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, and to a lesser extent in 2021, 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 56 Table of Contents 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 2021 Form 10-K 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. As the COVID-19 pandemic continues to be on-going, there continues to be uncertainties related to its magnitude, duration and persistent effects. This is particularly the case with the emergence, contagiousness and threat of new and different strains of the virus as well as the availability, acceptance and effectiveness of vaccines. However, United is currently unable to fully assess or predict the extent of the effects of COVID-19 on its operations and results in the future as the ultimate impact will depend on factors that are currently unknown and/or beyond our control. ACQUISITION On December 3, 2021, United acquired 100% of the outstanding common stock of Community Bankers Trust Corporation (“Community Bankers Trust”), a Virginia corporation headquartered in Richmond, Virginia. Immediately following the Merger, Essex Bank, a wholly-owned subsidiary of Community Bankers Trust, merged with and into United Bank, a wholly-owned subsidiary of United. United Bank survived the Bank Merger and continues to exist as a Virginia banking corporation. The acquisition of Community Bankers Trust enhanced United’s existing presence in the DC Metro MSA and took United into new markets including Baltimore, Annapolis, Lynchburg, Richmond, and the Northern Neck of Virginia. It also strategically connected our Mid-Atlantic and Southeast footprints. The Community Bankers Trust merger was accounted for under the acquisition method of accounting. At consummation, Community Bankers Trust had assets of $1.79 billion, loans and leases, net of unearned income of $1.28 billion and deposits of $1.52 billion. The results of operations of Community Bankers Trust are included in the consolidated results of operations from its date of acquisition. As a result of the Community Bankers Trust acquisitions, the first quarter of 2022 was impacted by increased levels of average balances, income, and expense as compared to the first quarter of 2021. In addition, the first quarter of 2022 included $536 thousand of merger-related expenses from the the Community Bankers Trust acquisition. There were no merger-related expenses incurred in the first quarter of 2021. TRANSITION FROM THE LONDON INTERBANK OFFERED RATE (LIBOR) In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced its intention to stop persuading or compelling banks to submit the rates used to calculate LIBOR after 2021. ICE Benchmark Administration (the publisher of LIBOR) discontinued publication of the one-week and two-month U.S. Dollar LIBOR settings on December 31, 2021, and plans 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. Accordingly, United has taken steps to ensure that no new contracts using LIBOR will be originated after 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. At this time, United intends to prioritize SOFR and Prime as the preferred alternatives to LIBOR; however, these preferred alternatives could change over time based on market developments. 57 Table of Contents 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. and its wholly-owned subsidiaries, unless otherwise indicated. Management has evaluated all significant events and transactions that occurred after March 31, 2022, 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 a more 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. This measure, along with others, is used by management to analyze capital adequacy and performance. 58 Table of Contents 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. These policies, along with the disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan and lease losses, the calculation of the income tax provision, and the use of fair value measurements to account for certain financial instruments to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. United’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2022 were unchanged from the policies disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2021 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” FINANCIAL CONDITION United’s total assets as of March 31, 2022 were $29.37 billion, which was an increase of $36.61 million or less than 1% from December 31, 2021. This increase was mainly due to an increase of $724.96 million or 16.88% in investment securities, and an increase of $368.44 million or 2.04% in portfolio loans. These increases in assets were mostly offset by a $955.08 million or 25.41% decrease in cash and cash equivalents and a $164.38 million or 32.59% decrease in loans held for sale. Total liabilities increased $160.10 million or less than 1% from year-end 2021. Deposits increased $124.04 million or less than 1%, accrued expenses and other liabilities increased $28.48 million or 14.56% and borrowings increased $7.37 million or less than 1%. Shareholders’ equity decreased $123.49 million or 2.62%. The following discussion explains in more detail the changes in financial condition by major category. Cash and Cash Equivalents Cash and cash equivalents at March 31, 2022 decreased $955.08 million or 25.41% from year-end 2021. In particular, interest-bearing deposits with other banks decreased $1.05 billion or 30.36% as United placed less cash in an interest-bearing account with the Federal Reserve. Partially offsetting this decrease in cash and cash equivalents was a $99.71 million or 35.25% increase in cash and due from banks. Federal funds sold increased $118 thousand or 12.73%. During the first three months of 2022, net cash of $283.61 million and $64.91 million were provided by operating and financing activities, respectively, while net cash of $1.30 billion was used in investing 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 three months of 2022 and 2021. 