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UNITED BANKSHARES INC/WV - Quarter Report: 2021 June (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 June 30, 2021
OR
 
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
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
 
 
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.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller reporting company  
       
         Emerging growth company  
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  
As of
July
 
31
, 2021
, the registrant had
129,203,593
shares of common stock, $2.50 par value per share, outstanding.
 
 
 

UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM
10-Q
TABLE OF CONTENTS
 
 
  
Page
 
  
  
  
 
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84
 
  
 
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90
 
 
2

PART I - FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS (UNAUDITED)
The June 30, 2021 and December 31, 2020, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income and comprehensive income for the three and six months ended June 30, 2021 and 2020, the related consolidated statement of changes in shareholders’ equity for the three and six months ended June 30, 2021 and 2020, the related condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, and the notes to consolidated financial statements appear on the following pages.
 
3

 
 
CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
 
(Dollars in thousands, except par value)
  
June 30

2021
   
December 31
2020
 
    
(Unaudited)
   
(Note 1)
 
Assets
                
Cash and due from banks
   $ 306,648     $ 297,369  
Interest-bearing deposits with other banks
     3,369,823       1,910,876  
Federal funds sold
     925       823  
    
 
 
   
 
 
 
Total cash and cash equivalents
     3,677,396       2,209,068  
Securities available for sale at estimated fair value (amortized cost-$3,221,432 at June 30, 2021 and $2,868,346 at December 31, 2020, allowance for credit losses of $0 at June 30, 2021 and December 31, 2020)
     3,277,074       2,953,359  
Securities held to maturity, net of allowance for credit losses of $31 at June 30, 2021 and $23 at December 31, 2020 (estimated fair value-$1,020 at June 30, 2021 and $1,235 at December 31, 2020)
     989       1,212  
Equity securities at estimated fair value
     11,507       10,718  
Other investment securities
     221,931       220,895  
Loans held for sale (at fair value-$576,827 at June 30, 2021 and $698,341 at December 31, 2020)
     576,827       718,937  
Loans and leases
     16,921,652       17,622,583  
Less: Unearned income
     (33,651     (31,170
    
 
 
   
 
 
 
Loans and leases, net of unearned income
     16,888,001       17,591,413  
Less: Allowance for loan and lease losses
     (217,545     (235,830
    
 
 
   
 
 
 
Net loans and leases
     16,670,456       17,355,583  
Bank premises and equipment
     171,361       175,824  
Operating lease
right-of-use
assets
     66,635       69,520  
Goodwill
     1,810,040       1,796,848  
Mortgage servicing rights, net of valuation allowance of $1,633 at June 30, 2021 and $1,383 at December 31, 2020
     22,540       20,955  
Accrued interest receivable, net of allowance for credit losses of $29 at June 30, 2021 and $250 at December 31, 2020
     60,877       66,832  
Other assets
     623,293       584,496  
    
 
 
   
 
 
 
TOTAL ASSETS
   $ 27,190,926     $ 26,184,247  
    
 
 
   
 
 
 
Liabilities
                
Deposits:
                
Noninterest-bearing
   $ 8,283,454     $ 7,405,260  
Interest-bearing
     13,283,937       13,179,900  
    
 
 
   
 
 
 
Total deposits
     21,567,391       20,585,160  
Borrowings:
                
Securities sold under agreements to repurchase
     127,745       142,300  
Federal Home Loan Bank (“FHLB”) borrowings
     533,365       584,532  
Other long-term borrowings
     280,657       279,837  
Reserve for lending-related commitments
     20,897       19,250  
Operating lease liabilities
     70,546       73,213  
Accrued expenses and other liabilities
     196,612       202,335  
    
 
 
   
 
 
 
TOTAL LIABILITIES
     22,797,213       21,886,627  
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-134,165,663
and 133,809,374 at June 30, 2021 and December 31, 2020, respectively, including 4,962,070 and 4,620,867 shares in treasury at June 30, 2021 and December 31, 2020, respectively
     335,414       334,523  
Surplus
     2,901,591       2,894,471  
Retained earnings
     1,316,607       1,205,395  
Accumulated other comprehensive gain
     10,523       22,370  
Treasury stock, at cost
     (170,422     (159,139
    
 
 
   
 
 
 
TOTAL SHAREHOLDERS’ EQUITY
     4,393,713       4,297,620  
    
 
 
   
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 27,190,926     $ 26,184,247  
    
 
 
   
 
 
 
See notes to consolidated unaudited financial statements.
 
4

Table of Contents
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
 
(Dollars in thousands, except per share data)
  
Three Months Ended
June 30
    
Six Months Ended
June 30
 
    
2021
   
2020
    
2021
   
2020
 
Interest income
                                 
Interest and fees on loans
   $ 182,741     $ 179,311      $ 371,414     $ 338,165  
Interest on federal funds sold and other short-term investments
     1,757       1,868        3,650       5,833  
Interest and dividends on securities:
                                 
Taxable
     13,846       16,241        27,372       33,210  
Tax-exempt
     1,842       1,297        3,407       1,991  
    
 
 
   
 
 
    
 
 
   
 
 
 
Total interest income
     200,186       198,717        405,843       379,199  
Interest expense
                                 
Interest on deposits
     11,012       19,249        22,997       46,726  
Interest on short-term borrowings
     182       196        360       654  
Interest on long-term borrowings
     2,475       8,670        5,009       19,699  
    
 
 
   
 
 
    
 
 
   
 
 
 
Total interest expense
     13,669       28,115        28,366       67,079  
    
 
 
   
 
 
    
 
 
   
 
 
 
Net interest income
     186,517       170,602        377,477       312,120  
Provision for credit losses
     (8,879     45,911        (8,736     73,030  
    
 
 
   
 
 
    
 
 
   
 
 
 
Net interest income after provision for credit losses
     195,396       124,691        386,213       239,090  
Other income
                                 
Fees from trust services
     4,193       3,261        7,956       6,744  
Fees from brokerage services
     3,654       2,651        7,977       5,567  
Fees from deposit services
     9,396       8,055        18,292       16,012  
Bankcard fees and merchant discounts
     1,368       718        2,432       1,711  
Other service charges, commissions, and fees
     775       610        1,534       1,128  
Income from bank-owned life insurance
     1,658       1,291        3,061       3,679  
Income from mortgage banking activities
     36,943       68,213        102,338       85,844  
Mortgage loan servicing income
     2,386       1,534        4,741       1,534  
Net investment securities gains 
     24       1,510        2,633       1,706  
Other income
     2,449       547        4,455       1,271  
    
 
 
   
 
 
    
 
 
   
 
 
 
Total other income
     62,846       88,390        155,419       125,196  
Other expense
                                 
Employee compensation
     68,557       68,664        140,969       113,205  
Employee benefits
     14,470       12,779        29,920       23,565  
Net occupancy expense
     10,101       10,318        21,042       19,380  
Other real estate owned (“OREO”) expense
     372       607        3,997       1,513  
Equipment expense
     5,830       5,004        11,874       8,849  
Data processing expense
     6,956       15,926        13,982       21,432  
Mortgage loan servicing expense and impairment
     3,599       2,510        6,776       2,648  
Bankcard processing expense
     478       392        878       869  
FDIC insurance expense
     1,800       2,782        3,800       5,182  
Other expense
     26,788       30,392        54,640       53,864  
    
 
 
   
 
 
    
 
 
   
 
 
 
Total other expense
     138,951       149,374        287,878       250,507  
    
 
 
   
 
 
    
 
 
   
 
 
 
Income before income taxes
     119,291       63,707        253,754       113,779  
Income taxes
     24,455       11,021        52,020       20,910  
    
 
 
   
 
 
    
 
 
   
 
 
 
Net income
   $ 94,836     $ 52,686      $ 201,734     $ 92,869  
    
 
 
   
 
 
    
 
 
   
 
 
 
 
5

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) – continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
 
(Dollars in thousands, except per share data)
  
Three Months Ended

June 30
    
Six Months Ended

June 30
 
    
2021
    
2020
    
2021
    
2020
 
Earnings per common share:
                                   
Basic
   $ 0.73      $ 0.44      $ 1.56      $ 0.84  
    
 
 
    
 
 
    
 
 
    
 
 
 
Diluted
   $ 0.73      $ 0.44      $ 1.56      $ 0.84  
    
 
 
    
 
 
    
 
 
    
 
 
 
Average outstanding shares:
                                   
Basic
     128,750,851        119,823,652        128,693,616        110,559,363  
Diluted
     129,033,988        119,887,823        128,946,280        110,624,976  
See notes to consolidated unaudited financial statements
 
6

Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
 
(Dollars in thousands)
  
Three Months Ended
June 30
   
Six Months Ended
June 30
 
    
2021
   
2020
   
2021
   
2020
 
Net income
   $ 94,836     $ 52,686     $ 201,734     $ 92,869  
Change in net unrealized gain
(loss) 
on
available-for-sale
(“AFS”) securities, net of tax
     13,837       27,834       (22,528     45,420  
Change in net unrealized
(loss)
 gain
on cash flow hedge, net of tax
     (6,044     (1,272     8,943       (1,272
Change in pension plan assets, net of tax
     869       1,113       1,738       2,225  
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income, net of tax
   $ 103,498     $ 80,361     $ 189,887     $ 139,242  
    
 
 
   
 
 
   
 
 
   
 
 
 
See notes to consolidated unaudited financial statements
 
7

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
 
(Dollars in thousands, except per share data)
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Six Months Ended June 30, 2021
 
 
  
Common Stock
 
  
Surplus
 
 
Retained

Earnings
 
 
Accumulated
Other

Comprehensive

Income (Loss)
 
 
Treasury

Stock
 
 
Total

Shareholders’

Equity
 
 
  
Shares
 
  
Par

Value
 
 
Balance at January 1, 2021
     133,809,374      $ 334,523      $ 2,894,471     $ 1,205,395     $ 22,370     $ (159,139   $ 4,297,620  
Comprehensive income:
                                                          
Net income
     0        0        0       106,898       0       0       106,898  
Other comprehensive income, net of tax
     0        0        0       0       (20,509     0       (20,509
                                                      
 
 
 
Total comprehensive income, net of tax
                                                       86,389  
Stock based compensation expense
     0        0        1,688       0       0       0       1,688  
Purchase of treasury stock (339,229 shares)
     0        0        0       0       0       (11,210     (11,210
Cash dividends ($0.35 per share)
     0        0        0       (45,254     0       0       (45,254
Grant of restricted stock (180,901 shares)
     180,901        452        (452     0       0       0       0  
Common stock options exercised (145,621 shares)
     145,621        365        3,100       0       0       0       3,465  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
               
Balance at March 31, 2021
     134,135,896        335,340        2,898,807       1,267,039       1,861       (170,349     4,332,698  
Comprehensive income:
                                                          
Net income
     0        0        0       94,836       0       0       94,836  
Other comprehensive income, net of tax
     0        0        0       0       8,662       0       8,662  
                                                      
 
 
 
Total comprehensive income, net of tax
                                                       103,498  
Stock based compensation expense
     0        0        1,892       0       0       0       1,892  
Cash dividends ($0.35 per share)
     0        0        0       (45,268     0       0       (45,268
Stock grant forfeiture (1,971 shares)
     0        0        73       0       0       (73     0  
Grant of restricted stock (1,443 shares)
     1,443        4        (4     0       0       0       0  
Common stock options exercised (28,324 shares)
     28,324        70        823       0       0       0       893  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
               
Balance at June 30, 2021
     134,165,663      $ 335,414      $ 2,901,591     $ 1,316,607     $ 10,523     $ (170,422   $ 4,393,713  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See notes to consolidated unaudited financial statements.
8

Table of Contents
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
 
(Dollars in thousands, except per share data)
                                
 
  
Six Months Ended June 30, 2020
 
 
  
Common Stock
 
  
Surplus
 
 
Retained

Earnings
 
 
Accumulated
Other

Comprehensive

Income (Loss)
 
 
Treasury

Stock
 
 
Total

Shareholders’

Equity
 
 
  
Shares
 
  
Par

Value
 
 
Balance at January 1, 2020
     105,494,290      $ 263,736      $ 2,140,175     $ 1,132,579     $ (34,869   $ (137,788   $ 3,363,833  
Cumulative effect of adopting Accounting Standard Update
2016-13
     0        0        0       (44,331     0       0       (44,331
Comprehensive income:
                                                          
Net income
     0        0        0       40,183       0       0       40,183  
Other comprehensive income, net of tax
     0        0        0       0       18,698       0       18,698  
                                                      
 
 
 
Total comprehensive income, net of tax
                                                       58,881  
Stock based compensation expense
     0        0        1,253       0       0       0       1,253  
Purchase of treasury stock (19,314 shares)
     0        0        0       0       0       (608     (608
Cash dividends ($0.35 per share)
     0        0        0       (35,604     0       0       (35,604
Grant of restricted stock (175,495 shares)
     175,495        439        (439     0       0       0       0  
Forfeiture of restricted stock (946 shares)
     0        0        35       0       0       (35     0  
Common stock options exercised (14,694 shares)
     14,694        36        242       0       0       0       278  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2020
     105,684,479        264,211        2,141,266       1,092,827       (16,171     (138,431     3,343,702  
Comprehensive income:
                                                          
Net income
     0        0        0       52,686       0       0       52,686  
Other comprehensive income, net of tax
     0        0        0       0       27,675       0       27,675  
                                                      
 
 
 
Total comprehensive income, net of tax
                                                       80,361  
Stock based compensation expense
     0        0        1,369       0       0       0       1,369  
Acquisition of Carolina Financial Corporation (28,031,501 shares)
     28,031,501        70,079        747,751       0       0       0       817,830  
Purchase of treasury stock (6 shares)
     0        0        0       0       0       0       0  
Cash dividends ($0.35 per share)
     0        0        0       (45,416     0       0       (45,416
Common stock options exercised (300 shares)
     300        1        8       0       0       0       9  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
     133,716,280      $ 334,291      $ 2,890,394     $ 1,100,097     $ 11,504     $ (138,431   $ 4,197,855  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See notes to consolidated unaudited financial statements.
 
9

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
 
(Dollars in thousands)
  
 
 
 
 
 
 
  
Six Months Ended

June 30
 
 
  
2021
 
 
2020
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
   $ 351,959     $ 72,099  
     
INVESTING ACTIVITIES
                
Proceeds from maturities and calls of securities held to maturity
     215       210  
Proceeds from sales of securities available for sale
     39,294       164,850  
Proceeds from maturities and calls of securities available for sale
     361,699       248,856  
Purchases of securities available for sale
     (759,335     (159,548
Proceeds from sales of equity securities
     1,250       1,042  
Purchases of equity securities
     (1,305     (514
Proceeds from sales and redemptions of other investment securities
     7,558       97,177  
Purchases of other investment securities
     (14,199     (110,191
Purchases
of bank-owned life insurance policies
     (50,000     0  
Redemption of bank-owned life insurance policies
     0       1,186  
Purchases of bank premises and equipment
     (6,537     (6,831
Proceeds from sales of bank premises and equipment
     1,560       278  
Proceeds from the sales of OREO properties
     2,703       5,106  
Acquisition of Carolina Financial Corporation, net of cash paid
     0       629,107  
Net change in loans
     710,855       (1,028,035
    
 
 
   
 
 
 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
     293,758       (157,307
    
 
 
   
 
 
 
FINANCING ACTIVITIES
                
Cash dividends paid
     (90,715     (71,862
Acquisition of treasury stock
     (11,210     (608
Proceeds from exercise of stock options
     4,361       288  
Repayment of long-term Federal Home Loan Bank borrowings
     (550,000     (828,000
Proceeds from issuance of long-term Federal Home Loan Bank borrowings
     500,000       250,000  
Changes in:
                
Deposits
     984,730       2,159,196  
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings
     (14,555     (198,486
    
 
 
   
 
 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
     822,611       1,310,528  
    
 
 
   
 
 
 
Increase in cash and cash equivalents
     1,468,328       1,225,320  
Cash and cash equivalents at beginning of year
     2,209,068       837,493  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 3,677,396     $ 2,062,813  
    
 
 
   
 
 
 
Supplemental information
                
Noncash investing activities:
                
Transfers of loans to OREO
   $ 2,261     $ 18,925  
Acquisition of Carolina Financial:
                
Assets acquired, net of cash
     (7,190     4,173,843  
Liabilities assumed
     6,002       4,301,885  
Goodwill
     13,192       316,765  
See notes to consolidated unaudited financial statements
.
 
10

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 June 30, 2021 and 2020 and for the three-month and
six-month
periods then ended have not been audited. The consolidated balance sheet as of December 31, 2020 has been extracted from the audited financial statements included in United’s 2020 Annual Report to Shareholders. The Notes to Consolidated Financial Statements appearing in United’s 2020 Annual Report on Form
10-K,
which includes descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. In the opinion of management, any 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 January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2021-01,
“Reference Rate Reform (Topic 848).” This update refines the scope of ASC Topic 848 and permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by change in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. ASU
No. 2021-01
is effective for public business entities upon issuance through December 31, 2022. United is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company is assessing ASU
No. 2021-01
and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.
In August 2020, the FASB issued ASU
No. 2020-06,
“Debt – Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40).”
The amendments in the ASU remove certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. The ASU also amends the derivative scope exception guidance for contracts in an entity’s own equity. The amendments remove three settlement conditions that are required for equity contracts to qualify for the derivative scope exception. In addition, the ASU expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted
earnings-per-share
calculations that are impacted by the amendments. ASU
No. 2020-06
is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Entities may elect to adopt the amendments through either a modified retrospective method of transition or a fully retrospective method of transition. ASU
No. 2020-06
is not expected to have a material impact on the Company’s financial condition or results of operations.
 
11

In March 2020, the FASB issued ASU
No. 2020-04,
“Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides “optional expedients and exceptions for applying generally accepted accounting principles under ASC Topic 848 to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.” ASU
No. 2020-04
is effective for public business entities on March 12, 2020 through December 31, 2022. United is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company is assessing ASU
No. 2020-04
and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.
In January 2020, the FASB issued ASU
No. 2020-01,
“Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. ASU
No. 2020-01
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. 2020-01
was adopted by United on January 1, 2021. The adoption did not have a material impact on the Company’s financial condition or results of operations.
In August 2018, the FASB issued 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
was adopted by United on January 1, 2021. The adoption did not have a material impact on the Company’s financial condition or results of operations.
2. MERGERS AND ACQUISITIONS
Community Bankers Trust Corporation
On June 2, 2021, United entered into an Agreement and Plan of Reorganization (the “Community Bankers Trust Agreement”) with Community Bankers Trust Corporation (“Community Bankers Trust”), a Virginia corporation headquartered in Richmond, Virginia. In accordance with the Community Bankers Trust Agreement, Community Bankers Trust
will
merge with and into United (the “Community Bankers Trust Merger”). Community Bankers Trust will cease to exist and United shall survive and continue to exist as a West Virginia corporation. United may at any time prior to the effective time of the Community Bankers Trust Merger change the method of effecting the combination with Community Bankers Trust subject to certain conditions contained in the Community Bankers Trust Agreement.
The Community Bankers Trust Agreement provides that upon consummation of the Community Bankers Trust Merger, each outstanding share of common stock of Community Bankers Trust will be converted into the right to receive 0.3173 shares of United common stock, par value $2.50 per share. Pursuant to the Community Bankers Trust Agreement, at the effective time of the Community Bankers Trust Merger, each outstanding Community Bankers Trust stock option granted under a Community Bankers Trust stock plan, whether vested or unvested as of the date of the Community Bankers Trust Agreement,
 
will
vest only as provided pursuant to the terms of such Community Bankers Trust stock plan and convert into an option to acquire United common stock adjusted based on the 0.3173 exchange ratio. Also, at the effective time of the Community Bankers Trust Merger, each restricted stock unit granted under a Community Bankers Trust stock plan that is outstanding immediately prior to the effective time of the Community Bankers Trust Merger
will
vest only in accordance with the formula and other terms of the Community Bankers Trust stock plan and convert into the right to receive shares of United common stock based on the 0.3173 exchange ratio.
At the effective time of the Community Bankers Trust Merger, Essex Bank, a wholly-owned subsidiary of Community Bankers Trust, will merge with and into United Bank, a wholly-owned subsidiary of United (the “Essex Bank Merger”). United Bank will survive the Essex Bank Merger and continue to exist as a Virginia banking corporation.
12

Table of Contents
The acquisition of Community Bankers Trust will enhance United’s existing presence in the DC Metro MSA and will take United into new markets including Baltimore, Annapolis, Lynchburg, Richmond, and the Northern Neck of Virginia. It also strategically connects our
Mid-Atlantic
and Southeast footprints.
 
As of June 30, 2021, Community Bankers Trust had $1,754,213 in total assets, $1,209,784 in gross loans and $1,488,828 in deposits.
The merger agreement
 
was
approved by the boards of directors of both companies. The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions, including receipt of customary regulatory approvals and approval by the shareholders of Community Bankers Trust.
Carolina Financial Corporation
On May 1, 2020 (“Acquisition Date”), United acquired 100% of the outstanding shares of Carolina Financial Corporation (“Carolina Financial”), a Delaware corporation headquartered in Charleston, South Carolina. Carolina Financial was merged with and into United (the “Carolina Financial Merger”), pursuant to the terms of the Agreement and Plan of Merger, dated November 17, 2019, by and between United and Carolina Financial (the “Carolina Financial Agreement”). Upon completion of the Carolina Financial Merger, Carolina Financial ceased to exist and United survived and continues to exist as a West Virginia corporation.
Under the terms of the Carolina Financial Agreement, each outstanding share of common stock of Carolina Financial was converted into the right to receive 1.13 shares of United common stock, par value $2.50 per share. Also pursuant to the Carolina Financial Agreement, as of the effective time of the Carolina Financial Merger, each outstanding Carolina Financial stock option, whether vested or unvested as of the date of the Carolina Financial Merger, at such option holder’s election, (i) vested and converted into an option to acquire United common stock adjusted based on the 1.13 exchange ratio, or (ii) was entitled to receive cash consideration equal to the difference between (a) the option’s exercise price and (b) $28.99, representing the volume weighted average trading price of the Carolina Financial common stock on NASDAQ for the twenty full trading days ending on the second trading day immediately preceding the closing date (the “CFC Closing Price”) multiplied by the number of shares of Carolina Financial common stock subject to such stock option. Also, at the effective time of the Carolina Financial Merger, each restricted stock grant, restricted stock unit grant or any other award of a share of Carolina Financial common stock subject to vesting, repurchase or other lapse restriction under a Carolina Financial stock plan (other than a stock option) (each, a “Stock Award”) that was outstanding immediately prior to the effective time of the Carolina Financial Merger, vested in accordance with the terms of the Carolina Financial stock plan and at the election of the holder (i) converted into the right to receive shares of United common stock based on the 1.13 exchange ratio or (ii) converted into cash in an amount equal to the CFC Closing Price multiplied by the shares of Carolina Financial common stock subject to the Stock Award.
Immediately following the Carolina Financial Merger, CresCom Bank, a wholly-owned subsidiary of Carolina Financial, merged with and into United Bank, a wholly-owned subsidiary of United (the “CresCom Bank Merger”). United Bank survived the CresCom Bank Merger and continues to exist as a Virginia banking corporation. CresCom Bank owned and operated Crescent Mortgage Company (“Crescent”), which is based in Atlanta, Georgia. As a result of the CresCom Bank Merger, Crescent is now a wholly-owned subsidiary of United Bank. For the second quarter and first half of 2021, United did not record any acquisition-related costs associated with the Carolina Financial Merger as compared to acquisition-related costs of $46,449 and $48,009 for the second quarter and first half of 2020.
The Carolina Financial Merger was accounted for under the acquisition method of accounting. The results of operations of Carolina Financial are included in the consolidated results of operations from the Acquisition Date. The acquisition of Carolina Financial affords United the opportunity to expand its existing footprint in North Carolina and South Carolina. Carolina Financial had banking locations in North Carolina and South Carolina. As of the Acquisition Date, Carolina Financial had $5,004,990 in total assets, $3,292,635 in loans and leases, net of unearned income and $3,873,183 in deposits.
 
