United Bankshares, Inc. (NASDAQ: UBSI) (“United”), today reported earnings for the second quarter of 2023 of $92.5 million, or $0.68 per diluted share, as compared to earnings of $98.3 million, or $0.73 per diluted share, for the first quarter of 2023. Earnings for the second quarter of 2022 were $95.6 million, or $0.71 per diluted share.

“UBSI’s performance remained strong in the second quarter,” stated Richard M. Adams, Jr., United’s Chief Executive Officer. “Our profitability, asset quality, and balance sheet strength continue to allow us to take care of our customers, invest in our communities, and build new relationships across our footprint.”

Second quarter of 2023 results produced annualized returns on average assets, average equity and average tangible equity, a non-GAAP measure, of 1.26%, 7.96 % and 13.47%, respectively, compared to annualized returns on average assets, average equity and average tangible equity of 1.35%, 8.72% and 14.97%, respectively, for the first quarter of 2023. Annualized returns on average assets, average equity and average tangible equity were 1.32%, 8.33% and 14.23%, respectively, for the second quarter of 2022.

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. 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.

Second quarter of 2023 compared to the first quarter of 2023

Net interest income for the second quarter of 2023 decreased $6.9 million, or 3%, from the first 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 second quarter of 2023 also decreased $6.9 million, or 3%, from the first quarter of 2023. The decrease in net interest income and tax-equivalent net interest income was primarily due to higher interest expense driven by deposit rate repricing partially offset by higher interest income on net loans and loans held for sale driven by rising market interest rates. The interest rate spread for the second quarter of 2023 decreased 24 basis points from the first quarter of 2023 to 2.69% due to a 47 basis point increase in the average cost of funds partially offset by a 23 basis point increase in the yield on earning assets. The yield on average interest-bearing deposits increased 54 basis points to 2.37% from the first quarter of 2023. The yield on average net loans and loans held for sale increased 23 basis points to 5.78% from the first quarter of 2023. The net interest margin of 3.51% for the second quarter of 2023 was a decrease of 12 basis points from the net interest margin of 3.63% for the first quarter of 2023.

The provision for credit losses was $11.4 million for the second quarter of 2023 as compared to $6.9 million for the first quarter of 2023. The provision for credit losses in the second quarter of 2023 was primarily driven by an increase in the allowance for loan & lease losses mainly due to a change in qualitative factors and the impact of reasonable and supportable forecasts of future macroeconomic conditions.

Noninterest income for the second quarter of 2023 increased $2.4 million, or 7%, from the first quarter of 2023. The increase in noninterest income was primarily due to increases in mortgage loan servicing income of $7.6 million mainly driven by the gain on sale of MSRs and income from mortgage banking activities of $1.5 million driven by higher mortgage loan origination and sale volume and a higher margin on loans sold. These increases in noninterest income were partially offset by higher net losses on investment securities of $6.9 million mainly driven by the loss on sale of AFS investment securities.

Noninterest expense for the second quarter of 2023 decreased $2.1 million, or 2%, from the first quarter of 2023. The decrease in noninterest expense was primarily driven by a decrease in the expense for the reserve for unfunded loan commitments of $4.6 million partially offset by an increase in employee compensation of $3.1 million. The decrease in the expense for the reserve for unfunded loan commitments was driven by a decrease in the outstanding balance of loan commitments at quarter end. The increase in employee compensation was primarily driven by higher employee incentives as well as higher employee commissions related to mortgage banking production.

For the second quarter of 2023, income tax expense was $23.5 million as compared to $24.4 million for the first quarter of 2023. The decrease of $996 thousand was due to lower earnings partially offset by a higher effective tax rate. United’s effective tax rate was 20.2% and 19.9% for the second quarter of 2023 and first quarter of 2023, respectively.

Second quarter of 2023 compared to the second quarter of 2022

Earnings for the second quarter of 2023 were $92.5 million, or $0.68 per diluted share, as compared to earnings of $95.6 million, or $0.71 per diluted share, for the second quarter of 2022.

Net interest income for the second quarter of 2023 increased $12.6 million, or 6%, from the second quarter of 2022. Tax-equivalent net interest income for the second quarter of 2023 also increased $12.6 million, or 6%, from the second quarter 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 Paycheck Protection Program (“PPP”) loan fees and lower acquired loan accretion. The yield on average earning assets increased 175 basis points from the second quarter of 2022 to 5.33%. Average earning assets for the second quarter of 2023 increased $494.6 million, or 2%, from the second quarter of 2022 due to a $1.7 billion increase in average net loans and loans held for sale partially offset by a $743.1 million decrease in average short-term investments and a $423.1 million decrease in average investment securities. The average cost of funds increased 233 basis points from the second quarter of 2022 to 2.64% primarily due to increases in the yield on average interest-bearing deposits of 212 basis points and in the yield on average long-term borrowings of 300 basis points. Average long-term borrowings increased $1.5 billion from the second quarter of 2022. Net PPP loan fee income decreased $3.5 million from the second quarter of 2022. Acquired loan accretion income was $3.1 million and $5.4 million for the second quarter of 2023 and 2022, respectively, a decrease of $2.3 million. The net interest margin of 3.51% for the second quarter of 2023 was an increase of 13 basis points from the net interest margin of 3.38% for the second quarter of 2022.

The provision for credit losses was $11.4 million for the second quarter of 2023 as compared to a net benefit of $1.8 million for the second quarter of 2022. The provision for credit losses in the second quarter of 2023 was primarily driven by an increase in the allowance for loan & lease losses mainly due to a change in qualitative factors and the impact of reasonable and supportable forecasts of future macroeconomic conditions.

