# UNITED BANKSHARES INC/WV (UBSI) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from UNITED BANKSHARES INC/WV's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/729986/000119312522061038/d233531d10k.htm
Accession: 0001193125-22-061038
Filing date: 2022-03-01
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/UBSI/
All MD&A years: /company/UBSI/mda/
Next year: /company/UBSI/mda/fy2022/ (FY 2022)

INTRODUCTION

The following discussion and analysis presents the more significant changes in financial condition as of December 31, 2021 and 2020 and the results of operations of United and its subsidiaries for each of the years then ended. This discussion and the consolidated financial statements and the notes to 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 December 31, 2021, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form
10-K
filed with the SEC on March 1, 2021 (the 2020 Form
10-K)
for a discussion and analysis of the more significant factors that affected periods prior to 2020.

This discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto, which are included elsewhere in this document.

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USE OF
NON-GAAP
FINANCIAL MEASURES

This discussion and analysis contains certain financial measures that are not recognized under GAAP. Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each
“non-GAAP”
financial measure, certain additional information, including a reconciliation of the
non-GAAP
financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the
non-GAAP
financial measure.

Generally, United has presented a
non-GAAP
financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of a
non-GAAP
financial measure is consistent with how United’s management evaluates its performance internally and this
non-GAAP
financial measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry. Specifically, this discussion contains certain references to financial measures identified as
tax-equivalent
(“FTE”) net interest income and return on average tangible equity. Management believes these
non-GAAP
financial measures to be helpful in understanding United’s results of operations or financial position.

Net interest income is presented in this discussion on a
tax-equivalent
basis. The
tax-equivalent
basis adjusts for the
tax-favored
status of income from certain loans and investments. Although this is a
non-GAAP
measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and
tax-exempt
sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.

Average tangible equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible equity can thus be considered a more conservative valuation of the company. When considering net income, a return on average tangible equity can be calculated. Management provides a return on average equity to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. This measure, along with others, is used by management to analyze capital adequacy and performance.

However, this
non-GAAP
information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP. Where the
non-GAAP
financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the
non-GAAP
financial measure, can be found within this discussion and analysis. Investors should recognize that United’s presentation of this
non-GAAP
financial measure might not be comparable to a similarly titled measure at other companies.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of United conform with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments, which are reviewed with the Audit Committee of the Board of Directors, are based on information available as of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan and lease losses, the calculation of the income tax provision, and the use of fair value measurements to account for certain financial instruments to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. The most significant accounting policies followed by United are presented in Note A, Notes to Consolidated Financial Statements.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is an estimate of the expected credit losses on financial assets measured at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset (contractual term). Determining the allowance for loan losses requires management to make estimates of expected credit losses that are highly uncertain and require a high degree of

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judgment. At December 31, 2021, the allowance for loan losses was $216.02 million and is subject to periodic adjustment based on management’s assessment of expected credit losses in the loan portfolio. Such adjustment from period to period can have a significant impact on United’s consolidated financial statements. To illustrate the potential effect on the financial statements of our estimates of the allowance for loan losses, a 10% increase in the allowance for loan losses would have required $21.60 million in additional allowance (funded by additional provision for loan losses), which would have negatively impacted the year of 2021 net income by approximately $17.07 million,
after-tax
or $0.13 diluted per common share. Management’s evaluation of the adequacy of the allowance for loan losses and the appropriate provision for loan losses is based upon a quarterly evaluation of the loan portfolio. This evaluation is inherently subjective and requires significant estimates, including estimates related to the amounts and timing of future cash flows, value of collateral, losses on pools of homogeneous loans and leases based on historical loss experience, and consideration of qualitative factors such as current economic trends, all of which are susceptible to constant and significant change. The allowance allocated to specific credits and loan pools grouped by similar risk characteristics is reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. In determining the components of the allowance for loan losses, management considers the risk arising in part from, but not limited to, qualitative factors which include
charge-off
and delinquency trends, current business conditions and reasonable and supportable economic forecasts, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. The methodology used to determine the allowance for loan losses is described in Note A, Notes to Consolidated Financial Statements. A discussion of the factors leading to changes in the amount of the allowance for loan losses is included in the Provision for Credit Losses section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). For a discussion of concentrations of credit risk, see Item 1, under the caption of Loan Concentrations in this Form
10-K.

Income Taxes

United’s calculation of income tax provision is inherently complex due to the various different tax laws and jurisdictions in which we operate and requires management’s use of estimates and judgments in its determination. The current income tax liability also includes income tax expense related to our uncertain tax positions as required in ASC Topic 740, “Income Taxes.” Changes to the estimated accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of issues with taxing authorities and recently enacted statutory, judicial and regulatory guidance. These changes can be material to the Company’s operating results for any particular reporting period. The analysis of the income tax provision requires the assessments of the relative risks and merits of the appropriate tax treatment of transactions, filing positions, filing methods and taxable income calculations after considering statutes, regulations, judicial precedent and other information. United strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense. United is also subject to audit by federal and state authorities. Because the application of tax laws is subject to varying interpretations, results of these audits may produce indicated liabilities which differ from United’s estimates and provisions. United continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances. The potential impact to United’s operating results for any of the changes cannot be reasonably estimated. See Note O, Notes to Consolidated Financial Statements for information regarding United’s ASC Topic 740 disclosures.

Use of Fair Value Measurements

United determines the fair value of its financial instruments based on the fair value hierarchy established in ASC Topic 820, whereby the fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC Topic 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable. Observable inputs reflect market-based information obtained from independent sources (Level 1 or Level 2), while unobservable inputs reflect management’s estimate of market data (Level 3). For assets and liabilities that are actively traded and have quoted prices or observable market data, a minimal amount of subjectivity concerning fair value is needed. Prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management. When quoted prices or observable market data are not available, management’s judgment is necessary to estimate fair value.

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At December 31, 2021, approximately 16.02% of total assets, or $4.70 billion, consisted of financial instruments recorded at fair value. Of this total, approximately 88.70% or $4.17 billion of these financial instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. Approximately 11.30% or $531.18 million of these financial instruments were valued using unobservable market information or Level 3 measurements. Most of these financial instruments valued using unobservable market information were loans held for sale at our mortgage banking segment. At December 31, 2021, only $3.73 million or less than 1% of total liabilities were recorded at fair value. This entire amount was valued using methodologies involving observable market data. United does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on United’s results of operations, liquidity, or capital resources. See Note W for additional information regarding ASC Topic 820 and its impact on United’s financial statements.

Any material effect on the financial statements related to these critical accounting areas is further discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2021 COMPARED TO 2020

United’s total assets as of December 31, 2021 were $29.33 billion, which was an increase of $3.14 billion or 12.01% from December 31, 2020. The acquisition of Community Bankers Trust on December 3, 2021 added $1.80 billion in total assets, including purchase accounting amounts. Portfolio loans and leases increased $432.24 million or 2.46%, cash and cash equivalents increased $1.55 billion or 70.12%, investment securities increased $1.11 billion or 34.82%, goodwill increased $89.65 million or 4.99%, other assets increased $125.13 million or 21.41%, bank premises and equipment increased $21.40 million or 12.17%, and operating lease

right-of-use

assets increased $12.42 million or 17.87%. Partially offsetting these increases was a decrease of $214.52 million or 29.84% in loans held for sale and a $2.56 million or 3.82% decrease in interest receivable. Total liabilities increased $2.72 billion or 12.44% from
year-end
2020. This increase in total liabilities was due mainly to an increase of $2.77 billion or 13.43% in deposits mainly due to organic growth and the Community Bankers Trust acquisition. In addition, operating lease

right-of-lease

liabilities increased $13.49 million or 18.43% mainly due to the Community Bankers Trust acquisition. Partially offsetting these increases was a decrease of $60.43 million or 6.00% in borrowings. Shareholders’ equity increased $421.01 million or 9.80% from
year-end
2020 due primarily to the acquisition of Community Bankers Trust and earnings net of dividends.

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

Cash and Cash Equivalents

Cash and cash equivalents at December 31, 2021 increased $1.55 billion or 70.12% from
year-end
2020. Community Bankers Trust added $39.44 million upon consummation of the acquisition. Interest-bearing deposits with other banks increased $1.56 billion or 81.82% as United increased its liquidity due to the
COVID-19
pandemic by placing excess cash in an interest-bearing account with the Federal Reserve. Cash and due from banks decreased $14.49 million or 4.87% due to a $40.86 million decrease in
cash-in-process
with the Federal Reserve which was partially offset by a $24.37 million increase in cash. Federal funds increased $104 thousand or 12.64%. During the year of 2021, net cash of $609.54 million and $15.65 million were provided by operating activities and investing activities, respectively, while net cash of $923.91 million was provided by financing activities. Further details related to changes in cash and cash equivalents are presented in the Consolidated Statements of Cash Flows.

Securities

Total investment securities at December 31, 2021 increased $1.11 billion or 34.82% from
year-end
2020. Community Bankers Trust added $395.25 million in investment securities, including purchase accounting amounts, upon consummation of the acquisition. Securities available for sale increased $1.09 billion or 36.88%. This change in securities available for sale reflects $387.20 million acquired from Community Bankers Trust, $730.35 million in sales, maturities and calls of securities, $1.52 billion in purchases, and a decrease of $73.81 million in market value. Securities held to maturity declined $211 thousand or 17.41% from
year-end
2020 due to maturities and calls of securities. Equity securities were $12.40 million at December 31, 2021, an increase of $1.69 million or 15.73% due mainly to net purchases. Other investment securities increased $18.75 million or 8.49% from
year-end
2020 due to increases of $14.05 million in investment tax credits and $4.63 million in Federal Reserve Bank (“FRB”) stock due to Community Bankers Trust merger. Partially offsetting these increases was a decline of $5.90 million in Federal Home Loan Bank (“FHLB”) stock.

