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Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2023-11-09 · 249 added, 396 removed, 259 unchanged (71% of the section changed)

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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.

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.

Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect.

Therefore, undue reliance should not be placed upon these estimates and statements.

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RECENT DEVELOPMENTS

United Bank (the “Bank”), the wholly-owned bank subsidiary of United, recently received a Community Reinvestment Act (“CRA”) Performance Evaluation from the Federal Reserve Bank of Richmond (the “FRB”) with a rating of “Satisfactory.” The individual components of the CRA exam were a “High Satisfactory” rating for the Lending Test, an “Outstanding” rating for the Investment Test and a “High Satisfactory” rating for the Service Test.

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)

As disclosed in the “Transition From The London Interbank Offered Rate (LIBOR)” section within the MD&A of United’s 2022 Annual Report on Form 10-K, as a result of the efforts led by the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, the publication of the one-week and two-month U.S.

Dollar LIBOR settings were discontinued on December 31, 2021.

Subsequently, publication of the remaining overnight, one-month, three-month, six-month, and twelve-month U.S.

Dollar LIBOR settings were discontinued on June 30, 2023.

United implemented a comprehensive project plan to execute the transition of its LIBOR-based financial instruments to alternative reference rates.

United utilized the Secured Overnight Financing Rate (“SOFR”) and Prime as the preferred alternatives to LIBOR.

During the first quarter of 2024, United consolidated its mortgage delivery channels by consolidating George Mason’s and Crescent’s mortgage origination and sales business with United Bank.

United had previously exited the third-party origination (“TPO”) business during the fourth quarter of 2023 as part of this consolidation.

United continues to offer mortgage products through its bank mortgage channel with previous George Mason offices re-branded under the United umbrella.

The consolidation streamlined operations and will enhance the customer experience.

Based on this consolidation of its mortgage delivery channels and an analysis performed at March 31, 2024 in accordance with ASC 280, “Segment Reporting,” United has concluded that it operates only in one reportable segment – community banking.

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.

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and its wholly-owned subsidiaries, unless otherwise indicated.

Management has evaluated all significant events and transactions that occurred after September 30, 2023, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements.

Management has evaluated all significant events and transactions that occurred after March 31, 2024, 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.

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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.

These estimates, assumptions and judgments, which are reviewed with the Audit Committee of the Board, are based on information available as of the date of the financial statements.

Actual results could differ from these estimates.

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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 September 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.”

United’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2024 were unchanged from the policies disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2023 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

FINANCIAL CONDITION

United’s total assets as of September 30, 2023 were $29.22 billion, which was a decrease of $264.59 million or less than 1% from December 31, 2022.

This decrease was mainly due to a $806.31 million or 16.55% decrease in investment securities and a $16.41 million or 78.04% decrease in mortgage servicing rights.

These decreases in assets were offset by a $539.72 million or 2.63% increase in portfolio loans, an $11.88 million or 12.52% increase in interest receivable, a $2.74 million or 4.81% increase in loans held for sale and a $7.40 million or less than 1% increase in cash and cash equivalents.

Total liabilities decreased $397.27 million or 1.59% from year-end 2022.

This decrease was due to a $781.31 million or 33.13% decrease in borrowings.

Partially offsetting this decrease in liabilities was a $373.69 million or 1.68% increase in deposits and a $8.82 million or 11.64% increase in operating lease liability.

Shareholders’ equity increased $132.69 million or 2.94%.

United’s total assets as of March 31, 2024 were $30.03 billion, which was an increase of $102.32 million or less than 1% from December 31, 2023.

This increase was mainly due to an increase of $133.70 million or 8.36% in cash and cash equivalents and an increase of $160.99 million or less than 1% in portfolio loans.

These increases in assets were partly offset by a $171.24 million or 4.15% decrease in investment securities, an $11.84 million or 21.04% decrease in loans held for sale, and a $10.98 million or 3.97% decrease in other assets.

Total liabilities increased $66.12 million or less than 1% from year-end 2023.

Deposits increased $100.43 million or less than 1% and accrued expenses and other liabilities increased $6.14 million or 2.88%, which were partially offset by a $38.04 million or 1.92% decrease in borrowings.

Shareholders’ equity increased $36.20 million or less than 1%.

The following discussion explains in more detail the changes in financial condition by major category.

Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2023 increased $7.40 million or less than 1% from year-end 2022.

In particular, interest-bearing deposits with other banks increased $31.98 million or 3.63% while cash and due from banks decreased $24.65 million or 8.38%.

Cash and cash equivalents at March 31, 2024 increased $133.70 million or 8.36% from year-end 2023.

In particular, interest-bearing deposits with other banks increased $152.69 million or 11.39% as United placed more cash in an interest-bearing account with the Federal Reserve while cash and due from banks decreased $19.01 million or 7.39%.

Federal funds sold increased $16 thousand or 1.37%.

During the first nine months of 2023, net cash of $272.66 million and $288.62 million were provided by operating and investing activities, respectively, while net cash of $553.88 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 nine months of 2023 and 2022.

Total investment securities at September 30, 2023 decreased $806.31 million or 16.55%.

During the first three months of 2024, net cash of $124.37 million and $11.77 million were provided by operating and financing activities, respectively, while net cash of $2.43 million was used in investing activities.

See the unaudited Consolidated Statements of Cash Flows for data on cash and cash equivalents provided and used in operating, investing and financing activities for the first three months of 2024 and 2023.

Total investment securities at March 31, 2024 decreased $171.24 million or 4.15%.

Securities available for sale decreased $172.40 million or 4.55%.

This change in securities available for sale reflects $248.05 million in purchases, $416.41 million in sales, maturities and calls of securities, and a decrease of $3.12 million in market value.

The majority of the sales activity was related to state and political subdivision securities.

Equity securities were $8.55 million at September 30, 2023, an increase of $919 thousand or 12.05% due mainly to net purchases.

Other investment securities decreased $14.66 million or 4.55% from year-end 2022 due to a $25.17 million decrease in FHLB stock partially offset by a $9.68 million increase in investment tax credits.

The majority of the purchase activity was related to obligations of U.S.

Government corporations and agencies.

Equity securities were $8.76 million at March 31, 2024, a decrease of $183 thousand or 2.05% due mainly to a net decrease in fair value.

Other investment securities were relatively flat from year-end 2023, increasing $1.35 million or less than 1% due to net purchases of investment tax credits.

The following table summarizes the changes in the available for sale securities since year-end 2023:

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net of allowance for credit losses of $19 thousand.

At September 30, 2023, gross unrealized losses on available for sale securities were $492.63 million.

Securities with the most significant gross unrealized losses at September 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 September 30, 2023, United’s available for sale mortgage-backed securities had an amortized cost of $1.87 billion, with an estimated fair value of $1.57 billion.

net of allowance for credit losses of $17 thousand.

At March 31, 2024, gross unrealized losses on available for sale securities were $366.79 million.

Securities with the most significant gross unrealized losses at March 31, 2024 consisted primarily of agency residential mortgage-backed securities, state and political subdivision securities, agency commercial mortgage-backed securities and corporate securities.

As of March 31, 2024, United’s available for sale mortgage-backed securities had an amortized cost of $1.78 billion, with an estimated fair value of $1.54 billion.

The portfolio consisted primarily of $1.18 billion in agency residential mortgage-backed securities with a fair value of $1.01 billion, $83.70 million in non-agency residential mortgage-backed securities with an estimated fair value of $75.30 million, and $507.89 million in commercial agency mortgage-backed securities with an estimated fair value of $453.71 million.

As of September 30, 2023, United’s available for sale state and political subdivisions securities had an amortized cost of $615.84 million, with an estimated fair value of $499.16 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 September 30, 2023.

As of September 30, 2023, United’s available for sale corporate securities had an amortized cost of $1.26 billion, with an estimated fair value of $1.20 billion.

As of March 31, 2024, United’s available for sale state and political subdivisions securities had an amortized cost of $611.24 million, with an estimated fair value of $528.30 million.

As of March 31, 2024, United’s available for sale corporate securities had an amortized cost of $1.15 billion, with an estimated fair value of $1.12 billion.

The portfolio consisted of $16.39 million in single issue trust preferred securities with an estimated fair value of $15.33 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 $837.06 million and a fair value of $830.93 million and other corporate securities, with an amortized cost of $301.20 million and a fair value of $269.42 million.

United’s available for sale single issue trust preferred securities had a fair value of $15.33 million as of March 31, 2024.

Of the $15.33 million, $7.11 million or 46.36% were investment grade;

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All single issue trust preferred securities are currently receiving full scheduled principal and interest payments.

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 $888.96 million and a fair value of $875.73 million and other corporate securities, with an amortized cost of $354.39 million and a fair value of $312.28 million.

During the third 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 September 30, 2023 is impaired.

During the first quarter of 2024, United did not recognize any credit losses on its available for sale investment securities.

Management does not believe that any individual security with an unrealized loss as of March 31, 2024 is impaired.

United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not a deterioration of credit.

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United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature.

As of September 30, 2023, there was no allowance for credit losses related to the Company’s available for sale securities.

As of March 31, 2024, 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.

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Loans Held for Sale

Loans held for sale were $59.61 million at September 30, 2023, an increase of $2.74 million or 4.81% from year-end 2022.

