UNITED BANKSHARES INC/WV 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe haven for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations. United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involve numerous assumptions, risks and uncertainties. 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, such as statements about the potential impacts of the COVID-19 pandemic. 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.” United undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. CORONAVIRUS (“COVID-19”) PANDEMIC During 2020, the COVID-19 pandemic had a severe disruptive impact on the U.S. and global economy. As the pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, among other things, the ongoing impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). Refer to our 2020 Form 10-K and our Form 10-Q for the quarter ended June 30, 2021 for further information regarding (i) the impact of the COVID-19 pandemic on our operations and our results thereof, as well as the impact on our financial position and (ii) legislative and regulatory actions taken related to the COVID-19 pandemic, particularly as they relate to the banking and financial services industry. 60 Table of Contents The CARES Act was enacted in March 2020 and, among other provisions, authorized the Small Business Administration (“SBA”) to guarantee loans under the Paycheck Protection Program (“PPP”) for small businesses that meet eligibility requirements in order to keep their workers on the payroll and fund specified operating expenses. Subsequent legislation extended the authority of the SBA to guaranty loans under the PPP through August 8, 2020. In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act reauthorized the SBA to guarantee loans under the PPP through March 31, 2021, and the PPP Extension Act of 2021 extended that authorization through June 30, 2021 for applications received by the SBA prior to June 1, 2021. On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARP Act”) was enacted, implementing a $1.9 trillion package of stimulus and relief proposals. Among other things, the ARP Act provides (i) additional funding for the PPP program and an expansion of the program for the benefit of certain nonprofits, (ii) funding for the SBA to make targeted grants for restaurants and similar establishments, (iii) direct cash payments of up to $1,400 to individuals, subject to income provisions, (iv) an increase in the maximum annual Child Tax Credit, subject to income limitation provisions, (v) $300 a week in expanded unemployment insurance lasting through September 6, 2021 and makes $10,200 in unemployment benefits tax free for households, subject to income limitation provisions, (vi) tax relief making any student loan forgiveness incurred between December 31, 2020, and January 1, 2026 non-taxable income, and (vii) funding to support state and local governments; K-12 schools and higher education; the Centers for Disease Control; public transit; rental assistance; child care; and airline industry workers. On March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the CARES Act of 2020 bill until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government. Impact on our Operations. In the states where United operates, many jurisdictions declared health emergencies due to the COVID-19 pandemic. The resulting closures of non-essential businesses and related economic disruption impacted our operations as well as the operations of our customers. Financial services were identified as a Critical Infrastructure Sector by the Department of Homeland Security. Accordingly, our business remained open. To address the issues arising as a result of COVID-19, United implemented several policies in order to facilitate the continued delivery of essential services while maintaining a high level of safety for our customers as well as our employees. As of September 30, 2021, United does not anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken regarding the COVID-19 pandemic. The Company does not currently face any material resource constraint through the implementation of our business continuity plans. United is currently unable to fully assess or predict the extent of the effects of COVID-19 on its operations in the future as the ultimate impact will depend on factors that are currently unknown and/or beyond our control. Impact on our Financial Position and Results of Operations. Although economic conditions have improved in the first nine months of 2021, our business continues to be impacted by the COVID-19 pandemic. In addition, significant uncertainties related to the COVID-19 pandemic still exist including, among other things, the ongoing impact to our customers, employees, vendors, counterparties and service providers; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the COVID-19 outbreak and its variants or to mitigate its impact. Certain industries continue to be impacted more severely than others, although all businesses have been impacted by the COVID-19 pandemic to some degree during the first nine months of 2021 as they were in 2020. The economic pressures, existing and forecasted, as of end of each quarter during 2020, coupled with the implementation of an expected loss methodology for determining United’s provision for credit losses as required by CECL contributed to an increased provision for credit losses for the year of 2020. Due to better performance trends within the loan portfolio and the improved reasonable and supportable forecasts 61 Table of Contents for future macroeconomic scenarios used in the estimated of expected credit losses under the CECL accounting standard, since December 31, 2020, our provision for credit losses significantly decreased for the nine months ended September 30, 2021 resulting in a net benefit of $16.57 million as compared to an expense of $89.81 million for the nine months ended September 30, 2020. The Company’s fee income has been reduced due to COVID-19. In keeping with guidance from regulators, the Company actively worked with COVID-19 affected customers during 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. Should the pandemic and the global response escalate further as outbreaks and variants occur, it is possible that the Company could reduce such fees in future periods; however, at this time, the Company is unable to project the materiality of such an impact on the results of operations in future periods. The Company’s interest income has and could continue to be reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. The Company assessed the collectability of the accrued interest receivables on the loans deferred under the CARES Act as of September 30, 2021. Based on this assessment, the Company released reserves of $224 thousand for the first nine months of 2021 resulting in the allowance for accrued interest receivables not expected to be collected of $26 thousand as of September 30, 2021 as compared to $250 thousand as of December 31, 2020. At this time, the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods. In addition, the net interest margin continues to be impacted by the decreases in market interest rates and the Company expects that interest rates will remain low as a result of the continuing economic disruption caused by COVID-19. Capital and liquidity. As of September 30, 2021, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand a second economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt. We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us. Rates for short-term funding were volatile throughout 2020, but have been more stable thus far in 2021. If funding costs become elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding. For a discussion of the United’s liquidity and capital resources in light of the COVID-19 pandemic please refer to the sections with the captions of “Liquidity and Capital Resources” included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). Lending operations and accommodations to borrowers. In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is executing a payment deferral program for its customers that are adversely affected by the pandemic. Depending on the demonstrated need of the client and within the guidance of the CARES Act, the Company is deferring either the full loan payment or the principal component of the loan payment for stated period of time. As of September 30, 2021, United has 146 eligible loan modifications in deferral under section 4013, “Temporary Relief from Troubled Debt Restructurings,” of the CARES Act on $51.93 million of loans outstanding, down from 1,002 eligible loan modifications in deferral on $399.86 million of loans outstanding at December 31, 2020. In accordance with the CARES Act, these deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the CARES Act; however, the volume of these future potential extensions is unknown. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown. 62 Table of Contents With the passage and extensions of the PPP, administered by the SBA, the Company has actively participated in assisting its customers with applications for resources through the program. PPP loans generally have a two-year or five-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of September 30, 2021, the Company had 4,024 of PPP loans with a balance of approximately $411.63 million. The Company recognized approximately $7.85 million and $28.18 million in net fees on PPP loans during the third quarter and first nine months ended September 30, 2021 as compared to $4.80 million and $9.28 million for the third quarter and first nine months ended September 30, 2020. Remaining fees due from the SBA will be amortized and recognized over the life of the associated loans. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings. Retail operations. The Company has been committed to assisting our customers and communities during the COVID-19 pandemic. For much of 2020 and the first part of 2021, most branch locations were converted to drive-thru only in order to ensure the health and safety of our customers and team members. We continued to serve our customers that needed emergency branch access for account issues, safe deposit access and similar items by appointment. The Company was able to open and close accounts effectively, through its drive through facility, and our customer service center was successful in managing the volume of incoming calls. We introduced temporary changes to help with the financial hardship caused by COVID-19 for both our customers and non-customers, including waiving select deposit account fees including overdraft fees, ATM fees and excessive withdrawal fees for savings and money market accounts. From mid-May to mid-June in 2021, we used a phased-in approach to reopen our lobbies throughout our footprint. We have returned to full-service at all retail locations throughout our footprint. The customer service centers continue to operate at full capacity with more normalized call volumes. We have continued to offer fee waivers for select deposit accounts to help with the financial hardship caused by the pandemic. The Company continues to place the utmost importance on the health and safety of our employees and customers. We also continue to follow the applicable Centers for Disease Control and Prevention (“CDC”) guidance and comply with any local or state mandates. The Company continues to closely monitor the pandemic and COVID-19 variants and will adjust its retail operations accordingly, as necessary. ACQUISITIONS On June 2, 2021, United entered into an Agreement and Plan of Reorganization (the “Community Bankers Trust Agreement”) with Community Bankers Trust Corporation (“Community Bankers Trust”), a Virginia corporation headquartered in Richmond, Virginia. Community Bankers Trust is the holding company for Essex Bank, a Virginia state chartered bank with 24 full-service offices, 18 of which are in Virginia and six of which are in Maryland. Essex Bank also operates two loan production offices. In accordance with the Community Bankers Trust Agreement, Community Bankers Trust shall merge with and into United (the “Community Bankers Trust Merger”). Community Bankers Trust will cease to exist and United shall survive and continue to exist as a West Virginia corporation. United may at any time prior to the effective time of the Community Bankers Trust Merger change the method of effecting the combination with Community Bankers Trust subject to certain conditions contained in the Community Bankers Trust Agreement. At the effective time of the Community Bankers Trust Merger, Essex Bank will merge with and into United Bank, a wholly-owned subsidiary of United (the “Essex Bank Merger”). United Bank will survive the Essex Bank Merger and continue to exist as a Virginia banking corporation. All requisite regulatory approvals for the merger have been received from the Board of Governors of the Federal Reserve System and from the Virginia State Corporation Commission. The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions including approval by the shareholders of Community Bankers Trust. Community Bankers Trust had approximately $1.77 billion in assets as of September 30, 2021. 63 Table of Contents On May 1, 2020, United acquired 100% of the outstanding common stock of Carolina Financial Corporation (“Carolina Financial”), headquartered in Charleston, South Carolina. Immediately following the merger, CresCom Bank, a wholly-owned subsidiary of Carolina Financial, merged with and into United Bank (the “CresCom Bank Merger”). United Bank survived the CresCom Bank Merger and continues to exist as a Virginia banking corporation. The acquisition of Carolina Financial afforded United the opportunity to expand its existing footprint in North Carolina and South Carolina. The merger resulted in a combined company with more than 200 locations in some of the best banking markets in the United States. CresCom Bank owned and operated Crescent Mortgage Company (“Crescent”), which is based in Atlanta. Crescent is approved to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers. As a result of the merger, Crescent became an indirectly-owned subsidiary of United. The Carolina Financial merger was accounted for under the acquisition method of accounting. At consummation, Carolina Financial had assets of $5.00 billion, loans and leases, net of unearned income of $3.29 billion and deposits of $3.87 billion. The results of operations of Carolina Financial are included in the consolidated results of operations from its date of acquisition. As a result of the Carolina Financial acquisition, the first nine months of 2021 were impacted by increased levels of average balances, income, and expense as compared to the first nine months of 2020. In addition, the third quarter and first nine months of 2020 included $5.67 million and $53.68 million, respectively, of merger-related expenses from the Carolina Financial acquisition. TRANSITION FROM THE LONDON INTERBANK OFFERED RATE (“LIBOR”) In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit the rates used to calculate LIBOR after 2021. ICE Benchmark Administration (the publisher of LIBOR) plans to discontinue publication of the one-week and two-month U.S. Dollar LIBOR settings on December 31, 2021, and to discontinue publication of overnight, one-month, three-month, six-month, and twelve-month U.S. Dollar LIBOR settings on June 30, 2023. It is assumed that LIBOR will either cease to be provided by any administrator or will no longer be representative of an acceptable market benchmark after these respective dates. Additionally, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have issued joint supervisory guidance encouraging banks to cease entering into any new contracts using LIBOR by December 31, 2021. Working groups comprised of various regulators and other industry groups have been formed in the United States and other countries in order to provide guidance on this topic. In particular, the Alternative Reference Rates Committee (“ARRC”) has been formed in the United States by the Federal Reserve Board and the Federal Reserve Bank of New York. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative reference rate for U.S. Dollar LIBOR. The ARRC has also published recommended fall-back language for LIBOR-linked financial instruments, among numerous other areas of guidance. At this time, however, it is unclear to what extent these recommendations will be broadly accepted by industry participants, whether they will continue to evolve, and what other alternatives may be adopted by the broader markets that utilize LIBOR as a reference rate. United has formed a project team comprised of individuals across various lines of business throughout the company to identify risks, monitor market developments, evaluate replacement benchmark alternatives, and manage the company’s transition away from LIBOR. United has loans, derivative contracts, borrowings, and other financial instruments that are directly or indirectly dependent on LIBOR. The transition from LIBOR will cause changes to payment calculations for existing contracts that use LIBOR as the reference rate. These changes will create various risks surrounding the financial, operational, compliance and legal aspects associated with changing certain elements of existing contracts. United will also be subject to risks surrounding changes to models and systems that currently use LIBOR reference rates, as well as market and strategic risks that could arise from the use of alternative reference rates. Additionally, United could face reputational risks if this transition is not managed appropriately with its customers. While the full impact of the transition is not yet known, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations. INTRODUCTION The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the unaudited consolidated financial statements and the notes to unaudited Consolidated Financial Statements include the accounts of United Bankshares, Inc. 64 Table of Contents and its wholly-owned subsidiaries, unless otherwise indicated. Management has evaluated all significant events and transactions that occurred after September 30, 2021, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements. This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and accompanying notes thereto, which are included elsewhere in this document. USE OF NON-GAAP FINANCIAL MEASURES This discussion and analysis contains certain financial measures that are not recognized under GAAP. Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each “non-GAAP” financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. Generally, United has presented a non-GAAP financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of a non-GAAP financial measure is consistent with how United’s management evaluates its performance internally and this non-GAAP financial measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry. Specifically, this discussion contains certain references to financial measures identified as tax-equivalent (“FTE”) net interest income and return on average tangible equity. 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 discussion 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. Average 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. When considering net income, a return on average tangible equity can be calculated. Management provides a return on average equity 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 shareholders’ equity are presented. This measure, along with others, is used by management to analyze capital adequacy and performance. However, this non-GAAP information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP. Where the non-GAAP financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis. Investors should recognize that United’s presentation of this non-GAAP financial measure might not be comparable to a similarly titled measure at other companies. APPLICATION OF CRITICAL ACCOUNTING POLICIES The accounting and reporting policies of United conform with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments, which are reviewed with the Audit Committee of the Board of Directors, are based on information available as of the date of the financial statements. Actual results could differ from these estimates. United’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of September 30, 2021 were unchanged from the policies disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2020 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 65 Table of Contents FINANCIAL CONDITION United’s total assets as of September 30, 2021 were $27.51 billion, which was an increase of $1.32 billion or 5.05% from December 31, 2020. This increase was mainly due to an increase of $1.82 billion or 82.59% in cash and cash equivalents, and an increase of $459.88 million or 14.43% in investment securities. These increases in assets were partially offset by a $847.78 million or 4.82% decrease in portfolio loans and a $225.64 million or 31.38% decrease in loans held for sale. Total liabilities increased $1.19 billion or 5.44% from year-end 2020 mainly due to a $1.24 billion or 6.01% increase in deposits. In addition, accrued expense and other liabilities increased $9.23 million of 4.56% while operating lease liabilities increased $7.31 million or 9.98%. Partially offsetting these increases in liabilities, was a $69.80 million or 6.93% decrease in borrowings. Shareholders’ equity increased $133.15 million or 3.10%. The following discussion explains in more detail the changes in financial condition by major category. Cash and Cash Equivalents Cash and cash equivalents at September 30, 2021 increased $1.82 billion or 82.59% from year-end 2020. In