair Value) | $4,419,413 | $4,541,925 | | Gross Unrealized Losses (AFS) | $411,192 | $470,062 | | Securities held to maturity (Amortized Cost) | $1,002 | $1,002 | | Equity securities (Fair Value) | $7,792 | $7,629 | - Gross unrealized losses on available-for-sale securities were $411.19 million at March 31, 2023, primarily due to rising interest rates[38][39] - The majority of the state and political subdivisions portfolio (53%) is supported by general obligation, with most rated AA or higher, and no securities below investment grade[40] - Agency mortgage-backed securities (Fannie Mae, Freddie Mac, Ginnie Mae) totaling $1.93 billion amortized cost had no credit losses due to agency guarantees[43] 3. LOANS AND LEASES Total gross loans and leases increased slightly to $20.61 billion, with growth in commercial loans offsetting declines in construction and consumer segments | Loan Class (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Commercial, financial and agricultural | $11,754,726 | $11,624,469 | | Residential real estate | $4,759,488 | $4,662,911 | | Construction & land development | $2,808,253 | $2,926,971 | | Consumer | $1,308,431 | $1,365,812 | | Total gross loans, net of unearned income | $20,612,159 | $20,558,166 | - Nonowner-occupied commercial real estate loans increased by $248.61 million, while other commercial loans decreased by $101.63 million[55] - Loans held for sale increased to $68.18 million at March 31, 2023, from $56.88 million at December 31, 2022[56] 4. CREDIT QUALITY Total past due and nonaccrual loans decreased, with minimal loan modifications for financial difficulty, indicating stable credit quality | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Total Past Due Loans and Leases | $114,356 | $141,047 | | Nonaccrual Loans and Leases | $29,296 | $30,871 | | Collateral Dependent Loans and Leases | $49,403 | $58,575 | - Loan modifications for borrowers experiencing financial difficulty in Q1 2023 included $95 thousand for term extensions (residential real estate) and $1.77 million for interest rate reductions (nonowner-occupied commercial real estate)[63] - Risk categories for loans include Pass, Special Mention, Substandard, and Doubtful, with specific criteria for corporate and consumer credit exposures[73][74][75][76][77] 5. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses increased to $289.28 million, driven by qualitative factors and economic forecasts, particularly for office and construction portfolios | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Allowance for Loan and Lease Losses | $240,491 | $234,746 | | Reserve for lending-related commitments | $48,789 | $46,189 | | Total Allowance for Credit Losses | $289,280 | $280,935 | | Provision for credit losses (Q1 2023) | $6,890 | N/A | | Net charge-offs (Q1 2023) | $2,936 | N/A | | Net recoveries (Q1 2023) | $1,791 | N/A | - Qualitative adjustments for Q1 2023 considered inflation, interest rates, regulatory environment, and geopolitical conflict, with a downward shift in real GDP forecasts for 2023 and 2024[101] - Greater risk of loss is probable in the office portfolio due to hybrid/remote work and in the construction portfolio due to weakened economic conditions[103] 6. INTANGIBLE ASSETS Goodwill remained stable at $1.89 billion, while core deposit intangibles decreased due to amortization, with Q1 2023 expense at $1.28 million | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Goodwill | $1,888,889 | $1,888,889 | | Core deposit intangible assets (net) | $16,342 | $17,621 | | Amortization expense (Q1 2023) | $1,279 | N/A | - Anticipated amortization expense for intangible assets is projected to be $5.12 million for the remainder of 2023 and $3.64 million in 2024[106] 7. MORTGAGE SERVICING RIGHTS Net MSRs decreased to $19.99 million due to amortization, with no temporary impairments recorded in Q1 2023 | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | MSRs ending balance | $19,987 | $21,022 | | Estimated fair value of MSRs | $39,699 | $41,880 | | Unpaid principal balance of loans serviced for others | $3,280,741 | $3,381,485 | - MSRs are amortized in proportion to estimated net servicing income, with amortization expense of $945 thousand in Q1 2023[108][114] - Fair value of MSRs at March 31, 2023, was determined using a weighted average discount rate of 10.60% and a weighted average prepayment rate (CPR) of 5.79%[112] 8. LEASES