United Bankshares, Inc. (NASDAQ: UBSI), today reported earnings for the fourth quarter and year of 2018. Earnings for the fourth quarter of 2018 were $64.0 million or $0.62 per diluted share as compared to earnings of $18.0 million or $0.17 per diluted share for the fourth quarter of 2017. Earnings for the year of 2018 were a record $256.3 million or $2.45 per diluted share as compared to earnings of $150.6 million or $1.54 per diluted share for the year of 2017.

Fourth quarter of 2018 results produced an annualized return on average assets of 1.33% and an annualized return on average equity of 7.77%, respectively. For the year of 2018, United’s return on average assets was 1.36% while the return on average equity was 7.84%. United’s annualized returns on average assets and average equity were 0.38% and 2.17%, respectively, for the fourth quarter of 2017 while the returns on average assets and average equity were 0.85% and 5.09%, respectively, for the year of 2017.

“The year of 2018 was a banner year for United Bankshares in many ways,” stated Richard M. Adams, United’s Chairman of the Board and Chief Executive Officer. “We increased earnings before income taxes to a record $327 million. Our employee community volunteer program was recognized by the American Bankers Association as one of the strongest in the nation. We increased dividends to our shareholders for the 45th consecutive year. This is a record only one other major banking company in the USA has been able to achieve.”

The results for the fourth quarter of 2017 included additional income tax expense of $37.7 million or $0.36 per diluted share related to the estimated impact of the enactment of the Tax Cuts and Jobs Act (the Tax Act). The results for the year of 2017 were impacted by $0.39 per diluted share for the additional income tax expense of $37.7 million related to the Tax Act.

On April 21, 2017, United completed its acquisition of Cardinal Financial Corporation (Cardinal) of Tysons Corner, Virginia. The results of operations of Cardinal are included in the consolidated results of operations from the date of acquisition. As a result of the Cardinal acquisition, the year of 2018 was impacted by increased levels of average balances, income, and expense as compared to the year of 2017. Also, United consolidated its banking subsidiaries during the fourth quarter of 2017. The fourth quarter and year of 2017 included $1.8 million and $26.8 million, respectively, of merger-related expenses from the Cardinal acquisition and consolidation of subsidiaries.

Net interest income for the fourth quarter of 2018 was $146.7 million, which was a decrease of $8.1 million or 5% from the fourth quarter of 2017. The $8.1 million decrease in net interest income occurred because total interest income increased $11.0 million while total interest expense increased $19.1 million from the fourth quarter of 2017. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the fourth quarter of 2018 was $147.8 million, a decrease of $9.4 million or 6% from the fourth quarter of 2017 due mainly to an increase of 66 basis points in the average cost of funds as compared to the fourth quarter of 2017 due to higher market interest rates. In addition, loan accretion on acquired loans was $8.8 million and $16.8 million for the fourth quarter of 2018 and 2017, respectively, decreasing $8.0 million or 48%. Partially offsetting these decreases to tax-equivalent net interest income for the fourth quarter of 2018 was an increase of 17 basis points in the average yield on earning assets as compared to the fourth quarter of 2017 due to higher market interest rates. In addition, average earning assets for the fourth quarter of 2018 increased $228.8 million or 1% from the fourth quarter of 2017 due mainly to an increase of $522.5 million or 27% in average investment securities. In addition, average net loans for the fourth quarter of 2018 increased $244.3 million or 2% from the fourth quarter of 2017. Partially offsetting these increases was a decrease in average short-term investments of $538.0 million or 39%. The net interest margin of 3.50% for the fourth quarter of 2018 was a decrease of 27 basis points from the net interest margin of 3.77% for the fourth quarter of 2017.

Net interest income for the year of 2018 was $588.6 million, which was an increase of $39.6 million or 7% from the year of 2017. The $39.6 million increase in net interest income occurred because total interest income increased $93.9 million while total interest expense only increased $54.3 million from the year of 2017. Tax-equivalent net interest income for the year of 2018 was $593.0 million, an increase of $35.6 million or 6% from the year of 2017. This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Cardinal acquisition. Average earning assets increased $1.0 billion or 6% from the year of 2017 as average net loans increased $874.7 million or 7% for the year of 2018. Average investment securities increased $590.2 million or 34% while short-term investments decreased $461.8 million or 35%. The year of 2018 average yield on earning assets increased 29 basis points from the year of 2017 due to higher market interest rates and additional loan accretion of $2.0 million on acquired loans. Loan accretion was $43.2 million and $41.2 million for the year of 2018 and 2017, respectively. Partially offsetting the increases to tax-equivalent net interest income for the year of 2018 was an increase of 46 basis points in the average cost of funds as compared to the year of 2017 due to higher market interest rates. The net interest margin of 3.58% for the year of 2018 was the same as the net interest margin for the year of 2017.