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The following table summarizes the changes in the available for sale securities since
year-end
2020:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","December 31 2021","","","December 31 2020","","","$ Change","","","% Change"],["U.S. Treasury securities and obligations of U.S. Government corporations and agencies","","$","81,850","","","$","66,344","","","$","15,506","","","","23.37","%"],["State and political subdivisions","","","847,298","","","","565,160","","","","282,138","","","","49.92","%"],["Mortgage-backed securities","","","1,828,244","","","","1,625,812","","","","202,432","","","","12.45","%"],["Asset-backed securities","","","656,572","","","","294,623","","","","361,949","","","","122.85","%"],["Single issue trust preferred securities","","","16,811","","","","17,027","","","","(216",")","","","(1.27","%)"],["Corporate securities","","","611,924","","","","384,393","","","","227,531","","","","59.19","%"],["Total available for sale securities, at fair value","","$","4,042,699","","","$","2,953,359","","","$","1,089,340","","","","36.88","%"]]
[[/GREPCENT_TABLE]]

The following table summarizes the changes in the held to maturity securities since
year-end
2020:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","December 31 2021","","","December 31 2020","","","$ Change","","","% Change"],["State and political subdivisions","","$","981","(1)","","$","1,192","(2)","","$","(211",")","","","(17.70","%)"],["Other corporate securities","","","20","","","","20","","","","0","","","","0.00","%"],["Total held to maturity securities, at amortized cost","","$","1,001","","","$","1,212","","","$","(211",")","","","(17.41","%)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1) net of allowance for credit losses of $19 thousand."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2) net of allowance for credit losses of $23 thousand."]]
[[/GREPCENT_TABLE]]

At December 31, 2021, gross unrealized losses on available for sale securities were $34.42 million. Securities with the most significant gross unrealized losses at December 31, 2021 consisted primarily of agency residential mortgage-backed securities and agency commercial mortgage-backed securities.

As of December 31, 2021, United’s available for sale mortgage-backed securities had an amortized cost of $1.83 billion, with an estimated fair value of $1.83 billion. The portfolio consisted primarily of $1.12 billion in agency residential mortgage-backed securities with a fair value of $1.11 billion, $74.97 million in
non-agency
residential mortgage-backed securities with an estimated fair value of $74.55 million, and $633.80 million in commercial agency mortgage-backed securities with an estimated fair value of $639.93 million.

As of December 31, 2021, United’s available for sale corporate securities had an amortized cost of $1.29 billion, with an estimated fair value of $1.29 billion. The portfolio consisted of $17.29 million in single issue trust preferred securities with an estimated fair value of $16.81 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 $659.83 million and a fair value of $656.57 million and other corporate securities, with an amortized cost of $611.55 million and a fair value of $611.92 million.

United’s available for sale single issue trust preferred securities had a fair value of $16.81 million as of December 31, 2021. Of the $16.81 million, $8.29 million or 49.32% were investment grade; $3.22 million or 19.13% were split rated; and $5.30 million or 31.55% were unrated. The two largest exposures accounted for 75.34% of the $16.81 million. These included Truist Bank at $7.36 million and Emigrant Bank at $5.30 million. All single issue trust preferred securities are currently receiving full scheduled principal and interest payments.

During 2021, 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 December 31, 2021 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 December 31, 2021, 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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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 C, Notes to Consolidated Financial Statements.

Loans held for sale

Loans held for sale decreased $214.52 million or 29.84% from
year-end
2020. Loan sales in the secondary market exceeded originations during the year of 2021. Originations of loans for the year of 2021 were $6.19 billion while sales of loans were $6.41 billion. Loans held for sale were $504.42 million at December 31, 2021 as compared to $718.94 million at
year-end
2020.

Portfolio Loans

Loans and leases, net of unearned income, increased $432.24 million or 2.46% from
year-end
2020 mainly as a result of the Community Bankers Trust acquisition which added $1.30 billion, including purchase accounting amounts, in portfolio loans and leases. Otherwise, portfolio loans and leases, net of unearned income, decreased $882.15 million from
year-end
2020. Since
year-end
2020, commercial, financial and agricultural loans and leases increased $457.99 million or 4.28% as commercial real estate loans increased $1.05 billion or 15.81% while commercial loans and leases (not secured by real estate) decreased $592.06 million or 14.60%. In addition, construction and land development loans increased $187.82 million or 10.28%. Partially offsetting the increases in loans and leases was a decrease of $208.33 million or 5.34% in residential real estate loans. Consumer loans remained flat, decreasing $8.76 million or less than 1% due to a decrease in indirect automobile financing.

The following table summarizes the changes in the major loan classes since
year-end
2020:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","December 31 2021","","","December 31 2020","","","$ Change","","","% Change"],["Loans held for sale","","$","504,416","","","$","718,937","","","$","(214,521",")","","","(29.84","%)"],["Commercial, financial, and agricultural:"],["Owner-occupied commercial real estate","","$","1,733,176","","","$","1,622,687","","","$","110,489","","","","6.81","%"],["Nonowner-occupied commercial real estate","","","5,957,288","","","","5,017,727","","","","939,561","","","","18.72","%"],["Other commercial loans","","","3,462,361","","","","4,054,418","","","","(592,057",")","","","(14.60","%)"],["Total commercial, financial, and agricultural","","$","11,152,825","","","$","10,694,832","","","$","457,993","","","","4.28","%"],["Residential real estate","","","3,691,560","","","","3,899,885","","","","(208,325",")","","","(5.34","%)"],["Construction & land development","","","2,014,165","","","","1,826,349","","","","187,816","","","","10.28","%"],["Consumer:"],["Bankcard","","","8,913","","","","8,937","","","","(24",")","","","(0.27","%)"],["Other consumer","","","1,183,844","","","","1,192,580","","","","(8,736",")","","","(0.73","%)"],["Total gross loans","","$","18,051,307","","","$","17,622,583","","","$","428,724","","","","2.43","%"],["Less: Unearned income","","","(27,659",")","","","(31,170",")","","","3,511","","","","(11.26","%)"],["Total Loans, net of unearned income","","$","18,023,648","","","$","17,591,413","","","$","432,235","","","","2.46","%"]]
[[/GREPCENT_TABLE]]

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The following table shows the maturity of loans and leases, outstanding as of December 31, 2021:

[[GREPCENT_TABLE]]
[["(In thousands)","","Less Than One Year","","","One To Five Years","","","Five to Fifteen Years","","","Greater than Fifteen Years","","","Total"],["Commercial, financial and agricultural:"],["Owner-occupied","","$","123,870","","","$","697,487","","","$","875,471","","","$","36,348","","","$","1,733,176"],["Nonowner-occupied","","","807,598","","","","3,214,142","","","","1,798,851","","","","136,697","","","","5,957,288"],["Other commercial","","","955,967","","","","1,850,893","","","","521,777","","","","133,724","","","","3,462,361"],["Residential real estate","","","170,692","","","","516,414","","","","708,830","","","","2,295,624","","","","3,691,560"],["Construction & land development","","","596,597","","","","1,130,280","","","","229,718","","","","57,570","","","","2,014,165"],["Consumer:"],["Bankcard","","","209","","","","8,704","","","","0","","","","0","","","","8,913"],["Other consumer","","","31,290","","","","632,499","","","","519,489","","","","566","","","","1,183,844"],["Total","","$","2,686,223","","","$","8,050,419","","","$","4,654,136","","","$","2,660,529","","","$","18,051,307"]]
[[/GREPCENT_TABLE]]

At December 31, 2021, for loans and leases due after one year, interest rate information is as follows:

[[GREPCENT_TABLE]]
[["(In thousands)","","One To Five Years","","","Five to Fifteen Years","","","Greater than Fifteen Years","","","Total"],["Commercial, financial and agricultural:"],["Owner-occupied"],["Outstanding with fixed interest rates","","$","549,291","","","$","390,432","","","$","11,265","","","$","950,988"],["Outstanding with adjustable interest rates","","","148,196","","","","485,039","","","","25,083","","","","658,318"],["Total owner-occupied","","","697,487","","","","875,471","","","","36,348","","","","1,609,306"],["Nonowner-occupied"],["Outstanding with fixed interest rates","","$","2,255,557","","","$","925,611","","","$","6,768","","","$","3,187,936"],["Outstanding with adjustable interest rates","","","958,585","","","","873,240","","","","129,929","","","","1,961,754"],["Total non-owner occupied","","","3,214,142","","","","1,798,851","","","","136,697","","","","5,149,690"],["Other commercial"],["Outstanding with fixed interest rates","","$","1,619,871","","","$","323,700","","","$","79,786","","","$","2,023,357"],["Outstanding with adjustable interest rates","","","231,022","","","","198,077","","","","53,938","","","","483,037"],["Total other commercial","","","1,850,893","","","","521,777","","","","133,724","","","","2,506,394"],["Residential real estate"],["Outstanding with fixed interest rates","","$","322,802","","","$","248,501","","","$","766,537","","","$","1,337,840"],["Outstanding with adjustable interest rates","","","193,612","","","","460,329","","","","1,529,087","","","","2,183,028"],["Total residential real estate","","","516,414","","","","708,830","","","","2,295,624","","","","3,520,868"],["Construction"],["Outstanding with fixed interest rates","","$","443,315","","","$","86,702","","","$","38,541","","","$","568,558"],["Outstanding with adjustable interest rates","","","686,965","","","","143,016","","","","19,029","","","","849,010"],["Total construction","","","1,130,280","","","","229,718","","","","57,570","","","","1,417,568"],["Consumer:"],["Bankcard"],["Outstanding with fixed interest rates","","$","956","","","$","0","","","$","0","","","$","956"],["Outstanding with adjustable interest rates","","","7,748","","","","0","","","","0","","","","7,748"],["Total bankcard","","","8,704","","","","0","","","","0","","","","8,704"],["Other consumer"],["Outstanding with fixed interest rates","","$","632,081","","","$","519,295","","","$","566","","","$","1,151,942"],["Outstanding with adjustable interest rates","","","418","","","","194","","","","0","","","","612"],["Total other consumer","","","632,499","","","","519,489","","","","566","","","","1,152,554"],["Total outstanding with fixed interest rates","","$","5,823,873","","","$","2,494,241","","","$","903,463","","","$","9,221,577"],["Total outstanding with adjustable rates","","$","2,226,546","","","$","2,159,895","","","$","1,757,066","","","$","6,143,507"],["Total","","$","8,050,419","","","$","4,654,136","","","$","2,660,529","","","$","15,365,084"]]
[[/GREPCENT_TABLE]]

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More information relating to loans is presented in Note D, Notes to Consolidated Financial Statements.