Loan originations in the secondary market exceeded sales during the first nine months of 2023.

Loan originations for the first nine months of 2023 were $635.58 million while loans sales were $632.85 million.

Loans held for sale were $44.43 million at March 31, 2024, a decrease of $11.84 million or 21.04% from year-end 2023.

Loan sales in the secondary market exceeded originations during the first three months of 2024.

Loan originations for the first three months of 2024 were $176.91 million while loans sales were $188.74 million.

Portfolio Loans

Loans, net of unearned income, increased $539.72 million or 2.63%.

Since year-end 2022, commercial, financial and agricultural loans increased $228.95 million or 1.97% as a result of a $314.20 million or 3.92% increase in commercial real estate loans which was partially offset by a $85.25 million or 2.36% decrease in commercial loans (not secured by real estate).

Construction and land development loans increased $177.71 million or 6.07% and residential real estate loans increased $353.92 million or 7.59%, while consumer loans decreased $225.77 million or 16.53% due to a decrease in indirect automobile financing.

Loans, net of unearned income, increased $160.99 million or less than 1%.

Since year-end 2023, commercial, financial and agricultural loans increased $285.82 million or 2.40% as a result of a $318.44 million or 3.83% increase in commercial real estate loans, which was partially offset by a $32.61 million or less than 1% decrease in commercial loans (not secured by real estate).

Construction and land development loans decreased $150.57 million or 4.78%, residential real estate loans increased $95.15 million or 1.81%, and consumer loans decreased $71.02 million or 6.67% due to a decrease in indirect automobile financing.

The following table summarizes the changes in the major loan classes since year-end 2023:

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Other consumer

Total Loans and leases

Total gross loans

Unearned income

Total Loans and leases, net of unearned income

Total Loans, net of unearned income

For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements.

Other assets increased $9.71 million or 3.19% from year-end 2022.

Income taxes receivable increased $13.78 million due to timing differences, other real estate owned properties (“OREO”) increased $1.18 million and the pension asset increased $2.13 million.

In addition, deferred tax assets increased $2.79 million due to the decrease in the fair value of available-for-sale securities, while derivative assets increased $2.43 million due to a net increase in fair value.

Partially offsetting these increases were decreases in dealer reserve of $7.59 million due to a decrease in indirect automobile financing and core deposit intangibles of $3.84 million due to amortization.

Other assets decreased $10.98 million or 3.97% from year-end 2023.

Income tax receivable decreased $9.42 million due to timing differences, accounts receivable decreased $1.54 million, and dealer reserve decreased $2.09 million due to a decrease in indirect automobile financing.

In addition, core deposit intangibles decreased $910 thousand due to amortization.

Partially offsetting these decreases was an increase of $1.68 million in other prepaid assets, a $986 thousand increase in deferred tax assets, and a $208 thousand increase in derivative assets due to an increase in fair value.

Deposits represent United’s primary source of funding.

Total deposits at September 30, 2023 increased $373.69 million or 1.68%.

In terms of composition, noninterest-bearing deposits decreased $946.34 million or 13.14% while interest-bearing deposits increased $1.32 billion or 8.74% from December 31, 2022.

Total deposits at March 31, 2024 increased $100.43 million or less than 1%.

In terms of composition, noninterest-bearing deposits decreased $131.73 million or 2.14% while interest-bearing deposits increased $232.16 million or 1.39% from December 31, 2023.

Noninterest-bearing deposits consist of demand deposit and noninterest bearing money market (“MMDA”) account balances.

The $946.34 million decrease in noninterest-bearing deposits was due mainly to a $751.66 million or 13.90% decrease in commercial noninterest-bearing deposits, a $131.56 million or 8.81% decrease in personal noninterest-bearing deposits, and a $3.04 million or 1.60% decrease in public noninterest-bearing deposits.

Interest-bearing deposits consist of interest-bearing transaction accounts, regular savings, interest-bearing MMDA, and time deposit account balances.

Interest-bearing transaction accounts increased $228.51 million or 4.47% since year-end 2022 as the result of an increase of $712.49 million in commercial interest-bearing transaction accounts and an increase of $17.09 million in public funds interest-bearing transaction accounts.

These increases were offset by a $501.07 million decrease in personal interest-bearing transaction accounts.

The $131.73 million decrease in noninterest-bearing deposits was due mainly to a $99.65 million or 2.22% decrease in commercial noninterest-bearing deposits and a $32.30 million or 54.40% decrease in official checks.

In addition, items in-process decreased $34.53 million.

Partially offsetting these decreases in noninterest-bearing deposits was an increase in public noninterest-bearing deposits of $25.59 million or 16.24% and an increase in personal noninterest-bearing deposits of $7.96 million or less than 1%.

Interest-bearing deposits consist of interest-bearing transaction, regular savings, interest-bearing MMDA, and time deposit account balances.

Interest-bearing transaction accounts decreased $145.62 million or 2.58% since year-end 2023 as the result of decreases of $57.60 million in personal interest-bearing transaction accounts, $81.28 million in commercial interest-bearing transaction accounts, and $6.74 million in public funds interest-bearing transaction accounts.

Regular savings accounts decreased $22.71 million or 1.69% mainly as a result of a $14.63 million decrease in personal savings accounts and a $9.86 million decrease in commercial savings accounts.

Interest-bearing MMDAs increased $265.66 million or 4.18%.

In particular, personal interest-bearing MMDAs decreased $349.43 million while commercial interest-bearing MMDAs increased $412.53 million.

Public funds interest-bearing MMDAs increased $22.22 million.

In particular, personal MMDAs increased $69.61 million while commercial MMDAs and public funds MMDAs increased $175.05 million and $21.00 million, respectively.

Time deposits under $100,000 increased $41.49 million or 3.89% from year-end 2023.

This increase in time deposits under $100,000 was the result of a $199.58 million increase in fixed rate Certificates of Deposits (“CDs”) under $100,000, and a $3.09 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 $4.14 million.

Since year-end 2022, time deposits over $100,000 increased $1.09 billion or 93.94% as brokered certificates of deposits increased $332.38 million, fixed rate CDs increased $681.82 million, and CDARS over $100,000 increased $81.18 million.

This increase in time deposits under $100,000 was the result of a $45.06 million increase in fixed rate Certificates of Deposits (“CDs”) under $100,000.

Partially offsetting this increase in deposits under $100,000 was a $3.36 million decrease in CDs under $100,000 obtained through the use of deposit listing services.

Since year-end 2023, time deposits over $100,000 increased $93.34 million or 4.13% as fixed rate CDs increased $109.62 million.

Partially offsetting this increase in time deposits over $100,000, were decreases of $5.49 million in CDARS over $100,000, $4.36 million in brokered CDs, and $5.71 million in public funds CDs over $100,000.

The table below summarizes the changes by deposit category since year-end 2023:

(Dollars in thousands)

Noninterest-bearing accounts

Interest-bearing transaction accounts

Demand deposits

Interest-bearing checking

Regular savings

Interest-bearing money market accounts

Money market accounts

Time deposits under $100,000

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Total deposits

Includes time deposits of $250,000 or more of $798,942 and $454,477 at September 30, 2023 and December 31, 2022, respectively.

Total borrowings at September 30, 2023 decreased $781.31 million or 33.13% since year-end 2022.

During the first nine months of 2023, short-term borrowings increased $27.58 million or 17.16% due to an increase in securities sold under agreements to repurchase.

Long-term borrowings decreased $808.89 million or 36.81% from year-end 2022 due to net repayments of $800.22 million in long-term FHLB advances and the redemption of $9.89 million in subordinated debt during the first nine months of 2023.

Includes time deposits of $250,000 or more of $905,829 and $842,118 at March 31, 2024 and December 31, 2023, respectively.

Total borrowings at March 31, 2024 decreased $38.04 million or 1.92% since year-end 2023.

During the first three months of 2024, short-term borrowings increased $11.63 million or 5.93% due to an increase in securities sold under agreements to repurchase.

Long-term borrowings decreased $49.67 million or 2.78% from year-end 2023 due to maturities of advances obtained from the FHLB during the first quarter of 2024.

The table below summarizes the change in the borrowing categories since year-end 2023:

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Long-term FHLB advances

Subordinated debt

Issuances of trust preferred capital securities

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Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at September 30, 2023 increased $3.95 million or 2.08% from year-end 2022.

In particular, interest payable increased $11.63 million due to an increase in CDs and brokered deposits as well as rising interest rates, and mortgage escrow liabilities increased $7.48 million due to a growth in mortgage loans since year-end 2022.

Mostly offsetting these increases was a decrease of $4.95 million in incentives payable due to payments and decreases of $2.72 million and $1.73 million in income tax payable and business franchise taxes, respectively, due to timing differences.

Accrued expenses and other liabilities at March 31, 2024 increased $6.14 million or 2.88% from year-end 2023.

In particular, income taxes payable increased $12.44 million due to timing differences, business franchise taxes increased $2.60 million, and accrued loan expenses increased $7.44 million.

In addition, interest payable increased $534 thousand due to an increase in CDs.

Partially offsetting these increases was a decrease of $11.52 million in incentives payable due to payments.

Shareholders’ Equity

Shareholders’ equity at September 30, 2023 was $4.65 billion, which was an increase of $132.69 million or 2.94% from year-end 2022.