 
 
The aggregate purchase price was $817,877, including common stock valued at $815,997, stock options assumed valued at $1,833, and cash paid for fractional shares of $47. The number of shares issued in the transaction was 28,031,501, which were valued based on the closing market price of $29.11 for United’s common shares on May 1, 2020. The purchase price
13

has been allocated to the identifiable
 
tangible and intangible assets resulting in additions to goodwill, core deposit intangibles and the Crescent trade name intangible of $332,026, $3,408, and $196, respectively. The goodwill recognized results from the expected synergies and potential earnings from the combination of United and Carolina Financial. The core deposit intangible is being amortized on an accelerated basis over ten years. The Crescent trade name provides a source of market recognition to attract potential clients and retain existing relationships. United believes the Crescent trade name provides a competitive advantage and is likely going to be used into perpetuity and thus will not be subject to amortization, but rather be evaluated for impairment.
Because the consideration paid was greater than the net fair value of the acquired assets and liabilities, the Company recorded goodwill as part of the acquisition. None of the goodwill from the Carolina Financial acquisition is expected to be deductible for tax purposes. United used an independent third party to help determine the fair values of the assets and liabilities acquired from Carolina Financial. As a result of the merger, United recorded fair value discounts of $47,425 on the loans and leases acquired, $620 on investment securities, $272 on OREO, $4,831 on trust preferred issuances and $135 on subordinated notes, respectively, and premiums of $5,908 on buildings acquired, $4,357 on land acquired, $12,818 on interest-bearing deposits, and $468 on long-term FHLB advances, respectively. United also recorded an allowance for credit losses, including a reserve for unfunded commitments, of $50,562 on the loans and commitments acquired split between $19,797 for purchased credit deteriorated (“PCD”) loans and $30,765 for
non-PCD
loans. The discounts and premium amounts, except for discount on the land and OREO acquired, are being accreted or amortized on an accelerated or straight-line basis, based on the type of asset or liability, over each asset’s or liability’s estimated remaining life at the time of acquisition. At June 30, 2021, the discounts on subordinated debt and trust preferred issuances had an average estimated remaining life of 6.50 years and 15.75 years, respectively, and the premiums on the buildings, and interest-bearing deposits each had an average estimated remaining life of 30.50 years, and 4.10 years, respectively. The estimated fair values of the acquired assets and assumed liabilities, including identifiable intangible assets and goodwill were considered final as of June 30, 2021.
Portfolio loans and leases acquired from Carolina Financial were recorded at their fair value at the Acquisition Date based on a discounted cash flow methodology. The estimated fair value incorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and other market factors such as liquidity from the perspective of a market participant. Also, acquired portfolio loans and leases were evaluated upon acquisition and classified as either PCD, which indicates that the loan has experienced a more-than-insignificant deterioration in credit quality since origination, or
non-PCD.
United considered a variety of factors in evaluating the acquired loans and leases for a more-than-insignificant deterioration in credit quality, including but not limited to risk grades, delinquency, nonperforming status, current or previous troubled debt restructurings or bankruptcies, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination. For PCD loans and leases, an initial allowance is determined based on the same methodology as other portfolio loans and leases. This initial allowance for credit losses is allocated to individual PCD loans and leases and added to the acquisition date fair values to establish the initial amortized cost basis for the PCD loans and leases. The difference between the unpaid principal balance (“UPB”), or par value, of PCD loans and leases and the amortized cost basis is considered to relate to noncredit factors and resulted in a discount of $7,212 at Acquisition Date. This discount is being recognized through interest income on a level-yield method over the life of the loans which is estimated to be a weighted-average of 4.6 years. For
non-PCD
acquired loans and leases, the differences between the initial fair value and the UPB, or par value, are recognized as interest income on a level-yield basis over the lives of the related loans and leases which is estimated to be a weighted-average of 7.3 years. The total fair value mark on the
non-PCD
loans and leases at the Acquisition Date was $40,213. At the Acquisition Date, an initial allowance for expected credit losses of $28,948 was recorded with a corresponding charge to the provision for credit losses in the Consolidated Statements of Income. Subsequent changes in the allowance for credit losses related to PCD and
non-PCD
loans and leases are recognized in the provision for credit losses.
 
14

Table of Contents
The following table provides a reconciliation of the difference between the purchase price and the par value of portfolio PCD loans and leases acquired from Carolina Financial as of the Acquisition Date:
 
Purchase price of PCD loans and leases at acquisition
   $
 
1,023,531  
Allowance for credit losses at acquisition
     18,635  
Non-credit
discount at acquisition
     7,212  
    
 
 
 
Par value (UPB) of acquired PCD loans and leases at acquisition
   $ 1,049,378  
    
 
 
 
The consideration paid for Carolina Financial’s common equity and the amounts of acquired identifiable assets and liabilities assumed as of the Acquisition Date were as follows:
 
Purchase price:
        
Value of common shares issued (28,031,501 shares)
   $ 815,997  
Fair value of stock options assumed
     1,833  
Cash for fractional shares
     47  
    
 
 
 
Total purchase price
     817,877  
    
 
 
 
   
Identifiable assets:
        
Cash and cash equivalents
     629,154  
Investment securities
     580,791  
Loans held for sale
     65,757  
Net loans and leases
     3,246,940  
Premises and equipment
     79,127  
Operating lease
right-of-use
asset
     9,861  
Crescent trade name intangible
     196  
Core deposit intangible
     3,408  
Mortgage servicing rights
     20,123  
Other assets
     159,218  
    
 
 
 
Total identifiable assets
   $
 
4,794,575  
    
 
 
 
   
Identifiable liabilities:
        
Deposits
   $ 3,884,977  
Short-term borrowings
     332,000  
Long-term borrowings
     42,738  
Operating lease liability
     9,861  
Other liabilities
     39,148  
    
 
 
 
Total identifiable liabilities
     4,308,724  
    
 
 
 
Fair value of net assets acquired including identifiable intangible assets
     485,851  
    
 
 
 
Resulting goodwill
   $ 332,026  
    
 
 
 
The operating results of United include operating results of acquired assets and assumed liabilities subsequent to the Acquisition Date. The operations of United’s North Carolina and South Carolina geographic area, which includes the acquired operations of Carolina Financial and Crescent Mortgage provided $104,069 in total revenues (net interest income plus other income), and $53,632 in net income for the first six months of 2021. These amounts are included in United’s consolidated financial statements as of and for the six months ended June 30, 2021. Carolina Financial’s results of operations prior to the Acquisition Date are not included in United’s consolidated results of operations.
3. 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, estimated fair values, and allowance for credit losses of securities available for sale are summarized as follows.
 
15

    
June 30, 2021
 
    
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Allowance
For Credit
Losses
    
Estimated
Fair

Value
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
   $ 14,908      $ 242      $ 3      $ 0      $ 15,147  
State and political subdivisions
     592,778        22,585        1,317        0        614,046  
Residential mortgage-backed securities
                                            
Agency
     973,328        17,216        5,542        0        985,002  
Non-agency
     39,792        15        204        0        39,603  
Commercial mortgage-backed securities
                                            
Agency
     634,647        21,212        3,302        0        652,557  
Asset-backed securities
     489,901        714        1,182        0        489,433  
Single issue trust preferred securities
     18,249        188        1,020        0        17,417  
Other corporate securities
     457,829        6,183        143        0        463,869  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 3,221,432      $ 68,355      $ 12,713      $ 0      $ 3,277,074  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
  
December 31, 2020
 
 
  
Amortized
Cost
 
  
Gross
Unrealized
Gains
 
  
Gross
Unrealized
Losses
 
  
Allowance
For Credit
Losses
 
  
Estimated
Fair

Value
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
   $ 65,804      $ 543      $ 3      $ 0      $ 66,344  
State and political subdivisions
     538,082        27,330        252        0        565,160  
Residential mortgage-backed securities
                                            
Agency
     905,230        24,134        473        0        928,891  
Non-agency
     21,639        137        0        0        21,776  
Commercial mortgage-backed securities
                                            
Agency
     644,774        31,009        638        0        675,145  
Asset-backed securities
     297,834        204        3,415        0        294,623  
Single issue trust preferred securities
     18,230        167        1,370        0        17,027  
Other corporate securities
     376,753        7,648        8        0        384,393  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 2,868,346      $ 91,172      $ 6,159      $ 0      $ 2,953,359  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
For the adoption of ASC Topic 326, “Financial Instruments—Credit Losses,” United made a policy election to exclude accrued interest from the amortized cost basis of
available-for-sale
debt securities and report accrued interest separately in “Accrued interest receivable” in the consolidated balance sheets.
Available-for-sale
debt securities are placed on
non-accrual
status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on
non-accrual
status. Accordingly, United does not currently recognize an allowance for credit loss against accrued interest receivable on
available-for-sale
debt securities. The table above excludes accrued interest receivable of $12,220 and $10,663 at June 30, 2021 and December 31, 2020, respectively, that is recorded in “Accrued interest receivable.”
 
16

The following is a summary of securities available for sale which were in an unrealized loss position at June 30, 2021 and December 31, 2020.
 
    
Less than 12 months
    
12 months or longer
    
Total
 
    
Fair

Value
    
Unrealized
Losses
    
Fair

Value
    
Unrealized
Losses
    
Fair

Value
    
Unrealized
Losses
 
June 30, 2021
                                                     
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
   $ 0      $ 0      $ 252      $ 3      $ 252      $ 3  
State and political subdivisions
     63,639        1,254        4,920        63        68,559        1,317  
Residential mortgage-backed securities
                                                     
Agency
     393,743        5,542        0        0        393,743        5,542  
Non-agency
     20,261        204        0        0        20,261        204  
Commercial mortgage-backed securities
                                                     
Agency
     117,331        3,302        0        0        117,331        3,302  
Asset-backed securities
     143,276        272        145,807        910        289,083        1,182  
Trust preferred collateralized debt obligations
     0        0        0        0        0        0  
Single issue trust preferred securities
     0        0        13,188        1,020        13,188        1,020  
Other corporate securities
     47,259        143        0        0        47,259        143  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $
 
785,509      $ 10,717      $
 
164,167      $ 1,996      $
 
949,676      $ 12,713  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
    
Less than 12 months
    
12 months or longer
    
Total
 
    
Fair

Value
    
Unrealized
Losses
    
Fair

Value
    
Unrealized
Losses
    
Fair

Value
    
Unrealized
Losses
 
December 31, 2020
                                                     
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
   $ 297      $ 3      $ 0      $ 0      $ 297      $ 3  
State and political subdivisions
     30,480        252        0        0        30,480        252  
Residential mortgage-backed securities
                                                     
Agency
     131,114        467        3,867        6        134,981        473  
Non-agency
     0        0        0        0        0        0  
Commercial mortgage-backed securities
                                                     
Agency
     83,395        638        0        0        83,395        638  
Asset-backed securities
     0        0        266,104        3,415        266,104        3,415  
Trust preferred collateralized debt obligations
     0        0        0        0        0        0  
Single issue trust preferred securities
     0        0        13,804        1,370        13,804        1,370  
Other corporate securities
     8,494        8        0        0        8,494        8  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $
 
253,780      $ 1,368      $
 
283,775      $ 4,791      $
 
537,555      $ 6,159  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
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.
17

 
  
Three Months Ended

June 30
 
  
Six Months Ended

June 30
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
Proceeds from sales and calls
   $  131,464      $  280,780      $  400,993      $  413,706  
Gross realized gains
     0        1,565        1,542        1,818  
Gross realized losses
     0        98        98        177  
At June 30, 2021, gross unrealized losses on available for sale securities were $12,713 on 113 securities of a total portfolio of 1,005 available for sale securities. Securities with the most significant gross unrealized losses at June 30, 2021 consisted primarily of agency residential mortgage-backed securities and agency commercial mortgage-backed securities.
In
 
determining whether or not a security is impaired, management considered the severity 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 $592,778 at June 30, 2021. As of June 30, 2021, approximately 59% 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 no securities within the portfolio were rated below investment grade as of June 30, 2021. 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 had credit losses at June 30, 2021.
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 $1,607,975 at June 30, 2021. Of the $1,607,975 amount, $634,647 was related to agency commercial mortgage-backed securities and $973,328 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 had credit losses at June 30, 2021.
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 $39,792 at June 30, 2021. Of the $39,792, 100% was rated AAA. Based upon management’s analysis and judgment, it was determined that none of the
non-agency
residential mortgage-backed securities had credit losses at June 30, 2021.
Asset-backed securities
As of June 30, 2021, United’s asset-backed securities portfolio had a total amortized cost balance of $489,901. The entire portfolio was rated AA+ or better as of June 30, 2021. Approximately 55% of the portfolio relates to securities that are backed by Federal Family Education Loan Program (“FFELP”) student loan collateral which includes a minimum of a 97% government repayment guaranty, as well as additional credit support and subordination in excess of the government guaranteed portion. Approximately 41% of the portfolio relates to collateralized loan obligation securities that are all AAA rated. The remaining 4% of the portfolio relates to various other asset-backed securities that are all AAA rated. Upon reviewing this portfolio for the second quarter of 2021, it was determined that none of the asset-backed securities had credit losses.
 
 
18

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 June 30, 2021 consisted of $11,514 in investment grade bonds, $978 in split rated bonds, and $5,757 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 second quarter of 2021, it was determined that none of the single issue trust preferred securities had credit losses.
Corporate securities
As of June 30, 2021, United’s Corporate securities portfolio had a total amortized cost balance of $457,829. The majority of the portfolio consisted of debt issuances of corporations representing a variety of industries, including financial institutions. Of the $457,829 total amortized cost balance, 86% had at least one rating above investment grade, 2% was below investment grade rated, and 12% was unrated. For corporate securities, management has evaluated the near-term prospects of the investment in relation to the severity of any unrealized loss. Based upon management’s analysis and judgment, it was determined that none of the corporate securities had credit losses at June 30, 2021.
The amortized cost and estimated fair value of securities available for sale at June 30, 2021 and December 31, 2020 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.
 
    
June 30, 2021
    
December 31, 2020
 
    
Amortized
Cost
    
Estimated
Fair

Value
    
Amortized
Cost
    
Estimated
Fair

Value
 
Due in one year or less
   $ 72,479      $ 72,978      $ 150,575      $ 151,651  
Due after one year through five years
     596,359        611,994        495,922        514,441  
Due after five years through ten years
     688,537        702,870        688,264        714,416  
Due after ten years
     1,864,057        1,889,232        1,533,585        1,572,851  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $
 
3,221,432      $
 
3,277,074      $
 
2,868,346      $
 
2,953,359  
    
 
 
    
 
 
    
 
 
    
 
 
 
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 $11,507 at June 30, 2021 and $10,718 at December 31, 2020.
 
    
Three Months Ended

June 30
   
Six Months Ended

June 30
 
    
2021
    
2020
   
2021
   
2020
 
Net gains recognized during the period
   $ 24      $ 43     $ 734     $ 65  
Net gains recognized during the period on equity securities sold
     0        1       788       7  
Unrealized gains recognized during the period on equity securities still held at period end
     24        43       51       114  
Unrealized losses recognized during the period on equity securities still held at period end
     0        (1     (105     (56
Other investment securities
During the second quarter of 2021, United evaluated all of its cost method investments to determine if certain events or changes in circumstances during the second quarter of 2021 had a significant adverse effect on the fair value of any of its
19

cost method securities. United determined that there was no individual security that experienced an adverse event during the second quarter. There were no other events or changes in circumstances during the second 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 $1,912,762 and $1,942,087 at June 30, 2021 and December 31, 2020, respectively.
4. LOANS AND LEASES
Major classes of loans and leases are as follows:
 
    
June 30, 2021
    
December 31, 2020
 
Commercial, financial and agricultural:
                 
Owner-occupied commercial real estate
   $ 1,589,701      $ 1,622,687  
Nonowner-occupied commercial real estate
     4,981,226        5,017,727  
Other commercial
     3,657,772        4,054,418  
    
 
 
    
 
 
 
Total commercial, financial & agricultural
     10,228,699        10,694,832  
Residential real estate
     3,587,057        3,899,885  
Construction & land development
     1,929,052        1,826,349  
Consumer:
                 
Bankcard
     7,940        8,937  
Other consumer
     1,168,904        1,192,580  
Less: Unearned income
     (33,651      (31,170
    
 
 
    
 
 
 
Total gross loans
   $ 16,888,001      $ 17,591,413  
    
 
 
    
 
 
 
The table above does not include loans held for sale of $576,827 and $718,937 at June 30, 2021 and December 31, 2020, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.
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 $32,791 and $35,756 at June 30, 2021 and December 31, 2020, respectively.
5. CREDIT QUALITY
Management monitors the credit quality of its loans and leases on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan. United considers a loan to be past due when it is 30 days or more past its contractual payment due date.
For all loan classes, past due loans and leases are reviewed on a monthly basis to identify loans and leases 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 credit losses. United’s method of income recognition for loans and leases 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 and leases 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. Generally, a loan is categorized as a TDR if a concession is granted and there is deterioration in the financial condition of the borrower. The portfolio of TDR loans is monitored monthly.
 
20

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. A loan classified as a TDR will generally retain such classification until the loan is paid in full. However, a
one-to-four-family
residential mortgage TDR loan that yields a market rate and demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally one year, is removed from the TDR classification. Interest income on TDRs is accrued at the reduced rate and the loan is returned to performing status once the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally six months. TDRs can take the form of a reduction of the stated interest rate, splitting a loan into separate loans and leases 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, or the reduction of accrued interest or any other concessionary type of renegotiated debt. Under United’s current loan policy, a loan is not recognized as a TDR until it becomes probable that the loan will be a TDR.
In response to the coronavirus
(“COVID-19”)
pandemic and its economic impact on our customers, United has implemented a short-term modification program that complies with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide temporary payment relief to those borrowers directly impacted by
COVID-19
who were not more than 30 days past due as of December 31, 2019. This program allows for a deferral of payments from the period beginning March 1, 2020 until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the
COVID-19
outbreak terminates. As provided for under the CARES Act, these loan modifications are exempt by law from classification as a TDR as defined by GAAP. As of June 30, 2021, United has 238 eligible loan modifications in deferral under section 4013, “Temporary Relief from Troubled Debt Restructurings,” of the CARES Act on $66,364 of loans outstanding, down from 1,002 eligible loan modifications in deferral on $399,857 of loans outstanding at December 31, 2020.
As of June 30, 2021, United had TDRs of $47,271 as compared to $55,657 as of December 31, 2020. Of the $47,271 aggregate balance of TDRs at June 30, 2021, $32,471 was on nonaccrual, $46 was 90 days or more past due and $1,362 was
30-89
days past due. Of the $55,657 aggregate balance of TDRs at December 31, 2020, $41,185 was on nonaccrual and $197 was
30-89
days 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 June 30, 2021, there was a commitment to lend additional funds of $125 to a debtor owing a receivable whose terms have been modified in a TDR. During the second quarter and first six months of 2021, advances totaling $13 were made to this debtor under a loan that had been previously modified.
The following tables sets forth the balances of TDRs at June 30, 2021 and December 31, 2020 and the reasons for modification:
 
Reason for modification
  
June 30, 2021
    
December 31, 2020
 
Interest rate reduction
   $ 10,204      $ 10,774  
Interest rate reduction and change in terms
     0        2,346  
Forgiveness of principal
     200        214  
Concession of principal and term
     20        22  
Transfer of asset
     4,465        0  
Extended maturity
     5,546        4,414  
Change in terms
     26,836        37,887  
    
 
 
    
 
 
 
Total
   $ 47,271      $ 55,657  
    
 
 
    
 
 
 
 
21

The following table sets forth United’s troubled debt restructurings that have been restructured during the three months ended June 30, 2021 and 2020, segregated by class of loans:
 
    
Troubled Debt Restructurings

For the Three Months Ended
 
    
June 30, 2021
    
June 30, 2020
 
    
Number of
Contracts
    
Pre-

Modification
Outstanding
Recorded
Investment
    
Post-
Modification
Outstanding
Recorded
Investment
    
Number of
Contracts
    
Pre-

Modification
Outstanding
Recorded
Investment
    
Post-
Modification
Outstanding
Recorded
Investment
 
Commercial real estate:
                                                     
Owner-occupied
     0      $ 0      $ 0        18      $ 10,628      $ 10,586  
Nonowner-occupied
     1        5,413        5,364        6        2,259        2,248  
Other commercial
     1        181        181        14        3,169        3,090  
Residential real estate
     0        0        0        19        3,889        3,872  
Construction & land development
     0        0        0        9        2,562        2,557  
Consumer:
                                                     
Bankcard
     0        0        0        0        0        0  
Other consumer
     0        0        0        3        69        36  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     2      $ 5,594      $ 5,545        69      $ 22,576      $ 22,389  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
The
 
following table sets forth United’s troubled debt restructurings that have been restructured during the six months ended June 30, 2021 and 2020, segregated by class of loans:
 
    
Troubled Debt Restructurings
 
    
For the Six Months Ended
 
    
June 30, 2021
    
June 30, 2020
 
    
Number of
Contracts
    
Pre-

Modification
Outstanding
Recorded
Investment
    
Post-
Modification
Outstanding
Recorded
Investment
    
Number of
Contracts
    
Pre-

Modification
Outstanding
Recorded
Investment
    
Post-
Modification
Outstanding
Recorded
Investment
 
Commercial real estate:
                                                     
Owner-occupied
     1      $ 940      $ 1,106        21      $ 18,579      $ 18,345  
Nonowner-occupied
     2        6,349        6,292        6        2,259        2,248  
Other commercial
     1        181        181        18        3,667        3,322  
Residential real estate
     0        0        0        19        3,889        3,872  
Construction & land development
     0        0        0        12        4,607        4,570  
Consumer:
                                                     
Bankcard
     0        0        0        0        0        0  
Other consumer
     0        0        0        3        69        36  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     4      $ 7,470      $ 7,579        79      $ 33,070      $ 32,393  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
The following table presents troubled debt restructurings, by class of loan, that were restructured during the twelve-month period ended June 30, 2021 and had charge-offs during the three months and six months ended June 30, 2021. The recorded investment amounts presented were as of the June 30, 2021 balance sheet date.
 
 
  
Three Months Ended

June 30, 2021
 
  
Six Months Ended

June 30, 2021
 
 
  
Number of
Contracts
 
  
Recorded
Investment
 
  
Number of
Contracts
 
  
Recorded
Investment
 
Troubled Debt Restructurings
  
 
 
  
 
 
  
 
 
  
 
 
Commercial real estate:
  
     
  
     
  
     
  
     
Owner-occupied
     0      $ 0        0      $ 0  
Nonowner-occupied
     0        0        0        0  
Other commercial
     0        0        0        0  
Residential real estate
     1        0        1        0  
 
22
 
  
Three Months Ended

June 30, 2021
 
  
Six Months Ended

June 30, 2021
 
 
  
Number of
Contracts
 
  
Recorded
Investment
 
  
Number of
Contracts
 
  
Recorded
Investment
 
Troubled Debt Restructurings
  
 
 
  
 
 
  
 
 
  
 
 
Construction & land development
     1        0        2        0  
Consumer:
                                   
Bankcard
     0        0        0        0  
Other consumer
     0        0        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     2      $ 0        3      $ 0  
    
 
 
    
 
 
    
 
 
    
 
 
 
The following table presents troubled debt restructurings, by class of loan, that were restructured during the twelve-month period ended June 30, 2020 and had charge-offs during the three and six months ended June 30, 2020. The recorded investment amounts presented were as of the June 30, 2020 balance sheet date.
 
 
  
Three Months Ended

June 30, 2020
 
  
Six Months Ended

June 30, 2020
 
 
  
Number of
Contracts
 
  
Recorded
Investment
 
  
Number of
Contracts
 
  
Recorded
Investment
 
Troubled Debt Restructurings
  
 
 
  
 
 
  
 
 
  
 
 
Commercial real estate:
  
     
  
     
  
     
  
     
Owner-occupied
     0      $ 0        0      $ 0  
Nonowner-occupied
     0        0        0        0  
Other commercial
     0        0        0        0  
Residential real estate
     0        0        0        0  
Construction & land development
     1        690        1        690  
Consumer:
                                   
Bankcard
     0        0        0        0  
Other consumer
     0        0        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     1      $ 690        1      $ 690  
    
 
 
    
 
 
    
 
 
    
 
 
 
The following table sets forth United’s age analysis of its past due loans and leases, segregated by class of loans:
 
Age Analysis of Past Due Loans and Leases
 
As of June 30, 2021
    
30-89 Days

Past Due
    
90 Days or
more Past
Due
    
Total Past
Due
    
Current &
Other
    
Total

Financing
Receivables
    
90 Days or
More Past
Due &
Accruing
 
Commercial real estate:
                                                     
Owner-occupied
   $ 4,735      $ 19,849      $ 24,584      $ 1,565,117      $ 1,589,701      $ 832  
Nonowner-occupied
     5,753        25,720        31,473        4,949,753        4,981,226        1,876  
Other commercial
     38,932        13,444        52,376        3,605,396        3,657,772        1,028  
Residential real estate
     19,763        23,145        42,908        3,544,149        3,587,057        8,361  
Construction & land development
     1,637        3,386        5,023        1,924,029        1,929,052        133  
Consumer:
                                                     
Bankcard
     41        189        230        7,710        7,940        189  
Other consumer
     11,938        2,101        14,039        1,154,865        1,168,904        1,762  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 82,799      $ 87,834      $ 170,633      $ 16,751,019      $ 16,921,652      $ 14,181  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
Age Analysis of Past Due Loans and Leases
 
As of December 31, 2020
    
30-89 Days

Past Due
    
90 Days or
more Past
Due
    
Total Past
Due
    
Current &
Other
    
Total

Financing
Receivables
    
90 Days or
More Past
Due &
Accruing
 
Commercial real estate:
                                                     
Owner-occupied
   $ 4,556      $ 28,479      $ 33,035      $ 1,589,652      $ 1,622,687      $ 0  
Nonowner-occupied
     6,837        29,292        36,129        4,981,598        5,017,727        1,284  
Other commercial
     13,796        26,274        40,070        4,014,348        4,054,418        1,001  
 
23
Age Analysis of Past Due Loans and Leases
 
As of December 31, 2020
 
 
  
30-89 Days

Past Due
 
  
90 Days or
more Past
Due
 
  
Total Past
Due
 
  
Current &
Other
 
  
Total

Financing
Receivables
 
  
90 Days or
More Past
Due &
Accruing
 
Residential real estate
     32,743        24,892        57,635        3,842,250        3,899,885        8,574  
Construction & land development
     1,919        5,885        7,804        1,818,545        1,826,349        461  
Consumer:
                                                     
Bankcard
     362        156        518        8,419        8,937        156  
Other consumer
     14,765        2,757        17,522        1,175,058        1,192,580        2,356  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 74,978      $ 117,735      $ 192,713      $ 17,429,870      $ 17,622,583      $ 13,832  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
The following table sets forth United’s nonaccrual loans and leases, segregated by class of loans:
    
At June 30, 2021
    
At December 31, 2020
 
    
Nonaccruals
    
With No
Related
Allowance
for Credit
Losses
    
90 Days or
More Past
Due &
Accruing
    
Nonaccruals
    
With No
Related
Allowance for
Credit Losses
    
90 Days or
More Past
Due &
Accruing
 
Commercial Real Estate:
                                                     
Owner-occupied
   $ 19,017      $ 19,017      $ 832      $ 28,479      $ 28,479      $ 0  
Nonowner-occupied
     23,844        20,404        1,876        28,008        16,070        1,284  
Other Commercial
     12,416        9,191        1,028        25,273        13,149        1,001  
Residential Real Estate
     14,784        13,790        8,361        16,318        14,769        8,574  
Construction
     3,253        3,253        133        5,424        4,484        461  
Consumer:
                                                     
Bankcard
     0        0        189        0        0        156  
Other consumer
     339        339        1,762        401        401        2,356  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 73,653      $ 65,994      $ 14,181      $ 103,903      $ 77,352      $ 13,832  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Interest income recognized on nonaccrual loans was insignificant during the three and six months ended June 30, 2021 and 2020.
For the adoption of ASC Topic 326, United elected the practical expedient to measure expected credit losses on collateral dependent loans and leases based on the difference between the loan’s amortized cost and the collateral’s fair value, adjusted for selling costs. The following table presents the amortized cost basis of collateral-dependent loans and leases in which repayment is expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty, by class of loans and leases as of June 30, 2021 and December 31, 2020:
 
    
Collateral Dependent Loans and Leases
 
    
At June 30, 2021
 
    
Residential
Property
    
Business
Assets
    
Land
    
Commercial
Property
    
Other
    
Total
 
Commercial real estate:
                                              
Owner-occupied
   $ 0      $ 44      $ 0      $ 17,266      $ 19,017      $ 36,327  
Nonowner-occupied
     12,985        0        2,096        8,931        16,922        40,934  
Other commercial
     0        14,966        0        0        1,634        16,600  
Residential real estate
     19,085        0        0        0        0        19,085  
Construction & land development
     0        0        5,114        0        812        5,926  
Consumer:
                                                     
Bankcard
     0        0        0        0        0        0  
Other consumer
     0        0        0        0        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
             
Total
   $ 32,070      $ 15,010      $ 7,210      $ 26,197      $ 38,385      $ 118,872  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
24

    
Collateral Dependent Loans and Leases
 
    
At December 31, 2020
 
    
Residential
Property
    
Business
Assets
    
Land
    
Commercial
Property
    
Other
    
Total
 
Commercial real estate:
                                              
Owner-occupied
   $ 1,480      $ 138      $ 0      $ 18,097      $ 21,737      $ 41,452  
Nonowner-occupied
     16,400        0        2,898        10,167        18,230        47,695  
Other commercial
     5,424        20,429        0        258        2,345        28,456  
Residential real estate
     21,006        229        34        0        803        22,072  
Construction & land development
     39        0        17,408        0        746        18,193  
Consumer:
                                                     
Bankcard
     0        0        0        0        0        0  
Other consumer
     0        0        0        0        1        1  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
             
Total
   $ 44,349      $ 20,796      $ 20,340      $ 28,522      $ 43,862      $ 157,869  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
United categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt: current financial information, historical payment experience, credit documentation, underlying collateral (if any), public information and current economic trends, among other factors.
United uses the following definitions for risk ratings:
 
 
 
Pass
 
 
 
Special Mention
 
 
 
Substandard
 
 
 
Doubtful
For United’s loans with a corporate credit exposure, United analyzes loans individually to classify the loans as to credit risk. Review and analysis of criticized (special mention-rated loans in the amount of $1,000 or greater) and classified (substandard-rated and worse in the amount of $500 and greater) loans is completed once per quarter. Review of notes with committed exposure of $2,000 or greater is completed at least annually. 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.
 