Other Assets

Other assets increased $125.13 million or 21.41% from
year-end
2020. The Community Bankers Trust acquisition added $51.83 million in other assets plus an additional $3.40 million in core deposit intangibles. The cash surrender value of bank-owned life insurance policies increased $122.78 million, of which $31.32 million was acquired from Community Bankers Trust while the remaining increase was due to purchases of new policies, totaling $85.00 million. Deferred tax assets increased $10.59 million due mainly to the deferred taxes recorded on the purchase accounting adjustments in the Community Bankers Trust acquisition. The remainder of the increase in other assets is the result of a $17.23 million net pension asset that was recorded in 2021, previously a liability, due to an increase in the discount rate used in the
year-end
evaluation and an increase in fair value of plan assets during 2021. Partially offsetting these increases were decreases of $7.40 million in income tax receivable, $11.00 million in derivative assets, $7.77 million in other real estate owned properties (”OREO”) due to sales and write downs, and $2.51 million in core deposit intangibles due to amortization.

Deposits

Deposits represent United’s primary source of funding. Total deposits at December 31, 2021 increased $2.77 billion or 13.43%, mainly as the result of the Community Bankers Trust acquisition. Community Bankers Trust added $1.52 billion in deposits, including purchase accounting amounts. In terms of composition, noninterest-bearing deposits increased $1.58 billion or 21.27% ($350.39 million added from Community Bankers Trust acquisition) while interest-bearing deposits increased $1.19 billion or 9.03% ($1.17 billion added from Community Bankers Trust acquisition) from December 31, 2020. Organically, deposits grew $1.24 billion from
year-end
2020 due to new customers and the economic stimulus, liquidity concerns as well as a volatile stock market as a result of the
COVID-19
pandemic.

Noninterest-bearing deposits consist of demand deposit and noninterest bearing money market (“MMDA”) account balances. The $1.58 billion increase in noninterest-bearing deposits was due to increases in commercial noninterest-bearing deposits of $2.97 billion or 73.04%, personal noninterest-bearing deposits of $407.18 million or 37.04% and public noninterest-bearing deposits of $65.86 million or 50.41%. Partially offsetting these increases in noninterest bearing MMDAs was a $1.98 billion decrease in sweep activity.

Interest-bearing deposits consist of interest-bearing checking (“NOW”), regular savings, interest-bearing MMDA, and time deposit account balances. NOW accounts increased $2.93 billion or 367.01% since
year-end
2020 while regular savings accounts increased $357.58 million or 27.85%, partially as the result of the Community Bankers Trust merger. Excluding sweep activity from NOW accounts to interest-bearing MMDAs to reduce United’s reserve requirement at its Federal Reserve Bank, NOW accounts increased $637.21 million or 20.57% mainly due to a $363.05 million increase in personal NOW accounts, a $142.26 million increase in commercial NOW accounts, and a $131.90 million increase in public funds NOW accounts. Partially offsetting these increases in interest-bearing deposits is a $1.83 billion or 22.31% decrease in interest-bearing MMDAs. In particular, personal MMDAs decreased $789.76 million, commercial MMDAs decreased $409.01 million, and public MMDAs decreased $602.52 million. These decreases were due to a $2.30 billion decrease in sweep activity from NOW accounts to interest-bearing MMDAs. The increase of $357.58 million in regular savings was mainly due to a $326.72 million increase in personal savings accounts and a $27.51 million increase in commercial savings accounts.

Time deposits under $100,000 increased $51.02 million or 5.21% from
year-end
2020. This increase in time deposits under $100,000 was the result of a $79.50 million increase in fixed Certificates of Deposits (“CDs”) under $100,000 as a result of the Community Bankers Trust acquisition. This increase was partially offset by a $30.50 million decrease in CDs under $100,000 obtained through the use of deposit listing services.

Since
year-end
2020, time deposits over $100,000 decreased $326.92 million or 16.96% as fixed rate CDs decreased $34.22 million, brokered certificates of deposits decreased $99.64 million, and public funds CDs over $100,000 decreased $121.19 million. In addition, Certificate of Deposit Account Registry Service (“CDARS”) CDs decreased $74.35 million.

47

Table of Contents

The table below summarizes the changes by deposit category since
year-end
2020:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","December 31 2021","","","December 31 2020","","","$ Change","","","% Change"],["Demand deposits","","$","8,980,547","","","$","5,428,398","","","$","3,552,149","","","","65.44","%"],["Interest-bearing checking","","","3,734,355","","","","799,635","","","","2,934,720","","","","367.01","%"],["Regular savings","","","1,641,404","","","","1,283,823","","","","357,581","","","","27.85","%"],["Money market accounts","","","6,361,887","","","","10,165,334","","","","(3,803,447",")","","","(37.42","%)"],["Time deposits under $100,000","","","1,031,008","","","","979,988","","","","51,020","","","","5.21","%"],["Time deposits over $100,000 (1)(2)","","","1,601,062","","","","1,927,982","","","","(326,920",")","","","(16.96","%)"],["Total deposits","","$","23,350,263","","","$","20,585,160","","","$","2,765,103","","","","13.43","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Includes time deposits of $250,000 or more of $640,752 and $889,334 at December 31, 2021 and December 31, 2020, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Includes $375,510 and $645,304 of uninsured time deposits at December 31, 2021 and December 31, 2020, respectively."]]
[[/GREPCENT_TABLE]]

At December 31, 2021, the scheduled maturities of time deposits are as follows:

[[GREPCENT_TABLE]]
[["Year","","Amount"],["(In thousands)"],["2022","","$","2,093,001"],["2023","","","337,252"],["2024","","","112,686"],["2025","","","59,813"],["2026 and thereafter","","","29,318"],["TOTAL","","$","2,632,070"]]
[[/GREPCENT_TABLE]]

Maturities of estimated uninsured time deposits of $100,000 or more outstanding at December 31, 2021 are summarized as follows:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","3 months or less","","","Over 3 through 6 months","","","Over 6 through 12 months","","","Over 12 months"],["Time deposits in amounts in excess of the FDIC Insurance limit","","$","78,437","","","$","145,134","","","$","61,767","","","$","90,172"]]
[[/GREPCENT_TABLE]]

The amounts of uninsured time deposits of $100,000 or more outstanding at December 31, 2021 are based on estimates using the same methodologies and assumptions used for regulatory reporting requirements.

The average daily amount of deposits and rates paid on such deposits is summarized for the years ended December 31:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","","","","Interest","","","","","","","","","Interest","","","","","","","","","Interest"],["","","Amount","","","Expense","","","Rate","","","Amount","","","Expense","","","Rate","","","Amount","","","Expense","","","Rate"],["","","(Dollars in thousands)"],["Demand deposits","","$","8,281,268","","","$","0","","","","0.00","%","","$","6,433,349","","","$","0","","","","0.00","%","","$","4,388,664","","","$","0","","","","0.00","%"],["NOW and money market deposits","","","9,438,738","","","","23,498","","","","0.25","%","","","7,617,049","","","","40,322","","","","0.53","%","","","6,297,715","","","","88,591","","","","1.41","%"],["Savings deposits","","","1,455,305","","","","2,085","","","","0.14","%","","","1,149,201","","","","2,087","","","","0.18","%","","","963,954","","","","2,501","","","","0.26","%"],["Time deposits","","","2,462,044","","","","16,037","","","","0.65","%","","","2,952,944","","","","36,170","","","","1.22","%","","","2,342,969","","","","44,557","","","","1.90","%"],["TOTAL","","$","21,637,355","","","$","41,620","","","","0.19","%","","$","18,152,543","","","$","78,579","","","","0.43","%","","$","13,993,302","","","$","135,649","","","","0.97","%"]]
[[/GREPCENT_TABLE]]

More information relating to deposits is presented in Note K, Notes to Consolidated Financial Statements.

48

Table of Contents

Borrowings

Total borrowings at December 31, 2021 decreased $60.43 million or 6.00% since
year-end
2020. During the year of 2021, short-term borrowings decreased $13.46 million or 9.46% due to a $13.46 million decrease in securities sold under agreements to repurchase. Community Bankers Trust added $6.76 million in short-term borrowings, which were repaid by December 31, 2021. Long-term borrowings decreased $46.98 million or 5.43% from
year-end
2020 due to long-term FHLB advances decreasing $52.33 million as payments exceeded new borrowings while issuances of trust preferred capital securities increased $5.35 million. Including purchase accounting amounts, Community Bankers Trust added $67.79 million in long-term FHLB advances which were repaid prior to
year-end
and $3.71 million in trust preferred capital securities.

The table below summarizes the change in the borrowing categories since
year-end
2020:

[[GREPCENT_TABLE]]
[["","","December 31","","","December 31","","","$","","","%"],["(Dollars in thousands)","","2021","","","2020","","","Change","","","Change"],["Short-term securities sold under agreements to repurchase","","$","128,844","","","$","142,300","","","$","(13,456",")","","","(9.46","%)"],["Long-term FHLB advances","","","532,199","","","","584,532","","","","(52,333",")","","","(8.95","%)"],["Subordinated debt","","","9,872","","","","9,865","","","","7","","","","0.07","%"],["Issuances of trust preferred capital securities","","","275,323","","","","269,972","","","","5,351","","","","1.98","%"],["Total borrowings","","$","946,238","","","$","1,006,669","","","$","(60,431",")","","","(6.00","%)"]]
[[/GREPCENT_TABLE]]

For a further discussion of borrowings see Notes L and M, Notes to Consolidated Financial Statements.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at December 31, 2021 decreased $6.71 million or 3.31% from
year-end
2020. In particular, income tax payable decreased $3.55 million due to timing differences and interest payable decreased $2.21 million due to the net repayment of FHLB advances. In addition, derivative liabilities decreased $9.37 million due to a change in fair value and United’s net pension liability decreased $1.75 million due to an increase in the discount rate used in the
year-end
evaluation and an increase in fair value of plan assets during 2021, resulting in a pension asset at year end. Partially offsetting these decreases were increases of $1.08 million in dividends payable, $7.48 million in deferred compensation, $1.25 million in accrued loan expenses, and $4.65 million in other accrued expenses. Community Bankers Trust added $12.81 million of accrued expenses and other liabilities.

