UNITED BANKSHARES INC/WV 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe haven for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations. United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other 55 Table of Contents 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. Therefore, undue reliance should not be placed upon these estimates and statements. United cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.” United undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. RECENT DEVELOPMENTS 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.  INTRODUCTION The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the unaudited consolidated financial statements and the notes to unaudited Consolidated Financial Statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated. Management has evaluated all significant events and transactions that occurred after March 31, 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. USE OF NON-GAAP FINANCIAL MEASURES This discussion and analysis contains certain financial measures that are not recognized under GAAP. Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each “non-GAAP” financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. 56 Table of Contents Generally, United has presented a non-GAAP financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of a non-GAAP financial measure is consistent with how United’s management evaluates its performance internally and this non-GAAP financial measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry. Specifically, this discussion contains certain references to financial measures identified as tax-equivalent (“FTE”) net interest income and return on average tangible equity. Management believes these non-GAAP financial measures to be helpful in understanding United’s results of operations or financial position. Net interest income is presented in this discussion on a tax-equivalent basis. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. Average tangible equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible equity can thus be considered a more conservative valuation of the company. When considering net income, a return on average tangible equity can be calculated. Management provides a return on average equity to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. This measure, along with others, is used by management to analyze capital adequacy and performance. However, this non-GAAP information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP. Where the non-GAAP financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis. Investors should recognize that United’s presentation of this non-GAAP financial measure might not be comparable to a similarly titled measure at other companies. APPLICATION OF CRITICAL ACCOUNTING POLICIES The accounting and reporting policies of United conform with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments, which are reviewed with the Audit Committee of the Board, are based on information available as of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan and lease losses, the calculation of the income tax provision, and the use of fair value measurements to account for certain financial instruments to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. United’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 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.” 57 Table of Contents FINANCIAL CONDITION 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 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 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. Securities 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 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: (Dollars in thousands) March 31 2024 December 31 2023 $ Change % Change U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 434,111 $ 484,950 $ (50,839 ) (10.48 %) State and political subdivisions 528,301 533,831 (5,530 ) (1.04 %) Mortgage-backed securities 1,535,876 1,599,850 (63,974 ) (4.00 %) Asset-backed securities 830,930 860,638 (29,708 ) (3.45 %) Single issue trust preferred securities 15,333 15,141 192 1.27 % Other corporate securities 269,424 291,967 (22,543 ) (7.72 %) Total available for sale securities, at fair value $ 3,613,975 $ 3,786,377 $ (172,402 ) (4.55 %) 58 Table of Contents The following table summarizes the changes in the held to maturity securities since year-end 2023: (Dollars in thousands) March 31 2024 December 31 2023 $ Change % Change State and political subdivisions $ 981 (1) $ 983 (2) $ (2 ) (0.20 %) Other corporate securities 20 20 0 0.00 % Total held to maturity securities, at amortized cost $ 1,001 $ 1,003 $ (2 ) (0.20 %) (1) net of allowance for credit losses of $19 thousand. (2) 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 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. The portfolio relates to securities issued by various municipalities located throughout the United States, and no securities within the portfolio were rated below investment grade as of March 31, 2024. 