UNITED BANKSHARES INC/WV 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe haven for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations. United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involve numerous assumptions, risks and uncertainties. Forward-looking statements can be identified by the use of the words “expect,” “may,” “could,” “intend,” “project,” “estimate,” “believe,” “anticipate,” and other words of similar meaning. Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect, such as statements about the potential impacts of the COVID-19 pandemic. Therefore, undue reliance should not be placed upon these estimates and statements. United cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.” United undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. POSSIBLE FEDERAL DEPOSIT INSURANCE CORPORATION (“FDIC”) SPECIAL ASSESSMENT On May 11, 2023, the FDIC released a proposed rule that would impose special assessments to recover the losses to the deposit insurance fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of Silicon Valley Bank and Signature Bank. The FDIC stated that it currently estimates those assessed losses to total $15.8 billion and that the amount of the special assessments would be adjusted as the loss estimate changes. Under the proposed rule, the assessment base would be an insured depository institution’s (“IDI”) estimated uninsured deposits, as reported in the IDI’s December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. The special assessments would be collected at an annual rate of approximately 12.5 basis points per year (3.13 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024 (with the first assessment payment due by June 28, 2024). Under the proposed rule, the estimated loss pursuant to the systemic risk determination would be periodically adjusted, and the FDIC would retain the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. In its December 31, 2022 Call Report, United Bank, United’s only IDI, reported estimated uninsured deposits of approximately $9.5 billion. United expects the special assessments would be tax deductible. Although the proposal could be changed and the timing of accounting recognition is still under consideration, if the assessments, as proposed, were recorded as an expense in a single quarter, United estimates that expense would be approximately $11 million. TRANSITION FROM THE LONDON INTERBANK OFFERED RATE (LIBOR) In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced its intention to stop persuading or compelling banks to submit the rates used to calculate LIBOR after 2021. ICE Benchmark Administration (the publisher of LIBOR) discontinued publication of the one-week and two-month U.S. Dollar LIBOR settings on December 31, 2021, and will cease the publication of overnight, one-month, three-month, six-month, and twelve-month U.S. Dollar LIBOR settings on June 30, 2023. It is assumed that LIBOR will either cease to be provided by any administrator or will no longer be representative of an acceptable market benchmark after these respective dates. Additionally, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have issued joint supervisory guidance encouraging banks to cease entering into any new contracts using LIBOR by December 31, 2021. Accordingly, United took steps to ensure compliance with the joint supervisory guidance, and no new contracts using LIBOR have been originated after December 31, 2021. 56 Table of Contents Working groups comprised of various regulators and other industry groups have been formed in the United States and other countries in order to provide guidance on this topic. In particular, the Alternative Reference Rates Committee (“ARRC”) has been formed in the United States by the Federal Reserve Board and the Federal Reserve Bank of New York. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative reference rate for U.S. Dollar LIBOR. The ARRC has also published recommended fall-back language for LIBOR-linked financial instruments, among numerous other areas of guidance. In addition, the Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (“SOFR”) for contracts governed by U.S. law that have no or ineffective fallback, and in December 2022, the Federal Reserve Board adopted related implementing rules. United has loans, derivative contracts, borrowings, and other financial instruments that are directly or indirectly dependent on LIBOR. The transition from LIBOR will cause changes to payment calculations for existing contracts that use LIBOR as the reference rate. These changes will create various risks surrounding the financial, operational, compliance and legal aspects associated with changing certain elements of existing contracts. United will also be subject to risks surrounding changes to models and systems that currently use LIBOR reference rates, as well as market and strategic risks that could arise from the use of alternative reference rates. Additionally, United could face reputational risks if this transition is not managed appropriately with its customers. While the full impact of the transition is not yet known, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations. INTRODUCTION The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the unaudited consolidated financial statements and the notes to unaudited Consolidated Financial Statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated. Management has evaluated all significant events and transactions that occurred after June 30, 2023, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements. This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and accompanying notes thereto, which are included elsewhere in this document. USE OF NON-GAAP FINANCIAL MEASURES This discussion and analysis contains certain financial measures that are not recognized under GAAP. Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each “non-GAAP” financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. Generally, United has presented a non-GAAP financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of a non-GAAP financial measure is consistent with how United’s management evaluates its performance internally and this non-GAAP financial measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry. Specifically, this discussion contains certain references to financial measures identified as tax-equivalent (“FTE”) net interest income and return on average tangible equity. Management believes these non-GAAP financial measures to be helpful in understanding United’s results of operations or financial position. 57 Table of Contents Net interest income is presented in this discussion on a tax-equivalent basis. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. Average tangible equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible equity can thus be considered a more conservative valuation of the company. When considering net income, a return on average tangible equity can be calculated. Management provides a return on average equity to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. This measure, along with others, is used by management to analyze capital adequacy and performance. However, this non-GAAP information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP. Where the non-GAAP financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis. Investors should recognize that United’s presentation of this non-GAAP financial measure might not be comparable to a similarly titled measure at other companies. APPLICATION OF CRITICAL ACCOUNTING POLICIES The accounting and reporting policies of United conform with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments, which are reviewed with the Audit Committee of the Board of Directors, are based on information available as of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan and lease losses, the calculation of the income tax provision, and the use of fair value measurements to account for certain financial instruments to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. United’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2023 were unchanged from the policies disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2022 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” FINANCIAL CONDITION United’s total assets as of June 30, 2023 were $29.69 billion, which was an increase of $205.27 million or less than 1% from December 31, 2022. This increase was mainly due to an increase of $515.71 million or 43.83% in cash and cash equivalents, an increase of $206.13 million or 1% in portfolio loans, and a $34.42 million or 60.51% increase in loans held for sale. These increases in assets were offset by a $529.89 million or 10.87% decrease in investment securities and a $16.40 million or 77.99% decrease in mortgage servicing rights. Total liabilities increased $84.42 million or less than 1% from year-end 2022. Deposits increased $66.59 million or less than 1%, borrowings also remained flat, increasing $6.82 million or less than 1%, and operating lease liability increased $9.29 million or 12.26%. Shareholders’ equity increased $120.85 million or 2.68%. The following discussion explains in more detail the changes in financial condition by major category. 