Shareholders’ Equity

Shareholders’ equity at December 31, 2021 was $4.72 billion, which was an increase of $421.01 million or 9.80% from
year-end
2020, mostly as the result of the Community Bankers Trust acquisition and earnings net of dividends. The Community Bankers Trust transaction added approximately $260.28 million in shareholders’ equity as 7,135,771 shares were issued from United’s authorized but unissued shares for the merger at a cost of approximately $252.32 million.    

Retained earnings increased $185.38 million or 15.38% from
year-end
2020. Earnings net of dividends for the year of 2021 were $185.38 million.

Accumulated other comprehensive income decreased $27.26 million or 121.85% from
year-end
2020 due mainly to a decrease of $56.61 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes. The
after-tax
accretion of pension costs was $2.55 million for the year of 2021 while the
after-tax
pension accounting adjustment at
year-end
2021 resulted in an increase of $13.80 million. During the year of 2021, United recognized an upward fair value adjustment of $13.00 million on new cash flow hedges.

During the fourth quarter of 2020, United began repurchasing its common stock on the open market under repurchase plans approved by United’s Board of Directors. United repurchased 306,204 shares in 2021 at a cost of $9.96 million or an average share price of $32.52.

49

Table of Contents

RESULTS OF OPERATIONS

Overview

Net income for the year 2021 was $367.74 million or $2.83 per diluted share, an increase of $78.72 million or 27.23% from $289.02 million or $2.40 per diluted share for the year of 2020. Higher net income for the year 2021 compared to the year of 2020 was primarily due to lower provision of credit losses due to better performance trends within the loan portfolio and an improved future macroeconomic forecast under the Current Expected Credit Loss (“CECL”) accounting standard, as well as the impact from the Community Bankers Trust and Carolina Financial acquisitions.

As previously mentioned, United completed its acquisition of Community Bankers Trust on December 3, 2021, and of Carolina Financial on May 1, 2020. The results of operations for both Community Bankers Trust and Carolina Financial are included in the consolidated results of operations from the date of the acquisition. As a result, the year of 2021 reflected higher average balances, income, and expense as compared to the year of 2020. In addition, the year of 2021 included merger-related expenses of $21.42 million related to the Community Bankers Trust acquisition compared to merger-related expenses of $54.24 million associated with the acquisition of Carolina Financial in 2020.

United’s return on average assets for the year of 2021 was 1.35% and the return on average shareholders’ equity was 8.30% as compared to 1.20% and 7.30% for the year of 2020. United’s Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported annualized average return on assets and annualized average return on equity were 1.34% and 12.52%, respectively, for the first nine months of 2021. For the year of 2021, United’s return on average tangible equity was 14.18%, as compared to 12.90% the year of 2020.

[[GREPCENT_TABLE]]
[["","","Year Ended"],["(Dollars in thousands)","","December 31, 2021","","","December 31, 2020"],["Return on Average Tangible Equity:"],["(a) Net Income (GAAP)","","$","367,738","","","$","289,023"],["Average Total Shareholders\u2019 Equity (GAAP)","","","4,430,688","","","","3,956,969"],["Less: Average Total Intangibles","","","(1,837,609",")","","","(1,716,738",")"],["(b) Average Tangible Equity (non-GAAP)","","$","2,593,079","","","$","2,240,231"],["Return on Tangible Equity (non-GAAP) [(a) / (b)]","","","14.18","%","","","12.90","%"]]
[[/GREPCENT_TABLE]]

Net interest income for the year of 2021 was $742.73 million, an increase of $52.96 million or 7.68% from the prior year. The increase in net interest income occurred because total interest income was flat, decreasing $3.27 million while total interest expense decreased $56.23 million from the year of 2020.

The provision for credit losses was a benefit of $23.97 million for the year 2021 as compared to an expense of $106.56 million for the year of 2020. Noninterest income was $278.09 million for the year of 2021 which was a decrease of $76.65 million or 21.61% from the year of 2020. Noninterest expense was $581.94 million which was flat from the year of 2020, increasing $3.73 million or less than 1%.

Income taxes for the year of 2021 were $95.12 million as compared to $70.72 million for the year of 2020. United’s effective tax rate was approximately 20.6% and 19.7% for years ended December 31, 2021 and 2020, respectively, as compared to 19.8% for 2019.

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 year of 2021 was $327.08 million compared to net income of $190.34 million for the year of 2020. The higher net income within the community banking segment was due primarily to a lower provision for credit losses and higher net interest income. The full year of 2021 was impacted by the Carolina Financial acquisition as compared to eight months in 2020. In addition, the year of 2021 was impacted by one month of the Community Bankers Trust acquisition.

50

Table of Contents

Net interest income increased $53.40 million to $731.31 million for the year of 2021, compared to $677.91 million for the same period of 2020. Generally, net interest income for the year of 2021 increased from the year of 2020 due to an increase in average earning assets as a result of the Carolina Financial acquisition, PPP loan activity and to a larger decline in the average cost of funds as compared to the average yield on earning assets.

Provision for credit losses was a net benefit of $23.97 million for the year of 2021 compared to a provision expense of $106.56 million for the same period of 2020. The decrease for the year of 2021 was due mainly to a provision for credit losses of $28.95 million recorded on purchased
non-credit
deteriorated
(“non-PCD”)
loans from Carolina Financial during the second quarter of 2020 which was partially offset by the provision for credit losses of $12.29 million recorded on
non-PCD
loans from Community Bankers Trust, the better performance trends within the loan portfolio as well

as improved

reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard.

Noninterest income for the year of 2021 increased $9.88 million to $99.97 million as compared to $90.09 million for the year of 2020. The increase for the year of 2021 was due mainly to increased fees from trust services, fees from brokerage services, fees from deposit services, bankcard fees and merchant discounts and other miscellaneous income.

Noninterest expense was $443.46 million for the year ended December 31, 2021, compared to $423.93 million for the same period of 2020. The increase of $19.52 million in noninterest expense was primarily attributable to the additional employees and branch offices from the Community Bankers Trust and the Carolina Financial acquisitions as most major categories of noninterest expense showed increases.

Mortgage Banking

The mortgage banking segment reported net income of $43.93 million for the year of 2021 as compared to net income of $116.71 million for the year of 2020. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $183.22 million for the year of 2021 as compared to $276.19 million for the year of 2020. The decrease in 2021 was due mainly to the

mark-to-market

impact of a declining locked pipeline and a lower margin on loans sold in the secondary market. Noninterest expense was $138.51 million for the year of 2021 as compared to $140.63 million the year of 2020. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage segment employees. The decrease in 2021 was due mainly to lower employee incentives, overtime and commissions expense related to decreased mortgage banking production.

Consolidated Results of Operations by Major Category

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

[[GREPCENT_TABLE]]
[["","","Year Ended"],["(Dollars in thousands)","","2021","","","2020","","","2019"],["Income Statement Summary:"],["Interest income","","$","795,117","","","$","798,382","","","$","762,562"],["Interest expense","","","52,383","","","","108,609","","","","184,640"],["Net interest income","","","742,734","","","","689,773","","","","577,922"],["Provision for credit losses","","","(23,970",")","","","106,562","","","","21,313"],["Other income","","","278,092","","","","354,746","","","","150,484"],["Other expense","","","581,943","","","","578,217","","","","382,654"],["Income before income taxes","","","462,853","","","","359,740","","","","324,439"],["Income taxes","","","95,115","","","","70,717","","","","64,340"],["Net income","","$","367,738","","","$","289,023","","","$","260,099"]]
[[/GREPCENT_TABLE]]

51

Table of Contents

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 2021 and 2020, are presented below.

Net interest income for the year of 2021 was $742.73 million, which was an increase of $52.96 million or 7.68% from the year of 2020. The $52.96 million increase in net interest income occurred because total interest income was flat, decreasing $3.27 million while total interest expense decreased $56.23 million from the year of 2020. Generally, interest income for the year of 2021 decreased slightly from the year of 2020 due mainly to a decline in the yield on average earning assets, mainly as a result a decline in market interest rates, especially on investment securities, while interest expense decreased primarily also due to the decline in market interest rates which resulted in lower funding costs. 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 year of 2021 was $746.95 million, an increase of $53.29 million or 7.68% from the year of 2020. The increase in net interest income and
tax-equivalent
net interest income was primarily due to an increase in average earning assets from the Carolina Financial acquisition and PPP loans as well as lower interest expense on deposits and borrowings partially offset by lower acquired loan accretion income. Average earning assets for the year of 2021 increased $2.81 billion or 13.15% from the year of 2020 due to a $523.90 million or 3.09% increase in average net loans and leases, including loans held for sale, a $1.66 billion or 110.61% increase in average short-term investments and a $628.01 million or 21.52% increase in average investment securities. The net interest spread for the year of 2021 decreased 2 basis points from the year of 2020 due to a 45 basis point decrease in the average yield on earning assets partially offset by a 43 basis point decrease in the average cost of funds. Loan accretion on acquired loans and leases was $33.86 million and $41.77 million for the year of 2021 and 2020, respectively, a decrease of $7.91 million. The net interest margin of 3.09% for the year of 2021 was a decrease of 15 basis points from the net interest margin of 3.24% for the year of 2020.