Shareholders’ equity at March 31, 2024 was $4.81 billion, which was an increase of $36.20 million or less than 1% from year-end 2023.

Retained earnings increased $36.60 million or 2.10% from year-end 2023.

Earnings net of dividends for the first nine months of 2023 were $140.87 million.

Accumulated other comprehensive income decreased $16.72 million or 5.03% from year-end 2022 due to a decrease of $17.46 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes.

In addition, the fair value of cash flow hedges, net of deferred income taxes decreased $1.07 million.

The after-tax amortization of the pension net actuarial loss was $1.81 million for the first nine months of 2023.

Earnings net of dividends for the first three months of 2024 were $36.60 million.

Accumulated other comprehensive income decreased $1.31 million or less than 1% from year-end 2023 due to a decrease of $2.39 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes.

Partially offsetting this decrease was a $657 thousand increase in the fair value of cash flow hedges, net of deferred income taxes.

The after-tax accretion of pension costs was $424 thousand for the first quarter of 2024.

RESULTS OF OPERATIONS

Below is a summary of United’s consolidated results of operations for the time periods presented:

The following table sets forth certain consolidated income statement information of United:

Three Months Ended

Nine Months Ended

(Dollars in thousands except per share amounts)

(Dollars in thousands)

Income Statement Summary:

Interest income

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Provision for credit losses

Noninterest income

Noninterest expense

Other expense

Income before income taxes

Net income for the third quarter of 2023 was $96.16 million or $0.71 per diluted share, as compared to $102.59 million or $0.76 per diluted share for the prior year third quarter.

Net income for the second quarter of 2023 was $92.46 million or $0.68 per diluted share.

Net income for the first nine months of 2023 was $286.92 million or $2.12 per diluted share compared to $279.86 million or $2.06 per diluted share for the first nine months of 2022.

For the third quarter of 2023, United’s annualized return on average assets was 1.31% and return on average shareholders’ equity was 8.14% as compared to 1.41% and 8.96% for the third quarter of 2022.

United’s annualized return on average assets was 1.26% and return on average shareholders’ equity was 7.96% for the second quarter of 2023.

United’s annualized return on average assets for the first nine months of 2023 was 1.31% and return on average shareholders’ equity was 8.27% as compared to 1.29% and 8.07% for the first nine months of 2022.

For the third quarter and first nine months of 2023, United’s annualized return on average tangible equity was 13.71% and 14.03%, respectively, as compared to 15.46% and 13.73% for the third quarter and first nine months of 2022, respectively.

United’s annualized return on average tangible equity was 13.47% for the second quarter of 2023.

Net income for the first quarter of 2024 was $86.81 million as compared to earnings of $98.31 million for the first quarter of 2023.

Earnings for the first quarter of 2024, as compared to the first quarter of 2023, decreased primarily due to lower net interest income as a result of the impact of higher market interest rates on interest-bearing liabilities.

Diluted earnings per share were $0.64 for the first quarter of 2024 and $0.73 for the first quarter of 2023.

On a linked-quarter basis, net income for the fourth quarter of 2023 was $79.39 million or $0.59 per diluted share.

The fourth quarter of 2023 included $11.99 million of noninterest expense for the FDIC special assessment levied on banking organizations as compared to an additional $1.81 million of noninterest expense for the first quarter of 2024 related to the FDIC’s revised loss estimates to the Deposit Insurance Fund.

United’s annualized return on average assets for the first three months of 2024 was 1.19% and return on average shareholders’ equity was 7.25% as compared to 1.35% and 8.72%, respectively, for the first three months of 2023.

On a linked-quarter basis, United’s annualized return on average assets for the fourth quarter of 2024 was 1.08% and return on average shareholders’ equity was 6.70%.

For the first three months of 2024, United’s annualized return on average tangible equity, a non-GAAP measure, was 11.98%, as compared to 14.97% for the first three months of 2023.

On a linked-quarter basis, United’s annualized return on average tangible equity was 11.27% for the fourth quarter of 2023.

Three Months Ended

Nine Months Ended

(Dollars in thousands)

September 30,

Return on Average Tangible Equity:

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Return on Average Tangible Equity (non-GAAP)

[(a) / (b)] x 365/ (c)

Net interest income for the third quarter of 2023 was $228.45 million, which was a decrease of $12.17 million, or 5.06%, from the third quarter of 2022.

The decrease of $12.17 million in net interest income occurred because total interest income increased $93.23 million while total interest expense increased $105.40 million from the third quarter of 2022.

Net interest income for the first nine months of 2023 was $690.23 million, an increase of $43.21 million or 6.68% from the first nine months of 2022.

The increase of $43.21 million in net interest income occurred because total interest income increased $337.90 million while total interest expense increased $294.69 million from the first nine months of 2022.

Generally, interest income increased in 2023 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 while interest expense increased mainly due to higher funding costs as a result of the rising market interest rates on higher interest-bearing balances.

Net interest income for the third quarter of 2023 was relatively flat from the second quarter of 2023, increasing $992 thousand or less than 1%.

The slight increase of $992 thousand in net interest income occurred because total interest income increased $10.98 million while total interest expense increased $9.99 million from the second quarter of 2023.

The provision for credit losses was $5.95 million and $24.28 million for the third quarter and first nine months of 2023, respectively, while the provision for credit losses was $7.67 million and $2.45 million for the third quarter and first nine months of 2022.

The lower amount of provision expense for the third quarter of 2023 as compared to the third quarter of 2022 was mainly due to the impact of reasonable and supportable forecasts of future macroeconomic conditions.

The higher amount of provision expense for the first nine months of 2023 as compared to the first nine months of 2022 was mainly due to an increase in qualitative adjustments and the impact of reasonable and supportable forecasts of future macroeconomic conditions.

The provision for credit losses was $11.44 million for the second quarter of 2023.

The lower amount of provision expense for the third quarter of 2023 as compared to the second quarter of 2023 was mainly due to a decrease in qualitative adjustments and the impact of reasonable and supportable forecasts of future macroeconomic conditions, partially offset by additional provision expense due to loan growth.

For the third quarter of 2023, noninterest income was $33.66 million, which was an increase of $912 thousand or 2.78% from the third quarter of 2022.

This increase was primarily due to increases in income from mortgage banking activities and income from bank-owned life insurance (“BOLI”) partially offset by a decrease in mortgage loan servicing income.

Noninterest income for the first nine months of 2023 was $101.58 million which was a decrease of $20.80 million or 17.00% from the first nine months of 2022.

These decreases in noninterest income were due mainly to lower income from mortgage banking activities as well as net losses on the sales of securities partially offset by an increase in mortgage loans servicing income mainly driven by the gain on sale of mortgage servicing rights (“MSRs”) in 2023.

Noninterest income for the third quarter of 2023 decreased $1.52 million, or 4.31%, from the second quarter of 2023.

This decrease in noninterest income for the linked-quarter was primarily due to a net gain on the sale of MSRs in the second quarter of 2023.

For the third quarter of 2023, noninterest expense decreased $1.97 million or 1.43% from the third quarter of 2022 primarily due to decreases in other real estate owned (“OREO”) expense, mortgage loan servicing expense and certain general operating expenses within other noninterest expenses partially offset by increases in employee benefits and Federal Deposit Insurance Corporation (“FDIC”) insurance expense.

For the first nine months of 2023, noninterest expense decreased $9.61 million or 2.30% from the first nine months of 2022 driven by decreases in employee compensation and in the expense for the reserve for unfunded loan commitments partially offset by increases in FDIC insurance expense and certain general operating expenses within other noninterest expense.

Noninterest expense for the third quarter of 2023 was flat from the second quarter of 2023, decreasing $58 thousand or less than 1% due mainly to a decrease in the expense for reserve for unfunded loan commitments partially offset by higher amounts of certain general operating expenses within other noninterest expense.

Income taxes for the third quarter of 2023 were $24.78 million as compared to $25.92 million for the third quarter of 2022.

Income tax expense was $23.45 million for the second quarter of 2023.

For the first nine months of 2023 and 2022, income tax expense was $72.68 million and $69.55 million, respectively.

For the quarters ended September 30, 2023 and June 30, 2023, United’s effective tax rate was 20.49% and 20.23%, respectively.

For the quarter ended September 30, 2022, United’s effective tax rate was 20.17%.

The effective tax rate for the first nine months of 2023 and 2022 was 20.21% and 19.90%, respectively.

Business Segments

United operates in two business segments:

community banking and mortgage banking.

Community Banking

Net income attributable to the community banking segment for the third quarter of 2023 was $101.52 million compared to net income of $108.66 million for the third quarter of 2022.

The lower net income within the community banking segment for the third quarter of 2023 was due primarily to a decrease in net interest income due to net interest margin compression.

Net income attributable to the community banking segment for the first nine months of 2023 was $298.10 million compared to net income of $288.83 million for the first nine months of 2022.

The higher net income within the community banking segment for the first nine months of 2023 was due primarily to increased net interest income due to higher interest rates.

On a linked quarter basis, net income attributable to the community banking segment for the third quarter of 2023 increased $9.62 million from the second quarter of 2023 primarily due to a decrease in the provision for credit losses and higher noninterest income.

Net interest income of $230.34 million for the third quarter of 2023 was a decrease of $9.20 million or 3.84% from $239.54 million for the third quarter of 2022.