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; $3.04 million or 19.82% were split rated; and $5.18 million or 33.82% were unrated. The two largest exposures accounted for 80.19% of the $15.33 million. These included Truist Bank at $7.11 million and Emigrant Bank at $5.18 million. All single issue trust preferred securities are currently receiving full scheduled principal and interest payments. 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. Based on a review of each of the securities in the available for sale investment portfolio, management concluded that it was more-likely-than-not that it would be able to realize the cost basis investment and appropriate interest payments on such securities. United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature. As of March 31, 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. Further information regarding the amortized cost and estimated fair value of investment securities, including remaining maturities as well as a more detailed discussion of management’s impairment analysis, is presented in Note 2 to the unaudited Notes to Consolidated Financial Statements. 59 Table of Contents Loans Held for Sale 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 $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: (Dollars in thousands) March 31 2024 December 31 2023 $ Change % Change Loans held for sale $ 44,426 $ 56,261 $ (11,835 ) (21.04 %) Commercial, financial, and agricultural: Owner-occupied commercial real estate $ 1,624,746 $ 1,598,231 $ 26,515 1.66 % Nonowner-occupied commercial real estate 7,010,266 6,718,343 291,923 4.35 % Other commercial loans 3,539,826 3,572,440 (32,614 ) (0.91 %) Total commercial, financial, and agricultural $ 12,174,838 $ 11,889,014 $ 285,824 2.40 % Residential real estate 5,366,385 5,271,236 95,149 1.81 % Construction & land development 2,997,678 3,148,245 (150,567 ) (4.78 %) Consumer: Bankcard 9,431 9,962 (531 ) (5.33 %) Other consumer 984,236 1,054,728 (70,492 ) (6.68 %) Total gross loans $ 21,532,568 $ 21,373,185 $ 159,383 0.75 % Less: Unearned income (12,492 ) (14,101 ) 1,609 (11.41 %) Total Loans, net of unearned income $ 21,520,076 $ 21,359,084 $ 160,992 0.75 % For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements. Other Assets 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. 60 Table of Contents Deposits Deposits represent United’s primary source of funding. 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 $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 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 $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) March 31 2024 December 31 2023 $ Change % Change Demand deposits $ 6,017,349 $ 6,149,080 $ (131,731 ) (2.14 %) Interest-bearing checking 5,502,513 5,648,135 (145,622 ) (2.58 %) Regular savings 1,322,553 1,345,258 (22,705 ) (1.69 %) Money market accounts 6,615,111 6,349,453 265,658 4.18 % Time deposits under $100,000 1,107,580 1,066,092 41,488 3.89 % Time deposits over $100,000 (1) 2,354,640 2,261,301 93,339 4.13 % Total deposits $ 22,919,746 $ 22,819,319 $ 100,427 0.44 % (1) Includes time deposits of $250,000 or more of $905,829 and $842,118 at March 31, 2024 and December 31, 2023, respectively. Borrowings 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. 61 Table of Contents The table below summarizes the change in the borrowing categories since year-end 2023: (Dollars in thousands) March 31 2024 December 31 2023 $ Change % Change Short-term securities sold under agreements to repurchase $ 207,727 $ 196,095 $ 11,632 5.93 % Long-term FHLB advances 1,460,415 1,510,487 (50,072 ) (3.31 )% Issuances of trust preferred capital securities 279,019 278,616 403 0.14 % Total borrowings $ 1,947,161 $ 1,985,198 $ (38,037 ) (1.92 )% For a further discussion of borrowings see Notes 9 and 10 to the unaudited Notes to Consolidated Financial Statements. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at 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 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 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 Overview The following table sets forth certain consolidated income statement information of United: Three Months Ended (Dollars in thousands) March 2024 March 2023 December 2023 Income Statement Summary: Interest income $ 369,180 $ 329,303 $ 369,175 Interest expense 146,691 94,983 139,485 Net interest income 222,489 234,320 229,690 Provision for credit losses 5,740 6,890 6,875 Other income 32,212 32,744 33,675 Other expense 140,742 137,419 152,287 Income before income taxes 108,219 122,755 104,203 Income taxes 21,405 24,448 24,813 Net income $ 86,814 $ 98,307 $ 79,390 62 Table of Contents 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 March 31, 2024 March 31, 2023 December 31, 2023 Return on Average Tangible Equity: (a) Net Income (GAAP) $ 86,814 $ 98,307 $ 79,390 (b) Number of Days 91 90 92 Average Total Shareholders’ Equity (GAAP) $ 4,816,476 $ 4,570,288 $ 4,697,680 Less: Average Total Intangibles (1,901,074 ) (1,907,331 ) (1,903,458 ) (c) Average Tangible Equity (non-GAAP) $ 2,915,402 $ 2,662,957 $ 2,794,222 Return on Average Tangible Equity (non-GAAP)\ [(a) / (b)] x 366 or 365 / (c)] 11.98 % 14.97 % 11.27 % 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. 