59 Table of Contents Securities Total investment securities at March 31, 2022 increased $724.96 million or 16.88%. Securities available for sale increased $718.24 million or 17.77%. This change in securities available for sale reflects $1.08 billion in purchases, $151.63 million in sales, maturities and calls of securities and a decrease of $202.23 million in market value. The majority of the purchase activity was related to securities of the U.S. Treasury and obligations of U.S. Government corporations and agencies, mortgage-backed securities, and asset-backed securities. Securities held to maturity were flat from year-end 2021. Equity securities were $12.36 million at March 31, 2022, a decrease of $47 thousand or less than 1% due mainly to a net decline in fair value. Other investment securities increased $6.78 million or 2.83% from year-end 2021 due to purchases of Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stock as well as investment tax credits. The following table summarizes the changes in the available for sale securities since year-end 2021: (Dollars in thousands) March 31 2022 December 31 2021 $ Change % Change U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 371,392 $ 81,850 $ 289,542 353.75 % State and political subdivisions 795,512 847,298 (51,786 ) (6.11 %) Mortgage-backed securities 2,116,800 1,828,244 288,556 15.78 % Asset-backed securities 843,999 656,572 187,427 28.55 % Single issue trust preferred securities 16,669 16,811 (142 ) (0.84 %) Corporate securities 616,562 611,924 4,638 0.76 % Total available for sale securities, at fair value $ 4,760,934 $ 4,042,699 $ 718,235 17.77 % The following table summarizes the changes in the held to maturity securities since year-end 2021: (Dollars in thousands) March 31 2022 December 31 2021 $ Change % Change State and political subdivisions $ 981 (1) $ 981 (1) $ 0 0.00 % Other corporate securities 20 20 0 0.00 % Total held to maturity securities, at amortized cost $ 1,001 $ 1,001 $ 0 0.00 % (1) net of allowance for credit losses of $19 thousand. At March 31, 2022, gross unrealized losses on available for sale securities were $195.58 million. Securities with the most significant gross unrealized losses at March 31, 2022 consisted primarily of agency residential mortgage-backed securities, state and political subdivision securities, agency commercial mortgage-backed securities, asset-backed securities and other corporate securities. As of March 31, 2022, United’s available for sale mortgage-backed securities had an amortized cost of $2.23 billion, with an estimated fair value of $2.12 billion. The portfolio consisted primarily of $1.47 billion in agency residential mortgage-backed securities with a fair value of $1.39 billion, $103.78 million in non-agency residential mortgage-backed securities with an estimated fair value of $100.10 million, and $653.53 million in commercial agency mortgage-backed securities with an estimated fair value of $627.17 million. As of March 31, 2022, United’s available for sale state and political subdivisions securities had an amortized cost of $838.38 million, with an estimated fair value of $795.51 million. The portfolio relates to securities issued by various municipalities located throughout the United States, and no securities within the portfolio were rated below investment grade as of March 31, 2022. As of March 31, 2022, United’s available for sale corporate securities had an amortized cost of $1.51 billion, with an estimated fair value of $1.48 billion. The portfolio consisted of $17.30 million in single issue trust preferred securities with an estimated fair value of $16.67 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 $856.84 million and a fair value of $844.00 million and other corporate securities, with an amortized cost of $632.22 million and a fair value of $616.56 million. 60 Table of Contents United’s available for sale single issue trust preferred securities had a fair value of $16.67 million as of March 31, 2022. Of the $16.67 million, $8.12 million or 48.65% were investment grade; $3.21 million or 19.29% were split rated; and $5.34 million or 32.06% were unrated. The two largest exposures accounted for 75.76% of the $16.67 million. These included Truist Bank at $7.28 million and Emigrant Bank at $5.34 million. All single issue trust preferred securities are currently receiving full scheduled principal and interest payments. During the first quarter of 2022, 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 March 31, 2022 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 March 31, 2022, 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 were $340.04 million at March 31, 2022, a decrease of $164.38 million or 32.59% from year-end 2021. Loan sales in the secondary market exceeded originations during the first three months of 2022. Loan originations for the first three months of 2022 were $927.80 million while loans sales were $1.11 billion. Portfolio Loans Loans, net of unearned income, increased $368.44 million or 2.04%. Since year-end 2021, commercial, financial and agricultural loans increased $126.85 million or 1.14% as a result of a $55.30 million or less than 1 % increase in commercial real estate loans and a $71.55 million or 2.07% increase in commercial loans (not secured by real estate). Construction and land development loans increased $171.96 million or 8.54%, residential real estate loans increased $13.98 million or less than 1%, and consumer loans increased $55.19 million or 4.63% due to an increase in indirect automobile financing. The following table summarizes the changes in the major loan classes since year-end 2021: (Dollars in thousands) March 31 2022 December 31 2021 $ Change % Change Loans held for sale $ 340,040 $ 504,416 $ (164,376 ) (32.59 %) Commercial, financial, and agricultural: Owner-occupied commercial real estate $ 1,697,910 $ 1,733,176 $ (35,266 ) (2.03 %) Nonowner-occupied commercial real estate 6,047,856 5,957,288 90,568 1.52 % Other commercial loans 3,533,910 3,462,361 71,549 2.07 % Total commercial, financial, and agricultural $ 11,279,676 $ 11,152,825 $ 126,851 1.14 % Residential real estate 3,705,535 3,691,560 13,975 0.38 % Construction & land development 2,186,126 2,014,165 171,961 8.54 % Consumer: Bankcard 8,398 8,913 (515 ) (5.78 %) Other consumer 1,239,545 1,183,844 55,701 4.71 % Total gross loans $ 18,419,280 $ 18,051,307 $ 367,973 2.04 % Less: Unearned income (27,194 ) (27,659 ) 465 (1.68 %) Total Loans, net of unearned income $ 18,392,086 $ 18,023,648 $ 368,438 2.04 % 61 Table of Contents For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements. Other Assets Other assets increased $57.43 million or 24.80% from year-end 2021. Derivative assets increased $29.29 million due to an increase in fair value and deferred tax assets increased $41.98 million due to a decrease in the fair value of available-for-sale securities. Partially offsetting these increases were decreases of $18.14 million in income tax receivable due to timing differences, $1.18 million in other real estate owned properties (“OREO”) due to sales and write downs, and $1.38 million in core deposit intangibles due to amortization. Deposits Deposits represent United’s primary source of funding. Total deposits at March 31, 2022 increased $124.04 million or less than 1%. In terms of composition, noninterest-bearing deposits increased $26.41 million or less than 1% while interest-bearing deposits increased $97.62 million or less than 1% from December 31, 2021. Noninterest-bearing deposits consist of demand deposit and noninterest bearing money market (“MMDA”) account balances. The $26.41 million increase in noninterest-bearing deposits was due mainly to a $99.22 million or 1.41% increase in commercial noninterest-bearing deposits. Partially offsetting this increase in commercial noninterest-bearing deposits was a decrease in public noninterest-bearing deposits of $8.42 million or 4.28% and a decrease of $62.64 million in items in-process. Interest-bearing deposits consist of interest-bearing checking (“NOW”), regular savings, interest-bearing MMDA, and time deposit account balances. NOW accounts increased $88.37 billion or 2.37% since year-end 2021 as the result of increases of $52.41 million in personal NOW accounts, $12.78 million in commercial NOW accounts, and $23.18 million in public funds NOW accounts. Regular savings accounts increased $64.09 million or 3.90% mainly as a result of a $58.76 million increase in personal savings accounts and a $5.04 million increase in commercial savings accounts. Interest-bearing MMDAs increased $186.26 million or 2.93%. In particular, personal MMDAs increased $67.80 million, commercial MMDAs increased $42.03 million, brokered MMDAs increased $68.78 million, and public funds MMDAs increased $7.65 million. Time deposits under $100,000 decreased $49.35 million or 4.79% from year-end 2021. This decrease in time deposits under $100,000 was the result of a $46.00 million decrease in fixed rate Certificates of Deposits (“CDs”) under $100,000, a $2.60 million decrease in Certificate of Deposit Account Registry Service (“CDARS”) under $100,000, and a $2.31 million decrease in CDs under $100,000 obtained through the use of deposit listing services. Since year-end 2021, time deposits over $100,000 decreased $191.75 million or 11.98% as fixed rate CDs decreased $125.09 million, CDARS over $100,000 decreased $33.64 million, brokered certificates of deposits decreased $7.04 million, and public funds CDs over $100,000 decreased $25.74 million. The table below summarizes the changes by deposit category since year-end 2021: (Dollars in thousands) March 31 2022 December 31 2021 $ Change % Change Demand deposits $ 9,006,961 $ 8,980,547 $ 26,414 0.29 % Interest-bearing checking 3,822,725 3,734,355 88,370 2.37 % Regular savings 1,705,494 1,641,404 64,090 3.90 % Money market accounts 6,548,151 6,361,887 186,264 2.93 % Time deposits under $100,000 981,662 1,031,008 (49,346 ) (4.79 %) Time deposits over $100,000 (1) 1,409,308 1,601,062 (191,754 ) (11.98 %) Total deposits $ 23,474,301 $ 23,350,263 $ 124,038 0.53 % (1) Includes time deposits of $250,000 or more of $556,426 and $640,752 at March 31, 2022 and December 31, 2021, respectively. 62 Table of Contents Borrowings Total borrowings at March 31, 2022 increased $7.37 million or less than 1% since year-end 2021. During the first three months of 2022, short-term borrowings increased $7.53 million or 5.84% due to an increase in securities sold under agreements to repurchase. Long-term borrowings were flat, decreasing $159 thousand or less than 1% from year-end 2021. The table below summarizes the change in the borrowing categories since year-end 2021: (Dollars in thousands) March 31 2022 December 31 2021 $ Change % Change Short-term securities sold under agreements to repurchase $ 136,370 $ 128,844 $ 7,526 5.84 % Long-term FHLB advances 531,615 532,199 (584 ) (0.11 %) Subordinated debt 9,877 9,872 5 0.05 % Issuances of trust preferred capital securities 275,743 275,323 420 0.15 % Total borrowings $ 953,605 $ 946,238 $ 7,367 0.78 % For a further discussion of borrowings see Notes 10 and 11 to the unaudited Notes to Consolidated Financial Statements. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at March 31, 2022 increased $28.48 million or 14.56% from year-end 2021. In particular, a $24.66 million liability owed to a derivative counterparty in relation to FHLB swaps was recorded during the first quarter of 2022. In addition, accounts payable associated with George Mason increased $8.84 million and income tax payable increased $3.18 million, both due to timing differences, while accrued mortgage escrow liabilities increased $3.90 million, and business franchise taxes increased $2.79 million. Partially offsetting these increases was a decrease of $10.03 million in incentives payables due to payments. Shareholders’ Equity Shareholders’ equity at March 31, 2022 was $4.60 billion, which was a decrease of $123.49 million or 2.62% from year-end 2021. Retained earnings increased $32.40 million or 2.33% from year-end 2021. Earnings net of dividends for the first three months of 2022 were $32.40 million. Accumulated other comprehensive income decreased $136.80 million or 2,798.77% from year-end 2021 due to a decrease of $155.11 million in United’s available for sale investment portfolio, net of deferred income taxes. Partially offsetting this decrease was a $17.67 million increase in the fair value of cash flow hedges, net of deferred income taxes. The after-tax accretion of pension costs was $641 thousand for the first quarter of 2022. Treasury stock increased $26.28 million or 15.41% from year-end 2021. During the first quarter of 2022, United repurchased 710,785 shares of its common stock on the open market under a repurchase plan approved by United’s Board of Directors at a cost of $24.98 million or an average price per share of $35.15. 