UNITED BANKSHARES INC/WV 10-Q

Item 1. FINANCIAL STATEMENTS (UNAUDITED) The March 31, 2023 and December 31, 2022, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income and comprehensive income for the three months ended March 31, 2023 and 2022, the related consolidated statement of changes in shareholders’ equity for the three months ended March 31, 2023 and 2022, the related condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022, and the notes to consolidated financial statements appear on the following pages. 3 Table of Contents CONSOLIDATED BALANCE SHEETS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except par value) March 31 December 31 2023 2022 Assets Cash and due from banks $ 310,013 $ 294,155 Interest-bearing deposits with other banks 1,607,567 881,418 Federal funds sold 1,113 1,079 Total cash and cash equivalents 1,918,693 1,176,652 Securities available for sale at estimated fair value (amortized cost-$ 4,830,343 at March 31, 2023 and $ 5,011,729 at December 31, 2022, allowance for credit losses of $ 0 at March 31, 2023 and December 31, 2022) 4,419,413 4,541,925 Securities held to maturity, net of allowance for credit losses of $ 18 at March 31, 2023 and December 31, 2022 (estimated fair value-$ 1,020 at March 31, 2023 and December 31, 2022) 1,002 1,002 Equity securities at estimated fair value 7,792 7,629 Other investment securities 349,380 322,048 Loans held for sale measured using fair value option 68,176 56,879 Loans and leases 20,630,898 20,580,163 Less: Unearned income ( 18,739 ) ( 21,997 ) Loans and leases, net of unearned income 20,612,159 20,558,166 Less: Allowance for loan and lease losses ( 240,491 ) ( 234,746 ) Net loans and leases 20,371,668 20,323,420 Bank premises and equipment 195,571 199,161 Operating lease right-of-use assets 76,884 71,144 Goodwill 1,888,889 1,888,889 Mortgage servicing rights 19,987 21,022 Bank-owned life insurance (“BOLI”) 482,098 480,184 Accrued interest receivable 98,727 94,890 Other assets 283,961 304,535 TOTAL ASSETS $ 30,182,241 $ 29,489,380 Liabilities Deposits: Noninterest-bearing $ 6,707,660 $ 7,199,678 Interest-bearing 15,576,926 15,103,488 Total deposits 22,284,586 22,303,166 Borrowings: Securities sold under agreements to repurchase 170,094 160,698 Federal Home Loan Bank (“FHLB”) borrowings 2,510,703 1,910,775 Other long-term borrowings 277,400 286,881 Reserve for lending-related commitments 48,789 46,189 Operating lease liabilities 81,394 75,749 Accrued expenses and other liabilities 202,738 189,729 TOTAL LIABILITIES 25,575,704 24,973,187 Shareholders’ Equity Preferred stock, $ 1.00 par value; Authorized- 50,000,000 shares, no ne issued 0 0 Common stock, $ 2.50 par value; Authorized- 200,000,000 shares; issued- 142,238,046 and 142,011,560 at March 31, 2023 and December 31, 2022, respectively, including 7,301,495 and 7,266,438 shares in treasury at March 31, 2023 and December 31, 2022, respectively 355,595 355,029 Surplus 3,171,895 3,168,874 Retained earnings 1,625,013 1,575,426 Accumulated other comprehensive loss ( 294,130 ) ( 332,732 ) Treasury stock, at cost ( 251,836 ) ( 250,404 ) TOTAL SHAREHOLDERS’ EQUITY 4,606,537 4,516,193 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 30,182,241 $ 29,489,380 See notes to consolidated unaudited financial statements 4 Table of Contents CONSOLIDATED STATEMENTS OF INCOME (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data) Three Months Ended March 31 2023 2022 Interest income Interest and fees on loans $ 279,896 $ 180,837 Interest on federal funds sold and other short-term investments 10,983 2,329 Interest and dividends on securities: Taxable 36,259 17,505 Tax-exempt 2,165 2,124 Total interest income 329,303 202,795 Interest expense Interest on deposits 68,592 8,561 Interest on short-term borrowings 1,157 181 Interest on long-term borrowings 25,234 2,551 Total interest expense 94,983 11,293 Net interest income 234,320 191,502 Provision for credit losses 6,890 ( 3,410 ) Net interest income after provision for credit losses 227,430 194,912 Other income Fees from trust services 4,780 4,127 Fees from brokerage services 4,200 4,552 Fees from deposit services 9,362 10,148 Bankcard fees and merchant discounts 1,707 1,379 Other service charges, commissions, and fees 1,138 759 Income from bank-owned life insurance 1,891 2,194 Income from mortgage banking activities 6,384 19,203 Mortgage loan servicing income 2,276 2,387 Net investment securities losses ( 405 ) ( 251 ) Other income 1,411 1,527 Total other income 32,744 46,025 Other expense Employee compensation 55,414 62,621 Employee benefits 13,435 12,851 Net occupancy expense 11,833 11,187 Other real estate owned (“OREO”) expense 667 182 Net gains on the sales of OREO properties ( 43 ) ( 33 ) Equipment expense 6,996 7,335 Data processing expense 7,473 7,371 Mortgage loan servicing expense and impairment 1,884 1,643 Bankcard processing expense 522 424 FDIC insurance expense 4,587 2,673 Other expense 34,651 32,921 Total other expense 137,419 139,175 Income before income taxes 122,755 101,762 Income taxes 24,448 20,098 Net income $ 98,307 $ 81,664 5 Table of Contents CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - continued UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data) Three Months Ended March 31 2023 2022 Earnings per common share: Basic $ 0.73 $ 0.60 Diluted $ 0.73 $ 0.60 Average outstanding shares: Basic 134,411,166 136,058,328 Diluted 134,840,328 136,435,229 See notes to consolidated unaudited financial statements 6 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands) Three Months Ended March 31 2023 2022 Net income $ 98,307 $ 81,664 Change in net unrealized gain (loss) on available for sale (“AFS”) securities, net of tax 45,157 ( 155,113 ) Change in net unrealized (loss) gain on cash flow hedge, net of tax ( 7,157 ) 17,668 Change in defined benefit pension plan, net of tax 602 641 Comprehensive income (loss), net of tax $ 136,909 $ ( 55,140 ) See notes to consolidated unaudited financial statements 7 Table of Contents CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data) Three Months Ended March 31, 2023 Accumulated Other Comprehensive Common Stock Total Shareholders’ Par Retained Treasury Shares Value Surplus Earnings (Loss) Income Stock Equity Balance at January 1, 2023 142,011,560 $ 355,029 $ 3,168,874 $ 1,575,426 $ ( 332,732 ) $ ( 250,404 ) $ 4,516,193 Comprehensive income: Net income 0 0 0 98,307 0 0 98,307 Other comprehensive income, net of tax 0 0 0 0 38,602 0 38,602 Total comprehensive income, net of tax 136,909 Stock based compensation expense 0 0 2,713 0 0 0 2,713 Stock grant forfeiture ( 1,506 shares) 0 0 58 0 0 ( 58 ) 0 Purchase of treasury stock ( 33,551 shares) 0 0 0 0 0 ( 1,374 ) ( 1,374 ) Cash dividends ($ 0.36 per share) 0 0 0 ( 48,720 ) 0 0 ( 48,720 ) Net issuance of common stock under stock-based compensation plans ( 226,486 shares) 226,486 566 250 0 0 0 816 Balance at March 31, 2023 142,238,046 $ 355,595 $ 3,171,895 $ 1,625,013 $ ( 294,130 ) $ ( 251,836 ) $ 4,606,537 Three Months Ended March 31, 2022 Accumulated Common Stock Other Total Par Retained Comprehensive Treasury Shareholders’ Shares Value Surplus Earnings Loss Stock Equity Balance at January 1, 2022 141,360,266 $ 353,402 $ 3,149,955 $ 1,390,777 $ ( 4,888 ) $ ( 170,618 ) $ 4,718,628 Comprehensive income: Net income 0 0 0 81,664 0 0 81,664 Other comprehensive loss, net of tax 0 0 0 0 ( 136,804 ) 0 ( 136,804 ) Total comprehensive loss, net of tax ( 55,140 ) Stock based compensation expense 0 0 2,061 0 0 0 2,061 Stock grant forfeiture ( 6,212 shares) 0 0 223 0 0 ( 223 ) 0 Purchase of treasury stock ( 740,873 shares) 0 0 0 0 0 ( 26,061 ) ( 26,061 ) Cash dividends ($ 0.36 per share) 0 0 0 ( 49,266 ) 0 0 ( 49,266 ) Net issuance of common stock under stock-based compensation plans ( 422,766 shares) 422,766 1,056 3,862 0 0 0 4,918 Balance at March 31, 2022 141,783,032 $ 354,458 $ 3,156,101 $ 1,423,175 $ ( 141,692 ) $ ( 196,902 ) $ 4,595,140 See notes to consolidated unaudited financial statements 8 Table of Contents CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands ) Three Months Ended March 31 2023 2022 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 118,154 $ 283,607 INVESTING ACTIVITIES Proceeds from sales of securities available for sale 1,689 150 Proceeds from maturities and calls of securities available for sale 184,059 151,477 Purchases of securities available for sale ( 7,855 ) ( 1,077,461 ) Proceeds from sales of equity securities 98 149 Purchases of equity securities ( 246 ) ( 353 ) Proceeds from sales and redemptions of other investment securities 21,547 1,295 Purchases of other investment securities ( 52,217 ) ( 11,591 ) Redemption of bank-owned life insurance policies 0 778 Purchases of bank premises and equipment ( 3,447 ) ( 3,509 ) Proceeds from sales of bank premises and equipment 2,465 557 Proceeds from the sales of OREO properties 279 1,325 Net change in loans and leases ( 54,938 ) ( 366,414 ) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 91,434 ( 1,303,597 ) FINANCING ACTIVITIES Cash dividends paid ( 48,651 ) ( 46,655 ) Acquisition of treasury stock ( 1,374 ) ( 26,061 ) Proceeds from exercise of stock options 1,559 5,027 Redemption of subordinated debt ( 10,250 ) 0 Repayment of long-term Federal Home Loan Bank borrowings ( 1,900,000 ) 0 Proceeds from issuance of long-term Federal Home Loan Bank borrowings 2,500,000 0 Changes in: Deposits ( 18,227 ) 125,076 Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings 9,396 7,526 NET CASH PROVIDED BY FINANCING ACTIVITIES 532,453 64,913 Increase (Decrease) in cash and cash equivalents 742,041 ( 955,077 ) Cash and cash equivalents at beginning of year 1,176,652 3,758,170 Cash and cash equivalents at end of period $ 1,918,693 $ 2,803,093 Supplemental information Noncash investing activities: Transfers of loans to OREO $ 2,919 $ 186 Transfers of loans to bank premises and equipment 0 4,541 Acquisition of subsidiaries and purchase price adjustments: Assets acquired, net of cash 0 ( 128 ) Liabilities assumed 0 2,622 Goodwill 0 2,750 See notes to consolidated unaudited financial statements . 9 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited consolidated interim financial statements of United Bankshares , Inc. and Subsidiaries (“United” or “the Company”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States (“GAAP”) and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of March 31, 2023 and 2022 and for the three-month periods then ended have not been audited. The Notes to Consolidated Financial Statements appearing in United’s 2022 Annual Report on Form 10-K, which includes descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. In the opinion of management, any adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature. The accompanying consolidated interim financial statements include the accounts of United and its wholly owned subsidiaries. United operates in two business segments: community banking and mortgage banking. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Information is presented in these notes to the unaudited consolidated interim financial statements with dollars expressed in thousands, except per share or unless otherwise noted. New Accounting Standards In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-02, “Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The amendments in this ASU apply to all reporting entities that hold tax equity investments that meet the conditions for and elect to account for them using the proportional amortization method or an investment in a low income housing tax credit (“LIHTC”) structure through a limited liability entity that is not accounted for using the proportional amortization method and to which certain LIHTC-specific guidance removed from Subtopic 323-740 has been applied. Additionally, the disclosure requirements apply to investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method (including investments within that elected program that do not meet the conditions to apply the proportional amortization method). ASU 2023-02 will be effective for United on January 1, 2024 though early adoption is permitted. The amendments in this update must be applied on either a modified retrospective or a retrospective basis except for LIHTC investments not accounted for using the proportional amortization method. The adoption of ASU 2023-02 is not expected to have a material impact on the Company’s financial condition or results of operations. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” ASU 2022-06 extends the period of time financial statement preparers can utilize the reference rate reform relief guidance. In 2020, the FASB issued ASU 2020-04 to provide temporary, optional expedients related to the accounting for contract modifications and hedging transactions as a result of the global markets’ anticipated transition away from the use of LIBOR and other interbank offered rates to alternative reference rates. At the time ASU 2020-04 was issued, the United Kingdom’s Financial Conduct Authority (“FCA”) had established the intent that it would no longer be necessary to 10 Table of Contents persuade, or compel, banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December 31, 2022; 12 months after the expected cessation date of all currencies and tenors of LIBOR. In March 2021, the FCA announced that the intended cessation date of LIBOR in the United States would be June 30, 2023. Accordingly, ASU 2022-06 defers the expiration date of ASU 848 to December 31, 2024. United has implemented a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. In addition, United took steps to ensure that no new contracts using LIBOR were originated after December 31, 2021. At this time, United is prioritizing the Secured Overnight Financing Rate (“SOFR”) and Prime as the preferred alternatives to LIBOR; however, these preferred alternatives could change over time based on market developments. In June 2022, the FASB issued ASU 2022 - 03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 will be effective for United on January 1, 2024 though early adoption is permitted. The adoption of ASU 2022-03 is not expected to have a material impact on the Company’s financial condition or results of operations. In March 2022, the FASB issued ASU No. 2022-02, “Troubled Debt Restructurings and Vintage Disclosures”. ASU 2022-02 updates the requirements for accounting for credit losses under ASC 326, eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310-40, and enhances creditors’ disclosure requirements related to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 also amends the guidance on “vintage disclosures” to require disclosure of gross write-offs by year of origination. ASU No. 2022-02 was effective for public business entities that have adopted Topic 326 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendment was permitted. ASU No. 2022-02 was adopted by United prospectively for the period beginning January 1, 2023. The adoption did not have a material impact on the Company’s financial condition or results of operations. However, ASU No. 2022-02 did affect the Company’s disclosures. For additional information, see Notes to Consolidated Financial Statements, Note 4, “Credit Quality,” in this Form 10-Q. In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”. ASU 2022-01 further aligns risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU No. 2017-12. The enhanced guidance further improves the last-of-layer concepts to expand to nonprepayable financial assets and allows more flexibility in the derivative structures used to hedge the interest rate risk. ASU 2022-01 also provides guidance on the relationship between the portfolio layer method requirements and other areas of GAAP. ASU No. 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendment is permitted if an entity has adopted ASU 2017-12 for the corresponding period. ASU No. 2022-01 was adopted by United on January 1, 2023. The adoption did not have a material impact on the Company’s financial condition or results of operations. In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for contract assets and contract liabilities from contracts with customers”. ASU 2021-08 amends ASC 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. As a result of these amendments, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its preacquisition financial statements. ASU No. 2021-08 is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted. ASU No. 2020-08 was adopted by United on January 1, 2023. The adoption did not have a material impact on the Company’s financial condition or results of operations. 