25

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. 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.
Based on the most recent analysis
 
performed, the risk category of loans and leases by class of loans is as follows:
Commercial Real Estate
 
 O
wner-occupied
 
 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

converted to
term loans
 
 
Total
 
As of June 30, 2021
 
2021
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 97,374      $ 284,405      $ 154,354      $ 158,806      $ 178,273     $ 621,459     $ 25,214      $ 426      $ 1,520,311  
Special Mention
     0        0        0        2,166        734       19,044       941        0        22,885  
Substandard
     0        62        44        0        1,398       43,732       700        252        46,188  
Doubtful
     0        0        0        0        0       317       0        0        317  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 97,374      $ 284,467      $ 154,398      $ 160,972      $ 180,405     $ 684,552     $ 26,855      $ 678      $ 1,589,701  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
                   
YTD charge-offs
     0        0        0        0        (44     (166     0        0        (210
YTD recoveries
     0        0        0        0        12       72       0        0        84  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 0      $ (32   $ (94   $ 0      $ 0      $ (126
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

converted to
term loans
 
 
Total
 
As of December 31, 2020
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 280,779      $ 152,851      $ 162,027      $ 198,610      $ 282,214     $ 443,312     $ 22,303      $ 0      $ 1,542,096  
Special Mention
     0        1,206        3,772        754        2,013       20,792       0        453        28,990  
Substandard
     1,935        62        0        1,117        3,788       43,354       864        149        51,269  
Doubtful
     0        0        0        0        0       332       0        0        332  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 282,714      $ 154,119      $ 165,799      $ 200,481      $ 288,015     $ 507,790     $ 23,167      $ 602      $ 1,622,687  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
                   
YTD charge-offs
     0        0        0        0        0       (2,195     0        0        (2,195
YTD recoveries
     0        0        0        0        0       795       0        0        795  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 0      $ 0     $ (1,400   $ 0      $ 0      $ (1,400
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Commercial Real Estate – Nonowner-occupied
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

converted to
term loan
 
 
Total
 
As of June 30, 2021
 
2021
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 506,071      $ 895,827      $ 571,698      $ 508,960      $ 428,608      $ 1,663,763     $ 105,766      $ 2,078      $ 4,682,771  
Special Mention
     0        0        114,003        0        382        68,707       0        0        183,092  
Substandard
     0        735        13,814        6,995        1,124        92,695       0        0        115,363  
Doubtful
     0        0        0        0        0        0       0        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 506,071      $ 896,562      $ 699,515      $ 515,955      $ 430,114      $ 1,825,165     $ 105,766      $ 2,078      $ 4,981,226  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
YTD charge-offs
     0        0        0        0        0        (3,101     0        0        (3,101
YTD recoveries
     0        0        0        0        0        303       0        0        303  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 0      $ 0      $ (2,798   $ 0      $ 0      $ (2,798
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
 
26

 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

connverted to
term loans
 
 
Total
 
As of December 31, 2020
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 929,001     $ 592,109      $ 596,260     $ 481,894      $ 502,417     $ 1,496,135     $ 118,404      $ 2,112      $ 4,718,332  
Special Mention
     0       105,104        0       391        8,902       78,591       0        0        192,988  
Substandard
     392       14,620        7,435       1,564        10,824       71,572       0        0        106,407  
Doubtful
     0       0        0       0        0       0       0        0        0  
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 929,393     $ 711,833      $ 603,695     $ 483,849      $ 522,143     $ 1,646,298     $ 118,404      $ 2,112      $ 5,017,727  
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
YTD charge-offs
     (38     0        (300     0        (3,394     (2,402     0        0        (6,134
YTD recoveries
     0       0        0       0        0       1,023       0        0        1,023  
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ (38   $ 0      $ (300   $ 0      $ (3,394   $ (1,379   $ 0      $ 0      $ (5,111
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Other commercial
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans and leases

Origination Year
 
 
Revolving loans
and leases
amortized cost
basis
 
 
Revolving

loans and leases

converted to
term loans
 
 
Total
 
As of June 30, 2021
 
2021
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 758,865      $ 898,082      $ 353,707     $ 129,477     $ 96,778     $ 112,242     $ 1,214,646     $ 2,257      $ 3,566,054  
Special Mention
     25        67        147       1,196       1,003       4,852       41,972       73        49,335  
Substandard
     8        1,047        807       2,234       455       21,876       15,532       284        42,243  
Doubtful
     0        0        0       0       0       140       0       0        140  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Total
   $ 758,898      $ 899,196      $ 354,661     $ 132,907     $ 98,236     $ 139,110     $ 1,272,150     $ 2,614      $ 3,657,772  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
YTD charge-offs
     0        0        (31     (100     (6     (2,447     (40     0        (2,624
YTD recoveries
     0        0        14       85       16       1,714       0       0        1,829  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ (17   $ (15   $ 10     $ (733   $ (40   $ 0      $ (795
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
         
   
Term Loans and leases

Origination Year
   
Revolving loans
and leases
amortized cost
basis
   
Revolving

loans and leases

converted to
term loans
   
Total
 
As of December 31, 2020
 
2020
   
2019
   
2018
   
2017
   
2016
   
Prior
 
Internal Risk Grade:
                                                                           
Pass
   $ 1,702,787      $ 370,059      $ 200,588     $ 112,170     $ 119,582     $ 257,638     $ 1,172,699     $ 2,668      $ 3,938,191  
Special Mention
     333        384        4,754       1,300       138       8,231       40,048       86        55,274  
Substandard
     1,649        830        2,241       2,606       6,565       30,308       16,222       360        60,781  
Doubtful
     0        0        0       0       37       135       0       0        172  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Total
   $ 1,704,769      $ 371,273      $ 207,583     $ 116,076     $ 126,322     $ 296,312     $ 1,228,969     $ 3,114      $ 4,054,418  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
YTD charge-offs
     0        0        (959     (23     (3,525     (12,843     0       0        (17,350
YTD recoveries
     94        864        18       12       684       2,789       0       0        4,461  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
YTD net charge-offs
   $ 94      $ 864      $ (941   $ (11   $ (2,841   $ (10,054   $ 0     $ 0      $ (12,889
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Residential Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

converted to

term loans
 
 
Total
 
As of June 30, 2021
 
2021
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 395,401      $ 628,539      $ 475,986     $ 407,397      $ 221,041     $ 1,019,262     $ 404,177      $ 3,044      $ 3,554,847  
Special Mention
     0        0        265       0        179       5,068       730        0        6,242  
Substandard
     0        0        393       424        3,196       21,571       270        114        25,968  
Doubtful
     0        0        0       0        0       0       0        0        0  
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 395,401      $ 628,539      $ 476,644     $ 407,821      $ 224,416     $ 1,045,901     $ 405,177      $ 3,158      $ 3,587,057  
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
YTD charge-offs
     0        0        (30     0        (116     (5,260     0        0        (5,406
YTD recoveries
     0        0        0       0        0       821       0        0        821  
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ (30   $ 0      $ (116   $ (4,439   $ 0      $ 0      $ (4,585
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
 
27

    
Term Loans

Origination Year
   
Revolving loans
amortized cost
basis
    
Revolving

loans

converted to
term loans
    
Total
 
As of December 31, 
2020
  
2020
    
2019
    
2018
    
2017
    
2016
   
Prior
 
                   
Internal Risk Grade:
                                                                              
Pass
   $ 603,714      $ 624,142      $ 640,535      $ 292,700      $ 282,547     $ 975,913     $ 436,728      $ 4,224      $ 3,860,503  
Special Mention
     0        267        0        192        2,325       6,623       800        0        10,207  
Substandard
     0        282        440        3,263        3,516       20,967       201        227        28,896  
Doubtful
     0        0        0        0        0       279       0        0        279  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 603,714      $ 624,691      $ 640,975      $ 296,155      $ 288,388     $ 1,003,782     $ 437,729      $ 4,451      $ 3,899,885  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
                   
YTD charge-offs
     0        0        0        0        (1     (1,759     0        0        (1,760
YTD recoveries
     0        0        0        101        0       961       1        0        1,063  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 101      $ (1   $ (798   $ 1      $ 0      $ (697
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and Land Development
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

converted to
term loans
 
 
Total
 
As of June 30, 2021
 
2021
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 282,876      $ 507,181      $ 501,304      $ 267,413      $ 93,005      $ 86,486     $ 167,545      $ 0      $ 1,905,810  
Special Mention
     0        0        0        2,419        550        1,221       995        0        5,185  
Substandard
     386        0        278        941        0        15,706       746        0        18,057  
Doubtful
     0        0        0        0        0        0       0        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 283,262      $ 507,181      $ 501,582      $ 270,773      $ 93,555      $ 103,413     $ 169,286      $ 0      $ 1,929,052  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
                   
YTD charge-offs
     0        0        0        0        0        (255     0        0        (255
YTD recoveries
     0        0        0        0        0        48       0        0        48  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 0      $ 0      $ (207   $ 0      $ 0      $ (207
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
         
    
Term Loans

Origination Year
   
Revolving loans
amortized cost
basis
    
Revolving

loans

converted to
term loans
    
Total
 
\
As of December 31, 2020
  
2020
    
2019
    
2018
    
2017
    
2016
    
Prior
 
                   
Internal Risk Grade:
                                                                               
Pass
   $ 420,977      $ 663,113      $ 304,579      $ 127,377      $ 83,252      $ 53,713     $ 145,431      $ 0      $ 1,798,442  
Special Mention
     0        0        4,689        557        0        1,420       995        0        7,661  
Substandard
     0        250        1,535        0        216        17,499       746        0        20,246  
Doubtful
     0        0        0        0        0        0       0        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $ 420,977      $ 663,363      $ 310,803      $ 127,934      $ 83,468      $ 72,632     $ 147,172      $ 0      $ 1,826,349  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
                   
YTD charge-offs
     0        0        0        0        0        (2,027     0        0        (2,027
YTD recoveries
     0        0        0        0        0        1,513       0        0        1,513  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 0      $ 0      $ (514   $ 0      $ 0      $ (514
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Bankcard
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

converted to

term loans
 
 
Total
 
As of June 30, 2021
 
2021
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ 7,710     $ 0      $ 7,710  
Special Mention
     0        0        0        0        0        0        41       0        41  
Substandard
     0        0        0        0        0        0        189       0        189  
Doubtful
     0        0        0        0        0        0        0       0        0  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
Total
   $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ 7,940     $ 0      $ 7,940  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
                   
YTD charge-offs
     0        0        0        0        0        0        (106     0        (106
YTD recoveries
     0        0        0        0        0        0        30       0        30  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ (76   $ 0      $ (76
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
 
28

   
Term Loans

Origination Year
   
Revolving loans
amortized cost
basis
   
Revolving

loans

converted to

term loans
   
Total
 
As of December 31, 2020
  
 
 
 
2020
 
 
 
    
 
 
 
2019
 
 
 
    
 
 
 
2018
 
 
 
    
 
 
 
2017
 
 
 
    
 
 
 
2016
 
 
 
    
 
 
 
Prior
 
 
 
 
                   
Internal Risk Grade:
                                                                               
Pass
   $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ 8,419     $ 0      $ 8,419  
Special Mention
     0        0        0        0        0        0        362       0        362  
Substandard
     0        0        0        0        0        0        156       0        156  
Doubtful
     0        0        0        0        0        0        0       0        0  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
Total
   $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ 8,937     $ 0      $ 8,937  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
                   
YTD charge-offs
     0        0        0        0        0        0        (221     0        (221
YTD recoveries
     0        0        0        0        0        0        52       0        52  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
YTD net charge-offs
   $ 0      $ 0      $ 0      $ 0      $ 0      $ 0      $ (169   $ 0      $ (169
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
Other Consumer
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans

Origination Year
 
 
Revolving loans
amortized cost
basis
 
 
Revolving

loans

converted to
term loans
 
 
Total
 
As of June 30, 2021
 
2021
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
Prior
 
Internal Risk Grade:
 
 
 
 
 
 
 
 
 
Pass
   $ 241,796     $ 380,844     $ 311,882     $ 170,348     $ 48,919     $ 12,089     $ 3,017     $ 0      $ 1,168,895  
Special Mention
     0       0       0       0       0       6       1       0        7  
Substandard
     0       2       0       0       0       0       0       0        2  
Doubtful
     0       0       0       0       0       0       0       0        0  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Total
   $ 241,796     $ 380,846     $ 311,882     $ 170,348     $ 48,919     $ 12,095     $ 3,018     $ 0      $ 1,168,904  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
                   
YTD charge-offs
     0       (395     (505     (263     (80     (136     (7     0        (1,386
YTD recoveries
     0       34       25       38       8       103       2       0        210  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
YTD net charge-offs
   $ 0     $ (361   $ (480   $ (225   $ (72   $ (33   $ (5   $ 0      $ (1,176
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
         
    
Term Loans

Origination Year
   
Revolving loans
amortized cost
basis
   
Revolving

loans

converted to
term loans
    
Total
 
As of December 31, 2020
  
2020
   
2019
   
2018
   
2017
   
2016
   
Prior
 
                   
Internal Risk Grade:
                                                                         
Pass
   $ 419,768     $ 401,958     $ 231,172     $ 74,550     $ 34,435     $ 7,466     $ 6,110     $ 0      $ 1,175,459  
Special Mention
     0       0       0       0       0       14,763       2       0        14,765  
Substandard
     3       0       0       0       0       2,352       0       0        2,355  
Doubtful
     0       0       0       0       0       1       0       0        1  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Total
   $ 419,771     $ 401,958     $ 231,172     $ 74,550     $ 34,435     $ 24,582     $ 6,112     $ 0      $ 1,192,580  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
                   
YTD charge-offs
     (136     (1,013     (1,040     (393     (228     (484     (2     0        (3,296
YTD recoveries
     3       74       113       30       43       216       0       0        479  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
YTD net charge-offs
   $ (133   $ (939   $ (927   $ (363   $ (185   $ (268   $ (2   $ 0      $ (2,817
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
At June 30, 2021 and December 31, 2020, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $18,474 and $22,595, 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 June 30, 2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $71. There were no consumer mortgage loans secured by residential real estate pr
o
perties for which formal foreclosure proceedings were in process as of December 31, 2020.
6. ALLOWANCE FOR CREDIT LOSSES
As of January 1, 2020, United adopted the CECL methodology for measuring credit losses in accordance with ASC Topic 326.
Under ASC Topic 326, the allowance for loan losses is an estimate of the expected credit losses on financial assets measured at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance
 
29

is based on the credit losses expected to arise over the life of the asset (contractual term). Assets are charged off when United determines that such financial assets are deemed uncollectible or based on regulatory requirements, whichever is earlier. Charge-offs are recognized as a deduction from the allowance for credit losses. Expected recoveries of amounts previously
charged-off,
not to exceed the aggregate of the amount previously
charged-off,
are included in determining the necessary reserve at the balance sheet date.
United made a policy election to present the accrued interest receivable balance separately in its consolidated balance sheets from the amortized cost of a loan. Accrued interest receivable, net of an allowance for credit losses, of $48,559
 
and $56,143 at June 30, 2021 and December 31, 2020, respectively, related to loans are included separately in “Accrued interest receivable” in the consolidated balance sheets. Due to loan interest payment deferrals granted by United under the CARES Act, United assessed the collectability of the accrued interest receivables on these deferring loans and leases. As a result of this assessment, United recorded an allowance for credit losses of $29 and $250 for accrued interest receivables not expected to be collected as of June 30, 2021 and December 31, 2020, respectively. For all classes of loans and leases receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due, unless the loan is well secured and in the process of collection. Interest received on nonaccrual loans and leases, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.
The following table represents the accrued interest receivable as of June 30, 2021 and December 31, 2020:
 
    
Accrued Interest Receivable
 
    
At June 30, 2021
    
At December 31, 2020
 
Commercial Real Estate:
                 
Owner-occupied
   $ 3,823      $ 5,001  
Nonowner-occupied
     13,671        15,989  
Other Commercial
     11,678        12,320  
Residential Real Estate
     9,730        12,558  
Construction
     6,693        7,314  
Consumer:
                 
Bankcard
     0        0  
Other consumer
     2,993        3,211  
 
  
 
 
    
 
 
 
 
   $ 48,588      $ 56,393  
Less: Allowance for credit losses
     (29      (250
    
 
 
    
 
 
 
Total
   $ 48,559      $ 56,143  
    
 
 
    
 
 
 
The following table represents the accrued interest receivables written off by reversing interest income for the three months and six months ended June 30, 2021 and
2020
:
 
 
  
Accrued Interest Receivables Written Off by Reversing Interest Income
 
 
  
Three Months Ended

June 30
 
  
Six Months Ended

June 30
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
Commercial real estate:
  
  
  
  
Owner-occupied
   $ 11      $ 83      $ 12      $ 100  
Nonowner-occupied
     4        38        40        45  
Other commercial
     2        33        8        45  
Residential real estate
     21        64        49        134  
Construction & land development
     0        0        0        0  
Consumer:
                                   
Bankcard
     0        0        0        0  
Other consumer
     42        27        106        67  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 80      $ 245      $ 215      $ 391  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
30

United estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. A reversion to historical loss data occurs via a straight-line method during the year following the
one-year
reasonable and supportable forecast period.
United pools its loans and leases based on similar risk characteristics in estimating expected credit losses. United has identified the following portfolio segments and measures the allowance for credit losses using the following methods:
 
 
 
Method: Probability of Default/Loss Given Default (PD/LGD)
 
 
Commercial Real Estate Owner-Occupied
 
 
Commercial Real Estate Nonowner-Occupied
 
 
Commercial Other
 
 
 
Method: Cohort
 
 
Residential Real Estate
 
 
Construction & Land Development
 
 
Consumer
 
 
Bankcard
Risk characteristics of
 
commercial real estate owner-occupied loans and commercial other loans and leases are similar in that they are normally dependent upon the borrower’s internal cash flow from operations to service debt. Commercial real estate nonowner-occupied 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 that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, but may also include other
non-performing
loans or TDRs, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans. In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a loan expected to be classified as a TDR.
Expected credit losses are estimated over the contractual term of the loans and leases, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by United.
For past loans and leases acquired through the completion of a transfer, including loans and leases acquired in a business combination, that had evidence of deterioration of credit quality since origination (“PCI”) and accounted for under ASC Topic 310, an entity did not have to reassess whether any loans and leases previously accounted for as PCI meet the definition of purchased credit deteriorated (“PCD”) loans and leases upon adoption of ASC Topic 326. Any changes in the allowance for credit losses for these loans and leases were accounted for as an adjustment to the loan’s amortized cost basis and not as a cumulative-effect adjustment to an entity’s beginning retained earnings.
Non-PCI
loans and leases are now classified as
non-PCD
loans and leases with the adoption of ASC Topic 326. In accordance with ASC Topic 326 guidance, United calculated a PCD rate adjustment for all PCD loans and leases at adoption. Such adjustment created a discount balance for any excess amount not deemed to be credit-related between the PCD recorded balance at the adoption date and the contractual principal and interest balances outstanding.
 
31

At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans. For allowance for credit losses under ASC Topic 326 calculation purposes, United includes its acquired loans and leases in their relevant pool unless they meet the criteria for specific review.
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 $20,897 and $19,250 at June 30, 2021 and December 31, 2020, 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 is considered the allowance for credit losses.
As of June 30, 2021, the allowance for credit losses decreased from December 31, 2020 primarily due to
 
better performance trends within the loan portfolio and
 improved macroeconomic factors surrounding the
COVID-19
pandemic considered in the determination of the allowance for loan and lease losses at June 30, 2021. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then any qualitative adjustments are applied to account for the Company’s view of the future. If current conditions underlying any qualitative adjustment factor were deemed to be materially different than historical conditions, then an adjustment was made for that factor.
The second quarter of 2021 qualitative adjustments include analyses of the following:
 
 
 
Past events
– This includes portfolio trends related to business conditions; past due, nonaccrual, and graded loans and leases; and concentrations.
 
 
 
Current conditions
– United considered the continued impact of
COVID-19
on the economy as well as loan deferrals and modifications made in light of the pandemic when making determinations related to factor adjustments, such as changes in economic and business conditions, collateral values, external factors and past due loans and leases.
 
 
 
Reasonable and supportable forecasts
– The forecast is determined on a
portfolio-by-portfolio
basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following:
 
 
 
The forecast improved in the second quarter of 2021 as compared to the first quarter while maintaining a gradual recovery pace extending into 2023.
 
 
 
Greater risk of loss is probable in the hotel and accommodations portfolio due to weakened economic conditions brought on by the pandemic which resulted in a more negative forecast relative to other portfolios and a longer projected recovery period to extend into late 2023 or 2024.
 
 
 
Consideration was given to the $1.9 trillion American Rescue Plan (effective March 11, 2021) during the forecast selection process as it is likely this stimulus package continues to have a positive impact on the economy.
 
 
 
Reversion to historical loss data occurs via a straight-line method during the year following the
one-year
reasonable and supportable forecast period.
 