58 Table of Contents Cash and Cash Equivalents Cash and cash equivalents at June 30, 2023 increased $515.71 million or 43.83% from year-end 2022. In particular, interest-bearing deposits with other banks increased $505.48 million or 57.35% as United placed more cash in an interest-bearing account with the Federal Reserve while cash and due from banks increased $10.18 million or 3.46%. Federal funds sold increased $39 thousand or 3.61%. During the first six months of 2023, net cash of $183.09 million and $356.65 million were provided by operating and investing activities, respectively, while net cash of $24.04 million was used in financing activities. See the unaudited Consolidated Statements of Cash Flows for data on cash and cash equivalents provided and used in operating, investing and financing activities for the first six months of 2023 and 2022. Securities Total investment securities at June 30, 2023 decreased $529.89 million or 10.87%. Securities available for sale decreased $536.60 million or 11.81%. This change in securities available for sale reflects $107.80 million in purchases, $663.07 million in sales, maturities and calls of securities and an increase of $32.02 million in market value. The majority of the sales activity was related to state and political subdivision securities. Equity securities were $8.44 million at June 30, 2023, an increase of $814 thousand or 10.67% due mainly to net purchases. Other investment securities increased $5.90 million or 1.83% from year-end 2022 due to investments in low income housing tax credits. The following table summarizes the changes in the available for sale securities since year-end 2022: (Dollars in thousands) June 30 2023 December 31 2022 $ Change % Change U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 529,136 $ 529,492 $ (356 ) (0.07 %) State and political subdivisions 529,617 709,530 (179,913 ) (25.36 %) Mortgage-backed securities 1,690,248 1,849,470 (159,222 ) (8.61 %) Asset-backed securities 890,068 911,611 (21,543 ) (2.36 %) Single issue trust preferred securities 15,475 16,284 (809 ) (4.97 %) Other corporate securities 350,780 525,538 (174,758 ) (33.25 %) Total available for sale securities, at fair value $ 4,005,324 $ 4,541,925 $ (536,601 ) (11.81 %) The following table summarizes the changes in the held to maturity securities since year-end 2022: June 30 December 31 (Dollars in thousands) 2023 2022 $ Change % Change State and political subdivisions $ 981 (1) $ 982 (2) $ (1 ) (0.10 %) Other corporate securities 20 20 0 0.00 % Total held to maturity securities, at amortized cost $ 1,001 $ 1,002 $ (1 ) (0.10 %) (1) net of allowance for credit losses of $19 thousand. (2) net of allowance for credit losses of $18 thousand. At June 30, 2023, gross unrealized losses on available for sale securities were $437.85 million. Securities with the most significant gross unrealized losses at June 30, 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. As of June 30, 2023, United’s available for sale mortgage-backed securities had an amortized cost of $1.96 billion, with an estimated fair value of $1.69 billion. The portfolio consisted primarily of $1.30 billion in agency residential mortgage-backed securities with a fair value of $1.11 billion, $109.37 million in non-agency residential mortgage-backed securities with an estimated fair value of $98.83 million, and $547.85 million in commercial agency mortgage-backed securities with an estimated fair value of $485.20 million. 59 Table of Contents As of June 30, 2023, United’s available for sale state and political subdivisions securities had an amortized cost of $620.36 million, with an estimated fair value of $529.62 million. The portfolio relates to securities issued by various municipalities located throughout the United States, and no securities within the portfolio were rated below investment grade as of June 30, 2023. As of June 30, 2023, United’s available for sale corporate securities had an amortized cost of $1.32 billion, with an estimated fair value of $1.26 billion. The portfolio consisted of $17.36 million in single issue trust preferred securities with an estimated fair value of $15.48 million. In addition to the single issue trust preferred securities, the Company held positions in various other corporate securities, including asset-backed securities with an amortized cost of $909.88 million and a fair value of $890.07 million and other corporate securities, with an amortized cost of $394.57 million and a fair value of $350.78 million. United’s available for sale single issue trust preferred securities had a fair value of $15.48 million as of June 30, 2023. Of the $15.48 million, $7.73 million or 49.95% were investment grade; $2.90 million or 18.70% were split rated; and $4.85 million or 31.35% were unrated. The two largest exposures accounted for 74.87% of the $15.48 million. These included Truist Bank at $6.74 million and Emigrant Bank at $4.85 million. All single issue trust preferred securities are currently receiving full scheduled principal and interest payments. During the second quarter of 2023, United did not recognize any credit losses on its available for sale investment securities. Management does not believe that any individual security with an unrealized loss as of June 30, 2023 is impaired. United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not a deterioration of credit. Based on a review of each of the securities in the available for sale investment portfolio, management concluded that it was more-likely-than-not that it would be able to realize the cost basis investment and appropriate interest payments on such securities. United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature. As of June 30, 2023, there was no allowance for credit losses related to the Company’s available for sale securities. However, United acknowledges that any securities in an unrealized loss position may be sold in future periods in response to significant, unanticipated changes in asset/liability management decisions, unanticipated future market movements or business plan changes. Further information regarding the amortized cost and estimated fair value of investment securities, including remaining maturities as well as a more detailed discussion of management’s impairment analysis, is presented in Note 2 to the unaudited Notes to Consolidated Financial Statements. Loans Held for Sale Loans held for sale were $91.30 million at June 30, 2023, an increase of $34.42 million or 60.51% from year-end 2022. Loan originations in the secondary market exceeded sales during the first six months of 2023. Loan originations for the first six months of 2023 were $449.64 million while loans sales were $415.22 million. Portfolio Loans Loans, net of unearned income, increased $206.13 million or 1%. Since year-end 2022, commercial, financial and agricultural loans increased $206.23 million or 1.77% as a result of a $268.22 million or 3.35% increase in commercial real estate loans which was partially offset by a $61.99 million or 1.72% decrease in commercial loans (not secured by real estate). Construction and land development loans decreased $109.27 million or 3.73%, residential real estate loans increased $245.72 million or 5.27%, and consumer loans decreased $140.92 million or 10.32% due to a decrease in indirect automobile financing. 60 Table of Contents The following table summarizes the changes in the major loan classes since year-end 2022: (Dollars in thousands) June 30 2023 December 31 2022 $ Change % Change Loans held for sale $ 91,296 $ 56,879 $ 34,417 60.51 % Commercial, financial, and agricultural: Owner-occupied commercial real estate $ 1,707,719 $ 1,724,927 $ (17,208 ) (1.00 %) Nonowner-occupied commercial real estate 6,572,404 6,286,974 285,430 4.54 % Other commercial loans 3,550,575 3,612,568 (61,993 ) (1.72 %) Total commercial, financial, and agricultural $ 11,830,698 $ 11,624,469 $ 206,229 1.77 % Residential real estate 4,908,633 4,662,911 245,722 5.27 % Construction & land development 2,817,706 2,926,971 (109,265 ) (3.73 %) Consumer: Bankcard 9,192 9,273 (81 ) (0.87 %) Other consumer 1,215,697 1,356,539 (140,842 ) (10.38 %) Total gross loans $ 20,781,926 $ 20,580,163 $ 201,763 0.98 % Less: Unearned income (17,635 ) (21,997 ) 4,362 (19.83 %) Total Loans, net of unearned income $ 20,764,291 $ 20,558,166 $ 206,125 1.00 % For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements. Other Assets Other assets remained flat, increasing $555 thousand or less than 1% from year-end 2022. Income taxes receivable increased $11.99 million due to timing differences, other real estate owned properties (“OREO”) increased $1.75 million and the pension asset increased $1.42 million. In addition, accounts receivable increased $1.28 million while derivative assets increased $1.13 million due to a net increase in fair value. Mostly offsetting these increases were decreases in deferred tax assets of $9.38 million due to an increase in the fair value of available-for-sale