The decrease was mainly due to net interest margin compression as funding costs rose faster than the average yield on earning assets.

Net interest income increased $55.09 million to $695.91 million for the first nine months of 2023, compared to $640.82 million for the same period of 2022.

Generally, net interest income for the first nine months of 2023 increased from the first nine months of 2022 due mainly 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.

On a linked quarter basis, net interest income for the third quarter of 2023 increased $1.03 million from the second quarter of 2023 primarily due to the impact of rising market interest rates on earning assets, a change in the asset mix to higher earning assets and lower average balances of long-term borrowings.

The provision for credit losses was $5.95 million for the three months ended September 30, 2023 compared to a provision for credit losses of $7.67 million for the three months ended September 30, 2022.

The decrease in the provision for credit losses was mainly due to an improvement in the reasonable and supportable forecasts of future macroeconomic conditions.

The provision for credit losses was $24.28 million for the nine months ended September 30, 2023, compared to a provision for credit losses of $2.45 million for the nine months ended September 30, 2022.

The increase in the provision for credit losses was mainly due to a change in qualitative factors and loan growth.

The provision for credit losses was $11.44 million for the second quarter of 2023.

Noninterest income increased $806 thousand for the third quarter of 2023 to $24.58 million as compared to $23.78 million for the third quarter of 2022 primarily due to an increase in the income from BOLI.

Noninterest income for the first nine months of 2023 decreased $9.21 million to $66.37 million for the first nine months of 2023 as compared to $75.58 million for the first nine months of 2022.

This decrease from the first nine months of 2022 was 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 third quarter of 2023 increased $6.97 million from the second quarter of 2023 due to a net loss of $7.24 million on the sale of AFS investment securities in the second quarter of 2023.

Noninterest expense was $121.32 million for the third quarter of 2023, compared to $119.57 million for the same period of 2022.

Noninterest expense was $364.38 million for the nine months ended September 30, 2023, compared to $353.36 million for the same period of 2022.

These increases in noninterest expense for the first nine months of 2023 were primarily attributable to an increase in FDIC expense due to a higher assessment rate.

On a linked quarter basis, noninterest expense for the third quarter of 2023 increased $1.04 million from the second quarter of 2023 due mainly to a lower expense for the reserve for unfunded loan commitments within other expense.

Mortgage Banking

The mortgage banking segment reported a net loss of $549 thousand and net income of $2.90 million for the third quarter and the first nine months of 2023, respectively, as compared to net losses of $3.34 million and $4.28 million for the third quarter and the first nine months of 2022.

The mortgage banking segment reported a net income of $5.13 million for the second 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 $10.87 million for the third quarter of 2023 as compared to $13.75 million for the third quarter of 2022.

Noninterest income for the first nine months of 2023 was $41.68 million as compared to $58.61 million for the first nine months 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 third quarter of 2023 decreased $9.08 million from the second quarter of 2023.

This decrease 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 as well as decreased sales of mortgage loans in the secondary market.

Noninterest expense was $14.12 million for the third quarter of 2023, a decrease of $6.54 million from $20.66 million for the third quarter of 2022.

Noninterest expense for the first nine months of 2023 was $44.91 million, a decrease of $26.98 million from the first nine months of 2022.

Noninterest expense consists mainly of salaries, commissions and benefits of mortgage segment employees.

On a linked quarter basis, noninterest expense for the third quarter of 2023 decreased $1.59 million from the second quarter of 2023.

The decreases mentioned above were due mainly to lower employee commissions and incentives related to the decreased mortgage banking production.

Return on Average Tangible Equity (non-GAAP)\ [(a) / (b)] x 366 or 365 / (c)]

Net interest income for the first quarter of 2024 decreased $11.83 million, or 5.05%, to $222.49 million from net interest income of $234.32 million for the first three months of 2023.

The decrease of $11.83 million in net interest income occurred because total interest income increased $39.88 million while total interest expense increased $51.71 million from the first quarter of 2023.

Net interest income for the first quarter of 2024 decreased $7.20 million, or 3.14%, from the fourth quarter of 2023.

The decrease of $7.20 million in net interest income occurred because total interest income increased $5 thousand while total interest expense increased $7.21 million from the fourth quarter of 2023.

The provision for credit losses was $5.74 million for the first quarter of 2024 as compared to a provision for credit losses of $6.89 million for the first quarter of 2023.

The decrease 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.

On a linked-quarter basis, the provision for credit losses for the first quarter of 2024 declined $1.14 million from $6.88 million for the fourth quarter of 2023 due mainly to less portfolio loan growth as well as a change in the impact of reasonable and supportable forecasts of future macroeconomic conditions in the first quarter of 2024 as compared to the fourth quarter of 2023.

Noninterest income was $32.21 million for the first three months of 2024, a decrease of $532 thousand or 1.62% from the first three months of 2023 due mainly to a decrease in mortgage loan servicing income of $1.49 million partially offset by increased fees of $1.07 million from brokerage services.

On a linked-quarter basis, noninterest income for the first quarter of 2024 decreased $1.46 million, or 4.34%, from the fourth quarter of 2023.

The fourth quarter of 2023 included a $2.66 million gain from the payoff of a fixed rate commercial loan that had an associated interest rate swap derivative.

Partially offsetting the decrease in noninterest income was a $907 thousand increase in fees from brokerage services.

Noninterest expense for the first quarter of 2024 was $140.74 million, an increase of $3.32 million or 2.42% from the first quarter of 2023 primarily due to increases in employee compensation and FDIC insurance expense partially offset by a decrease in other noninterest expense.

On a linked-quarter basis, noninterest expense for the first quarter of 2024 decreased $11.55 million or 7.58% from the fourth quarter of 2023.

This decrease in noninterest expense was driven by decreases in FDIC insurance expense and other noninterest expense partially offset by an increase in employee benefits.

Income taxes decreased $3.04 million or 12.45% for the first three months of 2024 as compared to the first three months of 2023 primarily due to decreased earnings and a slightly lower effective tax rate.

On a linked-quarter basis, income taxes decreased $3.41 million or 13.73% for the first quarter of 2024 as compared to the fourth quarter of 2023 due mainly to a lower effective tax rate partially offset by higher earnings.

The effective tax rate was 19.78% and 19.92% and for the first quarter of 2024 and 2023, respectively.

The effective tax rate was 23.81% for the fourth quarter of 2023.

The following discussion explains in more detail the consolidated results of operations by major category.

4 unchanged sentences

Such changes, and their impact on net interest income in 2024 and 2023, are presented below.

Net interest income for the third quarter of 2023 was $228.45 million, which was a decrease of $12.17 million or 5.06% from the third quarter of 2022.

The $12.17 million decrease in net interest income occurred because total interest income increased $93.23 million while total interest expense increased $105.40 million from the third quarter of 2022.

Net interest income for the first nine months of 2023 was $690.23 million, which was an increase of $43.21 million or 6.68% from the first nine months of 2022.

The $43.21 million increase in net interest income occurred because total interest income increased $337.90 million while total interest expense increased $294.69 million from the first nine months of 2022.

On a linked-quarter basis, net interest income for the third quarter of 2023 was flat from the second quarter of 2023, increasing $992 thousand or less than 1%.

The $992 thousand increase in net interest income occurred because total interest income increased $10.98 million while total interest expense increased $9.99 million from the second quarter of 2023.

Net interest income for the first quarter of 2024 was $222.49 million, which was a decrease of $11.83 million or 5.05% from the first quarter of 2023.

The $11.83 million decrease in net interest income occurred because total interest income increased $39.88 million while total interest expense increased $51.71 million from the first quarter of 2023.

On a linked-quarter basis, net interest income for the first quarter of 2024 decreased $7.20 million, or 3.14%, from the fourth quarter of 2023.

The $7.20 million decrease in net interest income occurred because total interest income increased $5 thousand while total interest expense increased $7.21 million from the fourth 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.

2 unchanged sentences

United uses this measure to monitor net interest income performance and to manage its balance sheet composition.

Tax-equivalent net interest income for the third quarter of 2023 was $229.32 million, an increase of $12.41 million or 5.13% from the third quarter of 2022.

The decrease in tax-equivalent net interest income was primarily due to higher interest expense driven by deposit rate repricing, higher average balances and cost of long-term borrowings, lower acquired loan accretion income and lower income from Paycheck Protection Program (“PPP”) loan fees.

These decreases were partially offset by the impact of rising market interest rates on earning assets, organic loan growth and a change in the asset mix to higher earning assets.

The average cost of funds increased 231 basis points from the third quarter of 2022 to 2.87% primarily due to increases in the yield on average interest-bearing deposits of 224 basis points and in the yield on average long-term borrowings of 227 basis points.

Average long-term borrowings increased $695.82 million from the third quarter of 2022.

Acquired loan accretion income decreased $1.74 million from the third quarter of 2022 to $2.33 million.

Net PPP loan fee income decreased $1.50 million from the third quarter of 2022.

The yield on average earning assets increased 138 basis points from the third quarter of 2022 to 5.52%.

Average earning assets for the third quarter of 2023 increased $329.70 million, or 1.30%, from the third quarter of 2022 due to a $1.28 billion increase in average net loans partially offset by an $882.68 million decrease in average investment securities.

The net interest margin of 3.54% for the third quarter of 2023 was a decrease of 24 basis points from the net interest margin of 3.78% for the third quarter of 2022.

