United Bankshares(UBSI) - 2020 Q4 - Annual Report

Part I Business United Bankshares, Inc. is a financial holding company focused on community and mortgage banking, significantly expanding its assets to $26.2 billion in 2020 through strategic acquisition and diverse financial services - United Bankshares, Inc. is a financial holding company with primary businesses in community banking and mortgage banking[16] Financial Snapshot as of December 31, 2020 | Metric | Value (approx.) | | :--- | :--- | | Consolidated Assets | $26.2 billion | | Total Shareholders' Equity | $4.3 billion | - On May 1, 2020, United completed its acquisition of Carolina Financial Corporation, which had $5.0 billion in assets, significantly expanding its presence in the Southeast[18] - The loan and lease portfolio increased by $3.9 billion (28.29%) in 2020, driven by the Carolina Financial acquisition and Paycheck Protection Program (PPP) loans[29] - As of December 31, 2020, the company had approximately 3,051 full-time equivalent employees, with the majority (2,403) in the community banking segment[49] Lending Activities The company's loan portfolio grew significantly in 2020, primarily in commercial and real estate lending, supported by robust underwriting standards Loan and Lease Portfolio Growth in 2020 | Category | Increase (Amount) | Increase (%) | | :--- | :--- | :--- | | Total Loans & Leases | $3.9 billion | 28.29% | | Commercial, financial & agricultural | $3.2 billion | 43.50% | | Construction & land development | $418.1 million | 29.69% | | Residential real estate | $231.5 million | 5.79% | | Consumer loans | $35.2 million | 3.02% | - The commercial loan portfolio is diversified and secured by various assets including equipment, inventory, and real estate. Underwriting standards require comprehensive credit analysis and independent evaluation for larger loans[30] - As of December 31, 2020, commercial loans, including real estate, totaled approximately $12.4 billion. The largest concentration was in real estate and construction, representing 43.4% of the total loan portfolio[38] - In 2020, United originated $6.5 billion of real estate loans for sale in the secondary market and sold $6.3 billion of these loans, realizing net gains of $266.1 million[42] Regulation and Supervision United is extensively regulated by federal and state authorities, adhering to strict capital requirements and financial regulations like Basel III and the Dodd-Frank Act - United is a financial holding company subject to regulation and examination by the Board of Governors of the Federal Reserve System and the West Virginia Board of Banking and Financial Institutions[59][62] - The Dodd-Frank Act significantly changed financial regulation, creating the Consumer Financial Protection Bureau (CFPB) and establishing strengthened capital standards. The subsequent EGRRCPA Act provided some regulatory relief[73][75] - United and United Bank are subject to Basel III Capital Rules, requiring minimum ratios for Common Equity Tier 1 (7.0%), Tier 1 capital (8.5%), and total capital (10.5%), including a capital conservation buffer. The company elected a five-year transition option for the implementation of CECL's impact on regulatory capital[84][88] - As of December 31, 2020, United Bank was considered a "well capitalized" institution under Prompt Corrective Action regulations and received a rating of "outstanding" in its most recent Community Reinvestment Act (CRA) examination[95][96] - The CARES Act, enacted in response to COVID-19, involved United in programs like the Paycheck Protection Program (PPP). The company continues to assess the impact of this and related legislation[99] Risk Factors The company faces significant risks from the COVID-19 pandemic, credit quality deterioration, operational disruptions, interest rate fluctuations, and extensive regulatory compliance - The COVID-19 pandemic has adversely affected and is likely to continue to affect United's business, financial condition, liquidity, and results of operations due to factors like increased unemployment, credit deterioration, and market volatility[113][114] - As a participating lender in the Paycheck Protection Program (PPP), United is subject to risks of litigation regarding loan processing and the risk that the SBA may not fund all loan guarantees[119][121] - The adoption of the Current Expected Credit Loss (CECL) model for the allowance for credit losses introduces complexity and risk, as it requires management judgment based on macroeconomic forecasts, which could impact results and capital levels[124][125] - The company relies heavily on information systems