UNITED BANKSHARES INC/WV - Quarter Report: 2019 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Form 10-Q

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 002-86947

United Bankshares, Inc.

(Exact name of registrant as specified in its charter)


West Virginia		55-0641179
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

300 United Center 500 Virginia Street, East Charleston, West Virginia		25301
(Address of principal executive offices)		Zip Code

Registrant’s telephone number, including area code: (304) 424-8716

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $2.50 per share

UBSI

NASDAQ Global Select Market

As of April 30, 2019, the registrant had 102,095,661 shares of common stock, $2.50 par value per share, outstanding.

UNITED BANKSHARES, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

Consolidated Balance Sheets (Unaudited) March 31, 2019 and December 31, 2018			4

Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018			5

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018			7

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018			8

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018			9

Notes to Consolidated Financial Statements			10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		51

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		68

Item 4.	Controls and Procedures		71

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		73

Item 1A.	Risk Factors		73

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		73

Item 3.	Defaults Upon Senior Securities		74

Item 4.	Mine Safety Disclosures		74

Item 5.	Other Information		74

Item 6.	Exhibits		74

Signatures			75

PART I - FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

The March 31, 2019 and December 31, 2018, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income and comprehensive income for the three months ended March 31, 2019 and 2018, the related consolidated statement of changes in shareholders’ equity for the three months ended March 31, 2019 and 2018, the related condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018, and the notes to consolidated financial statements appear on the following pages.

CONSOLIDATED BALANCE SHEETS

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except par value)


	March 31 2019			December 31 2018
	(Unaudited)			(Note 1)
Assets
Cash and due from banks	$	201,777		$	187,886
Interest-bearing deposits with other banks		970,072			831,707
Federal funds sold		808			803

Total cash and cash equivalents		1,172,657			1,020,396
Securities available for sale at estimated fair value (amortized cost-$2,386,010 at March 31, 2019 and $2,360,884 at December 31, 2018)		2,384,055			2,337,039
Securities held to maturity (estimated fair value-$8,549 at March 31, 2019 and $18,655 at December 31, 2018)		8,491			19,999
Equity securities at estimated fair value		9,921			9,734
Other investment securities		190,123			176,955
Loans held for sale (at fair value-$244,501 at March 31, 2019 and $247,104 at December 31, 2018)		245,763			249,846
Loans		13,578,218			13,429,532
Less: Unearned income		(5,515	)		(7,310	)

Loans net of unearned income		13,572,703			13,422,222
Less: Allowance for loan losses		(76,886	)		(76,703	)

Net loans		13,495,817			13,345,519
Bank premises and equipment		94,545			95,245
Operating lease right-of-use assets		63,119			0
Goodwill		1,478,014			1,478,014
Accrued interest receivable		64,347			60,597
Other assets		438,281			457,154

TOTAL ASSETS	$	19,645,133		$	19,250,498


Liabilities
Deposits:
Noninterest-bearing	$	4,370,577		$	4,416,815
Interest-bearing		9,788,820			9,577,934

Total deposits		14,159,397			13,994,749
Borrowings:
Federal funds purchased		0			23,400
Securities sold under agreements to repurchase		127,821			152,927
Federal Home Loan Bank borrowings		1,603,615			1,439,198
Other long-term borrowings		235,220			234,905
Reserve for lending-related commitments		1,461			1,389
Operating lease liabilities		66,871			0
Accrued expenses and other liabilities		163,857			152,306

TOTAL LIABILITIES		16,358,242			15,998,874

Shareholders’ Equity
Preferred stock, $1.00 par value; Authorized-50,000,000 shares, none issued		0			0
Common stock, $2.50 par value; Authorized-200,000,000 shares; issued-105,399,364 and 105,239,121 at March 31, 2019 and December 31, 2018, respectively, including 3,281,335 and 2,915,633 shares in treasury at March 31, 2019 and December 31, 2018, respectively		263,498			263,098
Surplus		2,135,818			2,134,462
Retained earnings		1,040,871			1,013,037
Accumulated other comprehensive loss		(39,270	)		(57,019	)
Treasury stock, at cost		(114,026	)		(101,954	)

TOTAL SHAREHOLDERS’ EQUITY		3,286,891			3,251,624

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	19,645,133		$	19,250,498

See notes to consolidated unaudited financial statements.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)


	Three Months Ended March 31
	2019			2018
Interest income
Interest and fees on loans	$	164,871		$	148,928
Interest on federal funds sold and other short-term investments		5,837			4,917
Interest and dividends on securities:
Taxable		17,363			11,875
Tax-exempt		1,026			1,465

Total interest income		189,097			167,185

Interest expense
Interest on deposits		32,638			15,657
Interest on short-term borrowings		691			421
Interest on long-term borrowings		11,600			7,064

Total interest expense		44,929			23,142

Net interest income		144,168			144,043
Provision for loan losses		4,996			5,178

Net interest income after provision for loan losses		139,172			138,865

Other income
Fees from trust services		3,264			3,091
Fees from brokerage services		2,524			2,224
Fees from deposit services		8,053			8,230
Bankcard fees and merchant discounts		1,156			1,356
Other service charges, commissions, and fees		521			509
Income from bank-owned life insurance		1,827			1,254
Income from mortgage banking activities		13,681			14,570
Net investment securities losses		(159	)		(485	)
Other income		356			443

Total other income		31,223			31,192

Other expense
Employee compensation		38,949			40,836
Employee benefits		9,431			9,571
Net occupancy expense		8,751			9,427
Other real estate owned (OREO) expense		1,416			946
Equipment expense		3,315			3,157
Data processing expense		5,162			5,850
Bankcard processing expense		480			466
FDIC insurance expense		3,300			1,848
Other expense		18,621			18,351

Total other expense		89,425			90,452

Income before income taxes		80,970			79,605
Income taxes		17,328			17,899

Net income	$	63,642		$	61,706

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - continued

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)


	Three Months Ended March 31
	2019		2018
Earnings per common share:
Basic	$	0.62	$	0.59

Diluted	$	0.62	$	0.59

Average outstanding shares:
Basic		101,894,786		104,859,427
Diluted		102,162,704		105,162,858

See notes to consolidated unaudited financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands)


	Three Months Ended March 31
	2019		2018
Net income	$	63,642	$	61,706
Change in net unrealized gain (loss) on available for sale (AFS) securities, net of tax		16,789		(16,773	)
Accretion of the net unrealized loss on the transfer of AFS securities to held to maturity (HTM) securities, net of tax		0		1
Change in defined benefit pension plan, net of tax		910		733

Comprehensive income, net of tax	$	81,341	$	45,667

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)


	Three Months Ended March 31, 2019
											Accumulated
	Common Stock										Other						Total
			Par					Retained			Comprehensive			Treasury			Shareholders’
	Shares		Value		Surplus			Earnings			Income (Loss)			Stock			Equity
Balance at January 1, 2019		105,239,121	$	263,098	$	2,134,462		$	1,013,037		($	57,019	)	($	101,954	)	$	3,251,624
Cumulative effect of adopting Accounting Standard Update 2016-02		0		0		0			(1,049	)		0			0			(1,049	)
Reclass due to adopting Accounting Standard Update 2017-12		0		0		0			0			50			0			50
Comprehensive income:
Net income		0		0		0			63,642			0			0			63,642
Other comprehensive income, net of tax		0		0		0			0			17,699			0			17,699

Total comprehensive income, net of tax																		81,341
Stock based compensation expense		0		0		1,113			0			0			0			1,113
Purchase of treasury stock (365,702 shares)		0		0		0			0			0			(12,072	)		(12,072	)
Cash dividends ($0.34 per share)		0							(34,759	)		0			0			(34,759	)
Grant of restricted stock (126,427 shares)		126,427		316		(316	)		0			0			0			0
Common stock options exercised (33,816 shares)		33,816		84		559			0			0			0			643

Balance at March 31, 2019		105,399,364	$	263,498	$	2,135,818		$	1,040,871		($	39,270	)	($	114,026	)	$	3,286,891


	Three Months Ended March 31, 2018
											Accumulated
	Common Stock										Other						Total
			Par					Retained			Comprehensive			Treasury			Shareholders’
	Shares		Value		Surplus			Earnings			Income (Loss)			Stock			Equity
Balance at January 1, 2018		105,069,821	$	262,675	$	2,129,077		$	891,816		($	42,025	)	($	1,013	)	$	3,240,530
Cumulative effect of adopting Accounting Standard Update 2016-01		0		0		0			136			(136	)		0			0
Reclass due to adopting Accounting Standard Update 2018-02		0		0		0			6,353			(6,353	)		0			0
Comprehensive income:
Net income		0		0		0			61,706			0			0			61,706
Other comprehensive income, net of tax		0		0		0			0			(16,039	)		0			(16,039	)

Total comprehensive income, net of tax																		45,667
Stock based compensation expense		0		0		968			0			0			0			968
Purchase of treasury stock (10,842 shares)		0		0		0			0			0			(404	)		(404	)
Cash dividends ($0.34 per share)		0							(35,748	)		0			0			(35,748	)
Grant of restricted stock (97,004 shares)		97,004		243		(243	)		0			0			0			0
Forfeiture of restricted stock (683 shares)		0		0		27			0			0			(27	)		0
Common stock options exercised (15,043 shares)		15,043		37		263			0			0			0			300

Balance at March 31, 2018		105,181,868	$	262,955	$	2,130,092		$	924,263		($	64,553	)	($	1,444	)	$	3,251,313

See notes to consolidated unaudited financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands)


	Three Months Ended March 31
	2019			2018
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	93,247		$	158,484

INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held to maturity		0			1
Proceeds from sales of securities available for sale		133,783			36,850
Proceeds from maturities and calls of securities available for sale		62,548			66,067
Purchases of securities available for sale		(211,217	)		(330,031	)
Proceeds from sales of equity securities		439			159
Purchases of equity securities		(437	)		(181	)
Proceeds from sales and redemptions of other investment securities		27,766			9,046
Purchases of other investment securities		(40,934	)		(3,672	)
Redemption of bank-owned life insurance policies		2,147			0
Purchases of bank premises and equipment		(1,754	)		(756	)
Proceeds from sales of bank premises and equipment		251			1
Proceeds from the sales of OREO properties		1,057			3,433
Net change in loans		(149,572	)		32,091

NET CASH USED IN INVESTING ACTIVITIES		(175,923	)		(186,992	)


FINANCING ACTIVITIES
Cash dividends paid		(34,974	)		(35,713	)
Acquisition of treasury stock		(12,072	)		(404	)
Proceeds from exercise of stock options		643			300
Repayment of long-term Federal Home Loan Bank borrowings		(960,000	)		(625,000	)
Proceeds from issuance of long-term Federal Home Loan Bank borrowings		1,300,000			615,000
Repayment of trust preferred issuance		0			(9,374	)
Changes in:
Deposits		164,846			(184,097	)
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings		(223,506	)		(259,201	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		234,937			(498,489	)


Increase (Decrease) in cash and cash equivalents		152,261			(526,997	)

Cash and cash equivalents at beginning of year		1,020,396			1,666,167


Cash and cash equivalents at end of period	$	1,172,657		$	1,139,170

Supplemental information
Noncash investing activities:
Transfers of loans to OREO	$	2,822		$	527
Transfer of held to maturity debt securities to available for sale debt securities		11,544			0

See notes to consolidated unaudited financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries (“United” or “the Company”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States (GAAP) and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of March 31, 2019 and 2018 and for the three-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2018 has been extracted from the audited financial statements included in United’s 2018 Annual Report to Shareholders. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 2018 Annual Report of United on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.

The accompanying consolidated interim financial statements include the accounts of United and its wholly owned subsidiaries. United operates in two business segments: community banking and mortgage banking. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Information is presented in these notes to the unaudited consolidated interim financial statements with dollars expressed in thousands, except per share or unless otherwise noted.

New Accounting Standards

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-14 “Compensation – Retirement Benefits - Defined Benefits – General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” This update amends ASC Topic 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other post retirement plans. The ASU’s changes related to disclosures are part of the FASB’s disclosure framework project, which the FASB launched in 2014 to improve effectiveness of disclosures in notes to financial statements. ASU No. 2018-14 is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2020; early adoption is permitted. ASU No. 2018-14 is not expected to have a material impact on the Company’s financial condition or results of operations.

In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This amendment changes the fair value measurement disclosure requirements of ASC Topic 820 and is the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements, which was finalized in August 2018. ASU No. 2018-13 is effective for all entities for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019; early adoption is permitted for any eliminated or modified disclosure upon issuance of this ASU. ASU No. 2018-13 is not expected to have a material impact on the Company’s financial condition or results of operations.

In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07 “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This update has been

issued as part of a simplification initiative which will expand the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and expands the scope through the amendments to address and improve aspects of the accounting for non-employee share-based payment transactions. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU No. 2018-07 is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018; early adoption is permitted. ASU No. 2018-07 was adopted by United on January 1, 2019. The adoption did not have a material impact on the Company’s financial condition or results of operations.

In August 2017, the FASB issued ASU No. 2017-12, “Targeting Improvement to Accounting for Hedging Activities.” This ASU amends ASC 815 and its objectives are to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and reduce the complexity and simplify the application of hedge accounting by preparers. This ASU makes certain targeted improvements to simplify the application of the hedge accounting, including to derivative instruments as well as allow a one-time election to reclassify fixed-rate, prepayable debt securities from a held to maturity classification to an available for sale classification. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. United adopted the standard on January 1, 2019 using the modified retrospective approach. As part of this adoption, the Company made a one-time election to transfer eligible HTM securities to the AFS category in order to optimize the investment portfolio management for capital and risk management considerations. The Company transferred HTM securities with a carrying amount of $11,544, which resulted in a decrease of $1,098 to AOCI.

In July 2017, the FASB issued ASU No. 2017-11, “Part I, Accounting for Certain Financial Instruments with Down Round Features and Part II, Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling interests with a Scope Exception.” Part I of this ASU simplifies the accounting for financial instruments that include down round features while the amendments in Part II, which do not have an accounting effect, address the difficulty of navigating the guidance in ASC 480, “Distinguishing Liabilities from Equity”, due to the existence of extensive pending content in the Codification. ASU No. 2017-11 is effective for interim and annual reporting periods beginning after December 15, 2018. ASU No. 2017-11 was adopted by United on January 1, 2019. The adoption did not have a material impact on the Company’s financial condition or results of operations.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This update amends the amortization period for certain purchased callable debt securities held at a premium. FASB is shortening the amortization period for the premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. Concerns were raised that current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. There is diversity in practice (1) in the amortization period for premiums of callable debt securities and (2) in how the potential for exercise of a call is factored into current impairment assessments. The amendments in this update became effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. ASU No. 2017-08 was adopted by United on January 1, 2019. The adoption did not have a material impact on the Company’s financial condition or results of operations.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350).” ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 is effective for United on January 1, 2020, with early adoption permitted, and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.” ASU No. 2016-13 changes the impairment model for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available for sale debt securities rather than reduce the carrying amount under the current other-than-temporary impairment (OTTI) model. ASU No. 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU No. 2016-13 is effective for United on January 1, 2020, with early adoption permitted. United has completed an initial data gap assessment and loan segmentation procedures, and is currently evaluating the various forecasting and modeling assumptions that will be used to estimate the initial current expected credit loss allowance. United has engaged a third-party service provider to assist with the implementation of the new accounting standard. Management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU No. 2016-02 includes a lessee accounting model that recognizes two types of leases, finance leases and operating leases, while lessor accounting will remain largely unchanged from the current GAAP. ASU No. 2016-02 requires, amongst other things, that a lessee recognize on the balance sheet a right-of-use asset and a lease liability for leases with terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. In July 2018, the FASB issued ASU No. 2018-11 “Leases (Topic 842), Targeted Improvements.” This update creates an additional transition method, and a lessor practical expedient to not separate lease and non-lease components if specified criteria are met. The new transition method allows companies to use the effective date of the new leases standard as the date of initial application transition. Companies that elect this transition option will not adjust their comparative period financial information for the effect of ASC Topic 842, nor will they make the new required lease disclosure for periods before the effective date. In addition, these companies will carry forward their ASC Topic 840 disclosures for comparative periods. The practical expedient permits lessors to make an accounting policy election by class of underlying asset to not separate lease and non-lease components if specified criteria are met. In July 2018, the FASB issued ASU No. 2018-10 “Codification Improvements to ASC Topic 842, Leases.” This update includes narrow amendments to clarify how to apply certain aspects of the new leases standard. The amendments address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. ASU 2018-10 does not make any substantive changes to the core provisions or principals of the new leases standard. United adopted the standard using the modified retrospective transition method on January 1, 2019. The Company evaluated and elected the package of practical expedients, which allows for existing leases to be accounted for consistent with current guidance, with the exception of the balance sheet recognition for lessees. The Company has also elected the practical expedient on not separating lease and nonlease components and instead treating them as a single lease component. Adoption of the standard resulted in the recognition of additional net lease assets and lease liabilities of $67,040 and $70,692, respectively, as of January 1, 2019. Of the difference between these two amounts, $1,049 was recorded as an adjustment to retained earnings.

2. INVESTMENT SECURITIES

Securities Available for Sale

Securities held for indefinite periods of time are classified as available for sale and carried at estimated fair value. The amortized cost and estimated fair values of securities available for sale are summarized as follows.


	March 31, 2019
			Gross		Gross		Estimated		Cumulative
	Amortized		Unrealized		Unrealized		Fair		OTTI in
	Cost		Gains		Losses		Value		AOCI⁽¹⁾
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	73,348	$	281	$	85	$	73,544	$	0
State and political subdivisions		194,595		1,802		1,585		194,812		0
Residential mortgage-backed securities
Agency		971,182		5,787		7,453		969,516		0
Non-agency		3,782		325		0		4,107		86
Commercial mortgage-backed securities
Agency		579,896		3,200		2,758		580,338		0
Asset-backed securities		272,473		25		1,821		270,677		0
Trust preferred collateralized debt obligations		6,176		91		250		6,017		2,586
Single issue trust preferred securities		18,173		174		1,506		16,841		0
Other corporate securities		266,385		1,920		102		268,203		0

Total	$	2,386,010	$	13,605	$	15,560	$	2,384,055	$	2,672


	December 31, 2018
			Gross		Gross		Estimated		Cumulative
	Amortized		Unrealized		Unrealized		Fair		OTTI in
	Cost		Gains		Losses		Value		AOCI⁽¹⁾
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	86,285	$	35	$	430	$	85,890	$	0
State and political subdivisions		212,670		439		4,121		208,988		0
Residential mortgage-backed securities
Agency		1,047,345		3,235		14,930		1,035,650		0
Non-agency		3,927		332		0		4,259		86
Commercial mortgage-backed securities
Agency		560,634		996		7,030		554,600		0
Asset-backed securities		272,459		450		939		271,970		0
Trust preferred collateralized debt obligations		6,176		91		350		5,917		2,586
Single issue trust preferred securities		8,754		169		561		8,362		0
Other corporate securities		162,634		118		1,349		161,403		0

Total	$	2,360,884	$	5,865	$	29,710	$	2,337,039	$	2,672

(1)	Non-credit related other-than-temporary impairment in accumulated other comprehensive income. Amounts are before-tax.