Tax-equivalent net interest income for the first nine months of 2023 was $693.38 million, an increase of $43.04 million or 6.62% from the first nine 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, higher average balances and cost of long-term borrowings, lower income from PPP loan fees and lower acquired loan accretion income.

The yield on average earning assets increased 169 basis points from the first nine months of 2022 to 5.32%.

Average earning assets for the first nine months of 2023 increased $317.29 million, or 1.23%, from the first nine months of 2022 due to a $1.69 billion increase in average net loans partially offset by a $959.90 million decrease in average short-term investments and a $411.08 million decrease in average investment securities.

The average cost of funds increased 218 basis points from the first nine months of 2022 to 2.56% primarily due to increases in the yield on average interest-bearing deposits of 200 basis points and in the yield on average long-term borrowings of 272 basis points.

Average long-term borrowings increased $1.26 billion from the first nine months of 2022.

Net PPP loan fee income decreased $8.85 million from the first nine months of 2022.

Acquired loan accretion income was $8.52 million and $13.60 million for the first nine months of 2023 and 2022, respectively, a decrease of $5.08 million.

The net interest margin of 3.56% for the first nine months of 2023 was an increase of 18 basis points from the net interest margin of 3.38% for the first nine months of 2022.

On a linked-quarter basis, tax-equivalent net interest income for the third quarter of 2023 was relatively flat from the second quarter of 2023, increasing $717 thousand or less than 1%.

Net interest income and tax-equivalent net interest income for the third quarter of 2023 benefited from the impact of rising market interest rates on earning assets, a change in the asset mix to higher earning assets and lower average balances of long-term borrowings.

Partially offsetting the increase in net interest income and tax-equivalent net interest income was higher interest expense primarily driven by the impact of deposit rate repricing and higher average balances of interest-bearing deposits.

The yield on average earning assets increased 19 basis points from the second quarter of 2023 to 5.52%.

Average net loans increased $245.61 million from the second quarter of 2023 and the yield on average net loans and loans held for sale increased 14 basis points to 5.92% for the third quarter of 2023.

Average investment securities decreased $456.79 million from the second quarter of 2023 and average short-term investments decreased $141.85 million from the second quarter of 2023.

Average long-term borrowings decreased $716.72 million from the second quarter of 2023.

The yield on average interest-bearing deposits increased 33 basis points to 2.70% and average interest-bearing deposits increased $473.53 million from the second quarter of 2023.

The net interest margin of 3.54% for the third quarter of 2023 was an increase of 3 basis points from the net interest margin of 3.51% for the second quarter of 2023.

Tax-equivalent net interest income for the first quarter of 2024 was $223.36 million, which was a decrease of $12.09 million or 5.14% 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, an increase in average interest-bearing deposits and a decrease in loan fees partially offset by the impact of rising market interest rates on earning assets, organic loan growth and a decrease in average long-term borrowings.

The average cost of funds increased 104 basis points from the first quarter of 2023 to 3.21% driven by an increase in the yield on average interest-bearing deposits of 127 basis points.

Average interest-bearing deposits increased $1.48 billion or 9.73% from the first quarter of 2023.

Acquired loan accretion income for the first quarter of 2024 decreased $613 thousand from the first quarter of 2023.

Loan fees for the first quarter of 2024 decreased $351 thousand from the first quarter of 2023.

The yield on average earning assets increased 60 basis points from the first quarter of 2023 to 5.70% driven by an increase in the yield on average net loans of 53 basis points.

Average net loans increased $800.47 million, or 3.91%, from the first quarter of 2023.

The net interest margin of 3.44% for the first quarter of 2024 was a decrease of 19 basis points from the net interest margin of 3.63% for the first quarter of 2023.

On a linked-quarter basis, tax-equivalent net interest income for the first quarter of 2024 decreased $7.20 million, or 3.12%, from the fourth quarter of 2023.

The decrease in net interest income and tax-equivalent net interest income was primarily due to higher interest expense driven by the impact of deposit rate repricing and a decrease in loan fees.

The yield on average interest-bearing deposits increased 15 basis points to 3.10% for the first quarter of 2024.

Overall, the average cost of funds for the first quarter of 2024 increased 14 basis points from the fourth quarter of 2023.

In comparison, the yield on average earning assets for the first quarter of 2024 increased 2 basis points from the fourth quarter of 2023.

Loan fees for the first quarter of 2024 decreased $677 thousand from the fourth quarter of 2023.

Acquired loan accretion income for the first quarter of 2024 decreased $521 thousand from the fourth quarter of 2023.

Average earning assets for the first quarter of 2024 were relatively flat from the fourth quarter of 2023, increasing $211.65 million or less than 1%.

Average net loans increased $224.86 million or 1.07% and average short-term investments increased $63.23 million or 7.72% while average investments decreased $76.44 million or 1.90%.

The net interest margin of 3.44% for the first quarter of 2024 was a decrease of 11 basis points from the net interest margin of 3.55% for the fourth 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 September 30, 2023, September 30, 2022 and June 30, 2023 and the nine months ended September 30, 2023 and September 30, 2022:

The following table provides the discount/premium and net accretion impact to tax-equivalent net interest income for the three months ended March 31, 2024, March 31, 2023 and December 31, 2023:

Three Months Ended

3 unchanged sentences

Long-term borrowings

Nine Months Ended

(Dollars in thousands)

Loan accretion

Certificates of deposit

Long-term borrowings

Tax-equivalent net interest income

The following tables reconcile the difference between net interest income and tax-equivalent net interest income for the three months ended September 30, 2023, September 30, 2022 and June 30, 2023 and the nine months ended September 30, 2023 and September 30, 2022.

The following tables reconcile the difference between net interest income and tax-equivalent net interest income for the three months ended March 31, 2024, March 31, 2023 and December 31, 2023.

Three Months Ended

3 unchanged sentences

Tax-equivalent net interest income

Nine Months Ended

(Dollars in thousands)

Net interest income, GAAP basis

Tax-equivalent adjustment (1)

Tax-equivalent net interest income

The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 21% for the three months and nine months ended September 30, 2023 and 2022 and the three months ended June 30, 2023.

The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 21% for the three months ended March 31, 2024 and 2023 and December 31, 2023.

All interest income on loans and investment securities was subject to state income taxes.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended September 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 September 30, 2023 and 2022.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2024 and 2023, respectively, with the interest and rate earned or paid on such amount.

Interest income on all loans and investment securities was subject to state income taxes.

Three Months Ended

September 30, 2023

Three Months Ended

September 30, 2022

March 31, 2024

March 31, 2023

(Dollars in thousands)

5 unchanged sentences

Allowance for loan losses

Net loans (2)(3)

Total earning assets

Interest-Bearing Liabilities:

Interest-Bearing Funds:

Interest-bearing deposits

1 unchanged sentence

Long-term borrowings

Total Interest-Bearing Liabilities

Total Interest-Bearing Funds

Noninterest-bearing deposits

2 unchanged sentences

SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES AND

SHAREHOLDERS’ EQUITY

NET INTEREST INCOME

INTEREST RATE SPREAD

INTEREST SPREAD

NET INTEREST MARGIN

2 unchanged sentences

Loans held for sale and leases are included in the daily average loan amounts outstanding.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended September 30, 2023 and June 30, 2023, respectively, with the interest and rate earned or paid on such amount.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2024 and December 31, 2023, respectively, with the interest and rate earned or paid on such amount.

Interest income on all loans and investment securities was subject to state income taxes.

Three Months Ended

September 30, 2023

March 31, 2024

Three Months Ended

June 30, 2023

December 31, 2023

(Dollars in thousands)

5 unchanged sentences

Allowance for loan losses

Net loans (2)(3)

Total earning assets

Interest-Bearing Liabilities:

Interest-Bearing Funds:

Interest-bearing deposits

1 unchanged sentence

Long-term borrowings

Total Interest-Bearing Liabilities

Total Interest-Bearing Funds

Noninterest-bearing deposits

2 unchanged sentences

SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

NET INTEREST INCOME

INTEREST RATE SPREAD

NET INTEREST MARGIN

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%.

Nonaccruing loans are included in the daily average loan amounts outstanding.

Loans held for sale and leases are included in the daily average loan amounts outstanding.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the nine-month periods ended September 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 nine-month period ended September 30, 2023 and 2022.

Interest income on all loans and investment securities was subject to state income taxes.

Nine Months Ended

September 30, 2023

Nine Months Ended

September 30, 2022

(Dollars in thousands)

Earning Assets:

Federal funds sold and securities repurchased under agreements to resell and other short-term investments

Investment Securities:

Total Securities

Loans, net of unearned income (2)(3)

Allowance for loan losses

Total earning assets

Interest-Bearing Liabilities:

Interest-bearing deposits

Short-term borrowings

Long-term borrowings

Total Interest-Bearing Liabilities

Non-interest bearing deposits

Accrued expenses and other liabilities

TOTAL LIABILITIES

TOTAL LIABILITIES AND

SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

NET INTEREST INCOME

INTEREST RATE SPREAD

INTEREST SPREAD

NET INTEREST MARGIN

3 unchanged sentences

Provision for Credit Losses

The provision for credit losses was $5.95 million and $24.28 million for the third quarter and first nine months of 2023, respectively, as compared to provision for credit losses was $7.67 million and $2.45 million for the third quarter and first nine months of 2022, respectively.