securities, dealer reserve of $4.78 million due to a decrease in indirect automobile financing, and core deposit intangibles of $2.56 million due to amortization. Deposits Deposits represent United’s primary source of funding. Total deposits at June 30, 2023 increased $66.59 million or less than 1%. In terms of composition, noninterest-bearing deposits decreased $748.85 million or 10.40% while interest-bearing deposits increased $815.44 million or 5.40% from December 31, 2022. Noninterest-bearing deposits consist of demand deposit and noninterest bearing money market (“MMDA”) account balances. The $748.85 million decrease in noninterest-bearing deposits was due mainly to a $595.96 million or 11.02% decrease in commercial noninterest-bearing deposits, a $82.66 million or 5.53% decrease in personal noninterest-bearing deposits, and a $39.57 million or 20.85% decrease in public noninterest-bearing deposits. Interest-bearing deposits consist of interest-bearing transaction (“NOW”) accounts, regular savings, interest-bearing MMDA, and time deposit account balances. NOW accounts increased $128.65 million or 2.51% since year-end 2022 as the result of an increase of $558.82 million in commercial NOW accounts. This increase was mostly offset by a $405.40 million decrease in personal NOW accounts and a $24.77 million decrease in public funds NOW accounts. Regular savings accounts decreased $193.81 million or 11.55% mainly as a result of a $179.06 million decrease in personal savings accounts and a $15.26 million decrease in commercial savings accounts. Interest-bearing MMDAs decreased $221.82 million or 3.52%. In particular, personal interest-bearing MMDAs decreased $354.12 million while commercial interest-bearing MMDAs increased $117.20 million. Public funds interest-bearing MMDAs increased $15.09 million. Time deposits under $100,000 increased $130.44 million or 15.46% from year-end 2022. This increase in time deposits 61 Table of Contents under $100,000 was the result of a $134.85 million increase in fixed rate Certificates of Deposits (“CDs”) under $100,000, and a $3.02 million increase in Certificate of Deposit Account Registry Service (“CDARS”) under $100,000. CDs under $100,000 obtained through the use of deposit listing services decreased $3.34 million. Since year-end 2022, time deposits over $100,000 increased $971.99 million or 83.44% as brokered certificates of deposits increased $391.01 million, fixed rate CDs increased $510.51 million, and CDARS over $100,000 increased $71.99 million. The table below summarizes the changes by deposit category since year-end 2022: (Dollars in thousands) June 30 2023 December 31 2022 $ Change % Change Noninterest-bearing accounts $ 6,450,826 $ 7,199,678 $ (748,852 ) (10.40 %) Interest-bearing transaction accounts 5,245,618 5,116,966 128,652 2.51 % Regular savings 1,484,492 1,678,302 (193,810 ) (11.55 %) Interest-bearing money market accounts 6,077,581 6,299,404 (221,823 ) (3.52 %) Time deposits under $100,000 974,385 843,950 130,435 15.46 % Time deposits over $100,000 (1) 2,136,851 1,164,866 971,985 83.44 % Total deposits $ 22,369,753 $ 22,303,166 $ 66,587 0.30 % (1) Includes time deposits of $250,000 or more of $722,613 and $454,477 at June 30, 2023 and December 31, 2022, respectively. Borrowings Total borrowings at June 30, 2023 increased $6.82 million or less than 1% since year-end 2022. During the first six months of 2023, short-term borrowings increased $16.04 million or 9.98% due to an increase in securities sold under agreements to repurchase. Long-term borrowings decreased $9.22 million or less than 1% from year-end 2022 due to the redemption of $9.89 million in subordinated debt during the first six months of 2023. Long-term FHLB advances remained flat, decreasing merely $144 thousand or less than 1%. The table below summarizes the change in the borrowing categories since year-end 2022: (Dollars in thousands) June 30 2023 December 31 2022 $ Change % Change Short-term securities sold under agreements to repurchase $ 176,739 $ 160,698 $ 16,041 9.98 % Long-term FHLB advances 1,910,631 1,910,775 (144 ) (0.01 %) Subordinated debt 0 9,892 (9,892 ) (100.00 %) Issuances of trust preferred capital securities 277,807 276,989 818 0.30 % Total borrowings $ 2,365,177 $ 2,358,354 $ 6,823 0.29 % For a further discussion of borrowings see Notes 9 and 10 to the unaudited Notes to Consolidated Financial Statements. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at June 30, 2023 increased $1.14 million or less than 1% from year-end 2022. In particular, interest payable increased $9.46 million due to an increase in CDs and brokered deposits as well as rising interest rates and mortgage escrow liabilities increased $6.48 million due to a growth in mortgage loans since year-end 2022. Partially offsetting these increases was a decrease of $8.65 million in incentives payable due to payments and decreases of $2.71 million and $4.81 million in income tax payable and business franchise taxes, respectively, due to timing differences. Shareholders’ Equity Shareholders’ equity at June 30, 2023 was $4.64 billion, which was an increase of $120.85 million or 2.68% from year-end 2022. 62 Table of Contents Retained earnings increased $93.42 million or 5.93% from year-end 2022. Earnings net of dividends for the first six months of 2023 were $93.42 million. Accumulated other comprehensive income increased $22.05 million or 6.63% from year-end 2022 due to an increase of $24.56 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes. Partially offsetting this increase was a $3.71 million decrease in the fair value of cash flow hedges, net of deferred income taxes. The after-tax amortization of the pension net actuarial loss was $1.20 million for the first six months of 2023. RESULTS OF OPERATIONS Overview Below is a summary of United’s consolidated results of operations for the time periods presented: Three Months Ended Six Months Ended (Dollars in thousands except per share amounts) June 2023 June 2022 March 2023 June 2023 June 2022 Interest income $ 345,932 $ 227,771 $ 329,303 $ 675,235 $ 430,566 Interest expense 118,471 12,868 94,983 213,454 24,161 Net interest income 227,461 214,903 234,320 461,781 406,405 Provision for credit losses 11,440 (1,807 ) 6,890 18,330 (5,217 ) Noninterest income 35,178 43,608 32,744 67,922 89,633 Noninterest expense 135,288 141,174 137,419 272,707 280,349 Income before income taxes 115,911 119,144 122,755 238,666 220,906 Income taxes 23,452 23,531 24,448 47,900 43,629 Net income $ 92,459 $ 95,613 $ 98,307 $ 190,766 $ 177,277 Net income for the second quarter of 2023 was $92.46 million or $0.68 per diluted share, as compared to $95.61 million or $0.71 per diluted share for the prior year second quarter. Net income for the first quarter of 2023 was $98.31 million or $0.73 per diluted share. Net income for the first six months of 2023 was $190.77 million or $1.41 per diluted share compared to $177.28 million or $1.30 per share for the first six months of 2022. For the second quarter of 2023, United’s annualized return on average assets was 1.26% and return on average shareholders’ equity was 7.96% as compared to 1.32% and 8.33% for the second quarter of 2022. United’s annualized return on average assets was 1.35% and return on average shareholders’ equity was 8.72% for the first quarter of 2023. United’s annualized return on average assets for the first six months of 2023 was 1.31% and return on average shareholders’ equity was 8.34% as compared to 1.23% and 7.63% for the first six months of 2022. For the second quarter and first half of 2023, United’s annualized return on average tangible equity was 13.47% and 14.20%, respectively, as compared to 14.23% and 12.90% for the second quarter and first half of 2022, respectively. United’s annualized return on average tangible equity was 14.97% for the first quarter of 2023. Three Months Ended Six Months Ended (Dollars in thousands) June 30, 2023 June 30, 2022 March 31, 2023 June 30, 2023 June 30, 2022 Return on Average Tangible Equity: (a) Net Income (GAAP) $ 92,459 $ 95,613 $ 98,307 $ 190,766 $ 177,277 (b) Number of Days 91 91 90 181 181 Average Total Shareholders’ Equity (GAAP) $ 4,659,094 $ 4,606,186 $ 4,570,288 $ 4,614,909 $ 4,682,991 Less: Average Total Intangibles (1,906,053 ) (1,911,705 ) (1,907,331 ) (1,906,689 ) (1,911,416 ) (c) Average Tangible Equity (non-GAAP) $ 2,753,041 $ 2,694,481 $ 2,662,957 $ 2,708,220 $ 2,771,575 Return on Average Tangible Equity (non-GAAP) [(a) / (b)] x 365/ (c) 13.47 % 14.23 % 14.97 % 14.20 % 12.90 % 63 Table of Contents During the second quarter of 2023, United sold mortgage servicing rights (“MSRs”) with an aggregate unpaid principal balance of approximately $2 billion at a net gain of $8.15 million. Additionally, during the second quarter of 2023, United sold approximately $187 million of available for sale (“AFS”) investment securities at a net loss of $7.24 million. Net interest income for the second quarter of 2023 was $227.46 million, which was an increase of $12.56 million, or 5.84%, from the second quarter of 2022. The increase of $12.56 million in net interest income occurred