On a linked-quarter basis, net interest income for the fourth quarter of 2018 decreased $2.0 million or 1% from the third quarter of 2018. The $2.0 million decrease in net interest income occurred because total interest income increased $2.5 million while total interest expense increased $4.5 million from the third quarter of 2018. United’s tax-equivalent net interest income for the fourth quarter of 2018 decreased $2.1 million or 1% due to an increase of 16 basis points in the average cost of funds as a result of higher market interest rates. In addition, loan accretion on acquired loans decreased $2.7 million. Partially offsetting these decreases was an increase of 4 basis points in the average yield on earning assets. Average earning assets for the fourth quarter of 2018 were relatively flat from the third quarter of 2018, increasing $45.3 million or less than 1%. Specifically, average investment securities increased $200.8 million or 9% while average short-term investments decreased $78.6 million or 9%. Average net loans were relatively flat for the quarter, decreasing $76.9 million or less than 1%. The net interest margin of 3.50% for the fourth quarter of 2018 decreased 6 basis points from the net interest margin of 3.56% for the third quarter of 2018.

For the quarters ended December 31, 2018 and 2017, the provision for loan losses was $5.8 million and $7.0 million, respectively, while the provision for the year of 2018 was $22.0 million as compared to $28.4 million for the year of 2017. Net charge-offs were $6.1 million and $21.9 million for the fourth quarter and year of 2018, respectively, as compared to $5.3 million and $24.6 million for the same time periods in 2017. Annualized net charge-offs as a percentage of average loans were 0.18% and 0.17% for the fourth quarter and year of 2018, respectively. On a linked-quarter basis, the provision for loan losses for the fourth quarter of 2018 increased $1.0 million while net charge-offs increased $1.1 million from the third quarter of 2018.

Noninterest income for the fourth quarter of 2018 was $29.8 million, which was a decrease of $2.9 million or 9% from the fourth quarter of 2017. The decrease was due mainly to a decrease of $3.7 million in income from mortgage banking activities due to decreased production and sales of mortgage loans in the secondary market by United’s mortgage banking subsidiary, George Mason. However, George Mason did originate approximately $127.5 million of portfolio mortgage loan products for United Bank during the fourth quarter of 2018. In addition, United recognized other-than-temporary impairment of $1.5 million on investment securities that the Company intends to sell. Partially offsetting these decreases to noninterest income was a net gain of $2.8 million on the sale of bank premises.

Noninterest income for the year of 2018 was $128.7 million, which was also a decrease of $2.9 million from the year of 2017 due mainly to a decline in net gains on investment securities’ activity of $8.2 million. United recognized a net loss of $2.6 million on investment securities’ activity in 2018 as compared to a net gain of $5.6 million in 2017. In addition, income from mortgage banking activities for the year of 2018 decreased $798 thousand from the year of 2017. This decrease was mainly due to a decline in the production and sales of mortgage loans in the secondary market by George Mason. Partially offsetting these decreases were increases of $1.1 million in fees from trust services due to an increase in the value of managed assets and $1.6 million in fees from brokerage services due to increased volume as well as the previously mentioned net gain of $2.8 million on the sale of bank premises.

On a linked-quarter basis, noninterest income for the fourth quarter of 2018 decreased $1.9 million or 6% from the third quarter of 2018. The decrease was due mainly to an increase in net losses on investment securities’ activity of $1.8 million and a decline of $1.7 million in income from mortgage banking activities due to decreased production and sales of mortgage loans in the secondary market due mainly to a typical seasonal slowdown. In addition, income from bankcard services during the fourth quarter of 2018 declined $765 thousand as compared to the third quarter of 2018. Partially offsetting these decreases to noninterest income was the net gain of $2.8 million on the sale of bank premises.

Noninterest expense for the fourth quarter of 2018 was $91.0 million, a decrease of $4.8 million or 5% from the fourth quarter of 2017. In particular, employee compensation decreased $2.3 million due mainly to a decrease in commissions and incentives expense related to the decline in production and sales of mortgage loans at George Mason, employees benefits expense decreased $672 thousand due mainly to a decline in health insurance costs, and within other expense, merger expenses decreased $1.8 million and business franchise taxes declined $1.5 million. Partially offsetting these decreases was an increase in Federal Deposit Insurance Corporation (FDIC) insurance expense of $1.3 million as United Bank is now considered a large institution and subject to increased assessment rates. Also included within other expense for the fourth quarter of 2018 was a charge of $832 thousand related to New Markets tax credits. A corresponding tax benefit of $832 thousand was recognized in income taxes associated with these tax credits.