particular, interest-bearing deposits with other banks increased $1.83 billion or 95.88% as United placed more cash in an interest-bearing account with the Federal Reserve. Cash and cash equivalents decreased $7.68 million or 2.58% while federal funds sold increased $104 thousand or 12.64%. During the first nine months of 2021, net cash of $553.20 million and $249.37 million were provided by operating and investing activities, respectively, while net cash of $1.02 billion was provided by financing activities. See the unaudited Consolidated Statements of Cash Flows for data on cash and cash equivalents provided and used in operating, investing and financing activities for the first nine months of 2021 and 2020. Securities Total investment securities at September 30, 2021 increased $459.88 million or 14.43% from December 31, 2020. Securities available for sale increased $456.63 million or 15.46%. This change in securities available for sale reflects $566.96 million in sales, maturities and calls of securities, $1.08 billion in purchases, and a decrease of $47.33 million in market value. The majority of the purchase activity was related to mortgage-backed securities, corporate securities, asset-backed securities and state and political subdivisions securities. Securities held to maturity declined $219 thousand or 18.07% from year-end 2020 due to maturities and calls of securities. Equity securities were $11.98 million at September 30, 2021, an increase of $1.27 million or 11.81% due mainly to net purchases. Other investment securities increased $2.21 million or 1.00% from year-end 2020 due mainly to an increase in investment tax credits. Partially offsetting this increase in investment tax credits was a decrease in Federal Home Loan Bank (“FHLB”) stock. The following table summarizes the changes in the available for sale securities since year-end 2020: (Dollars in thousands) September 30 2021 December 31 2020 $ Change % Change U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 13,045 $ 66,344 $ (53,299 ) (80.34 %) State and political subdivisions 620,687 565,160 55,527 9.83 % Mortgage-backed securities 1,703,131 1,625,812 77,319 4.76 % Asset-backed securities 535,011 294,623 240,388 81.59 % Single issue trust preferred securities 16,482 17,027 (545 ) (3.20 %) Corporate securities 521,628 384,393 137,235 35.70 % Total available for sale securities, at fair value $ 3,409,984 $ 2,953,359 $ 456,625 15.46 % 66 Table of Contents The following table summarizes the changes in the held to maturity securities since year-end 2020: (Dollars in thousands) September 30 2021 December 31 2020 $ Change % Change State and political subdivisions $ 973 (1 ) $ 1,192 (2 ) $ (219 ) (18.37 %) Other corporate securities 20 20 0 0.00 % Total held to maturity securities, at amortized cost $ 993 $ 1,212 $ (219 ) (18.07 %) Note : (1) net of allowance for credit losses of $27 thousand. (2) net of allowance for credit losses of $23 thousand. At September 30, 2021, gross unrealized losses on available for sale securities were $19.84 million. Securities with the most significant gross unrealized losses at September 30, 2021 consisted primarily of agency residential mortgage-backed securities and agency commercial mortgage-backed securities. As of September 30, 2021, United’s available for sale mortgage-backed securities had an amortized cost of $1.68 billion, with an estimated fair value of $1.70 billion. The portfolio consisted primarily of $1.03 billion in agency residential mortgage-backed securities with a fair value of $1.03 billion, $38.38 million in non-agency residential mortgage-backed securities with an estimated fair value of $38.07 million, and $617.65 million in commercial agency mortgage-backed securities with an estimated fair value of $631.05 million. As of September 30, 2021, United’s available for sale corporate securities had an amortized cost of $1.07 billion, with an estimated fair value of $1.07 billion. The portfolio consisted of $17.28 million in single issue trust preferred securities with an estimated fair value of $16.48 million. In addition to the single issue trust preferred securities, the Company held positions in various other corporate securities, including asset-backed securities with an amortized cost of $535.42 million and a fair value of $535.01 million and other corporate securities, with an amortized cost of $517.73 million and a fair value of $521.63 million. United’s available for sale single issue trust preferred securities had a fair value of $16.48 million as of September 30, 2021. Of the $16.48 million, $8.29 million or 50.30% were investment grade; $3.25 million or 19.75% were split rated; and $4.94 million or 29.95% were unrated. The two largest exposures accounted for 74.50% of the $16.48 million. These included Truist Bank at $7.34 million and Emigrant Bank at $4.94 million. All single issue trust preferred securities are currently receiving full scheduled principal and interest payments. During the first nine months of 2021, United did not recognize any credit losses on its available for sale investment securities. Management does not believe that any individual security with an unrealized loss as of September 30, 2021 is impaired. United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not a deterioration of credit. Based on a review of each of the securities in the available for sale investment portfolio, management concluded that it was more likely than not that it would be able to realize the cost basis investment and appropriate interest payments on such securities. United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature. As of September 30, 2021, there was no allowance for credit losses related to the Company’s available for sale securities. However, United acknowledges that any securities in an unrealized loss position may be sold in future periods in response to significant, unanticipated changes in asset/liability management decisions, unanticipated future market movements or business plan changes. Further information regarding the amortized cost and estimated fair value of investment securities, including remaining maturities as well as a more detailed discussion of management’s impairment analysis, is presented in Note 3 to the unaudited Notes to Consolidated Financial Statements. Loans held for sale Loans held for sale decreased $225.64 million or 31.38% from year-end 2020. Loan sales in the secondary market exceeded originations during the first nine months of 2021. Originations of loans for the first nine months of 2021 were $4.94 billion while sales of loans were $5.16 billion. Loans held for sale were $493.30 million at September 30, 2021 as compared to $718.94 million at year-end 2020. 67 Table of Contents Portfolio Loans Loans, net of unearned income, decreased $847.78 million or 4.82%. Since year-end 2020, commercial, financial and agricultural loans decreased $724.26 million or 6.77% as a result of a $824.95 million or 20.35% decrease in commercial loans (not secured by real estate), which was partially offset by a $100.69 million or 1.52% increase in commercial real estate loans. Residential real estate loans decreased $385.66 million or 9.89% while consumer loans decreased $24.14 million or 2.00% due to a decrease in indirect automobile financing. Partially offsetting these decreases in loans, net of unearned income, was a $282.80 million or 15.48% increase in construction and land development loans. The following table summarizes the changes in the major loan classes since year-end 2020: (Dollars in thousands) September 30 2021 December 31 2020 $ Change % Change Loans held for sale $ 493,299 $ 718,937 $ (225,638 ) (31.38 %) Commercial, financial, and agricultural: Owner-occupied commercial real estate $ 1,542,555 $ 1,622,687 $ (80,132 ) (4.94 %) Nonowner-occupied commercial real estate 5,198,547 5,017,727 180,820 3.60 % Other commercial loans 3,229,471 4,054,418 (824,947 ) (20.35 %) Total commercial, financial, and agricultural $ 9,970,573 $ 10,694,832 $ (724,259 ) (6.77 %) Residential real estate 3,514,228 3,899,885 (385,657 ) (9.89 %) Construction & land development 2,109,149 1,826,349 282,800 15.48 % Consumer: Bankcard 8,178 8,937 (759 ) (8.49 %) Other consumer 1,169,204 1,192,580 (23,376 ) (1.96 %) Total gross loans $ 16,771,332 $ 17,622,583 $ (851,251 ) (4.83 %) Less: Unearned income (27,703 ) (31,170 ) 3,467 (11.12 %) Total Loans, net of unearned income $ 16,743,629 $ 17,591,413 $ (847,784 ) (4.82 %) For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements. Other Assets Other assets increased $78.77 million or 13.48% from year-end 2020 due to a $90.83 million increase in cash surrender life insurance policies as a result of purchases of new policies, totaling $85.00 million, during the first nine months of 2021. In addition, deferred tax assets increased $3.91 million due to timing differences. Partially offsetting these increases were decreases of $6.53 million in derivative assets, $5.90 million in other real estate owned properties (“OREO”) due to sales and write downs, $4.40 million in core deposit intangibles due to amortization, and $1.78 million in accounts receivables due to timing differences. Deposits Deposits represent United’s primary source of funding. Total deposits at September 30, 2021 increased $1.24 billion or 6.01% from December 31, 2020. In terms of composition, noninterest-bearing deposits increased $1.08 billion or 14.65% while interest-bearing deposits increased $152.52 million or 1.16%. Noninterest-bearing deposits consist of demand deposit and noninterest bearing money market (“MMDA”) account balances. The $1.08 billion increase in noninterest-bearing deposits was due to increases in commercial noninterest-bearing deposits of $2.85 billion or 70.18%, personal noninterest-bearing deposits of $143.28 million or 13.03% and public noninterest-bearing deposits of $46.29 million or 35.44%. Partially offsetting these increases in noninterest bearing MMDAs was a $1.98 billion decrease in sweep activity. 68 Table of Contents Interest-bearing deposits consist of interest-bearing checking (“NOW”), regular savings, interest-bearing MMDA, and time deposit account balances. NOW accounts increased $2.73 billion or 341.99% since year-end 2020 while regular savings accounts increased $168. 