FORM
10-Q
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

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

For the quarterly period ended SeptemberJune 30, 2018

2019

OR

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

For the transition period from
to

Commission FileNumber:    
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  
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

Indicate

As of
July
 31, 2019
, the number of registrant had
101,871,901
shares outstanding of each of the issuer’s classes of common stock, as$2.50 par value per share, outstanding.


UNITED BANKSHARES, INC. AND SUBSIDIARIES

FORM10-Q

TABLE OF CONTENTS

 Page 
 
Item 1.
 
  4 
  5 
  7 
  8 
9
Notes to Consolidated Financial Statements  10 
11
Item 2.
  6057 
Item 3.
  8378 
Item 4. Controls and Procedures  86
PART II. OTHER INFORMATION
Item 1. Legal Proceedings  87
Item 4.
 
  8781 
Item 1.
82
Item 1A.
82
Item 2.
  8782 
Item 3.
  8883 
Item 4. Mine Safety Disclosures  88
Item 5. Other Information  88
Item 4.
 
  8883 
Signatures  89
Item 5.
83
Item 6.
83
84 

2
PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

Item 1.FINANCIAL STATEMENTS (UNAUDITED)
The SeptemberJune 30, 20182019 and December 31, 2017,2018, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries (“United” or the “Company”), consolidated statements of income and comprehensive income for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, the related consolidated statement of changes in shareholders’ equity for the ninethree and six months ended SeptemberJune 30, 2019 and 2018, the related condensed consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, and the notes to consolidated financial statements appear on the following pages.


CONSOLIDATED BALANCE SHEETS

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except par value)  September 30
2018
  December 31
2017
 
   (Unaudited)  (Note 1) 

Assets

   

Cash and due from banks

  $191,809  $196,742 

Interest-bearing deposits with other banks

   1,062,078   1,468,636 

Federal funds sold

   799   789 
  

 

 

  

 

 

 

Total cash and cash equivalents

   1,254,686   1,666,167 

Securities available for sale at estimated fair value (amortized cost-$2,230,884 at September 30, 2018 and $1,900,684 at December 31, 2017)

   2,178,567   1,888,756 

Securities held to maturity (estimated fair value-$19,619 at September 30, 2018 and $20,018 at December 31, 2017)

   20,351   20,428 

Equity securities at estimated fair value

   9,845   0 

Other investment securities

   166,749   162,461 

Loans held for sale (at fair value-$231,310 at September 30, 2018 and $263,308 at December 31, 2017)

   234,196   265,955 

Loans

   13,286,711   13,027,337 

Less: Unearned income

   (9,971  (15,916
  

 

 

  

 

 

 

Loans net of unearned income

   13,276,740   13,011,421 

Less: Allowance for loan losses

   (76,941  (76,627
  

 

 

  

 

 

 

Net loans

   13,199,799   12,934,794 

Bank premises and equipment

   99,748   104,894 

Goodwill

   1,478,014   1,478,380 

Accrued interest receivable

   60,057   52,815 

Other assets

   485,631   484,309 
  

 

 

  

 

 

 

TOTAL ASSETS

  $19,187,643  $19,058,959 
  

 

 

  

 

 

 

Liabilities

   

Deposits:

   

Noninterest-bearing

  $4,470,815  $4,294,687 

Interest-bearing

   9,620,357   9,535,904 
  

 

 

  

 

 

 

Total deposits

   14,091,172   13,830,591 

Borrowings:

   

Federal funds purchased

   25,790   16,235 

Securities sold under agreements to repurchase

   153,718   311,352 

Federal Home Loan Bank borrowings

   1,284,781   1,271,531 

Other long-term borrowings

   234,590   242,446 

Reserve for lending-related commitments

   1,144   679 

Accrued expenses and other liabilities

   145,320   145,595 
  

 

 

  

 

 

 

TOTAL LIABILITIES

   15,936,515   15,818,429 

Shareholders’ Equity

   

Preferred stock, $1.00 par value;Authorized-50,000,000 shares, none issued

   0   0 

Common stock, $2.50 par value;Authorized-200,000,000 shares;issued-105,226,986 and 105,069,821 at September 30, 2018 and December 31, 2017, respectively, including 1,421,150 and 29,173 shares in treasury at September 30, 2018 and December 31, 2017, respectively

   263,068   262,675 

Surplus

   2,133,157   2,129,077 

Retained earnings

   984,062   891,816 

Accumulated other comprehensive loss

   (76,660  (42,025

Treasury stock, at cost

   (52,499  (1,013
  

 

 

  

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

   3,251,128   3,240,530 
  

 

 

  

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $19,187,643  $19,058,959 
  

 

 

  

 

 

 

(Dollars in thousands, except par value)
 
June 30
2019
  
December 31
2018
 
 
(Unaudited)
  
(Note 1)
 
Assets
      
Cash and due from banks
 $
198,171
  $
187,886
 
Interest-bearing deposits with other banks
  
1,054,589
   
831,707
 
Federal funds sold
  
813
   
803
 
         
Total cash and cash equivalents
  
1,253,573
   
1,020,396
 
Securities available for sale at estimated fair value (amortized cost-$2,324,286 at June 30, 2019 and $2,360,884 at December 31, 2018)
  
2,345,791
   
2,337,039
 
Securities held to maturity (estimated fair value-$6,483 at June 30, 2019 and $18,655 at December 31, 2018)
  
6,461
   
19,999
 
Equity securities at estimated fair value
  
9,098
   
9,734
 
Other investment securities
  
201,912
   
176,955
 
Loans held for sale (at fair value-$365,440 at June 30, 2019 and $247,104 at December 31, 2018)
  
370,593
   
249,846
 
Loans
  
13,639,946
   
13,429,532
 
Less: Unearned income
  
(4,680
)  
(7,310
)
         
Loans net of unearned income
  
13,635,266
   
13,422,222
 
Less: Allowance for loan losses
  
(76,400
)  
(76,703
)
         
Net loans
  
13,558,866
   
13,345,519
 
Bank premises and equipment
  
94,545
   
95,245
 
Operating lease
right-of-use
assets
  
63,113
   
0
 
Goodwill
  
1,478,014
   
1,478,014
 
Accrued interest receivable
  
60,934
   
60,597
 
Other assets
  
439,639
   
457,154
 
         
TOTAL ASSETS
 $
19,882,539
  $
19,250,498
 
         
         
Liabilities
      
Deposits:
      
Noninterest-bearing
 $
4,330,665
  $
4,416,815
 
Interest-bearing
  
10,073,420
   
9,577,934
 
         
Total deposits
  
14,404,085
   
13,994,749
 
Borrowings:
      
Federal funds purchased
  
0
   
23,400
 
Securities sold under agreements to repurchase
  
122,159
   
152,927
 
Federal Home Loan Bank (FHLB) borrowings
  
1,548,032
   
1,439,198
 
Other long-term borrowings
  
235,535
   
234,905
 
Reserve for lending-related commitments
  
1,752
   
1,389
 
Operating lease liabilities
  
66,821
   
0
 
Accrued expenses and other liabilities
  
170,297
   
152,306
 
         
TOTAL LIABILITIES
  
16,548,681
   
15,998,874
 
         
Shareholders’ Equity
      
Preferred stock, $1.00 par value;
Authorized-50,000,000
shares, none issued
  
0
   
0
 
Common stock, $2.50 par value;
Authorized-200,000,000
shares;
issued-105,413,508
and 105,239,121 at June 30, 2019 and December 31, 2018, respectively, including 3,450,478 and 2,915,633 shares in treasury at June 30, 2019 and December 31, 2018, respectively
  
263,534
   
263,098
 
Surplus
  
2,137,459
   
2,134,462
 
Retained earnings
  
1,073,390
   
1,013,037
 
Accumulated other comprehensive loss
  
(20,367
)  
(57,019
)
Treasury stock, at cost
  
(120,158
)  
(101,954
)
         
TOTAL SHAREHOLDERS’ EQUITY
  
3,333,858
   
3,251,624
 
         
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $
19,882,539
  $
19,250,498
 
         
See notes to consolidated unaudited financial statements.


CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)  Three Months Ended   Nine Months Ended 
   September 30   September 30 
   2018  2017   2018  2017 

Interest income

      

Interest and fees on loans

  $164,229  $155,819   $472,451  $405,660 

Interest on federal funds sold and other short-term investments

   5,485   4,874    13,867   11,345 

Interest and dividends on securities:

      

Taxable

   13,994   9,406    39,679   26,226 

Tax-exempt

   1,322   1,484    4,218   4,057 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest income

   185,030   171,583    530,215   447,288 

Interest expense

      

Interest on deposits

   26,368   14,227    61,101   35,281 

Interest on short-term borrowings

   618   430    1,503   1,149 

Interest on long-term borrowings

   9,269   6,650    25,671   16,717 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest expense

   36,255   21,307    88,275   53,147 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net interest income

   148,775   150,276    441,940   394,141 

Provision for loan losses

   4,808   7,279    16,190   21,429 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net interest income after provision for loan losses

   143,967   142,997    425,750   372,712 

Other income

      

Fees from trust services

   3,350   2,972    9,545   8,865 

Fees from brokerage services

   2,787   2,080    6,964   5,818 

Fees from deposit services

   8,673   8,744    25,323   24,978 

Bankcard fees and merchant discounts

   1,549   1,332    4,384   3,432 

Other service charges, commissions, and fees

   532   535    1,640   1,533 

Income from bank-owned life insurance

   1,251   1,403    3,776   3,878 

Income from mortgage banking activities

   13,277   20,385    46,539   43,597 

Net investment securities (losses) gains

   (152  467    (692  5,154 

Other income

   419   311    1,406   1,626 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total other income

   31,686   38,229    98,885   98,881 

Other expense

      

Employee compensation

   41,312   44,882    125,268   124,945 

Employee benefits

   8,645   9,004    27,514   25,667 

Net occupancy expense

   9,273   9,364    27,776   30,061 

Other real estate owned (OREO) expense

   921   2,713    2,423   4,651 

Equipment expense

   3,892   3,057    10,328   7,493 

Data processing expense

   6,068   5,597    17,735   14,971 

Bankcard processing expense

   485   449    1,431   1,356 

FDIC insurance expense

   3,530   1,540    8,220   5,062 

Other expense

   19,189   20,046    56,482   57,425 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total other expense

   93,315   96,652    277,177   271,631 
  

 

 

  

 

 

   

 

 

  

 

 

 

Income before income taxes

   82,338   84,574    247,458   199,962 

Income taxes

   17,926   27,836    55,066   67,356 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net income

  $64,412  $56,738   $192,392  $132,606 
  

 

 

  

 

 

   

 

 

  

 

 

 

(Dollars in thousands, except per share data)
 
Three Months Ended
June 30
  
Six Months Ended
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Interest income
            
Interest and fees on loans
 $
175,130
  $
159,294
  $
340,001
  $
308,222
 
Interest on federal funds sold and other short-term investments
  
5,405
   
3,465
   
11,242
   
8,382
 
Interest and dividends on securities:
            
Taxable
  
17,748
   
13,810
   
35,111
   
25,685
 
Tax-exempt
  
962
   
1,431
   
1,988
   
2,896
 
                 
Total interest income
  
199,245
   
178,000
   
388,342
   
345,185
 
                 
Interest expense
            
Interest on deposits
  
35,455
   
19,076
   
68,093
   
34,733
 
Interest on short-term borrowings
  
608
   
464
   
1,299
   
885
 
Interest on long-term borrowings
  
12,629
   
9,338
   
24,229
   
16,402
 
                 
Total interest expense
  
48,692
   
28,878
   
93,621
   
52,020
 
                 
Net interest income
  
150,553
   
149,122
   
294,721
   
293,165
 
Provision for loan losses
  
5,417
   
6,204
   
10,413
   
11,382
 
                 
Net interest income after provision for loan losses
  
145,136
   
142,918
   
284,308
   
281,783
 
                 
Other income
            
Fees from trust services
  
3,438
   
3,104
   
6,702
   
6,195
 
Fees from brokerage services
  
2,766
   
1,953
   
5,290
   
4,177
 
Fees from deposit services
  
8,464
   
8,420
   
16,517
   
16,650
 
Bankcard fees and merchant discounts
  
1,102
   
1,479
   
2,258
   
2,835
 
Other service charges, commissions, and fees
  
576
   
599
   
1,097
   
1,108
 
Income from bank-owned life insurance
  
1,326
   
1,271
   
3,153
   
2,525
 
Income from mortgage banking activities
  
21,704
   
18,692
   
35,385
   
33,262
 
Net investment securities 
gains
(losses)
  
109
   
(55
)  
(50
)  
(540
)
Other income
  
310
   
544
   
666
   
987
 
                 
Total other income
  
39,795
   
36,007
   
71,018
   
67,199
 
                 
Other expense
            
Employee compensation
  
44,301
   
43,120
   
83,250
   
83,956
 
Employee benefits
  
8,578
   
9,298
   
18,009
   
18,869
 
Net occupancy expense
  
8,667
   
9,076
   
17,418
   
18,503
 
Other real estate owned (OREO) expense
  
633
   
556
   
2,049
   
1,502
 
Equipment expense
  
3,675
   
3,279
   
6,990
   
6,436
 
Data processing expense
  
5,567
   
5,817
   
10,729
   
11,667
 
Bankcard processing expense
  
448
   
480
   
928
   
946
 
FDIC insurance expense
  
3,300
   
2,842
   
6,600
   
4,690
 
FHLB prepayment penalties
  
5,105
   
0
   
5,105
   
0
 
Other expense
  
19,921
   
18,942
   
38,542
   
37,293
 
                 
Total other expense
  
100,195
   
93,410
   
189,620
   
183,862
 
                 
Income before income taxes
  
84,736
   
85,515
   
165,706
   
165,120
 
Income taxes
  
17,529
   
19,241
   
34,857
   
37,140
 
                 
Net income
 $
67,207
  $
66,274
  $
130,849
  $
127,980
 
                 

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - continued

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)  Three Months Ended   Nine Months Ended 
   September 30   September 30 
   2018   2017   2018   2017 

Earnings per common share:

        

Basic

  $0.62   $0.54   $1.84   $1.39 
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $0.62   $0.54   $1.83   $1.39 
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per common share

  $0.34   $0.33   $1.02   $0.99 
  

 

 

   

 

 

   

 

 

   

 

 

 

Average outstanding shares:

        

Basic

   103,617,590    104,760,153    104,382,094    95,040,664 

Diluted

   103,933,959    105,068,122    104,679,876    95,450,626 

(Dollars in thousands, except per share data)
 
Three Months Ended
June 30
  
Six Months Ended
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Earnings per common share:
            
Basic
 $
0.66
  $
0.63
  $
1.28
  $
1.22
 
                 
Diluted
 $
0.66
  $
0.63
  $
1.28
  $
1.22
 
                 
Average outstanding shares:
            
Basic
  
101,773,643
   
104,682,910
   
101,833,880
   
104,770,681
 
Diluted
  
102,047,845
   
104,952,788
   
102,099,809
   
105,058,014
 
See notes to consolidated unaudited financial statements


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands)  Three Months Ended
September 30
   Nine Months Ended
September 30
 
   2018  2017   2018  2017 

Net income

  $64,412  $56,738   $192,392  $132,606 

Change in net unrealized (loss) gain onavailable-for-sale (AFS) securities, net of tax

   (7,579  1,964    (30,853  8,443 

Accretion of the net unrealized loss on the transfer of AFS securities toheld-to-maturity (HTM) securities, net of tax

   2   2    4   4 

Change in pension plan assets, net of tax

   918   717    2,703   2,107 
  

 

 

  

 

 

   

 

 

  

 

 

 

Comprehensive income, net of tax

  $57,753  $59,421   $164,246  $143,160 
  

 

 

  

 

 

   

 

 

  

 

 

 

(Dollars in thousands)
 
Three Months Ended
  
Six Months Ended
 
 
June 30
  
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Net income
 $
67,207
  $
66,274
  $
130,849
  $
127,980
 
Change in net unrealized gain (loss) on
available-for-sale
(AFS) securities, net of tax
  
17,994
   
(6,501
)  
34,783
   
(23,274
)
Accretion of the net unrealized loss on the transfer of AFS securities to
held-to-maturity
(HTM) securities, net of tax
  
0
   
1
   
0
   
2
 
Change in pension plan assets, net of tax
  
909
   
1,052
   
1,819
   
1,785
 
                 
Comprehensive income, net of tax
 $
86,110
  $
60,826
  $
167,451
  $
106,493
 
                 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
                             
 
Six Months Ended June 30, 2019
 
         
Accumulated
     
 
Common Stock
      
Other
    
Total
  
   
Par
    
Retained
  
Comprehensive
  
Treasury
  
Shareholders’
 
 
Shares
  
Value
  
Surplus
  
Earnings
  
Income (Loss)
  
Stock
  
Equity
 
Balance at January 1, 2019
  
105,239,121
  $
263,098
  $
2,134,462
  $
1,013,037
  $
(57,019
) $
(101,954
) $
3,251,624
 
Cumulative effect of adopting Accounting Standard Update
2016-02
  
0
   
0
   
0
   
(1,049
)  
0
   
0
   
(1,049
)
Reclass due to adopting Accounting Standard Update
2017-12
  
0
   
0
   
0
   
0
   
50
   
0
   
50
 
Comprehensive income
                     
Net income
  
0
   
0
   
0
   
63,642
   
0
   
0
   
63,642
 
Other comprehensive income, net of tax
  
0
   
0
   
0
   
0
   
17,699
   
0
   
17,699
 
                             
Total comprehensive income, net of tax
                    
81,341
 
Stock based compensation expense
  
0
   
0
   
1,113
   
0
   
0
   
0
   
1,113
 
Purchase of treasury stock (365,702 shares)
  
0
   
0
   
0
   
0
   
0
   
(12,072
)  
(12,072
)
Cash dividends ($0.34 per share)
  
0
   
0
   
0
   
(34,759
)  
0
   
0
   
(34,759
)
Grant of restricted stock (126,427 shares)
  
126,427
   
316
   
(316
)  
0
   
0
   
0
   
0
 
Common stock options exercised (33,816 shares)
  
33,816
   
84
   
559
   
0
   
0
   
0
   
643
 
                             
Balance at March 31, 2019
  
105,399,364
   
263,498
   
2,135,818
   
1,040,871
   
(39,270
)  
(114,026
)  
3,286,891
 
Comprehensive income:
                     
Net income
  
0
   
0
   
0
   
67,207
   
0
   
0
   
67,207
 
Other comprehensive income, net of tax
  
0
   
0
   
0
   
0
   
18,903
   
0
   
18,903
 
                             
Total comprehensive income, net of tax
                    
86,110
 
Stock based compensation expense
  
0
   
0
   
1,198
   
0
   
0
   
0
   
1,198
 
Purchase of treasury stock (166,604 shares)
  
0
   
0
   
0
   
0
   
0
   
(6,032
)  
(6,032
)
Cash dividends ($0.34 per share)
  
0
   
0
   
0
   
(34,688
)  
0
   
0
   
(34,688
)
Forfeiture of restricted stock (2,539 shares)
  
0
   
0
   
100
   
0
   
0
   
(100
)  
0
 
Common stock options exercised (14,144 shares)
  
14,144
   
36
   
343
   
0
   
0
   
0
   
379
 
                             
Balance at June 30, 2019
  
105,413,508
  $
263,534
  $
2,137,459
  $
1,073,390
  $
(20,367
) $
(120,158
) $
3,333,858
 
                             

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

- continued

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands, except per share data)

   Nine Months Ended September 30, 2018 
           Surplus  Retained
Earnings
  Accumulated
Other
Comprehensive
Income (Loss)
  Treasury
Stock
  Total
Shareholders’
Equity
 
  Common Stock 
  Shares   Par Value 

Balance at January 1, 2018

   105,069,821   $262,675   $2,129,077  $891,816  ($42,025 ($1,013 $3,240,530 

Cumulative effect of adopting Accounting Standard Update2016-01

        136   (136   0 

Reclass due to adopting Accounting Standard Update2018-02

        6,353   (6,353   0 

Comprehensive income:

          

Net income

   0    0    0   192,392   0   0   192,392 

Other comprehensive income, net of tax:

   0    0    0   0   (28,146  0   (28,146
          

 

 

 

Total comprehensive income, net of tax

           164,246 

Stock based compensation expense

   0    0    3,016   0   0   0   3,016 

Purchase of treasury stock (1,387,750 shares)

   0    0    0   0   0   (51,323  (51,323

Distribution of treasury stock from deferred compensation plan (26 shares)

   0    0    0   0   0   1   1 

Cash dividends ($1.02 per share)

   0       (106,635  0   0   (106,635

Grant of restricted stock (97,004 shares)

   97,004    243    (243  0   0   0   0 

Forfeiture of restricted stock (4,253 shares)

   0    0    164   0   0   (164  0 

Common stock options exercised (60,161 shares)

   60,161    150    1,143   0   0   0   1,293 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at September 30, 2018

   105,226,986   $263,068   $2,133,157  $984,062  ($76,660 ($52,499 $3,251,128 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

                             
 
Six Months Ended June 30, 2018
 
         
Accumulated
     
 
Common Stock
      
Other
    
Total
  
   
Par
    
Retained
  
Comprehensive
  
Treasury
  
Shareholders’
 
 
Shares
  
Value
  
Surplus
  
Earnings
  
Income (Loss)
  
Stock
  
Equity
 
Balance at January 1, 2018
  
105,069,821
  $
262,675
  $
2,129,077
  $   
891,816
  ($
42,025
) ($
1,013
) $
3,240,530
 
Cumulative effect of adopting Accounting Standard Update
2016-01
  
0
   
0
   
0
   
136
   
(136
)  
0
   
0
 
Reclass due to adopting Accounting Standard Update
2018-02
  
0
   
0
   
0
   
6,353
   
(6,353
)  
0
   
0
 
Comprehensive income:
                     
Net income
  
0
   
0
   
0
   
61,706
   
0
   
0
   
61,706
 
Other comprehensive income, net of tax
  
0
   
0
   
0
   
0
   
(16,039
)  
0
   
(16,039
)
                             
Total comprehensive income, net of tax
                    
45,667
 
Stock based compensation expense
  
0
   
0
   
968
   
0
   
0
   
0
   
968
 
Purchase of treasury stock (10,842 shares)
  
0
   
0
   
0
   
0
   
0
   
(404
)  
(404
)
Cash dividends ($0.34 per share)
  
0
         
(35,748
)  
0
   
0
   
(35,748
)
Grant of restricted stock (97,004 shares)
  
97,004
   
243
   
(243
)  
0
   
0
   
0
   
0
 
Forfeiture of restricted stock (683 shares)
  
0
   
0
   
27
   
0
   
0
   
(27
)  
0
 
Common stock options exercised (15,043 shares)
  
15,043
   
37
   
263
   
0
   
0
   
0
   
300
 
                             
Balance at March 31, 2018
  
105,181,868
   
262,955
   
2,130,092
   
924,263
   
(64,553
)  
(1,444
)  
3,251,313
 
Comprehensive income:
                     
Net income
  
0
   
0
   
0
   
66,274
   
0
   
0
   
66,274
 
Other comprehensive income, net of tax
  
0
   
0
   
0
   
0
   
(5,448
)  
0
   
(5,448
)
                             
Total comprehensive income, net of tax
                    
60,826
 
Stock based compensation expense
  
0
   
0
   
1,024
   
0
   
0
   
0
   
1,024
 
Purchase of treasury stock (962,504 shares)
  
0
   
0
   
0
   
0
   
0
   
(35,580
)  
(35,580
)
Cash dividends ($0.34 per share)
  
0
   
0
   
0
   
(35,584
)  
0
   
0
   
(35,584
)
Forfeiture of restricted stock (2,170 shares)
  
0
   
0
   
82
   
0
   
0
   
(82
)  
0
 
Common stock options exercised (27,046 shares)
  
27,046
   
67
   
499
   
0
   
0
   
0
   
566
 
                             
Balance at June 30, 2018
  
105,208,914
  $
263,022
  $
2,131,697
  $
954,953
  $
(70,001
) ($
37,106
) $
3,242,565
 
                             
See notes to consolidated unaudited financial statements.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

(Dollars in thousands)

   Nine Months Ended
September 30
 
   2018  2017 

NET CASH PROVIDED BY OPERATING ACTIVITIES

  $218,771  $125,151 

INVESTING ACTIVITIES

   

Proceeds from maturities and calls of securities held to maturity

   2   12,929 

Proceeds from sales of securities available for sale

   86,061   245,065 

Proceeds from maturities and calls of securities available for sale

   201,107   386,496 

Purchases of securities available for sale

   (629,760  (630,061

Proceeds from sales of equity securities

   1,825   0 

Purchases of equity securities

   (598  0 

Proceeds from sales and redemptions of other investment securities

   35,987   14,393 

Purchases of other investment securities

   (45,075  (51,941

Purchases of bank premises and equipment

   (4,439  (11,115

Proceeds from sales of bank premises and equipment

   2,171   13 

Proceeds from the sales of OREO properties

   9,105   4,908 

Acquisition of subsidiaries, net of cash paid

   0   44,531 

Net change in loans

   (248,623  369,233 
  

 

 

  

 

 

 

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

   (592,237  384,451 
  

 

 

  

 

 

 

FINANCING ACTIVITIES

   

Cash dividends paid

   (107,046  (86,709

Acquisition of treasury stock

   (51,323  (1

Proceeds from exercise of stock options

   1,277   3,296 

Repayment of long-term Federal Home Loan Bank borrowings

   (635,000  (845,207

Proceeds from issuance of long-term Federal Home Loan Bank borrowings

   650,000   815,000 

Repayment of trust preferred issuance

   (9,374  0 

Distribution of treasury stock for deferred compensation plan

   1   1 

Changes in:

   

Deposits

   261,529   (269,742

Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings

   (148,079  186,270 
  

 

 

  

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

   (38,015  (197,092
  

 

 

  

 

 

 

(Decrease) Increase in cash and cash equivalents

   (411,481  312,510 

Cash and cash equivalents at beginning of year

   1,666,167   1,434,527 
  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $1,254,686  $1,747,037 
  

 

 

  

 

 

 

Supplemental information

   

Noncash investing activities:

   

Transfers of loans to OREO

  $1,809  $3,829 

         
 
Six Months Ended
 
 
June 30
 
 
2019
  
2018
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
 $
31,786
  $
98,498
 
         
INVESTING ACTIVITIES
      
Proceeds from maturities and calls of securities held to maturity
  
2,000
   
2
 
Proceeds from sales of securities available for sale
  
248,187
   
53,179
 
Proceeds from maturities and calls of securities available for sale
  
136,576
   
124,894
 
Purchases of securities available for sale
  
(338,983
)  
(391,186
)
Proceeds from sales of equity securities
  
1,497
   
1,826
 
Purchases of equity securities
  
(618
)  
(380
)
Proceeds from sales and redemptions of other investment securities
  
