United issues earnings statement

PARKERSBURG -United Bankshares Inc. has reported earnings for the second quarter and the first half of 2014.

Earnings for the second quarter of 2014 were $33.2 million or 48 cents per diluted share, an increase from earnings of $22.2 million or 44 cents per diluted share for the second quarter of 2013. Earnings for the first half of 2014 were $63.4 million or 96 cents per diluted share, up from earnings of $43.8 million or 87 cents per diluted share for the first half of 2013.

Second quarter 2014 results produced a return on average assets of 1.13 percent and a return on average equity of 8.16 percent, respectively. For the first half of 2014, United’s return on average assets was 1.14 percent while the return on average equity was 8.36 percent. United’s Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported average return on assets and average return on equity were 0.92 percent and 8.19 percent, respectively, for the first quarter of 2014. United’s annualized returns on average assets and average equity were 1.07 percent and 8.81 percent, respectively, for the second quarter of 2013 while the returns on average assets and average equity was 1.06 percent and 8.76 percent, respectively, for the first half of 2013.

On Jan. 31, United completed its acquisition of Virginia Commerce Bancorp Inc. (Virginia Commerce) of Arlington, Va. The results of operations of Virginia Commerce are included in the consolidated results of operations from the date of acquisition. As a result, comparisons for the second quarter and first half of 2014 to the second quarter and first half of 2013 are impacted by increased levels of average balances, income, and expense due to the acquisition. At consummation, Virginia Commerce had assets of $2.8 billion, loans of $2.1 billion and deposits of $2 billion.

The results for the second quarter and first half of 2014 included noncash, before-tax, other-than-temporary impairment charges of $421,000 and $1.1 million, respectively, on certain investment securities. The results for the second quarter and first half of 2013 included noncash, before-tax, other-than-temporary impairment charges of $137 thousand and $971 thousand, respectively, on certain investment securities. As previously reported, United sold a former branch building during the first quarter of 2014 which resulted in a before-tax gain of $9 million. In addition, the results for the first half of 2014 included merger related expenses and charges of $5.4 million as compared to $1.1 million in the first half of 2013.

Tax-equivalent net interest income for the second quarter of 2014 was $95.5 million, an increase of $27.8 million or 41 percent from the second quarter of 2013. This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Virginia Commerce acquisition. Average earning assets increased $3 billion or 40 percent from the second quarter of 2013. Average net loans increased $2.3 billion or 35 percent for the second quarter of 2014 while average investment securities increased $524.4 million or 68 percent. In addition, the average cost of funds declined 11 basis points from the second quarter of 2013. Partially offsetting the increases to tax-equivalent net interest income for the second quarter of 2014 was a decline of 4 basis points in the average yield on earning assets as compared to the second quarter of 2013. The net interest margin for the second quarter of 2014 was 3.69 percent, which was an increase of 4 basis points from a net interest margin of 3.65 percent for the second quarter of 2013.

Tax-equivalent net interest income for the first half of 2014 was $182.4 million, an increase of $46.4 million or 34 percent from the first half of 2013.

This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Virginia Commerce acquisition. Average earning assets increased $2.5 billion or 34 percent from the first half of 2013. Average net loans increased $1.9 billion or 30 percent for the first half of 2014 while average investment securities increased $499.3 million or 66 percent. In addition, the average cost of funds declined 13 basis points from the first half of 2013. Partially offsetting the increases to tax-equivalent net interest income for the first half of 2014 was a decline of 9 basis points in the average yield on earning assets as compared to the first half of 2013. The net interest margin for the first half of 2014 was 3.7 percent, which was flat as compared to the first half of 2013.