32

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 June 30, 2021
 
    
Commercial Real Estate
   
Other
Commercial
   
Residential
Real
Estate
   
Construction

& Land
Development
   
Bankcard
         
Allowance
for
Estimated
Imprecision
   
Total
 
  
Owner-
occupied
   
Nonowner-
occupied
   
Other
Consumer
 
Allowance for Loan Losses:
                                                                         
Beginning balance
   $ 21,074     $ 47,902     $ 84,504     $ 24,991     $ 38,329     $ 271     $ 14,511     $ 0      $ 231,582  
Charge-offs
     (67     (0     (1     (5,193     (119     (71     (680     0        (6,131
Recoveries
     78       50       482       168       4       24       104       0        910  
Provision
     (1,782     (5,906     (5,104     6,085       (3,067 )     30       928       0        (8,816
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Ending balance
   $ 19,303     $ 42,046     $ 79,881     $ 26,051     $ 35,147     $ 254     $ 14,863     $ 0      $ 217,545  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
 
    
For the Six Months Ended June 30, 2021
 
    
Commercial Real Estate
   
Other
Commercial
   
Residential
Real
Estate
   
Construction

& Land
Development
               
Allowance
for
Estimated
Imprecision
   
Total
 
  
Owner-
occupied
   
Nonowner-
occupied
   
Bankcard
   
Other
Consumer
 
Allowance for Loan Losses:
                                                                         
Beginning balance
   $ 23,354     $ 49,150     $ 78,138     $ 29,125     $ 39,077     $ 322     $ 16,664     $ 0      $ 235,830  
Charge-offs
     (210     (3,101     (2,624     (5,406     (255     (106     (1,386     0        (13,088
Recoveries
     84       303       1,829       821       48       30       210       0        3,325  
Provision
     (3,925     (4,306     2,538       1,511       (3,723     8       (625     0        (8,522
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Ending balance
   $ 19,303     $ 42,046     $ 79,881     $ 26,051     $ 35,147     $ 254     $ 14,863     $ 0      $ 217,545  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
 
    
Allowance for Loan and Lease Losses and Carrying Amount of Loans and Leases
 
    
For the Year Ended December 31, 2020
 
    
Commercial Real Estate
   
Other
Commercial
   
Residential
Real
Estate
   
Construction

& Land
Development
   
Bankcard
         
Allowance
for
Estimated
Imprecision
   
Total
 
  
Owner-
occupied
   
Nonowner-
occupied
   
Other
Consumer
 
Allowance for Loan and Lease Losses:
                                                                        
Beginning balance
   $ 5,554     $ 8,524     $ 47,325     $ 8,997     $ 3,353     $ 74     $ 2,933     $ 297     $ 77,057  
Impact of the adoption of ASU
2016-13
on January 1, 2020
     9,737       9,023       (4,829     13,097       14,817       28       10,745       (297     52,321  
Impact of the adoption of ASU
2016-13
for PCD loans on January 1, 2020
     1,843       121       938       174       2,045       0       0       0       5,121  
Initial allowance for PCD loans (acquired during the period)
     1,955       6,418       7,032       652       2,570       0       8       0       18,635  
Charge-offs
     (2,195     (6,134     (17,350     (1,760     (2,027     (221     (3,296     0       (32,983
Recoveries
     795       1,023       4,461       1,063       1,513       52       479       0       9,386  
Provision
     5,665       30,175       40,561       6,902       16,806       389       5,795       0       106,293  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending balance
   $ 23,354     $ 49,150     $ 78,138     $ 29,125     $ 39,077     $ 322     $ 16,664     $ 0     $ 235,830  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
33

7. INTANGIBLE ASSETS
The following is a summary
 
of intangible assets subject to amortization and those not subject to amortization:
 
    
June 30, 2021
 
    
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
   $ 101,767      ($ 79,053   $ 0      $ 0      $ 101,767      ($ 79,053
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
 
Non-amortized
intangible assets:
                                                    
George Mason trade name
   $ 0              $ 1,080               $ 1,080           
Crescent trade name
     0                196                 196           
    
 
 
            
 
 
             
 
 
          
Total
   $ 0              $ 1,276               $ 1,276           
    
 
 
            
 
 
             
 
 
          
Goodwill not subject to amortization
   $ 1,804,725              $ 5,315               $ 1,810,040           
    
 
 
            
 
 
             
 
 
          
 
    
December 31, 2020
 
    
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
   $ 101,767      ($ 76,120   $ 0      $ 0      $ 101,767      ($ 76,120
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
 
Non-amortized
intangible assets:
                                                    
George Mason trade name
   $ 0              $ 1,080               $ 1,080           
Crescent trade name
     0                196                 196           
    
 
 
            
 
 
             
 
 
          
Total
   $ 0              $ 1,276               $ 1,276           
    
 
 
            
 
 
             
 
 
          
Goodwill not subject to amortization
   $ 1,791,533              $ 5,315               $ 1,796,848           
    
 
 
            
 
 
             
 
 
          
United incurred amortization expense of $1,467 and $2,933 for the three and six months ended June 30, 2021 as compared to $1,646 and $3,223 for the three and six months ended June 30, 2020, respectively.
For the first six months of 2021, goodwill of $13,192 was recorded for the Carolina Financial acquisition due to adjustments in current and deferred income taxes. The following table provides a reconciliation of goodwill:
 
    
Community
Banking
    
Mortgage
Banking
    
Total
 
Goodwill at December 31, 2020
   $ 1,791,533      $ 5,315      $ 1,796,848  
Goodwill
 from Carolina Financial acquisition
     13,192        0        13,192  
    
 
 
    
 
 
    
 
 
 
Goodwill at June 30, 2021
   $ 1,804,725      $ 5,315      $ 1,810,040  
    
 
 
    
 
 
    
 
 
 
 
34

The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2020:
 
Year
  
Amount
 
2021
   $ 5,866  
2022
     4,983  
2023
     4,680  
2024
     3,255  
2025
     2,942  
2026 and thereafter
     3,921  
8. MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The value of mortgage servicing rights (“MSRs”) is included on the Company’s Consolidated Balance Sheets.
The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“MSRs”) at fair value, if practicable. For subsequent measurement purposes, the Company measures servicing assets and liabilities based on the lower of cost or market using the amortization method. MSRs are amortized in proportion to, and over the period of, estimated net servicing income. The amortization of the MSRs is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates.
The Company evaluates potential impairment of MSRs based on the difference between the carrying amount and current estimated fair value of the servicing rights. In determining impairment, the Company aggregates all servicing rights and stratifies them into tranches based on predominant risk characteristics. If impairment exists, a valuation allowance is established for any excess of amortized cost over the current estimated fair value by a charge to income. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income.
Service fee income is recorded for fees earned for servicing mortgage loans under servicing agreements with the Federal
N
ational Mortgage Association (“FNMA”), the Federal
H
ome
L
oan Mortgage Corporation (“FHLMC”), Government
N
ational Mortgage Association (“GNMA”) and certain private investors. The fees are based on a contractual percentage of the outstanding principal balance of the loans serviced and are recorded in noninterest income. Amortization of MSRs and mortgage servicing costs are charged to expense when incurred.
The unpaid principal balances of loans serviced for others were approximately $3,674,023 at June 30, 2021 and $3,587,953 at December 31, 2020.
The estimated fair value of the mortgage servicing rights was $24,630 and $20,955 at June 30, 2021 and December 31, 2020, respectively. The estimated fair value of servicing rights at June 30, 2021 was determined using a net servicing fee of 0.26%, average discount rates ranging from 10.50% to 12.00% with a weighted average discount rate of 10.61%, average constant prepayment rates (“CPR”) ranging from 11.29% to 22.83% with a weighted average prepayment rate of 17.53%, depending upon the stratification of the specific servicing right, and a delinquency rate, including loans on forbearance of 2.76%. The estimated fair value of servicing rights at December 31, 2020 was determined using a net servicing fee of 0.26%, average discount rates ranging from 9.50% to 14.07% with a weighted average discount rate of 10.62%, average CPR ranging from 7.98% to 18.42% with a weighted average prepayment rate of 14.60%, depending upon the stratification of the specific servicing right, and a delinquency rate, including loans on forbearance of 2.88%. Please refer to Note 1
4
 in these Notes to Consolidated Financial Statements for additional information concerning the fair value of MSRs.
As disclosed in Note 2 of these Notes to Consolidated Financial Statements, the Company acquired $20,123 of mortgage servicing rights from its acquisition of Carolina Financial Corporation on May 1, 2020.
 
35

The following presents the activity in mortgage servicing rights, including their valuation allowance for the three and six months ended June 30, 2021 and 2020:
 
    
Three Months Ended

June 30
    
Six Months Ended

June 30
 
    
2021
    
2020
    
2021
    
2020
 
MSRs beginning balance
   $ 23,401      $ 0      $ 22,338      $ 0  
Addition from acquisition of subsidiary
     0        20,123        0        20,123  
Amount capitalized
     3,111        1,891        6,335        1,891  
Amount amortized
     (2,339      (1,104      (4,500      (1,104
    
 
 
    
 
 
    
 
 
    
 
 
 
MSRs ending balance
   $ 24,173      $ 20,910      $ 24,173      $ 20,910  
    
 
 
    
 
 
    
 
 
    
 
 
 
MSRs valuation allowance beginning balance
   $ (1,383    $ 0      $ (1,383    $ 0  
Aggregate additions charged and recoveries credited to operations
 
 
379
 
 
 
0
 
 
 
379
 
 
 
0
 
MSRs impairment
     (629      (710      (629      (710
    
 
 
    
 
 
    
 
 
    
 
 
 
MSRs valuation allowance ending balance
   $ (1,633    $ (710    $ (1,633    $ (710
    
 
 
    
 
 
    
 
 
    
 
 
 
MSRs, net of valuation allowance
   $ 22,540      $ 20,200      $ 22,540      $ 20,200  
    
 
 
    
 
 
    
 
 
    
 
 
 
In determining impairment, the Company aggregates all servicing rights and stratifies them into tranches based on predominant risk characteristics.
The Company recorded a $250 temporary impairment
, net of recoveries
on mortgage servicing rights for the three and six months ended June 30, 2021. The Company recorded a $710 temporary impairment of mortgage servicing rights from the date of acquisition to June 30, 2020.
The estimated amortization expense is based on current information regarding future loan payments and prepayments. Amortization expense could change in future periods based on changes in the volume of prepayments and economic factors.
9. 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 12 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:
 
    
Classification
  
Three Months
Ended
June 30, 2021
    
Three Months
Ended
June 30, 2020
 
Operating lease cost
   Net occupancy expense    $ 5,328      $ 5,895  
Sublease income
   Net occupancy expense      (358      (189
         
 
 
    
 
 
 
Net lease cost
        $ 4,970      $ 5,706  
         
 
 
    
 
 
 
 
36

    
Classification
  
Six Months

Ended
June 30, 2021
    
Six Months
Ended
June 30, 2020
 
Operating lease cost
   Net occupancy expense    $ 10,677      $ 10,961  
Sublease income
   Net occupancy expense      (655      (394
         
 
 
    
 
 
 
Net lease cost
        $ 10,022      $ 10,567  
         
 
 
    
 
 
 
Supplemental balance sheet information related to leases was as follows:
 
    
Classifi
 
cation
  
June 30, 2021
    
December 31, 2020
 
Operating lease
right-of-use
assets
  
Operating lease right-of-use assets
   $ 66,635      $ 69,520  
Operating lease liabilities
   Operating lease liabilities    $ 70,546      $ 73,213  
Other information related to leases was as follows:
 
    
June 30, 2021
 
Weighted-average remaining lease term:
        
Operating leases
     5.8 years  
Weighted-average discount rate:
        
Operating leases
     2.37
Supplemental cash flow information related to leases was as follows:
 
 
  
Three Months Ended
 
 
  
June 30, 2021
 
  
June 30, 2020
 
Cash paid for amounts in the measurement of lease liabilities:
  
     
  
     
Operating cash flows from operating leases
   $ 5,581      $ 5,722  
ROU assets obtained in the exchange for lease liabilities
     1,839        8,549  
   
    
Six Months Ended
 
    
June 30, 2021
    
June 30, 2020
 
Cash paid for amounts in the measurement of lease liabilities:
                 
Operating cash flows from operating leases
   $ 11,027      $ 10,739  
ROU assets obtained in the exchange for lease liabilities
     6,282        12,332  
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, 2020, consists of the following as of June 30, 2021 and December 31, 2020:
 
    
Amount
 
Year
  
As of

June 30, 2021
    
As of

December 31, 2020
 
2021
   $ 10,221      $ 20,172  
2022
     17,074        16,196  
2023
     13,616        12,723  
2024
     9,096        8,242  
2025
     6,362        5,516  
Thereafter
     18,842        15,330  
    
 
 
    
 
 
 
Total lease payments
     75,211        78,179  
Less: imputed interest
     (4,665      (4,966
    
 
 
    
 
 
 
Total
   $ 70,546      $ 73,213  
    
 
 
    
 
 
 
10. 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 June 30, 2021, United did not have any federal funds purchased while total securities sold under agreements to repurchase (“REPOs”) were $127,745. 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.
 
37

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 June 30, 2021, United had no outstanding balance under this line of credit.
11. 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 June 30, 2021, United had an unused borrowing amount of approximately $7,005,031 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 June 30, 2021, $533,365 of FHLB advances with a weighted-average contractual interest rate of 0.34% and a weighted-average effective interest rate of 0.55% are scheduled to mature within the next four years.
The scheduled maturities of these FHLB borrowings are as follows:
 
Year
  
Amount
 
2021
   $ 500,000  
2022
     22,159  
2023
     0  
2024
     0  
2025 and thereafter
     11,206  
    
 
 
 
Total
   $ 533,365  
    
 
 
 
At June 30, 2021, United had a total of nineteen 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 June 30, 2021 and December 31, 2020, the outstanding balance of the Debentures was $270,792 and $269,972, respectively. United also assumed $10,000 in aggregate principal amount of
fixed-to-floating
rate subordinated notes in the Carolina Financial acquisition. At both June 30, 2021 and December 31, 2020, the outstanding balance of the subordinated notes was $9,865. The amounts for the Debentures and the subordinated notes are 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 junior subordinated debt, United has the right to defer payment of interest on the junior subordinated debt at any time, or from time to time, for periods not exceeding five years. If interest payments on the junior subordinated debt are deferred, the dividends on the Capital Securities are also deferred. Interest on the junior 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 or the subordinated notes as Tier 1 capital, but rather the Capital Securities and subordinated notes are included as a component of United’s Tier 2 capital. United can include the Capital Securities and subordinated notes in its Tier 2 capital on a permanent basis.
38

12. COMMITMENTS AND CONTINGENT LIABILITIES
Lending-related Commitments
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 $6,368,974 and $5,730,876 of loan commitments outstanding as of June 30, 2021 and December 31, 2020, respectively, approximately 43% of which contractually expire within one year. Included in the June 30, 2021 amount are commitments to extend credit of $597,304 related to mortgage loan funding commitments of United’s mortgage banking segment 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. United had $3,055 and $5,092 of commercial letters of credit outstanding as of June 30, 2021 and December 31, 2020, respectively. 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 $151,289 and $134,916 as of June 30, 2021 and December 31, 2020, 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.
Mortgage Repurchase Reserve
United’s mortgage banking segment 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. United’s mortgage banking segment had a reserve of $1,209 and $1,216 as of June 30, 2021 and December 31, 2020, respectively.
United has derivative counter-party risk that may arise from the possible inability of United’s mortgage banking segment’s third party investors to meet the terms of their forward sales contracts. United’s mortgage banking segment 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.
Legal Proceedings
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.
39

Table of Contents
Regulatory Matters
A variety of consumer products, including mortgage and deposit products, and certain fees and charges related to such products, have come under increased regulatory scrutiny. It is possible that regulatory authorities could bring enforcement actions, including civil money penalties, or take other actions against United in regard to these consumer products. United could also determine of its own accord, or be required by regulators, to refund or otherwise make remediation payments to customers in connection with these products. It is not possible at this time for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss related to such matters.
13. DERIVATIVE
 
FINANCIAL INSTRUMENTS
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.
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.
During the second quarter of 2020, United entered into a new interest rate swap derivative designated as a cash flow hedge. The notional amount of the cash flow hedge derivative totaled $250,000. The derivative is intended to hedge the changes in cash flows associated with floating rate FHLB borrowings. United is required to
pay-fixed
0.59% and receive-variable
1-month
LIBOR with monthly resets. The tenor of the interest rate swap derivative is 10 years with an expiration date in June 2030. During the third quarter of 2020, United entered into an additional interest rate swap derivative designated as a cash flow hedge. The notional amount of the cash flow hedge derivative totaled $250,000. The derivative is intended to hedge the changes in cash flows associated with floating rate FHLB borrowings. United is required to
pay-fixed
0.19% and receive-variable
1-month
LIBOR with monthly resets. The tenor of the interest rate swap derivative is 4 years with an expiration date in August 2024. As of June 30, 2021, United has determined that no forecasted transactions related to its cash flow hedges resulted in gains or losses pertaining to cash flow hedge reclassification from AOCI to income because the forecasted transactions became probable of not occurring. United estimates that $1,352 will be reclassified from AOCI as an increase to interest expense over the next
12-months
following June 30, 2021 related to the cash flow hedges. As of June 30, 2021, the maximum length of time over which forecasted transactions are hedged is nine years.
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.
United through its mortgage banking subsidiaries 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
 
40

Table of Contents
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 is subject to the Dodd-Frank Act clearing requirement for eligible derivatives. United has executed and cleared eligible derivatives through the London Clearing House (“LCH”). Variation margin at the LCH is distinguished as
settled-to-market
and settled daily based on the prior day value, rather than
collateralized-to-market.
The total notional amount of interest rate swap derivatives cleared through the LCH include $500,000 for asset derivatives as of June 30, 2021. The related fair value on a net basis approximate zero.
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 June 30, 2021 and December 31, 2020.
 
 
  
Asset Derivatives
 
 
  
June 30, 2021
 
  
December 31, 2020
 
 
  
Balance

Sheet

Location
 
  
Notional

Amount
 
  
Fair

Value
 
  
Balance

Sheet

Location
 
  
Notional

Amount
 
  
Fair

Value
 
Cash Flow Hedges:
  
  
  
  
  
  
Interest rate swap contracts
 
(hedging FHLB borrowings)
     Other assets      $ 500,000      $  16,037        Other assets      $ 500,000      $ 4,378  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total Cash Flow Hedges
            $ 500,000      $ 16,037               $ 500,000      $ 4,378  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total derivatives designated as hedging instruments
            $ 500,000      $ 16,037               $ 500,000      $ 4,378  
             
 
 
    
 
 
             
 
 
    
 
 
 
Derivatives not designated as hedging instruments
                                                     
Forward loan sales commitments
     Other assets      $ 32,166      $ 546        Other assets      $ 62,418      $ 1,581  
TBA mortgage-backed securities
     Other assets        98,709        296        Other assets        0        0  
Interest rate lock commitments
     Other assets        703,161        17,438        Other assets        973,350        38,332  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total derivatives not designated as hedging instruments
            $ 834,036      $ 18,280               $ 1,035,768      $ 39,913  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total asset derivatives
            $ 1,334,036      $ 34,317               $ 1,535,768      $  44,291  
             
 
 
    
 
 
             
 
 
    
 
 
 
 
  
Liability Derivatives
 
 
  
June 30, 2021
 
  
December 31, 2020
 
 
  
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      $ 74,748      $  4,484        Other liabilities      $ 77,011      $ 6,782  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total Fair Value Hedges
            $ 74,748      $ 4,484               $ 77,011      $ 6,782  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total derivatives designated as hedging instruments
            $ 74,748      $ 4,484               $ 77,011      $ 6,782  
             
 
 
    
 
 
             
 
 
    
 
 
 
Derivatives not designated as hedging instruments
                                                     
Forward loan sales commitments
     Other liabilities      $ 60,406      $ 249        Other liabilities      $ 0      $ 0  
TBA mortgage-backed securities
     Other liabilities        684,000        1,868                 789,000        6,276  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total derivatives not designated as hedging instruments
            $  744,406      $ 2,117               $  789,000      $ 6,276  
             
 
 
    
 
 
             
 
 
    
 
 
 
Total liability derivatives
            $ 819,154      $ 6,601               $ 866,011      $  13,058  
             
 
 
    
 
 
             
 
 
    
 
 
 
 
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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 June 30, 2021 and December 31, 2020.
 
         
June 30, 2021
 
Derivatives in Fair Value
Hedging Relationships
  
Location in the Statement
of Condition
  
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    $  75,523      $  (4,484    $  0  
     
         
December 31, 2020
 
Derivatives in Fair Value
Hedging Relationships
  
Location in the Statement
of Condition
  
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    $ 77,810      $  (6,782    $ 0  
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 and six months ended June 30, 2021 and 2020 are presented as follows:
 
 
  
Income Statement
Location
  
Three Months Ended
 
  
June 30,
2021
 
  
June 30,
2020
 
Derivatives in hedging relationships
  
  
  
Cash flow Hedges:
  
  
  
Interest rate swap contracts
   Interest on long-term borrowings    $ (363   $ 0  
Fair Value Hedges:
                     
Interest rate swap contracts
   Interest and fees on loans    $ (558   $ (277
         
 
 
   
 
 
 
Total derivatives in hedging relationships
        $ (921   $ (277
         
 
 
   
 
 
 
Derivatives not designated as hedging instruments
                     
Forward loan sales commitments
   Income from Mortgage Banking Activities    $ 1,706     $ (553
TBA mortgage-backed securities
   Income from Mortgage Banking Activities      (19,459     17,204  
Interest rate lock commitments
   Income from Mortgage Banking Activities      (8,996     (1,527
         
 
 
   
 
 
 
Total derivatives not designated as hedging instruments
        $ (26,749   $  15,124  
         
 
 
   
 
 
 
Total derivatives
        $ (27,670   $ 14,847  
         
 
 
   
 
 
 
 
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Income Statement
Location
  
Six Months Ended
 
  
June 30,
2021
 
  
June 30,
2020
 
Derivatives in hedging relationships
  
  
  
Cash flow Hedges:
  
  
  
Interest rate swap contracts
   Interest on long-term borrowings    $ (586   $ 0  
Fair Value Hedges:
                     
Interest rate swap contracts
   Interest and fees on loans    $ (793   $ (720
         
 
 
   
 
 
 
Total derivatives in hedging relationships
        $ (1,379   $ (720
         
 
 
   
 
 
 
Derivatives not designated as hedging instruments
                     
Forward loan sales commitments
   Income from Mortgage Banking Activities    $ (1,284   $ 207  
TBA mortgage-backed securities
   Income from Mortgage Banking Activities      4,704       (1,771
Interest rate lock commitments
   Income from Mortgage Banking Activities      (15,987     12,169  
         
 
 
   
 
 
 
Total derivatives not designated as hedging instruments
        $ (12,567   $  10,605  
         
 
 
   
 
 
 
Total derivatives
        $ (13,946   $ 9,885  
         
 
 
   
 
 
 
14. FAIR VALUE MEASUREMENTS
United determines the fair values of its financial instruments based on the fair value hierarchy established in 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.
ASC Topic 820 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.
     
Level 2    -    Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
     
Level 3    -    Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
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.
 
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Table of Contents
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 June 30, 2021, 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 June 30, 2021. 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 does not have any
available-for-sale
securities considered as Level 3.
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 (“Level 2”) with some adjusted for the Company’s actual sales experience versus the investor’s indicated pricing (“Level 3”). The unobservable input for Level 3 valuations is the Company’s historical sales prices. For June 30, 2021, the range of historical sales prices increased the investor’s indicated pricing by a range of 0.11% to 0.31% with a weighted average increase of 0.21%.
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 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 accumulated 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 accumulated other comprehensive income, net of tax and reclassified into earnings in the same line associated with the forecasted transaction when the forecasted transaction affects earnings.
 
44

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, United’s mortgage banking subsidiaries enter 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, United’s mortgage banking subsidiaries enter 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 (“Level 2”) with some adjusted for the Company’s actual sales experience versus the investor’s indicated pricing (“Level 3”). The unobservable input for Level 3 valuations is the Company’s historical sales prices. For June 30, 2021, the range of historical sales prices increased the investor’s indicated pricing by a range of 0.11% to 0.31% with a weighted average increase of 0.21%.
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 June 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy.
 
 
  
 
 
  
Fair Value at June 30, 2021 Using
 
Description
  
Balance as of
June 30,
2021
 
  
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
   $ 15,147      $ 0      $ 15,147      $  0  
State and political subdivisions
     614,046        0        614,046        0  
Residential mortgage-backed securities
                                   
Agency
     985,002        0        985,002        0  
Non-agency
     39,603        0        39,603        0  
Commercial mortgage-backed
sec
urities
                                   
Agency
     652,557        0        652,557        0  
Asset-backed securities
     489,433        0        489,433        0  
Single issue trust preferred securities
     17,417        0        17,417        0  
Other corporate securities
     463,869        5,983        457,886        0  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total available for sale securities
     3,277,074        5,983        3,271,091        0  
Equity securities:
                                   
Financial services industry
     169        169        0        0  
Equity mutual funds (1)
     5,445        5,445        0        0  
Other equity securities
     5,893        5,893        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total equity securities
     11,507        11,507        0        0  
Loans held for sale
     576,827        0        44,553        532,274  
 
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Table of Contents
 
  
 
 
  
Fair Value at June 30, 2021 Using
 
Description
  
Balance as of
June 30,
2021
 
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
  
Significant
Other
Observable
Inputs
(Level 2)
 
  
Significant
Unobservable
Inputs
(Level 3)
 
Derivative financial assets:
  
     
  
     
  
     
  
     
Interest rate swap contracts
     16,037        0        16,037        0  
Forward sales commitments
     546        0        546        0  
TBA mortgage-backed securities
     296        0        0        296  
Interest rate lock commitments
     17,438        0        2,888        14,550  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total derivative financial assets
     34,317        0        19,471        14,846  
Liabilities
                                   
Derivative financial liabilities:
                                   
Interest rate swap contracts
     4,484        0        4,484        0  
Forward sales commitments
     249        0        0        249  
TBA mortgage-backed securities
     1,868        0        124        1,744  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total derivative financial liabilities
     6,601        0        4,608        1,993  
 
(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, 2020 Using
 
Description
  
Balance as of

December 31,

2020
    
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
   $ 66,344      $ 0      $ 66,344      $ 0  
State and political subdivisions
     565,160        0        565,160        0  
Residential mortgage-backed securities
                                   
Agency
     928,891        0        928,891        0  
Non-agency
     21,776        0        21,776        0  
Commercial mortgage-backed securities
                                   
Agency
     675,145        0        675,145        0  
Asset-backed securities
     294,623        0        294,623        0  
Single issue trust preferred securities
     17,027        0        17,027        0  
Other corporate securities
     384,393        6,207        378,186        0  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total available for sale securities
     2,953,359        6,207        2,947,152        0  
Equity securities:
                                   
Financial services industry
     134        134        0        0  
Equity mutual funds (1)
     4,602        4,602        0        0  
Other equity securities
     5,982        5,982        0        0  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total equity securities
     10,718        10,718        0        0  
Loans held for sale
     698,341        0        43,608        654,733  
Derivative financial assets:
                                   
Interest rate swap contracts
     4,378        0        4,378        0  
Forward sales commitments
     1,581        0        1,581        0  
TBA mortgage-backed securities
     0        0        0        0  
Interest rate lock commitments
     38,332        0        6,321        32,011  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total derivative financial assets
     44,291        0        12,280        32,011  
Liabilities
                                   
Derivative financial liabilities:
                                   
Interest rate swap contracts
     6,782        0        6,782        0  
TBA mortgage-backed securities
     6,276        0        6,276        0  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total derivative financial liabilities
     13,058        0        13,058        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.
    