99 million or 13.16%. Excluding sweep activity from NOW accounts to interest-bearing MMDAs to reduce United’s reserve requirement at its Federal Reserve Bank, NOW accounts increased $437.17 million or 14.12% mainly due to a $114.78 million increase in personal NOW accounts, a $152.79 million increase in commercial NOW accounts, and a $169.60 million increase in public funds NOW accounts. Partially offsetting these increases in interest-bearing deposits is a $2.08 billion or 25.44% decrease in interest-bearing MMDAs. In particular, personal MMDAs decreased $1.06 billion, commercial MMDAs decreased $407.60 million, and public MMDAs decreased $606.03 million. These decreases were due to a $2.30 billion decrease in sweep activity from NOW accounts to interest-bearing MMDAs. The increase of $168.99 million in regular savings was mainly due to a $148.26 million increase in personal savings accounts and a $19.66 million increase in commercial savings accounts. Time deposits under $100,000 decreased $123.41 million or 12.59% from year-end 2020. This decrease in time deposits under $100,000 was the result of a $107.28 million decrease in fixed Certificates of Deposits (“CDs”) under $100,000 and a $16.47 million decrease in CDs under $100,000 obtained through the use of deposit listing services. Since year-end 2020, time deposits over $100,000 decreased $544.32 million or 28.23% as fixed rate CDs decreased $254.85 million, brokered certificates of deposits decreased $105.96 million, and public funds CDs over $100,000 decreased $123.34 million. In addition, Certificate of Deposit Account Registry Service (“CDARS”) CDs decreased $61.20 million. The table below summarizes the changes by deposit category since year-end 2020: (Dollars in thousands) September 30 2021 December 31 2020 $ Change % Change Demand deposits $ 8,490,191 $ 5,428,398 $ 3,061,793 56.40 % Interest-bearing checking 3,534,311 799,635 2,734,676 341.99 % Regular savings 1,452,814 1,283,823 168,991 13.16 % Money market accounts 6,105,050 10,165,334 (4,060,284 ) (39.94 %) Time deposits under $100,000 856,577 979,988 (123,411 ) (12.59 %) Time deposits over $100,000 (1) 1,383,666 1,927,982 (544,316 ) (28.23 %) Total deposits $ 21,822,609 $ 20,585,160 $ 1,237,449 6.01 % (1) Includes time deposits of $250,000 or more of $547,761 and $889,334 at September 30, 2021 and December 31, 2020, respectively. Borrowings Total borrowings at September 30, 2021 decreased $69.80 million or 6.93% since year-end 2020. During the first nine months of 2021, short-term borrowings decreased $19.28 million or 13.55% due to a decline in short-term securities sold under agreements to repurchase. Long-term borrowings decreased $50.52 million or 5.84% from year-end 2020 due to a $51.75 million decrease in long-term FHLB advances as payments exceeded new borrowings. The table below summarizes the change in the borrowing categories since year-end 2020: (Dollars in thousands) September 30 2021 December 31 2020 $ Change % Change Short-term securities sold under agreements to repurchase $ 123,018 $ 142,300 $ (19,282 ) (13.55 %) Long-term FHLB advances 532,782 584,532 (51,750 ) (8.85 %) Subordinated debt 9,868 9,865 3 0.03 % Issuances of trust preferred capital securities 271,201 269,972 1,229 0.46 % Total borrowings $ 936,869 $ 1,006,669 $ (69,800 ) (6.93 %) For a further discussion of borrowings see Notes 10 and 11 to the unaudited Notes to Consolidated Financial Statements. 69 Table of Contents Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at September 30, 2021 increased $9.23 million or 4.56% from year-end 2020. In particular, accounts payable associated with George Mason increased $34.65 million due to timing differences and accrued loan expenses increased $6.06 million. Partially offsetting these increases were decreases of $4.09 million in income taxes payable and $1.93 million in business franchise taxes, both due to timing differences. In addition, interest payable decreased $2.02 million, accrued employee expenses decreased $8.39 million as a result of a $3.75 million decrease in incentives payable and a $6.09 million decrease in other employee withholdings, and derivative liabilities decreased $9.05 million due to a change in fair value. Shareholders’ Equity Shareholders’ equity at September 30, 2021was $4.43 billion, which was an increase of $133.15 million or 3.10% from year-end 2020. Retained earnings increased $158.09 million or 13.12% from year-end 2020. Earnings net of dividends for the first nine months of 2021 were $158.09 million. Accumulated other comprehensive income decreased $23.61 million or 105.54% from year-end 2020 due mainly to a decrease of $36.30 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes. Partially offsetting this decrease was a $10.32 million increase in the fair of cash flow hedges, net of deferred income taxes. The after-tax accretion of pension costs was $2.38 million for the first nine months of 2021. During the fourth quarter of 2020, United began repurchasing its common stock on the open market under repurchase plans approved by United’s Board of Directors. United repurchased 306,204 shares in the first nine months of 2021 at a cost of $9.96 million or an average price per share of $32.52. RESULTS OF OPERATIONS Overview Net income for the third quarter of 2021 was $92.15 million or $0.71 per diluted share, as compared to $103.78 million or $0.80 per diluted share for the prior year third quarter. Net income for the first nine months of 2021 was $293.89 million or $2.27 per diluted share compared to $196.65 million or $1.68 per share for the first nine months of 2020. Earnings for the third quarter and first nine months of 2021, as compared to the third quarter and first nine months of 2020, were benefited by lower provision for credit losses primarily due to better performance trends within the loan portfolio and an improved future macroeconomic forecast under the Current Expected Credit Loss (“CECL”) accounting standard. As a result of the acquisition of Carolina Financial on May 1, 2020, the first nine months of 2021 reflected higher average balances, income, and expense as compared to the first nine months of 2020. In addition, the third quarter and first nine months of 2020 included merger-related expenses of $5.67 million and $53.68 million, respectively, associated with the acquisition of Carolina Financial compared to $845 thousand and $1.03 million of merger-related expenses incurred in the third quarter and first nine months of 2021, respectively, related to the announced Community Bankers Trust acquisition. For the third quarter of 2021, United’s annualized return on average assets was 1.33% and return on average shareholders’ equity was 8.23% as compared to 1.56% and 9.68% for the third quarter of 2020. United’s annualized return on average assets for the first nine months of 2021 was 1.46% and return on average shareholders’ equity was 8.95% as compared to 1.12% and 6.85% for the first nine months of 2020. For the third quarter and first nine months of 2021, United’s annualized return on average tangible equity was 14.03% and 15.36%, respectively, as compared to 16.94% and 12.19% for the third quarter and first nine months of 2020, respectively. 70 Table of Contents Three Months Ended Nine Months Ended (Dollars in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Return on Average Tangible Equity: (a) Net Income (GAAP) $ 92,152 $ 103,784 $ 293,886 $ 196,653 (b) Number of days 92 92 273 274 Average Total Shareholders’ Equity (GAAP) $ 4,440,107 $ 4,263,111 $ 4,389,087 $ 3,835,617 Less: Average Total Intangibles (1,833,449 ) (1,826,057 ) (1,831,364 ) (1,681,202 ) (c) Average Tangible Equity (non-GAAP) $ 2,606,658 $ 2,437,054 $ 2,557,723 $ 2,154,415 Return on Tangible Equity (non-GAAP) [(a) / (b)] x 366 or 365/ (c) 14.03 % 16.94 % 15.36 % 12.19 % Net interest income for the third quarter of 2021 was $181.58 million, which was a decrease of $4.09 million, or 2.20%, from the third quarter of 2020. The decrease in net interest income occurred because total interest income decreased $16.19 million while total interest expense decreased $12.10 million from the third quarter of 2020. Net interest income for the first nine months of 2021 was $559.06 million, an increase of $61.27 million or 12.31% from the first nine months of 2020. The increase in net interest income occurred because total interest income increased $10.46 million while total interest expense decreased $50.82 million from the first nine months of 2020. The provision for credit losses was a net benefit of $7.83 million and $16.57 million for the third quarter and first nine months of 2021, respectively, while the provision for credit losses was an expense of $16.78 million and $89.81 million, respectively, for the third quarter and first nine months of 2020. These decreases in the provision for credit losses were mainly due to the impact of better performance trends within the loan portfolio as well as improved reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard. In addition, a provision for loan losses of $28.95 million was recorded on purchased non-PCD loans from Carolina Financial during the first nine months of 2020. For the third quarter of 2021, noninterest income was $68.62 million, which was a decrease of $66.84 million or 49.34% from the third quarter of 2020 primarily driven by a decrease in income from mortgage banking activities due primarily to a lower mortgage loan origination and sale volume and the mark-to-market impact of a declining locked pipeline. Noninterest income for the first nine months of 2021 was $224.04 million which was a decrease of $36.62 million or 14.05% from the first nine months of 2020 which was primarily due to decreased income from mortgage banking activities due primarily to the mark-to-market impact of a declining locked pipeline although originations and sales of mortgage loans in the secondary market increased. For the third quarter of 2021, noninterest expense decreased $29.32 million or 17.09% from the third quarter of 2020 primarily due to a decrease in employee compensation due to lower employee incentives and commissions related to mortgage banking production as well as a lower employee headcount. For the first nine months of 2021, noninterest expense increased $8.05 million or 1.91% from the first nine months of 2020 due mainly to the Carolina Financial acquisition as well as due to higher employee incentives and commissions expense mainly related to higher mortgage banking production. Income taxes for the third quarter of 2021 were $23.60 million as compared to $28.97 million for the third quarter of 2020. For the first nine months of 2021 and 2020 income tax expense was $75.62 million and $49.88 million, respectively. For the quarters ended September 30, 2021 and 2020, United’s effective tax rate was 20.39% and 21.82%, respectively. The effective tax rate for the first nine months of 2021 and 2020 was 20.47% and 20.23%, respectively. Business Segments United operates in two business segments: community banking and mortgage banking. Community Banking Net income attributable to the community banking segment for the third quarter of 2021 was $81.88 million compared to net income of $51.29 million for the third quarter of 2020. Net income attributable to the community banking segment for 71 Table of Contents the first nine months of 2021 was $253.88 million compared to net income of $123.12 million for the first nine months of 2020. The higher net income within the community banking segment was due primarily to a lower provision for credit losses. The first nine months of 2021 was also impacted by the Carolina Financial acquisition. Net interest income decreased $2.74 million to $179.44 million for the third quarter of 2021, compared to $182.19 million for the same period of 2020. A decrease in interest income primarily due to a change in the mix of interest earning assets as well as lower accretion on acquired loans was partially offset by lower interest expense on deposits and borrowings reflecting a decline in market interest rates and higher loan fee income from the PPP. Net interest income increased $59.73 million to $550.04 million for the first nine months of 2021, compared to $490.31 million for the same period of 2020. Generally, net interest income for the first nine months of 2021 increased from the first nine months of 2020 due to an increase in average earning assets as a result of the Carolina Financial acquisition, PPP loan activity and to a larger decline in the average cost of funds as compared to the average yield on earning assets. Provision for credit losses was a net benefit of $7.83 million for the three months ended September 30, 2021 compared to a provision expense of $16.78 million for the same period of 2020. Provision for credit losses was a net benefit of $16.57 million for the nine months ended September 30, 2021 compared to a provision expense of $89.81 million for the same period of 2020. The decrease for the third quarter of 2021 was due mainly to the better performance trends within the loan portfolio as well as improved reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard. The decrease for the first nine months of 2021 was due mainly to a provision for credit losses of $28.95 million recorded on purchased non-credit deteriorated (“non-PCD”) loans from Carolina Financial during the second quarter of 2020, the better performance trends within the loan portfolio as well as improved reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard. Noninterest income decreased $1.90 million for the third quarter of 2021 to $24.71 million as compared to $26.62 million for the third quarter of 2020. The third quarter of 2020 included a $2.23 million gain on the sale of bank premises. Partially offsetting the decrease in noninterest income were increases in fees from brokerage services, fees from trust services and fees from deposit services. Noninterest income for the first nine months of 2021 increased $8.69 million to $75.17 million for the first nine months of 2021 as compared to $66.48 million for the first nine months of 2020. The increase for the first nine months of 2021 was due mainly to increased fees from trust services, fees from brokerage services, fees from deposit services, bankcard fees and merchant discounts and other miscellaneous income. Noninterest expense was $109.13 million for the third quarter of 2021, compared to $125.68 million for the same period of 2020, a decline of $16.55 million. The third quarter of 2020 included $10.39 million in prepayment penalties on the early payoff of three long-term FHLB advances. In addition, expenses for employee compensation, net occupancy, OREO properties and FDIC insurance declined. Noninterest expense was $322.58 million for the nine months ended September 30, 2021, compared to $312.62 million for the same period of 2020, an increase of $9.96 million. The increase in noninterest expense for the first nine months of 2021 was primarily attributable to the additional employees and branch offices from the Carolina Financial acquisition as most major categories of noninterest expense showed increases. Mortgage Banking The mortgage banking segment reported net income of $12.42 million and $40.42 million for the third quarter and the first nine months of 2021, respectively, as compared to net income of $55.40 million and $87.56 million for the third quarter and first nine months of 2020. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $45.02 million for the third quarter of 2021 as compared to $110.90 million for the third quarter of 2020. The decrease of $65.88 million was due mainly to lower originations and sales of mortgage loans and the mark-to-market impact of a declining locked pipeline. Noninterest income for the first nine months of 2021 was $152.30 million as compared to $203.10 million for the first nine months of 2020. The decrease of $50.81 million for the first nine months of 2021 was due mainly to the mark-to-market impact of a declining locked pipeline although originations and sales of mortgage loans in the secondary market increased. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage segment employees. Noninterest expense was $31.79 million for the third 72 Table of Contents quarter of 2021 as compared $43.42 million for the third quarter of 2020. The decrease of $11.63 million was primarily due to a decrease in employee compensation due to lower employee incentives and commissions related to a decrease in mortgage banking production. Noninterest expense was $109.36 million for the first nine months of 2021 as compared to $99.44 million for the first nine months of 2020. The increase of $9.93 million for the first nine months of 2021 was due mainly to higher employee incentives and commissions related to the increased mortgage banking production as well as the additional expense associated with the mortgage banking employees added from the Carolina Financial acquisition. Consolidated Results of Operations by Major Category The following table sets forth certain consolidated income statement information of United: Three Months Ended (Dollars in thousands) September 2021 September 2020 June 2021 Income Statement Summary: Interest income $ 194,080 $ 210,269 $ 200,186 Interest expense 12,501 24,605 13,669 Net interest income 181,579 185,664 186,517 Provision for credit losses (7,829 ) 16,781 (8,879 ) Other income 68,624 135,468 62,846 Other expense 142,276 171,593 138,951 Income before income taxes 115,756 132,758 119,291 Income taxes 23,604 28,974 24,455 Net income $ 92,152 $ 103,784 $ 94,836 Nine Months Ended (Dollars in thousands) September 2021 September 2020 Income Statement Summary: Interest income $ 599,923 $ 589,468 Interest expense 40,867 91,684 Net interest income 559,056 497,784 Provision for credit losses (16,565 ) 89,811 Other income 224,043 260,664 Other expense 430,154 422,100 Income before income taxes 369,510 246,537 Income taxes 75,624 49,884 Net income $ 293,886 $ 196,653 The following discussion explains in more detail the consolidated results of operations by major category. Net Interest Income Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2021 and 2020, are presented below. Net interest income for the third quarter of 2021 was $181.58 million, which was a decrease of $4.09 million or 2.20% from the third quarter of 2020. The $4.09 million decrease in net interest income occurred because total interest income decreased $16.19 million while total interest expense decreased $12.10 million from the third quarter of 2020. Net interest income for the first nine months of 2021 was $559.06 million, which was an increase of $61.27 million or 12.31% from the first nine months of 2020. The $61.27 million increase in net interest income occurred because total interest income increased $10.46 million while total interest expense decreased $50.82 million from the first nine months of 2020. On a linked-quarter basis, 73 Table of Contents net interest income for the third quarter of 2021 decreased $4.94 million or 2.65% from the second quarter of 2021. The $4.94 million decrease in net interest income occurred because total interest income decreased $6.11 million while total interest expense decreased $1.17 million from the second quarter of 2021. Generally, interest income for the third quarter of 2021 decreased from the third quarter of 2020 due to a change in the mix of interest earning assets while interest expense decreased due to lower market interest rates which resulted in lower funding costs. Interest income for the first nine months of 2021 increased from the first nine months of 2020 due to an increase in earning assets, mainly as a result of the Carolina Financial acquisition and PPP loan activity, while interest expense decreased primarily due to the decline in market interest rates. For the purpose of this remaining discussion, net interest income is presented on a tax-equivalent basis to provide a comparison among all types of interest earning assets. 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. Tax-equivalent net interest income for the third quarter of 2021 was $182.64 million, a decrease of $4.07 million or 2.18% from the third quarter of 2020. The decrease in net interest income and tax-equivalent net interest income was primarily due to a change in the mix of interest earning assets. The decrease was partially offset by lower interest expense on deposits and borrowings reflecting a decline in market interest rates and higher loan fee income from the PPP. The net interest spread for the third quarter of 2021 decreased 10 basis points from the third quarter of 2020 due to a 41 basis point decrease in the average yield on earning assets partially offset by a 31 basis point decrease in the average cost of funds. Average earning assets for the third quarter of 2021 increased $937.44 million, or 4.00%, from the third quarter of 2020 due to a $1.86 billion increase in average short-term investments and a $563.22 million increase in average investment securities, partially offset by a $1.48 billion decrease in average net loans and loans held for sale mainly driven by a decline in PPP loan balances. Net PPP loan fee income of $7.85 million was recognized in the third quarter of 2021 driven primarily by loan forgiveness, as compared to $4.80 million for the third quarter of 2020. Loan accretion on acquired loans was $8.15 million and $11.74 million for the third quarter of 2021 and 2020, respectively, a decrease of $3.59 million. The net interest margin of 2.98% for the third quarter of 2021 was a decrease of 20 basis points from the net interest margin of 3.18% for the third quarter of 2020. Tax-equivalent net interest income for the first nine months of 2021 was $562.24 million, an increase of $61.61 million, or 12.31%, from the first nine months of 2020. The increase in net interest income and tax-equivalent net interest income was primarily due to an increase in average earning assets from the Carolina Financial acquisition and PPP loans as well as lower interest expense on deposits and borrowings. Average earning assets for the first nine months of 2021 increased $3.15 billion, or 15.13%, from the first nine months of 2020 due to a $1.60 billion increase in average short-term investments, a $989.33 million increase in average net loans and loans held for