because total interest income increased $118.16 million while total interest expense increased $105.60 million from the second quarter of 2022. Net interest income for the first half of 2023 was $461.78 million, an increase of $55.38 million or 13.63% from the first half of 2022. The increase of $55.38 million in net interest income occurred because total interest income increased $244.67 million while total interest expense increased $189.29 million from the first half of 2022. The provision for credit losses was $11.44 million and $18.33 million for the second quarter and first half of 2023, respectively, while the provision for credit losses was a net benefit of $1.81 million and $5.22 million for the second quarter and first half of 2022. The provision for credit losses was $6.89 million for the first quarter of 2023. The increase in the provision for credit losses was mainly due to a change in qualitative factors and the impact of reasonable and supportable forecasts of future macroeconomic conditions. For the second quarter of 2023, noninterest income was $35.18 million, which was a decrease of $8.43 million or 19.33% from the second quarter of 2022. Noninterest income for the first six months of 2023 was $67.92 million which was a decrease of $21.71 million or 24.22% from the first six months of 2022. These decreases in noninterest income were due mainly to lower mortgage loan origination and sale volume and a lower margin on loans sold in the secondary market as well as the previously mentioned net losses on the sales of securities in 2023. Noninterest income for the second quarter of 2023 increased $2.43 million, or 7.43%, from the first quarter of 2023. This increase in noninterest income for the linked-quarter was primarily due to the previously mentioned net gain on the sale of MSRs in the second quarter of 2023. For the second quarter of 2023, noninterest expense decreased $5.89 million or 4.17% from the second quarter of 2022 due mainly to a decrease in the expense for the reserve for unfunded loan commitments within other expenses. For the first six months of 2023, noninterest expense decreased $7.64 million or 2.73% from the first six months of 2022 due mainly to lower employee compensation expense as a result of lower employee commissions and incentives related to mortgage banking production and a lower employee incentives. Noninterest expense for the second quarter of 2023 decreased $2.13 million, or 1.55%, from the first quarter of 2023 due mainly to a decrease in the expense for reserve for unfunded loan commitments within other expense. Income taxes for the second quarter of 2023 were $23.45 million as compared to $23.53 million for the second quarter of 2022. Income tax expense was $24.45 million for the first quarter of 2023. For the first six months of 2023 and 2022 income tax expense was $47.90 million and $43.63 million, respectively. For the quarters ended June 30, 2023 and March 31, 2023, United’s effective tax rate was 20.23% and 19.92%, respectively. For the quarter ended June 30, 2022, United’s effective tax rate was 19.75%. The effective tax rate for the first six months of 2023 and 2022 was 20.07% and 19.75%, respectively. Business Segments United operates in two business segments: community banking and mortgage banking. Community Banking Net income attributable to the community banking segment for the second quarter of 2023 was $91.89 million compared to net income of $97.14 million for the second quarter of 2022. The lower net income within the community banking segment for the second quarter of 2023 was due primarily to a decrease in noninterest income. Net income attributable to the community banking segment for the first half of 2023 was $196.59 million compared to net income of $180.17 million for the first half of 2022. The higher net income within the community banking segment for the first half of 2023 was due primarily to increased net interest income. On a linked quarter basis, net income attributable to the community banking segment for the second quarter of 2023 decreased $12.80 million from the first quarter of 2023 primarily due to a net interest margin compression, a decline noninterest income and an increase in provision for credit losses. 64 Table of Contents Net interest income of $229.31 million for the second quarter of 2023 was an increase of $17.72 million or 8.37% from $211.59 million for the second quarter of 2022. Net interest income increased $64.30 million to $465.57 million for the first half of 2023, compared to $401.27 million for the same period of 2022. Generally, net interest income for the second quarter and first six months of 2023 increased from the second quarter and first six months of 2022 due mainly the impact of rising market interest rates on earning assets, organic loan growth and a change in the asset mix to higher earning assets. On a linked quarter basis, net interest income for the second quarter of 2023 decreased $6.95 million from the first quarter of 2023 primarily due to higher interest expense driven by deposit rate repricing and a higher average balance of interest-bearing deposits. The provision for credit losses was $11.44 million for the three months ended June 30, 2023 compared to a net benefit of $1.81 million for the three months ended June 30, 2022. The provision for credit losses was $18.33 million for the six months ended June 30, 2023, compared to a net benefit of $5.22 million for the six months ended June 30, 2022. As previously mentioned, the increase in the provision for credit losses was mainly due to a change in qualitative factors and the impact of reasonable and supportable forecasts of future macroeconomic conditions. The provision for credit losses was $6.89 million for the first quarter of 2023. Noninterest income decreased $9.28 million for the second quarter of 2023 to $17.62 million as compared to $26.90 million for the second quarter of 2022. Noninterest income for the first half of 2023 decreased $10.02 million to $41.79 million for the first half of 2023 as compared to $51.80 million for the first half of 2022. These decreases from 2022 were due mainly to net losses on the sales of AFS investment securities and declines in fees from deposit services and income from bank-owned life insurance. On a linked quarter basis, noninterest income for the second quarter of 2023 decreased $6.56 million from the first quarter of 2023 due to the previously mentioned net losses on the sales of AFS investment securities. Noninterest expense was $120.28 million for the second quarter of 2023, compared to $119.25 million for the same period of 2022. Noninterest expense was $243.06 million for the six months ended June 30, 2023, compared to $233.79 million for the same period of 2022. These increases in noninterest expense for the first six months of 2023 were primarily attributable to an increase in Federal Deposit Insurance Corporation (“FDIC”) expense due to a higher assessment rate. On a linked quarter basis, noninterest expense for the second quarter of 2023 decreased $2.51 million from the first quarter of 2023 due mainly to lower employee benefits costs and lower expense for the reserve for unfunded loan commitments within other expense. Mortgage Banking The mortgage banking segment reported net income of $5.13 million and $3.45 million for the second quarter and the first half of 2023, respectively, as compared to net losses of $1.15 million and $944 thousand for the second quarter and first half of 2022. The mortgage banking segment reported a net loss of $1.68 million for the first quarter of 2023. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $19.95 million for the second quarter of 2023 as compared to $21.47 million for the second quarter of 2022. Noninterest income for the first half of 2023 was $30.81 million as compared to $44.87 million for the first half of 2022. These decreases in noninterest income from 2022 were due mainly to decreased sales of mortgage loans in the secondary market primarily as a result of a rising interest rate environment. On a linked quarter basis, noninterest income for the second quarter of 2023 increased $9.09 million from the first quarter of 2023. This increase in noninterest income for the linked-quarter was primarily due to the previously mentioned net gain on the sale of MSRs in the second quarter of 2023. Noninterest expense was $15.71 million for the second quarter of 2023, a decrease of $10.07 million from $25.78 million for the second quarter of 2022. Noninterest expense for the first half of 2023 was $30.79 million, a decrease of $20.43 million from the first half of 2022. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage 65 Table of Contents segment employees. The decreases mentioned above were due mainly to lower employee commissions and incentives related to the decreased mortgage banking production. On a linked quarter basis, noninterest expense for the second quarter of 2023 increased $621 thousand from the first quarter of 2023 due to higher employee commissions and incentives related to the increased mortgage banking production The following discussion explains in more detail the consolidated results of operations by major category. Net Interest Income Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2023 and 2022, are presented below. Net interest income for the second quarter of 2023 was $227.46 million, which was an increase of $12.56 million or 5.84% from the second quarter of 2022. The $12.56 million increase in net interest income occurred because total interest income increased $118.16 million while total interest expense increased $105.60 million from the second quarter of 2022. Net interest income for the first half of 2023 was $461.78 million, which was an increase of $55.38 million or 13.63% from the first half of 2022. The $55.38 million increase in net interest income occurred because total interest income increased $244.67 million while total interest expense increased $189.29 million from the first half of 2022. On a linked-quarter basis, net interest income for the second quarter of 2023 decreased $6.86 million or 2.93% from the first quarter of 2023. The $6.86 million decrease in net interest income occurred because total interest income increased $16.63 million while total interest expense increased $23.49 million from the first quarter of 2023. For the purpose of this remaining discussion, net interest income is presented on a tax-equivalent basis to provide a comparison among all types of interest earning assets. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. Tax-equivalent net interest income for the second quarter of 2023 was $228.61 million, an increase of $12.60 million or 5.83% from the second quarter of 2022. The increase in tax-equivalent net interest income was primarily due to the impact of rising market interest rates on earning assets, organic loan growth and a change in the asset mix to higher earning assets. These increases were partially offset by higher interest expense primarily driven by deposit rate repricing, higher average balances and cost of long-term borrowings, lower income from Paycheck Protection Program (“PPP”) loan fees and lower acquired loan accretion. The yield on average earning assets increased 175 basis points from the second quarter of 2022 to 5.33%. Average earning assets for the second quarter of 2023 increased $494.60 million, or 1.93%, from the second quarter of 2022 due to a $1.66 billion increase in average net loans partially offset by a $743.07 million decrease in average short-term investments and a $423.13 million decrease in average investment securities. The average cost of funds increased 233 basis points from the second quarter of 2022 to 2.64% primarily due to increases in the yield on average interest-bearing deposits of 212 basis points and in the yield on average long-term borrowings of 300 basis points. Average long-term borrowings increased $1.50 billion from the second quarter of 2022. Net PPP loan fee income decreased $3.45 million from the second quarter of 2022. Acquired loan accretion income was $3.08 million and $5.40 million for the second quarter of 2023 and 2022, respectively, a decrease of $2.32 million. The net interest margin of 3.51% for the second quarter of 2023 was an increase of 13 basis points from the net interest margin of 3.38% for the second quarter of 2022. Tax-equivalent net interest income for the first six months of 2023 was $464.06 million, an increase of $55.44 million or 13.57% from the first six months of 2022. The increase in tax-equivalent net interest income was primarily due to the impact of rising market interest rates on earning assets, organic loan growth and a change in the asset mix to higher earning assets. These increases were partially offset by higher interest expense primarily driven by deposit rate repricing and higher average balances and cost of long-term borrowings as well as lower income from PPP loan fees and acquired loan accretion. The yield on average earning assets increased 184 basis points from the first six months of 2022 to 5.21%. Average earning 66 Table of Contents assets for the first six months of 2023 increased $310.98 million, or 1.20%, from the first six months of 2022 due to a $1.90 billion increase in average net loans partially offset by a $1.41 billion decrease in average short-term investments and a $171.38 million decrease in average investment securities. The average cost of funds increased 212 basis points from the first six months of 2022 to 2.41% primarily due to increases in the yield on average interest-bearing deposits of 187 basis points and in the yield on average long-term borrowings of 298 basis points. Average long-term borrowings increased $1.55 billion from the first six months of 2022. Net PPP loan fee income decreased $7.35 million from the first six months of 2022. Acquired loan accretion income was $6.20 million and $9.54 million for the first six months of 2023 and 2022, respectively, a decrease of $3.34 million. The net interest margin of 3.57% for the first six months of 2023 was an increase of 39 basis points from the net interest margin of 3.18% for the first six months of 2022. On a linked-quarter basis, tax-equivalent net interest income for the second quarter of 2023 decreased $6.85 million, or 2.91%, from the first quarter of 2023. The decrease in net interest income and tax-equivalent net interest income was primarily due to higher interest expense driven by deposit rate repricing partially offset by higher interest income on net loans and loans held for sale driven by rising market interest rates. The interest rate spread for the second quarter of 2023 decreased 24 basis points from the first quarter of 2023 to 2.69% due to a 47 basis point increase in the average cost of funds partially offset by a 23 basis point increase in the yield on earning assets. The yield on average interest-bearing deposits increased 54 basis points to 2.37% from the first quarter of 2023. The yield on average net loans and loans held for sale increased 23 basis points to 5.78% from the first quarter of 2023. The net interest margin of 3.51% for the second quarter of 2023 was a decrease of 12 basis points from the net interest margin of 3.63% for the first quarter of 2023. United’s tax-equivalent net interest income also includes the impact of acquisition accounting fair value adjustments. The following table provides the discount/premium and net accretion impact to tax-equivalent net interest income for the three months ended June 30, 2023, June 30, 2022 and March 31, 2023 and the six months ended June 30, 2023 and June 30, 2022: Three Months Ended (Dollars in thousands) June 30 2023 June 30 2022 March 31 2023 Loan accretion $ 3,077 $ 5,398 $ 3,119 Certificates of deposit 309 738 356 Long-term borrowings (335 ) 274 (353 ) Total $ 3,051 $ 6,410 $ 3,122 Six Months Ended (Dollars in thousands) June 30 2023 June 30 2022 Loan accretion $ 6,196 $ 9,537 Certificates of deposit 665 1,776 Long-term borrowings (688 ) 433 Tax-equivalent net interest income $ 6,173 $ 11,746 67 Table of Contents The following tables reconcile the difference between net interest income and tax-equivalent net interest income for the three months ended June 30, 2023, June 30, 2022 and March 31, 2023 and the six months ended June 30, 2023 and June 30, 2022. Three Months Ended (Dollars in thousands) June 30 2023 June 30 2022 March 31 2023 Net interest income, GAAP basis $ 227,461 $ 214,903 $ 234,320 Tax-equivalent adjustment (1) 1,144 1,104 1,135 Tax-equivalent net interest income $ 228,605 $ 216,007 $ 235,455 Six Months Ended (Dollars in thousands) June 30 2023 June 30 2022 Net interest income, GAAP basis $ 461,781 $ 406,405 Tax-equivalent adjustment (1) 2,279 2,213 Tax-equivalent net interest income $ 464,060 $ 408,618 (1) The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 21% for the three months and six months ended June 30, 2023 and 2022 and the three months ended March 31, 2023. All interest income on loans and investment securities was subject to state income taxes. 68 Table of Contents The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended June 30, 2023 and 2022, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended June 30, 2023 and 2022. Interest income on all loans and investment securities was subject to state income taxes. Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 (Dollars in thousands) Average Balance Interest (1) Avg. Rate (1) Average Balance Interest (1) Avg. Rate (1) ASSETS Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short-term investments $ 994,072 $ 12,706 5.13 % $ 1,737,146 $ 4,841 1.12 % Investment Securities: Taxable 4,274,123 36,721 3.44 % 4,665,307 24,558 2.11 % Tax-exempt 387,918 2,718 2.80 % 419,865 2,794 2.66 % Total Securities 4,662,041 39,439 3.38 % 5,085,172 27,352 2.15 % Loans, net of unearned income (2)(3) 20,705,509 294,931 5.71 % 19,018,717 196,682 4.15 % Allowance for loan losses (240,611 ) (214,624 ) Net loans 20,464,898 5.78 % 18,804,093 4.19 % Total earning assets 26,121,011 $ 347,076 5.33 % 25,626,411 $ 228,875 3.58 % Other assets 3,317,801 3,383,037 TOTAL ASSETS $ 29,438,812 $ 29,009,448 LIABILITIES Interest-Bearing Liabilities: Interest-bearing deposits $ 15,520,461 $ 91,577 2.37 % $ 15,588,089 $ 9,751 0.25 % Short-term borrowings 177,315 1,489 3.37 % 136,025 237 0.70 % Long-term borrowings 2,307,485 25,405 4.42 % 811,924 2,880 1.42 % Total Interest-Bearing Liabilities 18,005,261 118,471 2.64 % 16,536,038 12,868 0.31 % Noninterest-bearing deposits 6,500,259 7,587,565 Accrued expenses and other liabilities 274,198 279,659 TOTAL LIABILITIES 24,779,718 24,403,262 SHAREHOLDERS’ EQUITY 4,659,094 4,606,186 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 29,438,812 $ 29,009,448 NET INTEREST INCOME $ 228,605 $ 216,007 INTEREST RATE SPREAD 2.69 % 3.27 % NET INTEREST MARGIN 3.51 % 3.38 % (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. (3) Loans held for sale and leases are included in the daily average loan amounts outstanding. 