 
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Table of Contents
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 six months ended June 30, 2021 and the year ended December 31, 2020.
The following table presents additional information about financial assets and liabilities measured at fair value at June 30, 2021 and December 31, 2020 on a recurring basis and for which United has utilized Level 3 inputs to determine fair value:
 
    
Loans held for sale
 
    
June 30,

2021
   
December 31,
2020
 
Balance, beginning of period
   $ 654,733     $ 384,375  
Originations
     2,888,337       5,699,581  
Sales
     (3,090,988     (5,652,693
Total gains or losses during the period recognized in earnings
     80,192       223,470  
Transfers in and/or out of Level 3
     (0     (0
    
 
 
   
 
 
 
Balance, end of period
   $ 532,274     $ 654,733  
    
 
 
   
 
 
 
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

TBA Securities
 
    
June 30,

2021
   
December 31,
2020
 
Balance, beginning of period
   $ 0     $ 0  
Transfers other
     296       0  
    
 
 
   
 
 
 
Balance, end of period
   $ 296     $ 0  
    
 
 
   
 
 
 
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
 
    
June 30,

2021
   
December 31,
2020
 
Balance, beginning of period
   $ 32,011     $ 4,518  
Transfers other
     (17,461     27,493  
    
 
 
   
 
 
 
Balance, end of period
   $ 14,550     $ 32,011  
    
 
 
   
 
 
 
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 Liabilities

Forward Sales Commitments
 
    
June 30,

2021
    
December 31, 2020
 
Balance, beginning of period
   $ 0      $  0  
Transfers other
     249        0  
    
 
 
    
 
 
 
Balance, end of period
   $ 249      $  0  
    
 
 
    
 
 
 
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  
 
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Table of Contents
 
  
Derivative Financial Liabilities

TBA Securities
 
 
  
June 30,

2021
 
  
December 31,
2020
 
Balance, beginning of period
   $ 0      $ 0  
Transfers other
     1,744        0  
    
 
 
    
 
 
 
Balance, end of period
   $  1,744      $ 0  
    
 
 
    
 
 
 
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  
Fair Value Option
As of January 1, 2021, United elected the fair value option for new loans held for sale originated in its community banking segment after that date to mitigate a divergence between accounting losses and economic exposure. Prior to January 1, 2021, United elected the fair value option only for its loans held for sale in its mortgage banking segment
.
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

June 30, 2021
 
  
Three Months Ended

June 30, 2020
 
Income from mortgage banking activities
   $  6,075      $  8,846  
     
Description
  
Six Months Ended

June 30, 2021
    
Six Months Ended

June 30, 2020
 
Income from mortgage banking activities
   $ (11,776    $  10,471  
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
:
 
 
  
June 30, 2021
 
  
December 31, 2020
 
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
 
Loans held for sale
   $  562,200      $  576,827      $  14,627      $  672,458      $  698,341      $  25,883  
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
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.
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
: Prior to January 1, 2021, loans held for sale within the community banking segment that were delivered on a best efforts basis were carried at the lower of cost or fair value. As previously mentioned, United elected the fair value option for all loans held for sale as of January 1, 2021. Under the lower of cost or fair value accounting method, the fair value of loans held for sale within the community banking segment was based on the price secondary markets offered at the time for similar loans using observable market data which was not materially different than cost due to the short duration between origination and sale (“Level 2”). As such, United recorded any fair value adjustments for these loans held for sale on a nonrecurring basis. Gains and losses on sale of loans were recorded within income from mortgage banking activities on the Consolidated Statements of Income.
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Table of Contents
Individually assessed loans
: In the determination of the allowance for loan losses, loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. 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 individually assessed 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 primarily 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 and compares the fair value to its carrying value. United may elect to perform a qualitative analysis to determine whether or not it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount. If United elects to bypass this qualitative analysis, or concludes via qualitative analysis that it is
more-likely-than-not
that the fair value of a reporting unit is less than its carrying value, United may use either a market or income quantitative approach, whichever is more practical, to determine the fair value of the reporting unit to compare to its carrying value as step one. If the fair value is greater than the carrying value, then the reporting unit’s goodwill is deemed not to be impaired. If the fair value is less than the carrying value, then a second step is performed which measures the amount of impairment by comparing the carrying amount of the goodwill to its implied fair value. If the implied fair value of the goodwill exceeds the carrying amount, there is no impairment. If the carrying amount exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess. At each reporting date, the Company considers potential indicators of impairment. United performed its annual goodwill impairment test on the Company’s reporting units as of September 30, 2020. The goodwill impairment test did not identify any goodwill impairment. In subsequent periods,
 
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Table of Contents
economic uncertainty and volatility surrounding
 
COVID-19
and the performance of the Company’s stock as well as possible other impairment indicators could cause us to perform a goodwill impairment test which could result in an impairment charge being recorded for that period if the carrying value of goodwill was found to exceed fair value. 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 six months of 2021 and 2020 other than those intangible assets recorded in the acquisition of Carolina Financial in the second quarter of 2020.
Mortgage Servicing Rights (
MSRs
):
A mortgage servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“mortgage servicing rights”) at fair value, if practicable. For subsequent measurement purposes, the Company measures servicing assets and liabilities based on the lower of cost or market quarterly on a nonrecurring basis. The quarterly determination of fair value of servicing rights is provided by a third party and is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. The unobservable inputs for Level 3 valuations are market discount rates, anticipated prepayment speeds, projected delinquency rates, and ancillary fee income net of servicing costs. For June 30, 2021, the average range of discount rates was 10.50% to 12.00% with a weighted average discount rate of 10.61%; the average range of constant prepayment rates was 11.29% to 22.83% with a weighted average prepayment rate of 17.53%; the net servicing fee was 0.26%; and the delinquency rate, including loans on forbearance was 2.76%. For December 31, 2020, the average range of discount rates was 9.50% to 14.07% with a weighted average discount rate of 10.62%; the average range of constant prepayment rates was 7.98% to 18.42% with a weighted average prepayment rate of 14.60%; the net servicing fee was 0.26%; and the delinquency rate, including loans on forbearance was 2.88%.
The Company recorded a temporary impairment
, net of recoveries
of $250 on mortgage servicing rights in the quarter and six months ended June 30, 2021. The Company recorded a $710 temporary impairment of mortgage servicing rights in the quarter and six months ended June 30, 2020. The Company does not hedge the mortgage servicing rights positions and the impact of falling long-term interest rates increased prepayment speed assumptions reducing the value of MSRs asset in 2020.
The following table summarizes United’s financial assets that were measured at fair value on a nonrecurring basis during the period:
 
Description
  
Balance as of

June 30, 2021
 
  
Carrying value at June 30, 2021
 
  
YTD Gains

(Losses)
 
  
Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)
 
  
Significant

Other

Observable

Inputs

(Level 2)
 
  
Significant

Unobservable

Inputs

(Level 3)
 
Assets
  
  
  
  
  
Individually assessed loans
   $ 17,893      $ 0      $ 13,591      $ 4,302      $ (1,430
OREO
     18,474        0        18,474        0        (3,528
Mortgage servicing rights
     24,630        0        0        24,630        (250
 
50

Description
  
Balance as of

December 31, 2020
 
  
Carrying value at December 31, 2020
 
  
YTD Gains

(Losses)
 
  
Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)
 
  
Significant

Other

Observable

Inputs

(Level 2)
 
  
Significant

Unobservable

Inputs

(Level 3)
 
Assets
  
  
  
  
  
Loans held for sale
   $ 20,596      $ 0      $ 20,596      $ 0      $ (197
Individually assessed loans
     37,498        0        14,467        23,031        1,318  
OREO
     22,595        0        22,595        0        (1,618
Mortgage servicing rights
     20,955        0        0        20,955        (1,383
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 consider 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 and leases
: 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 and leases (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 and leases with similar terms to borrowers of similar creditworthiness, which include adjustments for liquidity concerns. For acquired PCD 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 Credit 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.
51

 
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)
 
June 30, 2021
  
     
  
     
  
     
  
     
  
     
Cash and cash equivalents
   $ 3,677,396      $ 3,677,396      $ 0      $ 3,677,396      $ 0  
Securities available for sale
     3,277,074        3,277,074        5,983        3,271,091        0  
Securities held to maturity
     989        1,020        0        0        1,020  
Equity securities
     11,507        11,507        11,507        0        0  
Other securities
     221,931        210,834        0        0        210,834  
Loans held for sale
     576,827        576,827        0        44,553        532,274  
Net loans
     16,670,456        16,153,015        0        0        16,153,015  
Derivative financial assets
     34,317        34,317        0        19,471        14,846  
Mortgage servicing rights
     22,540        24,630        0        0        24,630  
Deposits
     21,567,391        21,555,714        0        21,555,714        0  
Short-term borrowings
     127,745        127,745        0        127,745        0  
Long-term borrowings
     814,022        768,278        0        768,278        0  
Derivative financial liabilities
     6,601        6,601        0        4,608        1,993  
           
December 31, 2020
                                            
Cash and cash equivalents
   $ 2,209,068      $ 2,209,068      $ 0      $ 2,209,068      $ 0  
Securities available for sale
     2,953,359        2,953,359        6,207        2,947,152        0  
Securities held to maturity
     1,212        1,235        0        215        1,020  
Equity securities
     10,718        10,718        10,718        0        0  
Other securities
     220,895        209,850        0        0        209,850  
Loans held for sale
     718,937        718,937        0        64,204        654,733  
Net loans
     17,355,583        16,559,797        0        0        16,559,797  
Derivative financial assets
     44,291        44,291        0        12,280        32,011  
Mortgage servicing rights
     20,955        20,955        0        0        20,955  
Deposits
     20,585,160        20,583,607        0        20,583,607        0  
Short-term borrowings
     142,300        142,300        0        142,300        0  
Long-term borrowings
     864,369        815,991        0        815,991        0  
Derivative financial liabilities
     13,058        13,058        0        13,058        0  
15. STOCK BASED COMPENSATION
On May 12, 2020, United’s shareholders approved the 2020 Long-Term Incentive Plan (“2020 LTI Plan”). The 2020 LTI Plan became effective May 13, 2020. An award granted under the 2020 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 2020 LTI Plan is 2,300,000. The 2020 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 2020 LTI Plan. The maximum number of options and stock appreciation rights, in the aggregate, which may be awarded to any individual key employee during any calendar year is 100,000. The maximum number of options and stock appreciation rights, in the aggregate, which may be awarded to any
non-employee
director during any calendar year is 10,000 or, if such Award is payable in cash, the Fair Market Value equivalent thereof. 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 225,000 shares to any individual key employee and 10,000 shares to any individual
non-employee
director. Subject to certain change in control provisions, the 2020 LTI Plan provides that all awards of will vest as the Committee determines in the award agreement, provided that
52

no awards will vest sooner than 1/3 per year over the first three anniversaries of the award. United adopted a clawback policy that applies to named executive officers and other executive officers and permits the Committee to cancel certain awards and to recoup gains realized from previous awards should United be required to prepare an accounting restatement due to materially inaccurate performance metrics. A Form
S-8
was filed on May 29, 2020 with the Securities and Exchange Commission to register all the shares which were available for the 2020 LTI Plan. The
2020
LTI Plan replaces the 2016 LTI Plan.
Compensation expense of $1,892 and $3,580 related to the nonvested awards under United’s Long-Term Incentive Plans was incurred for the second quarter and first six months of 2021, respectively, as compared to the compensation expense of $1,369 and $2,622 related to the nonvested awards under United’s Long-Term Incentive Plans incurred for the second quarter and first six months of 2020, 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 2020 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 June 30, 2021, and the changes during the first six months of 2021 are presented below:
 
 
  
Six Months Ended June 30, 2021
 
 
  
 
 
  
 
 
  
Weighted Average
 
 
  
Shares
 
  
Aggregate

Intrinsic

Value
 
  
Remaining

Contractual

Term (Yrs.)
 
  
Exercise

Price
 
Outstanding at January 1, 2021
     1,904,557                        $ 34.14  
Granted
     49,978                          32.51  
Exercised
     (173,945                        28.65  
Forfeited or expired
     (110,229                        28.69  
    
 
 
                      
 
 
 
Outstanding at June 30, 2021
     1,670,361      $ 5,358        5.3      $ 35.02  
    
 
 
    
 
 
    
 
 
    
 
 
 
         
Exercisable at June 30, 2021
     1,315,307      $ 4,654        4.8      $ 34.91  
    
 
 
    
 
 
    
 
 
    
 
 
 
The following table summarizes the status of United’s nonvested stock option awards during the first six months of 2021:
 
    
Shares
    
Weighted-Average

Grant Date Fair Value

Per Share
 
Nonvested at January 1, 2021
     544,905      $ 6.93  
Granted
     49,978        5.65  
Vested
     (239,659      7.32  
Forfeited or expired
     (170      5.65  
    
 
 
    
 
 
 
Nonvested at June 30, 2021
     355,054      $ 6.49  
    
 
 
    
 
 
 
During the six months ended June 30, 2021 and 2020, 173,945 and 14,994 shares, respectively, were issued in connection with stock option exercises. All shares issued in connection with stock option exercises for the six months ended June 30, 2021 and 2020 were issued from authorized and unissued stock. The total intrinsic value of options exercised under the Plans during the six months ended June 30, 2021 and 2020 was $1,644 and $249 respectively.
Restricted Stock
Under the 2020 LTI Plan, United may award restricted common shares to key employees and
non-employee
directors. Restricted shares granted to participants will vest no sooner than 1/3 per year over the first three anniversaries of the award.
Unless determined by the Committee or the Board and provided in the award agreement, 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.
53

The following summarizes the changes to United’s nonvested restricted common shares for the period ended June 30, 2021:
 
    
Shares
    
Weighted-Average
Grant Date Fair Value
Per Share
 
Nonvested at January 1, 2021
     340,976      $ 35.41  
Granted
     182,344        35.97  
Vested
     (129,061      36.90  
Forfeited
     (1,971      36.70  
    
 
 
    
 
 
 
Nonvested at June 30, 2021
     392,288      $ 35.18  
    
 
 
    
 
 
 
Restricted Stock Units
Under the 2020 LTI Plan, United may grant restricted stock units (“RSUs”) to key employees. These awards help align the interests of these employees with the interests of the shareholders of United by providing economic value directly related to the performance of the Company. These RSU grants could be time-vested RSUs, performance-vested RSUs, or a combination of both. Currently, time-vested RSUs vest ratably over three years from the date of grant. Performance-vested RSUs cliff-vest after assessment of the Company’s performance over a period of three years. The number of performance-vested RSUs that vest is determined by two metrics measured relative to peers: Return on Average Tangible Common Equity (“ROATCE”) and Total Shareholder Return (“TSR”). Based on ASC Topic 718, the ROATCE comparison is considered a performance condition while the TSR comparison is considered a market condition. There will be no payout of the performance-vested awards if the threshold performance is not achieved. United communicates the specific threshold, target, and maximum performance-vested RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Dividends are accrued but not paid in respect to the awards until the RSUs vest. The holder does not have the right to vote the shares during the time and performance periods. The value of the time-vested RSUs and the performance-vested, based on the performance condition, RSUs awarded is established as the fair market value of the stock at the time of the grant. The value of the performance-vested, based on the market condition, RSUs awarded is estimated through the use of a Monte Carlo valuation model as of the grant date. The Company recognizes expense on the RSUs in accordance with ASC Topic 718.
The following table summarizes the status of United’s nonvested RSUs during the first six months of 2021:
 
    
Shares
    
Weighted-Average
Grant Date Fair Value
Per Share
 
Nonvested at January 1, 2021
     0      $ 0.00  
Granted
     136,896        35.65  
Vested
     0        0.00  
Forfeited or expired
     0        0.00  
    
 
 
    
 
 
 
Nonvested at June 30, 2021
     136,896      $ 35.65  
    
 
 
    
 
 
 
16. EMPLOYEE BENEFIT PLANS
United has a defined benefit retirement plan covering qualified employees hired prior to October 1, 2007. 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. No discretionary contributions were made during the first six months of 2021 and 2020.
Included in accumulated other comprehensive income at December 31, 2020 are unrecognized actuarial losses of $65,426 ($50,182 net of tax) that have not yet been recognized in net periodic pension cost.
 
54

Net periodic pension cost for the three and six months ended June 30, 2021 and 2020 included the following components:
 
    
Three Months Ended

June 30
   
Six Months Ended

June 30
 
    
2021
   
2020
   
2021
   
2020
 
Service cost
   $ 758     $ 715     $ 1,508     $ 1,430  
Interest cost
     1,031       1,286       2,051       2,573  
Expected return on plan assets
     (2,957     (2,630     (5,881     (5,259
Recognized net actuarial loss
     1,589       1,442       3,161       2,884  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net periodic pension cost
   $ 421     $ 813     $ 839     $ 1,628  
    
 
 
   
 
 
   
 
 
   
 
 
 
         
Weighted-average assumptions:
                                
Discount rate
     2.81     3.42     2.81     3.42
Expected return on assets
     6.25     6.75     6.25     6.75
Rate of compensation increase (prior to age 40)
     5.00     5.00     5.00     5.00
Rate of compensation increase (ages
40-54)
     4.00     4.00     4.00     4.00
Rate of compensation increase (otherwise)
     3.50     3.50     3.50     3.50
17. 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 June 30, 2021 and 2020, the total amount of accrued interest related to uncertain tax positions was $722 and $718, 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, 2017, 2018 and 2019 and certain State Taxing authorities for the years ended December 31, 2017 through 2019.
United’s effective tax rate was 20.50% for both the second quarter and first six months of 2021 and 17.30% and 18.38% for the second quarter and first six months of 2020.
18. COMPREHENSIVE INCOME
The components of total comprehensive income for the three and six months ended June 30, 2021 and 2020 are as follows:
 
    
Three Months Ended
June 30
    
Six Months Ended
June 30
 
    
2021
    
2020
    
2021
    
2020
 
Net Income
  
$
 
94,836
 
 
$
 
52,686
 
 
$
 
201,734
 
 
$
 
92,869
 
Available for sale (“AFS”) securities:
                                
Change in net unrealized gain on AFS securities arising during the period
     18,040       37,756       (27,927     60,859  
Related income tax effect
     (4,203     (8,797     6,507       (14,180
Net reclassification adjustment for gains included in net income
     (0     (1,466     (1,444     (1,641
Related income tax expense 
     0       341       336       382  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net effect of AFS securities on other comprehensive income
  
 
13,837
 
 
 
27,834
 
 
 
(22,528
 
 
45,420
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Cash flow hedge derivatives:
                                
Unrealized gain on cash flow hedge before reclassification to interest expense
     (8,243     (1,659     11,074       (1,659
Related income tax effect
     1,921       387       (2,580     387  
Net reclassification adjustment for losses included in net income
     363       0       586       0  
Related income tax effect
     (85     0       (137     0  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net effect of cash flow hedge derivatives on other comprehensive income
  
 
(6,044
 
 
(1,272
 
 
8,943
 
 
 
(1,272
    
 
 
   
 
 
   
 
 
   
 
 
 
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Three Months Ended
June 30
 
  
Six Months Ended

June 30
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
Pension plan:
  
  
  
  
Recognized net actuarial loss
     1,589       1,442       3,161       2,884  
Related income tax benefit
     (720     (329     (1,423     (659
    
 
 
   
 
 
   
 
 
   
 
 
 
Net effect of change in pension plan asset on other comprehensive income
  
 
869
 
 
 
1,113
 
 
 
1,738
 
 
 
2,225
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Total change in other comprehensive income
  
 
8,662
 
 
 
27,675
 
 
 
(11,847
 
 
46,373
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Total Comprehensive Income
  
$
 
103,498
 
 
$
 
80,361
 
 
$
 
189,887
 
 
$
 
139,242
 
    
 
 
   
 
 
   
 
 
   
 
 
 
 
The components of accumulated other comprehensive income for the six months ended June 30, 2021 are as follows:
 
Changes in Accumulated Other Comprehensive Income (AOCI) by Component
(a)
 
For the Six Months Ended June 30, 2021
 
    
Unrealized
Gains/Losses
on AFS
Securities
    
Unrealized
Gains/Losses
on Cash
 
Flow
Hedges
    
Defined
Benefit
Pension

Items
    
Total
 
Balance at January 1, 2021
   $ 65,205      $ 3,358      $ (46,193    $ 22,370  
Other comprehensive income before reclassification
     (21,420      8,494        0        (12,926
Amounts reclassified from accumulated other comprehensive income
     (1,108      449        1,738        1,079  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net current-period other comprehensive income, net of tax
     (22,528      8,943        1,738        (11,847
    
 
 
    
 
 
    
 
 
    
 
 
 
Balance at June 30, 2021
   $ 42,677      $ 12,301      $ (44,455    $ 10,523  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(a)
All amounts are
net-of-tax.
 
 
Reclassifications out of Accumulated Other Comprehensive Income (AOCI)
For the Six Months Ended June 30, 2021
Details about AOCI Components
  
Amount
Reclassified
from AOCI
 
  
 
  
Affected Line Item in the Statement Where
Net Income is Presented
Available for sale (“AFS”) securities:
  
  
  
Net reclassification adjustment for gains included in net income
   $ (1,444 )
 
 
 
Net investment securities gains
    
 
 
 
 
 
   
       (1,444
 
 
 
Total before tax
Related income tax effect
     336  
 
 
 
Tax expense
    
 
 
 
 
 
   
       (1,108
 
 
 
Net of tax
Cash flow hedge:
        
 
 
   
Net reclassification adjustment for losses included in net income
   $ 586  
 
 
 
Interest expense
    
 
 
 
 
 
   
       586  
 
 
 
Total before tax
Related income tax effect
     (137
 
 
 
Tax expense
    
 
 
 
 
 
   
       449  
 
 
 
Net of tax
    
 
 
 
 
 
   
Pension plan:
        
 
 
   
Recognized net actuarial loss
     3,161
 
  
(a)
   
    
 
 
 
 
 
   
       3,161  
 
 
 
Total before tax
Related income tax effect
     (1,423
 
 
 
Tax expense
    
 
 
 
 
 
   
       1,738  
 
 
 
Net of tax
    
 
 
 
 
 
   
Total reclassifications for the period
   $ 1,079  
 
 
   
    
 
 
 
 
 
   
 
(a)
This AOCI component is included in the computation of changes in plan assets (see Note 16, Employee Benefit Plans)
 
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19. 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
 
  
Six Months Ended
 
 
  
June 30
 
  
June 30
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
         
Distributed earnings allocated to common stock
   $ 45,085      $ 45,298      $ 90,153      $ 80,785  
         
Undistributed earnings allocated to common stock
     49,478        7,262        111,007        11,840  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net earnings allocated to common shareholders
   $ 94,563      $ 52,560      $ 201,160      $ 92,625  
    
 
 
    
 
 
    
 
 
    
 
 
 
         
Average common shares outstanding
     128,750,851        119,823,652        128,693,616        110,559,363  
Equivalents from stock options
     283,137        64,171        252,664        65,613  
    
 
 
    
 
 
    
 
 
    
 
 
 
         
Average diluted shares outstanding
     129,033,988        119,887,823        128,946,280        110,624,976  
    
 
 
    
 
 
    
 
 
    
 
 
 
         
Earnings per basic common share
   $ 0.73      $ 0.44      $ 1.56      $ 0.84  
         
Earnings per diluted common share
   $ 0.73      $ 0.44      $ 1.56      $ 0.84  
Antidilutive stock options and restricted stock outstanding of 468,892 and 978,095 for the three months and six months ended June 30, 2021, respectively, were excluded from the earnings per diluted common share calculation as compared to 2,027,073 and 1,700,493 for the three months and six months ended June 30, 2020, respectively.
20. 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 nineteen 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.
5
7

Information related to United’s statutory trusts is presented in the table below:
 
Description
  
Issuance Date
  
Amount of

Capital Securities Issued
 
 
Stated 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
Carolina Financial Capital Trust I
   December 19, 2002    $ 5,000
 
 
Prime + 0.50%    December 31, 2032
Carolina Financial Capital Trust II
   November 5, 2003    $ 10,000
 
 
3-month
LIBOR + 3.05%
   January 7, 2034
Greer Capital Trust I
   October 12, 2004    $ 6,000
 
 
3-month
LIBOR + 2.20%
   October 18, 2034
Greer Capital Trust II
   December 28, 2006    $ 5,000
 
 
3-month
LIBOR + 1.73%
   January 30, 2037
First South Preferred Trust I
   September 26, 2003    $ 10,000
 
 
3-month
LIBOR + 2.95%
   September 30, 2033
 
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 June 30, 2021
    
As of December 31, 2020
 
    
Aggregate

Assets
    
Aggregate

Liabilities
    
Risk Of

Loss (1)
    
Aggregate

Assets
    
Aggregate

Liabilities
    
Risk Of

Loss (1)
 
Trust preferred securities
   $ 295,246      $ 284,503      $ 10,743      $ 295,466      $ 284,788      $ 10,678  
 
(1)
Represents investment in VIEs.
21. 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 United’s mortgage banking subsidiaries, George Mason and Crescent. Crescent may retain servicing rights on their mortgage loans sold. At certain times, Crescent may purchase rights to service loans from third parties. These rights are known as mortgage servicing rights
 and
provide the owner with the contractual right to receive a stream of cash flows in exchange for performing specified mortgage servicing functions.
 