On a linked-quarter basis, the provision for credit losses for the second quarter of 2023 was $11.44 million.

The provision for credit losses was $5.74 million for the first quarter of 2024 as compared to a provision for credit losses of $6.89 million for the first quarter of 2023.

On a linked-quarter basis, the provision for credit losses for the fourth quarter of 2023 was $6.88 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 September 30, 2023, the provision for loan and lease losses was $5.95 million as compared to a provision for loan and lease losses of $7.67 million for the quarter ended September 30, 2022.

The lower amount of provision expense for the third quarter of 2023 compared to the third quarter of 2022 was mainly due to less severe negative implications of the reasonable and supportable forecasts of future macroeconomic conditions in the third quarter of 2023 as compared to the third quarter of 2022.

The provision for loan and lease losses for the first nine months of 2023 was $24.28 million as compared to $2.46 million for the first nine months of 2022.

The higher amount of provision expense for the first nine months of 2023 compared to the first nine months of 2022 was mainly due to an increase in qualitative adjustments pertaining to economic and business conditions, collateral values for dependent loans, loan trends, and the reasonable and supportable forecasts of future macroeconomic conditions.

Net charge-offs were $1.78 million for the third quarter of 2023 as compared to net charge-offs of $1.79 million for the third quarter of 2022.

Net charge-offs for the first nine months of 2023 were $4.14 million as compared to net recoveries of $1.13 million for the first nine months of 2022.

The higher amount of net charge-offs for the first nine months of 2023 as compared to first nine months of 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 second quarter of 2023 was $11.44 million while net charge-offs were $1.21 million.

Annualized net charge-offs as a percentage of average loans and leases, net of unearned income were 0.03% both for the third quarter and first nine months of 2023 compared to net charge-offs (recoveries) as a percentage of average loans and leases, net of unearned income of 0.04% and (0.01%) for the third quarter and first nine months of 2022, respectively.

Annualized net charge-offs as a percentage of average loans and leases, net of unearned income for the second 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 September 30, 2023 and December 31, 2022:

For the quarter ended March 31, 2024, the provision for loan and lease losses was a $5.74 million as compared to a provision for loan and lease losses of $6.89 million for the quarter ended March 31, 2023.

The lower amount of provision expense for the first quarter of 2024 compared to the first quarter of 2023 was mainly due to less credit deterioration expected within the portfolios for 2024 as compared to 2023.

Net charge-offs were $2.07 million for the first quarter of 2024 compared to net charge-offs were $1.14 million for the first quarter of 2023.

The higher amount of net charge-offs for 2024 as compared to 2023 was primarily due to increased charge-offs within the consumer portfolio.

On a linked-quarter basis, the provision for loan and lease losses for the fourth quarter of 2023 was $6.88 million.

The decline of $1.14 million for the first quarter of 2024 from the fourth quarter of 2023 was due mainly to a greater amount of recoveries in the first quarter of 2024 compared to fourth quarter of 2023, primarily in the commercial real estate owner-occupied portfolio and other commercial portfolio.

Net charge-offs were $2.53 million for the fourth quarter of 2023.

Annualized net charge-offs as a percentage of average loans and leases, net of unearned income for the first quarter of 2024 were 0.04% as compared to annualized net charge-offs of 0.02% for the first quarter of 2023 and annualized net charge-offs of 0.05% for the fourth quarter of 2023.

The following table shows a summary of United’s nonperforming assets including nonperforming loans and other real estate owned (“OREO”) at March 31, 2024 and December 31, 2023:

(In thousands)

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Loans past due 90 days of more

Restructured loans (1)

Total nonperforming loans

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Total nonperforming assets

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 September 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.

The increase of $32.13 million in nonaccrual loans from December 31, 2023 to March 31, 2024 was due mainly to the transfer to nonaccrual of one significant commercial lending relationship.

United maintains an allowance for loan and lease losses and a reserve for lending-related commitments.

The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses.

At September 30, 2023, the allowance for credit losses was $298.65 million as compared to $280.94 million at December 31, 2022.

At September 30, 2023, the allowance for loan and lease losses was $254.89 million as compared to $234.75 million at December 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 September 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 596.38% and 400.33% at September 30, 2023 and December 31, 2022, respectively.

The increase in this ratio was due mainly to a decline in nonperforming loans.

At March 31, 2024, the allowance for credit losses was $305.82 million as compared to $303.94 million at December 31, 2023.

At March 31, 2024, the allowance for loan and lease losses was $262.91 million as compared to $259.24 million at December 31, 2023.

The slight increase in the allowance for loan and lease losses was primarily driven by increases in the reserves for the commercial real estate, both owner and non-owner occupied, the residential real estate and the other commercial loans segments due to increased outstanding loan balances and increased adjustments resulting from the reasonable and supportable forecast.

As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.22% at March 31, 2024 and 1.21% at December 31, 2023.

The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 353.45% and 569.78% at March 31, 2024 and December 31, 2023, respectively.

The increase in this ratio was due mainly to an increase in nonperforming loans.

United continues to evaluate risks which may impact its loan and lease portfolios.

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Then, any qualitative adjustments are applied to account for the Company’s view of current conditions, the future and other factors.

The third quarter of 2023 qualitative adjustments include analyses of the following:

Current conditions – United considered the impact of inflation, rising interest rates, the banking regulatory environment and geopolitical conflict when making determinations related to factor adjustments for the external environment.

The first quarter of 2024 qualitative adjustments include analyses of the following:

Current conditions – United considered the impact of inflation, interest rates, the banking regulatory environment 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;

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and concentrations of credit.

Reasonable and supportable forecasts – The forecast is determined on a portfolio-by-portfolio basis based on projections of real GDP and the unemployment rate.

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 third quarter, from a projection of 1.00% for 2023 in the second quarter to 2.10% for 2023 in the third quarter and improvement in 2024, from a projection of 1.10% for 2024 in the second quarter to 1.50% for 2024 in the third quarter.

The unemployment rate improved for 2023 between second and third quarter, 4.10% to 3.80%, and in 2024 with improvement from 4.50% to 4.10%.

The forecast for 2025 remained consistent at 1.80% for GDP while the unemployment rate reflected a similar decrease to 2024, from 4.50% to 4.10%.

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.

The forecast for real GDP in 2024 increased in the first quarter, from a projection of 1.40% for 2024 at the end of 2023 to 2.10% for 2024 with a slightly smaller increase for 2025, from a projection of 1.80% for 2025 at the end of 2023 to 2.00% for 2025.

The unemployment rate remained fairly consistent to the end of 2023 with a steady trend expected throughout 2024 and 2025.

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 as well as higher interest rates and cap rates.

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 September 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 $6.86 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 $7.74 million due to increased outstanding balances and increased risk of loss for past due, nonaccrual and graded loans and concentrations of credit.

The real estate construction and development loan pool reserve increased $10.00 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 $4.47 million primarily due to a decrease in outstanding balances.

United’s review of the allowance for loan and lease losses at March 31, 2024 produced increased reserves in two of the four loan categories as compared to December 31, 2023.

The allowance related to the commercial, financial & agricultural loan pool, consisting of the owner and non-owner occupied commercial real estate and other commercial loan segments, increased $3.99 million due to increased outstanding balances and increased reasonable and supportable forecast adjustments particularly as it pertains to office loans.

The residential real estate segment reserve increased $4.79 million due primarily to increased outstanding balances.

The real estate construction and development loan segment reserve decreased $4.39 million due to decreased outstanding balances.

The consumer loan segment reserve decreased $728 thousand primarily due to a decrease in outstanding balances.

An allowance is established for estimated lifetime losses for loans that are individually assessed.

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A loan is individually assessed for expected credit losses when the loan does not share similar characteristics with other loans in the portfolio.

expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates.

Measuring expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates.

Expected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate or the fair value of collateral if the loan is collateral dependent.

When the selected measure is less than the recorded investment in the loan, an expected credit loss has occurred.

The allowance for loans and leases that were individually assessed was $1.94 million at September 30, 2023 and $1.27 million at December 31, 2022.

In comparison to the prior year-end, this element of the allowance increased $663 thousand due to newly identified loans requiring individual assessment of loss and reduced collateral values.

Management believes that the allowance for credit losses of $298.65 million at September 30, 2023 is adequate to provide for expected losses on existing loans and lending-related commitments based on information currently available.

The allowance for loans and leases that were individually assessed was $18.02 million at March 31, 2024 and $13.15 million at December 31, 2023.

In comparison to the prior year-end, this element of the allowance increased $4.87 million due to the downgrade of a commercial real estate non-owner occupied loan.

Management believes that the allowance for credit losses of $305.82 million at March 31, 2024 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.

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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 third quarter and first nine months of 2023 and 2022 was immaterial.

The allowance for credit losses related to held to maturity securities was $18 thousand as of September 30, 2023 and December 31, 2022.

There was no provision for credit losses recorded on available for sale investment securities for the third quarter and first nine months of 2023 and 2022 and no allowance for credit losses on available for sale investment securities as of September 30, 2023 and December 31, 2022.

The provision for credit losses related to held to maturity securities for the first quarter of 2024 and 2023 was immaterial.