The following is a summary of securities available for sale which were in an unrealized loss position at March 31, 2019 and December 31, 2018.


	Less than 12 months				12 months or longer
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
March 31, 2019
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	2,486	$	1	$	11,304	$	84
State and political subdivisions		611		1		82,395		1,584
Residential mortgage-backed securities
Agency		16,753		22		564,012		7,431
Non-agency		0		0		0		0
Commercial mortgage-backed securities
Agency		44,978		51		317,211		2,707
Asset-backed securities		256,733		1,763		7,480		58
Trust preferred collateralized debt obligations		0		0		2,250		250
Single issue trust preferred securities		0		0		13,634		1,506
Other corporate securities		23,404		68		11,949		34

Total	$	344,965	$	1,906	$	1,010,235	$	13,654


	Less than 12 months				12 months or longer
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
December 31, 2018
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	66,072	$	250	$	7,374	$	180
State and political subdivisions		53,421		544		94,337		3,577
Residential mortgage-backed securities
Agency		195,009		1,597		508,041		13,333
Non-agency		0		0		0		0
Commercial mortgage-backed securities
Agency		107,443		1,124		294,129		5,906
Asset-backed securities		151,427		939		0		0
Trust preferred collateralized debt obligations		0		0		2,150		350
Single issue trust preferred securities		0		0		5,163		561
Other corporate securities		129,709		1,233		6,879		116

Total	$	703,081	$	5,687	$	918,073	$	24,023

The following table shows the proceeds from maturities, sales and calls of available for sale securities and the gross realized gains and losses on sales and calls of those securities that have been included in earnings as a result of any sales and calls. Gains or losses on sales and calls of available for sale securities were recognized by the specific identification method. The realized losses relate to sales of securities within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers and its subsidiaries.


	Three Months Ended March 31
	2019		2018
Proceeds from sales and calls	$	196,331	$	99,703
Gross realized gains		15		1,163
Gross realized losses		364		1,312

At March 31, 2019, gross unrealized losses on available for sale securities were $15,560 on 456 securities of a total portfolio of 842 available for sale securities. Securities in an unrealized loss position at March 31, 2019 consisted primarily of agency commercial and residential mortgage-backed securities. The agency commercial and residential mortgage-backed securities relate to commercial and residential properties and provide a guaranty of full and timely payments of principal and interest by the issuing agency.

In determining whether or not a security is other-than-temporarily impaired (OTTI), management considered the severity and the duration of the loss in conjunction with United’s positive intent and the more likely than not ability to hold these securities to recovery of their cost basis or maturity.

State and political subdivisions

United’s state and political subdivisions portfolio relates to securities issued by various municipalities located throughout the United States. The total amortized cost of available for sale state and political subdivision securities was $194,595 at March 31, 2019. As of March 31, 2019, approximately 78% of the portfolio was supported by the general obligation of the issuing municipality, which allows for the securities to be repaid by any means available to the municipality. The majority of the portfolio was rated AA or higher, and less than one percent of the portfolio was rated below investment grade as of March 31, 2019. In addition to monitoring the credit ratings of these securities, management also evaluates the financial performance of the underlying issuers on an ongoing basis. Based upon management’s analysis and judgment, it was determined that none of the state and political subdivision securities were other-than-temporarily impaired at March 31, 2019.

Agency mortgage-backed securities

United’s agency mortgage-backed securities portfolio relates to securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. The total amortized cost of available for sale agency mortgage-backed securities was $1,551,078 at March 31, 2019. Of the $1,551,078 amount, $579,896 was related to agency commercial mortgage-backed securities and $971,182 was related to agency residential mortgage-backed securities. Each of the agency mortgage-backed securities provides a guarantee of full and timely payments of principal and interest by the issuing agency. Based upon management’s analysis and judgment, it was determined that none of the agency mortgage-backed securities were other-than-temporarily impaired at March 31, 2019.

Non-agency residential mortgage-backed securities

United’s non-agency residential mortgage-backed securities portfolio relates to securities of various private label issuers. The total amortized cost of available for sale non-agency residential mortgage-backed securities was $3,782 at March 31, 2019. Of the $3,782 amount, $45 was rated above investment grade and $3,737 was rated below investment grade. The entire portfolio of the non-agency residential mortgage-backed securities are either the senior or super-senior tranches of their respective structure. Based upon management’s analysis and judgment, it was determined that none of the non-agency mortgage-backed securities were other-than-temporarily impaired at March 31, 2019.

Single issue trust preferred securities

The majority of United’s single issue trust preferred portfolio consists of obligations from large cap banks (i.e. banks with market capitalization in excess of $10 billion). All single issue trust preferred securities are currently receiving interest payments. The amortized cost of available for sale single issue trust preferred securities as of March 31, 2019 consisted of $4,033 in investment grade bonds, $5,934 in split rated bonds, $2,479 in below investment grade rated bonds, and $5,727 in unrated bonds. Management reviews each issuer’s current and projected earnings trends, asset quality, capitalization levels, and other key factors. Upon completing the review for the first quarter of 2019, it was determined that none of the single issue trust preferred securities were other-than-temporarily impaired.

Trust preferred collateralized debt obligations (Trup Cdos)

The total amortized cost balance of United’s Trup Cdo portfolio was $6,176 as of March 31, 2019. For any securities in an unrealized loss position, the Company first assesses its intentions regarding any sale of securities as well as the likelihood that it would be required to sell prior to recovery of the amortized cost. As of March 31, 2019, the Company has determined that it does not intend to sell any Trup Cdo and that it is not more likely than not that the Company will be required to sell such securities before recovery of their amortized cost.

To determine a net realizable value and assess whether other-than-temporary impairment existed, management performed detailed cash flow analysis to determine whether, in management’s judgment, it was more likely that United would not recover the entire amortized cost basis of the security. Except for the debt securities that have already been deemed to be other-than-temporarily impaired, management does not believe any other individual security with an unrealized loss as of March 31, 2019 is other-than-temporarily impaired.

Corporate securities

As of March 31, 2019, United’s Corporate securities portfolio had a total amortized cost balance of $266,385. The majority of the portfolio consisted of debt issuances of corporations representing a variety of industries, including financial institutions. Of the $266,385, 92% was investment grade rated and 8% was unrated. For corporate securities, management has evaluated the near-term prospects of the investment in relation to the severity and duration of any impairment. Based upon management’s analysis and judgment, it was determined that none of the other corporate securities were other-than-temporarily impaired at March 31, 2019.

Below is a progression of the credit losses on securities which United has recorded other-than-temporary charges. These charges were recorded through earnings and other comprehensive income.


	Three Months Ended March 31
	2019		2018
Balance of cumulative credit losses at beginning of period	$	3,138	$	18,060
Additions for credit losses recognized in earnings during the period:
Additional credit losses on securities for which OTTI was previously recognized		0		0
Reductions for securities sold or paid off during the period		0		(14,861	)

Balance of cumulative credit losses at end of period	$	3,138	$	3,199

The amortized cost and estimated fair value of securities available for sale at March 31, 2019 and December 31, 2018 by contractual maturity are shown as follows. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.


	March 31, 2019				December 31, 2018
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	112,605	$	112,304	$	77,534	$	77,266
Due after one year through five years		582,295		583,701		518,975		514,734
Due after five years through ten years		513,457		512,919		483,567		477,135
Due after ten years		1,177,653		1,175,131		1,280,808		1,267,904

Total	$	2,386,010	$	2,384,055	$	2,360,884	$	2,337,039

Securities Held to Maturity

The amortized cost and estimated fair values of securities held to maturity are summarized as follows:


	March 31, 2019
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,045	$	58	$	0	$	5,103
State and political subdivisions		3,426		0		0		3,426
Residential mortgage-backed securities
Agency		0		0		0		0
Single issue trust preferred securities		0		0		0		0
Other corporate securities		20		0		0		20

Total	$	8,491	$	58	$	0	$	8,549


	December 31, 2018
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,074	$	90	$	0	$	5,164
State and political subdivisions		5,473		7		1		5,479
Residential mortgage-backed securities
Agency		20		2		0		22
Single issue trust preferred securities		9,412		0		1,442		7,970
Other corporate securities		20		0		0		20

Total	$	19,999	$	99	$	1,443	$	18,655

Even though the market value of the held to maturity investment portfolio is less than its cost, the unrealized loss has no impact on the net worth or regulatory capital requirements of United.

There were no gross realized gains or losses on calls and sales of held to maturity securities included in earnings for the first quarter of 2019 and 2018.

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2019 and December 31, 2018 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.


	March 31, 2019				December 31, 2018
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	7,255	$	7,312	$	7,913	$	8,005
Due after one year through five years		216		217		1,059		1,061
Due after five years through ten years		0		0		8,030		7,134
Due after ten years		1,020		1,020		2,997		2,455

Total	$	8,491	$	8,549	$	19,999	$	18,655

Equity securities at fair value

Equity securities consist mainly of equity securities of financial institutions and mutual funds within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. The fair value of United’s equity securities was $9,921 at March 31, 2019 and $9,734 at December 31, 2018.


	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Net gains (losses) recognized during the period	$	189	$	(36	)
Net gains (losses) recognized during the period on equity securities sold		132		2
Unrealized gains recognized during the period on equity securities still held at period end		58		39
Unrealized losses recognized during the period on equity securities still held at period end		1		77

Other investment securities

During the first quarter of 2019, United evaluated all of its cost method investments to determine if certain events or changes in circumstances during the first quarter of 2019 had a significant adverse effect on the fair value of any of its cost method securities. United determined that there was no individual security that experienced an adverse event during the first quarter. There were no other events or changes in circumstances during the first quarter which would have an adverse effect on the fair value of its cost method securities.

The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $1,697,239 and $1,887,176 at March 31, 2019 and December 31, 2018, respectively.

3. LOANS

Major classes of loans are as follows:


	March 31, 2019		December 31, 2018
Commercial, financial and agricultural:
Owner-occupied commercial real estate	$	1,275,340	$	1,291,790
Nonowner-occupied commercial real estate		4,266,613		4,303,613
Other commercial loans		1,996,482		1,957,641

Total commercial, financial & agricultural		7,538,435		7,553,044
Residential real estate		3,550,037		3,501,393
Construction & land development		1,487,453		1,410,468
Consumer:
Bankcard		9,247		10,203
Other consumer		993,046		954,424

Total gross loans	$	13,578,218	$	13,429,532

The table above does not include loans held for sale of $245,763 and $249,846 at March 31, 2019 and December 31, 2018, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.

The outstanding balances in the table above include previously acquired impaired loans with a recorded investment of $144,391 or 1.06% of total gross loans at March 31, 2019 and $149,737 or 1.12% of total gross loans at December 31, 2018. The contractual principal in these acquired impaired loans was $186,540 and $195,706 at March 31, 2019 and December 31, 2018, respectively. The balances above do not include future accretable net interest (i.e. the difference between the undiscounted expected cash flows and the recorded investment in the loan) on the acquired impaired loans.

Activity for the accretable yield for the first three months of 2019 follows:


Accretable yield at the beginning of the period	$	26,289
Accretion (including cash recoveries)		(3,052	)
Additions		0
Net reclassifications to accretable from non-accretable		4,223
Disposals (including maturities, foreclosures, and charge-offs)		(1,471	)

Accretable yield at the end of the period	$	25,989

United’s subsidiary bank has made loans to the directors and officers of United and its subsidiaries, and to their affiliates. The aggregate dollar amount of these loans was $90,485 and $93,282 at March 31, 2019 and December 31, 2018, respectively.

4. CREDIT QUALITY

Management monitors the credit quality of its loans on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.

For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on nonaccrual status. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. However, regardless of delinquency status, if a loan is fully secured and in the process of collection and resolution of collection is expected in the near term (generally less than 90 days), then the loan will not be placed on nonaccrual status. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. United’s method of income recognition for loans that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. Nonaccrual loans will not normally be returned to accrual status unless all past due principal and interest has been paid and the borrower has evidenced their ability to meet the contractual provisions of the note.

A loan is categorized as a troubled debt restructuring (TDR) if a concession is granted and there is deterioration in the financial condition of the borrower. TDRs can take the form of a reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary terms on the other loan, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, the reduction of accrued interest or any other concessionary type of renegotiated debt. As of March 31, 2019, United had TDRs of $56,778 as compared to $59,425 as of December 31, 2018. Of the $56,778 aggregate balance of TDRs at March 31, 2019, $47,459 was on nonaccrual and $265 were 90 days or more past due. Of the $59,425 aggregate balance of TDRs at December 31, 2018, $48,899 were on nonaccrual and $690 were 90 days or more past due. All these amounts are included in the appropriate categories in the “Age Analysis of Past Due Loans” table on a subsequent page. As of March 31, 2019, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At March 31, 2019, United had restructured loans in the amount of $1,846 that were modified by a reduction in the interest rate, $1,809 that were modified by a combination of a reduction in the interest rate and the principal and $53,123 that were modified by a change in terms.

A loan acquired and accounted for under ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” is reported as an accruing loan and a performing asset unless it does not perform in accordance with its restructured contractual provisions.

The following table sets forth United’s troubled debt restructurings that were restructured during the three months ended March 31, 2019, segregated by class of loans. No loans were restructured during the first quarter of 2018.


	Troubled Debt Restructurings For the Three Months Ended
	March 31, 2019
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate:
Owner-occupied		0	$	0	$	0
Nonowner-occupied		0		0		0
Other commercial		1		265		265
Residential real estate		1		413		409
Construction & land development		0		0		0
Consumer:
Bankcard		0		0		0
Other consumer		0		0		0

Total		2	$	678	$	674

During the first quarter of 2019, $265 of restructured loans were modified by a reduction in the interest rate and $409 of restructured loans were modified by a change in terms. In some instances, the post-modification balance on the restructured loans is larger than the pre-modification balance due to the advancement of monies for items such as delinquent taxes on real estate property. The loans were evaluated individually for allocation within United’s allowance for loan losses. The modifications had an immaterial impact on the financial condition and results of operations for United.

No loans restructured during the twelve-month periods ended March 31, 2019 and 2018 subsequently defaulted, resulting in a principal charge-off during the first quarters of 2019 and 2018.

The following table sets forth United’s age analysis of its past due loans, segregated by class of loans:

Age Analysis of Past Due Loans

As of March 31, 2019


	30-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current & Other (1)		Total Financing Receivables		Recorded Investment >90 Days & Accruing
Commercial real estate:
Owner-occupied	$	8,246	$	16,477	$	24,723	$	1,250,617	$	1,275,340	$	0
Nonowner-occupied		16,642		20,073		36,715		4,229,898		4,266,613		3,433
Other commercial		5,292		44,467		49,759		1,946,723		1,996,482		1,238
Residential real estate		38,179		27,389		65,568		3,484,469		3,550,037		9,735
Construction & land development		5,986		17,373		23,359		1,464,094		1,487,453		861
Consumer:
Bankcard		377		118		495		8,752		9,247		118
Other consumer		6,987		801		7,788		985,258		993,046		452

Total	$	81,709	$	126,698	$	208,407	$	13,369,811	$	13,578,218	$	15,837

(1)	Other includes loans with a recorded investment of $144,391 acquired and accounted for under ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.

Age Analysis of Past Due Loans

As of December 31, 2018


	30-89 Days Past Due		90 Days or more Past Due		Total Past Due		Current & Other (1)		Total Financing Receivables		Recorded Investment >90 Days & Accruing
Commercial real estate:
Owner-occupied	$	9,224	$	17,742	$	26,966	$	1,264,824	$	1,291,790	$	629
Nonowner-occupied		16,108		18,092		34,200		4,269,413		4,303,613		1,171
Other commercial		13,556		46,040		59,596		1,898,045		1,957,641		2,850
Residential real estate		37,111		30,278		67,389		3,434,004		3,501,393		9,141
Construction & land development		8,462		19,412		27,874		1,382,594		1,410,468		680
Consumer:
Bankcard		657		177		834		9,369		10,203		177
Other consumer		8,909		1,243		10,152		944,272		954,424		893

Total	$	94,027	$	132,984	$	227,011	$	13,202,521	$	13,429,532	$	15,541

(1)	Other includes loans with a recorded investment of $149,737 acquired and accounted for under ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.

The following table sets forth United’s nonaccrual loans, segregated by class of loans:

Loans on Nonaccrual Status


	March 31, 2019		December 31, 2018
Commercial real estate:
Owner-occupied	$	16,477	$	17,113
Nonowner-occupied		16,640		16,921
Other commercial		43,229		43,190
Residential real estate		17,654		21,137
Construction & land development		16,512		18,732
Consumer:
Bankcard		0		0
Other consumer		349		350

Total	$	110,861	$	117,443

United assigns credit quality indicators of pass, special mention, substandard and doubtful to its loans. For United’s loans with a corporate credit exposure, United internally assigns a grade based on the creditworthiness of the borrower. For loans with a consumer credit exposure, United internally assigns a grade based upon an individual loan’s delinquency status. United reviews and updates, as necessary, these grades on a quarterly basis.

Special mention loans, with a corporate credit exposure, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company’s credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. For loans with a consumer credit exposure, loans that are past due 30-89 days are generally considered special mention.

A substandard loan with a corporate credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. They require more intensive

supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard.

A loan with corporate credit exposure is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, there are not any loans with a consumer credit exposure that are classified as doubtful. Usually, they are charged-off prior to such a classification. Loans classified as doubtful are also considered impaired.