Noninterest expense for the year of 2018 was $368.2 million, which was relatively flat from the year of 2017, increasing $770 thousand or less than 1%. In particular, FDIC insurance expense increased $4.4 million due to United Bank now being considered a large institution as previously mentioned, employee benefits increased $1.2 million due mainly to additional employees from the Cardinal acquisition, equipment expense increased $3.3 million due mainly to an increase in building maintenance, and data processing expense increased $2.8 million due to additional processing as a result of the Cardinal acquisition. Also, included within other expense for the year of 2018 was the previously mentioned charge of $832 thousand related to New Markets tax credits and an increase of $1.6 million in legal and consulting fees. Mostly offsetting these increases was a decrease of $2.6 million in net occupancy expense due to the expense for the termination of leases and the reduction in value of leasehold improvements for closed offices in the Cardinal acquisition being included in the year of 2017, a decrease of $2.6 million in other real estate owned (OREO) expense due to fewer declines in the fair value of OREO properties, a decrease of $1.9 million in employee compensation due mainly to a decrease in commissions and incentives expense for George Mason, and within other expense, a decrease of $7.6 million in merger-related expenses.

On a linked-quarter basis, noninterest expense for the fourth quarter of 2018 decreased $2.3 million or 2% from the third quarter of 2018. Employee compensation decreased $2.1 million due mainly to a decrease in commissions and incentives expense for George Mason. In addition, net occupancy expense decreased $587 thousand due a decline in office rental expense. Partially offsetting these decreases in noninterest expense was the charge of $832 thousand related to New Markets tax credits.

For the fourth quarter and year of 2018, income tax expense was $15.8 million and $70.8 million, respectively, as compared to $66.9 million and $134.2 million, respectively, in the fourth quarter and year of 2017. The amounts for 2017 included additional income tax expense of $37.7 million related to the estimated impact of the Tax Act. The fourth quarter and year of 2018 include a benefit of $832 thousand related to the New Markets tax credits. On a linked-quarter basis, income tax expense for the fourth quarter of 2018 decreased $2.2 million from the third quarter of 2018 due to a combination of the tax benefit from the New Markets tax credits, lower earnings and a lower effective tax rate. United’s effective tax rate was 19.8% for the fourth quarter of 2018, 21.8% for the third quarter of 2018 and 78.8% for the fourth quarter of 2017. For the year of 2018 and 2017, United's effective tax rate was 21.7% and 47.1%, respectively.

United’s asset quality continues to be sound and improved year-over-year. At December 31, 2018, nonperforming loans were $142.8 million, or 1.06% of loans, net of unearned income down from nonperforming loans of $168.7 million, or 1.30% of loans, net of unearned income, at December 31, 2017. As of December 31, 2018, the allowance for loan losses was $76.7 million or 0.57% of loans, net of unearned income, as compared to $76.6 million or 0.59% of loans, net of unearned income at December 31, 2017. Total nonperforming assets of $159.7 million, including OREO of $16.9 million at December 31, 2018, represented 0.83% of total assets, down from nonperforming assets of $193.1 million or 1.01% of total assets at December 31, 2017.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 14.4% at December 31, 2018 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.2%, 12.2% and 10.1%, respectively. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.

As of December 31, 2018, United had consolidated assets of approximately $19.3 billion. United is the parent company of United Bank, the largest community bank headquartered in the D.C. Metro region. United Bank which comprises 139 full-service banking offices and 21 George Mason Mortgage, LLC locations, is located throughout Virginia, West Virginia, Maryland, North Carolina, South Carolina, Ohio, Pennsylvania and Washington, D.C. 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 December 31, 2018 consolidated financial statements on Form 10-K. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2018 and will adjust amounts preliminarily reported, if necessary.

Use of non-GAAP Financial Measures

This press release contains certain financial measures that are not recognized under U.S. generally accepted accounting principles ("GAAP"). Generally, United has presented these “non-GAAP” financial measures because it believes that these measures provide meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of these non-GAAP financial measures is consistent with how United’s management evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry.

Specifically, this press release contains certain references to financial measures identified as tax-equivalent (FTE) net interest income, tangible equity and tangible book value per share. Management believes these non-GAAP financial measures to be helpful in understanding United’s results of operations or financial position.

Net interest income is presented in this press release on a tax-equivalent basis. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 35%.

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

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

Forward-Looking Statements

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