and faces significant operational risks from security breaches, cyber-attacks, and system failures, which could damage its reputation and result in financial liability[132][133] - United is subject to extensive and evolving government regulation, including the Dodd-Frank Act and Basel III capital requirements. Failure to comply could result in sanctions, penalties, and restrictions on dividends and executive compensation[157][162] Properties United operates 210 full-service offices across eight states and D.C., with a mix of owned and leased properties primarily concentrated in West Virginia and the Mid-Atlantic - United operates a total of 210 full-service offices across multiple states in the Mid-Atlantic and Southeast regions[185] Office Distribution by State/Region | State/Region | Number of Offices | | :--- | :--- | | West Virginia | 50 | | Virginia/Maryland/D.C. | 82 | | North Carolina | 47 | | South Carolina | 26 | | Pennsylvania | 4 | | Ohio | 1 | Legal Proceedings The company is involved in routine legal proceedings, which management expects will not materially impact its financial position - The company is involved in various legal proceedings in the normal course of business[188] - Management does not expect these legal proceedings to have a material effect on United's financial position[188] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities United's common stock trades on NASDAQ, with a repurchase plan in place, though its five-year cumulative return underperformed market indices - United's common stock trades on the NASDAQ Global Select Market under the symbol UBSI[195] - In October 2019, the Board of Directors approved a plan to repurchase up to 4,000,000 shares. During 2020, United repurchased 660,000 shares under this plan, with 3,340,000 shares remaining available for repurchase as of December 31, 2020[192] Stock Performance Comparison (Cumulative Total Return) | Period Ending | United Bankshares, Inc. | NASDAQ Bank Index | S&P Mid-Cap Index | | :--- | :--- | :--- | :--- | | 12/31/15 | $100.00 | $100.00 | $100.00 | | 12/31/20 | $106.68 | $140.31 | $178.88 | Selected Financial Data United's five-year financial data shows substantial growth in assets and net income, with consistent dividend increases despite fluctuating EPS and declining ROA/ROE in 2020 Five-Year Selected Financial Data Summary (2016-2020) | (Dollars in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Summary of Operations | | | | | | | Net interest income | $689,773 | $577,922 | $588,645 | $548,997 | $425,331 | | Net income | $289,023 | $260,099 | $256,342 | $150,581 | $147,083 | | Per Common Share | | | | | | | Diluted Net Income | $2.40 | $2.55 | $2.45 | $1.54 | $1.99 | | Cash Dividends | $1.40 | $1.37 | $1.36 | $1.33 | $1.32 | | Selected Ratios | | | | | | | Return on average assets | 1.20% | 1.34% | 1.36% | 0.85% | 1.10% | | Return on average shareholders' equity | 7.30% | 7.80% | 7.84% | 5.09% | 7.67% | | Balance Sheet Data | | | | | | | Total assets | $26,184,247 | $19,662,324 | $19,250,498 | $19,058,959 | $14,508,892 | | Total loans | $17,591,413 | $13,712,129 | $13,422,222 | $13,011,421 | $10,341,137 | | Total deposits | $20,585,160 | $13,852,421 | $13,994,749 | $13,830,591 | $10,796,867 | | Shareholders' equity | $4,297,620 | $3,363,833 | $3,251,624 | $3,240,530 | $2,235,747 | Management's Discussion and Analysis of Financial Condition and Results of Operations United's 2020 performance was driven by the Carolina Financial acquisition and COVID-19 impacts, resulting in increased assets, deposits, and net income, alongside higher credit loss provisions and merger expenses Coronavirus Pandemic The COVID-19 pandemic significantly impacted the economy and United's operations, leading to participation in the PPP and implementation of customer payment deferral programs - The COVID-19 pandemic has had a severe disruptive impact on the U.S. economy, leading to business closures, increased unemployment, and market volatility, which has affected United's operations and financial position[214] - United participated in the Paycheck Protection Program (PPP), processing nearly 9,000 loans totaling over $1.29 billion in 2020 and recognizing $16.26 million in net fee income[220] - In response to the pandemic, United implemented operational changes including restricting travel, closing lobbies to appointment-only, and expanding remote work capabilities[221] - The company executed a payment deferral program for customers affected by the pandemic, modifying 5,967 loans totaling approximately $3.18 billion under the CARES Act. As of year-end, 1,002 of these modifications on $399.86 million