The following tables set forth United’s credit quality indicators information, by class of loans:

Credit Quality Indicators

Corporate Credit Exposure


As of March 31, 2019
	Commercial Real Estate				Other Commercial		Construction & Land Development
	Owner- occupied		Nonowner- occupied		Other Commercial		Construction & Land Development
Grade:
Pass	$	1,186,841	$	4,143,459	$	1,899,853	$	1,408,268
Special mention		35,025		37,068		18,688		6,350
Substandard		53,474		86,086		77,130		72,835
Doubtful		0		0		811		0

Total	$	1,275,340	$	4,266,613	$	1,996,482	$	1,487,453


As of December 31, 2018
	Commercial Real Estate				Other Commercial		Construction & Land Development
	Owner- occupied		Nonowner- occupied		Other Commercial		Construction & Land Development
Grade:
Pass	$	1,201,387	$	4,161,149	$	1,858,821	$	1,330,899
Special mention		34,487		46,442		14,424		28,629
Substandard		55,916		96,022		81,946		50,940
Doubtful		0		0		2,450		0

Total	$	1,291,790	$	4,303,613	$	1,957,641	$	1,410,468

Credit Quality Indicators

Consumer Credit Exposure


As of March 31, 2019
	Residential Real Estate		Bankcard		Other Consumer
Grade:
Pass	$	3,492,494	$	8,752	$	985,222
Special mention		12,234		377		6,993
Substandard		45,309		118		831
Doubtful		0		0		0

Total	$	3,550,037	$	9,247	$	993,046


As of December 31, 2018
	Residential Real Estate		Bankcard		Other Consumer
Grade:
Pass	$	3,436,584	$	9,369	$	944,241
Special mention		19,051		657		8,914
Substandard		45,758		177		1.269
Doubtful		0		0		0

Total	$	3,501,393	$	10,203	$	954,424

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, United does not consider loans for impairment unless a sustained period of delinquency (i.e. 90 days or more) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent foreclosure proceedings, etc.). Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Consistent with United’s existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

The following table sets forth United’s impaired loans information, by class of loans:


	Impaired Loans
	March 31, 2019						December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate:
Owner-occupied	$	68,153	$	69,637	$	0	$	63,633	$	63,798	$	0
Nonowner-occupied		86,515		86,574		0		98,845		98,904		0
Other commercial		42,198		44,656		0		40,291		50,459		0
Residential real estate		29,603		29,712		0		28,207		29,279		0
Construction & land development		36,440		40,249		0		37,174		40,459		0
Consumer:
Bankcard		0		0		0		0		0		0
Other consumer		27		27		0		27		27		0
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	5,482	$	5,482	$	1,485	$	10,004	$	10,004	$	2,542
Nonowner-occupied		14,050		14,050		2,571		15,720		15,720		2,715
Other commercial		48,117		50,327		14,699		61,266		62,812		17,581
Residential real estate		16,889		19,440		3,694		19,623		22,064		3,265
Construction & land development		14,740		19,444		2,225		14,742		19,446		2,254


	Impaired Loans
	March 31, 2019						December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Consumer:
Bankcard		0		0		0		0		0		0
Other consumer		0		0		0		0		0		0
Total:
Commercial real estate:
Owner-occupied	$	73,635	$	75,119	$	1,485	$	73,637	$	73,802	$	2,542
Nonowner-occupied		100,565		100,624		2,571		114,565		114,624		2,715
Other commercial		90,315		94,983		14,699		101,557		113,271		17,581
Residential real estate		46,492		49,152		3,694		47,830		51,343		3,265
Construction & land development		51,180		59,693		2,225		51,916		59,905		2,254
Consumer:
Bankcard		0		0		0		0		0		0
Other consumer		27		27		0		27		27		0


	Impaired Loans
	For the Three Months Ended
	March 31, 2019				March 31, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate:
Owner-occupied	$	65,893	$	363	$	76,947	$	377
Nonowner-occupied		92,680		250		125,863		120
Other commercial		41,244		139		49,693		206
Residential real estate		28,905		182		25,437		83
Construction & land development		36,807		217		50,300		103
Consumer:
Bankcard		0		0		0		0
Other consumer		27		0		28		0
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	7,743	$	6	$	7,502	$	25
Nonowner-occupied		14,885		91		8,170		59
Other commercial		54,692		153		54,297		19
Residential real estate		18,256		92		10,850		0
Construction & land development		14,741		20		1,699		20
Consumer:
Bankcard		0		0		0		0
Other consumer		0		0		0		0
Total:
Commercial real estate:
Owner-occupied	$	73,636	$	369	$	84,449	$	402
Nonowner-occupied		107,565		341		134,033		179
Other commercial		95,936		292		103,990		225
Residential real estate		47,161		274		36,287		83
Construction & land development		51,548		237		51,999		123
Consumer:
Bankcard		0		0		0		0
Other consumer		27		0		28		0

At March 31, 2019 and December 31, 2018, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $17,465 and $16,865, respectively. OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Any adjustment to the fair value at the date of transfer is charged against the allowance for loan losses. Any subsequent valuation adjustments as well as any costs relating to operating,

holding or disposing of the property are recorded in other expense in the period incurred. At March 31, 2019 and December 31, 2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $263 and $520, respectively.

5. ALLOWANCE FOR CREDIT LOSSES

The allowance for loan losses is management’s estimate of the probable credit losses inherent in the loan portfolio. For purposes of determining the general allowance, the loan portfolio is segregated by product type to recognize differing risk profiles among categories. It is further segregated by credit grade for non-homogenous loan pools and delinquency for homogeneous loan pools. The outstanding principal balance within each pool is multiplied by historical loss data, the loss emergence period (which is the period of time between the event that triggers a loss and the confirmation and/or charge off of that loss) and certain qualitative factors to derive the general loss allocation per pool. Specific loss allocations are calculated for commercial loans in excess of $500,000 in accordance with ASC Topic 310. Risk characteristics of owner-occupied commercial real estate loans and other commercial loans are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Nonowner-occupied commercial real estate loans differ in that cash flow to service debt is normally dependent on external income from third parties for use of the real estate such as rents, leases and room rates. Residential real estate loans are dependent upon individual borrowers who are affected by changes in general economic conditions, demand for housing and resulting residential real estate valuation. Construction and land development loans are impacted mainly by demand whether for new residential housing or for retail, industrial, office and other types of commercial construction within a given area. Consumer loan pool risk characteristics are influenced by general, regional and local economic conditions.

Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. For commercial loans, when a loan or a portion of a loan is identified to contain a loss, a charge-off recommendation is directed to management to charge-off all or a portion of that loan. Generally, any unsecured commercial loan more than six months delinquent in payment of interest must be charged-off in full. If secured, the charge-off is generally made to reduce the loan balance to a level equal to the liquidation value of the collateral when payment of principal and interest is six months delinquent. Any commercial loan, secured or unsecured, on which a principal or interest payment has not been made within 90 days, is reviewed monthly for appropriate action.

For consumer loans, closed-end retail loans that are past due 120 cumulative days delinquent from the contractual due date and open-end loans 180 cumulative days delinquent from the contractual due date are charged-off. Any consumer loan on which a principal or interest payment has not been made within 90 days is reviewed monthly for appropriate action. For a one-to-four family open-end or closed-end residential real estate loan, home equity loan, or high-loan-to-value loan that has reached 180 or more days past due, management evaluates the collateral position and charges-off any amount that exceeds the value of the collateral. On retail credits for which the borrower is in bankruptcy, all amounts deemed unrecoverable are charged off within 60 days of the receipt of the notification. On retail credits effected by fraud, a loan is charged-off within 90 days of the discovery of the fraud. In the event of the borrower’s death and if repayment within the required timeframe is uncertain, the loan is generally charged-off as soon as the amount of the loss is determined.

For loans acquired through the completion of a transfer, including loans acquired in a business combination, that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that United will be unable to collect all contractually required payment receivable are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not

recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received). For the three months ended March 31, 2019 and 2018, the amount of provision for loan losses related to loans acquired that have evidence of deterioration of credit quality resulted in provision for loan losses expense of $1,637 and $1,279, respectively.

United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. The reserve for lending-related commitments of $1,461 and $1,389 at March 31, 2019 and December 31, 2018, respectively, is separately classified on the balance sheet and is included in other liabilities. The combined allowance for loan losses and reserve for lending-related commitments are referred to as the allowance for credit losses.

A progression of the allowance for loan losses, by portfolio segment, for the periods indicated is summarized as follows:

Allowance for Loan Losses and Carrying Amount of Loans

For the Three Months Ended March 31, 2019


	Commercial Real Estate										Construction					Allowance for
	Owner- occupied		Nonowner- occupied			Other Commercial			Residential Real Estate		& Land Development			Consumer		Estimated Imprecision		Total
Allowance for Loan Losses:
Beginning balance	$	5,063	$	6,919		$	41,341		$	12,448	$	7,992		$	2,695	$	245	$	76,703
Charge-offs		3,737		0			934			441		565			737		0		6,414
Recoveries		904		19			297			85		113			183		0		1,601
Provision		3,934		(220	)		(40	)		930		(354	)		607		139		4,996

Ending balance	$	6,164	$	6,718		$	40,664		$	13,022	$	7,186		$	2,748	$	384	$	76,886

Ending Balance: individually evaluated for impairment	$	1,485	$	2,571		$	14,699		$	3,694	$	2,225		$	0	$	0	$	24,674
Ending Balance: collectively evaluated for impairment	$	4,679	$	4,147		$	25,965		$	9,328	$	4,961		$	2,748	$	384	$	52,212
Ending Balance: loans acquired with deteriorated credit quality	$	0	$	0		$	0		$	0	$	0		$	0	$	0	$	0
Financing receivables:
Ending balance	$	1,275,340	$	4,266,613		$	1,996,482		$	3,550,037	$	1,487,453		$	1,002,293	$	0	$	13,578,218
Ending Balance: individually evaluated for impairment	$	26,820	$	25,300		$	60,451		$	20,355	$	14,740		$	0	$	0	$	147,666
Ending Balance: collectively evaluated for impairment	$	1,219,621	$	4,181,511		$	1,911,199		$	3,518,699	$	1,452,865		$	1,002,266	$	0	$	13,286,161
Ending Balance: loans acquired with deteriorated credit quality	$	28,899	$	59,802		$	24,832		$	10,983	$	19,848		$	27	$	0	$	144,391

Allowance for Loan Losses and Carrying Amount of Loans

For the Year Ended December 31, 2018


	Commercial Real Estate								Construction				Allowance for
	Owner- occupied		Nonowner- occupied		Other Commercial		Residential Real Estate		& Land Development		Consumer		Estimated Imprecision		Total
Allowance for Loan Losses:
Beginning balance	$	5,401	$	6,369	$	45,189	$	9,927	$	7,187	$	2,481	$	73	$	76,627
Charge-offs		3,225		314		16,424		3,162		2,731		2,750		0		28,606
Recoveries		1,189		563		2,944		1,114		197		662		0		6,669
Provision		1,698		301		9,632		4,569		3,339		2,302		172		22,013

Ending balance	$	5,063	$	6,919	$	41,341	$	12,448	$	7,992	$	2,695	$	245	$	76,703

Ending Balance: individually evaluated for impairment	$	2,543	$	2,715	$	17,581	$	3,265	$	2,254	$	0	$	0	$	28,358
Ending Balance: collectively evaluated for impairment	$	2,520	$	4,204	$	23,760	$	9,183	$	5,738	$	2,695	$	245	$	48,345
Ending Balance: loans acquired with deteriorated credit quality	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Financing receivables:
Ending balance	$	1,291,790	$	4,303,613	$	1,957,641	$	3,501,393	$	1,410,468	$	964,627	$	0	$	13,429,532
Ending Balance: individually evaluated for impairment	$	27,599	$	25,231	$	72,300	$	21,998	$	14,807	$	0	$	0	$	161,935
Ending Balance: collectively evaluated for impairment	$	1,234,919	$	4,215,060	$	1,860,085	$	3,468,356	$	1,374,840	$	964,600	$	0	$	13,117,860
Ending Balance: loans acquired with deteriorated credit quality	$	29,272	$	63,322	$	25,256	$	11,039	$	20,821	$	27	$	0	$	149,737

6. INTANGIBLE ASSETS

The following is a summary of intangible assets subject to amortization and those not subject to amortization:


	March 31, 2019
	Community Banking					Mortgage Banking					Total
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Core deposit intangible assets	$	98,359	($	64,246	)	$	0	($	0	)	$	98,359	($	64,246	)

Non-amortized intangible assets:
George Mason trade name	$	0				$	1,080				$	1,080

Goodwill not subject to amortization	$	1,472,699				$	5,315				$	1,478,014


	December 31, 2018
	Community Banking					Mortgage Banking					Total
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Core deposit intangible assets	$	98,359	($	62,492	)	$	0	$	0		$	98,359	($	62,492	)

Non-amortized intangible assets:
George Mason trade name	$	0				$	1,080				$	1,080

Goodwill not subject to amortization	$	1,472,699				$	5,315				$	1,478,014

The following table provides a reconciliation of goodwill:


	Community Banking		Mortgage Banking		Total
Goodwill at December 31, 2018	$	1,472,699	$	5,315	$	1,478,014
Addition to goodwill		0		0		0

Goodwill at March 31, 2019	$	1,472,699	$	5,315	$	1,478,014

United incurred amortization expense of $1,754 and $2,010 for the quarters ended March 31, 2019 and 2018, respectively.

The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2018:


Year	Amount
2019	$	7,016
2020		6,309
2021		5,369
2022		4,581
2023 and thereafter		12,592

7. LEASES

United determines if an arrangement is a lease at inception. United and certain subsidiaries have entered into various noncancelable-operating leases for branch and loan production offices as well as operating facilities. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Consolidated Balance Sheets. Operating leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. Presently, United does not have any finance leases.

United’s operating leases are subject to renewal options under various terms. United’s operating leases have remaining terms of 1 to 14 years, some of which include options to extend leases generally for periods of 5 years. United rents or subleases certain real estate to third parties. Our sublease portfolio consists of operating leases to other organizations for former branch offices.

ROU assets represent United’s right to use an underlying asset for the lease term and lease liabilities represent United’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of United’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend the lease when it is reasonably certain that United will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The components of lease expense were as follows:


			Three Months Ended
	Classification		March 31, 2019
Operating lease cost		Net occupancy expense	$	4,821
Sublease income		Net occupancy expense		(276	)

Net lease cost			$	4,545

Supplemental balance sheet information related to leases was as follows:


	Classification	March 31, 2019
Operating lease right-of-use assets	Operating lease right-of-use assets	$	63,119
Operating lease liabilities	Operating lease liabilities	$	66,871

Other information related to leases was as follows:


	March 31, 2019
Weighted-average remaining lease term:
Operating leases		5.1 years
Weighted-average discount rate:
Operating leases		3.29	%

Supplemental cash flow information related to leases was as follows:


	Three Months Ended
	March 31, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,718
ROU assets obtained in the exchange for lease liabilties		202

Maturities of lease liabilities by year and in the aggregate, under operating leases with initial or remaining terms of one year or more, for years subsequent to December 31, 2018, consists of the following as of March 31, 2019 and December 31, 2018:


	Amount
Year	As of March 31, 2019			As of December 31, 2018
2019	$	14,049		$	18,590
2020		16,402			16,359
2021		13,894			13,850
2022		10,313			10,269
2023		7,644			7,600
Thereafter		10,654			10,640
Total lease payments		72,956			77,308

Less: imputed interest		(6,085	)		(0	)

Total	$	66,871		$	77,308

8. SHORT-TERM BORROWINGS

Federal funds purchased and securities sold under agreements to repurchase are a significant source of funds for the Company. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $230,000. These lines of credit, which bear interest at prevailing market rates, permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions. At March 31, 2019, United did not have any federal funds purchased while total securities sold under agreements to repurchase (REPOs) were $127,821. The securities sold under agreements to repurchase were accounted for as collateralized financial transactions. They were recorded at the amounts at which the securities were acquired or sold plus accrued interest.

United has a $20,000 line of credit with an unrelated financial institution to provide for general liquidity needs. The line is an unsecured, revolving line of credit. The line will be renewable on a 360-day basis and will carry an indexed, floating-rate of interest. The line requires compliance with various financial and nonfinancial covenants. At March 31, 2019, United had no outstanding balance under this line of credit.

9. LONG-TERM BORROWINGS

United’s subsidiary bank is a member of the Federal Home Loan Bank (“FHLB”). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a mix of single-family residential mortgage loans, commercial loans and investment securities. At March 31, 2019, United had an unused borrowing amount of approximately $3,696,123 available subject to delivery of collateral after certain trigger points. Advances may be called by the FHLB or redeemed by United based on predefined factors and penalties.

At March 31, 2019, $1,603,615 of FHLB advances with a weighted-average interest rate of 2.41% are scheduled to mature within the next six years.

The scheduled maturities of these FHLB borrowings are as follows:


Year	Amount
2019	$	1,227,181
2020		41,745
2021		302,581
2022		20,873
2023 and thereafter		11,235

Total	$	1,603,615

At March 31, 2019, United had a total of fourteen statutory business trusts that were formed for the purpose of issuing or participating in pools of trust preferred capital securities (“Capital Securities”) with the proceeds invested in junior subordinated debt securities (“Debentures”) of United. The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of United, are the sole assets of the trusts and United’s payment under the Debentures is the sole source of revenue for the trusts. At March 31, 2019 and December 31, 2018, the outstanding balance of the Debentures was $235,220 and $234,905, respectively, and was included in the category of long-term debt on the Consolidated Balance Sheets entitled “Other long-term borrowings.” The Capital Securities are not included as a component of shareholders’ equity in the Consolidated Balance Sheets. United fully and unconditionally guarantees each individual trust’s obligations under the Capital Securities.

Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five years. If interest payments on the subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the subordinated debt is cumulative.

In accordance with the fully-phased in “Basel III Capital Rules” as published by United’s primary federal regulator, the Federal Reserve, United is unable to consider the Capital Securities as Tier 1 capital, but rather the Capital Securities are included as a component of United’s Tier 2 capital. United can include the Capital Securities in its Tier 2 capital on a permanent basis.

10. COMMITMENTS AND CONTINGENT LIABILITIES

United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, and interest rate swap agreements. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.

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. Collateral may be obtained, if deemed necessary, based on management’s credit evaluation of the counterparty.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily, and historically do not, represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation of the counterparty. United had approximately $4,041,076 and $3,826,370 of loan commitments outstanding as of March 31, 2019 and December 31, 2018, respectively, the majority of which contractually expire within one year. Included in the March 31, 2019 amount are commitments to extend credit of $422,953 related to George Mason’s mortgage loan funding commitments and are of a short-term nature.

Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. A commercial letter of credit is issued specifically to facilitate trade or commerce. Typically, under the terms of a commercial letter of credit, a commitment is drawn upon when the underlying transaction is consummated as intended between the customer and a third party. As of March 31, 2019, United had $5,092 of commercial letters of credit outstanding. As of December 31, 2018, United had no outstanding commercial letters of credit. A standby letter of credit is generally contingent upon the failure of a customer to perform according to the terms of an underlying contract with a third party. United has issued standby letters of credit of $131,536 and $141,032 as of March 31, 2019 and December 31, 2018, respectively. In accordance with the Contingencies Topic of the FASB Accounting Standards Codification, United has determined that substantially all of its letters of credit are renewed on an annual basis and the fees associated with these letters of credit are immaterial.

George Mason provides for its estimated exposure to repurchase loans previously sold to investors for which borrowers failed to provide full and accurate information on their loan application or for which appraisals have not been acceptable or where the loan was not underwritten in accordance with the loan program specified by the loan investor, and for other exposure to its investors related to loan sales activities. United evaluates the merits of each claim and estimates its reserve based on actual and expected claims received and considers the historical amounts paid to settle such claims. George Mason has a reserve of $636 as of March 31, 2019.

United has derivative counter-party risk that may arise from the possible inability of George Mason’s third party investors to meet the terms of their forward sales contracts. George Mason works with third-party investors that are generally well-capitalized, are investment grade and exhibit strong financial performance to mitigate this risk. United does not expect any third-party investor to fail to meet its obligation.

United and its subsidiaries are currently involved in various legal proceedings in the normal course of business. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United’s financial position.