Operating lease ROU assets were $76.88 million and liabilities $81.39 million, with a net lease cost of $5.33 million for Q1 2023 | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $76,884 | $71,144 | | Operating lease liabilities | $81,394 | $75,749 | | Net lease cost (Q1 2023) | $5,332 | N/A | - The weighted-average remaining lease term for operating leases is 6.82 years, with a weighted-average discount rate of 2.48% at March 31, 2023[120] - Total lease payments for operating leases are projected to be $88.47 million, with $14.88 million due in 2023[120] 9. SHORT-TERM BORROWINGS Short-term borrowings increased to $170.09 million, primarily from repurchase agreements, with available unused lines of credit totaling $250 million | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Securities sold under agreements to repurchase | $170,094 | $160,698 | | Total short-term borrowings | $170,094 | $160,698 | - United has $230 million in unused lines of credit from correspondent banks and a $20 million unsecured revolving line of credit, all available at March 31, 2023[122][123] 10. LONG-TERM BORROWINGS Long-term borrowings significantly increased to $2.79 billion, mainly due to a $599.93 million rise in FHLB borrowings, with trust preferred securities classified as Tier 2 capital | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | FHLB borrowings | $2,510,703 | $1,910,775 | | Other long-term borrowings (Trust Preferred Securities) | $277,400 | $286,881 | | Total Long-Term Borrowings | $2,788,103 | $2,197,656 | - FHLB borrowings with a weighted-average contractual interest rate of 4.84% are scheduled to mature within the next two years, with $2.50 billion maturing in 2023[125][126] - Trust preferred securities are included as a component of United's Tier 2 capital[128] 11. COMMITMENTS AND CONTINGENT LIABILITIES Off-balance-sheet commitments include $7.37 billion in loan commitments and $151.78 million in standby letters of credit, with no material impact expected from legal proceedings | Commitment Type (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------------------- | :------------- | :---------------- | | Loan commitments | $7,370,125 | $7,250,155 | | Standby letters of credit | $151,778 | $147,511 | | Commercial letters of credit | $16,389 | $16,389 | | Mortgage banking segment reserve | $1,081 | $1,081 | - Approximately 37% of loan commitments contractually expire within one year[131] - Management believes all legal proceedings will be resolved with no material effect on United's financial statements[137] 12. DERIVATIVE FINANCIAL INSTRUMENTS United uses derivatives like interest rate swaps to manage risk, with total asset derivatives at $5.28 million and liability derivatives at $567 thousand | Derivative Type (Dollars in thousands) | March 31, 2023 Fair Value | December 31, 2022 Fair Value | | :------------------------------------- | :------------------------ | :--------------------------- | | Total Asset Derivatives | $5,283 | $5,550 | | Total Liability Derivatives | $567 | $561 | | Notional Amount (Asset Derivatives) | $666,395 | $666,609 | | Notional Amount (Liability Derivatives) | $107,014 | $111,949 | - Interest rate swap contracts designated as cash flow hedges have a notional amount of $500 million, hedging FHLB borrowings, with an estimated $21.78 million to be reclassified from AOCI as a decrease to interest expense over the next 12 months[142][148] - The effect of derivatives on the Consolidated Statements of Income for Q1 2023 was a net gain of $5.02 million, compared to $5.71 million in Q1 2022[152] 13. FAIR VALUE MEASUREMENTS Financial instruments are measured using a three-level hierarchy, with available-for-sale securities primarily Level 1 or 2, and loans held for sale using Level 2 and 3 inputs | Asset/Liability (Dollars in thousands) | March 31, 2023 Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :------------------------ | :------ | :------ | :------ | | Total available for sale securities | $4,419,413 | $5,326 | $4,414,087 | $0 | | Total equity securities | $7,792 | $7,792 | $0 | $0 | | Loans held for sale | $68,176 | $0 | $7,912 | $60,264 | | Total derivative financial assets | $5,283 | $0 | $3,742 | $1,541 | | Total derivative financial liabilities | $567 | $0 | $84 | $483 | - For loans held for sale, Level 3 valuations incorporate the Company's historical sales prices, which increased the