Noninterest income for the second quarter of 2023 was $35.2 million, which was a decrease of $8.4 million, or 19%, from the second quarter of 2022. Net losses on investment securities were $7.3 million for the second quarter of 2023 as compared to net gains on investment securities of $1.2 million for the second quarter of 2022 mainly driven by the loss on sale of AFS investment securities in the second quarter of 2023. Additionally, income from mortgage banking activities decreased $4.5 million mainly due to lower origination and sale volume and income from bank owned life insurance ("BOLI”) decreased $2.1 million primarily due to higher amounts of death benefits recognized in the second quarter of 2022. This decrease in noninterest income was partially offset by an increase in mortgage loan servicing income of $7.5 million mainly driven by the gain on sale of MSRs.

Noninterest expense for the second quarter of 2023 was $135.3 million, a decrease of $5.9 million, or 4%, from the second quarter of 2022 primarily due to decreases of $7.9 million in the expense for the reserve for unfunded loan commitments and $4.1 million in employee compensation partially offset by increases of $3.2 million in other noninterest expense and $1.6 million in FDIC insurance expense. The decrease in employee compensation was primarily due to lower employee commissions related to mortgage banking production as well as lower employee incentives. 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.

Income tax expense of $23.5 million for the second quarter of 2023 was flat from the second quarter of 2022, decreasing $79 thousand, or less than 1%. The decrease was driven by lower earnings partially offset by a higher effective tax rate. United’s effective tax rate was 20.2% for the second quarter of 2023 and 19.8% for the second quarter of 2022.

First half of 2023 compared to the first half of 2022

Earnings for the first six months of 2023 were $190.8 million, or $1.41 per diluted share, as compared to earnings of $177.3 million, or $1.30 per diluted share, for the first six months of 2022.

Net interest income for the first six months of 2023 increased $55.4 million, or 14%, from the first six 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 six months of 2023 also increased $55.4 million, or 14%, from the first six 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 and higher average balances and cost of long-term borrowings as well as lower income from PPP loan fees and acquired loan accretion. The yield on average earning assets increased 184 basis points from the first six months of 2022 to 5.21%. Average earning assets for the first six months of 2023 increased $311.0 million, or 1%, from the first six months of 2022 due to a $1.9 billion increase in average net loans and loans held for sale partially offset by a $1.4 billion decrease in average short-term investments and a $171.4 million decrease in average investment securities. The average cost of funds increased 212 basis points from the first six months of 2022 to 2.41% primarily due to increases in the yield on average interest-bearing deposits of 187 basis points and in the yield on average long-term borrowings of 298 basis points. Average long-term borrowings increased $1.5 billion from the first six months of 2022. Net PPP loan fee income decreased $7.3 million from the first six months of 2022. Acquired loan accretion income was $6.2 million and $9.5 million for the first six months of 2023 and 2022, respectively, a decrease of $3.3 million. The net interest margin of 3.57% for the first six months of 2023 was an increase of 39 basis points from the net interest margin of 3.18% for the first six months of 2022.

The provision for credit losses was $18.3 million for the first six months 2023 as compared to a net benefit of $5.2 million for the first six months of 2022.

Noninterest income for the first six months of 2023 was $67.9 million, which was a decrease of $21.7 million, or 24%, from the first six months of 2022. Income from mortgage banking activities decreased $17.4 million from the first six months of 2022 mainly due to lower mortgage loan origination and sale volume driven by the rising rate environment and a lower margin on loans sold. Additionally, net losses on investment securities were $7.7 million for the first six months of 2023 as compared to net gains on investment securities of $931 thousand for the first six 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 $7.4 million increase in mortgage loans servicing income mainly driven by the gain on sale of MSRs in the second quarter of 2023.

Noninterest expense for the first six months of 2023 was $272.7 million, a decrease of $7.6 million, or 3%, from the first six months of 2022 driven by decreases in employee compensation of $11.3 million and the expense for reserve for unfunded loan commitments of $10.6 million partially offset by increases in other noninterest expense of $7.8 million and FDIC insurance expense of $3.5 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 six months of 2023, income tax expense was $47.9 million as compared to $43.6 million for the first six months of 2022 primarily due to higher earnings and a higher effective tax rate. United’s effective tax rate was 20.1% for the first six months of 2023 and 19.8% for the first six months of 2022.

Credit Quality

United’s asset quality continues to be sound. At June 30, 2023, non-performing loans were $41.6 million, or 0.20% of loans & leases, net of unearned income. Total non-performing assets were $45.3 million, including other real estate owned (“OREO”) of $3.8 million, or 0.15% of total assets at June 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 June 30, 2023, the allowance for loan & lease losses was $250.7 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 $1.2 million for the second quarter of 2023 compared to net recoveries of $941 thousand for the second quarter of 2022. Net charge-offs were $2.4 million for the first half of 2023 compared to net recoveries of $2.9 million for the first half of 2022. Annualized net charge-offs (recoveries) as a percentage of average loans & leases, net of unearned income were 0.02% and (0.02)% for the second quarter of 2023 and 2022, respectively. Annualized net charge-offs (recoveries) as a percentage of average loans & leases, net of unearned income were 0.02% and (0.03)% for the first half of 2023 and 2022, respectively. Net charge-offs were $1.1 million for the first quarter of 2023.

Capital

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 15.1% at June 30, 2023, while estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.8%, 12.8% and 11.0%, respectively. The June 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 second quarter of 2022, United repurchased, under a previously announced stock repurchase plan, approximately 1.5 million shares of its common stock at an average price per share of $34.47. During the first half of 2022, United repurchased 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 half of 2023.

About United Bankshares, Inc.

As of June 30, 2023, United had consolidated assets of approximately $29.7 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 June 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 June 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; and changes in legislation or regulatory requirements. 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.