69 Table of Contents The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended June 30, 2023 and March 31, 2023, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended June 30, 2023 and March 31, 2023. Interest income on all loans and investment securities was subject to state income taxes. Three Months Ended June 30, 2023 Three Months Ended March 31, 2023 (Dollars in thousands) Average Balance Interest (1) Avg. Rate (1) Average Balance Interest (1) Avg. Rate (1) ASSETS Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short-term investments $ 994,072 $ 12,706 5.13 % $ 936,394 $ 10,983 4.76 % Investment Securities: Taxable 4,274,123 36,721 3.44 % 4,404,864 36,259 3.29 % Tax-exempt 387,918 2,718 2.80 % 387,671 2,740 2.83 % Total Securities 4,662,041 39,439 3.38 % 4,792,535 38,999 3.26 % Loans, net of unearned income (2)(3) 20,705,509 294,931 5.71 % 20,683,610 280,456 5.49 % Allowance for loan losses (240,611 ) (234,809 ) Net loans 20,464,898 5.78 % 20,448,801 5.55 % Total earning assets 26,121,011 $ 347,076 5.33 % 26,177,730 $ 330,438 5.10 % Other assets 3,317,801 3,334,559 TOTAL ASSETS $ 29,438,812 $ 29,512,289 LIABILITIES Interest-Bearing Liabilities: Interest-bearing deposits $ 15,520,461 $ 91,577 2.37 % $ 15,186,632 $ 68,592 1.83 % Short-term borrowings 177,315 1,489 3.37 % 166,614 1,157 2.82 % Long-term borrowings 2,307,485 25,405 4.42 % 2,417,999 25,234 4.23 % Total Interest-Bearing Liabilities 18,005,261 118,471 2.64 % 17,771,245 94,983 2.17 % Noninterest-bearing deposits 6,500,259 6,897,030 Accrued expenses and other liabilities 274,198 273,726 TOTAL LIABILITIES 24,779,718 24,942,001 SHAREHOLDERS’ EQUITY 4,659,094 4,570,288 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 29,438,812 $ 29,512,289 NET INTEREST INCOME $ 228,605 $ 235,455 INTEREST RATE SPREAD 2.69 % 2.93 % NET INTEREST MARGIN 3.51 % 3.63 % (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. (3) Loans held for sale and leases are included in the daily average loan amounts outstanding. 70 Table of Contents The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the six-month periods ended June 30, 2023 and 2022, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the six-month period ended June 30, 2023 and 2022. Interest income on all loans and investment securities was subject to state income taxes. Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 (Dollars in thousands) Average Balance Interest (1) Avg. Rate (1) Average Balance Interest (1) Avg. Rate (1) ASSETS Earning Assets: Federal funds sold and securities repurchased under agreements to resell and other short-term investments $ 965,393 $ 23,689 4.95 % $ 2,379,418 $ 7,170 0.61 % Investment Securities: Taxable 4,339,132 72,980 3.36 % 4,466,170 42,063 1.88 % Tax-exempt 387,795 5,458 2.81 % 432,135 5,483 2.54 % Total Securities 4,726,927 78,438 3.32 % 4,898,305 47,546 1.94 % Loans, net of unearned income (2)(3) 20,694,619 575,387 5.60 % 18,775,823 378,063 4.06 % Allowance for loan losses (237,726 ) (215,316 ) Net loans 20,456,893 5.67 % 18,560,507 4.10 % Total earning assets 26,149,213 $ 677,514 5.21 % 25,838,230 $ 432,779 3.37 % Other assets 3,324,719 3,338,261 TOTAL ASSETS $ 29,473,932 $ 29,176,491 LIABILITIES Interest-Bearing Liabilities: Interest-bearing deposits $ 15,354,468 $ 160,169 2.10 % $ 15,747,191 $ 18,312 0.23 % Short-term borrowings 171,994 2,646 3.10 % 135,012 418 0.62 % Long-term borrowings 2,362,437 50,639 4.32 % 814,628 5,431 1.34 % Total Interest-Bearing Liabilities 17,888,899 213,454 2.41 % 16,696,831 24,161 0.29 % Non-interest bearing deposits 6,697,549 7,527,570 Accrued expenses and other liabilities 272,575 269,099 TOTAL LIABILITIES 24,859,023 24,493,500 SHAREHOLDERS’ EQUITY 4,614,909 4,682,991 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 29,473,932 $ 29,176,491 NET INTEREST INCOME $ 464,060 $ 408,618 INTEREST RATE SPREAD 2.80 % 3.08 % NET INTEREST MARGIN 3.57 % 3.18 % (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. (3) Loans held for sale and leases are included in the daily average loan amounts outstanding. 71 Table of Contents Provision for Credit Losses The provision for credit losses was $11.44 million and $18.33 million for the second quarter and first half of 2023, respectively, as compared to net benefits of $1.81 million and $5.22 million for the second quarter and first half of 2022, respectively. On a linked-quarter basis, the provision for credit losses for the first quarter of 2023 was $6.89 million. United’s provision for credit losses relates to its portfolio of loans and leases, held-to-maturity securities and interest receivable on loans which are discussed in more detail in the following paragraphs. For the quarter ended June 30, 2023, the provision for loan and lease losses was $11.44 million as compared to a net benefit of $1.81 million for the quarter ended June 30, 2022. The provision for loan and lease losses for the first six months of 2023 was $18.33 million as compared to a net benefit of $5.21 million for the first six months of 2022. The higher amount of provision expense for 2023 compared to 2022 was mainly due to an increase in qualitative adjustments pertaining to economic and business conditions, collateral values for dependent loans, loan trends, concentrations of credit, and the reasonable and supportable forecasts of future macroeconomic conditions. Net charge-offs were $1.21 million for the second quarter of 2023 as compared to net recoveries of $941 thousand for the same quarter in 2022. Net charge-offs for the first six months of 2023 were $2.35 million as compared to net recoveries of $2.92 million for the first six months of 2022. The higher amount of net charge-offs for 2023 as compared to 2022 was primarily due to an increase in charge-offs in 2023 for the consumer loan segment as well as a lower amount of recoveries in 2023 of previously charged-off amounts for the other commercial loan segment. On a linked-quarter basis, the provision for loan and lease losses for the first quarter of 2023 was $6.89 million while net charge-offs were $1.15 million. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income were 0.02% both for the second quarter and first half of 2023 compared to annualized net recoveries of (0.02%) and (0.03%) for the second quarter and first half of 2022. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income for the first quarter of 2023 were 0.02%. The following table shows a summary of United’s nonperforming assets including nonperforming loans and other real estate owned (“OREO”) at June 30, 2023 and December 31, 2022: (In thousands) June 30 2023 December 31 2022 Nonaccrual loans $ 26,545 $ 23,685 Loans past due 90 days of more 15,007 15,565 Restructured loans (1) n/a 19,388 Total nonperforming loans $ 41,552 $ 58,638 Other real estate owned 3,756 2,052 Total nonperforming assets $ 45,308 $ 60,690 Note: (1) On January 1, 2023, United adopted ASU 2022-02, “Troubled Debt Restructurings and Vintage Disclosures” prospectively which eliminated the accounting guidance on troubled debt restructurings and enhanced creditors’ disclosure requirements related to loan refinancings and restructurings for borrowers experiencing financial difficulty. After the adoption of ASU 2022-02, United no longer considers accruing restructured loans that are fewer than 90 days past due as nonperforming loans or nonperforming assets. Nonperforming loans and nonperforming assets at December 31, 2022 included $9,127 of restructured loans that were on accruing status and fewer than 90 days past due but classified as nonperforming loans and nonperforming assets. Restructured loans that are on nonaccrual or 90-day past due are included in the above nonperforming loan and nonperforming asset categories at June 30, 2023. Restructured loans with an aggregate balance of $7,186 at December 31, 2022 were on nonaccrual status, but are not included in “Nonaccrual loans” above. Restructured loans with an aggregate balance of $3,075 at December 31, 2022 were 90 days past due, but not included in “Loans past due 90 days or more” above. United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses. At June 30, 2023, the allowance for credit losses was $297.49 million as compared to $280.94 million at December 31, 2022. At June 30, 2023, the allowance for loan and lease losses was $250.72 million as compared to $234.75 million at December 72 Table of Contents 31, 2022. The increase in the allowance for loan and lease losses was due mainly to increased reserves for several loan segments including nonowner-occupied commercial real estate, residential real estate, and construction and land development. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.21% at June 30, 2023 and 1.14% at December 31, 2022. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 603.39% and 400.33% at June 30, 2023 and December 31, 2022, respectively. The increase in this ratio was due mainly to a decline in nonperforming loans. United continues to evaluate risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then, any qualitative adjustments are applied to account for the Company’s view of current conditions, the future and other factors. The second quarter of 2023 qualitative adjustments include analyses of the following: • Current conditions – United considered the impact of inflation, rising 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 improved in the second quarter, from a projection of 0.40% for 2023 in the first quarter to 1.00% for 2023 with a slight downward shift for 2024, from a projection of 1.20% for 2024 in the first quarter to 1.10% for 2024 in the second quarter. The unemployment rate improved for 2023 between first and second quarter, 4.50% to 4.10%, while remaining fairly consistent for 2024 with a slight improvement from 4.60% to 4.50%. The forecast for 2025 changed minimally for both real GDP and the unemployment rate – both experienced a 10 bps decrease compared to the first quarter. • 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 commercial other and construction portfolios 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. United’s review of the allowance for loan and lease losses at June 30, 2023 produced increased reserves in three of the four loan categories as compared to December 31, 2022. The allowance related to the commercial, financial & agricultural loan pool increased $8.95 million due to increased outstanding balances and increased reasonable and supportable forecast adjustment particularly as it pertains to office loans. The residential real estate reserve increased $5.20 million due to increased outstanding balances and increased risk of loss for past due, nonaccrual and graded loans. The real estate construction and development loan pool reserve increased $4.87 million due to increased risk of loss for collateral value for dependent loans and increased reasonable and supportable forecast adjustment. The consumer loan pool reserve decreased $3.04 million primarily due to a decrease in outstanding balances. An allowance is established for estimated lifetime losses for loans that are individually assessed. Nonperforming commercial loans and leases are regularly reviewed to identify expected credit losses. A loan is individually assessed for expected credit losses when the loan does not share similar characteristics with other loans in the portfolio. Measuring expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Expected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate or the fair value of collateral if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an expected credit loss has occurred. The allowance for loans and 73 Table of Contents leases that were individually assessed was $803 thousand at June 30, 2023 and $1.27 million at December 31, 2022. In comparison to the prior year-end, this element of the allowance decreased $471 thousand due to improved borrowers’ financial condition and increased collateral valuation such that individual assessments were no longer necessary as well as charge-offs taken for previously reserved losses. Management believes that the allowance for credit losses of $297.49 million at June 30, 2023 is adequate to provide for expected losses on existing loans and lending-related commitments based on information currently available. United’s loan administration policies are focused on the risk characteristics of the loan portfolio in terms of loan approval and credit quality. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses. The provision for credit losses related to held to maturity securities for the second quarter and first half of 2023 and 2022 was immaterial. The allowance for credit losses related to held to maturity securities was $19 thousand as of June 30, 2023 and $18 thousand as December 31, 2022. There was no provision for credit losses recorded on available for sale investment securities for the second quarter and first half of 2023 and 2022 and no allowance for credit losses on available for sale investment securities as of June 30, 2023 and December 31, 2022. Management is not aware of any potential problem loans or leases, trends or uncertainties, which it reasonably expects, will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits, which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules. Other Income Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income for the second quarter of 2023 was $35.18 million, a decrease of $8.43 million or 19.33% from the second quarter of 2022. Noninterest income for the first half of 2023 was $67.92 million, a decrease of $21.71 million or 24.22% from the first half of 2022. Both decreases were due mainly to net losses recognized on the sales of AFS investment securities and a decrease in income from mortgage banking activities primarily as a result of a rising interest rate environment and a lower margin on loans sold in the secondary market. Partially offsetting the decreases was a net gain of $8.15 million during the second quarter of 2023 on the sale of MSRs within mortgage loan servicing income. Net losses on investment securities were $7.34 million for the second quarter of 2023 as compared to net gains on investment securities of $1.18 million for the second quarter of 2022. For the first six months of 2023, net losses on investment securities were $7.74 million as compared to net gains on investment securities of $931 thousand for the first six months of 2022. The net losses in 2023 were mainly due to the previously mentioned net loss of $7.24 million on the sale of approximately $187 million of AFS investment securities in the second quarter of 2023. Income from mortgage banking activities totaled $7.91 million for the second quarter of 2023 compared to $12.45 million for the same period of 2022, a decline of $4.54 million or 36.46%. For the first half of 2023 and 2022, income from mortgage banking activities was $14.29 million and $31.65 million, respectively. The decreases for 2023 as compared to 2022 were due to decreased loan sales driven by the rising rate environment and a lower margin on loans sold. For the three months ended June 30, 2023 and 2022, mortgage loan sales were $248.71 million and $674.12 million, respectively. For the six months ended June 30, 2023 and 2022, mortgage loan sales were $415.22 million and $1.74 billion, respectively. Mortgage loans originated for sale were $271.83 million and $449.64 million for the second quarter and first half of 2023, respectively, as compared to $554.50 million and $1.46 billion for the second quarter and first half of 2022, respectively. 74 Table of Contents Fees from deposit services for the second quarter and first half of 2023 decreased $1.51 million or 13.90% and $2.29 million or 10.92%, respectively, from the second quarter and first half of 2022. These decreases were due mainly to lower income from overdraft fees primarily as a result of implemented changes to United’s overdraft policy during the third quarter of 2022. Income from bank-owned life insurance (“BOLI”) for the second quarter and first half of 2023 decreased $2.10 million and $2.40 million, respectively, from the second quarter and first half of 2022. For the second quarter and first half of 2023, United recognized death benefits from BOLI of $41 thousand as compared to $2.48 million and $2.76 million for the second quarter and first half of 2022, respectively. Partially offsetting the decreases mentioned above for the second quarter and first half of 2023 were increases of $7.51 million and $7.40 million from the second quarter and first half of 2023 in mortgage loan servicing income. The increases were due mainly to the previously mentioned net gain of $8.15 million during the second quarter of 2023 on the sale of MSRs with an aggregate unpaid principal balance approximately $2 billion. On a linked-quarter basis, noninterest income for the second quarter of 2023 increased $2.43 million, or 7.43%, from the first quarter of 2023. The increase in noninterest income was primarily due to increases in mortgage loan servicing income of $7.57 million mainly driven by the net gain on sale of MSRs and income from mortgage banking activities of $1.52 million driven by higher mortgage loan origination and sale volume and a higher margin on loans sold. This increase in noninterest income was partially offset by higher net losses on investment securities of $6.93 million mainly driven by the loss on sale of AFS