News Details

WASHINGTON & CHARLESTON, W. Va.--(BUSINESS WIRE)-- United Bankshares, Inc. (NASDAQ: UBSI), today reported earnings for the fourth quarter and year of 2016. Earnings for the fourth quarter of 2016 were $39.1 million or $0.51 per diluted share, an increase from earnings of $33.5 million or $0.48 per diluted share for the fourth quarter of 2015. Earnings for the year of 2016 were $147.1 million or $1.99 per diluted share, up from earnings of $138.0 million or $1.98 per diluted share for the year of 2015.

Fourth quarter of 2016 results produced an annualized return on average assets of 1.10% and an annualized return on average equity of 7.50%. For the year of 2016, United’s return on average assets was 1.10% while the return on average equity was 7.67%. United’s annualized returns on average assets and average equity were 1.07% and 7.68%, respectively, for the fourth quarter of 2015 while the returns on average assets and average equity were 1.12% and 8.10%, respectively, for the year of 2015.

“The year of 2016 was an active and successful year for United Bankshares,” stated Richard M. Adams, United’s Chairman of the Board and Chief Executive Officer. “We increased diluted earnings per share to $1.99 while achieving record earnings before income taxes of $223 million. United’s return on average assets for the year of 2016 was 1.10% compared to our Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported return on average assets of 0.90%. We increased dividends to $1.32 per share which represented the 43rd consecutive year of dividend increases to our shareholders. This is a record only one other major banking company in the USA has been able to achieve. In addition, we completed our acquisition of Bank of Georgetown and announced an agreement to merge with Cardinal Financial Corporation, which will be the largest acquisition in our history.”

On June 3, 2016, United completed its acquisition of Bank of Georgetown of Washington, D.C. The results of operations of Bank of Georgetown are included in the consolidated results of operations from the date of acquisition. As a result, the fourth quarter and year of 2016 were impacted by increased levels of average balances, income, and expense as compared to the fourth quarter and year of 2015. At consummation, Bank of Georgetown had assets of approximately $1.3 billion, loans of $999.8 million, and deposits of $971.4 million. In addition, the year of 2016 included $6.1 million of merger and acquisition expenses related to the Bank of Georgetown acquisition and the planned merger with Cardinal Financial Corporation, announced on August 18, 2016.

Net interest income for the fourth quarter of 2016 was $113.3 million, which was an increase of $16.1 million or 17% from the fourth quarter of 2015. The $16.1 million increase in net interest income occurred because total interest income increased $18.4 million while total interest expense only increased $2.3 million from the fourth quarter of 2015. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the fourth quarter of 2016 was $114.8 million, an increase of $16.0 million or 16% from the fourth quarter of 2015 due mainly to an increase in average earning assets from the Bank of Georgetown acquisition. Average earning assets for the fourth quarter of 2016 increased $1.6 billion or 15% from the fourth quarter of 2015 due mainly to a $1.1 billion or 12% increase in average net loans. Average short-term investments increased $310.7 million or 50% while average investment securities increased $161.5 million or 13%. The fourth quarter of 2016 average yield on earning assets increased 8 basis points from the fourth quarter of 2015 due to additional loan accretion of $4.4 million on acquired loans and higher market interest rates. Partially offsetting the increases to tax-equivalent net interest income for the fourth quarter of 2016 was an increase of 4 basis points in the average cost of funds as compared to the fourth quarter of 2015 due to the higher market interest rates. The net interest margin of 3.62% for the fourth quarter of 2016 was an increase of 6 basis points from the net interest margin of 3.56% for the fourth quarter of 2015.

Net interest income for the year of 2016 was $425.3 million, which was an increase of $41.2 million or 11% from the year of 2015. The $41.2 million increase in net interest income occurred because total interest income increased $46.7 million while total interest expense only increased $5.5 million from the year of 2015. Tax-equivalent net interest income for the year of 2016 was $431.5 million, an increase of $40.8 million or 10% from the year of 2015. This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Bank of Georgetown acquisition. Average earning assets increased $1.0 billion or 9% from the year of 2015 as average net loans increased $867.0 million or 10% for the year of 2016. Average investment securities increased $59.2 million or 5%. In addition, the average yield on earning assets increased 6 basis points from the year of 2015 due to additional loan accretion of $10.1 million on acquired loans and higher market interest rates. Partially offsetting the increases to tax-equivalent net interest income for the year of 2016 was an increase of 3 basis points in the average cost of funds as compared to the year of 2015 due to higher market interest rates. The net interest margin of 3.62% for the year of 2016 was an increase of 4 basis points from the net interest margin of 3.58% for the year of 2015.