11 Table of Contents In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848).” This update to ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” refines the scope of ASC Topic 848 and permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by change in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. ASU No. 2021-01 is effective for public business entities upon issuance through December 31, 2022. The Company has implemented a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. In addition, the Company took steps to ensure that no new contracts using LIBOR were originated after December 31, 2021. At this time, United is prioritizing the Secured Overnight Financing Rate (“SOFR”) and Prime as the preferred alternatives to LIBOR; however, these preferred alternatives could change over time based on market developments. In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides “optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.” ASU No. 2020-04 was effective for public business entities on March 12, 2020 through December 31, 2022. United is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company is assessing ASU No. 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments. 2. INVESTMENT SECURITIES Securities Available for Sale Securities held for indefinite periods of time are classified as available for sale and carried at estimated fair value. The amortized cost, estimated fair values, and allowance for credit losses of securities available for sale are summarized as follows. March 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance For Credit Losses Estimated Fair Value U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 546,302 $ 7 $ 15,139 $ 0 $ 531,170 State and political subdivisions 812,022 84 90,132 0 721,974 Residential mortgage-backed securities Agency 1,339,271 48 173,664 0 1,165,655 Non-agency 121,001 114 10,364 0 110,751 Commercial mortgage-backed securities Agency 594,150 9 57,149 0 537,010 Asset-backed securities 922,890 0 25,763 0 897,127 Single issue trust preferred securities 17,352 0 1,514 0 15,838 Other corporate securities 477,355 0 37,467 0 439,888 Total $ 4,830,343 $ 262 $ 411,192 $ 0 $ 4,419,413 12 Table of Contents December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance For Credit Losses Estimated Fair Value U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 548,407 $ 12 $ 18,927 $ 0 $ 529,492 State and political subdivisions 820,167 36 110,673 0 709,530 Residential mortgage-backed securities Agency 1,369,471 4 194,531 0 1,174,944 Non-agency 121,336 66 9,429 0 111,973 Commercial mortgage-backed securities Agency 627,768 8 65,223 0 562,553 Asset-backed securities 943,813 0 32,202 0 911,611 Single issue trust preferred securities 17,342 88 1,146 0 16,284 Other corporate securities 563,425 44 37,931 0 525,538 Total $ 5,011,729 $ 258 $ 470,062 $ 0 $ 4,541,925 United excludes accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in “Accrued interest receivable” in the consolidated balance sheets. Available-for-sale debt securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, United does not currently recognize an allowance for credit loss against accrued interest receivable on available-for-sale debt securities. The table above excludes accrued interest receivable of $ 23,579 and $ 23,955 at March 31, 2023 and December 31, 2022, respectively, that is recorded in “Accrued interest receivable.” The following is a summary of securities available for sale which were in an unrealized loss position at March 31, 2023 and December 31, 2022. Less than 12 months 12 months or longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses March 31, 2023 U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 180,725 $ 2,531 $ 343,241 $ 12,608 $ 523,966 $ 15,139 State and political subdivisions 69,465 1,481 623,467 88,651 692,932 90,132 Residential mortgage-backed securities Agency 122,666 4,408 1,033,590 169,256 1,156,256 173,664 Non-agency 35,839 1,434 64,619 8,930 100,458 10,364 Commercial mortgage-backed securities Agency 160,615 3,359 373,494 53,790 534,109 57,149 Asset-backed securities 145,986 2,368 751,141 23,395 897,127 25,763 Single issue trust preferred securities 3,054 36 12,784 1,478 15,838 1,514 Other corporate securities 92,339 5,552 334,813 31,915 427,152 37,467 Total $ 810,689 $ 21,169 $ 3,537,149 $ 390,023 $ 4,347,838 $ 411,192 13 Table of Contents Less than 12 months 12 months or longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2022 U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 473,025 $ 13,628 $ 48,793 $ 5,299 $ 521,818 $ 18,927 State and political subdivisions 496,328 63,019 192,234 47,654 688,562 110,673 Residential mortgage-backed securities Agency 623,587 70,744 550,135 123,787 1,173,722 194,531 Non-agency 58,839 2,083 42,901 7,346 101,740 9,429 Commercial mortgage-backed securities Agency 396,380 27,469 163,226 37,754 559,606 65,223 Asset-backed securities 425,482 14,134 486,129 18,068 911,611 32,202 Single issue trust preferred securities 0 0 13,109 1,146 13,109 1,146 Other corporate securities 195,425 18,064 261,170 19,867 456,595 37,931 Total $ 2,669,066 $ 209,141 $ 1,757,697 $ 260,921 $ 4,426,763 $ 470,062 The following table shows the proceeds from maturities, sales and calls of available for sale securities and the gross realized gains and losses on sales and calls of those securities that have been included in earnings as a result of any sales and calls. Gains or losses on sales and calls of available for sale securities were recognized by the specific identification method. Three Months Ended March 31 2023 2022 Proceeds from maturities, sales and calls $ 185,748 $ 151,627 Gross realized gains 0 0 Gross realized losses 420 0 At March 31, 2023, gross unrealized losses on available for sale securities were $ 411,192 on 1,382 securities of a total portfolio of 1,462 available for sale securities. Securities with the most significant gross unrealized losses at March 31, 2023 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. In determining whether or not a security is impaired, management considered the severity of the loss in conjunction with United’s positive intent and the more likely than not ability to hold these securities to recovery of their cost basis or maturity. Generally, the significant amount of gross unrealized losses on available for sale securities at March 31, 2023 was the result of rising interest rates. State and political subdivisions United’s state and political subdivisions portfolio relates to securities issued by various municipalities located throughout the United States. The total amortized cost of available for sale state and political subdivision securities was $ 812,022 at March 31, 2023. As of March 31, 2023, approximately 53 % of the portfolio was supported by the general obligation of the issuing municipality, which allows for the securities to be repaid by any means available to the municipality. The majority of the portfolio was rated AA or higher, and no securities within the portfolio were rated below investment grade as of March 31, 2023. In addition to monitoring the credit ratings of these securities, management also evaluates the financial performance of the underlying issuers on an ongoing basis. Based upon management’s analysis and judgment, it was determined that none of the state and political subdivision securities had credit losses at March 31, 2023. 14 Table of Contents Mortgage-backed securities The fair value of mortgage-backed securities is affected by changes in interest rates and prepayment speeds. When interest rates decline, prepayment speeds generally accelerate due to homeowners refinancing their mortgages at lower interest rates. This may result in the proceeds being reinvested at lower interest rates. Rising interest rates may decrease the assumed prepayment speed. Slower prepayment speeds may extend the maturity of the security beyond its estimated maturity. Therefore, investors may not be able to invest at current higher market rates due to the extended expected maturity of the security. United had a net unrealized loss of $ 241,006 on mortgage-backed securities at March 31, 2023. Below is a detailed discussion of mortgage-backed securities by type. United’s agency mortgage-backed securities portfolio relates to securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. The total amortized cost of available for sale agency mortgage-backed securities was $ 1,933,421 at March 31, 2023. Of the $ 1,933,421 amount, $ 594,150 was related to agency commercial mortgage-backed securities and $ 1,339,271 was related to agency residential mortgage-backed securities. Each of the agency mortgage-backed securities provides a guarantee of full and timely payments of principal and interest by the issuing agency. Based upon management’s analysis and judgment, it was determined that none of the agency mortgage-backed securities had credit losses at March 31, 2023. United’s non-agency residential mortgage-backed securities portfolio relates to securities of various private label issuers. The total amortized cost of available for sale non-agency residential mortgage-backed securities was $ 121,001 at March 31, 2023. Of the $ 121,001 , 100 % was rated AAA. Based upon management’s analysis and judgment, it was determined that no ne of the non-agency residential mortgage-backed securities had credit losses at March 31, 2023. Asset-backed securities As of March 31, 2023, United’s asset-backed securities portfolio had a total amortized cost balance of $ 922,890 . 100 % of the portfolio was investment grade rated as of March 31, 2023. Approximately 25 % of the portfolio relates to securities that are backed by Federal Family Education Loan Program (“FFELP”) student loan collateral which includes a minimum of a 97 % government repayment guaranty, as well as additional credit support and subordination in excess of the government guaranteed portion. Approximately 75 % of the portfolio relates to collateralized loan obligation securities that are all AAA rated. Upon reviewing this portfolio as of March 31, 2023, it was determined that no ne of the asset-backed securities had credit losses. Single issue trust preferred securities The majority of United’s single issue trust preferred portfolio consists of obligations from large cap banks (i.e. banks with market capitalization in excess of $ 10 billion). All single issue trust preferred securities are currently receiving interest payments. The amortized cost of available for sale single issue trust preferred securities as of March 31, 2023 consisted of $ 8,470 in investment grade bonds, $ 3,091 in split rated bonds, and $ 5,791 in unrated bonds. Management reviews each issuer’s current and projected earnings trends, asset quality, capitalization levels, and other key factors. Upon completing the review for the first quarter of 2023, it was determined that none of the single issue trust preferred securities had credit losses. Other corporate securities As of March 31, 2023, United’s other corporate securities portfolio had a total amortized cost balance of $ 477,355 . The majority of the portfolio consisted of debt issuances of corporations representing a variety of industries, including financial institutions. Of the $ 477,355 , 98 % had at least one rating above investment grade, none were below investment grade rated, and 2 % were unrated. For other corporate securities, management has evaluated the near-term prospects of the investment in relation to the severity of any unrealized loss. Based upon management’s analysis and judgment, it was determined that none of the other corporate securities had credit losses at March 31, 2023. 15 Table of Contents The amortized cost and estimated fair value of securities available for sale at March 31, 2023 and December 31, 2022 by contractual maturity are shown as follows. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties. March 31, 2023 December 31, 2022 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year or less $ 593,961 $ 583,284 $ 384,921 $ 380,575 Due after one year through five years 556,379 528,037 856,743 817,881 Due after five years through ten years 960,695 852,251 981,983 858,819 Due after ten years 2,719,308 2,455,841 2,788,082 2,484,650 Total $ 4,830,343 $ 4,419,413 $ 5,011,729 $ 4,541,925 Equity securities at fair value Equity securities consist mainly of mutual funds of equity securities within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. The fair value of United’s equity securities was $ 7,792 at March 31, 2023 and $ 7,629 at December 31, 2022. Three Months Ended March 31 2023 2022 Net gains recognized during the period on equity securities sold $ 0 $ 0 Unrealized gains recognized during the period on equity securities still held at period end 82 19 Unrealized losses recognized during the period on equity securities still held at period end ( 67 ) ( 270 ) Net gains (losses) recognized during the period $ 15 $ ( 251 ) Other investment securities During the first quarter of 2023, United evaluated all of its cost method investments to determine if certain events or changes in circumstances during the first quarter of 2023 had a significant adverse effect on the recorded value of any of its cost method securities. United determined that there was no individual security that experienced an adverse event during the first quarter. There were no other events or changes in circumstances during the first quarter which would have an adverse effect on the recorded fair value of its cost method securities. The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $ 3,116,743 and $ 2,412,820 at March 31, 2023 and December 31, 2022, respectively. 3. LOANS AND LEASES Major classes of loans and leases are as follows: March 31, 2023 December 31, 2022 Commercial, financial and agricultural: Owner-occupied commercial real estate $ 1,708,200 $ 1,724,927 Nonowner-occupied commercial real estate 6,535,589 6,286,974 Other commercial 3,510,937 3,612,568 Total commercial, financial & agricultural 11,754,726 11,624,469 Residential real estate 4,759,488 4,662,911 Construction & land development 2,808,253 2,926,971 Consumer: Bankcard 8,731 9,273 Other consumer 1,299,700 1,356,539 Less: Unearned income ( 18,739 ) ( 21,997 ) Total gross loans $ 20,612,159 $ 20,558,166 16 Table of Contents The table above does not include loans held for sale of $ 68,176 and $ 56,879 at March 31, 2023 and December 31, 2022, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market. United’s subsidiary bank has made loans to the directors and officers of United and its subsidiaries, and to their affiliates. The aggregate dollar amount of these loans was $ 24,409 and $ 24,901 at March 31, 2023 and December 31, 2022, respectively. 4. CREDIT QUALITY Management monitors the credit quality of its loans and leases on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan. United considers a loan to be past due when it is 30 days or more past its contractual payment due date. For all loan classes, past due loans and leases are reviewed on a monthly basis to identify loans and leases for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on nonaccrual status. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. However, regardless of delinquency status, if a loan is fully secured and in the process of collection and resolution of collection is expected in the near term (generally less than 90 days), then the loan will not be placed on nonaccrual status. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for credit losses. United’s method of income recognition for loans and leases that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. Nonaccrual loans and leases will not normally be returned to accrual status unless all past due principal and interest has been paid and the borrower has evidenced their ability to meet the contractual provisions of the note. The following table sets forth United’s age analysis of its past due loans and leases, segregated by class of loans and leases: Age Analysis of Past Due Loans and Leases As of March 31, 2023 30-89 Days Past Due 90 Days or more Past Due Total Past Due Current & Other Total Financing Receivables 90 Days or More Past Due & Accruing Commercial real estate: Owner-occupied $ 2,169 $ 8,444 $ 10,613 $ 1,697,587 $ 1,708,200 $ 511 Nonowner-occupied 2,004 11,274 13,278 6,522,311 6,535,589 0 Other commercial 8,808 2,587 11,395 3,499,542 3,510,937 580 Residential real estate 29,509 14,250 43,759 4,715,729 4,759,488 6,991 Construction & land development 3,951 648 4,599 2,803,654 2,808,253 0 Consumer: Bankcard 159 101 260 8,471 8,731 101 Other consumer 25,355 5,097 30,452 1,269,248 1,299,700 4,922 Total $ 71,955 $ 42,401 $ 114,356 $ 20,516,542 $ 20,630,898 $ 13,105 1 7 Table of Contents Age Analysis of Past Due Loans and Leases As of December 31, 2022 30-89 Days Past Due 90 Days or more Past Due Total Past Due Current & Other Total Financing Receivables 90 Days or More Past Due & Accruing Commercial real estate: Owner-occupied $ 5,643 $ 12,368 $ 18,011 $ 1,706,916 $ 1,724,927 $ 4,023 Nonowner-occupied 9,996 8,916 18,912 6,268,062 6,286,974 0 Other commercial 13,466 5,338 18,804 3,593,764 3,612,568 2,946 Residential real estate 25,315 17,735 43,050 4,619,861 4,662,911 7,342 Construction & land development 3,060 475 3,535 2,923,436 2,926,971 0 Consumer: Bankcard 63 109 172 9,101 9,273 109 Other consumer 33,993 4,570 38,563 1,317,976 1,356,539 4,220 Total $ 91,536 $ 49,511 $ 141,047 $ 20,439,116 $ 20,580,163 $ 18,640 The following table sets forth United’s nonaccrual loans and leases, segregated by class of loans and leases: At March 31, 2023 At December 31, 2022 Nonaccruals With No Related Allowance for Credit Losses Nonaccruals With No Related Allowance for Credit Losses Commercial Real Estate: Owner-occupied $ 7,933 $ 7,417 $ 8,345 $ 8,345 Nonowner-occupied 11,274 8,457 8,916 8,916 Other Commercial 2,007 2,007 2,392 2,392 Residential Real Estate 7,259 6,484 10,393 8,564 Construction 648 648 475 475 Consumer: Bankcard 0 0 0 0 Other consumer 175 175 350 350 Total $ 29,296 $ 25,188 $ 30,871 $ 29,042 Interest income recognized on nonaccrual loans was insignificant during the three months ended March 31, 2023 and 2022. In some cases, United will modify a loan to a borrower experiencing financial difficulty by providing multiple types of concessions such as a term extension, principal forgiveness, an interest rate reduction or a combination thereof. The following table presents the amortized cost of loans and leases to borrowers experiencing financial difficulty modified on or after January 1, 2023, the date United adopted ASU 2022-02, through March 31, 2023, by class of financing receivable and by type of modification. The percentage of the amortized cost basis of loans and leases that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also represented below. Amortized Cost Basis of Loan Modifications Made to Borrowers Experiencing Financial Difficulty For the Three Months Ended March 31, 2023 Term Extension Interest Rate Reduction % of Total Class of Financing Receivable Commercial real estate: Owner-occupied $ 0 $ 0 0.00 % Nonowner-occupied 0 1,771 0.03 % Other commercial 0 0 0.00 % Residential real estate 95 0 0.00 % Construction & land development 0 0 0.00 % Consumer: Bankcard 0 0 0.00 % Other consumer 0 0 0.00 % Total $ 95 $ 1,771 0.01 % 18 Table of Contents As of March 31, 2023, United did not have any commitments to lend additional funds on the loans above modified due to the debtors experiencing financial difficulty. United’s estimate of future credit losses uses a lifetime methodology, derived from modeled loan performance based on the extensive historical experience of loans with similar risk characteristics, adjusted to reflect current conditions and reasonable and supportable forecasts. The historical loss experience used in United’s credit loss models includes the impact of loan modifications provided to borrowers experiencing financial difficulty, and also includes the impact of projected loss severities as a result of loan defaults. United closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents an aging analysis of loans and leases to borrowers experiencing financial difficulty modified on or after January 1, 2023 through March 31, 2023, presented by class of financing receivable: Payment Status (Amortized Cost Basis) As of March 31, 2023 Current 30-89 Days Past Due 90+ Days Past Due Commercial real estate: Owner-occupied $ 0 $ 0 $ 0 Nonowner-occupied 1,771 0 0 Other commercial 0 0 0 Residential real estate 0 95 0 Construction & land development 0 0 0 Consumer: Bankcard 0 0 0 Other consumer 0 0 0 Total $ 1,771 $ 95 $ 0 The following table presents the financial effect of loan and lease modifications to borrowers experiencing financial difficulty for the three months ended March 31, 2023. For the Three Months Ended March 31, 2023 Weighted- Average Interest Rate Reduction Weighted Average Term Extension (in years) Commercial real estate: Owner-occupied 0.00 % 0 Nonowner-occupied 1.50 % 0 Other commercial 0.00 % 0 Residential real estate 0.00 % 2.5 Construction & land development 0.00 % 0 Consumer: Bankcard 0.00 % 0 Other consumer 0.00 % 0 Total 1.50 % 2.5 19 Table of Contents No loan or lease modifications completed on or after January 1, 2023 through March 31, 2023 to borrowers experiencing financial difficulty had a payment default during the first three months ended March 31, 2023. United elects the practical expedient to measure expected credit losses on collateral dependent loans and leases based on the difference between the loan’s amortized cost and the collateral’s fair value, adjusted for selling costs. The following table presents the amortized cost basis of collateral-dependent loans and leases in which repayment is expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty, by class of loans and leases as of March 31, 2023 and December 31, 2022: Collateral Dependent Loans and Leases At March 31, 2023 Residential Property Business Assets Land Commercial Property Other Total Commercial real estate: Owner-occupied $ 41 $ 20 $ 0 $ 11,650 $ 9,299 $ 21,010 Nonowner-occupied 3,189 0 0 5,575 7,187 15,951 Other commercial 0 1,622 0 0 0 1,622 Residential real estate 8,508 0 0 0 112 8,620 Construction & land development 0 0 1,329 0 871 2,200 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total $ 11,738 $ 1,642 $ 1,329 $ 17,225 $ 17,469 $ 49,403 Collateral Dependent Loans and Leases At December 31, 2022 Residential Property Business Assets Land Commercial Property Other Total Commercial real estate: Owner-occupied $ 46 $ 22 $ 0 $ 15,718 $ 9,635 $ 25,421 Nonowner-occupied 3,245 0 0 2,784 7,619 13,649 Other commercial 0 5,444 0 0 140 5,584 Residential real estate 11,858 0 0 0 0 11,858 Construction & land development 14 0 1,312 0 738 2,063 Consumer: Bankcard 0 0 0 0 0 0 Other consumer 0 0 0 0 0 0 Total $ 15,163 $ 5,466 $ 1,312 $ 18,502 $ 18,132 $ 58,575 United categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt: current financial information, historical payment experience, credit documentation, underlying collateral (if any), public information and current economic trends, among other factors. United uses the following definitions for risk ratings: • Pass • Special Mention • Substandard • Doubtful 20 Table of Contents For United’s loans with a corporate credit exposure, United analyzes loans individually to classify the loans as to credit risk. Review and analysis of criticized (special mention-rated loans in the amount of $1,000 or greater) and classified (substandard-rated and worse in the amount of $500 and greater) loans is completed once per quarter. Review of notes with committed exposure of $2,000 or greater is completed at least annually. For loans with a consumer credit exposure, United internally assigns a grade based upon an individual loan’s delinquency status. United reviews and updates, as necessary, these grades on a quarterly basis. Special mention loans, with a corporate credit exposure, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company’s credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. For loans with a consumer credit exposure, loans that are past due 30 - 89 days are generally considered special mention. A substandard loan with a corporate credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard. A loan with corporate credit exposure is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, there are not any loans with a consumer credit exposure that are classified as doubtful. Usually, they are charged-off prior to such a classification. Based on the most recent analysis performed, the risk category of loans and leases as well as charge-offs and recoveries by class of loans is as follows: Commercial Real Estate – Owner-occupied Term Loans Revolving loans amortized cost basis Revolving loans converted to term loan Total Origination Year As of March 31, 2023 2023 2022 2021 2020 2019 Prior Internal Risk Grade: Pass $ 27,955 $ 345,281 $ 266,482 $ 287,830 $ 121,986 $ 569,009 $ 29,766 $ 340 $ 1,648,649 Special Mention 0 0 0 0 2,532 16,535 0 0 19,067 Substandard 0 143 297 512 482 38,653 0 134 40,221 Doubtful 0 0 0 0 0 263 0 0 263 Total $ 27,955 $ 345,424 $ 266,779 $ 288,342 $ 125,000 $ 624,460 $ 29,766 $ 474 $ 1,708,200 Current-period charge-offs 0 0 0 0 0 ( 470 ) 0 0 ( 470 ) Current-period recoveries 0 4 0 0 0 43 0 0 47 Current-period net recoveries $ 0 $ 4 $ 0 $ 0 $ 0 $ ( 427 ) $ 0 $ 0 $ ( 423 ) 21 Table of Contents Term Loans Revolving loans amortized cost basis Revolving loans and leases converted to term loans Total Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Internal Risk Grade: Pass $ 339,765 $ 276,667 $ 284,091 $ 122,582 $ 112,126 $ 504,485 $ 32,465 $ 350 $ 1,672,531 Special Mention 0 0 0 496 1,158 5,358 920 0 7,932 Substandard 143 936 522 417 642 41,301 0 233 44,194 Doubtful 0 0 0 0 0 270 0 0 270 Total $ 339,908 $ 277,603 $ 284,613 $ 123,495 $ 113,926 $ 551,414 $ 33,385 $ 583 $ 1,724,927 Current-period charge-offs 0 0 0 0 0 ( 68 ) 0 0 ( 68 ) Current-period recoveries 0 0 0 0 0 489 0 0 489 Current-period net recoveries $ 0 $ 0 $ 0 $ 0 $ 0 $ 421 $ 0 $ 0 $ 421 Commercial Real Estate – Nonowner-occupied Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of March 31, 2023 2023 2022 2021 2020 2019 Prior Internal Risk Grade: Pass $ 93,376 $ 1,424,623 1,477,098 $ 742,621 $ 767,473 $ 1,610,898 $ 174,115 $ 128 $ 6,290,332 Special Mention 0 528 2,401 21,815 94,669 78,956 0 0 198,369 Substandard 0 0 0 662 1,047 45,179 0 0 46,888 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 93,376 $ 1,425,151 1,479,499 $ 765,098 $ 863,189 $ 1,735,033 $ 174,115 $ 128 $ 6,535,589 Current-period charge-offs 0 0 0 0 0 ( 24 ) 0 0 ( 24 ) Current-period recoveries 0 0 0 0 0 741 0 0 741 Current-period net recoveries $ 0 $ 0 $ 0 $ 0 $ 0 $ 717 $ 0 $ 0 $ 717 Term Loans Revolving loans amortized cost basis Revolving loans and leases converted to term loans Total Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Internal Risk Grade: Pass $ 1,415,465 $ 1,399,023 $ 739,474 $ 687,755 $ 341,367 $ 1,297,076 $ 183,779 $ 135 $ 6,064,074 Special Mention 557 2,401 6,852 84,781 980 23,137 0 0 118,708 Substandard 0 0 673 34,079 17,180 51,897 363 0 104,192 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 1,416,022 $ 1,401,424 $ 746,999 $ 806,615 $ 359,527 $ 1,372,110 $ 184,142 $ 135 $ 6,286,974 Current-period charge-offs 0 0 0 0 0 0 0 0 0 Current-period recoveries 0 0 0 0 0 234 0 0 234 Current-period net recoveries $ 0 $ 0 $ 0 $ 0 $ 0 $ 234 $ 0 $ 0 $ 234 Other commercial Term Loans and leases Revolving loans and leases amortized cost basis Revolving loans and leases converted to term loans Total Origination Year As of March 31, 2023 2023 2022 2021 2020 2019 Prior Internal Risk Grade: Pass $ 28,893 $ 741,025 $ 561,145 $ 378,245 $ 220,033 $ 431,242 $ 1,056,743 $ 40 $ 3,417,366 Special Mention 0 1,450 2,072 294 1,978 6,377 10,587 32 22,790 Substandard 0 14,083 61 28 940 12,013 43,578 78 70,781 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 28,893 $ 756,558 $ 563,278 $ 378,567 $ 222,951 $ 449,632 $ 1,110,908 $ 150 $ 3,510,937 Current-period charge-offs 0 0 ( 96 ) 0 ( 13 ) ( 478 ) ( 40 ) 0 ( 627 ) Current-period recoveries 0 0 0 0 7 565 0 0 572 Current-period net (charge-offs) recoveries $ 0 $ 0 $ ( 96 ) $ 0 $ ( 6 ) $ 87 $ ( 40 ) $ 0 $ ( 55 ) 22 Table of Contents Term Loans and leases Revolving loans and leases amortized cost basis Revolving loans and leases converted to term loans Total Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Internal Risk Grade: Pass $ 749,919 $ 581,588 $ 398,682 $ 230,209 $ 75,577 $ 426,406 $ 1,033,459 $ 1,596 $ 3,497,436 Special Mention 14,244 3,652 331 2,115 936 2,799 35,997 38 60,112 Substandard 4,023 432 29 871 5,603 6,182 37,778 42 54,960 Doubtful 0 0 0 0 0 60 0 0 60 Total $ 768,186 $ 585,672 $ 399,042 $ 233,195 $ 82,116 $ 435,447 $ 1,107,234 $ 1,676 $ 3,612,568 Current-period charge-offs 0 ( 364 ) ( 202 ) ( 211 ) ( 2,490 ) ( 1,041 ) 0 0 ( 4,308 ) Current-period recoveries 0 0 84 17 705 4,561 0 0 5,367 Current-period net (charge-offs) recoveries $ 0 $ ( 364 ) $ ( 118 ) $ ( 194 ) $ ( 1,785 ) $ 3,520 $ 0 $ 0 $ 1,059 Residential Real Estate Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of March 31, 2023 2023 2022 2021 2020 2019 Prior Internal Risk Grade: Pass $ 197,071 $ 1,509,324 $ 853,956 $ 472,403 $ 283,822 $ 994,077 $ 422,662 $ 2,659 $ 4,735,974 Special Mention 0 0 0 0 0 4,221 1,813 0 6,034 Substandard 0 0 416 453 321 14,993 1,202 95 17,480 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 197,071 $ 1,509,324 $ 854,372 $ 472,856 $ 284,143 $ 1,013,291 $ 425,677 $ 2,754 $ 4,759,488 Current-period charge-offs 0 0 0 0 ( 40 ) 0 0 0 ( 40 ) Current-period recoveries 0 0 0 0 181 0 0 0 181 Current-period net (charge-offs) recoveries $ 0 $ 0 $ 0 $ 0 $ 141 $ 0 $ 0 $ 0 $ 141 Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Internal Risk Grade: Pass $ 1,525,762 $ 847,177 $ 492,628 $ 291,334 $ 245,158 $ 791,366 $ 439,800 $ 2,683 $ 4,635,908 Special Mention 0 0 0 0 11 4,418 1,888 0 6,317 Substandard 0 1,448 68 445 866 17,001 858 0 20,686 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 1,525,762 $ 848,625 $ 492,696 $ 291,779 $ 246,035 $ 812,785 $ 442,546 $ 2,683 $ 4,662,911 Current-period charge-offs 0 ( 809 ) 0 0 ( 284 ) ( 453 ) 0 0 ( 1,546 ) Current-period recoveries 0 1 0 0 16 1,483 7 0 1,507 Current-period net (charge-offs) recoveries $ 0 $ ( 808 ) $ 0 $ 0 $ ( 268 ) $ 1,030 $ 7 $ 0 $ ( 39 ) Construction and Land Development Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of March 31, 2023 2023 2022 2021 2020 2019 Prior Internal Risk Grade: Pass $ 89,281 $ 936,572 $ 1,027,995 $ 284,306 $ 25,531 $ 131,391 $ 291,285 $ 0 $ 2,786,361 Special Mention 0 1,754 0 64 3,419 13,879 0 0 19,116 Substandard 0 143 190 0 54 2,389 0 0 2,776 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 89,281 $ 938,469 $ 1,028,185 $ 284,370 $ 29,004 $ 147,659 $ 291,285 $ 0 $ 2,808,253 Current-period charge-offs 0 0 0 0 0 ( 14 ) 0 0 ( 14 ) Current-period recoveries 0 0 0 0 0 32 0 0 32 Current-period net recoveries $ 0 $ 0 $ 0 $ 0 $ 0 $ 18 $ 0 $ 0 $ 18 23 Table of Contents Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Internal Risk Grade: Pass $ 806,442 $ 1,109,601 $ 389,751 $ 133,711 $ 117,934 $ 109,320 $ 252,604 $ 0 $ 2,919,363 Special Mention 0 0 65 3,421 0 1,447 0 0 4,933 Substandard 0 219 0 13 0 2,443 0 0 2,675 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 806,442 $ 1,109,820 $ 389,816 $ 137,145 $ 117,934 $ 113,210 $ 252,604 $ 0 $ 2,926,971 Current-period charge-offs 0 0 0 0 0 ( 2 ) 0 0 ( 2 ) Current-period recoveries 0 0 0 0 0 1,414 0 0 1,414 Current-period net recoveries $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,412 $ 0 $ 0 $ 1,412 Bankcard Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of March 31, 2023 2023 2022 2021 2020 2019 Prior Internal Risk Grade: Pass Special Mention $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,471 $ 0 $ 8,471 Substandard 0 0 0 0 0 0 159 0 159 Doubtful 0 0 0 0 0 0 101 0 101 Total 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,731 $ 0 $ 8,731 Current-period charge-offs 0 0 0 0 0 0 ( 92 ) 0 ( 92 ) Current-period recoveries 0 0 0 0 0 0 3 0 3 Current-period net charge-offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ ( 89 ) $ 0 $ ( 89 ) Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Internal Risk Grade: Pass $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,101 $ 0 $ 9,101 Special Mention 0 0 0 0 0 0 63 0 63 Substandard 0 0 0 0 0 0 109 0 109 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,273 $ 0 $ 9,273 Current-period charge-offs 0 0 0 0 0 0 ( 355 ) 0 ( 355 ) Current-period recoveries 0 0 0 0 0 0 9 0 9 Current-period net charge-offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ ( 346 ) $ 0 $ ( 346 ) Other Consumer Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of March 31, 2023 2023 2022 2021 2020 2019 Prior Internal Risk Grade: Pass $ 79,760 $ 577,952 $ 291,713 $ 157,259 $ 109,857 $ 49,964 $ 2,743 $ 0 $ 1,269,248 Special Mention 0 9,494 8,913 3,944 1,869 1,112 22 0 25,354 Substandard 0 1,840 2,248 703 222 75 10 0 5,098 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 79,760 $ 589,286 $ 302,874 $ 161,906 $ 111,948 $ 51,151 $ 2,775 $ 0 $ 1,299,700 Current-period charge-offs 0 ( 480 ) ( 684 ) ( 342 ) ( 117 ) ( 46 ) 0 0 ( 1,669 ) Current-period recoveries 0 62 43 9 26 75 0 0 215 Current-period net (charge-offs) recoveries $ 0 $ ( 418 ) $ ( 641 ) $ ( 333 ) $ ( 91 ) $ 29 $ 0 $ 0 $ ( 1,454 ) 24 Table of Contents Term Loans Revolving loans amortized cost basis Revolving loans converted to term loans Total Origination Year As of December 31, 2022 2022 2021 2020 2019 2018 Prior Internal Risk Grade: Pass $ 626,666 $ 319,719 $ 176,423 $ 128,176 $ 55,147 $ 9,202 $ 2,644 $ 0 $ 1,317,977 Special Mention 9,891 13,449 5,769 3,075 1,295 464 50 0 33,993 Substandard 1,144 2,214 927 167 89 28 0 0 4,569 Doubtful 0 0 0 0 0 0 0 0 0 Total $ 637,701 $ 335,382 $ 183,119 $ 131,418 $ 56,531 $ 9,694 $ 2,694 $ 0 $ 1,356,539 Current-period charge-offs ( 394 ) ( 1,435 ) ( 851 ) ( 331 ) ( 162 ) ( 198 ) 0 0 ( 3,371 ) Current-period recoveries 12 102 61 87 60 207 0 0 529 Current-period net (charge-offs) recoveries $ ( 382 ) $ ( 1,333 ) $ ( 790 ) $ ( 244 ) $ ( 102 ) $ 9 $ 0 $ 0 $ ( 2,842 ) At March 31, 2023 and December 31, 2022, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $ 4,086 and $ 2,052 , respectively. OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Any adjustment to the fair value at the date of transfer is charged against the allowance for loan losses. Any subsequent valuation adjustments as well as any costs relating to operating, holding or disposing of the property are recorded in other expense in the period incurred. At March 31, 2023 and December 31, 2022, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $ 1,090 and $ 1,309 , respectively. 