United Bankshares, Inc. (NASDAQ: UBSI) (“United”), today announced earnings for the first quarter of 2019. Earnings for the first quarter of 2019 were $63.6 million, an increase from earnings of $61.7 million for the first quarter of 2018. Diluted earnings per share were $0.62 for the first quarter of 2019, an increase from diluted earnings per share of $0.59 for the first quarter of 2018.

United’s first quarter of 2019 results produced an annualized return on average assets of 1.34% and an annualized return on average equity of 7.88%. United’s annualized returns on average assets and average equity were 1.35% and 7.65%, respectively, for the first quarter of 2018.

“United is off to a great start in 2019,” stated Richard M. Adams, United’s Chairman and Chief Executive Officer. “We are pleased to announce an increase in earnings from the first quarter of 2018. Our annualized return on average assets of 1.34% for the quarter is ahead of our peers’ most recently reported return on average assets of 1.24% for the year of 2018.”

Net interest income for the first quarter of 2019 was $144.2 million, which was relatively flat from the first quarter of 2018, increasing $125 thousand or less than 1%. The $125 thousand increase in net interest income occurred because total interest income increased $21.9 million while total interest expense increased $21.8 million from the first quarter of 2018. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the first quarter of 2019 was $145.2 million, which was relatively flat from the first quarter of 2018, increasing $14 thousand or less than 1% due mainly to an increase in average earning assets mostly offset by an increase in the average cost of funds. Average earning assets for the first quarter of 2019 increased $667.2 million or 4% from the first quarter of 2018 due mainly to increases of $538.4 million or 4% in average net loans and $369.5 million or 17% in average investment securities. Average short-term investments decreased $240.7 million or 25%. In addition, the average yield on earning assets for the first quarter of 2019 increased 35 basis points from the first quarter of 2018 due to higher market rates. Mostly offsetting these increases to tax-equivalent net interest income for the first quarter of 2019 was an increase of 73 basis points in the average cost of funds as compared to the first quarter of 2018 due to higher market interest rates. In addition, loan accretion on acquired loans was $8.5 million and $10.8 million for the first quarter of 2019 and 2018, respectively, decreasing $2.3 million or 21%. The net interest margin of 3.46% for the first quarter of 2019 was a decrease of 15 basis points from the net interest margin of 3.61% for the first quarter of 2018.

On a linked-quarter basis, net interest income for the first quarter of 2019 decreased $2.5 million or 2% from the fourth quarter of 2018. The $2.5 million decrease in net interest income occurred because total interest income increased $1.6 million while total interest expense increased $4.1 million from the fourth quarter of 2018. United’s tax-equivalent net interest income for the first quarter of 2019 decreased $2.6 million or 2% from the fourth quarter of 2018 due mainly to an increase in the average cost of funds. The average cost of funds for the first quarter of 2019 increased 15 basis points from the fourth quarter of 2018 due mainly to higher market interest rates. Average earning assets for the first quarter of 2019 were relatively flat from the fourth quarter of 2018, increasing $131.2 million or less than 1%. In particular, average net loans and average investments increased $161.6 million or 1% and $63.5 million or 3%, respectively, while average short-term investments decreased $93.9 million or 11% for the linked-quarter. The average yield on earning assets increased 8 basis points from the fourth quarter of 2018 due to higher market interest rates. The net interest margin of 3.46% for the first quarter of 2019 decreased 4 basis points from the net interest margin of 3.50% for the fourth quarter of 2018.

For the quarters ended March 31, 2019 and 2018, the provision for loan losses was $5.0 million and $5.2 million, respectively. Net charge-offs were $4.8 million for the first quarter of 2019 as compared to net charge-offs of $5.2 million for the first quarter of 2018. Annualized net charge-offs as a percentage of average loans were 0.14% for the first quarter of 2019 as compared to 0.22% for United’s Federal Reserve peer group (bank holding companies with total assets over $10 billion) for the year of 2018. On a linked-quarter basis, the provision for loans losses decreased $827 thousand while net charge-offs decreased $1.3 million from the fourth quarter of 2018.