sale and a $558.52 million increase in average investment securities. The net interest spread for the first nine months of 2021 increased 11 basis points from the first nine months of 2020 due to a 54 basis point decrease in the average cost of funds partially offset by a 43 basis point decrease in the average yield on earning assets. Net PPP loan fee income of $28.18 million was recognized in the first nine months of 2021 driven primarily by loan forgiveness, as compared to $9.28 million for the first nine months of 2020. Loan accretion on acquired loans was $27.62 million and $30.84 million for the first nine months of 2021 and 2020, respectively, a decrease of $3.22 million. The net interest margin of 3.14% for the first nine months of 2021 was a decrease of 7 basis points from the net interest margin of 3.21% for the first nine months of 2020. On a linked-quarter basis, net interest income for the third quarter of 2021 decreased $4.94 million, or 2.65%, from the second quarter of 2021. Tax-equivalent net interest income for the third quarter of 2021 decreased $4.95 million, or 2.64%, from the second quarter of 2021. The net interest spread for the third quarter of 2021 of 2.83% decreased 15 basis points from the second quarter of 2021 due to a 19 basis point decrease in the average yield on earning assets partially offset by a 4 basis point decrease in the average cost of funds. Average earning assets increased approximately $394.59 million, or 1.65%, from the second quarter of 2021 due to increases in average short-term investments of $919.66 million and average investment securities of $111.56 million partially offset by a decrease in average net loans and loans held for sale of $636.63 million mainly driven by a decline in PPP loan balances. Net PPP loan fee income for the third quarter of 2021 decreased $1.18 million from the second quarter of 2021 to $7.85 million. Loan accretion on acquired loans decreased $1.52 million from the second quarter of 2021 to $8.15 million for the third quarter of 2021. The net interest margin of 2.98% for the third quarter of 2021 was a decrease of 16 basis points from the net interest margin of 3.14% for the second quarter of 2021. 74 Table of Contents United’s tax-equivalent net interest income also includes the impact of acquisition accounting fair value adjustments. The following table provides the discount/premium and net accretion impact to tax-equivalent net interest income for the three months ended September 30, 2021, September 30, 2020 and June 30, 2021 and the nine months ended September 30, 2021 and September 30, 2020: Three Months Ended (Dollars in thousands) September 30 2021 September 30 2020 June 30 2021 Loan accretion $ 8,154 $ 11,743 $ 9,669 Certificates of deposit 898 3,028 1,050 Long-term borrowings 170 217 174 Total $ 9,222 $ 14,988 $ 10,893 Nine Months Ended (Dollars in thousands) September 30 2021 September 30 2020 Loan accretion $ 27,623 $ 30,838 Certificates of deposit 3,397 5,780 Long-term borrowings 518 973 Tax-equivalent net interest income $ 31,538 $ 37,591 The following tables reconcile the difference between net interest income and tax-equivalent net interest income for the three months ended September 30, 2021, September 30, 2020 and June 30, 2021 and the nine months ended September 30, 2021 and September 30, 2020. Three Months Ended (Dollars in thousands) September 30 2021 September 30 2020 June 30 2021 Net interest income, GAAP basis $ 181,579 $ 185,664 $ 186,517 Tax-equivalent adjustment (1) 1,059 1,046 1,075 Tax-equivalent net interest income $ 182,638 $ 186,710 $ 187,592 Nine Months Ended (Dollars in thousands) September 30 2021 September 30 2020 Net interest income, GAAP basis $ 559,056 $ 497,784 Tax-equivalent adjustment (1) 3,181 2,846 Tax-equivalent net interest income $ 562,237 $ 500,630 (1) 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% for the three months and nine months ended September 30, 2021 and 2020 and the three months ended June 30, 2021. All interest income on loans and investment securities was subject to state income taxes. 75 Table of Contents The following tables show the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month and nine-month periods ended September 30, 2021 and 2020, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the three-month and nine-month period ended September 30, 2021 and 2020. Interest income on all loans and investment securities was subject to state income taxes. Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 (Dollars in thousands) Average Balance Interest (1) Avg. Rate (1) Average Balance Interest (1) Avg. Rate (1) ASSETS Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short-term investments $ 3,825,264 $ 2,548 0.26 % $ 1,967,791 $ 2,060 0.42 % Investment Securities: Taxable 3,215,719 12,999 1.62 % 2,749,114 14,448 2.10 % Tax-exempt 363,966 2,327 2.56 % 267,355 1,893 2.83 % Total Securities 3,579,685 15,326 1.71 % 3,016,469 16,341 2.17 % Loans, net of unearned income (2) 17,174,856 177,265 4.10 % 18,655,500 192,914 4.12 % Allowance for loan losses (217,472 ) (214,870 ) Net loans 16,957,384 4.15 % 18,440,630 4.17 % Total earning assets 24,362,333 $ 195,139 3.18 % 23,424,890 $ 211,315 3.59 % Other assets 3,075,377 2,990,733 TOTAL ASSETS $ 27,437,710 $ 26,415,623 LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $ 13,361,016 $ 9,803 0.29 % $ 12,951,290 $ 17,726 0.54 % Short-term borrowings 123,526 167 0.54 % 156,502 172 0.44 % Long-term borrowings 813,976 2,531 1.23 % 1,616,647 6,707 1.65 % Total Interest-Bearing Funds 14,298,518 12,501 0.35 % 14,724,439 24,605 0.66 % Noninterest-bearing deposits 8,471,744 7,178,769 Accrued expenses and other liabilities 227,341 249,304 TOTAL LIABILITIES 22,997,603 22,152,512 SHAREHOLDERS’ EQUITY 4,440,107 4,263,111 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 27,437,710 $ 26,415,623 NET INTEREST INCOME $ 182,638 $ 186,710 INTEREST SPREAD 2.83 % 2.93 % NET INTEREST MARGIN 2.98 % 3.18 % (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. 76 Table of Contents Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 (Dollars in thousands) Average Balance Interest (1) Avg. Rate (1) Average Balance Interest (1) Avg. Rate (1) ASSETS Earning Assets: Federal funds sold and securities repurchased under agreements to resell and other short-term investments $ 3,012,429 $ 6,198 0.28 % $ 1,412,386 $ 7,893 0.75 % Investment Securities: Taxable 3,085,050 40,371 1.74 % 2,663,754 47,658 2.39 % Tax-exempt 337,590 6,639 2.62 % 200,371 4,413 2.94 % Total Securities 3,422,640 47,010 1.83 % 2,864,125 52,071 2.42 % Loans, net of unearned income (2) 17,742,054 549,896 4.14 % 16,698,013 532,350 4.26 % Allowance for loan losses (228,163 ) (173,452 ) Net loans 17,513,891 4.20 % 16,524,561 4.30 % Total earning assets 23,948,960 $ 603,104 3.37 % 20,801,072 $ 592,314 3.80 % Other assets 3,032,927 2,671,235 TOTAL ASSETS $ 26,981,887 $ 23,472,307 LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $ 13,255,751 $ 32,800 0.33 % $ 11,282,883 $ 64,452 0.76 % Short-term borrowings 134,092 527 0.53 % 146,302 826 0.75 % Long-term borrowings 820,426 7,540 1.23 % 1,895,635 26,406 1.86 % Total Interest-Bearing Funds 14,210,269 40,867 0.38 % 13,324,820 91,684 0.92 % Non-interest bearing deposits 8,147,540 6,076,683 Accrued expenses and other liabilities 234,991 235,187 TOTAL LIABILITIES 22,592,800 19,636,690 SHAREHOLDERS’ EQUITY 4,389,087 3,835,617 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 26,981,887 $ 23,472,307 NET INTEREST INCOME $ 562,237 $ 500,630 INTEREST SPREAD 2.99 % 2.88 % NET INTEREST MARGIN 3.14 % 3.21 % (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. Provision for Credit Losses United’s provision for credit losses was a net benefit of $7.83 million and $16.57 million for the third quarter and first nine months of 2021, respectively, while the provision for credit losses was an expense of $16.78 million and $89.81 million, respectively, for the third quarter and first nine months of 2020. United’s provision for credit losses relates to its portfolio of loans and leases, held-to-maturity securities and interest receivable on loans which are discussed in more detail in the following paragraphs. 77 Table of Contents For the quarter ended September 30, 2021, the provision for loan and lease losses was a net benefit of $7.82 million as compared to provision expense of $16.34 million for the quarter ended September 30, 2020. The provision for loan and lease losses for the first nine months of 2021 was a net benefit of $16.35 million as compared to provision expense of $89.36 million for the first nine months of 2020. Net recoveries were $1.17 million for the third quarter of 2021 as compared to net charge-offs of $5.65 million for the same quarter in 2020. Net charge-offs for the first nine months of 2021 were $8.59 million as compared to $16.68 million for the first nine months of 2020. The lower amount of provision expense for 2021 compared to 2020 was mainly due to a provision for loan losses of $28.95 million recorded on purchased non-PCD loans from Carolina Financial during the second quarter of 2020 and better performance trends within the loan portfolio as well as improved reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses. On a linked-quarter basis, the provision for loan losses increased $1.05 million. Net charge-offs for the third quarter of 2021 decreased $6.39 million from the second quarter of 2021. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income were (0.03%) and 0.07% for the third quarter and first nine months of 2021, respectively, compared to 0.13% and 0.14% for the third quarter and first nine months of 2020. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income was 0.12% for the second quarter of 2021. As of September 30, 2021, nonperforming loans and leases were $90.27 million or 0.54% of loans and leases, net of unearned income as compared to $132.21 million or 0.75% of loans and leases, net of unearned income at December 31, 2020. The components of nonperforming loans and leases include: 1) nonaccrual loans and leases, 2) loans and leases which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis and 3) loans and leases whose terms have been restructured for economic or legal reasons due to financial difficulties of the borrowers. Loans and leases past due 90 days or more were $14.83 million at September 30, 2021, an increase of $995 thousand or 7.19% from $13.83 million at year-end 2020. This increase was primarily due to several large commercial relationships that have exceeded their stated maturity dates as of September 30, 2021. At September 30, 2021, nonaccrual loans and leases were $37.69 million, which was a decrease of $25.03 million or 39.91% from $62.72 million at year-end 2020. This decrease was due to the repayment of four large commercial nonaccrual loans as well as the charge-off of three commercial relationships and troubled debt restructuring designations for three large commercial nonaccrual loans. Restructured loans were $37.75 million at September 30, 2021, a decrease of $17.91 million or 32.17% from $55.66 million at year-end 2020. The decrease was mainly due to the repayment of six large commercial relationships and charge-off of two commercial restructured loans during the first nine months of 2021. The loss potential on these loans has been properly evaluated and allocated within the Company’s allowance for loan losses. Nonperforming assets include nonperforming loans and leases and real estate acquired in foreclosure or other settlement of loans (“OREO”). Total nonperforming assets of $106.96 million, including OREO of $16.70 million at September 30, 2021, represented 0.39% of total assets, down from $154.80 million or 0.59% of total assets at December 31, 2020. United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses. At September 30, 2021, the allowance for credit losses was $236.08 million as compared to $255.08 million at December 31, 2020. At September 30, 2021, the allowance for loan and lease losses was $210.89 million as compared to $235.83 million at December 31, 2020. The decrease in the allowance for loan and lease losses was due to better trends within the loan portfolio as well as improved reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.26% at September 30, 2021 and 1.34% at December 31, 2020. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 233.63% and 178.38% at September 30, 2021 and December 31, 2020, respectively. The increase in this ratio was due mainly to a larger decline in nonperforming loans and leases than in the allowance for loan and lease losses. The reserve for lending-related commitments was $25.19 million, an increase of $5.94 million or 30.86% from December 31, 2020. The increase was due mainly to an increase in loan commitments during the first nine months of 2021 as well as an increase in the utilization rate of the commitments. 78 Table of Contents United continues to evaluate risks which may impact its loan and lease portfolios. As a result of the COVID-19 pandemic and resulting economic uncertainty given the rapidly changing economic impact, the Company reviewed its loan and lease portfolio segments, assessing the likely impact of COVID-19 on each segment and established relevant qualitative adjustment factors. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then any qualitative adjustments are applied to account for the Company’s view of the future. If current conditions underlying any qualitative adjustment factor were deemed to be materially different than historical conditions, then an adjustment was made for that factor. The third quarter of 2021 qualitative adjustments include analyses of the following: • Past events – This includes portfolio trends related to business conditions; past due, nonaccrual, and graded loans and leases; and concentrations. • Current conditions – United considered the continued impact of COVID-19 on the economy as well as loan deferrals and modifications made in light of the pandemic when making determinations related to factor adjustments, such as changes in economic and business conditions, collateral values, external factors and past due loans and leases. • Reasonable and supportable forecasts – The forecast is determined on a portfolio-by-portfolio basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following: • The real GDP projection decreased from the second quarter of 2021 but increased for 2022 and 2023. The unemployment rate projection increased slightly from the second quarter of 2021 but was flat for 2022 and 2023. This indicates a weakening of the economy for the remainder of the year with the rebound continuing in 2022 and 2023. • Greater risk of loss is probable in the hotel and accommodations portfolio due to weakened economic conditions brought on by the pandemic and labor shortages which resulted in a more negative forecast relative to other portfolios and a longer projected recovery period to extend into late 2023 or 2024. • Consideration was given to the $1.9 trillion American Rescue Plan (effective March 11, 2021) during the forecast selection process as it is likely this stimulus package continues to have some positive impact on the economy. However, we acknowledge the impact of the stimulus has been fading and will likely have no further impact by the end of the year. • Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period. Allocations are made for specific commercial loans based upon management’s estimate of the borrowers’ ability to repay and other factors impacting collectability. Other commercial loans and leases not specifically reviewed on an individual basis are evaluated based on historical loss percentages applied to loan pools that have been segregated by risk. Allocations for loans and leases other than commercial loans and leases are made based upon historical loss experience adjusted for current environmental conditions. The allowance for credit losses includes estimated lifetime losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. United’s review of the allowance for loan and lease losses at September 30, 2021 produced decreased allocations in each of the four loan categories as compared to December 31, 2020. The allocation related to the commercial, financial & agricultural loan pool decreased $15.10 million. The residential real estate allocation decreased $3.60 million. The real estate construction and development loan pool allocation decreased $3.99 million. The consumer loan pool decreased $2.25 million. Each of these decreases were primarily due to improved economic conditions and improved expectations within the reasonable and supportable forecast. 79 Table of Contents An allowance is established for estimated lifetime losses for loans that are individually assessed. Nonperforming commercial loans and leases are regularly reviewed to identify expected credit losses. A loan is individually assessed for expected credit losses when the loan does not share similar characteristics with other loans in the portfolio. Measuring expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Expected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate, the loan’s observable market price or the fair value of collateral if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an expected credit loss has occurred. The allowance for loans and leases that were individually assessed was $2.53 million at September 30, 2021 and $7.78 million at December 31, 2020. In comparison to the prior year-end, this element of the allowance decreased by $5.25 million primarily due to charge-off of previously recognized allocations for probable credit losses on individually assessed loans as well as repayment of individually assessed loans. Management believes that the allowance for credit losses of $236.08 million at September 30, 2021 is adequate to provide for expected losses on existing loans and lending-related commitments based on information currently available. United’s loan administration policies are focused on the risk characteristics of the loan portfolio in terms of loan approval and credit quality. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses. The provision for credit losses related to held to maturity securities for the first nine months of 2021 and 2020 was immaterial. The allowance for credit losses related to held to maturity securities was $27 thousand as of September 30, 2021 as compared to $23 thousand as of December 31, 2020. There was no provision for credit losses recorded on available for sale investment securities for the first nine months of 2021 and 2020 and no allowance for credit losses on available for sale investment securities as of September 30, 2021 and December 30, 2020. Due to loan interest payment deferrals granted by United under the CARES Act, United assessed the collectability of the accrued interest receivables on these deferring loans as of September 30, 2021. As a result of this assessment, United released reserves of $3 thousand and $224 thousand for the third quarter and first nine months of 2021. The allowance for accrued interest receivables not expected to be collected as of September 30, 2021 was $26 thousand as compared to $250 thousand at December 31, 2020. Management is not aware of any potential problem loans or leases, trends or uncertainties, which it reasonably expects, will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits, which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules. Other Income Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income for the third quarter of 2021 was $68.62 million, a decrease of $66.84 million or 49.34% from the third quarter of 2020. Noninterest income for the first nine months of 2021 was $224.04 million, a decrease of $36.62 million or 14.05% from the first nine months of 2020. Both differences from the third quarter and first nine months of 2020 were due mainly to declines in income from mortgage banking activities. In addition, the third quarter of 2020 included a $2.23 million gain on the sale of bank premises. 80 Table of Contents Income from mortgage banking activities totaled $42.01 million for the third quarter of 2021 compared to $109.46 million for the same period of 2020, a decline of $67.45 million or 61.62%. The decrease was due mainly to lower sales activity and a decline in the fair value of derivatives associated with a declining pipeline. For the three months ended September 30, 2021 and 2020, mortgage loan sales were $1.45 billion and $1.95 billion, respectively. For the first nine months of 2021 and 2020, income from mortgage banking activities was $144.35 million and $195.30 million, respectively. The decrease of $50.95 million for the first nine months of 2021 was due mainly to the mark-to-market impact of a declining locked pipeline although originations and sales of mortgage loans in the secondary market increased. For the nine months ended September 30, 2021 and 2020, mortgage loan sales were $5.16 billion and $4.16 billion, respectively. Mortgage loan servicing income for the first nine months of 2021 increased $3.29 million from the first nine months of 2020 due to increased mortgage servicing activity as a result of the Carolina Financial acquisition. Fees from brokerage services for the third quarter and first nine months of 2021 increased $817 thousand or 26.65% and $3.23 million or 37.38%, respectively, from the third quarter and first nine months of 2020. This increase was due to an increased volume of transactions. Fees from trust services for the third quarter and first nine months of 2021 increased $695 thousand or 19.45% and $1.91 million or 18.48%, respectively, from the third quarter and first nine months of 2020. This increase was due to an increase in managed assets. Fees from deposit services for the third quarter and first nine months of 2021 increased $568 thousand or 6.09% and $2.85 million or 11.24%, respectively, from the third quarter and first nine months of 2020. Generally, the increase was due primarily to higher income from overdraft fees and debit card fees. Fees from bankcard services for the first nine months of 2021 increased $968 thousand or 32.96% from the first nine months of 2020. This increase was due to an increased volume of transactions. On a linked-quarter basis, noninterest income for the third quarter of 2021 increased $5.78 million, or 9.19%, from the second quarter of 2021 primarily due to an increase of $5.07 million in income from mortgage banking activities due primarily to a higher loan pipeline valuation. Fees from deposit services for the third quarter of 2021 were $9.89 million, an increase of $492 thousand or 5.24% from the linked quarter due primarily to higher income from overdraft fees. Other Expenses Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for credit losses, and income taxes. Noninterest expense decreased $29.32 million or 17.09% for the third quarter of 2021 compared to the same period in 2020. For the first nine months of 2021, noninterest expense was $430.15 million, which was an increase of $8.05 million or 1.91% from the first nine months of 2020. Employee compensation for the third quarter of 2021 decreased $17.00 million or 20.12% from the third quarter of 2020. The decrease was primarily due to lower employee incentives and commissions related mainly to mortgage banking production as well as a lower employee headcount. Employee compensation for the first nine months of 2021 increased $10.77 million or 5.45% from the first nine months of 2020. The increase for the first nine months of 2021 was due mainly to additional employees from the Carolina Financial acquisition. The remainder of the increase in employee compensation for first nine months of 2021 was due mainly to higher employee commissions and incentives expense primarily related to the increased mortgage banking production. 81 Table of Contents Employee benefits expense for the first nine months of 2021 increased $6.29 million or 17.09% as compared to the first nine months of 2020. The increase for the first nine months of 2021 was primarily due to higher levels of Federal Insurance Contributions Act (“FICA”), health insurance and postretirement expense due mainly to the additional employees from the Carolina Financial acquisition. The increase in FICA expense was due to the higher commissions and incentives expense. Net occupancy expense for the third quarter of 2021 decreased $605 thousand or 5.53% from the third quarter of 2020. The decrease was due to lower building rental and building maintenance expense. Net occupancy expense increased $1.06 million or 3.49% for the first nine months of 2021 as compared to the same period in 2020. The increases were due primarily to increases in building depreciation and maintenance expenses mainly as a result of the offices added in the Carolina Financial acquisition. OREO expense for the third quarter of 2021 decreased $779 thousand due primarily to a decline in net losses on the sale of OREO properties. OREO expense for the first nine months of 2021 increased $1.71 million as declines in the fair value of OREO properties increased from the first nine months of 2020. Equipment expense increased $1.67 million or 29.74% and $4.70 million or 32.46% for the third quarter and first nine months of 2021, respectively, as compared to the same periods in 2020. The increases were due to higher maintenance costs and depreciation expense primarily due to the Carolina Financial acquisition. Data processing expense decreased $7.55 million or 26.82% for the first nine months of 2021 as compared to the first nine months of 2020. The decrease for the first nine months of 2021 was due mainly to a $9.66 million penalty in the second quarter of 2020 to terminate the contract with Carolina Financial’s data processor. Mortgage loan servicing expense and impairment for the first nine months of 2021 increased $4.08 million from the same time period in 2020. The increase was due to an increase in mortgage servicing activity as a result of the acquisition of Carolina Financial and Crescent Mortgage. In addition, United did not record any temporary impairment charge, net of recoveries on its mortgage servicing rights during the first nine months of 2021 as compared to a temporary impairment charge on its mortgage servicing rights of $1.11 million during the first nine months of 2020. Other expense for the third quarter of 2021 decreased $1.20 million or 3.67% from the third quarter of 2020 due mainly to a decline of $2.00 million in merger-related expenses partially offset by an increase of $601 thousand in automated teller machine (“ATM”) fees. On a linked-quarter basis, noninterest expense for the third quarter of 2021 increased $3.33 million, or 2.39%, from the second quarter of 2021 primarily due to an increase of $4.68 million in other expense. Within other expense, the largest drivers of the increase were increases in the expense for the reserve for unfunded commitments of $3.42 million primarily due to an increase in outstanding loan commitments and merger-related expenses of $662 thousand associated with the announced Community Bankers Trust acquisition. Partially offsetting the increases in other expense were decreases in employee compensation of $1.10 million and employee benefits of $1.34 million, primarily due to lower commissions, and associated FICA taxes, related to mortgage banking production. Income Taxes For the third quarter of 2021, income tax expense was $23.60 million as compared to $28.97 million for the third quarter of 2020 primarily due to lower earnings and a lower effective tax rate. For the first nine months of 2021, income tax expense was $75.62 million as compared to $49.88 million for the first nine months of 2020 primarily due to higher earnings. On a linked-quarter basis, income tax expense decreased $851 thousand primarily due to lower earnings and a slightly lower effective tax rate. United’s effective tax rate was 20.39% for the third quarter of 2021, 21.82% for the third quarter of 2020 and 20.50% for the second quarter of 2021. For the first nine months of 2021 and 2020, United’s effective tax rate was 20.47% and 20.23%, respectively. For further details related to income taxes, see Note 17 of the unaudited Notes to Consolidated Financial Statements contained within this document. 82 Table of Contents Liquidity and Capital Resources In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable, and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds which are obtained as the result of a competitive bidding process. Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day-to-day demands of customers and United’s cash needs. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity. The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of outside sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, borrowings that are secured by bank premises or stock of United’s subsidiaries and issuances of trust preferred securities. In the normal course of business, United through its Asset Liability Committee evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs. For the first nine months ended September 30, 2021, cash of $553.20 million was provided by operating activities due mainly to net income of $293.89 million. In addition, mortgage banking activities added cash of $225.64 million to the net income amount as sales of mortgage loans in the secondary market exceeded originations. Net cash of $249.37 million was provided by investing activities which was primarily due to net loan repayments of $864.28 million partially offset by $524.66 million of purchases of investment securities over proceeds from sales and $85.00 million of purchases of bank-owned life insurance policies. During the first nine months of 2021, net cash of $1.02 billion was provided by financing activities due primarily to net growth of $1.23 billion in deposits. These funding activities were partially offset by the net repayment of $50.00 million in long-term FHLB advances, cash dividends paid of $135.99 million, and net repurchases of $11.21 million of United common stock for the first nine months of 2021. The net effect of the cash flow activities was an increase in cash and cash equivalents of $1.82 billion for the first nine months of 2021. United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. United also has lines of credit available. See Notes 10 and 11 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under lines of credit. The Asset Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset Liability Committee. United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 15.74% at September 30, 2021 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.53%, 13.53% and 10.36%, respectively. The September 30, 2021 ratios reflects United’s election of a five-year transition provision, allowed by the Federal Reserve 83 Table of Contents 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%. Total shareholders’ equity was $4.43 billion at September 30, 2021, which was an increase of $133.15 million or 3.10% from December 31, 2020. This increase is primarily due to an increase of $158.09 million in retained earnings (net income less dividends declared). Partially offsetting this increase was a decrease of $23.61 million in accumulated other comprehensive income due mainly to an after-tax decrease in the fair value of available for sale securities. Treasury stock increased $11.34 million or 7.13% due to the repurchase of 306,204 shares of United common stock under a stock repurchase plan approved by United’s Board of directors in November of 2019. United’s equity to assets ratio was 16.11% at September 30, 2021 as compared to 16.41% at December 31, 2020. The primary capital ratio, capital and reserves to total assets and reserves, was 16.82% at September 30, 2021 as compared to 17.22% at December 31, 2020. United’s average equity to average asset ratio was 16.18% for the third quarter of 2021 as compared to 16.14% the third quarter of 2020. United’s average equity to average asset ratio was 16.27% for the first nine months of 2021 as compared to 16.34% the first nine months of 2020. All of these financial measurements reflect a financially sound position. During the third quarter of 2021, United’s Board of Directors declared a cash dividend of $0.35 per share. Cash dividends were $1.05 per common share for the first nine months of 2021. Total cash dividends declared were $45.27 million for the third quarter of 2021 and $135.79 million for the first nine months of 2021 as compared to $45.41 million for the third quarter of 2020 and $126.43 million for the first nine months of 2020.