5. ALLOWANCE FOR CREDIT LOSSES The allowance for loan losses is an estimate of the expected credit losses on financial assets measured at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset (contractual term). Assets are charged off when United determines that such financial assets are deemed uncollectible or based on regulatory requirements, whichever is earlier. Charge-offs are recognized as a deduction from the allowance for credit losses. Expected recoveries of amounts previously charged-off, not to exceed the aggregate of the amount previously charged-off, are included in determining the necessary reserve at the balance sheet date. United made a policy election to present the accrued interest receivable balance separately in its consolidated balance sheets from the amortized cost of a loan. Accrued interest receivable was $ 72,922 and $ 70,332 at March 31, 2023 and December 31, 2022, respectively, related to loans and leases are included separately in “Accrued interest receivable” in the consolidated balance sheets. For all classes of loans and leases receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due, unless the loan is well secured and in the process of collection. Interest received on nonaccrual loans and leases, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. The following table represents the accrued interest receivable as of March 31, 2023 and December 31, 2022: Accrued Interest Receivable At March 31, 2023 At December 31, 2022 Commercial Real Estate: Owner-occupied $ 4,584 $ 4,855 Nonowner-occupied 20,562 19,801 Other Commercial 12,994 10,904 Residential Real Estate 16,773 16,117 Construction 14,834 15,195 Consumer: Bankcard 0 0 Other consumer 3,175 3,460 Total $ 72,922 $ 70,332 25 Table of Contents The following table represents the accrued interest receivables written off by reversing interest income for the three months ended March 31, 2023 and 2022: Accrued Interest Receivables Written Off by Reversing Interest Income Three Months Ended March 31 2023 2022 Commercial Real Estate: Owner-occupied $ 0 $ 0 Nonowner-occupied 0 0 Other Commercial 13 1 Residential Real Estate 50 20 Construction 2 0 Consumer: Bankcard 0 0 Other consumer 94 67 Total $ 159 $ 88 United estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as reasonable and supportable forecast adjustments for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. A reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period. United pools its loans and leases based on similar risk characteristics in estimating expected credit losses. United has identified the following portfolio segments and measures the allowance for credit losses using the following methods: • Method: Probability of Default/Loss Given Default (PD/LGD) • Commercial Real Estate Owner-Occupied • Commercial Real Estate Nonowner-Occupied • Commercial Other • Method: Cohort • Residential Real Estate • Construction & Land Development • Consumer • Bankcard Risk characteristics of commercial real estate owner-occupied loans and commercial other loans and leases are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Commercial real estate nonowner-occupied loans differ in that cash flow to service debt is normally dependent on external income from third parties for use of the real estate such as rents, leases and room rates. Residential real estate loans are dependent upon 2 6 Table of Contents individual borrowers who are affected by changes in general economic conditions, demand for housing and resulting residential real estate valuation. Construction and land development loans are impacted mainly by demand whether for new residential housing or for retail, industrial, office and other types of commercial construction within a given area. Consumer loan pool risk characteristics are influenced by general, regional and local economic conditions. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral but may also include other non-performing loans, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans. Expected credit losses are estimated over the contractual term of the loans and leases, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless management has a reasonable expectation at the reporting date that the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by United. At the acquisition date, an initial allowance for expected credit losses for non-PCD loans is estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans. For allowance for credit losses under ASC Topic 326 calculation purposes, United includes its acquired loans and leases in their relevant pool unless they meet the criteria for specific review. United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. The reserve for lending-related commitments of $ 48,789 and $ 46,189 at March 31, 2023 and December 31, 2022, respectively, is separately classified on the balance sheet and is included in other liabilities. The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses. United’s allowance for credit losses at March 31, 2023 increased $ 8,345 or 2.97 % from December 31, 2022. The overall increase in the allowance was driven primarily by a change in qualitative factors and as well as an expected worsening of future economic performance within the reasonable and supportable forecast. This increase was offset slightly due to improvement in historical loss rates and a decrease in allocations established for individually assessed loans. The first quarter of 2023 qualitative adjustments include analyses of the following: • Current conditions – United considered the impact of inflation, interest rates, the regulatory environment due to recent bank failures and geopolitical conflict when making determinations related to factor adjustments for the external environment. United also considered portfolio trends related to economic and business conditions, collateral values for dependent loans; past due, nonaccrual and graded loans and leases; and concentrations of credit. • 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 in 2023 shifted slightly downward in the first quarter, from a projection of 0.50 % for 2023 at the end of 2022 to 0.40 % for 2023 with a larger downward shift for 2024, from a projection of 1.60 % for 2024 at the end of 2022 to 1.20 % for 2023. The unemployment rate remained fairly consistent to the end of 2022 with a steady trend expected throughout 2023 and 2024. 27 Table of Contents • Greater risk of loss is probable in the office portfolio due to continued hybrid and remote work that may be exacerbated by future economic conditions and in the construction portfolio due to weakened economic conditions. • Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period. A progression of the allowance for loan and lease losses, by portfolio segment, for the periods indicated is summarized as follows: Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases For the Three Months Ended March 31, 2023 Commercial Real Estate Other Commercial Residential Real Estate Construction & Land Development Bankcard Total Owner- occupied Nonowner- occupied Other Consumer Allowance for Loan and Lease Losses: Beginning balance $ 13,945 $ 38,543 $ 79,706 $ 36,227 $ 48,390 $ 561 $ 17,374 $ 234,746 Charge-offs ( 470 ) ( 24 ) ( 627 ) ( 40 ) ( 14 ) ( 92 ) ( 1,669 ) ( 2,936 ) Recoveries 47 741 572 181 32 3 215 1,791 Provision 25 3,412 ( 640 ) 2,108 1,628 65 292 6,890 Ending balance $ 13,547 $ 42,672 $ 79,011 $ 38,476 $ 50,036 $ 537 $ 16,212 $ 240,491 Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases For the Year Ended December 31, 2022 Commercial Real Estate Other Commercial Residential Real Estate Construction & Land Development Bankcard Total Owner- occupied Nonowner- occupied Other Consumer Allowance for Loan and Lease Losses: Beginning balance $ 14,443 $ 42,156 $ 78,432 $ 26,404 $ 39,395 $ 317 $ 14,869 $ 216,016 Charge-offs ( 68 ) ( 0 ) ( 4,308 ) ( 1,546 ) ( 2 ) ( 355 ) ( 3,371 ) ( 9,650 ) Recoveries 489 234 5,367 1,507 1,414 9 529 9,549 Provision ( 919 ) ( 3,847 ) 215 9,862 7,583 590 5,347 18,831 Ending balance $ 13,945 $ 38,543 $ 79,706 $ 36,227 $ 48,390 $ 561 $ 17,374 $ 234,746 2 8 Table of Contents 6. INTANGIBLE ASSETS The following is a summary of intangible assets subject to amortization and those not subject to amortization: March 31, 2023 Community Banking Mortgage Banking Total Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Amortized intangible assets: Core deposit intangible assets $ 105,165 ($ 88,823 ) $ 0 $ 0 $ 105,165 ($ 88,823 ) Non-amortized intangible assets: George Mason trade name $ 0 $ 1,080 $ 1,080 Crescent trade name 0 196 196 Total $ 0 $ 1,276 $ 1,276 Goodwill not subject to amortization $ 1,883,574 $ 5,315 $ 1,888,889 December 31, 2022 Community Banking Mortgage Banking Total Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Amortized intangible assets: Core deposit intangible assets $ 105,165 ($ 87,544 ) $ 0 $ 0 $ 105,165 ($ 87,544 ) Non-amortized intangible assets: George Mason trade name $ 0 $ 1,080 $ 1,080 Crescent trade name 0 196 196 Total $ 0 $ 1,276 $ 1,276 Goodwill not subject to amortization $ 1,883,574 $ 5,315 $ 1,888,889 United incurred amortization expense of $ 1,279 and $ 1,379 for the quarters ended March 31, 2023 and 2022, respectively. 2 9 Table of Contents The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2022: Year Amount 2023 $ 5,116 2024 3,639 2025 3,282 2026 2,758 2027 1,152 2028 and thereafter 1,674 7. MORTGAGE SERVICING RIGHTS Mortgage loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The value of mortgage servicing rights (“MSRs”) is included on the Company’s Consolidated Balance Sheets. The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“MSRs”) at fair value, if practicable. For subsequent measurement purposes, the Company measures servicing assets and liabilities based on the lower of cost or market using the amortization method. MSRs are amortized in proportion to, and over the period of, estimated net servicing income. The amortization of the MSRs is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates. The Company evaluates potential impairment of MSRs based on the difference between the carrying amount and current estimated fair value of the servicing rights. In determining impairment, the Company aggregates all servicing rights and stratifies them into tranches based on predominant risk characteristics. If impairment exists, a valuation allowance is established for any excess of amortized cost over the current estimated fair value by a charge to income. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income. Service fee income is recorded for fees earned for servicing mortgage loans under servicing agreements with the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and certain private investors. The fees are based on a contractual percentage of the outstanding principal balance of the loans serviced and are recorded in noninterest income. Amortization of MSRs and mortgage servicing costs are charged to expense when incurred. The unpaid principal balances of loans serviced for others were approximately $ 3,280,741 at March 31, 2023 and $ 3,381,485 at December 31, 2022. The estimated fair value of the mortgage servicing rights was $ 39,699 and $ 41,880 at March 31, 2023 and December 31, 2022, respectively. The estimated fair value of servicing rights at March 31, 2023 was determined using a net servicing fee of 0.25 %, average discount rates ranging from 9.54 % to 11.63 % with a weighted average discount rate of 10.60 %, average constant prepayment rates (“CPR”) ranging from 5.32 % to 6.25 % with a weighted average prepayment rate of 5.79 %, depending upon the stratification of the specific servicing right, and a delinquency rate, including loans on forbearance of 1.83 %. The estimated fair value of servicing rights at December 31, 2022 was determined using a net servicing fee of 0.25 %, average discount rates ranging from 10.50 % to 10.74 % with a weighted average discount rate of 10.62 %, average CPR ranging from 5.66 % to 7.62 % with a weighted average prepayment rate of 6.30 %, depending upon the stratification of the specific servicing right, and a delinquency rate, including loans on forbearance of 2.19 %. Please refer to Note 13 in these Notes to Consolidated Financial Statements for additional information concerning the fair value of MSRs. 30 Table of Contents The following presents the activity in mortgage servicing rights, including their valuation allowance for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 MSRs beginning balance $ 21,022 $ 24,027 Amount sold ( 235 ) 0 Amount capitalized 145 687 Amount amortized ( 945 ) ( 1,625 ) MSRs ending balance $ 19,987 $ 23,089 MSRs valuation allowance beginning balance $ 0 $ ( 883 ) Aggregate additions charged and recoveries credited to operations 0 883 MSRs impairment 0 0 MSRs valuation allowance ending balance $ 0 $ 0 MSRs, net of valuation allowance $ 19,987 $ 23,089 The Company did no t record any temporary impairments on mortgage servicing rights for the three months ended March 31, 2023 and 2022. The estimated amortization expense is based on current information regarding future loan payments and prepayments. Amortization expense could change in future periods based on changes in the volume of prepayments and economic factors. 8. LEASES United determines if an arrangement is a lease at inception. United and certain subsidiaries have entered into various noncancelable-operating leases for branch and loan production offices as well as operating facilities. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Consolidated Balance Sheets. Operating leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. Presently, United does not have any finance leases. United’s operating leases are subject to renewal options under various terms. United’s operating leases have remaining terms of 1 to 15 years, some of which include options to extend leases generally for periods of 5 years. United rents or subleases certain real estate to third parties. Our sublease portfolio generally consists of operating leases to other organizations for former branch offices. ROU assets represent United’s right to use an underlying asset for the lease term and lease liabilities represent United’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of United’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend the lease when it is reasonably certain that United will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows: Three Months Ended Classification March 31, 2023 March 31, 2022 Operating lease cost Net occupancy expense $ 5,392 $ 5,129 Sublease income Net occupancy expense ( 60 ) ( 168 ) Net lease cost $ 5,332 $ 4,961 3 1 Table of Contents Supplemental balance sheet information related to leases was as follows: Classification March 31, 2023 December 31, 2022 Operating lease right-of-use assets Operating lease right-of-use assets $ 76,884 $ 71,144 Operating lease liabilities Operating lease liabilities $ 81,394 $ 75,749 Other information related to leases was as follows: March 31, 2023 Weighted-average remaining lease term: Operating leases 6.82 years Weighted-average discount rate: Operating leases 2.48 % Supplemental cash flow information related to leases was as follows: Three Months Ended March 31, 2023 March 31, 2022 Cash paid for amounts in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,487 $ 5,310 ROU assets obtained in the exchange for lease liabilities 10,192 1,601 Maturities of lease liabilities by year and in the aggregate, under operating leases with initial or remaining terms of one year or more, for years subsequent to December 31, 2022, consists of the following as of March 31, 2023: Year Amount 2023 $ 14,876 2024 15,594 2025 11,973 2026 10,690 2027 8,865 Thereafter 26,472 Total lease payments 88,470 Less: imputed interest ( 7,076 ) Total $ 81,394 9. SHORT-TERM BORROWINGS At March 31, 2023 and December 31, 2022, short-term borrowings were as follows: As of March 31, 2023 As of December 31, 2022 Federal funds purchased $ 0 $ 0 Securities sold under agreements to repurchase 170,094 160,698 Total short-term borrowings $ 170,094 $ 160,698 Securities sold under agreements to repurchase have not been a significant source of funds for the company. The securities sold under agreements to repurchase were accounted for as collateralized financial transactions. They were recorded at the amounts at which the securities were acquired or sold plus accrued interest. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $ 230,000 . These lines of credit, which bear interest at prevailing market rates, permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions. United has a $ 20,000 line of credit with an unrelated financial institution to provide for general liquidity needs. The line is an unsecured, revolving line of credit. The line is renewable on a 360 day basis and carries an indexed, floating-rate of interest. The line requires compliance with various financial and nonfinancial covenants. At March 31, 2023, United had no outstanding balance under this credit. 32 Table of Contents 10. LONG-TERM BORROWINGS United’s subsidiary bank is a member of the Federal Home Loan Bank (“FHLB”). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a mix of single-family residential mortgage loans, commercial loans and investment securities. At March 31, 2023, United had an unused borrowing amount of approximately $ 5,818,883 available subject to delivery of collateral after certain trigger points. Advances may be called by the FHLB or redeemed by United based on predefined factors and penalties. At March 31, 2023, $ 2,510,703 of FHLB advances with a weighted-average contractual interest rate of 4.84 % and a weighted-average effective interest rate of 3.97 % are scheduled to mature within the next two years. The weighted-average effective rate considers the effect of any interest rate swaps designated as cash flow hedges outstanding at March 31, 2023 to manage interest rate risk on its long-term debt. The scheduled maturities of these FHLB borrowings are as follows: Year Amount 2023 $ 2,500,000 2024 0 2025 10,703 2026 0 2027 and thereafter 0 Total $ 2,510,703 At March 31, 2023, United had a total of twenty statutory business trusts that were formed for the purpose of issuing or participating in pools of trust preferred capital securities (“Capital Securities”) with the proceeds invested in junior subordinated debt securities (“Debentures”) of United. The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of United, are the sole assets of the trusts and United’s payment under the Debentures is the sole source of revenue for the trusts. United assumed $ 10,000 in aggregate principal amount of fixed-to-floating rate subordinated notes in the Carolina Financial Corporation acquisition. During the first quarter of 2023, United redeemed these fixed-to-floating rate subordinated notes. At December 31, 2022, the outstanding balance of the subordinated notes was $ 9,892 . At March 31, 2023 and December 31, 2022, the outstanding balance of the Debentures was $ 277,400 and $ 276,989 , respectively, and was included in the category of long-term debt on the Consolidated Balance Sheets entitled “Other long-term borrowings.” The Capital Securities are not included as a component of shareholders’ equity in the Consolidated Balance Sheets. United fully and unconditionally guarantees each individual trust’s obligations under the Capital Securities. Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five years . If interest payments on the subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the subordinated debt is cumulative. In accordance with the fully-phased in “Basel III Capital Rules” as published by United’s primary federal regulator, the Federal Reserve, United is unable to consider the Capital Securities as Tier 1 capital, but rather the Capital Securities are included as a component of United’s Tier 2 capital. United can include the Capital Securities in its Tier 2 capital on a permanent basis. 3 3 Table of Contents 11. COMMITMENTS AND CONTINGENT LIABILITIES Lending-related Commitments United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, and interest rate swap agreements. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral may be obtained, if deemed necessary, based on management’s credit evaluation of the counterparty. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily, and historically do not, represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation of the counterparty. United had approximately $ 7,370,125 and $ 7,250,155 of loan commitments outstanding as of March 31, 2023 and December 31, 2022, respectively, approximately 37% of which contractually expire within one year . Excluded in the March 31, 2023 and December 31, 2022 amounts above are commitments to extend credit of $ 696,412 and $ 719,841 respectively, related to mortgage loan funding commitments of United’s mortgage banking segment which are of a short-term nature. Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. A commercial letter of credit is issued specifically to facilitate trade or commerce. Typically, under the terms of a commercial letter of credit, a commitment is drawn upon when the underlying transaction is consummated as intended between the customer and a third party. As of March 31, 2023 and December 31, 2022, United had $ 16,389 of commercial letters of credit outstanding. A standby letter of credit is generally contingent upon the failure of a customer to perform according to the terms of an underlying contract with a third party. United has issued standby letters of credit of $ 151,778 and $ 147,511 as of March 31, 2023 and December 31, 2022, respectively. In accordance with the Contingencies Topic of the FASB Accounting Standards Codification, United has determined that substantially all of its letters of credit are renewed on an annual basis and the fees associated with these letters of credit are immaterial. Mortgage Banking United’s mortgage banking segment provides for its estimated exposure to repurchase loans previously sold to investors for which borrowers failed to provide full and accurate information on their loan application or for which appraisals have not been acceptable or where the loan was not underwritten in accordance with the loan program specified by the loan investor, and for other exposure to its investors related to loan sales activities. United evaluates the merits of each claim and estimates its reserve based on actual and expected claims received and considers the historical amounts paid to settle such claims. United’s mortgage banking segment had a reserve of $ 1,081 as of March 31, 2023 and December 31, 2022. United has derivative counter-party risk that may arise from the possible inability of United’s mortgage banking segment’s third party investors to meet the terms of their forward sales contracts. United’s mortgage banking segment works with third-party investors that are generally well-capitalized, are investment grade and exhibit strong financial performance to mitigate this risk. United does not expect any third-party investor to fail to meet its obligation. 3 4 Table of Contents Legal Proceedings United and its subsidiaries are currently involved in various legal proceedings in the normal course of business. On at least a quarterly basis, United assesses its liabilities and contingencies in connection with all pending or threatened claims and litigation, utilizing the most recent information available. On a matter-by-matter basis, an accrual for loss is established for those matters which United believes it is probable that a loss may be incurred and that the amount of such loss can be reasonably estimated. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments. Accordingly, management’s estimate will change from time to time, and actual losses may be more or less than the current estimate. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United’s financial statements. Regulatory Matters A variety of consumer products, including mortgage and deposit products, and certain fees and charges related to such products, have come under increased regulatory scrutiny. It is possible that regulatory authorities could bring enforcement actions, including civil money penalties, or take other actions against United in regard to these consumer products. United could also determine of its own accord, or be required by regulators, to refund or otherwise make remediation payments to customers in connection with these products. It is not possible at this time for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss related to such matters. 12. DERIVATIVE FINANCIAL INSTRUMENTS United uses derivative instruments to help aid against adverse price changes or interest rate movements on the value of certain assets or liabilities and on future cash flows. These derivatives may consist of interest rate swaps, caps, floors, collars, futures, forward contracts, written and purchased options. United also executes derivative instruments with its commercial banking customers to facilitate its risk management strategies. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Fair value hedges may be eligible for offset on the consolidated balance sheets because they are subject to master netting arrangements or similar agreements. United has elected not to offset the assets and liabilities subject to such arrangements on the consolidated financial statements. During 2020, United entered into two interest rate swap derivatives designated as cash flow hedges. The notional amount of these cash flow hedge derivatives totaled $ 500,000 . The derivatives are intended to hedge the changes in cash flows associated with floating rate FHLB borrowings. As of March 31, 2023, United has determined that no forecasted transactions related to its cash flow hedges resulted in gains or losses pertaining to cash flow hedge reclassification from AOCI to income because the forecasted transactions became probable of not occurring. United estimates that $ 21,776 will be reclassified from AOCI as a decrease to interest expense over the next 12-months following March 31, 2023 related to the cash flow hedges. As of March 31, 2023, the maximum length of time over which forecasted transactions are hedged is seven years. At inception of a hedge relationship, United formally documents the hedged item, the particular risk management objective, the nature of the risk being hedged, the derivative being used, how effectiveness of the hedge will be assessed and how the ineffectiveness of the hedge will be measured. United also assesses hedge effectiveness at inception and on an ongoing basis using regression analysis. Hedge ineffectiveness is measured by using the change in fair value method. The change in fair value method compares the change in the fair value of the hedging derivative to the change in the fair value of the hedged exposure, attributable to changes in the benchmark rate. 3 5 Table of Contents United is subject to the Dodd-Frank Act clearing requirement for eligible derivatives. United has executed and cleared eligible derivatives through the London Clearing House (“LCH”). Variation margin at the LCH is distinguished as settled-to-market and settled daily based on the prior day value, rather than collateralized-to-market. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument. The total notional amount of interest rate swap derivatives designated as cash flow hedges cleared through the LCH include $ 500,000 for asset derivatives as of March 31, 2023. Balances related to LCH are presented as a single unit of account with the fair value of the designated cash flow interest rate swap asset being reduced by variation margin posted by (with) the applicable counterparty and reported in the following table on a net basis. The related fair value on a net basis approximates zero . United through its mortgage banking subsidiaries enters into interest rate lock commitments to finance residential mortgage loans with its customers. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by United. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Market risk on interest rate lock commitments and mortgage loans held for sale is managed using corresponding forward mortgage loan sales contracts. United is a party to these forward mortgage loan sales contracts to sell loans with servicing either released or retained and short sales of mortgage-backed securities. When the interest rate is locked with the borrower, the rate lock commitment, forward sale agreement, and mortgage-backed security position are undesignated derivatives and marked to fair value through earnings. The fair value of the rate lock derivative is measured using valuations from investors for loans with similar characteristics as well as considering the probability of the loan closing (i.e. the “pull-through” rate) with some adjusted for the Company’s actual sales experience versus the investor’s indicated pricing. Fair values of TBA mortgage-backed securities are measured using valuations from investors for mortgage-backed securities with similar characteristics. Income from mortgage banking activities includes the gain recognized for the period presented and associated elements of fair value. The following tables disclose the derivative instruments’ location on the Company’s Consolidated Balance Sheets and the notional amount and fair value of those instruments at March 31, 2023 and December 31, 2022. Asset Derivatives March 31, 2023 December 31, 2022 Balance Sheet Location Notional Amount Fair Value Balance Sheet Location Notional Amount Fair Value Derivatives designated as hedging instruments Fair Value Hedges: Interest rate swap contracts (hedging commercial loans) Other assets $ 53,964 $ 3,057 Other assets $ 55,073 $ 4,038 Total Fair Value Hedges $ 53,964 $ 3,057 $ 55,073 $ 4,038 Cash Flow Hedges: Interest rate swap contracts (hedging FHLB borrowings) Other assets $ 500,000 $ 0 Other assets $ 500,000 $ 0 Total Cash Flow Hedges $ 500,000 $ 0 $ 500,000 $ 0 Total derivatives designated as hedging instruments $ 553,964 $ 3,057 $ 555,073 $ 4,038 Derivatives not designated as hedging instruments Forward loan sales commitments Other assets $ 10,041 $ 127 Other assets $ 15,475 $ 220 TBA mortgage-backed securities Other assets 0 0 Other assets 22,649 146 Interest rate lock commitments Other assets 102,390 2,099 Other assets 73,412 1,146 Total derivatives not designated as hedging instruments $ 112,431 $ 2,226 $ 111,536 $ 1,512 Total asset derivatives $ 666,395 $ 5,283 $ 666,609 $ 5,550 3 6 Table of Contents Liability Derivatives March 31, 2023 December 31, 2022 Balance Sheet Location Notional Amount Fair Value Balance Sheet Location Notional Amount Fair Value Derivatives not designated as hedging instruments Forward loan sales commitments Other liabilities $ 0 $ 0 Other liabilities $ 0 $ 0 TBA mortgage-backed securities Other liabilities 107,014 567 Other liabilities 63,000 213 Interest rate lock commitments Other liabilities 0 0 Other liabilities 48,949 348 Total derivatives not designated as hedging instruments $ 107,014 $ 567 $ 111,949 $ 561 Total liability derivatives $ 107,014 $ 567 $ 111,949 $ 561 The following table represents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value accounting relationship as of March 31, 2023 and December 31, 2022. March 31, 2023 Derivatives in Fair Value Hedging Relationships Location in the Statement of Condition Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Remaining for any Hedged Assets/ (Liabilities) for which Hedge Accounting has been Discontinued Interest rate swaps Loans, net of unearned income $ 54,648 $ ( 2,177 ) $ 0 December 31, 2022 Derivatives in Fair Value Hedging Relationships Location in the Statement of Condition Carrying Amount of the Hedged Assets/ (Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Remaining for any Hedged Assets/ (Liabilities) for which Hedge Accounting has been Discontinued Interest rate swaps Loans, net of unearned income $ 55,770 $ ( 3,069 ) $ 0 Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. United’s exposure is limited to the replacement value of the contracts rather than the notional amount of the contract. The Company’s agreements generally contain provisions that limit the unsecured exposure up to an agreed upon threshold. Additionally, the Company attempts to minimize credit risk through certain approval processes established by management. 