investment securities. Other Expenses Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for credit losses, and income taxes. Noninterest expense was $135.29 million for the second quarter of 2023, a decrease of $5.89 million or 4.17% from the same period in 2022. For the first half of 2023, noninterest expense was $272.71 million, which was a decrease of $7.64 million or 2.73% from the first half of 2022. Employee compensation for the second quarter and first half of 2023 decreased $4.13 million or 6.59% and $11.34 million or 9.05%, respectively, from the second quarter and first half of 2022. The decreases for 2023 were due mainly to lower employee commissions related to a decline in mortgage banking production and lower employee incentives. Other expense for the second quarter of 2023 decreased $4.84 million or 13.61% from the second quarter of 2022. For the first half of 2023, other expense decreased $3.11 million or 4.54% from the first half of 2022. Within other expenses, the most significant decrease for second quarter and first half of 2023 as compared to the same time periods in 2022 was in the expense for the reserve for unfunded loan commitments of $7.92 million and $10.56 million, respectively. Partially offsetting these decreases were increases in consulting and legal expenses as well as business franchise taxes. Employee benefits expense for the first half of 2023 increased $773 thousand or 3.10% as compared to the first half of 2022. This increase was primarily due to higher amounts of expense for postretirement benefits. Net occupancy expense for the first half of 2023 increased $849 thousand or 3.79% as compared to the first half of 2022. These increases were primarily due to higher amounts of building rental, depreciation and maintenance expense. OREO expense for the first half of 2023 increased $754 thousand or 330.70% from the first half of 2022 due to a decline in the fair value of OREO properties. Equipment expense for the second quarter of 2023 increased $716 thousand or 9.79% as compared to the second quarter of 2022. This increase was primarily due to an increase in maintenance expense. 75 Table of Contents FDIC expense for the second quarter and first half of 2023 increased $1.57 million or 52.13% and $3.48 million or 61.30%, respectively, due a higher assessment rate. On a linked-quarter basis, noninterest expense for the second quarter of 2023 decreased $2.13 million, or 1.55%, from the first quarter of 2023. The decrease in noninterest expense was primarily driven by a decrease in the expense for the reserve for unfunded loan commitments of $4.62 million within other expense partially offset by an increase in employee compensation of $3.09 million. The decrease in the expense for the reserve for unfunded loan commitments was driven by a decrease in the outstanding balance of loan commitments at quarter-end. The increase in employee compensation was primarily driven by higher employee incentives as well as higher employee commissions related to mortgage banking production. Income Taxes For the second quarter of 2023, income tax expense was $23.45 million as compared to $23.53 million in the second quarter of 2022. On a linked-quarter basis, income tax expense decreased $996 thousand from the first quarter of 2023. These decreases were due to lower earnings partially offset by a higher effective tax rate. For the first half of 2023, income tax expense was $47.90 million as compared to $43.63 million in the second quarter of 2022. United’s effective tax rate was 20.23% for the second quarter of 2023, 19.75% for the second quarter of 2022 and 19.92% for the first quarter of 2023. For the first half of 2023 and 2022, United’s effective tax rate was 20.07% and 19.75%, respectively. For further details related to income taxes, see Note 16 of the unaudited Notes to Consolidated Financial Statements contained within this document. Liquidity and Capital Resources In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable, and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds which are obtained as the result of a competitive bidding process. Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day-to-day demands of customers and United’s cash needs. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity. The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of outside sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank (“FHLB”) advances and the Federal Reserve Bank’s (“FRB”) Discount Window or its newly established Bank Term Funding program during the first quarter of 2023. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances and FRB programs, are long-term certificates of deposit, lines of credit, borrowings that are secured by bank premises or stock of United’s subsidiaries and issuances of trust preferred securities. In the normal course of business, United through its Asset Liability Committee evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs. 76 Table of Contents During the first half of 2023, United increased its interest-bearing deposit balance at the FRB by $489.88 million to $1.30 billion. The change in the balance at the FRB was mostly the result of $555.27 million of net sales, maturities, and paydowns in the available for sale debt securities portfolio and a $66.59 million increase in total deposits. For the six months ended June 30, 2023, cash of $183.09 million was provided by operating activities due mainly to net income of $190.77 million. Net cash of $356.65 million was provided by investing activities which was primarily due to $541.90 million of net proceeds from the sales of investment securities over purchases partially offset by portfolio loan growth of $205.96 million. During the first six months of 2023, net cash of $24.04 million was used in financing activities due primarily to cash dividends paid of $97.27 million and cash paid of $10.25 million to redeem subordinated debt partially offset by growth in deposits of $67.25 million and an increase in securities sold under agreements to repurchase of $16.04 million. The net effect of the cash flow activities was an increase in cash and cash equivalents of $515.71 million for the first half of 2023. At June 30, 2023, United had an unused borrowing amount at the FHLB of approximately $6.65 billion subject to delivery of collateral after certain trigger points and $2.39 billion without the delivery of additional collateral. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $230 million, all of which was available at June 30, 2023. United also has a $20 million unsecured, revolving line of credit with an unrelated financial institution to provide for general liquidity needs, all of which was available at June 30, 2023. At June 30, 2023, United’s borrowing capacity for the FRB Discount Window was $2.86 billion. United did not have any borrowings from the FRB’s Discount Window, or its new Bank Term Funding Program, during the first half of 2023. United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. United also has lines of credit available. See Notes 9 and 10 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under lines of credit. The Asset Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset Liability Committee. United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 15.06% at June 30, 2023 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.83%, 12.83% and 10.99%, respectively. The June 30, 2023 ratios reflects United’s election of a five-year transition provision, allowed by the Federal Reserve Board and other federal banking agencies in response to the COVID-19 pandemic, to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%. Total shareholders’ equity was $4.64 billion at June 30, 2023, which was an increase of $120.85 million or 2.68% from December 31, 2022. This increase is primarily due to increases of $93.42 million in retained earnings (net income less dividends declared) and $22.05 million in accumulated other comprehensive income due mainly to an after-tax increase in the fair value of available for sale securities. United’s equity to assets ratio was 15.62% at June 30, 2023 as compared to 15.31% at December 31, 2022. The primary capital ratio, capital and reserves to total assets and reserves, was 16.45% at June 30, 2023 as compared to 16.11% at December 31, 2022. United’s average equity to average asset ratio was 15.83% for the second quarter of 2023 as compared to 15.88% the second quarter of 2022. United’s average equity to average asset ratio was 15.66% for the first half of 2023 as compared to 16.05% for the first half of 2022. All of these financial measurements reflect a financially sound position. During the second quarter of 2023, United’s Board of Directors declared a cash dividend of $0.36 per share. Cash dividends were $0.72 per common share for the first six months of 2023. Total cash dividends declared were $48.63 million for the second quarter of 2023 and $97.35 million for the first six months of 2023 as compared to $48.54 million for the second quarter of 2022 and $97.81 million for the first six months of 2022. 77 Table of Contents