On a linked-quarter basis, net interest income for the fourth quarter of 2016 increased $2.2 million or 2% from the third quarter of 2016. The $2.2 million increase in net interest income occurred because total interest income increased $2.5 million while total interest expense only increased $300 thousand from the third quarter of 2016. Tax-equivalent net interest income for the fourth quarter of 2016 increased $2.2 million or 2% due mainly to an increase in the average yield on earning assets. The yield on average earning assets for the fourth quarter of 2016 increased 6 basis points from the third quarter of 2016 due to additional loan accretion of $3.0 million. Average earning assets were relatively flat for the quarter, increasing $45.2 million or less than 1%. Average net loans were also relatively flat, decreasing $25.9 million or less than 1% while average short-term investments increased $121.0 million or 15% and average investment securities decreased $49.9 million or 3%, respectively. Partially offsetting the increases to tax-equivalent net interest income for the fourth quarter of 2016 was an increase of a basis point in the average cost of funds as compared to the third quarter of 2016. The net interest margin of 3.62% for the fourth quarter of 2016 was an increase of 6 basis points from the net interest margin of 3.56% for the third quarter of 2016.

For the quarters ended December 31, 2016 and 2015, the provision for loan losses was $5.8 million and $6.3 million, respectively, while the provision for the year of 2016 was $24.5 million as compared to $22.6 million for the year of 2015. Net charge-offs were $5.7 million and $27.5 million for the fourth quarter and year of 2016, respectively, as compared to $6.1 million and $22.4 million for the same time periods in 2015. Annualized net charge-offs as a percentage of average loans were 0.22% and 0.28% for the fourth quarter and year of 2016, respectively. On a linked-quarter basis, the provision for loan losses for the fourth quarter of 2016 decreased $1.2 million while net charge-offs decreased $1.1 million from the third quarter of 2016.

Noninterest income for the fourth quarter of 2016 was $16.7 million, which was a decrease of $1.5 million or 8% from the fourth quarter of 2015. Income from bank-owned insurance policies decreased $911 million due to death benefits recorded during the fourth quarter of 2015. In addition, fees from deposit services decreased $507 thousand mainly due to lower income from overdraft fees. Partially offsetting these decreases was an increase of $317 thousand in mortgage banking income due to increased loan production and sales in the secondary market.

Noninterest income for the year of 2016 was $70.0 million, which was a decrease of $3.6 million or 5% from the year of 2015. The decrease was due to lower fees from deposit services as a result of the Durbin Amendment being effective for United on July 1, 2015. The Durbin Amendment, passed as part of the Dodd-Frank financial reform legislation, limits fees for debit card processing paid by merchants to banking companies with assets in excess of $10 billion. Fees from deposit services for the year of 2016 declined $5.1 million from the year of 2015. Partially offsetting this decrease was an increase of $943 thousand in mortgage banking income due to increased loan production and sales in the secondary market.

On a linked-quarter basis, noninterest income for the fourth quarter of 2016 decreased $2.4 million or 12% from the third quarter of 2016. Income from bank-owned insurance policies decreased $1.7 million due to death benefits recorded during the third quarter. In addition, fees from trust and brokerage services declined $406 thousand due to lower volume.

Noninterest expense for the fourth quarter of 2016 was $62.5 million, an increase of $3.9 million or 7% from the fourth quarter of 2015 due mainly to the Bank of Georgetown merger as most major categories of noninterest expense showed increases. In particular, net occupancy expenses increased $1.0 million and data processing increased $601 thousand. In addition, employee benefits increased $580 thousand due mainly to higher pension costs and other real estate owned (OREO) expense also increased $580 thousand from the fourth quarter of 2015 due to increased losses on sales of OREO properties.

Noninterest expense for the year of 2016 was $248.2 million, an increase of $16.5 million or 7% from the year of 2015 due in large part to the Bank of Georgetown merger. Employee compensation increased $5.2 million which includes $670 thousand of merger severance charges. Otherwise, employee compensation increased due to merit raises and a higher amount of employee incentives. Employee benefits increased $1.9 million mainly due to increased health insurance costs. Net occupancy expenses increased $3.2 million which includes $1.6 million for the termination of leases for closed offices. Other real estate owned (OREO) expense increased $2.2 million due to a decline in the fair value of OREO properties. In addition, other merger-related expenses of $3.9 million were incurred.