investor's indicated pricing by 0.03% to 0.96% (weighted average 0.13%) at March 31, 2023[160] - Individually assessed loans and OREO are measured at fair value on a nonrecurring basis, with real estate collateral typically valued using independent appraisals (Level 2) or BPOs (Level 3)[176][177][178] 14. STOCK BASED COMPENSATION Compensation expense for Q1 2023 was $2.71 million, with 1.44 million stock options and 347,882 nonvested restricted shares outstanding | Metric (Shares) | March 31, 2023 | January 1, 2023 | | :---------------- | :------------- | :-------------- | | Stock Options Outstanding | 1,442,973 | 1,501,212 | | Nonvested Restricted Stock | 347,882 | 373,220 | | Nonvested RSUs | 405,615 | 266,159 | - Compensation expense for Q1 2023 was $2.71 million, up from $2.06 million in Q1 2022[191] - Unrecognized compensation cost for nonvested stock options was $270 thousand (0.9 years recognition period), for restricted stock was $11.84 million (1.5 years), and for RSUs was $11.13 million (1.5 years)[194][195][198] 15. EMPLOYEE BENEFIT PLANS Net periodic pension cost was $75 thousand in Q1 2023, a shift from a net benefit in Q1 2022, due to higher interest cost and lower expected asset returns | Metric (Dollars in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Service cost | $461 | $703 | | Interest cost | $1,736 | $1,208 | | Expected return on plan assets | $(2,897) | $(3,193) | | Net periodic pension cost (benefit) | $75 | $(458) | - The discount rate for the pension plan increased to 5.25% in Q1 2023 from 3.08% in Q1 2022, while the expected return on assets increased to 7.25% from 6.25%[202] 16. INCOME TAXES The effective tax rate for Q1 2023 was 19.92%, with an accrued interest liability of $525 thousand for uncertain tax positions - Effective tax rate for Q1 2023 was 19.92%, compared to 19.75% for Q1 2022[206] - Accrued interest related to uncertain tax positions was $525 thousand at March 31, 2023[204] 18. COMPREHENSIVE INCOME Total comprehensive income significantly improved to $136.91 million, driven by positive changes in unrealized gains on available-for-sale securities | Component (Dollars in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income | $98,307 | $81,664 | | Net effect of AFS securities on other comprehensive income | $45,157 | $(155,113) | | Net effect of cash flow hedge derivatives on other comprehensive income | $(7,157) | $17,668 | | Total Comprehensive Income (Loss) | $136,909 | $(55,140) | - Accumulated Other Comprehensive Income (AOCI) increased from $(332.73 million) at January 1, 2023, to $(294.13 million) at March 31, 2023, mainly due to unrealized gains on AFS securities[209] 18. EARNINGS PER SHARE Basic and diluted EPS increased to $0.73 in Q1 2023, with average diluted shares outstanding decreasing to 134.84 million | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----- | :-------------------------------- | :-------------------------------- | | Earnings per basic common share | $0.73 | $0.60 | | Earnings per diluted common share | $0.73 | $0.60 | | Average diluted shares outstanding | 134,840,328 | 136,435,229 | - Antidilutive stock options and restricted stock of 563,127 shares were excluded from diluted EPS calculation in Q1 2023, compared to 1,143,182 shares in Q1 2022[212] 19. VARIABLE INTEREST ENTITIES United sponsors twenty statutory business trusts and has limited partner equity investments, with maximum loss exposure of $11.39 million and $76.87 million respectively - United sponsors twenty statutory business trusts, with total capital securities issued ranging from $4 million to $50 million, primarily linked to LIBOR or Prime rates[215][217] | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Investment in statutory trusts (maximum exposure to loss) | $11,388 | $11,277 | | Investment in low income housing and community development partnerships (maximum exposure to loss) | $76,870 | $75,021 | | Related unfunded commitments | $75,956 | $77,143 | 20. SEGMENT INFORMATION Community banking reported $104.69 million net income, while mortgage banking incurred a $1.68 million net loss in Q1 2023 | Segment (Dollars in thousands) | Net Income (Loss) Q1 2023 | Net Income (Loss) Q1 2022 | | :----------------------------- | :------------------------ | :------------------------ | | Community Banking | $104,692 | $83,025 | | Mortgage Banking | $(1,678) | $209 | | Other | $(4,707) | $(1,570) | | Consolidated | $98,307 | $81,664 | - Community banking net interest income increased by $46.58 million (24.56%) year-over-year in Q1 2023[283] - Mortgage banking noninterest income decreased by $12.54 million in Q1 2023 compared to Q1 2022, mainly due to decreased loan sales in a rising interest rate environment[288] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes United's financial condition and operational results, highlighting asset growth, deposit shifts, increased borrowings, and improved net income FORWARD-LOOKING STATEMENTS Forward-looking statements involve risks and uncertainties, and actual results may differ from expectations, with no obligation for public updates - Forward-looking statements are identified by words like 'expect,' 'may,' 'could,' 'intend,' 'project,' 'estimate,' 'believe,' 'anticipate,' and similar meanings[226] - Undue reliance should not be placed on these estimates and statements as actual results may differ[226] TRANSITION FROM THE LONDON INTERBANK OFFERED RATE (LIBOR) United is actively transitioning from LIBOR to SOFR and Prime, ceasing new LIBOR contracts and managing associated risks - ICE Benchmark Administration will cease publication of key U.S. Dollar LIBOR settings on June 30, 2023[227] - United ceased new LIBOR contracts after December 31, 2021, and prioritizes SOFR and Prime as alternatives[227][229] - The transition poses risks related to payment calculations, models, systems, and potential reputational impact[230] INTRODUCTION This section introduces the discussion and analysis of United's financial condition and results of operations, to be read with financial statements - The discussion covers significant changes in financial condition and results of operations for United Bankshares, Inc. and its wholly-owned subsidiaries[231] USE OF NON-GAAP FINANCIAL MEASURES United uses non-GAAP measures like tax-equivalent net interest income and return on average tangible equity for additional performance insights - Tax-equivalent net interest income adjusts for the tax-favored status of certain income, providing better comparability[236] - Return on average tangible equity is calculated as GAAP total shareholders' equity minus total intangible assets, offering a more conservative valuation[237] - Non-GAAP information is supplemental and not a substitute for GAAP, and may not be comparable to other companies' measures[238] APPLICATION OF CRITICAL ACCOUNTING POLICIES United's critical accounting policies, including allowance for credit losses and fair value measurements, remained unchanged from the 2022 Annual Report - Critical accounting policies requiring subjective judgments include the allowance for loan and lease losses, income tax provision, and fair value measurements[239] - These policies were unchanged from the 2022 Annual Report on Form 10-K[240] FINANCIAL CONDITION Total assets increased to $30.18 billion, driven by higher cash and loans, while liabilities rose due to borrowings, and shareholders' equity grew Cash and Cash Equivalents Cash and cash equivalents significantly increased by $742.04 million to $1.92 billion, primarily due to higher interest-bearing deposits with other banks | Metric (Dollars in millions) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total cash and cash equivalents | $1,918.69 | $1,176.65 | $742.04 | 63.06% | | Interest-bearing deposits with other banks | $1,607.57 | $881.42 | $726.15 | 82.38% | - Interest-bearing deposits with other banks increased by $726.15 million (82.38%) to $1.61 billion at March 31, 2023[243] Securities Total investment securities decreased by $95.02 million to $4.77 billion, with available-for-sale securities declining due to sales and market value changes | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :---------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total investment securities | $4,777,585 | $4,872,596 | $(95,011) | (1.95%) | | Securities available for sale | $4,419,413 | $4,541,925 | $(122,512) | (2.70%) | | Other investment securities | $349,380 | $322,048 | $27,332 | 8.49% | - Gross unrealized losses on available for sale securities were $411.19 million at March 31, 2023, primarily on agency residential mortgage-backed, state and political subdivision, and corporate securities[246] Loans Held for Sale Loans held for sale increased by $11.30 million to $68.18 million as originations exceeded sales in Q1 2023 | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :---------------------------- | :------------- | :---------------- | :--------- | :--------- | | Loans held for sale | $68,176 | $56,879 | $11,297 | 19.86% | - Q1 2023 loan originations for sale were $177.81 million, while loan sales were $166.51 million[254] Portfolio Loans Portfolio loans increased slightly by $53.99 million to $20.61 billion, driven by commercial loans, partially offset by decreases in construction and consumer segments | Loan Class (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Commercial, financial, and agricultural | $11,754,726 | $11,624,469 | $130,257 | 1.12% | | Construction & land development | $2,808,253 | $2,926,971 | $(118,718) | (4.06%) | | Consumer loans | $1,308,431 | $1,365,812 | $(57,381) | (4.20%) | | Total Loans, net of unearned income | $20,612,159 | $20,558,166 | $53,993 | 0.26% | - Nonowner-occupied commercial real estate loans increased by $248.62 million (3.95%), while other commercial loans decreased by $101.63 million (2.81%)[257] Other Assets Other assets decreased by $20.57 million from year-end 2022, primarily due to decreases in deferred tax assets, income tax receivable, and core deposit intangibles, partially offset by an increase in other real estate owned (OREO) properties | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :---------------------------- | :------------- | :---------------- | :--------- | :--------- | | Other assets | $283,961 | $304,535 | $(20,574) | (6.76%) | - Deferred tax assets decreased by $16.60 million, and income tax receivable decreased by $5.54 million[258] - OREO properties increased by $2.03 million[258] Deposits Total deposits slightly decreased by $18.58 million, with a shift from noninterest-bearing to interest-bearing deposits, particularly time deposits | Deposit Type (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :---------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Noninterest-bearing deposits | $6,707,660 | $7,199,678 | $(492,018) | (6.83%) | | Interest-bearing deposits | $15,576,926 | $15,103,488 | $473,438 | 3.13% | | Total deposits | $22,284,586 | $22,303,166 | $(18,580) | (0.08%) | - Time deposits over $100,000 increased significantly by $887.84 million (76.22%), driven by brokered CDs and fixed-rate CDs[264][265] - NOW accounts decreased by $273.97 million (5.35%), and regular savings accounts decreased by $99.48 million (5.81%)[261][265] Borrowings Total borrowings increased by $599.84 million to $2.96 billion at March 31, 2023, from year-end 2022. This was primarily driven by a $599.93 million increase in long-term FHLB advances, while subordinated debt was fully redeemed | Borrowing Type (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :------------------------------------ | :------------- | :---------------- | :--------- | :--------- | | Short-term securities sold under agreements to repurchase | $170,094 | $160,698 | $9,396 | 5.85% | | Long-term FHLB advances | $2,510,703 | $1,910,775 | $599,928 | 31.40% | | Subordinated debt | $0 | $9,892 | $(9,892) | (100.00%) | | Issuances of trust preferred capital securities | $277,400 | $276,989 | $411 | 0.15% | | Total borrowings | $2,958,197 | $2,358,354 | $599,843 | 25.43% | - Long-term FHLB advances increased by $599.93 million (31.40%) to $2.51 billion at March 31, 2023[12][267] Accrued Expenses and Other Liabilities Accrued expenses and other liabilities increased by $13.01 million to $202.74 million at March 31, 2023. This was mainly due to higher interest payable, business franchise taxes, and accrued mortgage escrow liabilities, partially offset by a decrease in incentives payables | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :---------------------------- | :------------- | :---------------- | :--------- | :--------- | | Accrued expenses and other liabilities | $202,738 | $189,729 | $13,009 | 6.86% | - Interest payable increased by $7.32 million due to higher CDs, FHLB advances, and rising interest rates[268] Shareholders' Equity Shareholders' equity increased by $90.34 million to $4.61 billion at March 31, 2023. This growth was primarily driven by an increase in retained earnings from net income less dividends and a positive change in accumulated other comprehensive income due to the fair value of available-for-sale securities | Metric (Dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :---------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Shareholders' Equity | $4,606,537 | $4,516,193 | $90,344 | 2.00% | | Retained earnings | $1,625,013 | $1,575,426 | $49,587 | 3.15% | | Accumulated other comprehensive loss | $(294,130) | $(332,732) | $38,602 | 11.60% | - Retained earnings increased by $49.59 million (3.15%) to $1.63 billion at March 31, 2023[12][270] | Metric (Dollars in millions) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Assets | $30,182.24 | $29,489.38 | $692.86 | 2.35% | | Total Liabilities | $25,575.70 | $24,973.19 | $602.52 | 2.41% | | Total Shareholders' Equity | $4,606.54 | $4,516.19 | $90.34 | 2.00% | RESULTS OF OPERATIONS Net income for Q1 2023 increased to $98.31 million from $81.66 million in Q1 2022, primarily due to higher net interest income driven by rising market interest rates and loan growth. This was partially offset by an increased provision for credit losses and decreased noninterest income from mortgage banking. The Company maintained strong profitability metrics, with an annualized return on average assets of 1.35% and return on average tangible equity of 14.97% Overview Net income for Q1 2023 was $98.31 million, up from $81.66 million in Q1 2022, driven by higher net interest income from rising rates and loan growth. Diluted EPS increased to $0.73 from $0.60. Profitability ratios like return on average assets and tangible equity also improved year-over-year - Net interest income increased by $42.82 million (22.36%) year-over-year, but decreased by $15.08 million (6.05%) linked-quarter[275] - Provision for credit losses increased to $6.89 million in Q1 2023 from a net benefit of $3.41 million in Q1 2022, but declined $9.48 million linked-quarter[276] - Noninterest income decreased by $13.28 million (28.86%) year-over-year, mainly due to lower mortgage banking income, but increased $1.87 million (6.04%) linked-quarter[277] Business Segments Community banking net income increased to $104.69 million in Q1 2023, primarily due to higher net interest income. The mortgage banking segment, however, reported a net loss of $1.68 million, a decline from net income in the prior year, mainly due to decreased noninterest income from lower mortgage loan origination and sales volume | Segment (Dollars in thousands) | Net Income (Loss) Q1 2023 | Net Income (Loss) Q1 2022 | | :----------------------------- | :------------------------ | :------------------------ | | Community Banking | $104,692 | $83,025 | | Mortgage Banking | $(1,678) | $209 | - Community banking net interest income increased by $46.58 million (24.56%) year-over-year, but decreased $13.50 million linked-quarter due to higher interest expense[283] - Mortgage banking noninterest income decreased by $12.54 million year-over-year due to reduced sales volume and lower margins[288] Net Interest Income Net interest income, on a tax-equivalent basis, increased by $42.84 million (22.24%) to $235.46 million in Q1 2023 compared to Q1 2022, driven by rising market interest rates and organic loan growth. However, it decreased by $15.10 million (6.03%) linked-quarter due to higher interest expense from deposit repricing and increased long-term borrowings. The net interest margin improved year-over-year but declined linked-quarter | Metric (Dollars in thousands) | Q1 2023 | Q1 2022 | Q4 2022 | | :---------------------------- | :--------- | :--------- | :--------- | | Net interest income, GAAP basis | $234,320 | $191,502 | $249,404 | | Tax-equivalent net interest income | $235,455 | $192,611 | $250,553 | | Interest Spread | 2.93% | 2.89% | 3.40% | | Net Interest Margin | 3.63% | 2.99% | 3.87% | - Average yield on earning assets increased to 5.10% in Q1 2023 from 3.16% in Q1 2022, but the average cost of funds also rose to 2.17% from 0.27%[302] - Acquisition accounting fair value adjustments contributed $3.12 million to tax-equivalent net interest income in Q1 2023, down from $5.34 million in Q1 2022[298] Provision for Credit Losses The provision for credit losses was $6.89 million in Q1 2023, a significant increase from a net benefit of $3.41 million in Q1 2022, primarily due to increased qualitative adjustments related to collateral values and macroeconomic forecasts. However, it decreased by $9.48 million linked-quarter due to less portfolio loan growth. Nonperforming assets decreased to $46.49 million at March 31, 2023, from $60.69 