The allowance for credit losses related to held to maturity securities was $19 thousand and $17 thousand as of March 31, 2024 and December 31, 2023, respectively.

There was no provision for credit losses recorded on available for sale investment securities for the first quarter of 2024 and 2023 and no allowance for credit losses on available for sale investment securities as of March 31, 2024 and December 31, 2023.

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.

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Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced.

Noninterest income for the third quarter of 2023 was $33.66 million, an increase of $912 thousand or 2.78% from the third quarter of 2022 primarily due to increases in income from mortgage banking activities and income BOLI partially offset by a decrease in mortgage loan servicing income.

Noninterest income for the first nine months of 2023 was $101.58 million, a decrease of $20.80 million or 17.00% from the first nine months of 2022 due mainly to net losses recognized on the sales of AFS investment securities and a decrease in income from mortgage banking activities partially offset by a net gain on the sale of MSRs during the second quarter of 2023 within mortgage loan servicing income.

For the first nine months of 2023, net losses on investment securities were $7.92 million as compared to net gains on investment securities of $725 thousand for the first nine months of 2022.

The net losses in 2023 were mainly due to a 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 $7.56 million for the third quarter of 2023 compared to $6.42 million for the same period of 2022, an increase of $1.13 million or 17.66%.

The increase in income from mortgage banking activities was mainly due to a higher quarter-end valuation of our mortgage derivatives and mortgage loans held for sale.

For the first nine months of 2023 and 2022, income from mortgage banking activities was $21.85 million and $38.07 million, respectively.

The decrease of $16.22 million or 42.61% for the first nine months of 2023 was due mainly to decreased loan sales driven by the rising rate environment and a lower margin on loans sold.

For the three months ended September 30, 2023 and 2022, mortgage loan sales were $217.63 million and $275.83 million, respectively.

For the nine months ended

September 30, 2023 and 2022, mortgage loan sales were $632.85 million and $2.06 billion, respectively.

Mortgage loans originated for sale were $185.95 million and $635.58 million for the third quarter and first nine months of 2023, respectively, as compared to $265.21 million and $1.72 billion for the third quarter and first nine months of 2022, respectively.

Fees from deposit services for the third quarter and first nine months of 2023 decreased $787 thousand or 7.82% and $3.08 million or 9.91%, respectively, from the third quarter and first nine months 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 BOLI for the third quarter of 2023 increased $1.09 million or 74.05% from the third quarter of 2022 due to the recognition of $530 thousand in death benefits and an increase in the cash surrender value of policies in the third quarter of 2023.

Income from BOLI for the first nine months of 2023 decreased $1.31 million or 16.84% from the first nine months of 2022.

For the first nine months of 2023, United recognized death benefits from BOLI of $571 thousand as compared to $3.33 million for the first nine months of 2022.

For the first nine months of 2023, fees from trust services increased $1.01 million or 7.85% from the first nine months of 2022 due to an increase in assets under management.

Mortgage loan servicing income for the third quarter of 2023 decreased $1.46 million or 63.25% from the third quarter of 2022.

The decrease in mortgage loan servicing income was mainly driven by lower MSR balances as a result of the sale of MSRs in the second quarter of 2023.

For the first nine months of 2023, mortgage loan servicing income increased $5.95 million or 84.74% from the first nine months of 2022.

This increase was due mainly to a net gain of $8.15 million United recognized during the second quarter of 2023 on the sale of MSRs with an aggregate unpaid principal balance approximately $2 billion partially offset by less income on the lower MSR balances.

On a linked-quarter basis, noninterest income for the third quarter of 2023 decreased $1.52 million, or 4.31%, from the second quarter of 2023.

The decrease in noninterest income was primarily due to a decrease in mortgage loan servicing income of $9.00 million partially offset by lower net losses on investment securities of $7.16 million.

As previously mentioned, during the second quarter of 2023, United sold MSRs at a net gain of $8.15 million.

The remaining decrease in mortgage loan servicing income from the second quarter of 2023 was due to lower MSR balances in the third quarter of 2023 as a result of the sale.

Additionally, as previously mentioned, United sold approximately $187 million of AFS investment securities at a loss of $7.24 million during the second quarter of 2023.

Noninterest income for the first quarter of 2024 was $32.21 million, a decrease of $532 thousand or 1.62% from the first quarter of 2023 driven by decreases in mortgage loan servicing income and mortgage banking income partially offset by an increase in fees from brokerage services and lower net losses on investment securities transactions.

Mortgage loan servicing income for the first quarter of 2024 decreased $1.49 million or 65.33% from the first quarter of 2023.

The decrease in mortgage loan servicing income was due to lower mortgage servicing rights (“MSRs”) balances after the sale of MSRs during the second quarter of 2023.

Income from mortgage banking activities totaled $5.30 million for the first quarter of 2024 compared to $6.38 million for the first quarter of 2023.

The decrease of $1.09 million or 17.01% for the first quarter of 2024 was mainly due to a decrease in the fair value of loans held for sale.

Mortgage loan sales were $188.74 million in the first quarter of 2024 as compared to $166.51 million in the first quarter of 2023.

Mortgage loans originated for sale were $176.91 million for the first quarter of 2024 as compared to $177.81 million for the first quarter of 2023.

Fees from brokerage services for the first quarter of 2024 increased $1.07 million or 25.40% from the first quarter of 2023.

The increase was primarily due to higher volume.

United recorded a net loss on investment securities of $99 thousand for the first quarter of 2024 as compared to a net loss on investment securities of $405 thousand for the first quarter of 2023 driven primarily by a net loss of $420 thousand on the sale of AFS securities in last year’s first quarter.

On a linked-quarter basis, noninterest income for the first quarter of 2024 decreased $1.46 million, or 4.34%, from the fourth quarter of 2023 driven by a decrease of $3.00 million in other noninterest income.

The fourth quarter of 2023 included a $2.66 million gain from the payoff of a fixed rate commercial loan that had an associated interest rate swap derivative.

Partially offsetting the decrease in noninterest income was a $907 thousand increase in fees from brokerage services primarily due to higher volume.

Other Expenses

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Other expenses include all items of expense other than interest expense, the provision for credit losses, and income taxes.

Noninterest expense was $135.23 million for the third quarter of 2023, a decrease of $1.97 million or 1.43% from the same period in 2022.

For the first nine months of 2023, noninterest expense was $407.94 million, which was a decrease of $9.61 million or 2.30% from the first nine months of 2022.

Employee compensation for the first nine months of 2023 decreased $11.89 million or 6.43% from the first nine months of 2022.

The decrease for 2023 was due mainly to lower employee commissions related to a decline in mortgage banking production and lower employee incentives.

Employee benefits expense for the third quarter and first nine months of 2023 increased $2.18 million or 20.24% and $2.95 million or 8.27%, respectively, as compared to the third quarter and first nine months of 2022.

Noninterest expense for the first quarter of 2024 was $140.74 million, which was an increase of $3.32 million or 2.42% from the first quarter of 2023.

Employee compensation for the first quarter of 2024 increased $3.88 million or 7.00% when compared to the first quarter of 2023.

The increase in employee compensation was driven by higher employee incentives, commissions, base salaries and employee severance.

Employee benefits expense for the first quarter of 2024 increased $1.24 million or 9.20% from the first quarter of 2023.

This increase was primarily due to higher amounts of expense for postretirement benefits.

Net occupancy expense for the first nine months of 2023 increased $1.06 million or 3.15% as compared to the first nine months of 2022.

This increase was primarily due to higher amounts of building rental, depreciation and maintenance expense.

OREO expense for the third quarter and first nine months of 2023 decreased $1.52 million or 89.17% and $769 thousand or 39.72% from the first nine months of 2022.

These decreases were due to a decline in the fair value of OREO properties.

Equipment expense for the third quarter of 2023 decreased $637 thousand or 8.16% as compared to the third quarter of 2022.

This decrease was primarily due to decreases in maintenance expense and depreciation.

FDIC expense for the third quarter and first nine months of 2023 increased $1.54 million or 50.11% and $5.02 million or 57.38%, respectively, due a higher assessment rate.

Other expense for the third quarter of 2023 decreased $2.19 million or 6.66% from the third quarter of 2022.

Within other expenses, consulting and legal expenses decreased $4.00 million due to a loss contingency accrual of $5.00 million in the third quarter of 2022.

Partially offsetting this decrease were increases in advertising expense as well as business franchise taxes.

For the first nine months of 2023, other expense decreased $5.30 million or 5.23% from the first nine months of 2022.

Within other expenses, the most significant decrease for the first nine months of 2023 as compared to the same time period in 2022 was in the expense for the reserve for unfunded loan commitments of $10.68 million.

Additionally, consulting and legal expenses decreased $2.62 million due to a previously mentioned loss contingency accrual in the third quarter of 2022.

Partially offsetting these decreases were increases in business franchise taxes and advertising expense.

On a linked-quarter basis, noninterest expense for the third quarter of 2023 was flat from the second quarter of 2023, decreasing $58 thousand, or less than 1%.

The slight decrease in noninterest expense from the second quarter of 2023 was primarily due to a decrease in the expense for the reserve for unfunded loan commitments of $981 thousand within other expense mainly driven by a decrease in the outstanding balance of loan commitments at quarter-end.

In addition, equipment expense for the third quarter of 2023 decreased $856 thousand or 10.67% from the second quarter of 2023 primarily due to lower maintenance expense.