of loans remained active[233] Analysis of Financial Condition (2020 vs 2019) United's financial condition improved significantly in 2020, with substantial increases in total assets, loans, and deposits, primarily driven by strategic acquisition and liquidity management Year-End Balance Sheet Comparison (2020 vs. 2019) | (Billions) | Dec 31, 2020 | Dec 31, 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | $26.18 | $19.66 | 33.17% | | Portfolio Loans & Leases | $17.59 | $13.71 | 28.29% | | Total Deposits | $20.59 | $13.85 | 48.60% | | Total Liabilities | $21.89 | $16.30 | 34.29% | | Shareholders' Equity | $4.30 | $3.36 | 27.76% | - Cash and cash equivalents increased by $1.37 billion (163.77%) from year-end 2019, primarily due to increased liquidity placed in an interest-bearing account with the Federal Reserve in response to the COVID-19 pandemic[265] - Total investment securities increased by $516.39 million (19.34%), largely due to the $580.79 million in securities acquired from Carolina Financial[266] - Total borrowings decreased by $1.21 billion (54.50%) as the company paid off $1.02 billion in long-term FHLB advances[290] Results of Operations Net income increased in 2020 due to higher mortgage banking income and the Carolina Financial acquisition, despite significant increases in credit loss provisions and noninterest expenses Key Performance Metrics (2020 vs. 2019) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Income | $289.02 million | $260.10 million | | Diluted EPS | $2.40 | $2.55 | | Return on Average Assets | 1.20% | 1.34% | | Return on Average Equity | 7.30% | 7.80% | - The increase in 2020 net income was primarily due to higher income from mortgage banking activities, which rose by $189.14 million, and the impact of the Carolina Financial acquisition[297][345] - The provision for credit losses increased significantly to $106.56 million in 2020 from $21.31 million in 2019, driven by adverse macroeconomic forecasts under the CECL standard and a $28.95 million provision for acquired loans[301][325] - Noninterest expense increased by $195.56 million (51.11%) to $578.22 million, mainly due to $54.24 million in merger-related expenses, higher employee compensation from the acquisition and mortgage production, and penalties on FHLB debt prepayment[301][351] - Tax-equivalent net interest income increased by $112.00 million (19.26%) to $693.66 million, driven by a 24.61% increase in average earning assets from the Carolina Financial acquisition and PPP loans[314] Liquidity and Capital Resources United maintains strong liquidity through core deposits and borrowings, exceeding all regulatory capital requirements and consistently increasing shareholder dividends - Management believes liquidity is sufficient, with primary funding sources being stable core deposits and access to short-term borrowings like federal funds and FHLB advances[373] - As of December 31, 2020, United is categorized as well-capitalized based on regulatory guidelines, exceeding all minimum requirements[387][741] Regulatory Capital Ratios as of December 31, 2020 | Ratio | United's Ratio | Well-Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 | 13.30% | 6.5% | | Tier 1 Capital | 13.30% | 8.0% | | Total Risk-Based Capital | 15.55% | 10.0% | | Leverage Ratio | 10.34% | 5.0% | - 2020 marked the 47th consecutive year of dividend increases to shareholders, with dividends per share rising to $1.40 from $1.37 in 2019[390] Quantitative and Qualitative Disclosures About Market Risk United primarily manages interest rate risk through ALCO and earnings simulations, with a 100 basis point rate increase projected to decrease net interest income by 2.61% over one year - The company's primary market risk is interest rate risk, managed by the Asset/Liability Management Committee (ALCO) to control its impact on net interest income[393][394] Estimated Earnings Sensitivity Profile (1-Year Horizon) | Change in Interest Rates (bps) | % Change in Net Interest Income (Dec 31, 2020) | % Change in Net Interest Income (Dec 31, 2019) | | :--- | :--- | :--- | | +200 | (4.32%) | (2.37%) | | +100 | (2.61%) | (1.09%) | | -100 | 0.03% | 0.86% | - The company manages extension risk in its mortgage-related securities portfolio. As of December 31, 2020, the portfolio had an amortized cost of $1.6 billion and was structured to minimize the impact of rising interest rates on the effective maturity of the securities[404][405] Financial Statements and Supplementary Data This section presents United's audited consolidated financial statements, including balance sheets and income statements, with an unqualified auditor's opinion and detailed notes on CECL and the Carolina Financial acquisition Consolidated Financial Statements The consolidated financial statements provide a detailed overview of United's financial position and performance, including balance sheets and income statements for 2020 and 2019 Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Total cash and cash equivalents | $2,209,068 | $837,493 | | Net loans and leases | $17,355,583 | $13,635,072 | | Goodwill | $1,796,848 | $1,478,014 | | Total Assets | $26,184,247 | $19,662,324 | | Liabilities & Equity | | | | Total deposits | $20,585,160 | $13,852,421 | | Total borrowings | $1,006,669 | $2,212,683 | | Total Liabilities | $21,886,627 | $16,298,491 | | Total Shareholders' Equity | $4,297,620 | $3,363,833 | Consolidated Income Statement Highlights (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net interest income | $689,773 | $577,922 | | Provision for credit losses | $106,562 | $21,313 | | Total other income | $354,746 | $150,484 | | Total other expense | $578,217 | $382,654 | | Net income | $289,023 | $260,099 | Notes to Consolidated Financial Statements Detailed notes explain significant accounting policies, the impact of CECL adoption, the Carolina Financial acquisition, and regulatory capital requirements - The company adopted the new credit loss standard, ASU 2016-13 (CECL), on January 1, 2020. This resulted in a net increase to the allowance for credit losses of $57.44 million and a decrease to retained earnings of $44.33 million upon adoption[545] - The acquisition of Carolina Financial on May 1, 2020, was accounted for using the acquisition method, with a total purchase price of approximately $817.9 million. This resulted in the recognition of $318.8 million in goodwill[548][553] - The allowance for credit losses increased to $255.1 million at year-end 2020 from $78.8 million at year-end 2019, primarily due to the CECL adoption and adverse macroeconomic forecasts related to the COVID-19 pandemic[627] - United's subsidiary bank is required to maintain reserves with the Federal Reserve and is subject to regulatory limits on dividend payments to the parent company. As of year-end 2020, approximately $146.0 million was available for distribution without regulatory approval[734][737] Controls and Procedures Management confirmed the effectiveness of disclosure controls and internal control over financial reporting as of December 31, 2020, with no material changes in Q4 2020 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[790] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2020[792] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including the code of ethics, is incorporated by reference from the 2021 proxy statement - Detailed information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2021 Annual Meeting of Shareholders proxy statement[794][795] - United has adopted a code of ethics for its senior financial officers, available on its website, in compliance with Section 406 of the Sarbanes-Oxley Act[794] Executive Compensation Executive compensation details, including CD&A, are incorporated by reference from the 2021 Annual Meeting of Shareholders proxy statement - Information on executive compensation is incorporated by reference from the 2021 proxy statement[796] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2021 proxy statement - Information on security ownership is incorporated by reference from the 2021 proxy statement[796] Certain Relationships and Related Transactions, and Director Independence Details on related party transactions and director independence are incorporated by reference from the 2021 proxy statement - Information on related party transactions and director independence is incorporated by reference from the 2021 proxy statement[797] Principal Accounting Fees and Services Information on principal accounting fees and services, including Audit Committee pre-approval policies, is incorporated by reference from the 2021 proxy statement - Information on principal accounting fees and services is incorporated by reference from the 2021 proxy statement[798] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, incorporating financial statements by reference and providing an index to key corporate and certification documents - The consolidated financial statements are incorporated by reference from Item 8 of the report[799] - No separate financial statement schedules are filed as the required information is included elsewhere in the report[799] - An index of all exhibits filed with the Form 10-K is provided, including key corporate documents and required certifications[802][803][804]