11. DERIVATIVE FINANCIAL INSTRUMENTS

United uses derivative instruments to help aid against adverse price changes or interest rate movements on the value of certain assets or liabilities and on future cash flows. These derivatives may consist of interest rate swaps, caps, floors, collars, futures, forward contracts, written and purchased options. United also executes derivative instruments with its commercial banking customers to facilitate its risk management strategies.

United accounts for its derivative financial instruments in accordance with ASC Topic 815 which requires all derivative instruments to be carried at fair value on the balance sheet. United has designated certain derivative instruments used to manage interest rate risk as hedge relationships with certain assets, liabilities or cash flows being hedged. Certain derivatives used for interest rate risk management are not designated in a hedge relationship.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are recorded in income in the same period and in the same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are recorded as a component of other comprehensive income, net of deferred taxes, and reclassified to earnings when the hedged transaction affects earnings. The portion of a hedge that is ineffective is recognized immediately in earnings.

At inception of a hedge relationship, United formally documents the hedged item, the particular risk management objective, the nature of the risk being hedged, the derivative being used, how effectiveness of the hedge will be assessed and how the ineffectiveness of the hedge will be measured. United also assesses hedge effectiveness at inception and on an ongoing basis using regression analysis. Hedge ineffectiveness is measured by using the change in fair value method. The change in fair value method compares the change in the fair value of the hedging derivative to the change in the fair value of the hedged exposure, attributable to changes in the benchmark rate. The portion of a hedge that is ineffective is recognized immediately in earnings.

United through George Mason enters into interest rate lock commitments to finance residential mortgage loans with its customers. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by United. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Market risk on interest rate lock commitments and mortgage loans held for sale is managed using corresponding forward mortgage loan sales contracts. United is a party to these forward mortgage loan sales contracts to sell loans servicing released and short sales of mortgage-backed securities. When the interest rate is locked with the borrower, the rate lock commitment, forward sale agreement, and mortgage-backed security position are undesignated derivatives and marked to fair value through earnings. The fair value of the rate lock derivative includes the servicing premium and the interest spread for the difference between retail and wholesale mortgage rates. Income from mortgage banking activities includes the gain recognized for the period presented and associated elements of fair value.

United sells mortgage loans on either a best efforts or mandatory delivery basis. For loans sold on a mandatory delivery basis, United enters into forward mortgage-backed securities (the “residual hedge”) to mitigate the effect of interest rate risk. Both the rate lock commitment under mandatory delivery and the residual hedge are recorded at fair value through earnings and are not designated as accounting hedges. At the closing of the loan, the loan commitment derivative expires and United records a loan held for sale at fair value and continues to mark these assets to market under the election of fair value option. United closes out of the trading mortgage-backed securities assigned within the residual hedge and replaces the securities with a forward sales contract once a price has been accepted by an investor and recorded at fair value. For those loans selected to be sold under best efforts delivery, at the closing of the loan, the rate lock commitment derivative expires and the Company records a loan held for sale at fair value under the election of fair value option and continues to be obligated under the same forward loan sales contract entered into at inception of the rate lock commitment.

The derivative portfolio also includes derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. For derivatives that are not designated in a hedge relationship, changes in the fair value of the derivatives are recognized in earnings in the same period as the change in fair value. Gains and losses on other derivative financial instruments are included in noninterest income and noninterest expense, respectively.

The following tables disclose the derivative instruments’ location on the Company’s Consolidated Balance Sheets and the notional amount and fair value of those instruments at March 31, 2019 and December 31, 2018.


	Asset Derivatives
	March 31, 2019						December 31, 2018
	Balance Sheet Location		Notional Amount		Fair Value		Balance Sheet Location		Notional Amount		Fair Value
Derivatives designated as hedging instruments Fair Value Hedges:
Interest rate swap contracts (hedging commercial loans)		Other assets	$	67,961	$	431		Other assets	$	85,623	$	1,859

Total derivatives designated as hedging instruments			$	67,961	$	431			$	85,623	$	1,859

Derivatives not designated as hedging instruments
Interest rate swap contracts		Other assets	$	0	$	0		Other assets	$	0	$	0
Forward loan sales commitments		Other assets		24,608		380		Other assets		21,604		542
Interest rate lock commitments		Other assets		181,585		6,684		Other assets		93,955		4,103

Total derivatives not designated as hedging instruments			$	206,193	$	7,064			$	115,559	$	4,645

Total asset derivatives			$	274,154	$	7,495			$	201,182	$	6,504

	Liability Derivatives
	March 31, 2019						December 31, 2018
	Balance Sheet Location		Notional Amount		Fair Value		Balance Sheet Location		Notional Amount		Fair Value
Derivatives designated as hedging instruments Fair Value Hedges:
Interest rate swap contracts (hedging commercial loans)		Other liabilities	$	17,494	$	146		Other liabilities	$	0	$	0

Total derivatives designated as hedging instruments			$	17,494	$	146			$	0	$	0

Derivatives not designated as hedging instruments
Interest rate swap contracts		Other liabilities	$	0	$	0		Other liabilities	$	0	$	0
TBA mortgage-backed securities		Other liabilities		250,510		2,515		Other liabilities		200,281		3,002
Interest rate lock commitments		Other liabilities		0		0		Other liabilities		0		0

Total derivatives not designated as hedging instruments			$	250,510	$	2,515			$	200,281	$	3,002

Total liability derivatives			$	268,004	$	2,661			$	200,281	$	3,002

The following table represents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value accounting relationship as of March 31, 2019.

Derivatives in Fair Value

Hedging Relationships

Location in the Statement
of Condition

March 31, 2019

Carrying Amount
of the Hedged
Assets/(Liabilities)

Cumulative Amount
of Fair Value
Hedging Adjustment
Included in the
Carrying Amount of
the Hedged
Assets/(Liabilities)

Cumulative Amount of
Fair Value Hedging
Adjustment Remaining
for any Hedged Assets/
(Liabilities) for which
Hedge Accounting has
been Discontinued

Interest rate swaps

Loans, net of unearned
income

84,574

285

Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. United’s exposure is limited to the replacement value of the contracts rather than the notional amount of the contract. The Company’s agreements generally contain provisions that limit the unsecured exposure up to an agreed upon threshold. Additionally, the Company attempts to minimize credit risk through certain approval processes established by management.

The effect of United’s derivative financial instruments on its unaudited Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 are presented as follows:


		Three Months Ended
	Income Statement Location	March 31, 2019			March 31, 2018
Derivatives in hedging relationships Fair Value Hedges:
Interest rate swap contracts	Interest and fees on loans	$	(30	)	$	(42	)

Total derivatives in hedging relationships		$	(30	)	$	(42	)

Derivatives not designated as hedging instruments
Forward loan sales commitments	Income from Mortgage Banking Activities	$	380		$	73
TBA mortgage-backed securities	Income from Mortgage Banking Activities		488			(450	)
Interest rate lock commitments	Income from Mortgage Banking Activities		2,037			(1,269	)

Total derivatives not designated as hedging instruments		$	2,905		$	(1,646	)

Total derivatives		$	2,875		$	(1,688	)

12. FAIR VALUE MEASUREMENTS

United determines the fair values of its financial instruments based on the fair value hierarchy established by ASC Topic 820, which also clarifies that 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.

The Fair Value Measurements and Disclosures Topic specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect United’s market assumptions.

The three levels of the fair value hierarchy, based on these two types of inputs, are as follows:


Level 1		-		Valuation is based on quoted prices in active markets for identical assets and liabilities.

When determining the fair value measurements for assets and liabilities, United looks to active and observable markets to price identical assets or liabilities whenever possible and classifies such items in Level 1. When identical assets and liabilities are not traded in active markets, United looks to market observable data for similar assets and liabilities and classifies such items as Level 2. Nevertheless, certain assets and liabilities are not actively traded in observable markets and United must use alternative valuation techniques using unobservable inputs to determine a fair value and classifies such items as Level 3. For assets and liabilities that are not actively traded, the fair value measurement is based primarily upon estimates that require significant judgment. Therefore, the results may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there are inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.

In accordance with ASC Topic 820, the following describes the valuation techniques used by United to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Securities available for sale and equity securities: Securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Using a market approach valuation methodology, third party vendors compile prices based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, and “To Be Announced” prices (Level 2). Management internally reviews the fair values provided by third party vendors on a monthly basis. Management also performs a quarterly price testing analysis at the individual security level which compares the pricing provided by the third party vendors to an independent pricing source’s valuation of the same securities. Variances that are deemed to be material are reviewed by management. Additionally, to further assess the reliability of the information received from third party vendors, management obtains documentation from third party vendors related to the sources, methodologies, and inputs utilized in valuing securities classified as Level 2. Management analyzes this information to ensure the underlying assumptions appear reasonable. Management also obtains an independent service auditor’s report from third party vendors to provide reasonable assurance that appropriate controls are in place over the valuation process. Upon completing its review of the pricing from third party vendors at March 31, 2019, management determined that the prices provided by its third party pricing source were reasonable and in line with management’s expectations for the market values of these securities. Therefore, prices obtained from third party vendors that did not reflect forced liquidation or distressed sales were not adjusted by management at March 31, 2019. Management utilizes a number of factors to determine if a market is inactive, all of which may require a significant level of judgment. Factors that management considers include: a significant widening of the bid-ask spread, a considerable decline in the volume and level of trading activity in the instrument, a significant variance in prices among market participants, and a significant reduction in the level of observable inputs. Any securities available for sale not valued based upon quoted market prices or third party pricing models that consider observable market data are considered Level 3. Currently, United considers its valuation of available for sale Trup Cdos as Level 3. Based upon management’s review of the market conditions for Trup Cdos, it was determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs

and minimizes the use of unobservable inputs is the most representative measurement technique for these securities. The present value technique discounts expected future cash flows of a security to arrive at a present value. Management considers the following items when calculating the appropriate discount rate: the implied rate of return when the market was last active, changes in the implied rate of return as markets moved from very active to inactive, recent changes in credit ratings, and recent activity showing that the market has built in increased liquidity and credit premiums. Management’s internal credit review of each security was also factored in to determine the appropriate discount rate. The credit review considered each security’s collateral, subordination, excess spread, priority of claims, principal and interest.

Loans held for sale: For residential mortgage loans sold in the mortgage banking segment, the loans closed are recorded at fair value using the fair value option which is measured using valuations from investors for loans with similar characteristics adjusted for the Company’s actual sales experience versus the investor’s indicated pricing. These valuations fall into the Level 3 category. The unobservable input is the Company’s historical sales prices. The range of historical sales prices increased the investor’s indicated pricing by a range of 0.02% to 0.52% with a weighted average increase of 0.35%.

Derivatives: United utilizes interest rate swaps to hedge exposure to interest rate risk and variability of cash flows associated to changes in the underlying interest rate of the hedged item. These hedging interest rate swaps are classified as either a fair value hedge or a cash flow hedge. United’s derivative portfolio also includes derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. United utilizes third-party vendors for derivative valuation purposes. These vendors determine the appropriate fair value based on a net present value calculation of the cash flows related to the interest rate swaps using primarily observable market inputs such as interest rate yield curves (Level 2). Valuation adjustments to derivative fair values for liquidity and credit risk are also taken into consideration, as well as the likelihood of default by United and derivative counterparties, the net counterparty exposure and the remaining maturities of the positions. Values obtained from third party vendors are typically not adjusted by management. Management internally reviews the derivative values provided by third party vendors on a quarterly basis. All derivative values are tested for reasonableness by management utilizing a net present value calculation.

For a fair value hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to the hedged financial instrument. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a fair value hedge are offset in current period earnings either in interest income or interest expense depending on the nature of the hedged financial instrument. For a cash flow hedge, the fair value of the interest rate swap is recognized on the balance sheet as either a freestanding asset or liability with a corresponding adjustment to other comprehensive income within shareholders’ equity, net of tax. Subsequent adjustments due to changes in the fair value of a derivative that qualifies as a cash flow hedge are offset to other comprehensive income, net of tax. The portion of a hedge that is ineffective is recognized immediately in earnings.

The Company records its interest rate lock commitments and forward loan sales commitments at fair value determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business, George Mason enters into contractual interest rate lock commitments to extend credit to borrowers with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within the timeframes established by the mortgage companies. All borrowers are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to the investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, George Mason enters into either a forward sales contract to sell loans to investors when using best efforts or a TBA mortgage-backed security under mandatory delivery. As TBA mortgage-backed securities are actively traded in an open market, TBA mortgage-backed securities

fall into a Level 1 category. The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. Under the Company’s best efforts model, the rate lock commitments to borrowers and the forward sales contracts to investors through to the date the loan closes are undesignated derivatives and accordingly, are marked to fair value through earnings. These valuations fall into a Level 2 category. For residential mortgage loans sold in the mortgage banking segment, the interest rate lock commitments are recorded at fair value which is measured using valuations from investors for loans with similar characteristics adjusted for the Company’s actual sales experience versus the investor’s indicated pricing. These valuations fall into the Level 3 category. The unobservable input is the Company’s historical sales prices. The range of historical sales prices increased the investor’s indicated pricing by a range of 0.02% to 0.52% with a weighted average increase of 0.35%.

For interest rate swap derivatives that are not designated in a hedge relationship, changes in the fair value of the derivatives are recognized in earnings in the same period as the change in the fair value. Unrealized gains and losses due to changes in the fair value of other derivative financial instruments not in hedge relationship are included in noninterest income and noninterest expense, respectively.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, segregated by the level of the valuation inputs within the fair value hierarchy.


			Fair Value at March 31, 2019 Using
Description	Balance as of March 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale debt securities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	73,544	$	0	$	73,544	$	0
State and political subdivisions		194,812		0		194,812		0
Residential mortgage-backed securities
Agency		969,516		0		969,516		0
Non-agency		4,107		0		4,107		0
Commercial mortgage-backed securities
Agency		580,338		0		580,338		0
Asset-backed securities		270,677		0		270,677		0
Trust preferred collateralized debt obligations		6,017		0		0		6,017
Single issue trust preferred securities		16,841		0		16,841		0
Other corporate securities		268,203		6,785		261,418		0

Total available for sale securities		2,384,055		6,785		2,371,253		6,017
Equity securities:
Financial services industry		145		145		0		0
Equity mutual funds (1)		5,084		5,084		0		0
Other equity securities		4,692		4,692		0		0

Total equity securities		9,921		9,921		0		0
Loans held for sale		244,501		0		0		244,501
Derivative financial assets:
Interest rate swap contracts		431		0		431		0
Forward sales commitments		380		0		380		0
Interest rate lock commitments		6,684		0		0		6,684

Total derivative financial assets		7,495		0		811		6,684


			Fair Value at March 31, 2019 Using
Description	Balance as of March 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities
Derivative financial liabilities:
Interest rate swap contracts		146		0		146		0
TBA mortgage-backed securities		2,515		0		2,515		0

Total derivative financial liabilities		2,661		0		2,661		0

(1)	The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.


			Fair Value at December 31, 2018 Using
Description	Balance as of December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available for sale debt securities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	85,890	$	0	$	85,890	$	0
State and political subdivisions		208,988		0		208,988		0
Residential mortgage-backed securities
Agency		1,035,650		0		1,035,650		0
Non-agency		4,259		0		4,259		0
Commercial mortgage-backed securities
Agency		554,600		0		554,600		0
Asset-backed securities		271,970		0		271,970		0
Trust preferred collateralized debt obligations		5,917		0		0		5,917
Single issue trust preferred securities		8,362		0		8,362		0
Other corporate securities		161,403		6,822		154,581		0

Total available for sale securities		2,337,039		6,822		2,324,300		5,917
Equity securities:
Financial services industry		140		140		0		0
Equity mutual funds (1)		4,954		4,954		0		0
Other equity securities		4,640		4,640		0		0

Total equity securities		9,734		9,734		0		0
Loans held for sale		247,104		0		0		247,104
Derivative financial assets:
Interest rate swap contracts		1,859		0		1,859		0
Forward sales commitments		542		0		542		0
Interest rate lock commitments		4,103		0		0		4,103

Total derivative financial assets		6,504		0		2,401		4,103
Liabilities
Derivative financial liabilities:
TBA mortgage-backed securities		3,002		0		3,002		0

Total derivative financial liabilities		3,002		0		3,002		0

(1)	The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.

There were no transfers between Level 1 and Level 2 for financial assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2019 and the year ended December 31, 2018.

The following table presents additional information about financial assets and liabilities measured at fair value at March 31, 2019 and December 31, 2018 on a recurring basis and for which United has utilized Level 3 inputs to determine fair value:


	Available for sale Securities
	Trust preferred collateralized debt obligations
	March 31, 2019			December 31, 2018
Balance, beginning of period	$	5,917		$	34,269
Total gains or losses (realized/unrealized):
Included in earnings (or changes in net assets)		0			28
Included in other comprehensive income		100			920
Purchases, issuances, and settlements		0			0
Sales		0			(29,300	)
Transfers in and/or out of Level 3		0			0

Balance, end of period	$	6,017		$	5,917

The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date	$	0		$	0

	Loans held for sale
	March 31, 2019			December 31, 2018
Balance, beginning of period	$	247,104		$	263,308
Originations		454,588			2,619,454
Sales		(473,282	)		(2,676,797	)
Total gains or losses during the period recognized in earnings		16,091			68,555
Transfers in and/or out of Level 3		(0	)		(27,416	)

Balance, end of period	$	244,501		$	247,104

The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date	$	0		$	0


	Derivative Financial Assets Interest Rate Lock Commitments
	March 31, 2019		December 31, 2018
Balance, beginning of period	$	4,103	$	4,559
Transfers other		2,581		(456	)

Balance, end of period	$	6,684	$	4,103

The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date	$	0	$	0

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

Fair Value Option

United elected the fair value option for the loans held for sale in its mortgage banking segment to mitigate a divergence between accounting losses and economic exposure.

The following table reflects the change in fair value included in earnings of financial instruments for which the fair value option has been elected:


Description	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Assets
Loans held for sale
Income from mortgage banking activities	$	1,964	$	(1,719	)

The following table reflects the difference between the aggregate fair value and the remaining contractual principal outstanding for financial instruments for which the fair value option has been elected:


	March 31, 2019						December 31, 2018
Description	Unpaid Principal Balance		Fair Value		Fair Value Over/(Under) Unpaid Principal Balance		Unpaid Principal Balance		Fair Value		Fair Value Over/(Under) Unpaid Principal Balance
Assets
Loans held for sale	$	239,306	$	244,501	$	5,195	$	241,293	$	247,104	$	5,811

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The following describes the valuation techniques used by United to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements.

Loans held for sale: Loans held for sale within the community banking segment that are delivered on a best efforts basis are carried at the lower of cost or fair value. The fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, United records any fair value adjustments for these loans held for sale on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the three months ended March 31, 2019. Gains and losses on sale of loans are recorded within income from mortgage banking activities on the Consolidated Statements of Income.

Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate and the loan’s observable market price or the fair value of collateral, if the loan is collateral dependent. Fair value is measured using a market approach based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an appraisal conducted by an independent, licensed appraiser outside of the Company using comparable property sales (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). For impaired loans, a specific reserve is established through the Allowance for Loan Losses, if necessary, by estimating the fair value of the underlying collateral on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses expense on the Consolidated Statements of Income.