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 year ended December 31, 2021, 2020 and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended"],["(Dollars in thousands)","","December 31 2021","","","December 31 2020","","","December 31 2019"],["Loan Accretion","","$","33,857","","","$","41,766","","","$","38,803"],["Certificates of deposit","","","4,305","","","","7,925","","","","791"],["Long-term borrowings","","","684","","","","1,278","","","","1,074"],["Total","","$","38,846","","","$","50,969","","","$","40,668"]]
[[/GREPCENT_TABLE]]

The following table reconciles the difference between net interest income and
tax-equivalent
net interest income for the year ended December 31, 2021, 2020 and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended"],["(Dollars in thousands)","","December 31 2021","","","December 31 2020","","","December 31 2019"],["Net interest income (GAAP)","","$","742,734","","","$","689,773","","","$","577,922"],["Tax-equivalent adjustment (non-GAAP) (1)","","","4,218","","","","3,888","","","","3,735"],["Tax-equivalent net interest income (non-GAAP)","","$","746,952","","","$","693,661","","","$","581,657"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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 2021, 2020, and 2019. All interest income on loans and investment securities was subject to state income taxes."]]
[[/GREPCENT_TABLE]]

52

Table of Contents

The following table shows the consolidated daily average balance of major categories of assets and liabilities for each of the three years ended December 31, 2021, 2020 and 2019 with the consolidated 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 years ended December 31, 2021, 2020, and 2019. Interest income on all loans and investment securities was subject to state taxes.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2021","","","Year Ended December 31, 2020","","","Year Ended December 31, 2019"],["(Dollars in thousands)","","Average Balance","","","Interest (1)","","","Avg. Rate (1)","","","Average Balance","","","Interest (1)","","","Avg. Rate (1)","","","Average Balance","","","Interest (1)","","","Avg. Rate (1)"],["ASSETS"],["Earning Assets:"],["Federal funds sold, securities repurchased under agreements to resell & other short-term investments","","$","3,162,814","","","$","8,734","","","","0.28","%","","$","1,501,771","","","$","9,780","","","","0.65","%","","$","733,865","","","$","21,338","","","","2.91","%"],["Investment Securities:"],["Taxable","","","3,193,414","","","","54,678","","","","1.71","%","","","2,700,416","","","","61,808","","","","2.29","%","","","2,485,767","","","","70,789","","","","2.85","%"],["Tax-exempt","","","352,843","","","","9,129","","","","2.59","%","","","217,836","","","","6,285","","","","2.89","%","","","139,277","","","","4,412","","","","3.17","%"],["Total Securities","","","3,546,257","","","","63,807","","","","1.80","%","","","2,918,252","","","","68,093","","","","2.33","%","","","2,625,044","","","","75,201","","","","2.86","%"],["Loans and leases, net of unearned income (2)","","","17,714,288","","","","726,794","","","","4.10","%","","","17,151,291","","","","724,397","","","","4.22","%","","","13,879,662","","","","669,758","","","","4.83","%"],["Allowance for credit losses","","","(225,740",")","","","","","","","","","","","(186,640",")","","","","","","","","","","","(76,731",")"],["Net loans and leases","","","17,488,548","","","","","","","","4.16","%","","","16,964,651","","","","","","","","4.27","%","","","13,802,931","","","","","","","","4.85","%"],["Total earning assets","","","24,197,619","","","$","799,335","","","","3.30","%","","","21,384,674","","","$","802,270","","","","3.75","%","","","17,161,840","","","$","766,297","","","","4.47","%"],["Other assets","","","3,058,476","","","","","","","","","","","","2,752,396","","","","","","","","","","","","2,313,628"],["TOTAL ASSETS","","$","27,256,095","","","","","","","","","","","$","24,137,070","","","","","","","","","","","$","19,475,468"],["LIABILITIES"],["Interest-Bearing Funds:"],["Interest-bearing deposits","","$","13,356,087","","","$","41,620","","","","0.31","%","","$","11,719,194","","","$","78,579","","","","0.67","%","","$","9,604,638","","","$","135,649","","","","1.41","%"],["Short-term borrowings","","","132,489","","","","693","","","","0.52","%","","","145,768","","","","1,027","","","","0.70","%","","","140,483","","","","2,347","","","","1.67","%"],["Long- term borrowings","","","819,440","","","","10,070","","","","1.23","%","","","1,645,783","","","","29,003","","","","1.76","%","","","1,821,504","","","","46,644","","","","2.56","%"],["Total Interest-Bearing Funds","","","14,308,016","","","","52,383","","","","0.37","%","","","13,510,745","","","","108,609","","","","0.80","%","","","11,566,625","","","","184,640","","","","1.60","%"],["Noninterest-bearing deposits","","","8,281,268","","","","","","","","","","","","6,433,349","","","","","","","","","","","","4,388,664"],["Accrued expenses and other liabilities","","","236,123","","","","","","","","","","","","236,007","","","","","","","","","","","","184,104"],["TOTAL LIABILITIES","","","22,825,407","","","","","","","","","","","","20,180,101","","","","","","","","","","","","16,139,393"],["SHAREHOLDERS\u2019 EQUITY","","","4,430,688","","","","","","","","","","","","3,956,969","","","","","","","","","","","","3,336,075"],["TOTAL LIABILITIES AND SHAREHOLDERS\u2019 EQUITY","","$","27,256,095","","","","","","","","","","","$","24,137,070","","","","","","","","","","","$","19,475,468"],["NET INTEREST INCOME","","","","","","$","746,952","","","","","","","","","","","$","693,661","","","","","","","","","","","$","581,657"],["INTEREST SPREAD","","","","","","","","","","","2.93","%","","","","","","","","","","","2.95","%","","","","","","","","","","","2.87","%"],["NET INTEREST MARGIN","","","","","","","","","","","3.09","%","","","","","","","","","","","3.24","%","","","","","","","","","","","3.39","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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% for 2021, 2020 and 2019."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Nonaccruing loans are included in the daily average loan amounts outstanding."]]
[[/GREPCENT_TABLE]]

53

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The following table sets forth a summary for the periods indicated of the changes in consolidated interest earned and interest paid detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year’s average rate), (ii) changes in rate (change in the average rate times the prior year’s average volume), and (iii) changes in rate/volume (change in the average volume times the change in average rate).

[[GREPCENT_TABLE]]
[["","","2021 Compared to 2020","","","2020 Compared to 2019"],["","","Increase (Decrease) Due to","","","Increase (Decrease) Due to"],["(In thousands)","","Volume","","","Rate","","","Rate/ Volume","","","Total","","","Volume","","","Rate","","","Rate/ Volume","","","Total"],["Interest income:"],["Federal funds sold, securities purchased under agreements to resell and other short-term investments","","$","10,797","","","$","(5,557",")","","$","(6,286",")","","$","(1,046",")","","$","22,346","","","$","(16,585",")","","$","(17,319",")","","$","(11,558",")"],["Investment securities:"],["Taxable","","","11,290","","","","(15,662",")","","","(2,758",")","","","(7,130",")","","","6,117","","","","(13,920",")","","","(1,178",")","","","(8,981",")"],["Tax-exempt (1)","","","3,902","","","","(654",")","","","(404",")","","","2,844","","","","2,490","","","","(390",")","","","(227",")","","","1,873"],["Loans (1),(2)","","","22,370","","","","(18,661",")","","","(1,312",")","","","2,397","","","","153,343","","","","(80,057",")","","","(18,647",")","","","54,639"],["TOTAL INTEREST INCOME","","","48,359","","","","(40,534",")","","","(10,760",")","","","(2,935",")","","","184,296","","","","(110,952",")","","","(37,371",")","","","35,973"],["Interest expense:"],["Interest-bearing deposits","","$","10,967","","","$","(42,189",")","","$","(5,737",")","","$","(36,959",")","","$","29,815","","","$","(71,074",")","","$","(15,811",")","","$","(57,070",")"],["Short-term borrowings","","","(93",")","","","(262",")","","","21","","","","(334",")","","","88","","","","(1,306",")","","","(102",")","","","(1,320",")"],["Long-term borrowings","","","(14,544",")","","","(8,723",")","","","4,334","","","","(18,933",")","","","(4,498",")","","","(14,572",")","","","1,429","","","","(17,641",")"],["TOTAL INTEREST EXPENSE","","","(3,670",")","","","(51,174",")","","","(1,381",")","","","(56,226",")","","","25,405","","","","(86,952",")","","","(14,484",")","","","(76,031",")"],["NET INTEREST INCOME","","$","52,029","","","$","10,640","","","$","(9,378",")","","$","53,291","","","$","158,891","","","$","(24,000",")","","$","(22,887",")","","$","112,004"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Yields and interest income on federally tax-exempt loans and investment securities are computed on a fully tax-equivalent basis using the statutory federal income tax rate of 21% for 2021, 2020 and 2019."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Nonaccruing loans are included in the daily average loan amounts outstanding."]]
[[/GREPCENT_TABLE]]

Provision for Credit Losses

United’s provision for credit losses was a net benefit of $23.97 million for the year of 2021 while the provision for credit losses was an expense of $106.56 million for the year of 2020. 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.

The provision for loan and lease losses for the year of 2021 was a net benefit of $23.72 million as compared to provision expense of $106.29 million for the year of 2020. Net charge-offs for the year of 2021 were $8.72 million as compared to $23.60 million for the year of 2020. The year of 2021 included a provision for loan losses of $12.29 million recorded on purchased
non-credit
deteriorated
(“non-PCD”)
loans from Community Bankers Trust. The year of 2020 included a provision for loan losses of $28.95 million recorded on
non-PCD
loans from Carolina Financial. The decrease in the provision in relation to the year of 2020 was primarily driven by improvements in the reasonable and supportable forecasts of future macroeconomic conditions on the estimate of expected credit losses under CECL. The decrease in the provision in relation to the prior year was also due to the impact of better performance trends within the loan portfolio. Net charge-offs as a percentage of average loans and leases were 0.05% and 0.14% for the year of 2021 and 2020, respectively.

As of December 31, 2021, nonperforming loans and leases were $90.76 million or 0.50% of loans and leases, net of unearned income as compared to $132.21 million or 0.75% of loans and leases, net of unearned income at December 31, 2020. The components of nonperforming loans and leases include: 1) nonaccrual loans and leases, 2) loans and leases which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis and 3) loans and leases whose terms have been restructured for economic or legal reasons due to financial difficulties of the borrowers.

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Table of Contents

Loans and leases past due 90 days or more were $18.88 million at December 31, 2021, an increase of $5.05 million or 36.49% from $13.83 million at
year-end
2020. This increase was primarily due to several large commercial relationships that have exceeded their stated maturity dates as of December 31, 2021. At December 31, 2021, nonaccrual loans and leases were $36.03 million, which was a decrease of $26.69 million or 42.56% from $62.72 million at
year-end
2020. This decrease was due to the repayment of five large commercial nonaccrual loans as well as the
charge-off
of two commercial relationships and troubled debt restructuring designations for three large commercial nonaccrual loans. Restructured loans were $35.86 million at December 31, 2021, a decrease of $19.80 million or 35.58% from $55.66 million at
year-end
2020. The decrease was mainly due to the repayment of six large commercial relationships and
charge-off
of three commercial restructured loans during the year of 2021. The loss potential on these loans has been properly evaluated and allocated within the Company’s allowance for loan losses.