Noninterest income for the first quarter of 2019 was $31.2 million, which was relatively flat from the first quarter of 2018, increasing $31 thousand or less than 1%. The slight increase was due mainly to an increase of $573 thousand in income from bank-owned life insurance due to the recognition of $600 thousand in death benefits in the first quarter of 2019. In addition, net losses on investment securities’ transactions declined $326 thousand. Virtually offsetting these increases from the first quarter of 2018 was a decrease of $889 thousand in income from mortgage banking activities for the first quarter of 2019 due to decreased production and sales of mortgage loans in the secondary market by United’s mortgage banking subsidiary, George Mason Mortgage, LLC (George Mason). George Mason did originate approximately $119.2 million of portfolio mortgage loan products for United’s banking subsidiary, United Bank, during the first quarter of 2019.

On a linked-quarter basis, noninterest income for the first quarter of 2019 increased $1.4 million or 5% from the fourth quarter of 2018 due mainly to an increase in income from mortgage banking activities and a decline in net losses on investment securities transactions. Income from mortgage banking activities increased $2.1 million due mainly to a change in fair value of $2.8 million on George Mason’s interest rate lock commitments due to a higher locked pipeline. During the first quarter of 2019, United recognized a net loss of $159 thousand on investment securities transactions as compared to a net loss of $1.9 million for the fourth quarter of 2018. The fourth quarter of 2018 included other-than-temporary impairment of $1.5 million on investment securities that United intended to sell at that time and eventually sold during the first quarter of 2019. In addition, income from bank-owned life insurance increased $558 thousand due to the recognition of $600 thousand in death benefits in the first quarter of 2019. Partially offsetting these increases was a decrease of $597 thousand in fees from deposit services due to a decline in overdraft fees. In addition, during the fourth quarter of 2018, United recognized a net gain of $2.8 million on the sale of bank premises.

Noninterest expense for the first quarter of 2019 was $89.4 million, a decrease of $1.0 million or 1% from the first quarter of 2018. In particular, employee compensation decreased $1.9 million due mainly to a decrease in commissions expense related to the decrease in production and sales of mortgage loans at George Mason. In addition, net occupancy expense and data processing expense decreased $676 thousand and $688 thousand, respectively. Partially offsetting these decreases was an increase in Federal Deposit Insurance Corporation (FDIC) insurance expense of $1.5 million due to United Bank becoming a large institution and subject to increased assessment rates.

On a linked-quarter basis, noninterest expense for the first quarter of 2019 decreased $1.6 million or 2% from the fourth quarter of 2018. The decrease was due to declines of $903 thousand in data processing expense and $1.3 million in other expense. Within other expense, consulting and legal expense declined $842 thousand and operational losses declined $457 thousand. Partially offsetting these decreases in noninterest expense was an increase in employee benefits expense of $773 thousand due to increases in Federal Insurance Contributions Act (FICA) expense and health care insurance costs.

For the first quarter of 2019, income tax expense was $17.3 million, a decrease of $571 thousand from the first quarter of 2018 mainly due to a decrease in the effective tax rate. On a linked-quarter basis, income tax expense for the first quarter of 2019 increased $1.6 million from the fourth quarter of 2018 due to a combination of increased earnings, a higher effective tax rate and a tax benefit from New Markets tax credits in the fourth quarter of 2018. United’s effective tax rate was approximately 21.4% for the first quarter of 2019 and 22.5% and 19.8% for the first and fourth quarters of 2018, respectively.

United’s asset quality continues to be sound. At March 31, 2019, nonperforming loans were $135.8 million, or 1.00% of loans, net of unearned income, down from nonperforming loans of $142.8 million, or 1.06% of loans, net of unearned income, at December 31, 2018. As of March 31, 2019, the allowance for loan losses was $76.9 million or 0.57% of loans, net of unearned income, as compared to $76.7 million or 0.57% of loans, net of unearned income, at December 31, 2018. Total nonperforming assets of $153.2 million, including OREO of $17.5 million at March 31, 2019, represented 0.78% of total assets as compared to nonperforming assets of $159.7 million or 0.83% at December 31, 2018.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 14.2% at March 31, 2019 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.0%, 12.0% and 10.2%, 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 March 31, 2019, United had consolidated assets of approximately $19.6 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 17 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 March 31, 2019 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 March 31, 2019 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 21%.

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.

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