On a linked-quarter basis, United’s tax-equivalent net interest income for the second quarter of 2014 increased $8.6 million or 10 percent from the first quarter of 2014. This increase in tax-equivalent net interest income was primarily attributable to the average earning assets from the Virginia Commerce acquisition being included for the entire second quarter. Average earning assets increased $894.0 million or 9 percent from the first quarter of 2014. Average net loans for the second quarter increased $727.4 million or 9 percent. Average short-term investments increased $86.9 million or 30 percent while average investments increased $79.7 million or 7 percent for the quarter. The second quarter of 2014 average yield on earning assets decreased 2 basis points while the average cost of funds was flat from the first quarter of 2014. The net interest margin of 3.69 percent for the second quarter of 2014 was a decrease of a basis point from the net interest margin of 3.70 percent for the first quarter of 2014.

For the quarters ended June 30, 2014, and 2013, the provision for loan losses was $6.2 million and $5.0 million, respectively, while the provision for the first six months of 2014 was $10.9 million as compared to $10.1 million for the first six months of 2013. Net charge-offs were $5.6 million and $4.5 million for the second quarter of 2014 and 2013, respectively. Net charge-offs were $10.1 million and $9.5 million for the first half of 2014 and 2013, respectively. Annualized net charge-offs as a percentage of average loans was 0.25 percent and 0.24 percent for the second quarter and first half of 2014, respectively. United’s most recently reported Federal Reserve peer group’s net charge-offs to average loans percentage was 0.33 percent for the first quarter of 2014.

Noninterest income for the second quarter of 2014 was $19.1 million, which was flat from the second quarter of 2013. Included in noninterest income for the second quarter of 2014 were noncash, before-tax, other-than-temporary impairment charges of $421 thousand on certain investment securities as compared to noncash, before-tax other-than-temporary impairment charges of $137 thousand on certain investment securities for the second quarter of 2013. Excluding the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, noninterest income for the second quarter of 2014 increased $667 thousand or 4 percent from the second quarter of 2013. This increase for the second quarter of 2014 was due primarily to an increase of $694 thousand in fees from deposit services as a result of increased debit card and automated teller machine usage as a result of the Virginia Commerce merger.

Noninterest income for the first half of 2014 was $45.7 million, which was an increase of $8.2 million from the first half of 2013. Included in noninterest income for the first half of 2014 was the previously mentioned net gain of $9 million on the sale of bank premises as well as noncash, before-tax, other-than-temporary impairment charges of $1.1 million on certain investment securities as compared to noncash, before-tax other-thantemporary impairment charges of $971 thousand on certain investment securities for the first half of 2013. In addition, net gains on sales and calls of investment securities were $825 thousand and $488 thousand for the first half of 2014 and 2013, respectively. Excluding the net gain on the sale of bank premises, the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, noninterest income for the first half of 2014 decreased $1 million or 3 percent from the first half of 2013. This decrease for the first half of 2014 was due primarily to decreases of $1.0 million in mortgage banking income due to lower production and sales of mortgage loans in the secondary market and $878,000 in income from bank-owned insurance policies due to death benefits in 2013. In addition, income from derivatives not in hedge relationships declined $690,000 due to a change in the fair value. Partially offsetting these decreases were increases of $1 million income from trust and brokerage services due to increase in volume and the value of assets under management and $629,000 in fees from deposit services due to increased debit card and ATM usage.

On a linked-quarter basis, noninterest income for the second quarter of 2014 decreased $7.4 million from the first quarter of 2014 which included the previously mentioned net gain of $9 million on the sale of bank premises. Included in the results for the second quarter and first quarter of 2014 were noncash, before-tax, other-than-temporary impairment charges of $421,000 and $639,000, respectively. Excluding the net gain on the sale of bank premises, the noncash, other-than-temporary impairment charges as well as net gains and losses from sales and calls of investment securities, noninterest income increased $2.2 million or 13 percent on a linked-quarter basis due primarily to an increase of $1.3 million in fees from deposit services as a result of increases in overdraft fees and debit card income. Several other sources of noninterest income increased, none of which were individually significant.