63 Table of Contents 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. Net Interest Income Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2024 and 2023, are presented below. 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. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. Tax-equivalent net interest income for the first quarter of 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. 64 Table of Contents 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 March 31, 2024, March 31, 2023 and December 31, 2023: Three Months Ended (Dollars in thousands) March 31 2024 March 31 2023 December 31 2023 Loan accretion $ 2,506 $ 3,119 $ 3,027 Certificates of deposit 171 356 201 Long-term borrowings (331 ) (353 ) (333 ) Total $ 2,346 $ 3,122 $ 2,895 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 (Dollars in thousands) March 31 2024 March 31 2023 December 31 2023 Net interest income, GAAP basis $ 222,489 $ 234,320 $ 229,690 Tax-equivalent adjustment (1) 872 1,135 866 Tax-equivalent net interest income $ 223,361 $ 235,455 $ 230,556 (1) The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 21% for the three months ended March 31, 2024 and 2023 and December 31, 2023. All interest income on loans and investment securities was subject to state income taxes. 65 Table of Contents The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2024 and 2023, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended March 31, 2024 and 2023. Interest income on all loans and investment securities was subject to state income taxes. Three Months Ended Three Months Ended March 31, 2024 March 31, 2023 (Dollars in thousands) Average Balance Interest (1) Avg. Rate (1) Average Balance Interest (1) Avg. Rate (1) ASSETS Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short-term investments $ 882,656 $ 12,303 5.61 % $ 936,394 $ 10,983 4.76 % Investment Securities: Taxable 3,743,157 34,722 3.71 % 4,404,864 36,259 3.29 % Tax-exempt 212,375 1,474 2.78 % 387,671 2,740 2.83 % Total Securities 3,955,532 36,196 3.66 % 4,792,535 38,999 3.26 % Loans, net of unearned income (2)(3) 21,508,611 321,553 6.01 % 20,683,610 280,456 5.49 % Allowance for loan losses (259,341 ) (234,809 ) Net loans (2)(3) 21,249,270 6.08 % 20,448,801 5.55 % Total earning assets 26,087,458 $ 370,052 5.70 % 26,177,730 $ 330,438 5.10 % Other assets 3,344,925 3,334,559 TOTAL ASSETS $ 29,432,383 $ 29,512,289 LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $ 16,663,765 $ 128,377 3.10 % $ 15,186,632 $ 68,592 1.83 % Short-term borrowings 203,570 2,082 4.11 % 166,614 1,157 2.82 % Long-term borrowings 1,500,237 16,232 4.35 % 2,417,999 25,234 4.23 % Total Interest-Bearing Funds 18,367,572 146,691 3.21 % 17,771,245 94,983 2.17 % Noninterest-bearing deposits 5,941,866 6,897,030 Accrued expenses and other liabilities 306,469 273,726 TOTAL LIABILITIES 24,615,907 24,942,001 SHAREHOLDERS’ EQUITY 4,816,476 4,570,288 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 29,432,383 $ 29,512,289 NET INTEREST INCOME $ 223,361 $ 235,455 INTEREST SPREAD 2.49 % 2.93 % NET INTEREST MARGIN 3.44 % 3.63 % (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. (3) Loans held for sale and leases are included in the daily average loan amounts outstanding. 66 Table of Contents The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2024 and December 31, 2023, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended March 31, 2024 and December 31, 2023. Interest income on all loans and investment securities was subject to state income taxes. Three Months Ended March 31, 2024 Three Months Ended December 31, 2023 (Dollars in thousands) Average Balance Interest (1) Avg. Rate (1) Average Balance Interest (1) Avg. Rate (1) ASSETS Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short-term investments $ 882,656 $ 12,303 5.61 % $ 819,431 $ 11,570 5.60 % Investment Securities: Taxable 3,743,157 34,722 3.71 % 3,836,498 35,710 3.72 % Tax-exempt 212,375 1,474 2.78 % 195,471 1,471 3.01 % Total Securities 3,955,532 36,196 3.66 % 4,031,969 37,181 3.69 % Loans, net of unearned income (2)(3) 21,508,611 321,553 6.01 % 21,279,444 321,290 6.00 % Allowance for loan losses (259,341 ) (255,032 ) Net loans (2)(3) 21,249,270 6.08 % 21,024,412 6.07 % Total earning assets 26,087,458 $ 370,052 5.70 % 25,875,812 $ 370,041 5.68 % Other assets 3,344,925 3,288,334 TOTAL ASSETS $ 29,432,383 $ 29,164,146 LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $ 16,663,765 $ 128,377 3.10 % $ 16,414,152 $ 122,132 2.95 % Short-term borrowings 203,570 2,082 4.11 % 198,453 1,998 3.99 % Long-term borrowings 1,500,237 16,232 4.35 % 1,394,361 15,355 4.37 % Total Interest-Bearing Funds 18,367,572 146,691 3.21 % 18,006,966 139,485 3.07 % Noninterest-bearing deposits 5,941,866 6,175,309 Accrued expenses and other liabilities 306,469 284,191 TOTAL LIABILITIES 24,615,907 24,466,466 SHAREHOLDERS’ EQUITY 4,816,476 4,697,680 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 29,432,383 $ 29,164,146 NET INTEREST INCOME $ 223,361 $ 230,556 INTEREST SPREAD 2.49 % 2.61 % NET INTEREST MARGIN 3.44 % 3.55 % (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. (3) Loans held for sale and leases are included in the daily average loan amounts outstanding. 67 Table of Contents Provision for Credit Losses 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 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) March 31 2024 December 31 2023 Nonaccrual loans $ 63,053 $ 30,919 Loans past due 90 days of more 11,329 14,579 Total nonperforming loans $ 74,382 $ 45,498 Other real estate owned 2,670 2,615 Total nonperforming assets $ 77,052 $ 48,113 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 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. 68 Table of Contents United continues to evaluate risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then, any qualitative adjustments are applied to account for the Company’s view of current conditions, the future and other factors. 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; past due, nonaccrual and graded loans and leases; and concentrations of credit. • Reasonable and supportable forecasts – The forecast is determined on a portfolio-by-portfolio basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following: • The forecast for real GDP in 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 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. Nonperforming commercial loans and leases are regularly reviewed to identify expected credit losses. A loan is individually assessed for expected credit losses when the loan does not share similar characteristics with other loans in the portfolio. Measuring expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Expected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate or the fair value of collateral if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an expected credit loss has occurred. The allowance for loans and leases that were individually assessed was $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. 69 Table of Contents 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. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses. The provision for credit losses related to held to maturity securities for the first 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. Additionally, management has disclosed all known material credits, which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules. Other Income Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income for the first quarter of 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. 70 Table of Contents Other Expenses Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for credit losses, and income taxes. Noninterest expense for the first quarter of 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. 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. Income Taxes 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. 71 Table of Contents Liquidity and Capital Resources In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable, and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds which are obtained as the result of a competitive bidding process. Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day-to-day demands of customers and United’s cash needs. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity. The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of outside sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, borrowings that are secured by bank premises or stock of United’s subsidiaries and issuances of trust preferred securities. In the normal course of business, United through its Asset Liability Committee evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs. 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. 72 Table of Contents United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. United also has lines of credit available. See Notes 9 and 10 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under lines of credit. The Asset Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset Liability Committee. United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 15.55% 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 $4.81 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 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.