Nonperforming assets include nonperforming loans and leases and real estate acquired in foreclosure or other settlement of loans (“OREO”). Total nonperforming assets of $105.59 million, including OREO of $14.82 million at December 31, 2021, represented 0.36% of total assets.

United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan and lease losses and reserve for lending-related commitments is considered the allowance for credit losses. At December 31, 2021, the allowance for credit losses was $247.46 million as compared to $255.08 million at December 31, 2020.

At December 31, 2021, the allowance for loan and lease losses was $216.02 million as compared to $235.83 million at December 31, 2020. The decrease in the allowance for loan and lease losses was due mainly to improved reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses offset slightly by the allowance amount recorded for Community Bankers Trust acquisition. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.20% at December 31, 2021 and 1.34% at December 31, 2020. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 238.00% and 178.38% at December 31, 2021 and December 31, 2020, respectively. The increase in this ratio was due mainly to a larger decline in nonperforming loans and leases than in the allowance for loan and lease losses.

The following table summarizes United’s credit loss experience for loan and leases losses, based on loan categories, for the year of 2021 and 2020:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","2021","","","2020"],["Commercial, financial and agricultural:"],["Owner-occupied"],["Loans & leases charged off","","$","414","","","$","2,195"],["Recoveries","","","869","","","","795"],["Net loans & leases (recovered) charged off","","$","(455",")","","$","1,400"],["Average gross loans & leases outstanding","","","1,612,387","","","","1,360,791"],["Net (recoveries) charge-offs as a percentage of average gross loans & leases outstanding","","","(0.03","%)","","","0.10","%"],["Nonowner-occupied"],["Loans & leases charged off","","$","3,531","","","$","6,134"],["Recoveries","","","1,907","","","","1,023"],["Net loans & leases charged off","","$","1,624","","","$","5,111"],["Average gross loans & leases outstanding","","","5,045,006","","","","4,400,468"],["Net charge-offs as a percentage of average gross loans & leases outstanding","","","0.03","%","","","0.12","%"],["Other Commercial"],["Loans & leases charged off","","$","6,182","","","$","17,350"],["Recoveries","","","4,307","","","","4,461"],["Net loans & leases charged off","","$","1,875","","","$","12,889"]]
[[/GREPCENT_TABLE]]

55

Table of Contents

[[GREPCENT_TABLE]]
[["","","2021","","","2020"],["Average gross loans & leases outstanding","","","3,777,988","","","","3,656,586"],["Net charge-offs as a percentage of average gross loans & leases outstanding","","","0.05","%","","","0.35","%"],["Residential Real Estate"],["Loans & leases charged off","","$","6,016","","","$","1,760"],["Recoveries","","","2,400","","","","1,063"],["Net loans & leases charged off","","$","3,616","","","$","697"],["Average gross loans & leases outstanding","","","3,624,157","","","","4,360,168"],["Net charge-offs as a percentage of average gross loans & leases outstanding","","","0.10","%","","","0.02","%"],["Construction"],["Loans & leases charged off","","$","560","","","$","2,027"],["Recoveries","","","604","","","","1,513"],["Net loans & leases (recovered) charged off","","$","(44",")","","$","514"],["Average gross loans & leases outstanding","","","1,961,661","","","","1,622,820"],["Net (recoveries) charge-offs as a percentage of average gross loans & leases outstanding","","","(0.00","%)","","","0.03","%"],["Consumer:"],["Bankcard"],["Loans & leases charged off","","$","190","","","$","221"],["Recoveries","","","42","","","","52"],["Net loans & leases charged off","","$","148","","","$","169"],["Average gross loans & leases outstanding","","","8,298","","","","8,830"],["Net charge-offs as a percentage of average gross loans & leases outstanding","","","1.78","%","","","1.91","%"],["Other consumer"],["Loans & leases charged off","","$","2,404","","","$","3,296"],["Recoveries","","","449","","","","479 449"],["Net loans & leases charged off","","$","1,955","","","$","2,817"],["Average gross loans & leases outstanding","","","1,174,323","","","","1,196,911"],["Net charge-offs as a percentage of average gross loans & leases outstanding","","","0.17","%","","","0.24","%"],["Total"],["Loans & leases charged off","","$","19,297","","","$","32,983"],["Recoveries","","","10,578","","","","9,386"],["Net loans & leases charged off","","$","8,719","","","$","23,597"],["Average gross loans & leases outstanding","","","17,203,820","","","","16,606,574"],["Net charge-offs as a percentage of average gross loans & leases outstanding","","","0.05","%","","","0.14","%"],["Nonaccrual loans & leases","","$","58,449","","","$","103,903"],["Allowance for loan & lease losses","","","216,016","","","","235,830"],["Loans & leases (net of unearned income)","","","18,023,648","","","","17,591,413"],["Allowance for loan & lease losses as a percentage of loans (net of unearned income)","","","1.20","%","","","1.34","%"],["Nonaccrual loans as a percentage of loans & leases (net of unearned income)","","","0.32","%","","","0.59","%"],["Allowance for loan & lease losses as a percentage of nonaccrual loans & leases","","","369.58","%","","","226.97","%"]]
[[/GREPCENT_TABLE]]

United continues to evaluate risks which may impact its loan and lease portfolios. As a result of the
COVID-19
pandemic and resulting economic uncertainty given the rapidly changing economic impact, the Company reviewed its loan and lease portfolio segments, assessing the likely impact of
COVID-19
on each segment and established relevant qualitative adjustment factors. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models

56

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which utilize the Company’s historical information. Then any qualitative adjustments are applied to account for the Company’s view of the future. If current conditions underlying any qualitative adjustment factor were deemed to be materially different than historical conditions, then an adjustment was made for that factor.

The year of 2021 qualitative adjustments include analyses of the following:

[[GREPCENT_TABLE]]
[["","\u2022","","Past events \u2013 This includes portfolio trends related to business conditions; past due, nonaccrual, and graded loans and leases; and concentrations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Current conditions \u2013 United considered the continued impact of COVID-19 on the economy as well as loan deferrals and modifications made in light of the pandemic when making determinations related to factor adjustments, such as changes in economic and business conditions, collateral values, external factors and past due loans and leases."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Reasonable and supportable forecasts \u2013 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:"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00d8","The forecast for real GDP and the unemployment rate improved in 2021, 2022 and 2023 as compared to forecasts and expectations at the end of 2020."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00d8","Greater risk of loss is probable in the hotel and accommodations portfolio due to weakened economic conditions brought on by the pandemic and labor shortages which resulted in a more negative forecast relative to other portfolios and a longer projected recovery period to extend into late 2023 or 2024."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00d8","Consideration was given to the $1.9 trillion American Rescue Plan (effective March 11, 2021) during the 2021 forecast selection process as the stimulus package had a positive impact on the economy throughout 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u00d8","Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period."]]
[[/GREPCENT_TABLE]]

The following is a summary of loans and leases outstanding as a percent of gross loans at December 31:

[[GREPCENT_TABLE]]
[["","","2021","","","2020"],["Commercial, financial & agricultural","","","61.78","%","","","60.69","%"],["Residential real estate","","","20.45","%","","","22.13","%"],["Construction & land development","","","11.16","%","","","10.36","%"],["Consumer","","","6.61","%","","","6.82","%"],["Total","","","100.00","%","","","100.00","%"]]
[[/GREPCENT_TABLE]]

United’s review of the allowance for loan and lease losses at December 31, 2021 produced decreased reserves in three of the four loan categories as compared to December 31, 2020. The allowance related to the commercial, financial & agricultural loan pool decreased $15.61 million. The residential real estate reserve decreased $2.72 million. The consumer loan pool decreased $1.80 million. Each of these decreases were primarily due to improved economic conditions and improved expectations within the reasonable and supportable forecast. The real estate construction and development loan pool reserve increased $318 thousand primarily due to increased outstanding balances in the land and land development segment.

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 $6.53 million at December 31, 2021 and $7.78 million at December 31, 2020. In comparison to the prior
year-end,
this element of the allowance decreased by $1.25 million primarily due to
charge-off
of previously recognized allocations for probable credit losses on individually assessed loans as well as repayment of individually assessed loans.

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Management believes that the allowance for credit losses of $247.46 million at December 31, 2021 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 year of 2021 and 2020 was immaterial. The allowance for credit losses related to held to maturity securities was $19 thousand as of December 31, 2021 as compared to $23 thousand as of December 31, 2020. There was no provision for credit losses recorded on available for sale investment securities for the year of 2021 and 2020 and no allowance for credit losses on available for sale investment securities as of December 31, 2021 and 2020. Due to loan interest payment deferrals granted by United under the CARES Act, United assessed the collectability of the accrued interest receivables on these deferring loans as of December 31, 2021. As a result of this assessment, United released reserves of $242 thousand for the year of 2021. The allowance for accrued interest receivables not expected to be collected as of December 31, 2021 was $8 thousand as compared to $250 thousand at December 31, 2020.

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 year of 2021 was $278.09 million, which was a decrease of $76.65 million or 21.61% from the year of 2020. The decrease was due to a decline in income from mortgage banking activities.

Income from mortgage banking activities totaled $171.69 million for the year of 2021 compared to $266.09 million for the year of 2020. The decrease of $94.40 million or 35.48% for the year of 2021 was due mainly to a decline in the fair value of derivatives associated with a declining pipeline and a lower sales margin. Mortgage loan sales were $6.41 billion in the year of 2021 as compared to $6.26 billion in the year of 2020. Mortgage loans originated for sale were $6.19 billion for the year of 2021 as compared to $6.53 billion for the year of 2020.

Mortgage loan servicing income increased $3.39 million for the year of 2021 due to increased mortgage servicing activity as a result of the Carolina Financial acquisition.

United recognized a net gain of $2.68 million on investment securities’ activity in 2021 as compared to a net gain of $3.16 million on investment securities activity in 2020. In particular, United recognized net gains of $1.55 million on the sales, calls and redemption of

available-for-sale

securities investment securities, $670 thousand on equity securities and $455 thousand on an equity security without a readily determinable market value for the year of 2021 as compared to a net gains of $2.50 million on the sales, calls and redemption of

available-for-sale

securities investment securities and $578 thousand on equity securities for the year of 2020. In addition, United did not recognize any impairment on investment securities for the year of 2021 and 2020.