On a linked-quarter basis, noninterest expense for the fourth quarter of 2016 was flat, decreasing $269 thousand or less than 1% from the third quarter of 2016. This slight decrease was due primarily to a decrease of $335 thousand in net occupancy expense due to a decline in building rental expense.

For the fourth quarter of 2016, income tax expense was $22.5 million, an increase of $5.6 million from the fourth quarter of 2015 mainly due to higher earnings. For the year of 2016, income tax expense was $75.6 million, an increase of $10.1 million from the year of 2015. This increase was due to higher earnings for the year of 2016 and the release of tax reserves and historical tax credits in the year of 2015. On a linked-quarter basis, income tax expense increased $3.6 million due to slightly higher earnings and a reduction in the current tax expense as a result of an increase in the deferred tax rate for the third quarter of 2016. United’s effective tax rate was approximately 36.5% for the fourth quarter of 2016, 33.5% for the fourth quarter of 2015 and 31.2% for the third quarter of 2016. For the years of 2016 and 2015, United's effective tax rate was 33.9% and 32.2%, respectively.

United’s asset quality continues to be sound. At December 31, 2016, nonperforming loans were $113.3 million, or 1.10% of loans, net of unearned income, down from nonperforming loans of $126.7 million or 1.35% of loans, net of unearned income, at December 31, 2015. As of December 31, 2016, the allowance for loan losses was $72.8 million or 0.70% of loans, net of unearned income, as compared to $75.7 million or 0.81% of loans, net of unearned income, at December 31, 2015. United’s allowance for loan losses as a percentage of non-acquired loans, net of unearned income at December 31, 2016 was 0.90% as compared to 1.00% at December 31, 2015. Total nonperforming assets of $144.8 million, including OREO of $31.5 million at December 31, 2016, represented 1.00% of total assets.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 14.9% at December 31, 2016 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.2%, 14.2% and 12.2%, respectively. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.

As of December 31, 2016, United had consolidated assets of approximately $14.5 billion with 127 full service offices in West Virginia, Virginia, Maryland, Ohio, Pennsylvania and Washington, D.C.United Bankshares stock is traded on the NASDAQ Global Select Market under the quotation symbol "UBSI".

Cautionary Statements

The Company is required under generally accepted accounting principles to evaluate subsequent events through the filing of its December 31, 2016 consolidated financial statements on Form 10-K. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2016 and will adjust amounts preliminarily reported, if necessary.

Use of non-GAAP Financial Measures

This press release contains certain financial measures that are not recognized under U.S. generally accepted accounting principles ("GAAP"). Generally, United has presented these “non-GAAP” financial measures because it believes that these measures provide meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of these non-GAAP financial measures is consistent with how United’s management evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry.

Specifically, this press release contains certain references to financial measures identified as tax-equivalent (FTE) net interest income, the allowance for loan losses as a percentage of non-acquired loans, tangible equity and tangible book value per share. 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 press release 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. The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 35%.

In accordance with accounting rules, United is unable to carry-over an acquired banking company’s previously established allowance for loan losses because acquired loans are recorded at fair value. Therefore, due to this acquisition accounting impact on the allowance for loans losses as well as loans, net of unearned income, management believes that excluding acquired loans in the calculation of the allowance for loan losses as a percentage of loans, net of unearned income reflects the difference in the accounting rules for acquired loans and originated loans as well as provides for improved comparability to prior periods and to other financial institutions without acquired loans.

Tangible common equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible common equity can thus be considered the most conservative valuation of the company. Tangible common equity is also presented on a per common share basis. Management provides these amounts 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 common equity are presented.These two measures, along with others, are used by management to analyze capital adequacy.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure can be found in the attached financial information tables to this press release. Investors should recognize that United’s presentation of these non-GAAP financial measures might not be comparable to similarly titled measures at other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and United strongly encourages a review of its condensed consolidated financial statements in their entirety.

Forward-Looking Statements

This press release contains certain forward-looking statements, including certain plans, expectations, goals and projections, which are subject to numerous assumptions, risks and uncertainties.Actual results could differ materially from those contained in or implied by such statements for a variety of factors including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.