58

The community banking segment provides the mortgage banking segment (George Mason and Crescent) 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 and six months ended June 30, 2021 and 2020 is as follows:
 
    
At and For the Three Months Ended June 30, 2021
 
    
Community
Banking
   
Mortgage
Banking
    
Other
   
Intersegment

Eliminations
   
Consolidated
 
Net interest income
   $ 183,400     $ 2,871      $ (2,106   $ 2,352     $ 186,517  
Provision for
credit
losses
     (8,879     0        0       0       (8,879
Other income
     24,072       39,765        1,132       (2,123     62,846  
Other expense
     103,429       36,391        (1,098     229       138,951  
Income taxes
     23,149       1,280        26       0       24,455  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss)
   $ 89,773     $ 4,965      $ 98     $ 0     $ 94,836  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
           
Total assets (liabilities)
   $ 26,831,380     $ 720,912      $ 32,619     $ (393,985   $ 27,190,926  
Average assets (liabilities)
     26,661,453       729,114        26,090       (410,699     27,005,958  
 
    
At and For the Three Months Ended June 30, 2020
 
    
Community
Banking
    
Mortgage
Banking
    
Other
   
Intersegment

Eliminations
   
Consolidated
 
Net interest income
   $ 167,703      $ 2,246      $ (2,556   $ 3,209     $ 170,602  
Provision for
credit
losses
     45,911        0        0       0       45,911  
Other income
     20,301        71,013        47       (2,971     88,390  
Other expense
     106,477        35,261        7,398       238       149,374  
Income taxes
     5,841        6,946        (1,766     0       11,021  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss)
   $ 29,775      $ 31,052      $ (8,141   $ 0     $ 52,686  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
           
Total assets (liabilities)
   $ 25,924,599      $ 730,637      $ 25,678     $ (445,941   $ 26,234,973  
Average assets (liabilities)
     24,198,414        660,483        16,574       (472,871     24,402,600  
 
    
At and For the Six Months Ended June 30, 2021
 
    
Community
Banking
   
Mortgage
Banking
    
Other
   
Intersegment

Eliminations
   
Consolidated
 
Net interest income
   $ 370,597     $ 5,521      $ (4,244   $ 5,603     $ 377,477  
Provision for
credit
losses
     (8,736     0        0       0       (8,736
Other income
     50,460       107,272        2,653       (4,966     155,419  
Other expense
     213,446       77,574        (3,779     637       287,878  
Income taxes
     44,351       7,220        449       0       52,020  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss)
   $ 171,996     $ 27,999      $ 1,739     $ 0     $ 201,734  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
           
Total assets (liabilities)
   $ 26,831,380     $ 720,912      $ 32,619     $ (393,985   $ 27,190,926  
Average assets (liabilities)
     26,409,142       722,997        24,709       (406,747     26,750,101  
 
59

    
At and For the Six Months Ended June 30, 2020
 
    
Community
Banking
    
Mortgage
Banking
    
Other
   
Intersegment

Eliminations
   
Consolidated
 
Net interest income
   $ 308,123      $ 3,195      $ (5,245   $ 6,047     $ 312,120  
Provision for
credit
losses
     73,030        0        0       0       73,030  
Other income
     39,868        92,203        56       (6,931     125,196  
Other expense
     186,941        56,018        8,432       (884     250,507  
Income taxes
     16,191        7,219        (2,500     0       20,910  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss)
   $ 71,829      $ 32,161      $ (11,121   $ 0     $ 92,869  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
           
Total assets (liabilities)
   $ 25,924,599      $ 730,637      $ 25,678     $ (445,941   $ 26,234,973  
Average assets (liabilities)
     21,825,005        513,431        21,756       (374,811     21,985,381  
 
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe haven for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations.
United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involve numerous assumptions, risks and uncertainties. Forward-looking statements can be identified by the use of the words “expect,” “may,” “could,” “intend,” “project,” “estimate,” “believe,” “anticipate,” and other words of similar meaning. Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect, such as statements about the potential impacts of the
COVID-19
pandemic. Therefore, undue reliance should not be placed upon these estimates and statements. United cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.” United undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
CORONAVIRUS
(“COVID-19”)
PANDEMIC
During 2020, the
COVID-19
pandemic had a severe disruptive impact on the U.S. and global economy with businesses closing in response to the pandemic. The economic disruption caused by the virus outbreak caused downturns and increased uncertainty and volatility in financial markets. Individual state governmental responses to the pandemic included orders closing
“non-essential”
businesses temporarily and directing individuals to restrict their movements, observe social distancing and “shelter-
in-place.”
These actions, together with responses to the pandemic by businesses and individuals, resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that led to a loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices, disrupted global supply chains, changes in consumer behavior because of the potential exposure to the virus, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.
Several legislative measures were enacted to provide relief for those affected and provide stimulus to poor economic conditions. On March 29, 2020, then President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which authorized approximately $2 trillion in relief to businesses and workers that were affected by events related to
COVID-19.
The CARES Act included the Paycheck Protection Program (“PPP”), a nearly $350 billion program designed to aid small- and
medium-sized
businesses through federally guaranteed loans distributed through banks. These loans were intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. In return for processing and booking these loans, the Small
 
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Business Administration (“SBA”), will pay the lender a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million). For the year of 2020, United processed almost 9,000 loans totaling over $1.29 billion under the PPP and recognized $16.26 million of net fee income during the year of 2020 related to the PPP loans.
The PPP loan program was extended and amended through additional legislation during 2020. The last of which occurred on December 27, 2020 when then President Trump signed into law the 2021 Consolidated Appropriations Act, an approximately $900 billion bill to provide additional
COVID-19
relief and among other measures, extended weekly unemployment benefits, provided another round of economic stimulus payments to individuals and families, lengthened temporary suspensions and modifications of several-bank related provisions and provided more aid to small businesses. Most notably, the 2021 Consolidated Appropriations Act reauthorized and appropriated up to $284.5 billion for the PPP for both first-time and second-time borrowers to receive loan disbursements for a period ending March 31, 2021, expanded the list of eligible PPP expenses and created a simplified loan forgiveness application for loans under $150 thousand.
On March 11, 2021, newly elected President Joe Biden signed into law the $1.9 trillion American Rescue Plan Act of 2021. The legislation included additional stimulus checks to eligible individuals and an extension of the
$300-per-week
supplement to federal unemployment benefits through September 6, 2021. The legislation also allocates funding to small businesses, state and local governments, and
COVID-19
vaccination and testing and tracing efforts. The legislation also modified the PPP to clarify that the SBA affiliation rules would not apply to certain applicants. Specifically, 501(c)(3) organizations that employ not more than 500 employees per physical location of the organization would become eligible for the program. The legislation also provided an additional $7.25 billion for the program. However, the legislation did not extend the March 31, 2021 application deadline.
On March 27, 2021, the
COVID-19
Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the CARES Act of 2020 bill until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief.
On March 30, 2021, President Biden signed into law the PPP Extension Act of 2021. This bill extended the PPP through June 30, 2021. For the final 30 days of the program (i.e., from June 1 until June 30), the SBA may only process applications submitted prior to June 1, and it may not accept any new loan applications.
On June 24, 2021, President Biden announced that the three federal agencies that back mortgages – the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) – will extend their respective foreclosure moratorium for one, final month, until July 31, 2021. The Federal Housing Finance Agency (FHFA) also announced that it has extended the foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac until July 31, 2021. President Biden emphasized that this is the final extension.
Impact on our Operations.
In the states where United operates, many jurisdictions declared health emergencies due to the
COVID-19
pandemic. The resulting closures of
non-essential
businesses and related economic disruption impacted our operations as well as the operations of our customers. Financial services were identified as a Critical Infrastructure Sector by the Department of Homeland Security. Accordingly, our business remained open. To address the issues arising as a result of
COVID-19,
United implemented several policies in order to facilitate the continued delivery of essential services while maintaining a high level of safety for our customers as well as our employees.
As of June 30, 2021, United does not anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken regarding the
COVID-19
pandemic. The Company does not currently face any material resource constraint through the implementation of our business continuity plans.
United is currently unable to fully assess or predict the extent of the effects of
COVID-19
on its operations in the future as the ultimate impact will depend on factors that are currently unknown and/or beyond our control.
Impact on our Financial Position and Results of Operations.
Although economic conditions have improved in the first six months of 2021, our business continues to be impacted by the
COVID-19
pandemic. In addition, significant uncertainties
 
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related to the
COVID-19
pandemic still exist including, among other things, the ongoing impact to our customers, employees, vendors, counterparties and service providers; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact. Certain industries continue to be impacted more severely than others, although all businesses have been impacted by the
COVID-19
pandemic to some degree during the first half of 2021 as they were in 2020. The economic pressures, existing and forecasted, as of end of each quarter during 2020, coupled with the implementation of an expected loss methodology for determining United’s provision for credit losses as required by CECL contributed to an increased provision for credit losses for the year of 2020. Also, in United’s mortgage banking segment, a market disruption caused by the
COVID-19
pandemic resulted in significant losses on mortgage banking derivatives in the first quarter of 2020.
The Company’s fee income has been reduced due to
COVID-19.
In keeping with guidance from regulators, the Company actively worked with
COVID-19
affected customers during 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. Should the pandemic and the global response escalate further as outbreaks occur, it is possible that the Company could reduce such fees in future periods; however, at this time, the Company is unable to project the materiality of such an impact on the results of operations in future periods.
The Company’s interest income has and could continue to be reduced due to
COVID-19.
In keeping with guidance from regulators, the Company continues to work with
COVID-19
affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact on future deferrals to
COVID-19
affected borrowers, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.
Capital and liquidity.
As of June 30, 2021, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand a second economic recession brought about by
COVID-19,
our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.
We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us. Rates for short-term funding were volatile throughout 2020, but have been more stable thus far in 2021. If funding costs become elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
For a discussion of the United’s liquidity and capital resources in light of the
COVID-19
pandemic please refer to the sections with the captions of “Liquidity and Capital Resources” included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).
Lending operations and accommodations to borrowers.
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is executing a payment deferral program for its customers that are adversely affected by the pandemic. Depending on the demonstrated need of the client and within the guidance of the CARES Act, the Company is deferring either the full loan payment or the principal component of the loan payment for stated period of time. As of June 30, 2021, United has 238 eligible loan modifications in deferral under section 4013, “Temporary Relief from Troubled Debt Restructurings,” of the CARES Act on $66,364 of loans outstanding, down from 1,002 eligible loan modifications in deferral on $399,857 of loans outstanding at December 31, 2020. In accordance with the CARES Act, these deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the CARES Act; however, the volume of these future potential extensions is unknown. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown.
 
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With the passage and extensions of the PPP, administered by the SBA, the Company has actively participated in assisting its customers with applications for resources through the program. PPP loans generally have a
two-year
or five-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of June 30, 2021, the Company had 7,513 of PPP loans with a balance of approximately $789.53 million. The Company recognized approximately $9.02 million and $20.33 million in net fees on PPP loans during the second quarter and first six months ended June 30, 2021 as compared to $4.48 million for both the second quarter and first six months ended June 30, 2020. Remaining fees due from the SBA will be amortized and recognized over the life of the associated loans. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings.
Retail operations.
The Company has been committed to assisting our customers and communities during the
COVID-19
pandemic. For much of 2020 and the first part of 2021, most branch locations were converted to drive-thru only in order to ensure the health and safety of our customers and team members. We continued to serve our customers that needed emergency branch access for account issues, safe deposit access and similar items by appointment. The Company was able to open and close accounts effectively, through its drive through facility, and our customer service center was successful in managing the volume of incoming calls. We introduced temporary changes to help with the financial hardship caused by
COVID-19
for both our customers and
non-customers,
including waiving select deposit account fees including overdraft fees, ATM fees and excessive withdrawal fees for savings and money market accounts.
From
mid-May
to
mid-June
in 2021, we used a
phased-in
approach to reopen our lobbies throughout our footprint. We have returned to full-service at all retail locations throughout our footprint. The customer service centers continue to operate at full capacity with more normalized call volumes. We have continued to offer fee waivers for select deposit accounts to help with the financial hardship caused by the pandemic.
The Company continues to place the utmost importance on the health and safety of our employees and customers. We also continue to follow the applicable Centers for Disease Control and Prevention (“CDC”) guidance and comply with any local or state mandates. The Company continues to closely monitor the pandemic and
COVID-19
variants and will adjust its retail operations accordingly, as necessary.
ACQUISITIONS
On June 2, 2021, United entered into an Agreement and Plan of Reorganization (the “Community Bankers Trust Agreement”) with Community Bankers Trust Corporation (“Community Bankers Trust”), a Virginia corporation headquartered in Richmond, Virginia. Community Bankers Trust is the holding company for Essex Bank, a Virginia state chartered bank with 24 full-service offices, 18 of which are in Virginia and six of which are in Maryland. Essex Bank also operates two loan production offices. In accordance with the Community Bankers Trust Agreement, Community Bankers Trust shall merge with and into United (the “Community Bankers Trust Merger”). Community Bankers Trust will cease to exist and United shall survive and continue to exist as a West Virginia corporation. United may at any time prior to the effective time of the Community Bankers Trust Merger change the method of effecting the combination with Community Bankers Trust subject to certain conditions contained in the Community Bankers Trust Agreement. At the effective time of the Community Bankers Trust Merger, Essex Bank will merge with and into United Bank, a wholly-owned subsidiary of United (the “Essex Bank Merger”). United Bank will survive the Essex Bank Merger and continue to exist as a Virginia banking corporation. Community Bankers Trust had approximately $1.75 billion in assets as of June 30, 2021.
On May 1, 2020, United acquired 100% of the outstanding common stock of Carolina Financial Corporation (“Carolina Financial”), headquartered in Charleston, South Carolina. Immediately following the merger, CresCom Bank, a wholly-owned subsidiary of Carolina Financial, merged with and into United Bank (the “CresCom Bank Merger”). United Bank survived the CresCom Bank Merger and continues to exist as a Virginia banking corporation. The acquisition of Carolina
 
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Financial afforded United the opportunity to expand its existing footprint in North Carolina and South Carolina. The merger resulted in a combined company with more than 200 locations in some of the best banking markets in the United States. CresCom Bank owned and operated Crescent Mortgage Company (“Crescent”), which is based in Atlanta. Crescent is approved to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers. As a result of the merger, Crescent became an indirectly-owned subsidiary of United. The Carolina Financial merger was accounted for under the acquisition method of accounting. At consummation, Carolina Financial had assets of $5.00 billion, loans and leases, net of unearned income of $3.29 billion and deposits of $3.87 billion.
The results of operations of Carolina Financial are included in the consolidated results of operations from its date of acquisition. As a result of the Carolina Financial acquisition, the second quarter and first six months of 2021 were impacted by increased levels of average balances, income, and expense as compared to the second quarter and first six months of 2020. In addition, the second quarter and first six months of 2020 included $46.45 million and $48.01 million, respectively, of merger-related expenses from the Carolina Financial acquisition.
TRANSITION FROM THE LONDON INTERBANK OFFERED RATE (“LIBOR”)
In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit the rates used to calculate LIBOR after 2021. ICE Benchmark Administration (the publisher of LIBOR) plans to discontinue publication of the
one-week
and
two-month
U.S. Dollar LIBOR settings on December 31, 2021, and to discontinue publication of overnight,
one-month,
three-month,
six-month,
and twelve-month U.S. Dollar LIBOR settings on June 30, 2023. It is assumed that LIBOR will either cease to be provided by any administrator or will no longer be representative of an acceptable market benchmark after these respective dates. Additionally, The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have issued joint supervisory guidance encouraging banks to cease entering into any new contracts using LIBOR by December 31, 2021.
Working groups comprised of various regulators and other industry groups have been formed in the United States and other countries in order to provide guidance on this topic. In particular, the Alternative Reference Rates Committee (“ARRC”) has been formed in the United States by the Federal Reserve Board and the Federal Reserve Bank of New York. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative reference rate for U.S. Dollar LIBOR. The ARRC has also published recommended fall-back language for LIBOR-linked financial instruments, among numerous other areas of guidance. At this time, however, it is unclear to what extent these recommendations will be broadly accepted by industry participants, whether they will continue to evolve, and what other alternatives may be adopted by the broader markets that utilize LIBOR as a reference rate. United has formed a project team comprised of individuals across various lines of business throughout the company to identify risks, monitor market developments, evaluate replacement benchmark alternatives, and manage the company’s transition away from LIBOR.
United has loans, derivative contracts, borrowings, and other financial instruments that are directly or indirectly dependent on LIBOR. The transition from LIBOR will cause changes to payment calculations for existing contracts that use LIBOR as the reference rate. These changes will create various risks surrounding the financial, operational, compliance and legal aspects associated with changing certain elements of existing contracts. United will also be subject to risks surrounding changes to models and systems that currently use LIBOR reference rates, as well as market and strategic risks that could arise from the use of alternative reference rates. Additionally, United could face reputational risks if this transition is not managed appropriately with its customers. While the full impact of the transition is not yet known, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
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 June 30, 2021, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements.
 
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This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and accompanying notes thereto, which are included elsewhere in this document.
USE OF
NON-GAAP
FINANCIAL MEASURES
This discussion and analysis contains certain financial measures that are not recognized under GAAP. Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each
“non-GAAP”
financial measure, certain additional information, including a reconciliation of the
non-GAAP
financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the
non-GAAP
financial measure.
Generally, United has presented a
non-GAAP
financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of a
non-GAAP
financial measure is consistent with how United’s management evaluates its performance internally and this
non-GAAP
financial measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry. Specifically, this discussion contains certain references to financial measures identified as
tax-equivalent
(“FTE”) net interest income and return on average tangible equity. Management believes these
non-GAAP
financial measures to be helpful in understanding United’s results of operations or financial position.
Net interest income is presented in this discussion on a
tax-equivalent
basis. The
tax-equivalent
basis adjusts for the
tax-favored
status of income from certain loans and investments. Although this is a
non-GAAP
measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and
tax-exempt
sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.
Average tangible equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible equity can thus be considered the most conservative valuation of the company. When considering net income, a return on average tangible equity can be calculated. Management provides a return on average equity to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. By removing the effect of intangible assets that result from merger and acquisition activity, the “permanent” items of shareholders’ equity are presented. This measure, along with others, is used by management to analyze capital adequacy and performance.
However, this
non-GAAP
information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP. Where the
non-GAAP
financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the
non-GAAP
financial measure, can be found within this discussion and analysis. Investors should recognize that United’s presentation of this
non-GAAP
financial measure might not be comparable to a similarly titled measure at other companies.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of United conform with U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments, which are reviewed with the Audit Committee of the Board of Directors, are based on information available as of the date of the financial statements. Actual results could differ from these estimates. United’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2021 were unchanged from the policies disclosed in United’s Annual Report on Form
10-K
for the year ended December 31, 2020 within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
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FINANCIAL CONDITION
United’s total assets as of June 30, 2021 were $27.19 billion, which was an increase of $1.01 billion or 3.84% from December 31, 2020. This increase was mainly due to an increase of $1.47 billion or 66.47% in cash and cash equivalents, and an increase of $325.32 million or 10.21% in investment securities. These increases in assets were partially offset by a $703.41 million or 4.00% decrease in portfolio loans and a $142.11 million or 19.77% decrease in loans held for sale. Total liabilities increased $910.59 million or 4.16% from
year-end
2020. Deposits increased $982.23 million or 4.77% which was partially offset by a $64.90 million or 6.45% decrease in borrowings and a $5.72 million or 2.83% decrease in accrued expenses and other liabilities. Shareholders’ equity increased $96.09 million or 2.24%.
The following discussion explains in more detail the changes in financial condition by major category.
Cash and Cash Equivalents
Cash and cash equivalents at June 30, 2021 increased $1.47 billion or 66.47% from
year-end
2020. In particular, interest-bearing deposits with other banks increased $1.46 billion or 76.35% as United placed more cash in an interest-bearing account with the Federal Reserve. Cash and cash equivalents increased $9.28 million or 3.12% while federal funds sold increased $102 thousand or 12.39%. During the first six months of 2021, net cash of $351.96 million and $293.76 million were provided by operating and investing activities, respectively, while net cash of $822.61 million was provided by financing activities. See the unaudited Consolidated Statements of Cash Flows for data on cash and cash equivalents provided and used in operating, investing and financing activities for the first six months of 2021 and 2020.
Securities
Total investment securities at June 30, 2021 increased $325.32 million or 10.21%. Securities available for sale increased $323.72 million or 10.96%. This change in securities available for sale reflects $399.55 million in sales, maturities and calls of securities, $759.34 million in purchases, and an decrease of $29.37 million in market value. The majority of the purchase activity was related to mortgage-backed securities, corporate securities, asset-backed securities and state and political subdivisions securities. Securities held to maturity declined $223 thousand or 18.40% from
year-end
2020 due to maturities and calls of securities. Equity securities were $11.51 million at June 30, 2021, an increase of $789 thousand or 7.36% due mainly to net purchases. Other investment securities were flat, increasing $1.04 million or less than 1% from
year-end
2020 due mainly to an increase in investment tax credits. Partially offsetting this increase in investment tax credits was a decrease in Federal Home Loan Bank (“FHLB”) stock.
The following table summarizes the changes in the available for sale securities since
year-end
2020:
 
(Dollars in thousands)
  
June 30

2021
    
December 31

2020
    
$ Change
    
% Change
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
   $ 15,147      $ 66,344      $  (51,197      (77.17 %) 
State and political subdivisions
     614,046        565,160        48,886        8.65
Mortgage-backed securities
     1,677,162        1,625,812        51,350        3.16
Asset-backed securities
     489,433        294,623        194,810        66.12
Single issue trust preferred securities
     17,417        17,027        390        2.29
Corporate securities
     463,869        384,393        79,476        20.68
  
 
 
    
 
 
    
 
 
    
 
 
 
Total available for sale securities, at fair value
   $  3,277,074      $  2,953,359      $  323,715        10.96
  
 
 
    
 
 
    
 
 
    
 
 
 
 
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The following table summarizes the changes in the held to maturity securities since
year-end
2020:
 
(Dollars in thousands)
  
June 30

2021
           
December 31

2020
           
$ Change
    
% Change
 
State and political subdivisions
   $  970        (1    $  1,192        (2    $  (222      (18.62 %) 
Other corporate securities
     19           20           (1      (5.00 %) 
  
 
 
       
 
 
       
 
 
    
 
 
 
Total held to maturity securities, at amortized cost
   $ 989         $ 1,212         $  (223      (18.40 %) 
  
 
 
       
 
 
       
 
 
    
 
 
 
Note
: (1) net of allowance for credit losses of $31 thousand.
(2) net of allowance for credit losses of $23 thousand.
At June 30, 2021, gross unrealized losses on available for sale securities were $12.71 million. Securities with the most significant gross unrealized losses at June 30, 2021 consisted primarily of agency residential mortgage-backed securities and agency commercial mortgage-backed securities.
As of June 30, 2021, United’s available for sale mortgage-backed securities had an amortized cost of $1.65 billion, with an estimated fair value of $1.68 billion. The portfolio consisted primarily of $973.33 million in agency residential mortgage-backed securities with a fair value of $985.00 million, $39.79 million in
non-agency
residential mortgage-backed securities with an estimated fair value of $39.60 million, and $634.65 million in commercial agency mortgage-backed securities with an estimated fair value of $652.56 million.
As of June 30, 2021, United’s available for sale corporate securities had an amortized cost of $965.98 million, with an estimated fair value of $970.72 million. The portfolio consisted of $18.25 million in single issue trust preferred securities with an estimated fair value of $17.42 million. In addition to the single issue trust preferred securities, the Company held positions in various other corporate securities, including asset-backed securities with an amortized cost of $489.90 million and a fair value of $489.43 million and other corporate securities, with an amortized cost of $457.83 million and a fair value of $463.87 million.
United’s available for sale single issue trust preferred securities had a fair value of $17.42 million as of June 30, 2021. Of the $17.42 million, $11.49 million or 65.97% were investment grade; $1.00 million or 5.73% were split rated; and $4.93 million or 28.30% were unrated. The two largest exposures accounted for 70.32% of the $17.42 million. These included Truist Bank at $7.32 million and Emigrant Bank at $4.93 million. All single issue trust preferred securities are currently receiving full scheduled principal and interest payments.
During the first six months of 2021, United did not recognize any credit losses on its available for sale investment securities. Management does not believe that any individual security with an unrealized loss as of June 30, 2021 is impaired. United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not a deterioration of credit. Based on a review of each of the securities in the available for sale investment portfolio, management concluded that it was more likely than not that it would be able to realize the cost basis investment and appropriate interest payments on such securities. United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature. As of June 30, 2021, there was no allowance for credit losses related to the Company’s available for sale securities. However, United acknowledges that any securities in an unrealized loss position may be sold in future periods in response to significant, unanticipated changes in asset/liability management decisions, unanticipated future market movements or business plan changes.
Further information regarding the amortized cost and estimated fair value of investment securities, including remaining maturities as well as a more detailed discussion of management’s impairment analysis, is presented in Note 3 to the unaudited Notes to Consolidated Financial Statements.
Loans held for sale
Loans held for sale decreased $142.11 million or 19.77% from
year-end
2020. Loan sales in the secondary market exceeded originations during the first six months of 2021. Loan originations for the first six months of 2021 were $3.58 billion while loans sales were $3.72 billion. Loans held for sale were $576.83 million at June 30, 2021 as compared to $718.94 million at
year-end
2020.
 
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Portfolio Loans
Loans, net of unearned income, decreased $703.41 million or 4.00%. Since
year-end
2020, commercial, financial and agricultural loans decreased $466.13 million or 4.36% as a result of a $396.65 million or 9.78% decrease in commercial loans (not secured by real estate) and a $69.49 million or 1.05% decrease in commercial real estate loans. Residential real estate loans decreased $312.83 million or 8.02% while consumer loans decreased $24.67 million or 2.05% due to a decrease in indirect automobile financing. Partially offsetting these decreases in loans, net of unearned income, was a $102.70 million or 5.62% increase in construction and land development loans.
The following table summarizes the changes in the major loan classes since
year-end
2020:
 
(Dollars in thousands)
  
June 30

2021
    
December 31

2020
    
$ Change
    
% Change
 
Loans held for sale
   $ 576,827      $ 718,937      $  (142,110      (19.77 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Commercial, financial, and agricultural:
           
Owner-occupied commercial real estate
   $ 1,589,701      $ 1,622,687      $ (32,986      (2.03 %) 
Nonowner-occupied commercial real estate
     4,981,226        5,017,727        (36,501      (0.73 %) 
Other commercial loans
     3,657,772        4,054,418        (396,646      (9.78 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total commercial, financial, and agricultural
   $  10,228,699      $  10,694,832      $  (466,133      (4.36 %) 
Residential real estate
     3,587,057        3,899,885        (312,828      (8.02 %) 
Construction & land development
     1,929,052        1,826,349        102,703        5.62
Consumer:
           
Bankcard
     7,940        8,937        (997      (11.16 %) 
Other consumer
     1,168,904        1,192,580        (23,676      (1.99 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total gross loans
   $ 16,921,652      $ 17,622,583      $  (700,931      (3.98 %) 
Less: Unearned income
     (33,651      (31,170      (2,481      7.96
  
 
 
    
 
 
    
 
 
    
 
 
 
Total Loans, net of unearned income
   $ 16,888,001      $ 17,591,413      $  (703,412      (4.00 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements.
Other Assets
Other assets increased $38.80 million or 6.64% from
year-end
2020 due to a $53.69 million increase in cash surrender life insurance policies as a result of purchases of new policies, totaling $50.00 million, during the second quarter of 2021. In addition, deferred tax assets increased $3.50 million due to timing differences. Partially offsetting these increases were decreases of $8.90 million in derivative assets, $4.12 million in other real estate owned properties (“OREO”) due to sales and write downs and $2.93 million in core deposit intangibles due to amortization and $1.45 million in income tax receivables due to timing differences.
Deposits
Deposits represent United’s primary source of funding. Total deposits at June 30, 2021 increased $982.23 million or 4.77%. In terms of composition, noninterest-bearing deposits increased $878.19 million or 11.86% while interest-bearing deposits were relatively flat from December 31, 2020, increasing $104.04 million or less than 1%.
Noninterest-bearing deposits consist of demand deposit and noninterest bearing money market (“MMDA”) account balances. The $878.19 million increase in noninterest-bearing deposits was due mainly to increases in commercial noninterest-bearing deposits of $457.31 million or 11.25%, personal noninterest-bearing deposits of $122.06 million or 11.10% and public noninterest-bearing deposits of $3.02 million or 2.31%. In addition, sweep activity to noninterest bearing MMDAs increased $280.39 million or 14.18%.
 
