United Bankshares : Increases Earnings for the Second Quarter and First Half of 2015

United Bankshares, Inc. (NASDAQ: UBSI), today reported earnings for the second quarter and the first half of 2015. Earnings for the second quarter of 2015 were $34.8 million or $0.50 per diluted share, an increase from earnings of $33.2 million or $0.48 per diluted share for the second quarter of 2014. Earnings for the first half of 2015 were $69.4 million or $1.00 per diluted share, up from earnings of $63.4 million or $0.96 per diluted share for the first half of 2014.

“We are pleased to announce record earnings before income taxes of $101.9 million for the first six months of 2015,” stated Richard M. Adams, United’s Chief Executive Officer and Chairman of the Board. “Our annualized return on average assets of 1.15% compared to peers again demonstrates that United continues to be one of the best performing regional bank holding companies in the USA.”

Second quarter of 2015 results produced an annualized return on average assets of 1.15% and an annualized return on average equity of 8.23%, respectively. For the first half of 2015, United’s return on average assets was 1.15% while the return on average equity was 8.30%. United’s Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported average return on assets and average return on equity were 0.90% and 7.77%, respectively, for the first quarter of 2015. United’s annualized returns on average assets and average equity were 1.13% and 8.16%, respectively, for the second quarter of 2014 while the returns on average assets and average equity were 1.14% and 8.36%, respectively, for the first half of 2014.

On January 31, 2014, United completed its acquisition of Virginia Commerce Bancorp, Inc. (Virginia Commerce) of Arlington, Virginia. The results of operations of Virginia Commerce are included in the consolidated results of operations from the date of acquisition. As a result, the first half of 2015 was impacted for an additional month by increased levels of average balances, income, and expense as compared to the first half of 2014 due to the acquisition. At consummation, Virginia Commerce had assets of approximately $2.8 billion, loans of $2.1 billion, and deposits of $2.0 billion.

The results for the first six months of 2015 included noncash, before-tax, other-than-temporary impairment charges of $34 thousand on certain investment securities. No noncash, before-tax, other-than-temporary impairment charges were recognized during the second quarter of 2015. Included in the results for the second quarter and first six months of 2014 were noncash, before-tax, other-than-temporary impairment charges of $421 thousand and $1.1 million, respectively, on certain investment securities. During the first quarter of 2014, United sold a former branch building which resulted in a before-tax gain of $9.0 million. In addition, the results for the first half of 2014 included merger related expenses and charges of $5.4 million.

Tax-equivalent net interest income for the second quarter of 2015 was $97.5 million, an increase of $2.0 million or 2% from the second quarter of 2014 due mainly to an increase in average earning assets. Average earning assets for the second quarter of 2015 increased $432.3 million or 4% from the second quarter of 2014. Average net loans and average short-term investments increased $319.9 million or 4% and $127.9 million or 34%, respectively. The second quarter of 2015 average cost of funds decreased 7 basis points from the second quarter of 2014 due to the repayment of higher costing Federal Home Loan Bank advances and trust preferred issuances. Partially offsetting the increases to tax-equivalent net interest income for the second quarter of 2015 was a decrease of 14 basis points in the average yield on earning assets as compared to the second quarter of 2014 due to payoffs of higher yielding loans coupled with the re-investment of this cash inflow into new loans at lower interest rates. The net interest margin of 3.62% for the second quarter of 2015 was a decrease of 7 basis points from the net interest margin of 3.69% for the second quarter of 2014.

Tax-equivalent net interest income for the first half of 2015 was $193.8 million, an increase of $11.4 million or 6% from the first half of 2014. This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Virginia Commerce acquisition. Average earning assets increased $860.7 million or 9% from the first half of 2014. Average net loans increased $647.6 million or 8% for the first half of 2015 while average short-term investments increased $175.8 million or 52%. In addition, the average cost of funds declined 6 basis points from the first half of 2014. Partially offsetting the increases to tax-equivalent net interest income for the first half of 2015 was a decline of 14 basis points in the average yield on earning assets as compared to the first half of 2014. The net interest margin of 3.61% for the first half of 2015 was a decrease of 9 basis points from the net interest margin of 3.70% for the first half of 2014.

On a linked-quarter basis, United’s tax-equivalent net interest income for the second quarter of 2015 increased $1.2 million or 1% due mainly to a slight increase in average earning assets. Average earning assets were flat, increasing $32.5 million or less than 1% for the linked-quarter. Average net loans were also flat while average investments decreased $26.6 million or 2%. The second quarter of 2015 average cost of funds decreased a basis point from the first quarter of 2015. Partially offsetting the increases to tax-equivalent net interest income for the second quarter of 2015 was a decrease of a basis point in the average yield on earning assets as compared to the first quarter of 2015. The net interest margin of 3.62% for the second quarter of 2015 was an increase of a basis point from the net interest margin of 3.61% for the first quarter of 2015.

For the quarters ended June 30, 2015 and 2014, the provision for loan losses was $5.7 million and $6.2 million, respectively, while the provision for the first six months of 2015 was $11.1 million as compared to $10.9 million for the first six months of 2014. Net charge-offs were $6.1 million and $5.6 million for the second quarter of 2015 and 2014, respectively. Net charge-offs were $11.4 million and $10.1 million for the first half of 2015 and 2014, respectively. Annualized net charge-offs as a percentage of average loans was 0.27% and 0.25% for the second quarter and first half of 2015, respectively.

Noninterest income for the second quarter of 2015 was $19.5 million, an increase of $504 thousand from the second quarter of 2014. No noncash, before-tax, other-than-temporary impairment charges were recognized during the second quarter of 2015. Included in noninterest income for the second quarter of 2014 were noncash, before-tax, other-than-temporary impairment charges of $421 thousand on certain investment securities.