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Table of Contents

Fees from trust services for the year of 2021 were $16.55 million, an increase of $2.65 million or 19.05% from the year of 2020 due to an increase in managed assets.

Fees from brokerage services for the year of 2021 were $15.56 million, an increase of $3.80 million or 32.33% from the year of 2020 due to increased volume.

Fees from deposit services for the year of 2021 were $38.69 million, an increase of $3.86 million or 11.07% from the year of 2020. Debit card income increased $1.76 million, overdraft fees increased $866 thousand and account analysis fees increased $759 thousand.

United recognized a net gain of $2.23 million in the year of 2020 on the sale-leaseback of a bank premise.

Bankcard fees for the year of 2021 increased $1.42 million or 34.90% from the year of 2020 due to an increase in interchange income from increased volume.

Other miscellaneous income increased $5.32 million or 198.43% mainly due to an increase in prepayment fees received on Delegated Underwriting and Servicing (“DUS”) securities.

Other Expense

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 expense includes all items of expense other than interest expense, the provision for credit losses and income tax expense. Noninterest expense for the year of 2021 was $581.94 million, which was flat from the year of 2020, increasing $3.73 million or less than 1%.

Employee compensation for the year of 2021 increased $5.31 million or 1.93% from the year of 2020. This increase was due mainly to additional employees from the Community Bankers Trust and Carolina Financial acquisitions partially offset by lower commissions, overtime and incentives expenses primarily related to decreased mortgage banking production.

Employee benefits expense for the year of 2021 increased $5.00 million or 10.23% as compared to the year of 2020. Federal Insurance Contributions Act (“FICA”) expense for the year of 2021 increased $1.07 million due mainly to the additional employees from the Community Bankers Trust and Carolina Financial acquisitions. In addition, health insurance expense for the year of 2021 increased $4.34 million due to higher premiums and additional employees from the Community Bankers Trust and Carolina Financial acquisitions. For the year of 2021, postretirement expense, which includes expense associated with United’s pension plan, supplemental early retirement plans (“SERPs”) and Savings and Stock Investment Plan (“401K plan”), decreased $942 thousand from the year of 2020. United uses certain valuation methodologies to measure the fair value of the assets within United’s pension plan which are presented in Note P, Notes to Consolidated Financial Statements. The funded status of United’s pension plan is based upon the fair value of the plan assets compared to the projected benefit obligation. The determination of the projected benefit obligation and the associated periodic benefit expense involves significant judgment and estimation of future employee compensation levels, the discount rate and the expected long-term rate of return on plan assets. If United assumes a 1% increase or decrease in the estimation of future employee compensation levels while keeping all other assumptions constant, the benefit cost associated with the pension plan would increase by approximately $901 thousand and decrease by approximately $826 thousand, respectively. If United assumes a 1% increase or decrease in the discount rate while keeping all other assumptions constant, the benefit cost associated with the pension plan would decrease by approximately $3.13 million and increase by approximately $3.58 million, respectively. If United assumes a 1% increase or decrease in the expected long-term rate of return on plan assets while keeping all other assumptions constant, the benefit cost associated with the pension plan would decrease by approximately $1.90 million and increase by approximately $1.90 million, respectively.

Net occupancy expense increased $731 thousand or 1.77% for the year of 2021 as compared to the prior year. The increase was due mainly to increases of $3.53 million in building maintenance expense and $1.30 million in depreciation due mainly to the offices added in the Community Bankers Trust and Carolina Financial acquisitions partially offset by a decline of $1.11 million in building rental expense due to the closing of certain leased offices.

59

Table of Contents

Equipment expense increased $5.12 million or 24.53% for the year of 2021 as compared to the year of 2020. The increase was due mainly to increases in equipment maintenance of $3.53 million and depreciation of $1.91 million due mainly to the Community Bankers Trust and Carolina Financial acquisitions.

Data processing expense decreased $3.97 million or 11.22% for the year of 2021 as compared to the year of 2020. The decrease for year of 2021 was due mainly to a $9.66 million penalty to terminate Carolina Financial’s data processing contract incurred in 2020 as compared to $3.47 million of merger-related termination and conversion expenses associated with the Community Bankers Trust acquisition in 2021.

Mortgage loan servicing expense and impairment for the year of 2021 increased $2.82 million from the year of 2020. The increase was due to an increase in mortgage servicing activity as a result of the acquisition of Carolina Financial and Crescent Mortgage. In addition, United recorded a temporary impairment charge, net of recoveries of $500 thousand on its mortgage servicing rights during the year of 2021 as compared to a temporary impairment charge on its mortgage servicing rights of $1.38 million during the year of 2020.

During the year of 2021, United incurred penalties of $15 thousand in the year of 2021 to prepay certain long-term FHLB advances assumed in the Community Bankers Trust acquisition. United incurred similar penalties of $10.39 million to prepay three long-term FHLB advances during the year of 2020.

Other expense for the year of 2021 increased $1.27 million or 1.06% from the year of 2020. Included in other expense for the year of 2021 were merger-related expenses of $3.01 million for the Community Bankers Trust acquisition as compared to $13.07 million for the Carolina Financial acquisition for the year of 2020. The expense for the reserve for unfunded commitments for the year of 2021 increased $1.69 million from the year of 2020, excluding amounts that are included in the merger-related expenses above. In addition, the amortization of income tax credits, which reduces the effective tax rate, for the year of 2021 increased $2.90 million and expense on automated teller machine (“ATM”) increased $1.22 million. Several other general operating expenses increased as well due mainly to the Community Bankers Trust and Carolina Financial acquisitions.

Income Taxes

For the year ended December 31, 2021, income taxes were $95.12 million, compared to $70.72 million for 2020, an increase of $24.40 million or 34.50%. The increase was due to higher earnings. United’s effective tax rate was approximately 20.6% and 19.7% for years ended December 31, 2021 and 2020, respectively, as compared to 19.8% for 2019. For further details related to income taxes, see Note O, Notes to Consolidated Financial Statements.

Quarterly Results

Net income for the first quarter of 2021 was $106.90 million or $0.83 per diluted share as compared to earnings of $40.18 million or $0.40 per diluted share for the first quarter of 2020. Higher net income for the first quarter of 2021 compared to the first quarter of 2020 was primarily due to higher income from mortgage banking activities, driven by an elevated volume of mortgage loan originations and sales in the secondary market, the impact of the Carolina Financial acquisition and a lower provision for credit losses primarily due to better performance trends within the loan portfolio and an improved future macroeconomic forecast under the CECL accounting standard. Net interest income for the first three months of 2021 was $190.96 million, an increase of $49.44 million or 34.94% from net interest income of $141.52 million for the first three months of 2020. The increase of $49.44 million in net interest income occurred because total interest income increased $25.18 million while total interest expense decreased $24.27 million from the first quarter of 2020. The provision for credit losses was $143 thousand for the first three months of 2021 as compared to $27.12 million for the first three months of 2020. This decrease in the provision for credit losses was mainly due to the impact of better performance trends within the loan portfolio as well

as improved

reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard. Noninterest income was $92.57 million for the first three months of 2021, an increase of $55.77 million or 151.52% from the first three months of

60

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2020 due mainly to increased income from mortgage banking activities due to an elevated volume of mortgage loan originations and sales in the secondary market as well as the addition of mortgage banking operations from the Carolina Financial acquisition. Noninterest expense for the first three months of 2021 increased $47.79 million or 47.26% from the first three months of 2020 due mainly to the Carolina Financial acquisition as well as due to higher employee incentives and commissions expense mainly related to higher mortgage banking production. Income taxes increased $17.68 million or 178.74% for the first three months of 2021 as compared to the first three months of 2020. The effective tax rate was 20.50% and 19.75% for the first quarter of 2021 and 2020, respectively.

Net income for the second quarter of 2021 was $94.84 million or $0.73 per diluted share, as compared to $52.69 million or $0.44 per diluted share for the prior year second quarter. Net interest income for the second quarter of 2021 was $186.52 million, which was an increase of $15.92 million, or 9.33%, from the second quarter of 2020. The increase in net interest income occurred because total interest income increased $1.47 million while total interest expense decreased $14.45 million from the second quarter of 2020. The provision for credit losses was a net reduction in expense of $8.88 million for the second quarter of 2021, while the provision for credit losses was an expense of $45.91 million for the second quarter of 2020. This decrease in the provision for credit losses was mainly due to the impact of better performance trends within the loan portfolio as well

as improved

reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard. In addition, a provision for loan losses of $28.95 million was recorded on purchased
non-PCD
loans from Carolina Financial during the second quarter of 2020. For the second quarter of 2021, noninterest income was $62.85 million, which was a decrease of $25.54 million or 28.90% from the second quarter of 2020 primarily driven by a decrease in income from mortgage banking activities due primarily to the

mark-to-market

impact of a declining interest rate lock commitment pipeline. For the second quarter of 2021, noninterest expense decreased $10.42 million or 6.98% from the second quarter of 2020 primarily due to a decrease in data processing expense which included a contract termination penalty incurred in the second quarter of 2020 associated with the Carolina Financial acquisition. Income taxes for the second quarter of 2021 were $24.46 million as compared to $11.02 million for the second quarter of 2020. For the quarters ended June 30, 2021 and 2020, United’s effective tax rate was 20.50% and 17.30%, respectively.