3 7 Table of Contents The effect of United’s derivative financial instruments on its unaudited Consolidated Statements of Income for the three months ended March 31, 2023 and 2022 are presented as follows: Three Months Ended Income Statement Location March 31, 2023 March 31, 2022 Derivatives in hedging relationships Fair Value Hedges: Interest rate swap contracts Interest and fees on loans $ 89 $ ( 601 ) Cash flow Hedges: Interest rate swap contracts Interest on long-term borrowings $ 4,915 $ ( 342 ) Total derivatives in hedging relationships $ 5,004 $ ( 943 ) Derivatives not designated as hedging instruments Forward loan sales commitments Income from Mortgage Banking Activities $ ( 93 ) $ ( 1,049 ) TBA mortgage-backed securities Income from Mortgage Banking Activities ( 499 ) 11,410 Interest rate lock commitments Income from Mortgage Banking Activities 607 ( 3,704 ) Total derivatives not designated as hedging instruments $ 15 $ 6,657 Total derivatives $ 5,019 $ 5,714 For the three months ended March 31, 2023 and 2022, changes in the fair value of any interest rate swaps attributed to hedge ineffectiveness were recorded, but not significant to United’s Consolidated Statements of Income. 13. FAIR VALUE MEASUREMENTS United determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, which also clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC Topic 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect United’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows: Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities. Level 2 - Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. Level 3 - Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. When determining the fair value measurements for assets and liabilities, United looks to active and observable markets to price identical assets or liabilities whenever possible and classifies such items in Level 1. When identical assets and liabilities are no t traded in active markets, United looks to market observable data for similar assets and liabilities and classifies such items as Level 2. Nevertheless, certain assets and liabilities are no t actively traded in observable markets and United must use alternative valuation techniques using unobservable inputs to determine a fair value and classifies such items as Level 3. For assets and liabilities that are no t actively traded, the fair value measurement is based primarily upon estimates that require significant judgment. Therefore, the results may no t be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there are inherent weaknesses in any calculation technique, and changes in 3 8 Table of Contents the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement. In accordance with ASC Topic 820, the following describes the valuation techniques used by United to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements. Securities available for sale and equity securities : Securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (“Level 1”). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Using a market approach valuation methodology, third party vendors compile prices based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, and “To Be Announced” prices (“Level 2”). Management internally reviews the fair values provided by third party vendors on a monthly basis. Management also performs a quarterly price testing analysis at the individual security level which compares the pricing provided by the third party vendors to an independent pricing source’s valuation of the same securities. Variances that are deemed to be material are reviewed by management. Additionally, to further assess the reliability of the information received from third party vendors, management obtains documentation from third party vendors related to the sources, methodologies, and inputs utilized in valuing securities classified as Level 2. Management analyzes this information to ensure the underlying assumptions appear reasonable. Management also obtains an independent service auditor’s report from third party vendors to provide reasonable assurance that appropriate controls are in place over the valuation process. Upon completing its review of the pricing from third party vendors at March 31, 2023, management determined that the prices provided by its third party pricing sources were reasonable and in line with management’s expectations for the market values of these securities. Therefore, prices obtained from third party vendors that did not reflect forced liquidation or distressed sales were not adjusted materially by management at March 31, 2023. Management utilizes a number of factors to determine if a market is inactive, all of which may require a significant level of judgment. Factors that management considers include: a significant widening of the bid-ask spread, a considerable decline in the volume and level of trading activity in the instrument, a significant variance in prices among market participants, and a significant reduction in the level of observable inputs. Any securities available for sale not valued based upon quoted market prices or third party pricing models that consider observable market data are considered Level 3. Currently, United does not have any available-for-sale securities considered as Level 3. Loans held for sale : For residential mortgage loans sold in the mortgage banking segment, the loans closed are recorded at fair value using the fair value option which is measured using valuations from investors for loans with similar characteristics (“Level 2”) with some adjusted for the Company’s actual sales experience versus the investor’s indicated pricing (“Level 3”). The unobservable input for Level 3 valuations is the Company’s historical sales prices. For March 31, 2023, the range of historical sales prices increased the investor’s indicated pricing by a range of 0.03 % to 0.96 % with a weighted average increase of 0.13 %. Derivatives : United utilizes interest rate swaps to hedge exposure to interest rate risk and variability of cash flows associated to changes in the underlying interest rate of the hedged item. These hedging interest rate swaps are classified as either a fair value hedge or a cash flow hedge. United utilizes third-party vendors for derivative valuation purposes. These vendors determine the appropriate fair value based on a net present value calculation of the cash flows related to the interest rate swaps using primarily observable market inputs such as interest rate yield curves (“Level 2”). Valuation adjustments to derivative fair values for liquidity and credit risk are also taken into consideration, as well as the likelihood of default by United and derivative counterparties, the net counterparty exposure and the remaining maturities of the positions. Values obtained from third party vendors are typically not adjusted by management. Management internally reviews the derivative values provided by third party vendors on a quarterly basis. All derivative values are tested for reasonableness by management utilizing a net present value calculation. 3 9 Table of Contents For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings either in interest income or interest expense depending on the nature of the hedged financial instrument. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to accumulated other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to accumulated other comprehensive income, net of tax and reclassified into earnings in the same line associated with the forecasted transaction when the forecasted transaction affects earnings. The Company records its interest rate lock commitments and forward loan sales commitments at fair value determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business, United’s mortgage banking subsidiaries enter into contractual interest rate lock commitments to extend credit to borrowers with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within the timeframes established by the mortgage companies. All borrowers are evaluated for credit worthiness prior to the extension of the commitment. Interest rate risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to the investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, United’s mortgage banking subsidiaries enter into either a forward sales contract to sell loans to investors or a TBA mortgage-backed security. Fair values of TBA mortgage-backed securities are measured using valuations from investors for mortgage-backed securities with similar characteristics (“Level 2”). The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. These valuations fall into a Level 2 category. The interest rate lock commitments are recorded at fair value which is measured using valuations from investors for loans with similar characteristics (“Level 2”) with some adjusted for the Company’s actual sales experience versus the investor’s indicated pricing (“Level 3”). The unobservable input for Level 3 valuations is the Company’s historical sales prices. For March 31, 2023, the range of historical sales prices increased the investor’s indicated pricing by a range of 0.03 % to 0.96 % with a weighted average increase of 0.13 %. For interest rate swap derivatives that are not designated in a hedge relationship within the mortgage banking segment, changes in the fair value of the derivatives are recognized in income from mortgage banking activities in the same period as the change in the fair value. Unrealized gains and losses due to changes in the fair value of other derivative financial instruments not in hedge relationships are included in noninterest income and noninterest expense, respectively. The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy. Fair Value at March 31, 2023 Using Description Balance as of March 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Available for sale debt securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 531,170 $ 0 $ 531,170 $ 0 State and political subdivisions 721,974 0 721,974 0 Residential mortgage-backed securities Agency 1,165,655 0 1,165,655 0 Non-agency 110,751 0 110,751 0 Commercial mortgage-backed securities Agency 537,010 0 537,010 0 Asset-backed securities 897,127 0 897,127 0 40 Table of Contents Fair Value at March 31, 2023 Using Description Balance as of March 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Single issue trust preferred securities 15,838 0 15,838 0 Other corporate securities 439,888 5,326 434,562 0 Total available for sale securities 4,419,413 5,326 4,414,087 0 Equity securities: Financial services industry 202 202 0 0 Equity mutual funds (1) 2,369 2,369 0 0 Other equity securities 5,221 5,221 0 0 Total equity securities 7,792 7,792 0 0 Loans held for sale 68,176 0 7,912 60,264 Derivative financial assets: Interest rate swap contracts 3,057 0 3,057 0 Forward sales commitments 127 0 96 31 Interest rate lock commitments 2,099 0 589 1,510 Total derivative financial assets 5,283 0 3,742 1,541 Liabilities Derivative financial liabilities: TBA mortgage-backed securities 567 0 84 483 Total derivative financial liabilities 567 0 84 483 Fair Value at December 31, 2022 Using Description Balance as of December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Available for sale debt securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 529,492 $ 0 $ 529,492 $ 0 State and political subdivisions 709,530 0 709,530 0 Residential mortgage-backed securities Agency 1,174,944 0 1,174,944 0 Non-agency 111,973 0 111,973 0 Commercial mortgage-backed securities Agency 562,553 0 562,553 0 Asset-backed securities 911,611 0 911,611 0 Single issue trust preferred securities 16,284 0 16,284 0 Other corporate securities 525,538 5,367 520,171 0 Total available for sale securities 4,541,925 5,367 4,536,558 0 Equity securities: Financial services industry 270 270 0 0 Equity mutual funds (1) 2,221 2,221 0 0 Other equity securities 5,138 5,138 0 0 Total equity securities 7,629 7,629 0 0 Loans held for sale 56,879 0 12,008 44,871 Derivative financial assets: Interest rate swap contracts 4,038 0 4,038 0 Forward sales commitments 220 0 214 6 TBA mortgage-backed securities 146 0 120 26 Interest rate lock commitments 1,146 0 302 844 41 Table of Contents Fair Value at December 31, 2022 Using Description Balance as of December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total derivative financial assets 5,550 0 4,674 876 Liabilities Derivative financial liabilities: TBA mortgage-backed securities 213 0 0 213 Interest rate lock commitments 348 0 0 348 Total derivative financial liabilities 561 0 0 561 There were no transfers between Level 1 and Level 2 for financial assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2023 and the year ended December 31, 2022. The following tables present additional information about financial assets and liabilities measured at fair value at March 31, 2023 and December 31, 2022 on a recurring basis and for which United has utilized Level 3 inputs to determine fair value. The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses related to assets still held at the reporting date are recorded in Income from mortgage banking activities in the Consolidated Statements of Income. Loans held for sale March 31, 2023 December 31, 2022 Balance, beginning of period $ 44,871 $ 464,109 Originations 256,593 2,360,908 Sales ( 248,517 ) ( 2,673,795 ) Transfers to portfolio loans 0 ( 154,699 ) Total gains during the period recognized in earnings 7,317 48,348 Balance, end of period $ 60,264 $ 44,871 The amount of total (losses) gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 785 $ ( 9,852 ) Derivative Financial Assets TBA Securities March 31, 2023 December 31, 2022 Balance, beginning of period $ 26 $ 61 Transfers other ( 26 ) ( 35 ) Balance, end of period $ 0 $ 26 The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 0 $ 26 Derivative Financial Assets Forward Sales Commitments March 31, 2023 December 31, 2022 Balance, beginning of period $ 6 $ 0 Transfers other 25 6 Balance, end of period $ 31 $ 6 The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 31 $ 6 42 Table of Contents Derivative Financial Assets Interest Rate Lock Commitments March 31, 2023 December 31, 2022 Balance, beginning of period $ 844 $ 9,444 Transfers other 666 ( 8,600 ) Balance, end of period $ 1,510 $ 844 The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 1,510 $ 844 Derivative Financial Liabilities Forward Sales Commitments March 31, 2023 December 31, 2022 Balance, beginning of period $ 0 $ 36 Transfers other 0 ( 36 ) Balance, end of period $ 0 $ 0 The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 0 $ 0 Derivative Financial Liabilities TBA Securities March 31, 2023 December 31, 2022 Balance, beginning of period $ 213 $ 470 Transfers other 270 ( 257 ) Balance, end of period $ 483 $ 213 The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 483 $ 213 Derivative Financial Liabilities Interest Rate Lock Commitments March 31, 2023 December 31, 2022 Balance, beginning of period $ 348 $ 25 Transfers other ( 348 ) 323 Balance, end of period $ 0 $ 348 The amount of total gains for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 0 $ 348 4 3 Table of Contents Fair Value Option The following table reflects the change in fair value included in earnings of financial instruments for which the fair value option has been elected: Description Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Income from mortgage banking activities $ 788 $ ( 11,882 ) The following table reflects the difference between the aggregate fair value and the remaining contractual principal outstanding for financial instruments for which the fair value option has been elected: March 31, 2023 December 31, 2022 Description Unpaid Principal Balance Fair Value Fair Value Over/(Under) Unpaid Principal Balance Unpaid Principal Balance Fair Value Fair Value Over/(Under) Unpaid Principal Balance Loans held for sale $ 66,679 $ 68,176 $ 1,497 $ 56,170 $ 56,879 $ 709 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by United to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements. Individually assessed loans : In the determination of the allowance for loan losses, loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Fair value is measured using a market approach based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an appraisal conducted by an independent, licensed appraiser outside of the Company using comparable property sales (“Level 2”). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (“Level 3”). For individually assessed loans, a specific reserve is established through the allowance for loan losses, if necessary, by estimating the fair value of the underlying collateral on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses expense on the Consolidated Statements of Income. OREO : OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried on the balance sheet at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Fair value is determined by one of two market approach methods depending on whether the property has been vacated and an appraisal can be conducted. If the property has yet to be vacated and thus an appraisal cannot be performed, a Brokers Price Opinion (i.e. BPO), is obtained. A BPO represents a best estimate valuation performed by a realtor based on knowledge of current property values and a visual examination of the exterior condition of the property. Once the property is subsequently vacated, a formal appraisal is obtained and the recorded asset value appropriately adjusted. On the other 4 4 Table of Contents hand, if the OREO property has been vacated and an appraisal can be conducted, the fair value of the property is determined based upon the appraisal using a market approach. An authorized independent appraiser conducts appraisals for United. Appraisals for property other than ongoing construction are based on consideration of comparable property sales (“Level 2”). In contrast, valuation of ongoing construction assets requires some degree of professional judgment. In conducting an appraisal for ongoing construction property, the appraiser develops two appraised amounts: an “as is” appraised value and a “completed” value. Based on professional judgment and their knowledge of the particular situation, management determines the appropriate fair value to be utilized for such property (“Level 3”). As a matter of policy, valuations are reviewed at least annually and appraisals are generally updated on a bi-annual basis with values lowered as necessary. Intangible Assets : For United, intangible assets consist of goodwill and core deposit intangibles. Goodwill is tested for impairment at least annually or sooner if indicators of impairment exist. United may elect to perform a qualitative analysis to determine whether or not it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount. If United elects to bypass this qualitative analysis, or concludes via qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, United may use either a market or income quantitative approach to determine the fair value of the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment charge would be recorded for the difference, not to exceed the amount of goodwill allocated to the reporting unit. At each reporting date, the Company considers potential indicators of impairment. United performed its annual goodwill impairment test on the Company’s reporting units as of September 30, 2022. The goodwill impairment test did not identify any goodwill impairment. In subsequent periods, economic uncertainty and volatility and the performance of the Company’s stock as well as possible other impairment indicators could cause us to perform a goodwill impairment test which could result in an impairment charge being recorded for that period if the carrying value of goodwill was found to exceed fair value. Core deposit intangibles relate to the estimated value of the deposit base of acquired institutions. Management reviews core deposit intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. No fair value measurement of intangible assets was made during the first three months of 2023 and 2022. Mortgage Servicing Rights (“MSRs”): A mortgage servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“mortgage servicing rights”) at fair value. For subsequent measurement purposes, the Company measures servicing assets and liabilities using the amortization method on a quarterly basis. The quarterly determination of fair value of servicing rights is provided by a third party and is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. The unobservable inputs for Level 3 valuations are market discount rates, anticipated prepayment speeds, projected delinquency rates, and ancillary fee income net of servicing costs. For the unobservable inputs used in the valuation of mortgage servicing rights at March 31, 2023 and December 31, 2022, refer to Note 7 of these Notes to Consolidated Financial Statements. The Company did no t record any temporary impairment of mortgage servicing rights in the quarter ended March 31, 2023 and 2022. The following table summarizes United’s financial assets that were measured at fair value on a nonrecurring basis during the period: Description Balance as of March 31, 2023 Fair Value at March 31, 2023 YTD Losses Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Individually assessed loans $ 6,530 $ 0 $ 650 $ 5,880 $ ( 59 ) OREO 4,086 0 3,588 498 ( 580 ) 4 5 Table of Contents Description Balance as of December 31, 2022 Fair Value at December 31, 2022 YTD Gains (Losses) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Individually assessed loans $ 6,125 $ 0 $ 1,801 $ 4,324 $ 327 OREO 2,052 0 2,013 39 ( 96 ) Fair Value of Other Financial Instruments The following methods and assumptions were used by United in estimating its fair value disclosures for other financial instruments: Cash and Cash Equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values. Securities held to maturity and other securities : The estimated fair values of securities held to maturity are based on quoted market prices, where available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data. Any securities held to maturity, not valued based upon the methods above, are valued based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Other securities consist mainly of shares of Federal Home Loan Bank and Federal Reserve Bank stock that do not have readily determinable fair values and are carried at cost. Loans and leases : The fair values of certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values of other loans and leases (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans and agricultural loans) are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans and leases with similar terms to borrowers of similar creditworthiness, which include adjustments for liquidity concerns. For acquired PCD loans, fair value is assumed to equal United’s carrying value, which represents the present value of expected future principal and interest cash flows, as adjusted for any Allowance for Credit Losses recorded for these loans. Deposits : The fair values of demand deposits (e.g., interest and noninterest checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and any other short-term borrowings approximate their fair values. Long-term Borrowings: The fair values of United’s Federal Home Loan Bank borrowings and trust preferred securities are estimated using discounted cash flow analyses, based on United’s current incremental borrowing rates for similar types of borrowing arrangements. 4 6 Table of Contents Summary of Fair Values for All Financial Instruments The estimated fair values of United’s financial instruments are summarized below: Fair Value Measurements Carrying Amount Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2023 Cash and cash equivalents $ 1,918,693 $ 1,918,693 $ 0 $ 1,918,693 $ 0 Securities available for sale 4,419,413 4,419,413 5,326 4,414,087 0 Securities held to maturity 1,002 1,020 0 0 1,020 Equity securities 7,792 7,792 7,792 0 0 Other securities 349,380 331,911 0 0 331,911 Loans held for sale 68,176 68,176 0 7,912 60,264 Net loans 20,371,668 19,348,610 0 0 19,348,610 Derivative financial assets 5,283 5,283 0 3,742 1,541 Mortgage servicing rights 19,987 39,699 0 0 39,699 Deposits 22,284,586 22,229,264 0 22,229,264 0 Short-term borrowings 170,094 170,094 0 170,094 0 Long-term borrowings 2,788,103 2,750,992 0 2,750,992 0 Derivative financial liabilities 567 567 0 84 483 December 31, 2022 Cash and cash equivalents $ 1,176,652 $ 1,176,652 $ 0 $ 1,176,652 $ 0 Securities available for sale 4,541,925 4,541,925 5,367 4,536,558 0 Securities held to maturity 1,002 1,020 0 0 1,020 Equity securities 7,629 7,629 7,629 0 0 Other securities 322,048 305,946 0 0 305,946 Loans held for sale 56,879 56,879 0 12,008 44,871 Net loans 20,323,420 19,030,221 0 0 19,030,221 Derivative financial assets 5,550 5,550 0 4,674 876 Mortgage servicing rights 21,022 41,880 0 0 41,880 Deposits 22,303,186 22,249,061 0 22,249,061 0 Short-term borrowings 160,698 160,698 0 160,698 0 Long-term borrowings 2,197,656 2,161,108 0 2,161,108 0 Derivative financial liabilities 561 561 0 0 561 14. STOCK BASED COMPENSATION On May 12, 2020, United’s shareholders approved the 2020 Long-Term Incentive Plan (“2020 LTI Plan”). The 2020 LTI Plan became effective May 13, 2020. An award granted under the 2020 LTI Plan may consist of any non-qualified stock options or incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance units or other-stock-based award. These awards all relate to the common stock of United. The maximum number of shares of United common stock which may be issued under the 2020 LTI Plan is 2,300,000 . The 2020 LTI Plan will be administered by a board committee appointed by United’s Board of Directors (the “Board”). Unless otherwise determined by the Board, the Compensation Committee of the Board (the “Committee”) shall administer the 2020 LTI Plan. The maximum number of options and stock appreciation rights, in the aggregate, which may be awarded to any individual key employee during any calendar year is 100,000 . The maximum number of options and stock appreciation rights, in the aggregate, which may be awarded to any non-employee director during any calendar year is 10,000 or, if such Award is payable in cash, the Fair Market Value equivalent thereof. The maximum number of shares of restricted stock or shares subject to a restricted stock units award that may be granted during any calendar year is 225,000 shares to any individual key employee and 10,000 shares to any individual non-employee director. Subject to certain change in control provisions, 4 7 Table of Contents the 2020 LTI Plan provides that all awards of will vest as the Committee determines in the award agreement, provided that no awards will vest sooner than 1/3 per year over the first three anniversaries of the award. United adopted a clawback policy that applies to named executive officers and other executive officers and permits the Committee to cancel certain awards and to recoup gains realized from previous awards should United be required to prepare an accounting restatement due to materially inaccurate performance metrics. A Form S-8 was filed on May 29, 2020 with the Securities and Exchange Commission to register all the shares which were available for the 2020 LTI Plan. The 2020 LTI Plan replaces the 2016 LTI Plan. Compensation expense of $ 2,713 and $ 2,061 related to the nonvested awards under United’s Long-Term Incentive Plans was incurred for the first quarter of 2023 and 2022, respectively. Compensation expense was included in employee compensation in the unaudited Consolidated Statements of Income. Stock Options United currently has options outstanding from various option plans other than the 2020 LTI Plan (the “Prior Plans”); however, no common shares of United stock are available for grants under the Prior Plans as these plans have expired. Awards outstanding under the Prior Plans will remain in effect in accordance with their respective terms. The maximum term for options granted under the plans is ten ( 10 ) years. A summary of activity under United’s stock option plans as of March 31, 2023, and the changes during the first three months of 2023 are presented below: Three Months Ended March 31, 2023 Weighted Average Shares Aggregate Intrinsic Value Remaining Contractual Term (Yrs.) Exercise Price Outstanding at January 1, 2023 1,501,212 $ 34.64 Exercised ( 55,796 ) 28.19 Forfeited or expired ( 2,443 ) 26.87 Outstanding at March 31, 2023 1,442,973 $ 4,169 4.3 $ 34.90 Exercisable at March 31, 2023 1,386,134 $ 4,016 4.2 $ 35.00 The following table summarizes the status of United’s nonvested stock option awards during the first three months of 2023: Shares Weighted-Average Grant Date Fair Value Per Share Nonvested at January 1, 2023 170,892 $ 6.16 Vested ( 114,053 ) 6.41 Forfeited or expired 0 0.00 Nonvested at March 31, 2023 56,839 $ 5.65 During the three months ended March 31, 2023 and 2022, 55,796 and 258,574 shares, respectively, were issued in connection with stock option exercises. All shares issued in connection with stock option exercises for the three months ended March 31, 2023 and 2022 were issued from authorized and unissued stock. The total intrinsic value of options exercised under the Plans during the three months ended March 31, 2023 and 2022 was $ 722 and $ 3,856 respectively. As of March 31, 2023, the total unrecognized compensation cost related to nonvested stock option awards was $ 270 with a weighted-average expense recognition period of 0.9 years. 