63 Table of Contents RESULTS OF OPERATIONS Overview Net income for the first quarter of 2022 was $81.66 million as compared to earnings of $106.90 million for the first quarter of 2021. Earnings for the first quarter of 2022, as compared to the first quarter of 2021, decreased primarily due to lower income from mortgage banking activities mainly as a result of the rising rate environment partially offset by lower noninterest expense associated with decreased mortgage banking production. Diluted earnings per share were $0.60 for the first quarter of 2022 and $0.83 for the first quarter of 2021. United’s annualized return on average assets for the first three months of 2022 was 1.13% and return on average shareholders’ equity was 6.96% as compared to 1.64% and 9.97%, respectively, for the first three months of 2021. For the first three months of 2022, United’s annualized return on average tangible equity was 11.63%, as compared to 17.20% for the first three months of 2021. Three Months Ended (Dollars in thousands) March 31, 2022 March 31, 2021 Return on Average Tangible Equity: (a) Net Income (GAAP) $ 81,664 $ 106,898 (b) Number of days 90 90 Average Total Shareholders’ Equity (GAAP) $ 4,759,780 $ 4,346,750 Less: Average Total Intangibles (1,911,125 ) (1,825,639 ) (b) Average Tangible Equity (non-GAAP) $ 2,848,655 $ 2,521,111 Return on Tangible Equity (non-GAAP) [(a) / (b)] x 365/ (c) 11.63 % 17.20 % Net interest income for the first quarter of 2022 was relatively flat from the first quarter of 2021, increasing $542 thousand, or less than 1%, to $191.50 million from net interest income of $190.96 million for the first three months of 2021. The slight increase of $542 thousand in net interest income occurred because total interest income decreased $2.86 million while total interest expense decreased $3.40 million from the first quarter of 2021. The provision for credit losses was a net benefit of $3.41 million for the first quarter of 2022 as compared to a provision for credit losses expense of $143 thousand for the first quarter of 2021. The decrease in the provision for credit losses was mainly due to the impact of better performance trends within the loan portfolio. Noninterest income was $46.02 million for the first three months of 2022, a decrease of $46.55 million or 50.28% from the first three months of 2021 due mainly to decreased income from mortgage banking activities due to a lower volume of mortgage loan originations and sales in the secondary market mainly the result of a rising interest rate environment. Noninterest expense for the first three months of 2022 decreased $9.75 million or 6.55% from the first three months of 2021 due mainly to lower employee compensation expense as a result of lower employee commissions, incentives and overtime related to mortgage banking production and lower OREO expense due to fewer declines in the fair value of OREO properties. Income taxes decreased $7.47 million or 27.09% for the first three months of 2022 as compared to the first three months of 2021 primarily due to lower earnings and a lower effective tax rate. The effective tax rate was 19.75% and 20.50% for the first quarter of 2022 and 2021, 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 first quarter of 2022 was $83.03 million compared to net income of $82.22 million for the first quarter of 2021. The slightly higher net income within the community banking segment was due primarily to the impact of the Community Bankers Trust acquisition and a lower provision for credit losses. 64 Table of Contents Net interest income of $189.68 million for the first quarter of 2022 was an increase of $2.49 million or 1.33% from $187.20 million for the first quarter of 2021. Generally, net interest income for the first quarter of 2022 increased from the first quarter of 2021 due to an increase in average earning assets as a result of the Community Bankers Trust acquisition and lower interest expense on deposits driven by rate repricing. The provision for credit losses was a net benefit of $3.41 million for the first quarter of 2022 as compared to a provision for credit losses expense of $143 thousand for the first quarter of 2021, a decrease of $3.55 million. As previously mentioned, the decrease was due mainly to better performance trends within the loan portfolio. Noninterest income decreased $1.49 million for the first quarter of 2022 to $24.90 million as compared to $26.39 million for the first quarter of 2021. The decrease of $1.49 million was due mainly to declines in net gains on the sales and calls of investment securities and net gains on the sales of mortgage loans within the community banking segment. Partially offsetting these declines were increases in fees from deposit services and income from bank-owned life insurance policies (“BOLI”). Noninterest expense was $114.54 million for the first quarter of 2022, compared to $110.02 million for the same period of 2021. The increase of $4.52 million in noninterest expense was primarily attributable to the additional employees and branch offices from the Community Bankers Trust acquisition as most major categories of noninterest expense showed increases. Mortgage Banking The mortgage banking segment reported net income of $209 thousand for the first quarter of 2022, compared to net income of $23.03 million for the first quarter of 2021. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $23.40 million for the first quarter of 2022, compared to $67.51 million for the first quarter of 2021. The decrease of $44.11 million in the first quarter of 2022 was due mainly to decreased sales of mortgage loans in the secondary market primarily as a result of a rising interest rate environment . Noninterest expense was $25.45 million for the first three months of 2022 as compared to $41.18 million for the first three months of 2021. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage segment employees. The decrease of $15.74 million in the first quarter of 2022 was due mainly to lower employee commissions, incentives and overtime related to the decreased mortgage banking production. The following table sets forth certain consolidated income statement information of United: Three Months Ended (Dollars in thousands) March 2022 March 2021 December 2021 Income Statement Summary : Interest income $ 202,795 $ 205,657 $ 195,194 Interest expense 11,293 14,697 11,516 Net interest income 191,502 190,960 183,678 Provision for credit losses (3,410 ) 143 (7,405 ) Other income 46,023 92,573 54,049 Other expense 139,173 148,927 151,789 Income before income taxes 101,762 134,463 93,343 Income taxes 20,098 27,565 19,491 Net income $ 81,664 $ 106,898 $ 73,852 The following discussion explains in more detail the consolidated results of operations by major category. 65 Table of Contents 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 2022 and 2021, are presented below. Net interest income for the first quarter of 2022 was $191.50 million, which was relatively flat from the first quarter of 2021, increasing $542 thousand, or less than 1%. The $542 thousand increase in net interest income occurred because total interest income decreased $2.86 million while total interest expense decreased $3.40 million from the first quarter of 2021. On a linked-quarter basis, net interest income for the first quarter of 2022 increased $7.82 million, or 4.26%, from the fourth quarter of 2021. The $7.82 million increase in net interest income occurred because total interest income increased $7.60 million while total interest expense decreased $223 thousand from the fourth quarter of 2021. 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 first quarter of 2022 was $192.61 million, which was also relatively flat from the first quarter of 2021, increasing $604 thousand, or less than 1%. The slight increase in net interest income and tax-equivalent net interest income was primarily due to the impact of higher average earnings assets, driven by the Community Bankers Trust acquisition and lower interest expense on deposits. These increases were mostly offset by lower accretion on acquired loans, lower fee income from Paycheck Protection Program (“PPP”) loans and higher average interest-bearing deposit balances as a result of the Community Bankers Trust acquisition. Average earning assets for the first quarter of 2022 increased $2.54 billion, or 10.83% from the first quarter of 2021 due to a $1.49 billion increase in average investment securities, a $739.28 million increase in average short-term investments and a $312.46 million increase in average net loans and loans held for sale. Average interest-bearing deposits for the first quarter of 2022 increased $1.17 billion, or 8.30%, from the first quarter of 2021; however, the yield on interest-bearing deposits decreased 13 basis points from the first quarter of 2021 to 0.24% for the first quarter of 2022. The net interest spread for the first quarter of 2022 decreased 28 basis points from the first quarter of 2021 to 2.86% due to a 40 basis point decrease in the average yield on earning assets partially offset by a 12 basis point decrease in the average cost of funds. Loan accretion on acquired loans was $4.14 million and $9.80 million for the first quarter of 2022 and 2021, respectively, a decrease of $5.66 million. Net PPP loan fee income of $4.10 million was recognized in the first quarter of 2022 as compared to $11.31 million for the first quarter of 2021. The net interest margin of 2.99% for the first quarter of 2022 was a decrease of 31 basis points from the net interest margin of 3.30% for the first quarter of 2021. On a linked-quarter basis, tax-equivalent net interest income for the first quarter of 2022 increased $7.90 million, or 4.28%, from the fourth quarter of 2021. The increase in net interest income and tax-equivalent net interest income was primarily due to an increase in average earning assets due to the full-quarter impact of the Community Bankers Trust acquisition and organic growth partially offset by lower acquired loan accretion and PPP loan fee income. Average earning assets increased $1.12 billion, or 4.48%, from the fourth quarter of 2021 due to increases in average net loans and loans held for sale of $900.87 million and average securities of $796.29 million partially offset by a decrease in average short-term investments of $580.24 million. The net interest spread for the first quarter of 2022 of 2.86% increased 4 basis points from the fourth quarter of 2021 due to a 3 basis point increase in the average yield on earning assets and a 1 basis point decrease in the average cost of funds. Loan accretion on acquired loans decreased $2.10 million from the fourth quarter of 2021. Net PPP loan fee income for the first quarter of 2022 decreased $936 thousand from the fourth quarter of 2021. The net interest margin of 2.99% for the first quarter of 2022 was an increase of 5 basis points from the net interest margin of 2.94% for the fourth quarter of 2021. 