Net income for the third quarter of 2021 was $92.15 million or $0.71 per diluted share, as compared to $103.78 million or $0.80 per diluted share for the prior year third quarter. Net interest income for the third quarter of 2021 was $181.58 million, which was a decrease of $4.09 million, or 2.20%, from the third quarter of 2020. The decrease in net interest income occurred because total interest income decreased $16.19 million while total interest expense decreased $12.10 million from the third quarter of 2020. The provision for credit losses was a net benefit of $7.83 million for the third quarter of 2021, while the provision for credit losses was an expense of $16.78 million, for the third quarter of 2020. For the third quarter of 2021, noninterest income was $68.62 million, which was a decrease of $66.84 million or 49.34% from the third quarter of 2020 primarily driven by a decrease in income from mortgage banking activities due primarily to a lower mortgage loan origination and sale volume and the

mark-to-market

impact of a declining locked pipeline. For the third quarter of 2021, noninterest expense decreased $29.32 million or 17.09% from the third quarter of 2020 primarily due to a decrease in employee compensation due to lower employee incentives and commissions related to mortgage banking production as well as a lower employee headcount. For the third quarter of 2021, income tax expense was $23.60 million as compared to $28.97 million for the third quarter of 2020 primarily due to lower earnings and a lower effective tax rate. For the quarters ended September 30, 2021 and 2020, United’s effective tax rate was 20.39% and 21.82%, respectively.

Net income for the fourth quarter of 2021 was $73.85 million or $0.56 per diluted share as compared to earnings of $92.37 million or $0.71 per diluted share for the fourth quarter of 2020. Net interest income for the fourth quarter of 2021was $183.68 million, which was a decrease of $8.31 million or 4.33% from the fourth quarter of 2020. The $8.31 million decrease in net interest income occurred because total interest income decreased $13.72 million while total interest expense decreased $5.41 million from the fourth quarter of 2020.
Tax-equivalent
net interest income, which adjusts for the
tax-favored
status of income from certain loans and investments, for the fourth quarter of 2021 was $184.71 million, a decrease of $8.32 million or 4.31% from the fourth quarter of 2020. Average earning assets for the fourth quarter of 2021 increased $1.81 billion or 7.84% from the fourth quarter of 2020 due to a $862.00 million or 4.72% increase in average net loans, including loans held for sale, a $1.84 billion or 104.14% increase in average short-term investments and a $833.62 million or 27.07% increase in average investment securities. For the fourth quarter of 2021, the provision for credit losses was a benefit of $7.41 million as compared to an expense of $16.75 million for the fourth quarter of 2020. The decrease in

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the provision in relation to the prior year quarter was driven by the impact of improvements in the reasonable and supportable forecasts of future macroeconomic conditions on the estimate of expected credit losses under CECL partially offset by a provision for loan losses of $12.29 million recorded on purchased
non-credit
deteriorated
(“non-PCD”)
loans from Community Bankers Trust. Noninterest income for the fourth quarter of 2021 was $54.05 million, which was a decrease of $40.03 million or 42.55% from the fourth quarter of 2020. The lower amount of noninterest income was due mainly to a decline of $43.45 million in income from mortgage banking activities due to a lower volume of mortgage loan originations and sales in the secondary market. Noninterest expense for the fourth quarter of 2021 was $151.79 million, a decrease of $4.33 million or 2.77% from the fourth quarter of 2020. In particular, employee compensation decreased $5.46 million due to lower employee commissions, incentives and overtime related to mortgage banking production partially offset by $2.53 million of merger-related expenses from the Community Bankers Trust acquisition as well as additional employees from the acquisition. OREO expense decreased $2.07 million due to a decrease in net losses on the sale of OREO properties and fewer declines in the fair value of OREO properties. Partially offsetting the decreases in noninterest expense were increases in data processing expense of $3.57 million primarily due to $3.47 million of merger-related expenses associated with the Community Bankers Trust acquisition. Other expense increased $1.70 million driven by an increase in the reserve for unfunded loan commitments of $2.80 million, including $844 thousand related to loan commitments acquired from Community Bankers Trust.

Additional quarterly financial data for 2021 and 2020 may be found in Note Z, Notes to Consolidated Financial Statements.

The Effect of Inflation

United’s income statements generally reflect the effects of inflation. Since interest rates, loan demand and deposit levels are impacted by inflation, the resulting changes in the interest-sensitive assets and liabilities are included in net interest income. Similarly, operating expenses such as salaries, rents and maintenance include changing prices resulting from inflation. One item that would not reflect inflationary changes is depreciation expense. Subsequent to the acquisition of depreciable assets, inflation causes price levels to rise; therefore, historically presented dollar values do not reflect this inflationary condition. While recent economic conditions in the United States have seen improving trends since the onset of the
COVID-19
pandemic, there can be no assurance that this improvement will continue. Economic and inflationary pressure on consumers and uncertainty regarding continuing economic improvement could result in changes in consumer and business spending, borrowing and savings habits. Such conditions could have a material adverse effect on the credit quality of our loans and our business, financial condition and results of operations. Management will monitor the impact of inflation as conditions warrant.

The Effect of Regulatory Policies and Economic Conditions

United’s business and earnings are affected by the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities. The Federal Reserve Board regulates the supply of money in order to influence general economic conditions. Among the instruments of monetary policy available to the Federal Reserve Board are (i) conducting open market operations in United States government obligations, (ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing reserve requirements against financial institution deposits, and (iv) restricting certain borrowings and imposing or changing reserve requirements against certain borrowings by financial institutions and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits.

United’s business and earnings are also affected by general and local economic conditions. Certain credit markets can experience difficult conditions and volatility. Downturns in the credit market can cause a decline in the value of certain loans and securities, a reduction in liquidity and a tightening of credit. A downturn in the credit market often signals a weakening economy that can cause job losses and thus distress on borrowers and their ability to repay loans. Uncertainties in credit markets and the economy present significant challenges for the financial services industry.

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Regulatory policies and economic conditions have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future; however, United cannot accurately predict the nature, timing or extent of any effect such policies or economic conditions may have on its future business and earnings.

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. See Notes L and M, Notes to Consolidated Financial Statements.

Cash flows provided by operations in 2021 were $609.54 million due mainly to net income of $367.74 million for the year of 2021. In 2020, cash flows provided by operations were $140.45 million due mainly to net income of $289.02 million for the year of 2020. In 2021, net cash of $15.65 million was provided by investing activities which was primarily due to net loan repayments of $882.15 million and net cash of $39.42 million acquired in the Community Bankers Trust merger partially offset by $813.94 million of purchases of investment securities over proceeds from sales of investment securities and the purchase of $85.00 million of bank-owned life insurance policies. In 2020, net cash of $137.59 million was provided by investing activities which was primarily due to net cash of $629.11 million provided in the acquisition of Carolina Financial and $123.00 million of proceeds from sales of investment securities over purchases. Partially offsetting these cash inflows from investing activities was loan growth of $619.98 million, mainly from the PPP loans. During the year of 2021, net cash of $923.91 million was provided by financing activities due primarily to net growth of $1.25 billion in deposits. This source of cash from funding activities was partially offset by net repayment of $40.21 million in short-term borrowings, net repayment of $97.79 million in long-term FHLB advances and cash dividends paid of $181.28 million for year of 2021. During the year of 2020, net cash of $1.09 billion was provided by financing activities due primarily to net growth of $2.86 billion in deposits. This source of cash from funding activities was partially offset by net repayment of $232.35 million in short-term borrowings, net repayment of $1.35 billion in long-term FHLB advances and cash dividends paid of $162.71 million for year of 2020. The net effect of the cash flow activities was an increase in cash and cash equivalents of $1.55 billion for the year of 2021 as compared to an increase in cash and cash equivalents of $1.37 billion for the year of 2020. See the Consolidated Statement of Cash Flows in the Consolidated Financial Statements.

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United enters into derivative contracts, mainly to protect against adverse interest rate movements on the value of certain assets or liabilities, under which it is required to either pay cash to or receive cash from counterparties depending on changes in interest rates. Derivative contracts are carried at fair value and not notional value on the consolidated balance sheet and therefore do not represent the amounts that may ultimately be paid under these contracts. Further discussion of derivative instruments is included in Note S, Notes to Consolidated Financial Statements.

United is also a party to financial instruments with
off-balance-sheet
risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for
on-balance
sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The following table details the amounts of significant commitments and letters of credit as of December 31, 2021:

[[GREPCENT_TABLE]]
[["(In thousands)","","Amount"],["Commitments to extend credit:"],["Revolving open-end secured by 1-4 residential","","$","827,034"],["Credit card and personal revolving lines","","","167,799"],["Commercial","","","6,424,509"],["Total unused commitments","","$","7,419,342"],["Financial standby letters of credit","","$","68,379"],["Performance standby letters of credit","","","96,364"],["Commercial letters of credit","","","14,774"],["Total letters of credit","","$","179,517"]]
[[/GREPCENT_TABLE]]

Commitments generally have fixed expiration dates or other termination clauses, generally within one year, and may require the payment of a fee. Further discussion of commitments is included in Note R, Notes to Consolidated Financial Statements.

United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United’s liquidity increasing or decreasing in any material way. United also has lines of credit available. See Notes L and M 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 15.43% at December 31, 2021 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.39%, 13.39% and 10.95%, respectively. The December 31, 2021 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 $4.72 billion at December 31, 2021, increasing $421.01 million or 9.80% from
year-end
2020 as a result mainly of the Community Bankers Trust acquisition and earnings net of dividends. Common stock increased $18.88 million or 5.64% due to 7,135,771 shares issued in the Community Bankers Trust acquisition. Surplus increased $255.48 million or 8.83% mainly due to the Community Bankers Trust acquisition. Retained earnings increased $185.38 million or 15.38% due to earnings net of dividends for the year. Accumulated other comprehensive income

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decreased $27.26 million due mainly to an
after-tax
decrease in the fair value of available for sale securities. Treasury stock increased $11.48 million or 7.21% due to the repurchase of 306,204 shares of United common stock under a stock repurchase plan approved by United’s Board of directors in November of 2019.

United’s equity to assets ratio was 16.09% at December 31, 2021 as compared to 16.41% at December 31, 2020. The primary capital ratio, capital and reserves to total assets and reserves, was 16.79% at December 31, 2021 as compared to 17.22% at December 31, 2020. United’s average equity to average asset ratio was 16.26% at December 31, 2021 as compared to 16.39% at December 31, 2020. All of these financial measurements reflect a financially sound position.

During the fourth quarter of 2021, United’s Board of Directors declared a cash dividend of $0.36 per share. Dividends per share of $1.41 for the year of 2021 represented an increase over the $1.40 per share paid for 2020. Total cash dividends declared to common shareholders were $182.36 million for the year of 2021 as compared to $171.88 million for the year of 2020. The year 2021 was the forty-eighth consecutive year of dividend increases to United shareholders.