These decreases in noninterest expense were partially offset by increases of $690 thousand in employee benefits expense due mainly to higher post-retirement expense and $562 thousand in employee compensation expense due primarily to increased salaries expense.

For the third quarter of 2023, income tax expense was $24.78 million as compared to $25.92 million in the third quarter of 2022.

This decrease of $1.14 million was due to lower earnings partially offset by a slightly higher effective tax rate.

For the first nine months of 2023, income tax expense was $72.68 million as compared to $69.55 million in the third quarter of 2022, an increase of $3.13 million.

On a linked-quarter basis, income tax expense increased $1.33 million from the second quarter of 2023.

These increases were due to increased earnings and a higher effective tax rate.

United’s effective tax rate was 20.49% for the third quarter of 2023, 20.17% for the third quarter of 2022 and 20.23% for the second quarter of 2023.

For the first nine months of 2023 and 2022, United’s effective tax rate was 20.21% and 19.90%, respectively.

For further details related to income taxes, see Note 16 of the unaudited Notes to Consolidated Financial Statements contained within this document.

Mortgage servicing and impairment expense decreased $869 thousand or 46.13% due to a lower amount of loans serviced.

FDIC expense increased $1.87 million or 40.72% from the first quarter of 2023 due to an additional special assessment accrual of $1.81 million resulting from the FDIC’s revised loss estimates to the Deposit Insurance Fund.

Other expense for the first quarter of 2024 decreased $2.69 million or 7.77% from the first quarter of 2023.

Within other expenses, the most significant decrease was the expense for the reserve for unfunded commitments of $4.39 million due to lower amount of outstanding loan commitments.

Partially offsetting this decrease was an increase in the amortization of investment tax credits of $950 thousand.

On a linked-quarter basis, noninterest expense for the first quarter of 2024 decreased $11.55 million, or 7.58%, from the fourth quarter of 2023.

This decrease in noninterest expense was driven by decreases in FDIC insurance expense of $10.17 million and other noninterest expense of $8.02 million partially offset by an increase in employee benefits of $4.90 million and employee compensation of $1.46 million.

The fourth quarter of 2023 included $11.99 million of expense for the FDIC special assessment.

The first quarter of 2024 included an additional expense of $1.81 million related to the FDIC special assessment stemming from the FDIC’s revised loss estimates.

The decrease of $8.02 million in other noninterest expense was driven primarily by decreases of $2.73 million in the expense for the reserve for unfunded commitments, $1.23 million of expense related to community development lending programs and $1.22 million of amortization for investment tax credits.

Additionally, other noninterest expense for the fourth quarter of 2023 included $1.28 million related to trade name intangible impairments.

The decrease in the expense for the reserve for unfunded loan commitments was driven by a decrease in the outstanding balance of loan commitments.

The increase in employee benefits was primarily driven by higher postretirement benefit costs and higher Federal Insurance Contributions Act (“FICA”) costs.

Employee compensation for the first quarter of 2024 increased due mainly to higher amount of base salaries and approximately $240 thousand of severance expense associated with the mortgage delivery channel consolidation.

For the first quarter of 2024, income tax expense was $21.41 million as compared to $24.45 million for the first quarter of 2023.

The decrease of $3.04 million was primarily due to decreased earnings and lower effective tax rate.

On a linked-quarter basis, income tax expense decreased $3.41 million primarily due to a lower effective tax rate partially offset by higher earnings.

United’s effective tax rate was 19.78% for the first quarter of 2024, 19.92% for the first quarter of 2023 and 23.81% for the fourth quarter of 2023.

Liquidity and Capital Resources

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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.

Short-term needs can be met through a wide array of outside sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances.

Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, borrowings that are secured by bank premises or stock of United’s subsidiaries and issuances of trust preferred securities.

In the normal course of business, United through its Asset Liability Committee evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs.

During the first nine months of 2023, United decreased its interest-bearing deposit balance at the FRB by $18.11 million to $788.72 million.

The change in the balance at the FRB was mostly the result of the net repayment of $800.00 million in FHLB advances and loan growth of $491.66 million partially offset by net sales, maturities, and paydowns in the available for sale debt securities portfolio of $762.02 million and an increase in total deposits of $373.69 million.

For the nine months ended September 30, 2023, cash of $272.66 million was provided by operating activities due mainly to net income of $286.92 million.

Net cash of $288.62 million was provided by investing activities which was primarily due to $758.09 million of net proceeds from the sales of investment securities over purchases partially offset by portfolio loan growth of $491.66 million.

During the first nine months of 2023, net cash of $553.88 million was used in financing activities due primarily to the net repayment of $800.00 million in FHLB advances, cash dividends paid of $146.01 million and cash paid of $10.25 million to redeem subordinated debt partially offset by growth in deposits of $374.61 million and an increase in securities sold under agreements to repurchase of $27.58 million.

The net effect of the cash flow activities was an increase in cash and cash equivalents of $7.40 million for the first nine months of 2023.

At September 30, 2023, United had an unused borrowing amount at the FHLB of approximately $7.30 billion subject to delivery of collateral after certain trigger points and $3.17 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 September 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 September 30, 2023.

At September 30, 2023, United’s borrowing capacity for the FRB Discount Window was $2.72 billion.

United did not have any borrowings from the FRB’s Discount Window, or its new Bank Term Funding Program, during the first nine months of 2023.

During the first quarter of 2024, United increased its interest-bearing deposit balance at the FRB by $135.62 million to $1.38 billion.

The change in the balance at the FRB was mostly the result of a $100.43 million increase in total deposits and $168.36 million of net sales, maturities, and paydowns in the available for sale debt securities portfolio partially offset by a $50.07 million decrease in FHLB advances.

For the three months ended March 31, 2024, cash of $124.37 million was provided by operating activities due mainly to net income of $86.81 million.

In addition, proceeds from the sale of mortgage loans in the secondary market exceeded originations by $17.14 million.

Net cash of $2.43 million was used in investing activities which was primarily due to loan growth of $160.68 million and net purchases of $4.71 million in bank premises and equipment over sales proceeds mostly offset by $162.81 million of net proceeds from sales of investment securities over purchases.

During the first three months of 2024, net cash of $11.77 million was provided by financing activities due primarily to growth of $100.60 million in deposits partially offset by cash dividends paid of $50.14 million and the net repayment of $50.00 million in FHLB borrowings during the quarter.

The net effect of the cash flow activities was an increase in cash and cash equivalents of $133.70 million for the first three months of 2024.

At March 31, 2024, United had an unused borrowing amount at the FHLB of approximately $7.00 billion subject to delivery of collateral after certain trigger points, $2.86 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 $280 million, all of which was available at March 31, 2024.

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 March 31, 2024.

At March 31, 2024, United’s borrowing capacity for the FRB Discount Window was $2.53 billion.

United did not have any borrowings from the FRB’s Discount Window, or its new Bank Term Funding Program, during the first quarter of 2024.

United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures.

7 unchanged sentences

United is well-capitalized based upon regulatory guidelines.

United’s risk-based capital ratio is 15.22% at September 30, 2023 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.99%, 12.99% and 11.32%, respectively.

The September 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.

United’s risk-based capital ratio is 15.55% at March 31, 2024 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.22%, 13.22% and 11.41%, respectively.

The March 31, 2024 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 $4.65 billion at September 30, 2023, which was an increase of $132.69 million or 2.94% from December 31, 2022.

This increase is primarily due to an increase of $140.87 million in retained earnings (net income less dividends declared).

United’s equity to assets ratio was 15.91% at September 30, 2023 as compared to 15.31% at December 31, 2022.

The primary capital ratio, capital and reserves to total assets and reserves, was 16.76% at September 30, 2023 as compared to 16.11% at December 31, 2022.

United’s average equity to average asset ratio was 16.12% for the third quarter of 2023 as compared to 15.75% the third quarter of 2022.

United’s average equity to average asset ratio was 15.81% for the first nine months of 2023 as compared to 15.95% for the first nine months of 2022.

Total shareholders’ equity was $4.81 billion at March 31, 2024, which was relatively flat from December 31, 2023, increasing $36.20 million or less than 1%.

This increase is primarily due to increases of $36.60 million in retained earnings (net income less dividends declared).

United’s equity to assets ratio was 16.01% at March 31, 2024 as compared to 15.94% at December 31, 2023.

The primary capital ratio, capital and reserves to total assets and reserves, was 16.86% at March 31, 2024 as compared to 16.79% at December 31, 2023.

United’s average equity to average asset ratio was 16.36% for the first quarter of 2024 as compared to 15.49% the first quarter of 2023.

All of these financial measurements reflect a financially sound position.

During the third quarter of 2023, United’s Board of Directors declared a cash dividend of $0.36 per share.

Cash dividends were $1.08 per common share for the first nine months of 2023.

Total cash dividends declared were $48.71 million for the third quarter of 2023 and $146.05 million for the first nine months of 2023 as compared to $48.56 million for the second quarter of 2022 and $146.37 million for the first nine months of 2022.

During the first quarter of 2024, United’s Board of Directors declared a cash dividend of $0.37 per share.

Total cash dividends declared were $50.21 million for the first quarter of 2024 which was an increase of $1.49 million or 3.07% from dividends declared of $48.72 million for the first quarter of 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis