UNITED BANKSHARES INC/WV - Quarter Report: 2021 June (Form 10-Q)

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.    ☒    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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a 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 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule of the Act).    Yes  ☐    ☒

As of , the registrant had shares of common stock, $2.50 par value per share, outstanding.

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) June 30, 2021 and December 31, 2020			4
Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			5
Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			7
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			8
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2021 and 2020			10
Notes to Consolidated Financial Statements			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			60
Item 3. Quantitative and Qualitative Disclosures about Market Risk			84
Item 4. Controls and Procedures			86
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			88
Item 1A. Risk Factors			88
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			88
Item 3. Defaults Upon Senior Securities			88
Item 4. Mine Safety Disclosures			89
Item 5. Other Information			89
Item 6. Exhibits			89
Signatures			90

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

 

(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

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 and Article 10 of Regulation 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 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 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.

In January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) “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 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 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

In March 2020, the FASB issued ASU “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 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 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 “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 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 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 “Compensation – Retirement BenefitsDefined Benefits – General (Topic Disclosure FrameworkChanges 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 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 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.

Mid-Atlantic

 

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.

 

 

 

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 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 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 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 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 loans and leases are recognized in the provision for credit losses.

		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