4 8 Table of Contents Restricted Stock Under the 2020 LTI Plan, United may award restricted common shares to key employees and non-employee directors. Restricted shares granted to participants will vest no sooner than 1/3 per year over the first three anniversaries of the award. Unless determined by the Committee or the Board and provided in the award agreement, recipients of restricted shares do not pay any consideration to United for the shares, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have vested. Presently, these nonvested participating securities have an immaterial impact on diluted earnings per share. As of March 31, 2023, the total unrecognized compensation cost related to nonvested restricted stock awards was $ 11,838 with a weighted-average expense recognition period of 1.5 years. The following summarizes the changes to United’s nonvested restricted common shares for the period ended March 31, 2023: Shares Weighted-Average Grant Date Fair Value Per Share Nonvested at January 1, 2023 373,220 $ 35.43 Granted 150,697 40.98 Vested ( 174,529 ) 35.68 Forfeited ( 1,506 ) 38.80 Nonvested at March 31, 2023 347,882 $ 37.69 Restricted Stock Units Under the 2020 LTI Plan, United may grant restricted stock units (“RSUs”) to key employees. These awards help align the interests of these employees with the interests of the shareholders of United by providing economic value directly related to the performance of the Company. These RSU grants could be time-vested RSUs, performance-vested RSUs, or a combination of both. Currently, time-vested RSUs vest ratably over three years from the date of grant. Performance-vested RSUs cliff-vest after assessment of the Company’s performance over a period of three years. The number of performance-vested RSUs that vest is determined by two metrics measured relative to peers: Return on Average Tangible Common Equity (“ROATCE”) and Total Shareholder Return (“TSR”). Based on ASC Topic 718, the ROATCE comparison is considered a performance condition while the TSR comparison is considered a market condition. There will be no payout of the performance-vested awards if the threshold performance is not achieved. United communicates the specific threshold, target, and maximum performance-vested RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Dividends are accrued but not paid in respect to the awards until the RSUs vest. The holder does not have the right to vote the shares during the time and performance periods. The value of the time-vested RSUs and the performance-vested, based on the performance condition, RSUs awarded is established as the fair market value of the stock at the time of the grant. The value of the performance-vested, based on the market condition, RSUs awarded is estimated through the use of a Monte Carlo valuation model as of the grant date. The Company recognizes expense on the RSUs in accordance with ASC Topic 718. The following table summarizes the status of United’s nonvested RSUs during the first three months of 2023: Shares Weighted-Average Grant Date Fair Value Per Share Nonvested at January 1, 2023 266,159 $ 35.45 Granted 177,368 40.40 Vested ( 37,912 ) 36.64 Nonvested at March 31, 2023 405,615 $ 37.50 As of March 31, 2023, the total unrecognized compensation cost related to nonvested restricted stock units was $ 11,126 with a weighted-average expense recognition period of 1.5 years. 4 9 Table of Contents 15. EMPLOYEE BENEFIT PLANS United has a defined benefit retirement plan covering qualified employees hired prior to October 1, 2007. Pension benefits are based on years of service and the average of the employee’s highest five consecutive plan years of basic compensation paid during the ten plan years preceding the date of determination. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. No discretionary contributions were made during the first quarter of 2023 and 2022. Included in accumulated other comprehensive income at December 31, 2022 are unrecognized actuarial losses of $ 38,530 ($ 29,553 net of tax) that have not yet been recognized in net periodic pension cost. Net periodic pension cost for the three months ended March 31, 2023 and 2022 included the following components: Three Months Ended March 31 2023 2022 Service cost $ 461 $ 703 Interest cost 1,736 1,208 Expected return on plan assets ( 2,897 ) ( 3,193 ) Recognized net actuarial loss 775 824 Net periodic pension cost (benefit) $ 75 $ ( 458 ) Weighted-Average Assumptions: Discount Rate 5.25 % 3.08 % Expected return on assets 7.25 % 6.25 % Rate of Compensation Increase (prior to age 40) 5.00 % 5.00 % Rate of Compensation Increase (ages 40-54) 4.00 % 4.00 % Rate of Compensation Increase (otherwise) 3.50 % 3.50 % 16. INCOME TAXES United records a liability for uncertain income tax positions based on a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken on a tax return, in order for those tax positions to be recognized in the financial statements. As of March 31, 2023 and 2022, the total amount of accrued interest related to uncertain tax positions was $ 525 and $ 753 , respectively. United accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. United is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2019, 2020 and 2021 and certain State Taxing authorities for the years ended December 31, 2019 through 2021. United’s effective tax rate was 19.92 % for the first quarter of 2023 and 19.75 % for the first quarter of 2022. 50 Table of Contents 18. COMPREHENSIVE INCOME The components of total comprehensive income for the three months ended March 31, 2023 and 2022 are as follows: Three Months Ended March 31 2023 2022 Net Income $ 98,307 $ 81,664 Available for sale (“AFS”) securities: Change in net unrealized loss on AFS securities arising during the period 58,455 ( 202,234 ) Related income tax effect ( 13,620 ) 47,121 Net reclassification adjustment for gains included in net income 420 0 Related income tax effect ( 98 ) 0 45,157 ( 155,113 ) Net effect of AFS securities on other comprehensive income 45,157 ( 155,113 ) Cash flow hedge derivatives: Unrealized (loss) gain on cash flow hedge before reclassification to interest expense ( 4,416 ) 22,694 Related income tax effect 1,029 ( 5,288 ) Net reclassification adjustment for (gains) losses included in net income ( 4,915 ) 342 Related income tax effect 1,145 ( 80 ) Net effect of cash flow hedge derivatives on other comprehensive income ( 7,157 ) 17,668 Pension plan: Recognized net actuarial loss 775 824 Related income tax benefit ( 173 ) ( 183 ) Net effect of change in pension plan asset on other comprehensive income 602 641 Total change in other comprehensive income 38,602 ( 136,804 ) Total Comprehensive Income (Loss) $ 136,909 $ ( 55,140 ) The components of accumulated other comprehensive income for the three months ended March 31, 2023 are as follows: Changes in Accumulated Other Comprehensive Income (AOCI) by Component (a) For the Three Months Ended March 31, 2023 Unrealized Gains/Losses on AFS Securities Unrealized Gains/Losses on Cash Flow Hedges Defined Benefit Pension Items Total Balance at January 1, 2023 $ ( 360,340 ) $ 53,014 $ ( 25,406 ) $ ( 332,732 ) Other comprehensive income before reclassification 44,835 ( 3,387 ) 0 41,448 Amounts reclassified from accumulated other comprehensive income 322 ( 3,770 ) 602 ( 2,846 ) Net current-period other comprehensive income, net of tax 45,157 ( 7,157 ) 602 38,602 Balance at March 31, 2023 $ ( 315,183 ) $ 45,857 $ ( 24,804 ) $ ( 294,130 ) (a) All amounts are net-of-tax. 5 1 Table of Contents Reclassifications out of Accumulated Other Comprehensive Income (AOCI) For the Three Months Ended March 31, 2023 Details about AOCI Components Amount Reclassified from AOCI Affected Line Item in the Statement Where Net Income is Presented Available for sale (“AFS”) securities: Net reclassification adjustment for gains included in net income $ 420 Net investment securities gains 420 Total before tax Related income tax effect ( 98 ) Income taxes 322 Net of tax Cash flow hedge: Net reclassification adjustment for losses included in net income $ ( 4,915 ) Interest expense ( 4,915 ) Total before tax Related income tax effect 1,145 Income taxes ( 3,770 ) Net of tax Pension plan: Recognized net actuarial loss 775 (a) 775 Total before tax Related income tax effect ( 173 ) Income taxes 602 Net of tax Total reclassifications for the period $ ( 2,846 ) (a) This AOCI component is included in the computation of changes in plan assets (see Note 15, Employee Benefit Plans) 18. EARNINGS PER SHARE The reconciliation of the numerator and denominator of basic earnings per share with that of diluted earnings per share is presented as follows: Three Months Ended March 31 2023 2022 Distributed earnings allocated to common stock $ 48,450 $ 49,056 Undistributed earnings allocated to common stock 49,611 32,392 Net earnings allocated to common shareholders $ 98,061 $ 81,448 Average common shares outstanding 134,411,166 136,058,328 Common stock equivalents 429,162 376,901 Average diluted shares outstanding 134,840,328 136,435,229 Earnings per basic common share $ 0.73 $ 0.60 Earnings per diluted common share $ 0.73 $ 0.60 Antidilutive stock options and restricted stock outstanding of 563,127 for the three months ended March 31, 2023 were excluded from the earnings per diluted common share calculation as compared to 1,143,182 for the three months ended March 31, 2022. 5 2 Table of Contents 19. VARIABLE INTEREST ENTITIES Variable interest entities (“VIEs”) are entities that either have a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions, through voting rights, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). VIEs can be structured as corporations, trusts, partnerships, or other legal entities. United’s business practices include relationships with certain VIEs. For United, the business purpose of these relationships primarily consists of funding activities in the form of issuing trust preferred securities. United currently sponsors twenty statutory business trusts that were created for the purpose of raising funds that originally qualified for Tier I regulatory capital. As previously discussed, these trusts now are considered Tier II regulatory capital. These trusts, of which several were acquired through bank acquisitions, issued or participated in pools of trust preferred capital securities to third-party investors with the proceeds invested in junior subordinated debt securities of United. The Company, through a small capital contribution, owns 100 % of the voting equity shares of each trust. The assets, liabilities, operations, and cash flows of each trust are solely related to the issuance, administration, and repayment of the preferred equity securities held by third-party investors. United fully and unconditionally guarantees the obligations of each trust and is obligated to redeem the junior subordinated debentures upon maturity. United does not consolidate these trusts as it is not the primary beneficiary of these entities because United’s wholly owned and indirect wholly owned statutory trust subsidiaries do not have a controlling financial interest in the VIEs. A controlling financial interest is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. At March 31, 2023 and December 31, 2022, United’s investment (maximum exposure to loss) in these trusts were $ 11,388 and $ 11,277 , respectively. Information related to United’s statutory trusts is presented in the table below: Description Issuance Date Amount of Capital Securities Issued Stated Interest Rate Maturity Date United Statutory Trust III December 17, 2003 $ 20,000 3-month LIBOR + 2.85% December 17, 2033 United Statutory Trust IV December 19, 2003 $ 25,000 3-month LIBOR + 2.85% January 23, 2034 United Statutory Trust V July 12, 2007 $ 50,000 3-month LIBOR + 1.55% October 1, 2037 United Statutory Trust VI September 20, 2007 $ 30,000 3-month LIBOR + 1.30% December 15, 2037 Premier Statutory Trust II September 25, 2003 $ 6,000 3-month LIBOR + 3.10% October 8, 2033 Premier Statutory Trust III May 16, 2005 $ 8,000 3-month LIBOR + 1.74% June 15, 2035 Premier Statutory Trust IV June 20, 2006 $ 14,000 3-month LIBOR + 1.55% September 23, 2036 Premier Statutory Trust V December 14, 2006 $ 10,000 3-month LIBOR + 1.61% March 1, 2037 Centra Statutory Trust I September 20, 2004 $ 10,000 3-month LIBOR + 2.29% September 20, 2034 Centra Statutory Trust II June 15, 2006 $ 10,000 3-month LIBOR + 1.65% July 7, 2036 VCBI Capital Trust II December 19, 2002 $ 15,000 6-month LIBOR + 3.30% December 19, 2032 VCBI Capital Trust III December 20, 2005 $ 25,000 3-month LIBOR + 1.42% February 23, 2036 Cardinal Statutory Trust I July 27, 2004 $ 20,000 3-month LIBOR + 2.40% September 15, 2034 UFBC Capital Trust I December 30, 2004 $ 5,000 3-month LIBOR + 2.10% March 15, 2035 Carolina Financial Capital Trust I December 19, 2002 $ 5,000 Prime + 0.50% December 31, 2032 Carolina Financial Capital Trust II November 5, 2003 $ 10,000 3-month LIBOR + 3.05% January 7, 2034 Greer Capital Trust I October 12, 2004 $ 6,000 3-month LIBOR + 2.20% October 18, 2034 Greer Capital Trust II December 28, 2006 $ 5,000 3-month LIBOR + 1.73% January 30, 2037 First South Preferred Trust I September 26, 2003 $ 10,000 3-month LIBOR + 2.95% September 30, 2033 BOE Statutory Trust I December 12, 2003 $ 4,000 3-month LIBOR + 3.00% December 12, 2033 5 3 Table of Contents United, through its banking subsidiary, also makes limited partner equity investments in various low income housing and community development partnerships sponsored by independent third-parties. United invests in these partnerships to either realize tax credits on its consolidated federal income tax return or for purposes of earning a return on its investment. These partnerships are considered VIEs as the limited partners lack a controlling financial interest in the entities through their inability to make decisions that have a significant effect on the operations and success of the partnerships. United’s limited partner interests in these entities is immaterial; however, these partnerships are not consolidated as United is not deemed to be the primary beneficiary. At March 31, 2023 and December 31, 2022, United’s investment (maximum exposure to loss) in these low income housing and community development partnerships were $ 76,870 and $ 75,021 , respectively, while related unfunded commitments were $ 75,956 and $ 77,143 , respectively. As of March 31, 2023, United expects to recover its remaining investments through the use of the tax credits that are generated by the investments. 20. SEGMENT INFORMATION United operates in two business segments: community banking and mortgage banking. Through its community banking segment, United offers a full range of products and services through various delivery channels. In particular, the community banking segment includes both commercial and consumer lending and provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. In addition, this segment provides customers with several choices of deposit products including demand deposit accounts, savings accounts and certificates of deposit as well as investment and financial advisory services to businesses and individuals, including financial planning, retirement/estate planning, and investment management. The mortgage banking segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market though United’s mortgage banking subsidiaries, George Mason and Crescent. Crescent may retain servicing rights on their mortgage loans sold. At certain times, Crescent may purchase or sell rights to service loans from third parties. These rights, which are known as mortgage servicing rights, provide the owner with the contractual right to receive a stream of cash flows in exchange for performing specified mortgage servicing functions. The community banking segment provides the mortgage banking segment (George Mason and Crescent) with short-term funds to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on a Fed Funds target rate. These transactions are eliminated in the consolidation process. The Company does not have any operating segments other than those reported. The “Other” category consists of financial information not directly attributable to a specific segment, including interest income from investments and net securities gains or losses of parent companies and their non-banking subsidiaries, interest expense related to subordinated notes of unconsolidated subsidiaries as well as the elimination of non-segment related intercompany transactions such as management fees. The “Other” represents an overhead function rather than an operating segment. Information about the reportable segments and reconciliation of this information to the consolidated financial statements at and for the three months ended March 31, 2023 and 2022 is as follows: At and For the Three Months Ended March 31, 2023 Community Banking Mortgage Banking Other Intersegment Eliminations Consolidated Net interest income $ 236,263 $ 2,122 $ ( 5,310 ) $ 1,245 $ 234,320 Provision for credit losses 6,890 0 0 0 6,890 Other income 24,170 10,861 243 ( 2,530 ) 32,744 Other expense 122,787 15,085 832 ( 1,285 ) 137,419 Income taxes 26,064 ( 424 ) ( 1,192 ) 0 24,448 Net income (loss) $ 104,692 $ ( 1,678 ) $ ( 4,707 ) $ 0 $ 98,307 Total assets (liabilities) $ 29,815,781 $ 458,632 $ 74,283 $ ( 166,455 ) $ 30,182,241 Average assets (liabilities) 29,177,990 391,707 51,224 ( 108,632 ) 29,512,289 54 Table of Contents At and For the Three Months Ended March 31, 2022 Community Banking Mortgage Banking Other Intersegment Eliminations Consolidated Net interest income $ 189,682 $ 2,317 $ ( 2,125 ) $ 1,628 $ 191,502 Provision for credit losses ( 3,410 ) 0 0 0 ( 3,410 ) Other income 24,901 23,397 ( 60 ) ( 2,213 ) 46,025 Other expense 114,539 25,448 ( 227 ) ( 585 ) 139,175 Income taxes 20,429 57 ( 388 ) 0 20,098 Net income (loss) $ 83,025 $ 209 $ ( 1,570 ) $ 0 $ 81,664 Total assets (liabilities) $ 29,030,100 $ 589,503 $ 39,940 $ ( 294,032 ) $ 29,365,511 Average assets (liabilities) 29,023,901 475,243 33,357 ( 187,979 ) 29,344,522 55 Table of Contents