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Interest-bearing deposits consist of interest-bearing checking (“NOW”), regular savings, interest-bearing MMDA, and time deposit account balances. Interest-bearing MMDAs increased $414.25 million or 5.06% since
year-end
2020. In particular, commercial MMDAs increased $204.60 million, public MMDAs increased $101.37 million, and personal MMDAs increased $130.45 million. Partially offsetting these increases in interest-bearing MMDAs is a decrease of $22.17 million in brokered MMDAs. NOW accounts increased $12.38 million or 1.55% since
year-end
2020. Excluding sweep activity from NOW accounts to interest-bearing MMDAs to reduce United’s reserve requirement at its Federal Reserve Bank, NOW accounts increased $325.62 million or 10.51% mainly due to a $91.62 million increase in personal NOW accounts, a $136.72 million increase in commercial NOW accounts, and a $97.29 million increase in public funds NOW accounts.
Regular savings increased $140.40 million or 10.94% from
year-end
2020 mainly due to a $122.35 million increase in personal savings accounts and a $17.29 million increase in commercial savings accounts.
Time deposits under $100,000 decreased $83.02 million or 8.47% from
year-end
2020. This decrease in time deposits under $100,000 was the result of a $73.10 million decrease in fixed Certificates of Deposits (“CDs”) under $100,000 and a $12.55 million decrease in listed CDs under $100,000.
Since
year-end
2020, time deposits over $100,000 decreased $379.98 million or 19.71% as fixed rate CDs decreased $184.44 million, brokered certificates of deposits decreased $103.43 million, and public funds CDs over $100,000 decreased $81.22 million. In addition, Certificate of Deposit Account Registry Service (“CDARS”) CDs decreased $11.16 million.
The table below summarizes the changes by deposit category since
year-end
2020:
 
(Dollars in thousands)
  
June 30

2021
    
December 31

2020
    
$ Change
    
% Change
 
Demand deposits
   $ 6,026,206      $ 5,428,398      $ 597,808        11.01
Interest-bearing checking
     812,018        799,635        12,383        1.55
Regular savings
     1,424,220        1,283,823        140,397        10.94
Money market accounts
     10,859,968        10,165,334        694,634        6.83
Time deposits under $100,000
     896,973        979,988        (83,015      (8.47 %) 
Time deposits over $100,000
(1)
     1,548,006        1,927,982        (379,976      (19.71 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total deposits
   $  21,567,391      $  20,585,160      $ 982,231        4.77
  
 
 
    
 
 
    
 
 
    
 
 
 
 
(1)
Includes time deposits of $250,000 or more of $623,652 and $889,334 at June 30, 2021 and December 31, 2020, respectively.
Borrowings
Total borrowings at June 30, 2021 decreased $64.90 million or 6.45% since
year-end
2020. During the first six months of 2021, short-term borrowings decreased $14.56 million or 10.23% due to a decline in short-term securities sold under agreements to repurchase. Long-term borrowings decreased $50.35 million or 5.82% from
year-end
2020 due to a $51.17 million decrease in long-term FHLB advances as payments exceeded new borrowings.
The table below summarizes the change in the borrowing categories since
year-end
2020:
 
(Dollars in thousands)
  
June 30

2021
    
December 31

2020
    
$ Change
    
% Change
 
Short-term securities sold under agreements to repurchase
   $  127,745      $ 142,300      $  (14,555      (10.23 %) 
Long-term FHLB advances
     533,365        584,532        (51,167      (8.75 %) 
Subordinated debt
     9,865        9,865        0        0.00
Issuances of trust preferred capital securities
     270,792        269,972        820        0.30
  
 
 
    
 
 
    
 
 
    
 
 
 
Total borrowings
   $ 941,767      $  1,006,669      $  (64,902      (6.45 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
For a further discussion of borrowings see Notes 10 and 11 to the unaudited Notes to Consolidated Financial Statements.
 
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Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at June 30, 2021 decreased $5.72 million or 2.83% from
year-end
2020. In particular, income tax payable decreased $3.88 million and business franchise taxes decreased $4.33 million both due to timing differences. In addition, interest payable decreased $2.01 million, accrued employee expenses decreased $6.20 million as a result of $6.13 million decrease in incentives payable and derivative liabilities decreased $6.66 million. Partially offsetting these decreases was an increase of $18.57 million in accounts payable associated with George Mason due to timing differences and an increase of $6.95 million in accrued loan expenses.
Shareholders’ Equity
Shareholders’ equity at June 30, 2021 was $4.39 billion, which was an increase of $96.09 million or 2.24% from
year-end
2020.
Retained earnings increased $111.21 million or 9.23% from
year-end
2020. Earnings net of dividends for the first six months of 2021 were $111.21 million.
Accumulated other comprehensive income decreased $11.85 million or 52.96% from
year-end
2020 due mainly to a decrease of $22.53 million in the fair value of United’s available for sale investment portfolio, net of deferred income taxes. Partially offsetting this decrease was a $8.94 million increase in the fair of cash flow hedges, net of deferred income taxes. The
after-tax
accretion of pension costs was $1.74 million for the first six months of 2021.
During the fourth quarter of 2020, United began repurchasing its common stock on the open market under repurchase plans approved by United’s Board of Directors. United repurchased 306,204 shares in the first six months of 2021 at a cost of $9.96 million or an average price per share of $32.52.
RESULTS OF OPERATIONS
Overview
Net income for the second quarter of 2021 was $94.84 million or $0.73 per diluted share, as compared to $52.69 million or $0.44 per diluted share for the prior year second quarter. Net income for the first six months of 2021 was $201.73 million or $1.56 per diluted share compared to $92.87 million or $0.84 per share for the first six months of 2020. Earnings for the second quarter and first half of 2021, as compared to the second quarter and first half of 2020, were benefited by lower provision for credit losses primarily due to better performance trends within the loan portfolio and an improved future macroeconomic forecast under the Current Expected Credit Loss (“CECL”) accounting standard. The second quarter and first half of 2020 were also affected by significant merger-related expenses from the Carolina Financial Corporation (“Carolina Financial”) acquisition.
For the second quarter of 2021, United’s annualized return on average assets was 1.41% and return on average shareholders’ equity was 8.69% as compared to 0.87% and 5.40% for the second quarter of 2020. United’s annualized return on average assets for the first six months of 2021 was 1.52% and return on average shareholders’ equity was 9.32% as compared to 0.85% and 5.16% for the first six months of 2020. For the second quarter and first half of 2021, United’s annualized return on average tangible equity was 14.95% and 16.06%, respectively, as compared to 9.58% and 9.28% for the second quarter and first half of 2020, respectively.
 
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Three Months Ended
   
Six Months Ended
 
(Dollars in thousands)
  
June 30, 2021
   
June 30, 2020
   
June 30, 2021
   
June 30, 2020
 
Return on Average Tangible Equity:
        
(a) Net Income (GAAP)
   $ 94,836     $ 52,686     $ 201,734     $ 92,869  
(b) Number of days
     91       91       181       182  
Average Total Shareholders’ Equity (GAAP)
   $ 4,378,898     $ 3,921,289     $ 4,363,053     $ 3,620,425  
Less: Average Total Intangibles
     (1,834,920     (1,708,683     (1,830,305     (1,607,977
  
 
 
   
 
 
   
 
 
   
 
 
 
(c) Average Tangible Equity
(non-GAAP)
   $ 2,543,978     $ 2,212,606     $ 2,532,748     $ 2,012,448  
Return on Tangible Equity
(non-GAAP)
        
[(a) / (b)] x 366 or 365/ (c)
     14.95     9.58     16.06     9.28
Net interest income for the second quarter of 2021 was $186.52 million, which was an increase of $15.92 million, or 9.33%, from the second quarter of 2020. The increase in net interest income occurred because total interest income increased $1.47 million while total interest expense decreased $14.45 million from the second quarter of 2020. Net interest income for the first half of 2021 was $377.48 million, an increase of $65.36 million or 20.94% from the first half of 2020. The increase in net interest income occurred because total interest income increased $26.64 million while total interest expense decreased $38.71 million from the first six months of 2020.
The provision for credit losses was a net reduction in expense of $8.88 million and $8.74 million for the second quarter and first half of 2021, respectively, while the provision for credit losses was an expense of $45.91 million and $73.03 million, respectively, for the second quarter and first half of 2020. These decreases in the provision for credit losses were mainly due to the impact of better performance trends within the loan portfolio as well
as improved
reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard. In addition, a provision for loan losses of $28.95 million was recorded on purchased
non-PCD
loans from Carolina Financial during the second quarter of 2020. For the second quarter of 2021, noninterest income was $62.85 million, which was a decrease of $25.54 million or 28.90% from the second quarter of 2020 primarily driven by a decrease in income from mortgage banking activities due primarily to the
mark-to-market
impact of a declining interest rate lock commitment pipeline. Noninterest income for the first six months of 2021 was $155.42 million which was an increase of $30.22 million or 24.14% from the first six months of 2020 which was primarily due to increased income from mortgage banking activities due to an elevated volume of mortgage loan originations and sales in the secondary market as well as the addition of mortgage banking operations from the Carolina Financial acquisition. For the second quarter of 2021, noninterest expense decreased $10.42 million or 6.98% from the second quarter of 2020 primarily due to a decrease in data processing expense which included a contract termination penalty incurred in the second quarter of 2020 associated with the Carolina Financial acquisition. For the first six months of 2021, noninterest expense increased $37.37 million or 14.92% from the first six months of 2020 due mainly to the Carolina Financial acquisition as well as due to higher employee incentives and commissions expense mainly related to higher mortgage banking production.
Income taxes for the second quarter of 2021 were $24.46 million as compared to $11.02 million for the second quarter of 2020. For the first six months of 2021 and 2020 income tax expense was $52.02 million and $20.91 million, respectively. For the quarters ended June 30, 2021 and 2020, United’s effective tax rate was 20.50% and 17.30%, respectively. The effective tax rate for the first six months of 2021 and 2020 was 20.50% and 18.38%, respectively.
Business Segments
United operates in two business segments: community banking and mortgage banking.
Community Banking
Net income attributable to the community banking segment for the second quarter of 2021 was $89.77 million compared to net income of $29.78 million for the second quarter of 2020. Net income attributable to the community banking segment for the first half of 2021 was $172.00 million compared to net income of $71.83 million for the first half of 2020. The higher net income within the community banking segment was due primarily to the impact of the Carolina Financial acquisition and a lower provision for credit losses.
 
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Net interest income increased $15.70 million to $183.40 million for the second quarter of 2021, compared to $167.70 million for the same period of 2020. Net interest income increased $62.47 million to $370.60 million for the first half of 2021, compared to $308.12 million for the same period of 2020. Generally, net interest income for the second quarter and first six months of 2021 increased from the second quarter and first six months of 2020 due to an increase in average earning assets as a result of the Carolina Financial acquisition, PPP loan activity and to a larger decline in the average cost of funds as compared to the average yield on earning assets.
Provision for credit losses was a reduction in expense of $8.88 million for the three months ended June 30, 2021 compared to a provision expense of $45.91 million for the same period of 2020. Provision for credit losses was a reduction in expense of $8.74 million for the six months ended June 30, 2021 compared to a provision expense of $73.03 million for the same period of 2020. The decreases for the second quarter and first half of 2021 were due mainly to a provision for credit losses of $28.95 million recorded on purchased
non-credit
deteriorated
(“non-PCD”)
loans from Carolina Financial during the second quarter of 2020 and the better performance trends within the loan portfolio as well
as improved
reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses under the CECL accounting standard.
Noninterest income increased $3.77 million for the second quarter of 2021 to $24.07 million as compared to $20.30 million for the second quarter of 2020. Noninterest income for the first half of 2021 increased $10.59 million to $50.46 million for the first half of 2021 as compared to $39.87 million for the first half of 2020. The increases in 2021 were due mainly to increased fees from trust services, fees from brokerage services, fees from deposit services, bankcard fees and merchant discounts and other miscellaneous income.
Noninterest expense was $103.43 million for the second quarter of 2021, compared to $106.48 million for the same period of 2020. The decrease of $3.05 million was mainly due to a decline in data processing expense from the second quarter of 2020, which included a significant contract termination penalty associated with the Carolina Financial acquisition. Noninterest expense was $213.45 million for the six months ended June 30, 2021, compared to $186.94 million for the same period of 2020. The increase in noninterest expense for the first six months of 2021 was primarily attributable to the additional employees and branch offices from the Carolina Financial acquisition as most major categories of noninterest expense showed increases.
Mortgage Banking
The mortgage banking segment reported net income of $4.97 million and $28.00 million for the second quarter and the first half of 2021, respectively, as compared to net income of $31.05 million and $32.16 million for the second quarter and first half of 2020. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $39.77 million for the second quarter of 2021 as compared to $71.01 million for the second quarter of 2020. The decrease of $31.25 million was due mainly to a decline in the fair value of derivatives associated with mortgage loan commitments although sales activity increased. Noninterest income for the first half of 2021 was $107.27 million as compared to $92.20 million for the first half of 2020. The increase of $15.07 million for the first half of 2021 was due mainly to increased sales of mortgage loans in the secondary market and the addition of mortgage banking operations from the Carolina Financial acquisition. Noninterest expense was $36.39 million and $77.57 million for the second quarter and first half of 2021 as compared $35.26 million and $56.02 million for the second quarter and first half of 2020. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage segment employees. The increases in 2021 were due mainly to higher employee incentives and commissions related to the increased mortgage banking production as well as the additional expense associated with the mortgage banking employees added from the Carolina Financial acquisition.
 
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Consolidated Results of Operations by Major Category
The following table sets forth certain consolidated income statement information of United:
 
    
Three Months Ended
 
(Dollars in thousands)
  
June

2021
    
June

2020
    
March

2021
 
Income Statement Summary:
        
Interest income
   $  200,186      $  198,717      $  205,657  
Interest expense
     13,669        28,115        14,697  
  
 
 
    
 
 
    
 
 
 
Net interest income
     186,517        170,602        190,960  
Provision for credit losses
     (8,879      45,911        143  
Other income
     62,846        88,390        92,573  
Other expense
     138,951        149,374        148,927  
  
 
 
    
 
 
    
 
 
 
Income before income taxes
     119,291        63,707        134,463  
Income taxes
     24,455        11,021        27,565  
  
 
 
    
 
 
    
 
 
 
Net income
   $ 94,836      $ 52,686      $ 106,898  
  
 
 
    
 
 
    
 
 
 
 
    
Six Months Ended
 
(Dollars in thousands)
  
June

2021
    
June

2020
 
Income Statement Summary:
     
Interest income
   $  405,843      $  379,199  
Interest expense
     28,366        67,079  
  
 
 
    
 
 
 
Net interest income
     377,477        312,120  
Provision for credit losses
     (8,736      73,030  
Other income
     155,419        125,196  
Other expense
     287,878        250,507  
  
 
 
    
 
 
 
Income before income taxes
     253,754        113,779  
Income taxes
     52,020        20,910  
  
 
 
    
 
 
 
Net income
   $ 201,734      $ 92,869  
  
 
 
    
 
 
 
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 2021 and 2020, are presented below.
Net interest income for the second quarter of 2021 was $186.52 million, which was an increase of $15.92 million or 9.33% from the second quarter of 2020. The $15.92 million increase in net interest income occurred because total interest income increased $1.47 million while total interest expense decreased $14.45 million from the second quarter of 2020. Net interest income for the first half of 2021 was $377.48 million, which was an increase of $65.36 million or 20.94% from the first half of 2020. The $65.36 million increase in net interest income occurred because total interest income increased $26.64 million while total interest expense decreased $38.71 million from the first half of 2020. On a linked-quarter basis, net interest income for the second quarter of 2021 decreased $4.44 million or 2.33% from the first quarter of 2021. The $4.44 million decrease in net interest income occurred because total interest income decreased $5.47 million while total interest expense decreased $1.03 million from the first quarter of 2021.
Generally, net interest income for the second quarter and first half of 2021 increased from the second quarter and first half of 2020 due to a larger decline in the cost of average interest-bearing liabilities in comparison to the yield on average
 
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earning assets (“interest rate spread”). Generally, interest income for the second quarter and first half of 2021 increased from the second quarter and first half of 2020 due to an increase in earning assets, mainly as a result of the Carolina Financial acquisition and PPP loan activity, while interest expense decreased primarily due to a decline in market interest rates which resulted in lower funding costs. For the purpose of this remaining discussion, net interest income is presented on a
tax-equivalent
basis to provide a comparison among all types of interest earning assets. The
tax-equivalent
basis adjusts for the
tax-favored
status of income from certain loans and investments. Although this is a
non-GAAP
measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and
tax-exempt
sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.
Tax-equivalent
net interest income for the second quarter of 2021 was $187.59 million, an increase of $15.97 million or 9.31% from the second quarter of 2020. Average earning assets for the second quarter of 2021 increased $2.31 billion or 10.69% from the second quarter of 2020 due to a $419.95 million or 2.45% increase in average net loans and leases, including loans held for sale, a $1.36 billion or 87.61% increase in average short-term investments and a $537.20 million or 18.33% increase in average investment securities. The net interest spread for the second quarter of 2021 increased 10 basis points from second quarter of 2020 due to a 43 basis point decrease in the average cost of funds partially offset by a 33 basis point decrease in average yield on earning assets. Net PPP loan fee income of $9.02 million was recognized in the second quarter of 2021 driven primarily by loan forgiveness by the SBA, as compared to $4.48 million for the second quarter of 2020. Loan accretion on acquired loans and leases was $9.67 million and $9.55 million for the second quarter of 2021 and 2020, respectively, an increase of $120 thousand. The net interest margin of 3.14% for the second quarter of 2021 was a decrease of 4 basis points from the net interest margin of 3.18% for the second quarter of 2020.
Tax-equivalent
net interest income for the first six months of 2021 was $379.60 million, an increase of $65.68 million or 20.92% from the first six months of 2020. This increase in
tax-equivalent
net interest income was primarily attributable to an increase in average earning assets from the Carolina Financial acquisition. Average earning assets increased $4.26 billion or 21.90% from the first six months of 2020 as average net loans and leases, including loans held for sale, increased $2.24 billion or 14.40%. Average short-term investments and average investment securities increased $1.47 billion or 129.69% and $555.70 million or 19.94%, respectively. Net PPP loan fee income of $20.33 million was recognized in the first half of 2021 driven primarily by loan forgiveness, as compared to $4.48 million for the first half of 2020. In addition, the average cost of funds for the first half of 2021 decreased 67 basis points due primarily to a decline in interest rates from the first half of 2020. Partially offsetting the increases to
tax-equivalent
net interest income for the first half of 2021 was a decrease of 47 basis points in the average yield on earning assets as compared to the first half of 2020 due to the decline in market interest rates and the low yield on the PPP loans. In addition, loan accretion on acquired loans was $19.47 million and $19.10 million for the first half of 2021 and 2020, respectively, an increase of $374 thousand. The net interest margin of 3.22% for the first half of 2021 was a decrease of 2 basis points from the net interest margin of 3.24% for the first half of 2020.
On a linked-quarter basis, net interest income for the second quarter of 2021 decreased $4.44 million or 2.33% from the first quarter of 2021. The net interest spread for the second quarter of 2021 of 2.98% decreased 16 basis points from the first quarter of 2021 due to a 19 basis point decrease in the average yield on earning assets partially offset by a 3 basis point decrease in the average cost of funds. Net PPP loan fee income for the second quarter of 2021 decreased $2.29 million from the first quarter of 2021. Average earning assets increased $460.32 million, or 1.96%, from the first quarter of 2021 due mainly to increases in average short-term investments of $616.06 million and average investment securities of $252.01 million partially offset by a decrease in average net loans and leases, including loans held for sale of $407.75 million driven primarily by PPP loan forgiveness. The net interest margin of 3.14% for the second quarter of 2021 was a decrease of 16 basis points from the net interest margin of 3.30% for the first quarter of 2021.
 
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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 June 30, 2021, June 30, 2020 and March 31, 2021 and the six months ended June 30, 2021 and June 30, 2020:
 
    
Three Months Ended
 
(Dollars in thousands)
  
June 30

2021
    
June 30

2020
    
March 31

2021
 
Loan accretion
   $ 9,669      $ 9,549      $ 9,800  
Certificates of deposit
     1,050        2,611        1,449  
Long-term borrowings
     174        488        174  
  
 
 
    
 
 
    
 
 
 
Total
   $  10,893      $  12,648      $  11,423  
  
 
 
    
 
 
    
 
 
 
 
    
Six Months Ended
 
(Dollars in thousands)
  
June 30

2021
    
June 30

2020
 
Loan accretion
   $ 19,469      $ 19,095  
Certificates of deposit
     2,499        2,752  
Long-term borrowings
     348        756  
  
 
 
    
 
 
 
Tax-equivalent
net interest income
   $  22,316      $  22,603  
  
 
 
    
 
 
 
The following tables reconcile the difference between net interest income and
tax-equivalent
net interest income for the three months ended June 30, 2021, June 30, 2020 and March 31, 2021 and the six months ended June 30, 2021 and June 30, 2020.
 
    
Three Months Ended
 
(Dollars in thousands)
  
June 30

2021
    
June 30

2020
    
March 31

2021
 
Net interest income, GAAP basis
   $  186,517      $  170,602      $  190,960  
Tax-equivalent
adjustment (1)
     1,075        1,018        1,047  
  
 
 
    
 
 
    
 
 
 
Tax-equivalent
net interest income
   $ 187,592      $ 171,620      $ 192,007  
  
 
 
    
 
 
    
 
 
 
 
    
Six Months Ended
 
(Dollars in thousands)
  
June 30

2021
    
June 30

2020
 
Net interest income, GAAP basis
   $  377,477      $  312,120  
Tax-equivalent
adjustment (1)
     2,122        1,800  
  
 
 
    
 
 
 
Tax-equivalent
net interest income
   $ 379,599      $ 313,920  
  
 
 
    
 
 
 
 
(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 and six months ended June 30, 2021 and 2020 and the three months ended March 31, 2021. All interest income on loans and investment securities was subject to state income taxes.
 
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The following tables show the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month and
six-month
periods ended June 30, 2021 and 2020, 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 and
six-month
period ended June 30, 2021 and 2020. Interest income on all loans and investment securities was subject to state income taxes.
 
    
Three Months Ended

June 30, 2021
   
Three Months Ended

June 30, 2020
 
(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
   $ 2,905,604     $ 1,757        0.24   $ 1,548,759     $ 1,868        0.49
Investment Securities:
              
Taxable
     3,114,902       13,846        1.78     2,703,980       16,241        2.40
Tax-exempt
     353,223       2,331        2.64     226,942       1,641        2.89
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Total Securities
     3,468,125       16,177        1.87     2,930,922       17,882        2.44
Loans, net of unearned income (2)
     17,825,433       183,327        4.12     17,345,008       179,985        4.17
Allowance for loan losses
     (231,422          (170,947     
  
 
 
        
 
 
      
Net loans
     17,594,011          4.18     17,174,061          4.21
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Total earning assets
     23,967,740     $ 201,261        3.37     21,653,742     $ 199,735        3.70
  
 
 
   
 
 
    
 
 
     
 
 
    
 
 
 
Other assets
     3,038,218            2,748,858       
  
 
 
        
 
 
      
TOTAL ASSETS
   $ 27,005,958          $ 24,402,600       
  
 
 
        
 
 
      
LIABILITIES
              
Interest-Bearing Funds:
              
Interest-bearing deposits
   $ 13,219,572     $ 11,012        0.33   $ 11,600,243     $ 19,249        0.67
Short-term borrowings
     136,801       182        0.54     144,866       196        0.54
Long-term borrowings
     814,151       2,475        1.22     2,070,557       8,670        1.68
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Total Interest-Bearing Funds
     14,170,524       13,669        0.39     13,815,666       28,115        0.82
    
 
 
    
 
 
     
 
 
    
 
 
 
Noninterest-bearing deposits
     8,227,147            6,412,124       
Accrued expenses and other liabilities
     229,389            253,521       
  
 
 
        
 
 
      
TOTAL LIABILITIES
     22,627,060            20,481,311       
SHAREHOLDERS’ EQUITY
     4,378,898            3,921,289       
  
 
 
        
 
 
      
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 27,005,958          $ 24,402,600       
  
 
 
        
 
 
      
NET INTEREST INCOME
     $ 187,592          $ 171,620     
    
 
 
        
 
 
    
INTEREST SPREAD
          2.98          2.88
NET INTEREST MARGIN
          3.14          3.18
 
(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.
 
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Six Months Ended

June 30, 2021
   
Six Months Ended

June 30, 2020
 
(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 repurchased under agreements to resell and other short-term investments
   $ 2,599,276     $ 3,650        0.28   $ 1,131,633     $ 5,833        1.04
Investment Securities:
              
Taxable
     3,018,633       27,372        1.81     2,620,604       33,210        2.53
Tax-exempt
     324,183       4,312        2.66     166,512       2,520        3.03
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Total Securities
     3,342,816       31,684        1.90     2,787,116       35,730        2.56
Loans, net of unearned income (2)
     18,030,354       372,631        4.16     15,708,515       339,436        4.34
Allowance for loan losses
     (233,597          (152,515     
  
 
 
        
 
 
      
Net loans
     17,796,757          4.22     15,556,000          4.38
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Total earning assets
     23,738,849     $ 407,965        3.46     19,474,749     $ 380,999        3.93
  
 
 
   
 
 
    
 
 
     
 
 
    
 
 
 
Other assets
     3,011,252            2,510,632       
  
 
 
        
 
 
      
TOTAL ASSETS
   $ 26,750,101          $ 21,985,381       
  
 
 
        
 
 
      
LIABILITIES
              
Interest-Bearing Funds:
              
Interest-bearing deposits
   $ 13,202,246     $ 22,997        0.35   $ 10,439,513     $ 46,726        0.90
Short-term borrowings
     139,463       360        0.52     141,146       654        0.93
Long-term borrowings
     823,705       5,009        1.23     2,036,660       19,699        1.95
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Total Interest-Bearing Funds
     14,165,414       28,366        0.40     12,617,319       67,079        1.07
    
 
 
    
 
 
     
 
 
    
 
 
 
Non-interest
bearing deposits
     7,982,751            5,519,584       
Accrued expenses and other liabilities
     238,883            228,053       
  
 
 
        
 
 
      
TOTAL LIABILITIES
     22,387,048            18,364,956       
SHAREHOLDERS’ EQUITY
     4,363,053            3,620,425       
  
 
 
        
 
 
      
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 26,750,101          $ 21,985,381       
  
 
 
        
 
 
      
NET INTEREST INCOME
     $ 379,599          $ 313,920     
    
 
 
        
 
 
    
INTEREST SPREAD
          3.06          2.86
NET INTEREST MARGIN
          3.22          3.24
 
(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 Credit Losses
United’s provision for credit losses was a net reduction in expense of $8.88 million and $8.74 million for the second quarter and first half of 2021, respectively, while the provision for credit losses was an expense of $45.91 million and $73.03 million, respectively, for the second quarter and first half of 2020. United’s provision for credit losses relates to its portfolio of loans and leases,
held-to-maturity
securities and interest receivable on loans which are discussed in more detail in the following paragraphs.
 
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For the quarter ended June 30, 2021, the provision for loan and lease losses was a reduction in expense of $8.82 million as compared to provision expense of $45.91 million for the quarter ended June 30, 2020. The provision for loan and lease losses for the first six months of 2021 was a reduction in expense of $8.52 million as compared to provision expense of $73.02 million for the first six months of 2020. Net charge-offs were $5.22 million for the second quarter of 2021 as compared to net charge-offs of $4.34 million for the same quarter in 2020. Net charge-offs for the first six months of 2021 were $9.76 million as compared to $11.03 million for the first six months of 2020. The lower amount of provision expense for 2021 compared to 2020 was mainly due to a provision for loan losses of $28.95 million recorded on purchased
non-PCD
loans from Carolina Financial during the second quarter of 2020 and better performance trends within the loan portfolio as well
as improved
reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses. On a linked-quarter basis, the provision for loan losses decreased $9.11 million due mainly to better performance trends within the loan portfolio as well
as improved
reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses. Net charge-offs for the second quarter of 2021 increased $679 thousand from the first quarter of 2021. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income were 0.12% and 0.11% for the second quarter and first half of 2021, respectively, compared to 0.10% and 0.15% for the second quarter and first half of 2020. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income was 0.10% for the first quarter of 2021.
As of June 30, 2021, nonperforming loans and leases were $102.59 million or 0.61% of loans and leases, net of unearned income as compared to $132.21 million or 0.75% of loans and leases, net of unearned income at December 31, 2020. The components of nonperforming loans and leases include: 1) nonaccrual loans and leases, 2) loans and leases which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis and 3) loans and leases whose terms have been restructured for economic or legal reasons due to financial difficulties of the borrowers.
Loans and leases past due 90 days or more were $14.14 million at June 30, 2021, an increase of $303 thousand or 2.19% from $13.83 million at
year-end
2020. This increase was primarily due to several large commercial relationships that have exceeded their stated maturity dates as of June 30, 2021. At June 30, 2021, nonaccrual loans and leases were $41.18 million, which was a decrease of $21.54 million or 34.34% from $62.72 million at
year-end
2020. This decrease was due to the repayment of three large commercial nonaccrual loans as well as the
charge-off
of three commercial relationships and troubled debt restructuring designations for three large commercial nonaccrual loans. Restructured loans were $47.27 million at June 30, 2021, a decrease of $8.39 million or 15.07% from $55.66 million at
year-end
2020. The decrease was mainly due to the repayment of four large commercial relationships and
charge-off
of two commercial restructured loans during the first six months of 2021. The loss potential on these loans has been properly evaluated and allocated within the Company’s allowance for loan losses.
Nonperforming assets include nonperforming loans and leases and real estate acquired in foreclosure or other settlement of loans (“OREO”). Total nonperforming assets of $121.06 million, including OREO of $18.47 million at June 30, 2021, represented 0.45% of total assets.
United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses. At June 30, 2021, the allowance for credit losses was $238.44 million as compared to $255.08 million at December 31, 2020.
At June 30, 2021, the allowance for loan and lease losses was $217.55 million as compared to $235.83 million at December 31, 2020. The decrease in the allowance for loan and lease losses was due to better trends within the loan portfolio as well
as improved reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.29% at June 30, 2021 and 1.34% at December 31, 2020. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 212.06% and 178.38% at June 30, 2021 and December 31, 2020, respectively. The increase in this ratio was due mainly to a larger decline in nonperforming loans and leases than in the allowance for loan and lease losses.
United continues to evaluate risks which may impact its loan and lease portfolios. As a result of the
COVID-19
pandemic and resulting economic uncertainty given the rapidly changing economic impact, the Company reviewed its loan and lease portfolio segments, assessing the likely impact of
COVID-19
on each segment and established relevant qualitative
 
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adjustment factors. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then any qualitative adjustments are applied to account for the Company’s view of the future. If current conditions underlying any qualitative adjustment factor were deemed to be materially different than historical conditions, then an adjustment was made for that factor.
The second quarter of 2021 qualitative adjustments include analyses of the following:
 
   
Past events
– This includes portfolio trends related to business conditions; past due, nonaccrual, and graded loans and leases; and concentrations.
 
   
Current conditions
– United considered the continued impact of
COVID-19
on the economy as well as loan deferrals and modifications made in light of the pandemic when making determinations related to factor adjustments, such as changes in economic and business conditions, collateral values, external factors and past due loans and leases.
 
   
Reasonable and supportable forecasts
– The forecast is determined on a
portfolio-by-portfolio
basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following:
 
   
The forecast improved in the second quarter of 2021 as compared to the first quarter while maintaining a gradual recovery pace extending into 2023.
 
   
Greater risk of loss is probable in the hotel and accommodations portfolio due to weakened economic conditions brought on by the pandemic which resulted in a more negative forecast relative to other portfolios and a longer projected recovery period to extend into late 2023 or 2024.
 
   
Consideration was given to the $1.9 trillion American Rescue Plan (effective March 11, 2021) during the forecast selection process as it is likely this stimulus package continues to have a positive impact on the economy.
 
   
Reversion to historical loss data occurs via a straight-line method during the year following the
one-year
reasonable and supportable forecast period.
Allocations are made for specific commercial loans based upon management’s estimate of the borrowers’ ability to repay and other factors impacting collectability. Other commercial loans and leases 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 and leases other than commercial loans and leases are made based upon historical loss experience adjusted for current environmental conditions. The allowance for credit losses includes estimated lifetime 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.
United’s review of the allowance for loan and lease losses at June 30, 2021 produced decreased allocations in each of the four loan categories as compared to December 31, 2020. The allocation related to the commercial, financial & agricultural loan pool decreased $9.41 million. The residential real estate allocation decreased $3.07 million. The real estate construction and development loan pool allocation decreased $3.93 million. The consumer loan pool decreased $1.87 million. Each of these decreases were primarily due to improved economic conditions and improved expectations within the reasonable and supportable forecast.
An allowance is established for estimated lifetime losses for loans that are individually assessed. Nonperforming commercial loans and leases are regularly reviewed to identify expected credit losses. A loan is individually assessed for expected credit losses when the loan does not share similar characteristics with other loans in the portfolio. Measuring expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Expected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate, 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 expected credit loss has occurred. The allowance for loans and leases that were individually assessed was $3.44 million at June 30, 2021 and $7.78 million
at December 31, 2020. In comparison to the prior
year-end,
this element of the allowance decreased by $4.34 million primarily due to
charge-off
of previously recognized allocations for probable credit losses on individually assessed loans as well as repayment of individually assessed loans.
 
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Management believes that the allowance for credit losses of $238.44 million at June 30, 2021 is adequate to provide for expected losses on existing loans and lending-related commitments based on information currently available. United’s loan administration policies are focused on the risk characteristics of the loan portfolio in terms of loan approval and credit quality. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland, North Carolina, South Carolina and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses.
The provision for credit losses related to held to maturity securities for the first half of 2021 and 2020 was immaterial. The allowance for credit losses related to held to maturity securities was $31 thousand as of June 30, 2021 as compared to $23 thousand as of December 31, 2020. There was no provision for credit losses recorded on available for sale investment securities for the first half of 2021 and 2020 and no allowance for credit losses on available for sale investment securities as of June 30, 2021 and December 30, 2020. Due to loan interest payment deferrals granted by United under the CARES Act, United assessed the collectability of the accrued interest receivables on these deferring loans as of June 30, 2021. As a result of this assessment, United released reserves of $70 thousand and $221 thousand for the second quarter and first half of 2021. The allowance for accrued interest receivables not expected to be collected as of June 30, 2021 was $29 thousand as compared to $250 thousand at December 31, 2020.
Management is not aware of any potential problem loans or leases, trends or uncertainties, which it reasonably expects, will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits, which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules.
Other Income
Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced.
Noninterest income for the second quarter of 2021 was $62.85 million, a decrease of $25.54 million or 28.90% from the second quarter of 2020. Noninterest income for the first half of 2021 was $155.42 million, an increase of $30.22 million or 24.14% from the first half of 2020. Both differences from the second quarter and first half of 2020 were due mainly to changes in income from mortgage banking activities.
Income from mortgage banking activities totaled $36.94 million for the second quarter of 2021 compared to $68.21 million for the same period of 2020, a decline of $31.27 million or 45.84%. The decrease was due mainly to a decline in the fair value of derivatives associated with a declining interest rate lock commitment pipeline although sales activity increased. For the three months ended June 30, 2021 and 2020, mortgage loan sales were $1.88 billion and $1.59 billion, respectively. For the first half of 2021 and 2020, income from mortgage banking activities was $102.34 million and $85.84 million, respectively. The increase of $16.48 million for the first half of 2021 was due mainly to increased sales of mortgage loans in the secondary market and the addition of mortgage banking operations from the Carolina Financial acquisition. For the six months ended June 30, 2021 and 2020, mortgage loan sales were $3.72 billion and $2.21 billion, respectively.
Mortgage loan servicing income for the second quarter and first half of 2021 increased $852 thousand and $3.21 million from the second quarter and first half of 2020 due to increased mortgage servicing activity.
Fees from brokerage services for the second quarter and first half of 2021 increased $1.00 million or 37.83% and $2.41 million or 43.29%, respectively, from the second quarter and first half of 2020. This increase was due to an increased volume of transactions.
 
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Fees from trust services for the second quarter and first half of 2021 increased $932 thousand or 28.58% and $1.21 million or 17.97%, respectively, from the second quarter and first half of 2020. This increase was due to an increase in managed assets.
Fees from deposit services for the second quarter and first half of 2021 increased $1.34 million or 16.65% and $2.28 million or 14.24%, respectively, from the second quarter and first half of 2020. Generally, the increase was due primarily to higher income from overdraft fees, debit card and automated teller machine (“ATM”) fees due to the waiving of fees towards the end of the first quarter and during the second quarter of 2020 as a result of the
COVID-19
pandemic.
Fees from bankcard services for the second quarter and first half of 2021 increased $650 thousand or 90.53% and $721 thousand or 42.14%, respectively, from the second quarter and first half of 2020. This increase was due to an increased volume of transactions.
Income from bank-owned life insurance (“BOLI”) for the first half of 2021 was $3.06 million, a decrease of $618 thousand or 16.80% from the first half of 2020 due to a decrease in death benefits. For the first half of 2020, United recognized death benefits from BOLI of $1.19 million.
On a linked-quarter basis, noninterest income for the second quarter of 2021 decreased $29.73 million, or 32.11%, from the first quarter of 2021 primarily due to a decrease of $28.45 million in income from mortgage banking activities.
Other Expenses
Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for credit losses, and income taxes. Noninterest expense decreased $10.42 million or 6.98% for the second quarter of 2021 compared to the same period in 2020. For the first half of 2021, noninterest expense was $287.88 million, which was an increase of $37.37 million or 14.92% from the first half of 2020.
Employee compensation for the first half of 2021 increased $27.76 million or 24.53% from the first half of 2020. The increase for the first half of 2021 was due mainly to additional employees from the Carolina Financial acquisition. The remainder of the increase in employee compensation for first half of 2021 was due mainly to higher employee commissions and incentives expense primarily related to the increased mortgage banking production.
Employee benefits expense for the second quarter of 2021 increased $1.69 million or 13.23% from the second quarter of 2020. Employee benefits expense for the first half of 2021 increased $6.36 million or 26.97% as compared to the first half of 2020. The increases for the second quarter and first half of 2021 were primarily due to higher levels of Federal Insurance Contributions Act (“FICA”), health insurance and postretirement expense due mainly to the additional employees from the Carolina Financial acquisition. The increase in FICA expense was also due to the higher commissions and incentives expense.
Net occupancy expense increased $1.66 million or 8.58% for the first half of 2021 as compared to the same period in 2020. The increases were due primarily to increases in building depreciation and maintenance expenses mainly as a result of the offices added in the Carolina Financial acquisition.
OREO expense for the first half of 2021 increased $2.48 million as declines in the fair value of OREO properties increased from the first half of 2020.
Equipment expense increased $826 thousand or 16.51% and $3.03 million or 34.18% for the second quarter and first six months of 2021, respectively, as compared to the same periods in 2020. The increases were due to higher maintenance costs and depreciation expense primarily due to the Carolina Financial acquisition.
 
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Data processing expense decreased $8.97 million or 56.32% and $7.45 million or 34.76% for the second quarter and first half of 2021, respectively, as compared to the second quarter and first half of 2020. These decreases were due mainly to a $9.66 million penalty in the second quarter of 2020 to terminate the contract with Carolina Financial’s data processor.
Mortgage loan servicing expense and impairment for the second quarter and first half of 2021 increased $1.09 million and $4.13 million, respectively, from the same time periods in 2020. The increases were due to an increase in mortgage servicing activity as a result of the acquisition of Carolina Financial and Crescent Mortgage. In addition, United recorded a $250 thousand temporary impairment charge, net of recoveries on its mortgage servicing rights during the second quarter and first half of 2021 as compared to a temporary impairment charge on its mortgage servicing rights of $710 thousand during the second quarter and first half of 2020.
Other expense for the second quarter of 2021 decreased $3.60 million or 11.86% from the second quarter of 2020. Included in other expense for the second quarter were merger-related expenses of $5.52 million for the Carolina Financial acquisition as compared to $183 thousand for the announced Community Bankers Trust merger in the second quarter of 2021. The expense for the reserve for unfunded commitments for the second quarter of 2021 decreased $2.17 million from the same time period in 2020 due to a $1.84 million expense related to the reserve for acquired unfunded commitments from Carolina Financial which was recorded in the second quarter of 2020.
On a linked-quarter basis, noninterest expense for the second quarter of 2021 decreased $9.98 million, or 6.70%, from the first quarter of 2021 primarily due to decreases of $3.86 million in employee compensation and $3.25 million in OREO expense. Employee compensation declined from the first quarter of 2021 primarily due to a decline in commissions and incentives mainly related to mortgage banking operations while the decline in OREO expense was due mainly to fewer declines in the fair value of OREO properties.
Income Taxes
For the second quarter and first half of 2021, income tax expense was $24.46 million and $52.02 million, respectively, as compared to $11.02 million and $20.91 million, respectively, in the second quarter and first half of 2020. These increases were due to higher earnings and a higher effective tax rate. On a linked-quarter basis, income tax expense decreased $3.11 million due to lower earnings from the first quarter of 2021. United’s effective tax rate was 20.50% for the second quarter of 2021, 17.30% for the second quarter of 2020 and 20.50% for the first quarter of 2021. For the first half of 2021 and 2020, United’s effective tax rate was 20.50% and 18.38%, respectively. For further details related to income taxes, see Note 17 of the unaudited Notes to Consolidated Financial Statements contained within this document.
Liquidity and Capital Resources
In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable, and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds which are obtained as the result of a competitive bidding process.
Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the
day-to-day
demands of customers and United’s cash needs. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity.
The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring
 
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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 first six months ended June 30, 2021, cash of $351.96 million was provided by operating activities due mainly to net income of $201.73 million. In addition, mortgage banking activities added cash of $142.11 million to the net income amount as sales of mortgage loans in the secondary market exceeded originations. Net cash of $293.76 million was provided by investing activities which was primarily due to net loan repayments of $710.86 million partially offset by $364.82 million of purchases of investment securities over proceeds from sales and the $50.00 million purchase of bank-owned life insurance policies. During the first half of 2021, net cash of $822.61 million was provided by financing activities due primarily to net growth of $984.73 million in deposits. These funding activities were partially offset by the net repayment of $50.00 million in long-term FHLB advances, cash dividends paid of $90.72 million, and net repurchases of $11.21 million of United common stock for the first six months of 2021. The net effect of the cash flow activities was an increase in cash and cash equivalents of $1.47 billion for the first six months of 2021.
United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. United also has lines of credit available. See Notes 10 and 11 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under lines of credit.
The Asset Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset Liability Committee.
United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 15.93% at June 30, 2021 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.66%, 13.66% and 10.33%, respectively. The June 30, 2021 ratios reflects United’s election of a five-year transition provision, allowed by the Federal Reserve Board and other federal banking agencies in response to the
COVID-19
pandemic, to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.
Total shareholders’ equity was $4.39 billion at June 30, 2021, which was an increase of $96.09 million or 2.24% from December 31, 2020. This increase is primarily due to an increase of $111.21 million in retained earnings (net income less dividends declared). Partially offsetting this increase was a decrease of $11.85 million in accumulated other comprehensive income due mainly to an
after-tax
decrease in the fair value of available for sale securities. Treasury stock increased $11.28 million or 7.09% due to the repurchase of 306,204 shares of United common stock under a stock repurchase plan approved by United’s Board of directors in November of 2019.
United’s equity to assets ratio was 16.16% at June 30, 2021 as compared to 16.41% at December 31, 2020. The primary capital ratio, capital and reserves to total assets and reserves, was 16.89% at June 30, 2021 as compared to 17.22% at December 31, 2020. United’s average equity to average asset ratio was 16.21% for the second quarter of 2021 as compared to 16.07% the second quarter of 2020. United’s average equity to average asset ratio was 16.31% for the first half of 2021 as compared to 16.47% the first half of 2020. All of these financial measurements reflect a financially sound position.
 
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During the second quarter of 2021, United’s Board of Directors declared a cash dividend of $0.35 per share. Cash dividends were $0.70 per common share for the first six months of 2021. Total cash dividends declared were $45.27 million for the second quarter of 2021 and $90.52 million for the first six months of 2021 as compared to $45.42 million for the second quarter of 2020 and $81.02 million for the first six months of 2020.
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.
 
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The following table shows United’s estimated earnings sensitivity profile as of June 30, 2021 and December 31, 2020:
 
Change in Interest Rates
(basis points)
  
Percentage Change in Net Interest Income
  
June 30, 2021
 
December 31, 2020
+200
   2.60%   (4.32%)
+100
   1.16%   (2.61%)
-100
   (0.82%)   0.03%
-200
   (1.37%)   (0.05%)
At June 30, 2021, 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 1.16% over one year as compared to a decrease of 2.61% at December 31, 2020. A 200 basis point immediate, sustained upward shock in the yield curve would increase net interest income by an estimated 2.60% over one year as of June 30, 2021, as compared to a decrease of 4.32% as of December 31, 2020. A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 0.82% over one year as of June 30, 2021 as compared to an increase of 0.03%, over one year as of December 31, 2020. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 1.37% over one year as of June 30, 2021 as compared to a decrease of 0.05% over one year as of December 31, 2020.
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 4.94% in year two as of June 30, 2021. A 200 basis point immediate, sustained upward shock in the yield curve would increase net interest income by an estimated 9.74% in year two as of June 30, 2021. A 100 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 4.95% in year two as of June 30, 2021. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 6.29% in year two as of June 30, 2021.
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.
 
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At June 30, 2021, United’s mortgage related securities portfolio had an amortized cost of $1.6 billion, of which approximately $614.6 million or 37% 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 3.5 years and a weighted average yield of 1.94%, under current projected prepayment assumptions. These securities are expected to have very little extension risk in a rising rate environment. Current models show that given an immediate, sustained upward shock of 300 basis points, the average life of these securities would only extend to 5.3 years. The projected price decline of the fixed rate CMO portfolio in rates up 300 basis points would be 12.2%, or less than the price decline of a
5-
year treasury note. By comparison, the price decline of a
30-year
2% coupon mortgage backed security (“MBS”) in rates higher by 300 basis points would be approximately 22.8%.
United had approximately $585.8 million in fixed rate Commercial Mortgage Backed Securities (“CMBS”) with a projected yield of 2.14% and a projected average life of 5.3 years on June 30, 2021. This portfolio consisted primarily of Freddie Mac Multifamily K securities and Fannie Mae Delegated Underwriting and Servicing (“DUS”) securities with a weighted average maturity (“WAM”) of 8.2 years.
United had approximately $17.3 million in
15-year
mortgage backed securities with a projected yield of 2.20% and a projected average life of 2.6 years as of June 30, 2021. This portfolio consisted of seasoned
15-year
mortgage paper with a weighted average loan age (“WALA”) of 8.5 years and a weighted average maturity (“WAM”) of 7.7 years.
United had approximately $192.5 million in
20-year
mortgage backed securities with a projected yield of 1.41% and a projected average life of 5 years on June 30, 2021. This portfolio consisted of seasoned
20-year
mortgage paper with a weighted average loan age (“WALA”) of 1.5 years and a weighted average maturity (“WAM”) of 18.4 years.
United had approximately $159.9 million in
30-year
mortgage backed securities with a projected yield of 2.22% and a projected average life of 4.4 years on June 30, 2021. This portfolio consisted of seasoned
30-year
mortgage paper with a weighted average loan age (“WALA”) of 3.5 years and a weighted average maturity (“WAM”) of 24.2 years.
The remaining 5% of the mortgage related securities portfolio on June 30, 2021, included floating rate CMO, CMBS and mortgage backed securities.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2021, 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 June 30, 2021 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-
 
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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 (as defined in Rules
13a-15(e)
and
15d-15(f)
under the Exchange Act) that occurred during the quarter ended June 30, 2021, or in other factors that have materially affected or are reasonably likely to materially affect United’s internal control over financial reporting.
 
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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.
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, 2020 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.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There have been no United equity securities sales during the quarter ended June 30, 2021 that were not registered. The table below includes certain information regarding United’s purchase of its common shares during the quarter ended June 30, 2021:
 
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)
 
4/01 – 4/30/2021
     0      $ 00.00        0        3,033,796  
5/01 – 5/31/2021
     1,915      $ 41.38        0        3,033,796  
6/01 – 6/30/2021
     0      $ 00.00        0        3,033,796  
  
 
 
    
 
 
    
 
 
    
Total
     1,915      $ 41.38        0     
  
 
 
    
 
 
    
 
 
    
 
  (1)
Includes shares exchanged in connection with the exercise of stock options or the vesting of restricted stock under United’s long-term incentive plans. Shares are purchased pursuant to the terms of the applicable plan and not pursuant to a publicly announced stock repurchase plan. For the quarter ended June 30, 2021 – 1,912 shares at an average price of $41.39 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 June 30, 2021, the following shares were purchased for the deferred compensation plan: May 2021 – 3 shares at an average price of $38.67.
  (3)
In October 2019, United’s Board of Directors approved a repurchase plan to repurchase up to 4,000,000 shares of United’s common stock on the open market (the “2019 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.
 
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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 Merger, dated November 17, 2019, by and between United Bankshares, Inc. and Carolina Financial Corporation (incorporated into this filing by reference to Exhibit 2.1 to the Form 8-K dated November 17, 2019 and filed November 18, 2019 for United Bankshares, Inc., File No. 002-86947)
    2.2    Agreement and Plan of Reorganization, dated June 2, 2021, by and between United Bankshares, Inc. and Community Bankers Trust Corporation (incorporated into this filing by reference to Exhibit 2.1 to the Form 8-K dated June 2, 2021 and filed June 3, 2021 for United Bankshares, Inc., File No. 002-86947)
    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.002-86947)
    3.2    Bylaws (incorporated into this filing by reference to a Current Report on Form 8-K dated and filed on March 20, 2020 for United Bankshares, Inc., File No.002-86947)
    4.1    Description of Registrant’s Securities (incorporated into this filing by reference to an Annual Report on Form 10-K dated December 31, 2019 and filed March 2, 2020 for United Bankshares, Inc., File No.002-86947)
  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 (inline XBRL) (filed herewith)
104    Cover Page (embedded in inline XBRL and contained in Exhibit 101)
 
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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:  
August 9, 2021
   
/s/ Richard M. Adams
      Richard M. Adams, Chairman of
      the Board and Chief Executive Officer
Date:  
August 9, 2021
   
/s/ W. Mark Tatterson
      W. Mark Tatterson, Executive
      Vice President and Chief Financial Officer
 
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