million at December 31, 2022 | Metric (Dollars in thousands) | Q1 2023 | Q1 2022 | Q4 2022 | | :---------------------------- | :--------- | :--------- | :--------- | | Provision for credit losses | $6,890 | $(3,410) | $16,368 | | Net charge-offs | $1,150 | $(1,980) | $1,230 | | Nonperforming assets | $46,487 | N/A | $60,690 | | Allowance for loan and lease losses to nonperforming loans | 567.18% | N/A | 400.33% | - The allowance for credit losses increased to $289.28 million at March 31, 2023, from $280.94 million at December 31, 2022[312] - Annualized net charge-offs as a percentage of average loans and leases were 0.02% in Q1 2023, compared to net recoveries of (0.04%) in Q1 2022[309] Other Income Noninterest income decreased by $13.28 million (28.86%) to $32.74 million in Q1 2023 compared to Q1 2022, primarily due to a significant decline in income from mortgage banking activities. However, it increased by $1.87 million (6.04%) linked-quarter, mainly due to a higher quarter-end loan pipeline valuation and increased BOLI income | Metric (Dollars in thousands) | Q1 2023 | Q1 2022 | Q4 2022 | | :---------------------------- | :--------- | :--------- | :--------- | | Other income | $32,744 | $46,025 | $30,879 | | Income from mortgage banking activities | $6,384 | $19,203 | $4,624 | - Mortgage loan sales decreased from $1.07 billion in Q1 2022 to $166.51 million in Q1 2023[323] - Fees from deposit services decreased by $786 thousand (7.75%) due to lower overdraft fees[324] Other Expenses Noninterest expense decreased by $1.76 million (1.26%) to $137.42 million in Q1 2023 compared to Q1 2022, primarily due to lower employee compensation from reduced mortgage banking production and headcount. Linked-quarter, noninterest expense was flat, with decreases in employee compensation and other expenses offset by increases in employee benefits and FDIC insurance expense | Metric (Dollars in thousands) | Q1 2023 | Q1 2022 | Q4 2022 | | :---------------------------- | :--------- | :--------- | :--------- | | Other expense | $137,419 | $139,175 | $137,542 | | Employee compensation | $55,414 | $62,621 | $57,534 | | FDIC insurance expense | $4,587 | $2,673 | $3,247 | - Employee compensation decreased by $7.21 million (11.51%) year-over-year[328] - FDIC expense increased by $1.91 million (71.60%) year-over-year due to a higher assessment rate[330] Income Taxes Income tax expense increased by $4.35 million (21.64%) to $24.45 million in Q1 2023 compared to Q1 2022, driven by higher earnings and a higher effective tax rate. Linked-quarter, income tax expense decreased by $2.16 million due to lower earnings and a lower effective tax rate | Metric (Dollars in thousands) | Q1 2023 | Q1 2022 | Q4 2022 | | :---------------------------- | :--------- | :--------- | :--------- | | Income taxes | $24,448 | $20,098 | $26,808 | | Effective tax rate | 19.92% | 19.75% | 21.06% | | Metric (Dollars in millions) | Q1 2023 | Q1 2022 | Q4 2022 | | :---------------------------- | :--------- | :--------- | :--------- | | Net income | $98.31 | $81.66 | $99.77 | | Diluted EPS | $0.73 | $0.60 | $0.74 | | Annualized Return on Average Assets | 1.35% | 1.13% | 1.36% | | Annualized Return on Average Tangible Equity | 14.97% | 11.63% | 15.28% | Liquidity and Capital Resources United maintains strong liquidity and capital, exceeding regulatory thresholds, with increased cash and substantial unused borrowing capacity - Cash and cash equivalents increased by $742.04 million in Q1 2023, with $532.45 million provided by financing activities, mainly FHLB borrowings[340] | Capital Ratio | March 31, 2023 | Regulatory Well-Capitalized Threshold | | :------------ | :------------- | :------------------------------------ | | Risk-based capital ratio | 14.70% | 10.0% | | Common Equity Tier 1 capital ratio | 12.53% | 6.5% | | Tier 1 capital ratio | 12.53% | 8.0% | | Leverage ratio | 10.78% | 5.0% | - United had an unused borrowing amount of approximately $5.82 billion at the FHLB and $230 million in unused correspondent bank lines of credit at March 31, 2023[341] Item 3. Quantitative and Qualitative Disclosures about Market Risk United's primary market risk is interest rate risk, managed through earnings simulations, and the Company also faces extension risk in its mortgage securities portfolio Interest Rate Risk Interest rate risk is United's primary market risk, managed by ALCO using earnings simulation