Excluding the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, noninterest income for the second quarter of 2015 was flat from the second quarter of 2014. For the second quarter of 2015, increases in mortgage banking income of $225 thousand due to increased production and sales of mortgage loans in the secondary market and fees from trust and brokerage services of $290 thousand due to an increase in volume were virtually offset by a decline in fees from deposit services of $468 thousand due to decreased overdraft fee income.

Noninterest income for the first half of 2015 was $37.7 million, which was a decrease of $7.7 million from the first half of 2014. Included in noninterest income for the first half of 2014 was the previously mentioned net gain of $9.0 million on the sale of bank premises. Noninterest income for the first half of 2015 included noncash, before-tax, other-than-temporary impairment charges of $34 thousand on certain investment securities as compared to noncash, before-tax other-than-temporary impairment charges of $1.1 million on certain investment securities for the first half of 2014. In addition, net gains on sales and calls of investment securities were $825 thousand for the first half of 2014. Excluding the net gain on the sale of bank premises, the noncash, other-than-temporary impairment charges as well as the net gains from sales and calls of investment securities, noninterest income for the first half of 2015 increased $1.0 million or 3% from the first half of 2014. This increase for the first half of 2015 was due primarily to increases of $589 thousand in income from trust and brokerage services due to an increase in volume and the value of assets under management and $511 thousand in mortgage banking income due to increased production and sales of mortgage loans in the secondary market. Partially offsetting these increases was a decline of $254 thousand in fees from deposit services due to decreased income from overdraft fees.

On a linked-quarter basis, noninterest income for the second quarter of 2015 increased $1.3 million or 7% from the first quarter of 2015. This increase was due primarily to increases of $661 thousand in fees from deposit services as a result of increases of $300 thousand and $277 thousand in fee income from overdrafts and debit card transactions, respectively, and $417 thousand in bankcard fees due to increased volume.

Noninterest expense for the second quarter of 2015 was $57.7 million, an increase of $627 thousand or 1% from the second quarter of 2014. Employee benefits expense increased $1.4 million due to an increase in pension costs and data processing expense increased $278 thousand due to the Virginia Commerce merger. Partially offsetting these increases was a decline of $822 thousand in employee compensation primarily due to fewer employees and lower incentives.

Noninterest expense for the first half of 2015 was $115.4 million, a decrease of $2.7 million or 2% from the first half of 2014. Employee compensation decreased $5.6 million from the first half of 2014 which included $3.6 million of merger severance charges, merger expenses decreased $1.7 million and other real estate owned (OREO) expense declined $916 thousand due to fewer declines in the fair values of OREO properties. Partially offsetting these decreases were increases of $2.6 million in employee benefits due to an increase in pension expense, $784 thousand in data processing expense and $577 thousand in Federal Deposit Insurance Corporation (FDIC) insurance expense due to a higher assessment base as a result of the Virginia Commerce acquisition.

On a linked-quarter basis, noninterest expense for the second quarter of 2015 was flat from the first quarter of 2015. An increase of $456 thousand in employee compensation primarily due to an increase in employee commissions expense was virtually offset by decreases in employee benefits of $215 thousand due to a decline in Federal Insurance Contributions Act (FICA) expense and $104 thousand in equipment expense due to lower maintenance costs.

For the second quarter of 2015, income tax expense was $17.1 million as compared to $16.4 million for the second quarter of 2014. This increase was due to higher earnings. On a linked-quarter basis, income tax expense increased $1.8 million due to higher earnings and historical tax credits recognized in the first quarter of 2015. United’s effective tax rate was approximately 33.0% for the second quarters of 2015 and 2014 and 30.7% for the first quarter of 2015 due to the historical tax credits. For the first half of 2015 and 2014, United's effective tax rate was 31.9% and 33.7%, respectively.

United’s asset quality continues to be sound. At June 30, 2015, nonperforming loans were $120.5 million, or 1.33% of loans, net of unearned income, up from nonperforming loans of $109.0 million or 1.20% of loans, net of unearned income, at December 31, 2014. As of June 30, 2015, the allowance for loan losses was $75.2 million or 0.83% of loans, net of unearned income, as compared to $75.5 million or 0.83% of loans, net of unearned income, at December 31, 2014. Total nonperforming assets of $155.4 million, including OREO of $35.0 million at June 30, 2015, represented 1.25% of total assets.

On January 1, 2015, the new Basel III Capital Rules became effective for United and its banking subsidiaries. United continues to be well-capitalized based upon these new regulatory guidelines. United’s estimated risk-based capital ratio is 12.5% at June 30, 2015 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 9.5%, 11.8% and 10.7%, respectively. The new 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 2015, United’s Board of Directors declared a cash dividend of $0.32 per share. United has increased its dividend to shareholders for 41 consecutive years. United is one of only two major banking companies in the USA to have achieved such a record.

United has consolidated assets of approximately $12.4 billion with 129 full service offices in West Virginia, Virginia, Maryland, Ohio, Pennsylvania and Washington, D.C. United Bankshares 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, 2015 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, 2015 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, noninterest income excluding the results of the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, 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%.

GAAP total non-interest income results are adjusted for other-than-temporary impairment charges (OTTI) on certain investment securities, net gains or losses on the sale of securities and any infrequent noninterest income items. Management believes noninterest income without OTTI charges, net securities gains or losses and infrequent noninterest income items is more indicative of United’s performance because it isolates income that is primarily customer relationship driven and is more indicative of normalized operations. In addition, these items can fluctuate greatly from quarter to quarter and are difficult to predict.

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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