OREO: OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried on the balance sheet at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Fair value is determined by one of two market approach methods depending on whether the property has been vacated and an appraisal can be conducted. If the property has yet to be vacated and thus an appraisal cannot be performed, a Brokers Price Opinion (i.e. BPO), is obtained. A BPO represents a best estimate valuation performed by a realtor based on knowledge of current property values and a visual examination of the exterior condition of the property. Once the property is subsequently vacated, a formal appraisal is obtained and the recorded asset value appropriately adjusted. On the other hand, if the OREO property has been vacated and an appraisal can be conducted, the fair value of the property is determined based upon the appraisal using a market approach. An authorized independent appraiser conducts appraisals for United. Appraisals for property other than ongoing construction are based on consideration of comparable property sales (Level 2). In contrast, valuation of ongoing construction assets requires some degree of professional judgment. In conducting an appraisal for ongoing construction property, the appraiser develops two appraised amounts: an “as is” appraised value and a “completed” value. Based on professional judgment and their knowledge of the particular situation, management determines the appropriate fair value to be utilized for such property (Level 3). As a matter of policy, valuations are reviewed at least annually and appraisals are generally updated on a bi-annual basis with values lowered as necessary.

Intangible Assets: For United, intangible assets consist of goodwill and core deposit intangibles. Goodwill is tested for impairment at least annually or sooner if indicators of impairment exist. Goodwill impairment would be defined as the difference between the recorded value of goodwill (i.e. book value) and the implied fair value of goodwill. In determining the implied fair value of goodwill for purposes of evaluating goodwill impairment, United determines the fair value of the reporting unit using a market approach and compares the fair value to its carrying value. If the carrying value exceeds the fair value, a step two test is performed whereby the implied fair value is computed by deducting the fair value of all tangible and intangible net assets from the fair value of the reporting unit. Core deposit intangibles relate to the estimated value of the deposit base of acquired institutions. Management reviews core deposit intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. No other fair value measurement of intangible assets was made during the first three months of 2019 and 2018.

The following table summarizes United’s financial assets that were measured at fair value on a nonrecurring basis during the period:


			Carrying value at March 31, 2019
Description	Balance as of March 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		YTD Losses
Assets
Loans held for sale	$	1,262	$	0	$	1,262	$	0	$	0
Impaired Loans		99,278		0		88,197		11,081		1,044
OREO		17,465		0		17,465		0		857

			Carrying value at December 31, 2018
Description	Balance as of December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		YTD Losses
Assets
Loans held for sale	$	2,742	$	0	$	2,742	$	0	$	3
Impaired Loans		121,355		0		108,899		12,456		12,301
OREO		16,865		0		16,865		0		910

Fair Value of Other Financial Instruments

The following methods and assumptions were used by United in estimating its fair value disclosures for other financial instruments:

Cash and Cash Equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Securities held to maturity and other securities: The estimated fair values of securities held to maturity are based on quoted market prices, where available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data. Any securities held to maturity, not valued based upon the methods above, are valued based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Other securities consist mainly of shares of Federal Home Loan Bank and Federal Reserve Bank stock that do not have readily determinable fair values and are carried at cost.

Loans: The fair values of certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values of other loans (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans and agricultural loans) are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar creditworthiness, which include adjustments for liquidity concerns. For acquired impaired loans, fair value is assumed to equal United’s carrying value, which represents the present value of expected future principal and interest cash flows, as adjusted for any Allowance for Loan Losses recorded for these loans.

Deposits: The fair values of demand deposits (e.g., interest and noninterest checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and any other short-term borrowings approximate their fair values.

Long-term Borrowings: The fair values of United’s Federal Home Loan Bank borrowings and trust preferred securities are estimated using discounted cash flow analyses, based on United’s current incremental borrowing rates for similar types of borrowing arrangements.

Summary of Fair Values for All Financial Instruments

The estimated fair values of United’s financial instruments are summarized below:


					Fair Value Measurements
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2019
Cash and cash equivalents	$	1,172,657	$	1,172,657	$	0	$	1,172,657	$	0
Securities available for sale		2,384,055		2,384,055		6,785		2,371,253		6,017
Securities held to maturity		8,491		8,549		0		5,529		3,020
Equity securities		9,921		9,921		9,921		0		0
Other securities		190,123		180,617		0		0		180,617
Loans held for sale		245,763		245,763		0		1,262		244,501
Loans		13,495,817		12,940,089		0		0		12,940,089
Derivative financial assets		7,495		7,495		0		811		6,684
Deposits		14,159,397		14,133,078		0		14,133,078		0
Short-term borrowings		127,821		127,821		0		127,821		0
Long-term borrowings		1,838,835		1,815,824		0		1,815,824		0
Derivative financial liabilities		2,661		2,661		0		2,661		0
December 31, 2018
Cash and cash equivalents	$	1,020,396	$	1,020,396	$	0	$	1,020,396	$	0
Securities available for sale		2,337,039		2,337,039		6,822		2,324,300		5,917
Securities held to maturity		19,999		18,655		0		15,635		3,020
Equity securities		9,734		9,734		9,734		0		0
Other securities		176,955		168,107		0		0		168,107
Loans held for sale		249,846		249,846		0		2,742		247,104
Loans		13,422,222		12,657,073		0		0		12,657,073
Derivative financial assets		6,504		6,504		0		2,401		4,103
Deposits		13,994,749		13,954,574		0		13,954,574		0
Short-term borrowings		351,327		351,327		0		351,327		0
Long-term borrowings		1,499,103		1,475,237		0		1,475,237		0
Derivative financial liabilities		3,002		3,002		0		3,002		0

13. STOCK BASED COMPENSATION

On May 18, 2016, United’s shareholders approved the 2016 Long-Term Incentive Plan (2016 LTI Plan). The 2016 LTI Plan became effective as of May 18, 2016. An award granted under the 2016 LTI Plan may consist of any non-qualified stock options or incentive stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, performance units or other-stock-based award. These awards all relate to the common stock of United. The maximum number of shares of United common stock which may be issued under the 2016 LTI Plan is 1,700,000. The 2016 LTI Plan will be administered by a board committee appointed by United’s Board of Directors (the Board). Unless otherwise determined by the Board, the Compensation Committee of the Board (the Committee) shall administer the 2016 LTI Plan. Any and all shares may be issued in respect of any of the types of Awards, provided that (1) the aggregate number of shares that may be issued in respect of restricted stock awards, and restricted stock unit awards which are settled in shares is 500,000, and (2) the aggregate number of shares that may be issued pursuant to stock options is 1,200,000. The shares to be offered under the 2016 LTI Plan may be authorized and unissued shares or treasury shares. The maximum number of options and SARs, in the aggregate, which may be awarded to any individual key employee during any calendar year is 100,000. The maximum number of stock options and SARs, in the aggregate, which may be awarded to any non-employee director during any calendar year is 10,000. The maximum number of shares of restricted stock or shares subject to a restricted stock units award that may be granted during any calendar year is 50,000 shares to any individual key employee and 5,000 shares to any individual non-employee director. Subject to certain change in control provisions, the 2016 LTI Plan provides that awards of restricted stock and restricted stock units will vest as the Committee determines in the award agreement, provided that no awards will vest sooner than 1/3 per year over the first three anniversaries of the award. Awards granted to executive officers of United typically will have performance based vesting conditions. A Form S-8 was filed on July 29, 2016 with the Securities and Exchange Commission to register all the shares which were available for the 2016 LTI Plan.

Compensation expense of $1,113 and $968 related to the nonvested awards under United’s Long-Term Incentive Plans was incurred for the first quarter of 2019 and 2018, respectively. Compensation expense was included in employee compensation in the unaudited Consolidated Statements of Income.

Stock Options

United currently has options outstanding from various option plans other than the 2016 LTI Plan (the Prior Plans); however, no common shares of United stock are available for grants under the Prior Plans as these plans have expired. Awards outstanding under the Prior Plans will remain in effect in accordance with their respective terms. The maximum term for options granted under the plans is ten (10) years.

A summary of activity under United’s stock option plans as of March 31, 2019, and the changes during the first three months of 2019 are presented below:


	Three Months Ended March 31, 2019
						Weighted Average
	Shares			Aggregate Intrinsic Value		Remaining Contractual Term (Yrs.)		Exercise Price
Outstanding at January 1, 2019		1,730,389						$	32.43
Granted		240,205							38.49
Exercised		(33,816	)						19.81
Forfeited or expired		(3,398	)						24.67

Outstanding at March 31, 2019		1,933,380		$	8,688,228		5.9	$	33.41

Exercisable at March 31, 2019		1,327,929		$	8,635,343		4.5	$	30.72

The following table summarizes the status of United’s nonvested stock option awards during the first three months of 2019:


	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested at January 1, 2019		575,672		$	7.86
Granted		240,205			7.16
Vested		(210,426	)		7.74
Forfeited or expired		(0	)		0.00

Nonvested at March 31, 2019		605,451		$	7.62

During the three months ended March 31, 2019 and 2018, 33,816 and 15,043 shares, respectively, were issued in connection with stock option exercises. All shares issued in connection with stock option exercises for the three months ended March 31, 2019 and 2018 were issued from authorized and unissued stock. The total intrinsic value of options exercised under the Plans during the three months ended March 31, 2019 and 2018 was $554 and $246 respectively.

Restricted Stock

Under the 2011 LTI Plan, United may award restricted common shares to key employees and non-employee directors. Restricted shares granted to participants have a four-year time-based vesting period. Recipients of restricted shares do not pay any consideration to United for the shares, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have vested. Presently, these nonvested participating securities have an immaterial impact on diluted earnings per share.

The following summarizes the changes to United’s restricted common shares for the period ended March 31, 2019:


	Number of Shares			Weighted-Average Grant Date Fair Value Per Share
Outstanding at January 1, 2019		199,303		$	39.67
Granted		126,427			38.49
Vested		(70,879	)		39.29
Forfeited		(0	)		00.00

Outstanding at March 31, 2019		254,851		$	39.19

14. EMPLOYEE BENEFIT PLANS

United has a defined benefit retirement plan covering qualified employees. Pension benefits are based on years of service and the average of the employee’s highest five consecutive plan years of basic compensation paid during the ten plan years preceding the date of determination. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. During the first quarter of 2018, United made discretionary contributions of $7,000. No discretionary contributions were made during the first quarter of 2019.

In September of 2007, after a recommendation by United’s Pension Committee and approval by United’s Board of Directors, the United Bankshares, Inc. Pension Plan (the Plan) was amended to change the participation rules. The decision to change the participation rules for the Plan followed current industry trends, as many large and medium size companies had taken similar steps. The amendment provides that employees hired on or after October 1, 2007, will not be eligible to participate in the Plan. However, new employees will be eligible to participate in United’s Savings and Stock Investment 401(k) plan. This change had no impact on current employees hired prior to October 1, 2007 as they will continue to participate in the Plan, with no change in benefit provisions, and will continue to be eligible to participate in United’s Savings and Stock Investment 401(k) plan.

Included in accumulated other comprehensive income at December 31, 2018 are unrecognized actuarial losses of $55,535 ($42,595 net of tax) that have not yet been recognized in net periodic pension cost. The amortization of this item expected to be recognized in net periodic pension cost during the fiscal year ended December 31, 2019 is $4,744 ($3,639 net of tax).

Net periodic pension cost for the three months ended March 31, 2019 and 2018 included the following components:


	Three Months Ended March 31
	2019			2018
Service cost	$	555		$	658
Interest cost		1,442			1,295
Expected return on plan assets		(2,330	)		(2,522	)
Amortization of transition asset		0			0
Recognized net actuarial loss		1,171			1,149
Amortization of prior service cost		0			0

Net periodic pension (benefit) cost	$	838		$	580

Weighted-Average Assumptions:
Discount rate		4.52	%		3.83	%
Expected return on assets		7.00	%		7.00	%
Rate of compensation increase (prior to age 45)		3.50	%		3.50	%
Rate of compensation increase		3.00	%		3.00	%

15. INCOME TAXES

United records a liability for uncertain income tax positions based on a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken on a tax return, in order for those tax positions to be recognized in the financial statements.

As of March 31, 2019 and 2018, the total amount of accrued interest related to uncertain tax positions was $700 and $695, respectively. United accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.

United is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2015, 2016 and 2017 and certain State Taxing authorities for the years ended December 31, 2015 through 2017.

United’s effective tax rate was 21.40% for the first quarter of 2019 and 22.48% for the first quarter of 2018.

16. COMPREHENSIVE INCOME

The components of total comprehensive income for the three months ended March 31, 2019 and 2018 are as follows:


	Three Months Ended
	March 31
	2019			2018
Net Income	$	63,642		$	61,706
Available for sale (“AFS”) securities:
Change in net unrealized gain on AFS securities arising during the period		22,238			(22,017	)
Related income tax effect		(5,182	)		5,130
Net reclassification adjustment for losses (gains) included in net income		(348	)		149

Related income tax (benefit) expense		81			(35	)

		16,789			(16,773	)

Net effect of AFS securities on other comprehensive income		16,789			(16,773	)


	Three Months Ended
	March 31
	2019			2018
Held to maturity (“HTM”) securities:
Accretion on the unrealized loss for securities transferred from AFS to the HTM investment portfolio prior to call or maturity		0			2
Related income tax expense		0			(1	)

Net effect of HTM securities on other comprehensive income		0			1
Pension plan:
Recognized net actuarial loss		1,171			1,149
Related income tax benefit		(261	)		(416	)

Net effect of change in pension plan asset on other comprehensive income		910			733

Total change in other comprehensive income		17,699			(16,039	)

Total Comprehensive Income	$	81,341		$	45,667

The components of accumulated other comprehensive income for the three months ended March 31, 2019 are as follows:

Changes in Accumulated Other Comprehensive Income (AOCI) by Component ^(a)

For the Three Months Ended March 31, 2019


	Unrealized Gains/Losses on AFS Securities			Accretion on the unrealized loss for securities transferred from AFS to the HTM			Defined Benefit Pension Items			Total
Balance at January 1, 2019	($	18,289	)	($	50	)	($	38,680	)	($	57,019	)
Reclass due to adopting Accounting Standard Update 2017-12					50						50
Other comprehensive income before reclassification		17,056			0			0			17,056
Amounts reclassified from accumulated other comprehensive income		(267	)		0			910			643

Net current-period other comprehensive income, net of tax		16,789			0			910			17,699

Balance at March 31, 2019	($	1,500	)	$	0		($	37,770	)	($	39,270	)

(a)	All amounts are net-of-tax.


Reclassifications out of Accumulated Other Comprehensive Income (AOCI)
For the Three Months Ended March 31, 2019


Details about AOCI Components	Amount Reclassified from AOCI			Affected Line Item in the Statement Where Net Income is Presented
Available for sale (“AFS”) securities:
Reclassification of previous noncredit OTTI to credit OTTI	$	0		Net investment securities (losses) gains
Net reclassification adjustment for losses (gains) included in net income		(348	)	Net investment securities (losses) gains

		(348	)	Total before tax
Related income tax effect		81		Tax expense

		(267	)	Net of tax


Reclassifications out of Accumulated Other Comprehensive Income (AOCI)
For the Three Months Ended March 31, 2019


Details about AOCI Components	Amount Reclassified from AOCI			Affected Line Item in the Statement Where Net Income is Presented
Pension plan:
Recognized net actuarial loss		1,171	(a)

		1,171		Total before tax
Related income tax effect		(261	)	Tax expense

		910		Net of tax

Total reclassifications for the period	$	643

(a)	This AOCI component is included in the computation of net periodic pension cost (see Note 14, Employee Benefit Plans)

17. EARNINGS PER SHARE

The reconciliation of the numerator and denominator of basic earnings per share with that of diluted earnings per share is presented as follows:


	Three Months Ended
	March 31
	2019		2018
Distributed earnings allocated to common stock	$	34,672	$	35,679
Undistributed earnings allocated to common stock		28,830		25,919

Net earnings allocated to common shareholders	$	63,502	$	61,598

Average common shares outstanding		101,894,786		104,859,427
Common stock equivalents		267,918		303,431

Average diluted shares outstanding		102,162,704		105,162,858

Earnings per basic common share	$	0.62	$	0.59
Earnings per diluted common share	$	0.62	$	0.59

18. VARIABLE INTEREST ENTITIES

Variable interest entities (VIEs) are entities that either have a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions, through voting rights, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). VIEs can be structured as corporations, trusts, partnerships, or other legal entities. United’s business practices include relationships with certain VIEs. For United, the business purpose of these relationships primarily consists of funding activities in the form of issuing trust preferred securities.

United currently sponsors fourteen statutory business trusts that were created for the purpose of raising funds that originally qualified for Tier I regulatory capital. As previously discussed, these trusts now are considered Tier II regulatory capital. These trusts, of which several were acquired through bank acquisitions, issued or participated in pools of trust preferred capital securities to third-party investors with the proceeds invested in junior subordinated debt securities of United. The Company, through a small capital contribution, owns 100% of the voting equity shares of each trust. The assets, liabilities, operations, and cash flows of each trust are solely related to the issuance, administration, and repayment of the preferred equity securities held by third-party investors. United fully and unconditionally guarantees the obligations of each trust and is obligated to redeem the junior subordinated debentures upon maturity.

United does not consolidate these trusts as it is not the primary beneficiary of these entities because United’s wholly owned and indirect wholly owned statutory trust subsidiaries do not have a controlling financial interest in the VIEs. A controlling financial interest is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. `

Information related to United’s statutory trusts is presented in the table below:


Description	Issuance Date	Amount of Capital Securities Issued		Interest Rate	Maturity Date
United Statutory Trust III	December 17, 2003	$	20,000	3-month LIBOR + 2.85%	December 17, 2033
United Statutory Trust IV	December 19, 2003	$	25,000	3-month LIBOR + 2.85%	January 23, 2034
United Statutory Trust V	July 12, 2007	$	50,000	3-month LIBOR + 1.55%	October 1, 2037
United Statutory Trust VI	September 20, 2007	$	30,000	3-month LIBOR + 1.30%	December 15, 2037
Premier Statutory Trust II	September 25, 2003	$	6,000	3-month LIBOR + 3.10%	October 8, 2033
Premier Statutory Trust III	May 16, 2005	$	8,000	3-month LIBOR + 1.74%	June 15, 2035
Premier Statutory Trust IV	June 20, 2006	$	14,000	3-month LIBOR + 1.55%	September 23, 2036
Premier Statutory Trust V	December 14, 2006	$	10,000	3-month LIBOR + 1.61%	March 1, 2037
Centra Statutory Trust I	September 20, 2004	$	10,000	3-month LIBOR + 2.29%	September 20, 2034
Centra Statutory Trust II	June 15, 2006	$	10,000	3-month LIBOR + 1.65%	July 7, 2036
Virginia Commerce Trust II	December 19, 2002	$	15,000	6-month LIBOR + 3.30%	December 19, 2032
Virginia Commerce Trust III	December 20, 2005	$	25,000	3-month LIBOR + 1.42%	February 23, 2036
Cardinal Statutory Trust I	July 27, 2004	$	20,000	3-month LIBOR + 2.40%	September 15, 2034
UFBC Capital Trust I	December 30, 2004	$	5,000	3-month LIBOR + 2.10%	March 15, 2035

United, through its banking subsidiary, also makes limited partner equity investments in various low income housing and community development partnerships sponsored by independent third-parties. United invests in these partnerships to either realize tax credits on its consolidated federal income tax return or for purposes of earning a return on its investment. These partnerships are considered VIEs as the limited partners lack a controlling financial interest in the entities through their inability to make decisions that have a significant effect on the operations and success of the partnerships. United’s limited partner interests in these entities is immaterial, however; these partnerships are not consolidated as United is not deemed to be the primary beneficiary.