Noninterest expense for the second quarter of 2014 was $57.2 million, an increase of $8.7 million or 18 percent from the second quarter of 2013 mainly due to the Virginia Commerce merger. Accordingly, most major categories of noninterest expense showed increases. In particular, employee compensation increased $4.6 million, net occupancy expenses increased $1.7 million, data processing fees increased $776,000 and equipment expense increased $530,000. These increases were mainly due to the additional employees, offices, equipment, and data processing expenses as a result of the Virginia Commerce acquisition. Partially offsetting these increases was a decrease of $1.3 million in other real estate owned expense as reductions to the fair value and maintenance costs on OREO properties declined from the second quarter of 2013.

Noninterest expense for the first half of 2014 was $118.4 million, an increase of $21.6 million or 22 percent from the first half of 2013 mainly due to the Virginia Commerce merger. Accordingly, most major categories of noninterest expense showed increases. In particular, employee compensation increased $13 million including $3.6 million of merger severance charges, net occupancy expenses increased $2.9 million, data processing fees increased $1.3 million, equipment expense increased $732,000 and merger expenses increased $624,000. These increases were mainly due to the additional employees, offices, equipment, data processing and other merger-related expenses as a result of the Virginia Commerce acquisition.

Partially offsetting these increases was a decrease of $854,000 in employee benefits due to a decline in pension expense due to an increase in the value at year-end 2013.

On a linked-quarter basis, noninterest expense for the second quarter of 2014 decreased $3.9 million or 6 percent from the first quarter of 2014. This decrease was due primarily to a decrease of $3.5 million in employee compensation from the first quarter which included the $3.6 million of merger severance charges. In addition, OREO expense declined $1.1 million mainly due to fewer reductions in the fair values of OREO properties. Partially offsetting these decreases was an increase of $564,000 in Federal Deposit Insurance Corporation insurance expense due to a higher assessment base as a result of the Virginia Commerce acquisition.

United’s asset quality continues to outperform its peers. United’s percentage of nonperforming loans to loans, net of unearned income of 0.98 percent at June 30 compares favorably to the most recently reported percentage of 1.54 percent at March 31 for United’s Federal Reserve peer group. At June 30, nonperforming loans were $87.2 million, up from nonperforming loans of $81.1 million or 1.21 percent of loans, net of unearned income, at Dec. 31. The increase was mainly due to two troubled loans to a commercial customer in the amount of $5.6 million being restructured into one loan during the first six months of 2014. The loss potential on this loan has been properly evaluated and allocated within the company’s allowance for loan losses. As of June 30, the allowance for loan losses was $75 million or 0.85 percent of loans, net of unearned income, as compared to $74.2 million or 1.11 percent of loans, net of unearned income, at Dec. 31, 2013. The decline in the ratio at June 30 of the allowance for loan losses as a percentage of loans, net of unearned income was because United was unable to carry-over Virginia Commerce’s previously established allowance for loan losses because acquired loans are recorded at fair value in accordance with accounting rules. Therefore, United recorded a downward fair value adjustment of $90.4 million on the loans acquired from Virginia Commerce. Total nonperforming assets of $130.4 million, including OREO of $43.2 million at June 30 represented 1.08 percent of total assets which is comparable to the most recently reported percentage of 1.09 percent at March 31 for United’s Federal Reserve peer group.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 13.5 percent at June 30 while its Tier I capital and leverage ratios are 12.5 percent and 10.6 percent, respectively. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10 percent, a Tier I capital ratio of 6 percent and a leverage ratio of 5 percent.

During the second quarter of 2014, United’s Board of Directors declared a cash dividend of 32 cents per share. United has increased its dividend to shareholders for 40 consecutive years. The annualized 2014 dividend of $1.28 equates to a yield of 4 percent based on recent UBSI market prices.

United has consolidated assets of $12.1 billion with 132 full service offices in West Virginia, Virginia, Maryland, Ohio, Pennsylvania and Washington, D.C. United Bankshares stock is traded on the NASDAQ Global Select Market under the quotation symbol “UBSI”.