66 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 March 31, 2022, March 31, 2021 and December 31, 2021: Three Months Ended (Dollars in thousands) March 31 2022 March 31 2021 December 31 2021 Loan accretion $ 4,139 $ 9,800 $ 6,234 Certificates of deposit 1,038 1,449 908 Long-term borrowings 159 174 166 Total $ 5,336 $ 11,423 $ 7,308 The following tables reconcile the difference between net interest income and tax-equivalent net interest income for the three months ended March 31, 2022, March 31, 2021 and December 31, 2021. Three Months Ended (Dollars in thousands) March 31 2022 March 31 2021 December 31 2021 Net interest income, GAAP basis $ 191,502 $ 190,960 $ 183,678 Tax-equivalent adjustment (1) 1,109 1,047 1,037 Tax-equivalent net interest income $ 192,611 $ 192,007 $ 184,715 (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 ended March 31, 2022 and 2021 and December 31, 2021. All interest income on loans and investment securities was subject to state income taxes. 67 Table of Contents The following tables show the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2022 and 2021, 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 period ended March 31, 2022 and 2021. Interest income on all loans and investment securities was subject to state income taxes. Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 (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 $ 3,028,826 $ 2,329 0.31 % $ 2,289,545 $ 1,893 0.34 % Investment Securities: Taxable 4,264,820 17,505 1.64 % 2,921,295 13,526 1.85 % Tax-exempt 444,542 2,688 2.42 % 294,820 1,981 2.69 % Total Securities 4,709,362 20,193 1.72 % 3,216,115 15,507 1.93 % Loans, net of unearned income (2) 18,530,232 181,382 3.96 % 18,237,552 189,304 4.20 % Allowance for loan losses (216,016 ) (235,795 ) Net loans 18,314,216 4.01 % 18,001,757 4.26 % Total earning assets 26,052,404 $ 203,904 3.16 % 23,507,417 $ 206,704 3.56 % Other assets 3,292,118 2,983,699 TOTAL ASSETS $ 29,344,522 $ 26,491,116 LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $ 14,383,839 $ 8,561 0.24 % $ 13,184,728 $ 11,985 0.37 % Short-term borrowings 133,987 181 0.55 % 142,155 178 0.51 % Long-term borrowings 817,363 2,551 1.27 % 833,365 2,534 1.23 % Total Interest-Bearing Funds 15,335,189 11,293 0.30 % 14,160,248 14,697 0.42 % Noninterest-bearing deposits 8,991,131 7,735,638 Accrued expenses and other liabilities 258,422 248,480 TOTAL LIABILITIES 24,584,742 22,144,366 SHAREHOLDERS’ EQUITY 4,759,780 4,346,750 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 29,344,522 $ 26,491,116 NET INTEREST INCOME $ 192,611 $ 192,007 INTEREST SPREAD 2.86 % 3.14 % NET INTEREST MARGIN 2.99 % 3.30 % (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. 68 Table of Contents Provision for Credit Losses The provision for credit losses was a net benefit of $3.41 million for the first quarter of 2022 as compared to a provision for credit losses expense of $143 thousand for the first quarter of 2021. On a linked-quarter basis, the provision for credit losses for the fourth quarter of 2021 was a net benefit of $7.41 million. 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. For the quarter ended March 31, 2022, the provision for loan and lease losses was a net benefit of $3.40 million as compared to provision expense of $294 thousand for the quarter ended March 31, 2021. The lower amount of provision expense for the first quarter of 2022 compared to the first quarter of 2021 was mainly due to better performance trends within the loan portfolio to include lower historical loss rates, improvements in criticized loan totals and payoff of a large loan with a significant individual allocation as well as improved collateral values on several loans with individual allocations. Net recoveries were $1.98 million for the first quarter of 2022 compared to net charge-offs of $4.54 million for the first quarter of 2021. The lower amount of net charge-offs for 2022 as compared to 2021 was primarily due to charge-offs recognized on several large commercial credits in the first quarter of 2021. On a linked-quarter basis, the provision for loan and lease losses for the fourth quarter of 2021 was a net benefit of $7.38 million. Net charge-offs were $125 thousand for the fourth quarter of 2021. Annualized net recoveries as a percentage of average loans were (0.04%) for the first quarter of 2022 compared to annualized net charge-offs of 0.10% for the first quarter of 2021 and 0.003% for the fourth quarter of 2021, respectively. As of March 31, 2022, nonperforming loans and leases were $79.85 million or 0.43% of loans and leases, net of unearned income as compared to $90.76 million or 0.50% of loans, net of unearned income at December 31, 2021. 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 past due 90 days or more were $15.18 million at March 31, 2022, a decrease of $3.70 million or 19.60% from $18.88 million at year-end 2021. This decrease was primarily due to a reduction in past due mortgage and installment loans. At March 31, 2022, nonaccrual loans were $34.09 million, which was a decrease of $1.94 million or 5.37% from $36.03 million at year-end 2021. This decrease was due to the repayment of three large commercial nonaccrual loans as well as the charge-off of three commercial relationships. Restructured loans were $30.58 million at March 31, 2022, a decrease of $5.27 million or 14.71% from $35.86 million at year-end 2021. The decrease was mainly due to the repayment of two large commercial relationships and removal of TDR status for one commercial relationship during the first quarter of 2022. 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 real estate acquired in foreclosure or other settlement of loans (“OREO”). Total nonperforming assets of $93.50 million, including OREO of $13.64 million at March 31, 2022, represented 0.32% of total assets as compared to non-performing assets of $105.59 million, including OREO of $14.82 million, or 0.36% of total assets at December 31, 2021. 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 March 31, 2022, the allowance for credit losses was $251.27 million as compared to $247.46 million at December 31, 2021. At March 31, 2022, the allowance for loan and lease losses was $214.59 million as compared to $216.02 million at December 31, 2021. The decrease in the allowance for loan and lease losses was due to improved trends within the loan portfolio that included lower historical loss rates and improvements in criticized loan totals. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.17% at March 31, 2022 and 1.20% at December 31, 2021. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 268.73% and 238.00% at March 31, 2022 and December 31, 2021, respectively. The increase in this ratio was due mainly to a decline in nonperforming loans. 69 Table of Contents United continues to evaluate risks which may impact its loan and lease portfolios. 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, an adjustment was made for that factor. The first quarter of 2022 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 impact of inflation, supply chain issues, labor shortages and the conflict in eastern Europe when making determinations related to factor adjustments, such as changes in economic and business conditions, collateral values and external factors. • 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 forecast for real GDP shifted downward in the first quarter, from a projection of 4.00% for 2022 at the end of 2021 to 2.80% for 2022 with a more level downward future trendline as compared to the end of 2021. The unemployment rate remained fairly consistent to the end of 2021 with a steady trend expected throughout 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. • Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period. United’s review of the allowance for loan and lease losses at March 31, 2022 produced increased reserves in three of the four loan categories as compared to December 31, 2021. The real estate construction and development loan pool reserve increased $2.18 million. The residential real estate reserve increased $705 thousand. The consumer loan pool reserve increased $208 thousand. Each of these increases were primarily due to increased outstanding balances. The allowance related to the commercial, financial & agricultural loan pool decreased $4.52 million. This decrease is due to improvement in historical loss rates and a decrease in allocations established for individually assessed loans. 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 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 $4.38 million at March 31, 2022 and $6.53 million at December 31, 2021. In comparison to the prior year-end, this element of the allowance decreased $2.15 million primarily due to repayment of individually assessed loans as well as improved collateral valuations. Management believes that the allowance for credit losses of $251.27 million at March 31, 2022 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 70 Table of Contents 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 quarter of 2022 and 2021 was immaterial. The allowance for credit losses related to held to maturity securities was $19 thousand as of March 31, 2022 and December 31, 2021. There was no provision for credit losses recorded on available for sale investment securities for the first quarter of 2022 and 2021 and no allowance for credit losses on available for sale investment securities as of March 31, 2022 and December 31, 2021. 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 March 31, 2022. As a result of this assessment, United released all of its remaining $8 thousand in reserves for the first quarter of 2022 as compared to the release of $151 thousand in reserves for the first quarter of 2021. The allowance for accrued interest receivables not expected to be collected as of December 31, 2021 was $8 thousand. 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 first quarter of 2022 was $46.02 million, a decrease of $46.55 million or 50.28% from the first quarter of 2021. The decrease was due mainly to a decrease in income from mortgage banking activities primarily as a result of a rising interest rate environment and a lower margin on loans sold in the secondary market. Income from mortgage banking activities totaled $19.20 million for the first quarter of 2022 compared to $65.40 million for the first quarter of 2021. The decrease of $46.19 million or 70.64% for the first quarter of 2022 was mainly due to decreased loan sales. Mortgage loan sales were $1.09 billion in the first quarter of 2022 as compared to $1.84 billion in the first quarter of 2021. Mortgage loans originated for sale were $927.80 million for the first quarter of 2022 as compared to $1.93 billion for the first quarter of 2021. Fees from deposit services for the first quarter of 2022 increased $1.25 million or 14.07% from the first quarter of 2021. The increase was due primarily to higher income from overdraft fees and debit card fee income. Income from bank-owned life insurance (“BOLI”) for the first quarter of 2022 was $2.19 million, an increase of $791 thousand or 56.38% from the first quarter of 2021 due to mainly to purchases of $85 million in BOLI policies since March 31, 2021 and the addition of approximately $31 million in BOLI from the Community Bankers Trust acquisition. In addition, United recognized death benefits from BOLI of $287 thousand for the first quarter of 2022. On a linked-quarter basis, noninterest income for the first quarter of 2022 decreased $8.03 million, or 14.85%, from the fourth quarter of 2021. The decrease in noninterest income was primarily driven by a decrease of $8.13 million in income from mortgage banking activities mainly due to lower mortgage loan origination and sale volume driven by the rising interest rate environment and a lower loan pipeline valuation. BOLI income increased $971 thousand from the fourth quarter of 2021 to $2.19 million mainly due to the addition of BOLI from the Community Bankers Trust acquisition and the death benefits of $287 thousand for the first quarter of 2022. Fees from brokerage services increased $853 thousand from the fourth quarter of 2021 to $4.55 million as a result of increased volume. 