The following table summarizes quantitative information about United’s significant involvement in unconsolidated VIEs:


	As of March 31, 2019						As of December 31, 2018
	Aggregate Assets		Aggregate Liabilities		Risk Of Loss ⁽¹⁾		Aggregate Assets		Aggregate Liabilities		Risk Of Loss ⁽¹⁾
Trust preferred securities	$	258,095	$	249,016	$	9,079	$	257,754	$	248,741	$	9,013
(1) Represents investment in VIEs.

19. SEGMENT INFORMATION

United operates in two business segments: community banking and mortgage banking. Through its community banking segment, United offers a full range of products and services through various delivery channels. In particular, the community banking segment includes both commercial and consumer lending and provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. In addition, this segment

provides customers with several choices of deposit products including demand deposit accounts, savings accounts and certificates of deposit as well as investment and financial advisory services to businesses and individuals, including financial planning, retirement/estate planning, and investment management. The mortgage banking segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market though George Mason.

The community banking segment provides the mortgage banking segment (George Mason) with short-term funds to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on the 30-day LIBOR rate. These transactions are eliminated in the consolidation process.

The Company does not have any operating segments other than those reported. The “Other” category consists of financial information not directly attributable to a specific segment, including interest income from investments and net securities gains or losses of parent companies and their non-banking subsidiaries, interest expense related to subordinated notes of unconsolidated subsidiaries as well as the elimination of non-segment related intercompany transactions such as management fees. The “Other” represents an overhead function rather than an operating segment.

Information about the reportable segments and reconciliation of this information to the consolidated financial statements at and for the three months ended March 31, 2019 and 2018 is as follows:


	At and For the Three Months Ended March 31, 2019
	Community Banking		Mortgage Banking			Other			Intersegment Eliminations			Consolidated
Net interest income	$	145,890	$	55		$	(3,323	)	$	1,546		$	144,168
Provision for loans losses		4,996		0			0			0			4,996
Other income		18,689		16,106			201			(3,773	)		31,223
Other expense		75,994		14,842			(220	)		(1,191	)		89,425
Income taxes		17,666		282			(620	)		0			17,328

Net income (loss)	$	65,923	$	1,037		$	(2,282	)	$	(1,036	)	$	63,642

Total assets (liabilities)	$	19,549,904	$	316,106		$	6,170		$	(227,047	)	$	19,645,133
Average assets (liabilities)		19,204,107		265,151			(1,848	)		(217,790	)		19,249,620

	At and For the Three Months Ended March 31, 2018
	Community Banking		Mortgage Banking			Other			Intersegment Eliminations			Consolidated
Net interest income	$	145,621	$	376		$	(2,594	)	$	640		$	144,043
Provision for loans losses		5,178		0			0			0			5,178
Other income		17,771		14,883			(822	)		(640	)		31,192
Other expense		72,491		18,384			(423	)		0			90,452
Income taxes		19,276		(703	)		(674	)		0			17,899

Net income (loss)	$	66,447	$	(2,422	)	$	(2,319	)	$	0		$	61,706

Total assets (liabilities)	$	18,547,315	$	289,925		$	9,831		$	(227,369	)	$	18,619,702
Average assets (liabilities)		18,507,313		210,172			15,012			(188,700	)		18,543,797

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe harbor for such disclosure, in other words, protection from unwarranted litigation if actual results are not the same as management expectations.

United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involve numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by United’s statements for a variety of factors including, but not limited to: changes in economic conditions; business conditions in the banking industry; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.

INTRODUCTION

The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the unaudited consolidated financial statements and the notes to unaudited Consolidated Financial Statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated. Management has evaluated all significant events and transactions that occurred after March 31, 2019, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements.

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

RECENT DEVELOPMENTS

United adopted the new accounting standard for leases effective January 1, 2019. Therefore, beginning in fiscal year 2019, our financial results reflect the adoption of this standard. This new standard impacted our Consolidated Balance Sheet as of March 31, 2019 by increasing total assets by $63.12 million and total liabilities by $66.87 million. Prior periods were not restated. See Note 1, Summary of Significant Accounting Policies of the unaudited Notes to Consolidated Financial Statements for a further discussion.

USE OF NON-GAAP FINANCIAL MEASURES

This discussion and analysis contains a certain financial measure that is 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 this 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 this 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 a financial measure identified as tax-equivalent net interest income. Management believes this non-GAAP financial measure, if significant, to be helpful in understanding United’s results of operations or financial position. 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 materially differ from those estimates. United’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2019 were unchanged from the policies disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2018 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

FINANCIAL CONDITION

United’s total assets as of March 31, 2019 were $19.65 billion, which was an increase of $394.64 million or 2.05% from December 31, 2018. The increase was mainly due to an increase of $152.26 million or 14.92% in cash and cash equivalents and an increase of $150.48 million or 1.12% in portfolio loans. Investment securities increased $48.86 million or 1.92%. In addition, United adopted the new accounting standard for leases effective January 1, 2019, as previously mentioned, resulting in a $63.12 million operating lease right-of-use asset as of March 31, 2019. Partially offsetting these increases in total assets is a $4.08 million or 1.63% decrease in loans held for sale and $18.87 million or 4.13% decrease in other assets. Total liabilities increased $359.37 million or 2.25% from year-end 2018. Deposits increased $164.65 million or 1.18%. Borrowings increased $116.23 million or 6.28% while accrued expenses and other liabilities increased $11.55 million or 7.58%. As a result of the adoption of the leases accounting standard, United also recorded a $66.87 million operating lease liability as of March 31, 2019. Shareholders’ equity increased $35.27 million or 1.08%.

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

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2019 increased $152.26 million or 14.92% from year-end 2018. Of this total increase, cash and due from banks increased $13.89 million while interest-bearing deposits with other banks increased $138.37 million or 16.64% as United placed excess cash in an interest-bearing account with the Federal Reserve. Federal funds sold were flat. During the first three months of 2019, net cash of $93.25 million and $234.94 million were provided by operating and financing activities, respectively, while net cash of $175.92 million was used in investing activities. See the unaudited Consolidated Statements of Cash Flows for data on cash and cash equivalents provided and used in operating, investing and financing activities for the first three months of 2019 and 2018.

Securities

Total investment securities at March 31, 2019 increased $48.86 million or 1.92% from year-end 2018. Securities available for sale increased $47.02 million or 2.01%. This change in securities available for sale reflects $196.68 million in sales, maturities and calls of securities, $211.22 million in purchases, and an increase of $21.89 million in market value. The majority of the purchase activity was related to corporate securities which were all issued by investment grade rated, single-name issuers, and have maturity dates of less than five years. Securities held to maturity declined $11.51 million or 57.54% from year-end 2018 due to the transfer of $11.54 million of investment securities to available for sale securities upon the adoption of ASU No. 2017-12. Equity securities were $9.92 million at March 31, 2019, an increase of $187 thousand or 1.92% due mainly to an increase in the fair value. Other investment securities increased $13.17 million or 7.44% from year-end 2018 due mainly to the purchase of $7.01 million in FHLB stock.

The following table summarizes the changes in the available for sale securities since year-end 2018:


	March 31		December 31
(Dollars in thousands)	2019		2018		$ Change			% Change
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	73,544	$	85,890	$	(12,346	)		(14.37	%)
State and political subdivisions		194,812		208,988		(14,176	)		(6.78	%)
Mortgage-backed securities		1,553,961		1,594,509		(40,548	)		(2.54	%)
Asset-backed securities		270,677		271,970		(1,293	)		(0.48	%)
Trust preferred collateralized debt obligations		6,017		5,917		100			1.69	%
Single issue trust preferred securities		16,841		8,362		8,479			101.40	%
Corporate securities		268,203		161,403		106,800			66.17	%

Total available for sale securities, at fair value	$	2,384,055	$	2,337,039	$	47,016			2.01	%

The following table summarizes the changes in the held to maturity securities since year-end 2018:


	March 31		December 31
(Dollars in thousands)	2019		2018		$ Change			% Change
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,045	$	5,074	$	(29	)		(0.57	%)
State and political subdivisions		3,426		5,473		(2,047	)		(37.40	%)
Mortgage-backed securities		0		20		(20	)		(100.00	%)
Single issue trust preferred securities		0		9,412		(9,412	)		(100.00	%)
Other corporate securities		20		20		0			0.00	%

Total held to maturity securities, at amortized cost	$	8,491	$	19,999	$	(11,508	)		(57.54	%)

At March 31, 2019, gross unrealized losses on available for sale securities were $15.56 million. Securities in an unrealized loss position at March 31, 2019 consisted primarily of agency commercial and residential mortgage-backed securities. The agency commercial and residential mortgage-backed securities relate to commercial and residential properties and provide a guaranty of full and timely payments of principal and interest by the issuing agency.

As of March 31, 2019, United’s mortgage-backed securities had an amortized cost of $1.55 billion, with an estimated fair value of $1.55 billion. The portfolio consisted primarily of $971.18 million in agency residential mortgage-backed securities with a fair value of $969.52 million, $3.78 million in non-agency residential mortgage-backed securities with an estimated fair value of $4.11 million, and $579.90 million in commercial agency mortgage-backed securities with an estimated fair value of $580.34 million.

As of March 31, 2019, United’s corporate securities had an amortized cost of $563.23 million, with an estimated fair value of $561.76 million. The portfolio consisted of $6.18 million in Trup Cdos with a fair value of $6.02 million and $18.17 million in single issue trust preferred securities with an estimated fair value of $16.84 million. In addition to the trust preferred securities, the Company held positions in various other corporate securities, including asset-backed securities with an amortized cost of $272.47 million and a fair value of $270.68 million and other corporate securities, with an amortized cost of $266.41 million and a fair value of $268.22 million.

The Trup Cdos consisted of pools of trust preferred securities issued by trusts related to financial institutions. United’s Trup Cdos had a fair value of $6.02 million as of March 31, 2019. As of March 31, 2019, all of the Trup Cdos were rated below investment grade. United’s single issue trust preferred securities had a fair value of $16.84 million as of March 31, 2019. Of the $16.84 million, $3.92 million or 23.30% were investment grade; $5.45 million or 32.33%

were split rated; $2.31 million or 13.73% were below investment grade; and $5.16 million or 30.64% were unrated. The two largest exposures accounted for 72.04% of the $16.84 million. These included SunTrust Bank at $6.97 million and Emigrant Bank at $5.16 million. All single-issue trust preferred securities are currently receiving full scheduled principal and interest payments.

The following is a summary of available for sale single-issue trust preferred securities as of March 31, 2019:


Security	Moodys		S&P		Fitch		Amortized Cost		Fair Value		Unrealized Loss/ (Gain)
							(Dollars in thousands)
Emigrant Bank		NR		NR		WD	$	5,727	$	5,160	$	567
SunTrust Bank		Baa2		NR		BB+		4,957		4,659		298
M&T Bank		NR		BBB-		BBB-		3,033		3,207		(174	)
SunTrust Bank		NR		BB+		BB+		2,479		2,313		166
HSBC		Baa2		BBB+		NR		1,000		716		284
Royal Bank of Scotland		Baa3		BB		BBB		977		786		191

							$	18,173	$	16,841	$	1,332

During the first quarter of 2019, United didn’t recognize any other-than-temporary impairment on investment securities. Management does not believe that any individual security with an unrealized loss as of March 31, 2019 is other-than-temporarily impaired. United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not an adverse change in the expected contractual cash flows. Based on a review of each of the securities in the investment portfolio, management concluded that it was not probable that it would be unable 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. However, United acknowledges that any impaired securities may be sold in future periods in response to significant, unanticipated changes in asset/liability management decisions, unanticipated future market movements or business plan changes.

Further information regarding the amortized cost and estimated fair value of investment securities, including remaining maturities as well as a more detailed discussion of management’s other-than-temporary impairment analysis, is presented in Note 2 to the unaudited Notes to Consolidated Financial Statements.

Loans held for sale

Loans held for sale decreased $4.08 million or 1.63%. Loan sales in the secondary market exceeded originations during the first three months of 2019. Loan originations for the first three months of 2019 were $345.40 million while loans sales were $349.49 million. Loans held for sale were $245.76 million at March 31, 2019 as compared to $249.85 million at year-end 2018.

Portfolio Loans

Loans, net of unearned income, increased $150.48 million or 1.12%. Since year-end 2018, commercial, financial and agricultural loans were relatively flat, decreasing $14.61 million or less than 1% as commercial loans (not secured by real estate) increased $38.84 million or 1.98% while commercial real estate loans decreased $53.45 million or less than 1%. In addition, construction and land development loans increased $76.99 million or 5.46%, residential real estate loans increased $48.64 million or 1.39% and consumer loans increased $37.67 million or 3.90%.

The following table summarizes the changes in the major loan classes since year-end 2018:


	March 31			December 31
(Dollars in thousands)	2019			2018			$ Change			% Change
Loans held for sale	$	245,763		$	249,846		$	(4,083	)		(1.63	%)

Commercial, financial, and agricultural:
Owner-occupied commercial real estate	$	1,275,340		$	1,291,790		$	(16,450	)		(1.27	%)
Nonowner-occupied commercial real estate		4,266,613			4,303,613			(37,000	)		(0.86	%)
Other commercial loans		1,996,482			1,957,641			38,841			1.98	%

Total commercial, financial, and agricultural	$	7,538,435		$	7,553,044		$	(14,609	)		(0.19	%)
Residential real estate		3,550,037			3,501,393			48,644			1.39	%
Construction & land development		1,487,453			1,410,468			76,985			5.46	%
Consumer:
Bankcard		9,247			10,203			(956	)		(9.37	%)
Other consumer		993,046			954,424			38,622			4.05	%

Total gross loans	$	13,578,218		$	13,429,532		$	148,686			1.11	%
Less: Unearned income		(5,515	)		(7,310	)		1,795			24.56	%

Total Loans, net of unearned income	$	13,572,703		$	13,422,222		$	150,481			1.12	%

The following table summarizes the outstanding balances of portfolio loans originated and acquired, by type, as of March 31, 2019 and December 31, 2018:


	March 31, 2019
(In thousands)	Commercial, financial and agricultural		Residential real estate		Construction & land development		Consumer		Total
Originated	$	5,031,077	$	2,774,338	$	1,276,858	$	997,260	$	10,079,532
Acquired		2,507,358		775,700		210,595		5,033		3,498,686

Total gross loans	$	7,538,435	$	3,550,038	$	1,487,453	$	1,002,293	$	13,578,218


	December 31, 2018
(In thousands)	Commercial, financial and agricultural		Residential real estate		Construction & land development		Consumer		Total
Originated	$	4,887,688	$	2,686,817	$	1,179,676	$	959,392	$	9,713,573
Acquired		2,665,356		814,576		230,792		5,235		3,715,959

Total gross loans	$	7,553,044	$	3,501,393	$	1,410,468	$	964,627	$	13,429,532

For a further discussion of loans see Note 3 to the unaudited Notes to Consolidated Financial Statements.

Other Assets

Other assets decreased $18.88 million or 4.13% from year-end 2018, mainly due to the result of income taxes receivable decreasing $12.35 million and deferred tax assets decreasing $5.57 million. In addition, core deposit intangibles decreased $1.75 million due to amortization. Partially offsetting these decreases was a $1.15 million increase for the quarter in derivative assets.

Deposits

Deposits represent United’s primary source of funding. Total deposits at March 31, 2019 increased $164.65 million or 1.18%. In terms of composition, interest-bearing deposits increased $210.87 million or 2.20% while noninterest-bearing deposits decreased $46.24 million or 1.05% from December 31, 2018.

Noninterest-bearing deposits consists of demand deposit and noninterest bearing money market (MMDA) account balances. The $46.24 million decrease in noninterest-bearing deposits was due mainly to a decrease in commercial noninterest-bearing deposits of $128.81 million or 5.71% while personal noninterest-bearing deposits and public funds noninterest-bearing deposits increased $34.60 million or 4.80% and $10.26 million or 9.28%, respectively.

Interest-bearing deposits consists of interest-bearing checking (NOW), regular savings, interest-bearing MMDA, and time deposit account balances. Interest-bearing MMDAs remained flat, increasing $25.27 million or less than 1 % while NOW accounts decreased $1.60 million or less than 1% since year-end 2018. In particular, interest-bearing MMDAs increased $25.27 million as commercial MMDAs increased $143.53 million. This increase was partially offset by decreases in public funds MMDAs and brokered MMDAs of $67.33 million and $57.97 million, respectively. Personal MMDAs remained flat, increasing $7.05 million or less than 1%. Excluding sweep activity from NOW accounts to interest-bearing MMDAs to reduce United’s reserve requirement at its Federal Reserve Bank, NOW accounts decreased $85.42 million or 4.31% mainly due to a decrease of $50.49 million in personal NOW accounts and a $65.47 million decrease in public funds NOW accounts. Partially offsetting these decreases was an increase of $30.54 million in commercial NOW accounts.

Regular savings increased $48.98 million or 5.13% from year-end 2018 mainly due to a $57.40 million increase in public funds savings accounts, which was partially offset by a $8.42 million decrease in personal savings accounts.

Time deposits under $100,000 were flat, increasing $2.36 million or less than 1% from year-end 2018. This slight increase in time deposits under $100,000 is the result of a $4.12 million increase in Certificate of Deposit Account Registry Service (CDARS) balances.

Since year-end 2018, time deposits over $100,000 increased $135.88 million or 8.58% as brokered certificates of deposits (CDs) increased $98.15 million and CDARS increased $61.68 million. In addition, fixed rate CDs increased $40.42 million. These increases in time deposits over $100,000 were partially offset by a $64.37 million decrease in public funds CDs over $100,000.

The table below summarizes the changes by deposit category since year-end 2018:


	March 31		December 31
(Dollars in thousands)	2019		2018		$ Change			% Change
Demand deposits	$	3,171,556	$	3,212,878	$	(41,322	)		(1.29	%)
Interest-bearing checking		372,892		374,495		(1,603	)		(0.43	%)
Regular savings		1,003,942		954,961		48,981			5.13	%
Money market accounts		7,177,385		7,157,028		20,357			0.28	%
Time deposits under $100,000		714,669		712,313		2,356			0.33	%
Time deposits over $100,000 ⁽¹⁾		1,718,953		1,583,074		135,879			8.58	%

Total deposits	$	14,159,397	$	13,994,749	$	164,648			1.18	%

(1)	Includes time deposits of $250,000 or more of $1,030,803 and $979,707 at March 31, 2019 and December 31, 2018, respectively.