models. At March 31, 2023, a sustained 100 basis point upward shock to the yield curve is estimated to decrease net interest income by 2.84% over one year, while a 100 basis point downward shock would increase it by 1.52%. All estimated changes remain within Board-established policy guidelines - Interest rate risk is the exposure to adverse changes in net interest income from interest rate fluctuations[349] | Change in Interest Rates (basis points) | Percentage Change in Net Interest Income (March 31, 2023) | | :-------------------------------------- | :-------------------------------------------------------- | | +200 | (6.71%) | | +100 | (2.84%) | | -100 | 1.52% | | -200 | 1.45% | - United uses derivative instruments like interest rate swaps to manage interest rate risk[359] Extension Risk United's mortgage-related securities portfolio is exposed to extension risk, where rising interest rates can slow prepayments and extend the effective maturity of securities. At March 31, 2023, the portfolio had an amortized cost of $2.1 billion, with fixed-rate collateralized mortgage obligations (CMOs) making up 44% and showing moderate extension risk - Extension risk arises when rising interest rates decrease prepayment speeds, extending the maturity of mortgage-related securities[360] - At March 31, 2023, United's mortgage-related securities portfolio had an amortized cost of $2.1 billion, with 44% in fixed-rate CMOs[361] - A 300 basis point upward shock would extend the average life of fixed-rate CMOs to 6.6 years and result in a projected price decline of 15.5%[361] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[367] - No material changes in internal control over financial reporting occurred during Q1 2023[369] - Control systems provide reasonable, not absolute, assurance and can be subject to inherent limitations like human error or circumvention[368] PART II. OTHER INFORMATION This part includes information on legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits Item 1. Legal Proceedings United is involved in various legal proceedings, which management believes will not materially affect the Company's financial position - United is involved in various legal proceedings in the normal course of business[372] - Management believes these proceedings will be resolved with no material effect on United's financial position[372] Item 1A. Risk Factors This section refers to comprehensive risk factors detailed in the 2022 Annual Report on Form 10-K, acknowledging potential additional unknown risks - Refer to the Annual Report on Form 10-K for a comprehensive list of risk factors[373] - Additional unknown or currently immaterial risks may also materially adversely affect United's business[373] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred in Q1 2023; United repurchased 33,551 common shares at an average price of $40.94, with a new repurchase plan approved - No unregistered sales of equity securities during Q1 2023[374] | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------- | :------------------------------- | :--------------------------- | | 1/01 – 1/31/2023 | 0 | $0.00 | | 2/01 – 2/28/2023 | 33,551 | $40.94 | | 3/01 – 3/31/2023 | 0 | $0.00 | | Total | 33,551 | $40.94 | - A new 2022 Plan allows for the repurchase of up to 4,750,000 shares of common stock[375] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the quarter ended March 31, 2023 - No defaults upon senior securities[376] Item 4. Mine Safety Disclosures No mine safety disclosures were reported for the quarter ended March 31, 2023 - No mine safety disclosures[377] Item 5. Other Information No other material information was reported in this section, and no changes were made to director nominee recommendation procedures - No changes were made to the procedures by which security holders may recommend nominees to United's Board of Directors[380] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreements, corporate documents, and CEO/CFO certifications - Exhibits include Agreement and Plan of Merger, Amended and Restated Articles of Incorporation, Restated Bylaws, Description of Registrant's Securities, and Certifications by CEO and CFO[378][381] Signatures The report was signed by the Chief Executive Officer and Chief Financial Officer on May 10, 2023 - The report was signed by Richard M. Adams, Jr. (CEO) and W. Mark Tatterson (EVP and CFO) on May 10, 2023[383]