71 Table of Contents 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 for the first quarter of 2022 was $139.17 million, which was a decrease of $9.75 million or 6.55% from the first quarter of 2021. Employee compensation for the first quarter of 2022 decreased $9.79 million or 13.52% when compared to the first quarter of 2021. This decrease was due mainly to lower employee commissions, incentives and overtime related to a decline in mortgage banking production partially offset by additional employees from the Community Bankers Trust acquisition. Employee benefits expense for the first quarter of 2022 decreased $2.60 million or 16.82% from the first quarter of 2021. This decrease was primarily due to lower amounts of expense for postretirement benefits. OREO expense for the first quarter of 2022 decreased $3.48 million or 95.94% due mainly to fewer declines in the fair value of OREO properties. Equipment expense increased $1.29 million or 21.36% for the first quarter of 2022, as compared to the same time period in 2021. The increase was due mainly to higher maintenance costs and depreciation expense primarily due to the Community Bankers Trust acquisition. Mortgage loan servicing expense and impairment for the first quarter of 2022 decreased $1.53 million or 48.28% from the same time period in 2021 due to the recovery of past temporary impairment and lower amortization expense of mortgage servicing rights. Federal Deposit Insurance Corporation (“FDIC”) expense increased $673 thousand or 33.65% from the first quarter of 2021 due a higher assessment base. Other expense for the first quarter of 2022 increased $5.07 million or 18.20% from the first quarter of 2021. Within other expenses, the most significant increases were the expense for the reserve for unfunded loan commitments of $4.46 million, consulting and legal expenses of $521 thousand and merger-related expenses associated with the Community Bankers Trust acquisition of $508 thousand. On a linked-quarter basis, noninterest expense for the first quarter of 2022 decreased $12.62 million, or 8.31%, from the fourth quarter of 2021 primarily due to a decrease of $8.92 million in employee compensation and $3.48 million in data processing. The decrease in employee compensation was primarily due to fewer employees as well as lower employee commissions, incentives and overtime related to lower mortgage banking production. The fourth quarter of 2021 also included $2.53 million of merger-related employee compensation expenses from the Community Bankers Trust acquisition. The decrease in data processing expense was primarily due to $3.47 million of merger-related expenses associated with the Community Bankers Trust acquisition recognized in the fourth quarter of 2021. Income Taxes For the first quarter of 2022, income tax expense was $20.10 million as compared to $27.57 million for the first quarter of 2021. The decrease of $7.47 million was primarily due to lower earnings and a lower effective tax rate. On a linked-quarter basis, income tax expense increased $607 thousand primarily due to higher earnings partially offset by a lower effective tax rate. United’s effective tax rate was 19.75% for the first quarter of 2022, 20.50% for the first quarter of 2021 and 20.88% for the fourth quarter of 2021. Liquidity and Capital Resources In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the 72 Table of Contents 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 three months ended March 31, 2022, cash of $283.61 million was provided by operating activities due mainly to the addition of $164.38 million in net cash from mortgage banking activities as proceeds from the sales of mortgage loans in the secondary market exceeded originations. In addition, net income was $81.66 million for the quarter and accrued expenses increased $27.37 million. Net cash of $1.30 billion was used in investing activities which was primarily due to $936.33 million of purchases of investment securities over proceeds from sales and portfolio loan growth of $366.41 million. During the first three months of 2022, net cash of $64.91 million was provided by financing activities due primarily to net growth of $125.08 million in deposits. These funding activities were partially offset by cash dividends paid of $46.66 million and net repurchases of $26.06 million in treasury stock for the quarter. The net effect of the cash flow activities was a decrease in cash and cash equivalents of $955.08 million for the first three months of 2022. 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 15.13% at March 31, 2022 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.00%, 13.00% and 10.42%, respectively. The March 31, 2022 ratios reflects United’s election of a five-year transition provision, allowed by the Federal Reserve Board and other federal banking agencies in response to the COVID-19 pandemic, to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%. 73 Table of Contents Total shareholders’ equity was $4.60 billion at March 31, 2022, which was a decrease of $123.49 million or 2.62% from December 31, 2021. This decrease is primarily due to a decrease of $136.80 million in accumulated other comprehensive income due mainly to an after-tax decrease in the fair value of available for sale securities as a result of a rising interest rate environment. In addition, treasury stock increased $26.28 million or 15.41% due to the repurchase of 710,785 shares of United common stock under a stock repurchase plan approved by United’s Board of Directors in November of 2019. Partially offsetting these decreases was an increase of $32.40 million in retained earnings (net income less dividends declared). United’s equity to assets ratio was 15.65% at March 31, 2022 as compared to 16.09% at December 31, 2021. The primary capital ratio, capital and reserves to total assets and reserves, was 16.36% at March 31, 2022 as compared to 16.79% at December 31, 2021. United’s average equity to average asset ratio was 16.22% for the first quarter of 2022 as compared to 16.41% the first quarter of 2021. All of these financial measurements reflect a financially sound position. During the first quarter of 2022, United’s Board of Directors declared a cash dividend of $0.36 per share. Total cash dividends declared were $49.27 million for the first quarter of 2022 which was an increase of $4.01 million or 8.87% from dividends declared of $45.25 million for the first quarter of 2021.