Borrowings

Total borrowings at March 31, 2019 increased $116.23 million or 6.28% since year-end 2018. During the first three months of 2019, short-term borrowings decreased $223.51 million or 63.62% due to a $175.00 million decrease in short-term FHLB advances, a $25.11 million decrease in short-term securities sold under agreements to repurchase and a $23.40 million decrease in federal funds purchased. Long-term borrowings increased $339.73 million or 22.66% from year-end 2018 due to a $339.42 million increase in long-term FHLB advances.

The table below summarizes the change in the borrowing categories since year-end 2018:


	March 31		December 31
(Dollars in thousands)	2019		2018		$ Change			% Change
Federal funds purchased	$	0	$	23,400	$	(23,400	)		(100.00	%)
Short-term securities sold under agreements to repurchase		127,821		152,927		(25,106	)		(16.42	%)
Short-term FHLB advances		0		175,000		(175,000	)		(100.00	%)
Long-term FHLB advances		1,603,615		1,264,198		339,417			26.85	%
Issuances of trust preferred capital securities		235,220		234,905		315			0.13	%

Total borrowings	$	1,966,656	$	1,850,430	$	116,226			6.28	%

For a further discussion of borrowings see Notes 8 and 9 to the unaudited Notes to Consolidated Financial Statements.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at March 31, 2019 increased $11.55 million or 7.58% from year-end 2018. In particular, income tax payable increased $7.89 million due to timing differences, interest payable increased $2.22 million, accrued mortgage escrow liabilities increased $3.05 million, accounts payable associated with George Mason increased $3.12 million and business franchise taxes payable increased $2.25 million. Partially offsetting these increases was a $6.62 million decrease in accrued employee expenses due mainly to a $4.10 million decrease in incentives payable.

Shareholders’ Equity

Shareholders’ equity at March 31, 2019 was $3.29 billion, which was an increase of $35.27 million or 1.08% from year-end 2018.

Retained earnings increased $27.83 million or 2.75% from year-end 2018. Earnings net of dividends for the first three months of 2019 were $28.88 million. Amount recognized in retained earnings for the adoption of ASU No. 2016-02 was $1.05 million.

Accumulated other comprehensive income increased $17.75 million or 31.13% from year-end 2018 due mainly to an increase of $16.79 million in United’s available for sale investment portfolio, net of deferred income taxes. The after-tax accretion of pension costs was $910 thousand for the first quarter of 2019.

During the second quarter of 2018, United began repurchasing its common stock on the open market under repurchase plans approved by United’s Board of Directors. United repurchased 354,000 shares in the first quarter of 2019 at a cost of $11.62 million or an average price per share of $32.83.

RESULTS OF OPERATIONS

Overview

Net income for the first three months of 2019 was $63.64 million or $0.62 per diluted share compared to $61.71 million or $0.59 per share for the first three months of 2018. United’s annualized return on average assets for the first three months of 2019 was 1.34% and return on average shareholders’ equity was 7.88% as compared to 1.35% and 7.65% for the first three months of 2018. United’s Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported average return on assets and average return on equity were 1.24% and 10.38%, respectively, for the year of 2018.

Net interest income for the first three months of 2019 was $144.17 million, which was relatively flat from net interest income of $144.04 million for the first three months of 2018. The slight increase of $125 thousand in net interest income occurred because total interest income increased $21.91 million while total interest expense increased $21.79 million from the first quarter of 2018.

The provision for credit losses was $5.00 million for the first three months of 2019 as compared to $5.18 million for the first three months of 2018. Noninterest income was $31.22 million for the first three months of 2019, which was relatively flat from the first three months of 2018, increasing $31 thousand or less than 1%. Noninterest expense for the first three months of 2019 decreased $1.03 million or 1.14% from the first three months of 2018. Income taxes decreased $571 thousand or 3.19% for the first three months of 2019 as compared to the first three months of 2018. The effective tax rate was 21.40% and 22.48% for the first quarter of 2019 and 2018, respectively.

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

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 first quarter of 2019 was $65.92 million compared to net income of $66.45 million for the first quarter of 2018.

Net interest income of $145.89 million for the first quarter of 2019 was relatively flat from the $145.62 million for the same period of 2018, increasing $269 thousand or less than 1%. Generally, net interest income for the first quarter of 2019 increased slightly from the first quarter of 2018 due to a higher level of earning assets virtually offset by an increase in the average cost of funds. Provision for loan losses was $5.00 million for the three months ended March 31, 2019 compared to a provision of $5.18 million for the same period of 2018. Noninterest income increased $918 thousand for the first quarter of 2019 to $18.69 million as compared to $17.77 million for the first quarter of 2018. Noninterest expense was $75.99 million for the first quarter of 2019, compared to $72.49 million for the same period of 2018. The increase of $3.50 million in noninterest expense was primarily attributable to an increase in Federal Deposit Insurance Corporation (FDIC) insurance expense due to United’s banking subsidiary, United Bank, becoming a large institution and subject to increased assessment rates.

Mortgage Banking

The mortgage banking segment reported net income of $1.04 million for the first quarter of 2019, compared to a net loss of $2.42 million for the first quarter of 2018. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $16.11 million for the first quarter of 2019, compared to $14.88 million for the first quarter of 2018. Noninterest expense decreased $3.54 million for the first quarter of 2019 to $14.84 million as compared to $18.38 million for the first quarter of 2018. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage segment employees.

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

Net Interest Income

Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2019 and 2018, are presented below.

Net interest income for the first quarter of 2019 was $144.17 million, which was relatively flat from the first quarter of 2018, increasing $125 thousand or less than 1%. The $125 thousand increase in net interest income occurred because total interest income increased $21.91 million while total interest expense increased $21.79 million from the first quarter of 2018. On a linked-quarter basis, net interest income for the first quarter of 2019 decreased $2.54 million or 1.73% from the fourth quarter of 2018. The $2.54 million decrease in net interest income occurred because total interest income increased $1.60 million while total interest expense increased $4.13 million from the fourth quarter of 2018.

Generally, interest income for the first quarter of 2019 increased from the first quarter of 2018 due to a higher level of earning assets. The increase in interest expense for the first quarter of 2019 from the first quarter of 2018 was due to higher market interest rates. For the purpose of this remaining discussion, net interest income is presented on a tax-equivalent basis to provide a comparison among all types of interest earning assets. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.

Tax-equivalent net interest income for the first quarter of 2019 was $145.16 million, which was flat from the first quarter of 2018, increasing $14 thousand or less than 1% due mainly to an increase in average earning assets mostly offset by an increase in the average cost of funds. Average earning assets for the first quarter of 2019 increased $667.22 million or 4.10% from the first quarter of 2018 due mainly to increases of $538.44 million or 4.11% in average net loans and $369.52 million or 16.96% in average investment securities. Average short-term investments decreased $240.74 million or 24.57%. In addition, the average yield on earning assets for the first quarter of 2019 increased 35 basis points from the first quarter of 2018 due to higher market rates. Mostly offsetting these increases to tax-equivalent net interest income for the first quarter of 2019 was an increase of 73 basis points in the average cost of funds as compared to the first quarter of 2018 due to higher market interest rates. In addition, loan accretion on acquired loans was $8.54 million and $10.77 million for the first quarter of 2019 and 2018, respectively, decreasing $2.22 million or 20.64%. The net interest margin of 3.46% for the first quarter of 2019 was a decrease of 15 basis points from the net interest margin of 3.61% for the first quarter of 2018.

On a linked-quarter basis, net interest income for the first quarter of 2019 decreased $2.54 million or 1.73% from the fourth quarter of 2018. The $2.54 million decrease in net interest income occurred because total interest income increased $1.60 million while total interest expense increased $4.13 million from the fourth quarter of 2018. United’s tax-equivalent net interest income for the first quarter of 2019 decreased $2.60 million or 1.76% from the fourth quarter of 2018 due mainly to an increase in the average cost of funds. The average cost of funds for the first quarter of 2019 increased 15 basis points from the fourth quarter of 2018 due mainly to higher market interest rates. Average earning assets for the first quarter of 2019 were relatively flat from the fourth quarter of 2018, increasing $131.20 million or less than 1%. In particular, average net loans and average investments increased $161.55 million or 1.20%

and $63.53 million or 2.56%, respectively, while average short-term investments decreased $93.89 million or 11.27% for the linked-quarter. The average yield on earning assets increased 8 basis points from the fourth quarter of 2018 due to higher market interest rates. The net interest margin of 3.46% for the first quarter of 2019 decreased 4 basis points from the net interest margin of 3.50% for the fourth quarter of 2018.

United’s tax-equivalent net interest income also includes the impact of acquisition accounting fair value adjustments.

The following table provides the discount/premium and net accretion impact to tax-equivalent net interest income for the three months ended March 31, 2019, March 31, 2018 and December 31, 2018:


	Three Months Ended
	March 31		March 31		December 31
(Dollars in thousands)	2019		2018		2018
Loan accretion	$	8,544	$	10,766	$	8,816
Certificates of deposit		198		326		311
Long-term borrowings		268		269		268

Total	$	9,010	$	11,361	$	9,395

The following tables reconcile the difference between net interest income and tax-equivalent net interest income for the three months ended March 31, 2019, March 31, 2018 and December 31, 2018.


	Three Months Ended
	March 31		March 31		December 31
(Dollars in thousands)	2019		2018		2018
Net interest income, GAAP basis	$	144,168	$	144,043	$	146,705
Tax-equivalent adjustment (1)		993		1,104		1,060

Tax-equivalent net interest income	$	145,161	$	145,147	$	147,765

(1)

The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 21% for the three months ended March 31, 2019 and December 31, 2018. All interest income on loans and investment securities was subject to state income taxes.

The following tables show the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2019 and 2018, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended March 31, 2019 and 2018. Interest income on all loans and investment securities was subject to state income taxes.


	Three Months Ended								Three Months Ended
	March 31, 2019								March 31, 2018
(Dollars in thousands)	Average Balance			Interest (1)		Avg. Rate (1)			Average Balance			Interest (1)		Avg. Rate (1)
ASSETS
Earning Assets:
Federal funds sold and securities purchased under agreements to resell and other short-term investments	$	738,930		$	5,837		3.20	%	$	979,666		$	4,917		2.04	%
Investment Securities:
Taxable		2,382,450			17,363		2.92	%		1,923,339			11,875		2.47	%
Tax-exempt		166,410			1,298		3.12	%		256,000			1,855		2.90	%

Total Securities		2,548,860			18,661		2.93	%		2,179,339			13,730		2.52	%
Loans, net of unearned income (2)		13,712,278			165,592		4.89	%		13,173,656			149,642		4.60	%
Allowance for loan losses		(76,762	)							(76,575	)

Net loans		13,635,516					4.91	%		13,097,081					4.63	%

Total earning assets		16,923,306		$	190,090		4.54	%		16,256,086		$	168,289		4.19	%

Other assets		2,326,314								2,287,711

TOTAL ASSETS	$	19,249,620							$	18,543,797

LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits	$	9,694,708		$	32,638		1.37	%	$	9,353,479		$	15,657		0.68	%
Short-term borrowings		173,597			691		1.61	%		286,350			421		0.60	%
Long-term borrowings		1,697,423			11,600		2.77	%		1,352,280			7,064		2.12	%

Total Interest-Bearing Funds		11,565,728			44,929		1.58	%		10,992,109			23,142		0.85	%

Noninterest-bearing deposits		4,221,040								4,174,169
Accrued expenses and other liabilities		186,030								104,486

TOTAL LIABILITIES		15,972,798								15,270,764
SHAREHOLDERS’ EQUITY		3,276,822								3,273,033

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	19,249,620							$	18,543,797

NET INTEREST INCOME				$	145,161							$	145,147

INTEREST SPREAD							2.96	%							3.34	%
NET INTEREST MARGIN							3.46	%							3.61	%

(1)	The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%.

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

Provision for Loan Losses

For the quarters ended March 31, 2019 and 2018, the provision for loan losses was $5.00 million and $5.18 million, respectively. Net charge-offs were $4.81 million for the first quarter of 2019 as compared to net charge-offs of $5.15 million for the same quarter in 2018. These lower amounts of provision expense and net charge-offs for the first quarter of 2019 compared to the first quarter of 2018 were due to a reduction in the amount of specific allocations required for impaired loans and valuation improvements recognized for the Company’s purchased credit impaired loans. On a linked-quarter basis, the provision for loan losses decreased $827 thousand while net charge-offs decreased $1.25 million from the fourth quarter of 2018. These decreases were due to improved collateral positions for the Company’s originated loans as well as purchased credit impaired loans. Annualized net charge-offs as a percentage of average loans were 0.14% for the first quarter of 2019. This ratio compares favorably to United’s most recently reported Federal Reserve peer group banking companies’ net charge-offs to average loans percentage of 0.22% for the year of 2018.

At March 31, 2019, nonperforming loans were $135.75 million or 1.00% of loans, net of unearned income compared to nonperforming loans of $142.82 million or 1.06% of loans, net of unearned income at December 31, 2018. The components of nonperforming loans include: 1) nonaccrual loans, 2) loans 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 whose terms have been restructured for economic or legal reasons due to financial difficulties of the borrowers.

Loans past due 90 days or more were $15.57 million at March 31, 2019, an increase of $721 thousand or 4.85% from $14.85 million at year-end 2018. This increase was primarily due to a significant matured loan that is in the process of being renewed. At March 31, 2019, nonaccrual loans were $63.40 million, a decrease of $5.14 million or 7.50% from $68.54 million at year-end 2018. This decrease was due to repayment of a significant nonaccrual relationship in the first quarter of 2019. Restructured loans were $56.78 million at March 31, 2019, a decrease of $2.65 million or 4.45% from $59.43 million at year-end 2018. The decline was mainly due to repayments. 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 real estate acquired in foreclosure or other settlement of loans (OREO). Total nonperforming assets of $153.22 million, including OREO of $17.47 million at March 31, 2019, represented 0.78% of total assets.

The following table summarizes nonperforming assets for the indicated periods.


	March 31,		December 31,
(In thousands)	2019		2018		2017		2016		2015		2014
Nonaccrual loans ⁽¹⁾
Originated	$	52,880	$	57,258	$	97,971	$	77,111	$	83,146	$	64,312
Acquired		10,522		11,286		10,832		6,414		8,043		10,739
Loans which are contractually past due 90 days or more as to interest or principal and are still accruing interest ⁽¹⁾
Originated		12,429		11,945		7,288		7,763		11,462		10,868
Acquired		3,143		2,906		2,515		823		166		807
Restructured loans ⁽¹⁾
Originated		55,191		58,101		48,709		21,115		23,890		22,234
Acquired		1,587		1,324		1,420		37		0		0

Total nonperforming loans	$	135,752	$	142,820	$	168,835	$	113,263	$	126,707	$	108,960
Other real estate owned		17,465		16,865		24,348		31,510		32,228		38,778

TOTAL NONPERFORMING ASSETS	$	153,217	$	159,685	$	193,083	$	144,773	$	158,935	$	147,738

(1)

Restructured loans that were contractually past due 90 days or moreas to interest or principal and are still accruing interest or on nonaccrual status for the indicated periods are included in “Restructured loans” and not “Loans which are contractually past due 90 days or moreas to interest or principal and are still accruing interest” or “Nonaccrual loans” (see Note 4 to the unaudited Consolidated Financial Statements for further information).

Loans are designated as impaired when, in the opinion of management, the collection of principal and interest in accordance with the loan contract is doubtful. At March 31, 2019, impaired loans were $362.21 million, which was a decrease of $27.32 million or 7.01% from the $389.53 million in impaired loans at December 31, 2018. This decrease was due mainly to improvement in the risk rating for several significant relationships and removal of the impaired designation warranted during the Company’s quarterly review process of impaired relationships as well as a reduction in purchased credit impaired loans. Acquired impaired loans are accounted for under ASC Subtopic 310-30. The recorded investment balance and the contractual principal balance of the acquired impaired loans were $144.39 million and $186.54 million at March 31, 2019, respectively, as compared to $149.74 million and $195.71 million, respectively, at December 31, 2018. For the acquired impaired loans accounted for under ASC 310-30, the difference between the contractually required payments due and the cash flows expected to be collected, considering the impact of prepayments, is referred to as the non-accretable difference (the credit mark). The credit mark is not recognized in income. The remaining credit mark was $37.36 million and $38.53 million at March 31, 2019 and December 31, 2018, respectively. For further details regarding impaired loans, see Note 4 to the unaudited Notes to Consolidated Financial Statements.

United maintains an allowance for loan losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments are referred to as the allowance for credit losses. At March 31, 2019, the allowance for credit losses was $78.35 million as compared to $78.09 million at December 31, 2018.

At March 31, 2019, the allowance for loan losses was $76.89 million as compared to $76.70 million at December 31, 2018. As a percentage of loans, net of unearned income, the allowance for loan losses was 0.57% at March 31, 2019 and at December 31, 2018. The ratio of the allowance for loan losses to nonperforming loans or coverage ratio was 56.64% and 53.71% at March 31, 2019 and December 31, 2018, respectively. The Company’s detailed methodology and analysis indicated a minimal increase in the allowance for loan losses primarily because of the offsetting factors of changes within historical loss rates and reduced loss allocations on impaired loans.

Allocations are made for specific commercial loans based upon management’s estimate of the borrowers’ ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loss percentages applied to loan pools that have been segregated by risk. Allocations for loans other than commercial loans are made based upon historical loss experience adjusted for current environmental conditions. The allowance for credit losses includes estimated probable inherent but unidentified losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. In addition, a portion of the allowance accounts for the inherent imprecision in the allowance for credit losses analysis.

United’s review of the allowance for loan losses at March 31, 2019 produced increased allocations in three of the four loan categories. The residential real estate allocation increased $574 thousand primarily due to an increase in allocations recognized for impaired loans. The allocation related to the commercial, financial & agricultural loan pool increased $223 thousand due to an increase in historical loss rates as a result of a significant charge-off recognized in the first quarter of 2019. The consumer loan pool experienced a minimal increase of $53 thousand due to an increase in outstanding loan balances. Offsetting these increases was a decrease in the real estate construction and development loan pool allocation of $806 thousand primarily due to a decrease in historical loss rates. In summary, the overall level of the allowance for loan losses was relatively stable in comparison to year-end 2018 as a result of offsetting factors within the portfolio as described above.

An allowance is established for probable credit losses on impaired loans via specific allocations. Nonperforming commercial loans and leases are regularly reviewed to identify impairment. A loan or lease is impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts contractually due. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate, the loan’s observable market price 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 impairment has occurred. The allowance for impaired loans was $24.67 million at March 31, 2019 and $28.36 million at December 31, 2018. In comparison to the prior year-end, this element of the allowance decreased by $3.69 million primarily due to decreased specific allocations for commercial, financial & agricultural loans.

