UNITED BANKSHARES INC/WV - Quarter Report: 2021 March (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.

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 March 31, 2021 and 2020 and for the three-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 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 August 2020, the FASB issued ASU “Debt – Debt with Conversion and Other Options (Subtopic and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 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 calculations that are impacted by the amendments. ASU 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 is not expected to have a material impact on the Company’s financial condition or results of operations.

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 Benefits - Defined Benefits – General (Topic 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 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.

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 preliminary 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 March 31, 2021, the discounts on subordinated debt and trust preferred issuances had an average estimated remaining life of 6.75 years and 16.00 years, respectively, and the premiums on the buildings, interest-bearing deposits each had an average estimated remaining life of 30.75 years, and 4.35 years, respectively. The estimated fair values of the acquired assets and assumed liabilities, including identifiable intangible assets are preliminary as of March 31, 2021 and are subject to refinement as additional information relative to closing date fair values becomes available. Any subsequent adjustments to the fair values of acquired assets and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill within the measurement period following the date of acquisition.

$7,212 at Acquisition Date.This discount will be 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.

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 debt securities and report accrued interest separately in “Accrued interest receivable” in the consolidated balance sheets. debt securities are placed on 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 status. Accordingly, United does not currently recognize an allowance for credit loss against accrued interest receivable on debt securities. The table above excludes accrued interest receivable of $11,609 and $10,663 at March 31, 2021 and December 31, 2020, respectively, that is recorded in “Accrued interest receivable.”

United’s residential mortgage-backed securities portfolio relates to securities of various private label issuers. The total amortized cost of available for sale residential mortgage-backed securities was $8,196 at March 31, 2021. Of the $8,196, 100% was rated AAA. As of March 31, 2021, none of the residential mortgage-backed securities were in an unrealized loss position and were therefore not considered to have credit losses.

 

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 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 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 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 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. Through March 31, 2021, United has made 5,967 eligible loan modifications on $3,178,740 of loans outstanding under section 4013, “Temporary Relief from Troubled Debt Restructurings,” of the CARES Act. Of those amounts made, 407 of eligible loan modifications remain on $193,447 of loans outstanding as of March 31, 2021.

As of March 31, 2021, United had TDRs of $51,529 as compared to $55,657 as of December 31, 2020. Of the $51,529 aggregate balance of TDRs at March 31, 2021, $38,023 was on nonaccrual and $195 was days past due. Of the $55,657 aggregate balance of TDRs at December 31, 2020, $41,185 was on nonaccrual and $197 was 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 March 31, 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 first three months of 2021, there were no to this debtor under a loan that had been previously modified