Management believes that the allowance for credit losses of $78.35 million at March 31, 2019 is adequate to provide for probable 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 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.

Management is not aware of any potential problem loans, trends or uncertainties, which it reasonably expects, will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits, which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules.

Other Income

Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced.

Noninterest income for the first quarter of 2019 was $31.22 million, which was flat from the first quarter of 2018, increasing $31 thousand or less than 1%. This slight increase was due mainly to an increase in income from bank-owned life insurance due to the recognition of death benefits in the first quarter of 2019.

Income from bank-owned life insurance for the first quarter of 2019 was $1.83 million, an increase of $573 thousand from the first quarter of 2018 due to the recognition of $600 thousand in death benefits in the first quarter of 2019.

Net losses on investment securities’ transactions were $159 thousand for the first quarter of 2019, a decline of $326 thousand from the first quarter of 2018.

Virtually offsetting these increases from the first quarter of 2018 was a decrease of $889 thousand in income from mortgage banking activities for the first quarter of 2019 due to decreased production and sales of mortgage loans in the secondary market by George Mason. Income from mortgage banking activities totaled $13.68 million for the first quarter of 2019 compared to $14.57 million for the same period of 2018. For the three months ended March 31, 2019 and 2018, mortgage loan sales were $349.49 million and $567.59 million, respectively.

On a linked-quarter basis, noninterest income for the first quarter of 2019 increased $1.40 million or 4.68% from the fourth quarter of 2018 due mainly to an increase in income from mortgage banking activities and a decline in net losses on investment securities transactions. Income from mortgage banking activities increased $2.11 million due mainly to a change in fair value of $2.81 million on George Mason’s interest rate lock commitments due to a higher locked pipeline. During the first quarter of 2019, United recognized a net loss of $159 thousand on investment securities transactions as compared to a net loss of $1.93 million for the fourth quarter of 2018. The fourth quarter of 2018 included other-than-temporary impairment of $1.46 million on investment securities that United intended to sell at that time and eventually sold during the first quarter of 2019. In addition, income from bank-owned life insurance increased $558 thousand due to the recognition of $600 thousand in death benefits in the first quarter of 2019. Partially offsetting these increases were decreases of $2.76 million in net gains on the sale of bank premises and $597 thousand in fees from deposit services due to a decline in overdraft fees.

Other Expenses

Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for loan losses, and income taxes. Noninterest expense for the first quarter of 2019 was $89.43 million, which was a decrease of $1.03 million or 1.14% from the first quarter of 2018.

Employee compensation for the first quarter of 2019 decreased $1.89 million or 4.62% when compared to the first quarter of 2018. This decrease was primarily due to a decrease in commissions expense related to the decrease in production and sales of mortgage loans at George Mason.

Net occupancy expense decreased $676 thousand or 7.17% for the first quarter of 2019, as compared to the same period in the prior year. The decrease was due mainly to a decline in building rental expense due to fewer offices since the first quarter of 2018.

Data processing expense decreased $688 thousand or 11.76% for the first quarter of 2019, as compared to the same period in prior year due to lower fees from a new contract.

Partially offsetting these decreases for the first quarter of 2019 from the first quarter of 2018 was an increase in Federal Deposit Insurance Corporation (FDIC) insurance expense of $1.45 million due to United Bank becoming a large institution and subject to increased assessment rates.

On a linked-quarter basis, noninterest expense for the first quarter of 2019 decreased $1.58 million or 1.73% from the fourth quarter of 2018. The decrease was due to declines of $903 thousand in data processing expense and $1.45 million in other expense. Within other expense, consulting and legal expense declined $842 thousand and operational losses declined $457 thousand. Partially offsetting these decreases in noninterest expense was an increase in employee benefits expense of $773 thousand due to increases in Federal Insurance Contributions Act (FICA) expense and health care insurance costs.

Income Taxes

For the first quarter of 2019, income tax expense was $17.33 million, a decrease of $571 thousand from the first quarter of 2018 mainly due to a decrease in the effective tax rate. On a linked-quarter basis, income tax expense for the first quarter of 2019 increased $1.57 million from the fourth quarter of 2018 due to a combination of increased earnings, a higher effective tax rate and a tax benefit from New Markets tax credits in the fourth quarter of 2018. United’s effective tax rate was approximately 21.40% for the first quarter of 2019 and 22.48% and 19.77% for the first and fourth quarters of 2018, respectively. For further details related to income taxes, see Note 15 of the unaudited Notes to Consolidated Financial Statements contained within this document.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

United has various financial obligations, including contractual obligations and commitments, that may require future cash payments. Please refer to United’s Annual Report on Form 10-K for the year ended December 31, 2018 for disclosures with respect to United’s fixed and determinable contractual obligations. There have been no material changes outside the ordinary course of business since year-end 2018 in the specified contractual obligations disclosed in United’s Annual Report on Form 10-K.

United also 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. Because the derivative contracts recorded on the balance sheet at March 31, 2019 do not present the amounts that may ultimately be paid under these contracts, they are excluded from the contractual obligations table in the 2018 Form 10-K report. Further discussion of derivative instruments is presented in Note 11 to the unaudited Notes to Consolidated Financial Statements.

United is 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 amount does not necessarily represent future cash requirements. Further discussion of off-balance sheet commitments is included in Note 10 to the unaudited Notes to Consolidated Financial Statements.

Liquidity

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.

For the three months ended March 31, 2018, cash of $93.25 million was provided by operating activities due mainly to net income of $63.64 million for the quarter. In addition, proceeds from the sales of mortgage loans in the secondary market exceeded originations by $17.76 million. Net cash of $175.92 million was used in investing activities which was primarily due to net loan growth of $149.57 million and $28.05 million of net purchases of investments over proceeds from sales. During the first three months of 2019, net cash of $234.94 million was provided by financing activities due primarily to net growth of $164.85 million in deposits and net advances of $340.00 million in long-term FHLB advances. These funding activities were partially offset by a net repayment of $223.51 million in short-term borrowings and cash dividends paid of $34.97 million for the quarter. The net effect of the cash flow activities was an increase in cash and cash equivalents of $152.26 million for the first three months of 2019.

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 8 and 9 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.

Capital Resources

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 14.19% at March 31, 2019 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.02%, 12.02% and 10.16%, respectively. 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 $3.29 billion at March 31, 2019, which was an increase of $35.27 million or 1.08% from December 31, 2018. This increase was primarily due to the retention of earnings.

United’s equity to assets ratio was 16.73% at March 31, 2019 as compared to 16.89% at December 31, 2018. The primary capital ratio, capital and reserves to total assets and reserves, was 17.06% at March 31, 2019 as compared to 17.23% at December 31, 2018. United’s average equity to average asset ratio was 17.02% for the first quarter of 2019 as compared to 17.65% the first quarter of 2018. All of these financial measurements reflect a financially sound position.

During the first quarter of 2019, United’s Board of Directors declared a cash dividend of $0.34 per share. Total cash dividends declared were $34.76 million for the first quarter of 2019 which was a decrease of $989 thousand or 2.77% from dividends declared of $35.75 million for the first quarter of 2018.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The objective of United’s Asset Liability Management function is to maintain consistent growth in net interest income within United’s policy guidelines. This objective is accomplished through the management of balance sheet liquidity and interest rate risk exposures due to changes in economic conditions, interest rate levels and customer preferences.

Interest Rate Risk

Management considers interest rate risk to be United’s most significant market risk. Interest rate risk is the exposure to adverse changes in United’s net interest income as a result of changes in interest rates. United’s earnings are largely dependent on the effective management of interest rate risk.

Management of interest rate risk focuses on maintaining consistent growth in net interest income within Board-approved policy limits. United’s Asset/Liability Management Committee (ALCO), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk to maintain an acceptable level of change to net interest income as a result of changes in interest rates. Policy established for interest rate risk is stated in terms of the change in net interest income over a one-year and two-year horizon given an immediate and sustained increase or decrease in interest rates. The current limits approved by the Board of Directors are structured on a staged basis with each stage requiring specific actions.

United employs a variety of measurement techniques to identify and manage its exposure to changing interest rates. One such technique utilizes an earnings simulation model to analyze the sensitivity of net interest income to movements in interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The model also includes executive management projections for activity levels in product lines offered by United. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. Rate scenarios could involve parallel or nonparallel shifts in the yield curve, depending on historical, current, and expected conditions, as well as the need to capture any material effects of explicit or embedded options. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management’s strategies.

Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or are repriced within a designated time frame. The principal function of managing interest rate risk is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates. The difference between rate sensitive assets and rate sensitive liabilities for specified periods of time is known as the “GAP.” Earnings-simulation analysis captures not only the potential of these interest sensitive assets and liabilities to mature or reprice, but also the probability that they will do so. Moreover, earnings-simulation analysis considers the relative sensitivities of these balance sheet items and projects their behavior over an extended period of time. United closely monitors the sensitivity of its assets and liabilities on an on-going basis and projects the effect of various interest rate changes on its net interest margin.

The following table shows United’s estimated earnings sensitivity profile as of March 31, 2019 and December 31, 2018:


Change in Interest Rates (basis points)	Percentage Change in Net Interest Income
Change in Interest Rates (basis points)	March 31, 2019			December 31, 2018
+200		(3.89	%)		(2.71	%)
+100		(1.83	%)		(1.29	%)
-100		1.48	%		0.97	%
-200		0.14	%		(0.97	%)

At March 31, 2019, given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to decrease by 1.83% over one year as compared to a

decrease of 1.29% at December 31, 2018. A 200 basis point immediate, sustained upward shock in the yield curve would decrease net interest income by an estimated 3.89% over one year as of March 31, 2019, as compared to a decrease of 2.71% as of December 31, 2018. A 100 basis point immediate, sustained downward shock in the yield curve would increase net interest income by an estimated 1.48% over one year as of March 31, 2018 as compared to an increase of 0.97%, over one year as of December 31, 2018. A 200 basis point immediate, sustained downward shock in the yield curve would increase net interest income by an estimated 0.14% over one year as of March 31, 2019 as compared to a decrease of 0.97% over one year as of December 31, 2018.

In addition to the one year earnings sensitivity analysis, a two-year analysis is also performed. Compared to the one year analysis, United is projected to show improved performance in year two within the upward rate shock scenarios. Given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to increase by 0.54% in year two as of March 31, 2019. A 200 basis point immediate, sustained upward shock in the yield curve would increase net interest income by an estimated 0.33% in year two as of March 31, 2019. A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 1.94% in year two as of March 31, 2019. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 8.13% in year two as of March 31, 2019.

This analysis does not include the potential increased refinancing activities, which should lessen the negative impact on net income from falling rates. While it is unlikely market rates would immediately move 100 or 200 basis points upward or downward on a sustained basis, this is another tool used by management and the Board of Directors to gauge interest rate risk. All of these estimated changes in net interest income are and were within the policy guidelines established by the Board of Directors.

To further aid in interest rate management, United’s subsidiary bank is a member of the Federal Home Loan Bank (FHLB). The use of FHLB advances provides United with a low risk means of matching maturities of earning assets and interest-bearing funds to achieve a desired interest rate spread over the life of the earning assets. In addition, United uses credit with large regional banks and trust preferred securities to provide funding.

As part of its interest rate risk management strategy, United may use derivative instruments to protect against adverse price or interest rate movements on the value of certain assets or liabilities and on future cash flows. These derivatives commonly consist of interest rate swaps, caps, floors, collars, futures, forward contracts, written and purchased options. Interest rate swaps obligate two parties to exchange one or more payments generally calculated with reference to a fixed or variable rate of interest applied to the notional amount. United accounts for its derivative activities in accordance with the provisions of ASC Topic 815, “Derivatives and Hedging.”

Extension Risk

A key feature of most mortgage loans is the ability of the borrower to repay principal earlier than scheduled. This is called a prepayment. Prepayments arise primarily due to sale of the underlying property, refinancing, or foreclosure. In general, declining interest rates tend to increase prepayments, and rising interest rates tend to slow prepayments. Like other fixed-income securities, when interest rates rise, the value of mortgage- related securities generally declines. The rate of prepayments on underlying mortgages will affect the price and volatility of mortgage-related securities and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase. If interest rates rise, United’s holdings of mortgage-related securities may experience reduced returns if the borrowers of the underlying mortgages pay off their mortgages later than anticipated. This is generally referred to as extension risk.

At March 31, 2019, United’s mortgage related securities portfolio had an amortized cost of $1.6 billion, of which approximately $1.1 billion or 68% were fixed rate collateralized mortgage obligations (CMOs). These fixed rate

CMOs consisted primarily of planned amortization class (PACs), sequential-pay and accretion directed (VADMs) bonds having an average life of approximately 3.6 years and a weighted average yield of 2.76%, under current projected prepayment assumptions. These securities are expected to have very little extension risk in a rising rate environment. Current models show that an immediate, sustained upward shock of 300 basis points, the average life of these securities would only extend to 4.3 years. The projected price decline of the fixed rate CMO portfolio in rates up 300 basis points would be 10.4%, or less than the price decline of a 4- year treasury note. By comparison, the price decline of a 30-year current coupon mortgage backed security (MBS) given an immediate, sustained upward shock of 300 basis points would be approximately 19.4%.

United had approximately $218 million in balloon and other securities with a projected yield of 2.32% and a projected average life of 3.7 years on March 31, 2019. This portfolio consisted primarily of Fannie Mae Delegated Underwriting and Servicing (DUS) mortgage backed securities (MBS) with a weighted average loan age (WALA) of 4.8 years and a weighted average maturity (WAM) of 4.1 years.

United had approximately $90 million in 15-year mortgage backed securities with a projected yield of 2.51% and a projected average life of 3.4 years as of March 31, 2019. This portfolio consisted of seasoned 15-year mortgage paper with a weighted average loan age (WALA) of 5.7 years and a weighted average maturity (WAM) of 9.6 years.

United had approximately $49 million in 20-year mortgage backed securities with a projected yield of 2.74% and a projected average life of 4.9 years on March 31, 2019. This portfolio consisted of seasoned 20-year mortgage paper with a weighted average loan age (WALA) of 5.6 years and a weighted average maturity (WAM) of 13.9 years.

United had approximately $59 million in 30-year mortgage backed securities with a projected yield of 2.97% and a projected average life of 6.3 years on March 31, 2019. This portfolio consisted of seasoned 30-year mortgage paper and Home Equity Conversion Mortgages with a weighted average loan age (WALA) of 2.6 years and a weighted average maturity (WAM) of 27.7 years.

The remaining 4% of the mortgage related securities portfolio at March 31, 2019, included adjustable rate securities (ARMs), 10-year mortgage backed pass-through securities and other fixed rate mortgage backed securities.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, 2019, an evaluation was performed under the supervision of and with the participation of United’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of United’s disclosure controls and procedures. Based on that evaluation, United’s management, including the CEO and CFO, concluded that United’s disclosure controls and procedures as of March 31, 2019 were effective in ensuring that information required to be disclosed in the Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time period required by the Securities and Exchange Commission’s rules and forms.

Limitations on the Effectiveness of Controls

United’s management, including the CEO and CFO, does not expect that United’s disclosure controls and internal controls will prevent all errors and fraud. While United’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the

realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

Changes in Internal Controls

There have been no changes in United’s internal control over financial reporting that occurred during the quarter ended March 31, 2019, or in other factors that have materially affected or are reasonably likely to materially affect United’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Item 1A.

RISK FACTORS

In addition to the other information set forth in this report, please refer to United’s Annual Report on Form 10-K for the year ended December 31, 2018 for disclosures with respect to United’s risk factors which could materially affect United’s business, financial condition or future results. The risks described in the Annual Report on Form 10-K are not the only risks facing United. Additional risks and uncertainties not currently known to United or that United currently deems to be immaterial also may materially adversely affect United’s business, financial condition and/or operating results. There are no material changes from the risk factors disclosed in United’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There have been no United equity securities sales during the quarter ended March 31, 2019 that were not registered. The table below includes certain information regarding United’s purchase of its common shares during the quarter ended March 31, 2019:


Period	Total Number of Shares Purchased (1) (2)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (3)		Maximum Number of Shares that May Yet be Purchased Under the Plans (3)
1/01 – 1/31/2019		230,100	$	31.49		230,100		2,251,900
2/01 – 2/28/2019		0	$	00.00		0		2,251,900
3/01 – 3/31/2019		135,602	$	35.58		123,900		2,128,000

Total		365,702	$	33.01		354,000

(1)

Includes shares exchanged in connection with the exercise of stock options and the vesting of restricted shares under United’s long-term incentive plans. Shares are purchased or vested pursuant to the terms of the applicable plan and not pursuant to a publicly announced stock repurchase plan. For the quarter ended March 31, 2019 – 11,697 shares at an average price of $37.25 were exchanged by participants in United’s long-term incentive plans.

(2)

Includes shares purchased in open market transactions by United for a rabbi trust to provide payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. For the quarter ended March 31, 2019, the following shares were purchased for the deferred compensation plan: March 2019 – 5 shares at an average price of $31.61.

(3)

In November of 2018, United’s Board of Directors approved a repurchase plan to repurchase up to 3,352,000 shares of United’s common stock on the open market (the 2018 Plan). The timing, price and quantity of purchases under the plans are at the discretion of management and the plan may be discontinued, suspended or restarted at any time depending on the facts and circumstances.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.

MINE SAFETY DISCLOSURES

None.

Item 5.

OTHER INFORMATION

(a)

None.

(b)

No changes were made to the procedures by which security holders may recommend nominees to United’s Board of Directors.

Item 6. EXHIBITS

Index to exhibits required by Item 601 of Regulation S-K


Exhibit No.		Description

2.1		Agreement and Plan of Reorganization by and among United Bankshares, UBV Holding Company, LLC and Cardinal Financial Corporation (incorporated into this filing by reference to Exhibit 2.1 to the Form 8-K dated August 17, 2016 and filed August 18, 2016 for United Bankshares, Inc., File No. 0-13322)

3.1		Articles of Incorporation (incorporated into this filing by reference to a Quarterly Report on Form 10-Q dated March 31, 2017 and filed May 9, 2017 for United Bankshares, Inc., File No.0-13322)

3.2		Bylaws (incorporated into this filing by reference to a Current Report on Form 8-K dated January 25, 2010 and filed January 29, 2010 for United Bankshares, Inc., File No.0-13322)

31.1		Certification as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer (filed herewith)

31.2		Certification as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer (filed herewith)

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer (furnished herewith)

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer (furnished herewith)

101		Interactive data file (XBRL) (filed herewith)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		UNITED BANKSHARES, INC.
		(Registrant)

Date:	May 9, 2019	/s/ Richard M. Adams
		Richard M. Adams, Chairman of the Board and Chief Executive Officer

Date:	May 9, 2019	/s/ W. Mark Tatterson
		W. Mark Tatterson, Executive Vice President and Chief Financial Officer