50,271
   
15,606
 
Purchases of other investment securities
  
(75,228
)  
(33,279
)
Redemption of bank-owned life insurance policies  
2,829
   
0
 
Purchases of bank premises and equipment  
(4,110
)  
(2,159
)
Proceeds from sales of bank premises and equipment  
251
   
2,123
 
Proceeds from the sales of OREO properties  
3,870
   
4,658
 
Net change in loans
  
(203,898
)  
(493,787
)
         
NET CASH USED IN INVESTING ACTIVITIES  
(177,356
)  
(718,503
)
         
         
FINANCING ACTIVITIES
      
Cash dividends paid
  
(69,732
)  
(71,461
)
Acquisition of treasury stock
  
(18,104
)  
(35,984
)
Proceeds from exercise of stock options
  
1,020
   
851
 
Repayment of long-term Federal Home Loan Bank borrowings
  
(1,115,000
)  
(625,000
)
Proceeds from issuance of long-term Federal Home Loan Bank borrowings
  
1,400,000
   
1,115,000
 
Repayment of trust preferred issuance
  
0
   
(9,374
)
Changes in:
      
Deposits
  
409,731
   
812
 
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings
  
(229,168
)  
(328,080
)
         
NET CASH PROVIDED BY FINANCING ACTIVITIES  
378,747
   
46,764
 
         
         
Increase (Decrease) in cash and cash equivalents  
233,177
   
(573,241
)
         
Cash and cash equivalents at beginning of year
  
1,020,396
   
1,666,167
 
         
         
Cash and cash equivalents at end of period
 $
1,253,573
  $
1,092,926
 
         
Supplemental information
      
Noncash investing activities:
      
Transfers of loans to OREO
 $
3,133
  $
527
 
Transfer of held to maturity debt securities to available for sale debt securities
  
11,544
   
0
 
See notes to consolidated unaudited financial statements
.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

UNITED BANKSHARES, INC. AND SUBSIDIARIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries (“United” or “the Company”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States (GAAP) and with the instructions for Form
10-Q
and Article 10 of Regulation
S-X.
Accordingly, the financial statements do not contain all of the information and footnotes required by accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of SeptemberJune 30, 20182019 and 20172018 and for the three-month and nine-month
six-month
periods then ended have not been audited. The consolidated balance sheet as of December 31, 20172018 has been extracted from the audited financial statements included in United’s 20172018 Annual Report to Shareholders. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 20172018 Annual Report of United on Form
10-K. To conform to the 2018 presentation, certain reclassifications have been made to prior period amounts, which had no impact on net income, comprehensive income, or stockholders’ equity.
In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.

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

New Accounting Standards

In August 2018,April 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)ASU No. 2019-04 “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The amendments clarify the scope of the credit losses standard and address issued related to accrued interest receivable balances, recoveries, variable interest rates and prepayments. The amendments also address partial-term fair valued hedges, fair value hedge basis adjustments. The amendments to the credit losses and hedging standards have the same effective dates as those standards, unless an entity has already adopted the standards. The amendments to recognition and measurement guidance are effective for fiscal years beginning after December 15, 2019; early adoption is permitted. Management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.
In August 2018, the FASB issued ASU No. 2018-14 “Compensation – Retirement Benefits—Benefits – Defined Benefits – General (Topic715-20): 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. ASUNo. 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. ASUNo. 2018-14 is not expected to have a material impact on the Company’s financial condition or results of operations.

11
In August 2018, the FASB issued ASUNo.
 2018-13 “Fair
“Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This amendment changes the fair value measurement disclosure requirements of ASC Topic 820 and is the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements, which was finalized in August 2018. ASUNo.
 2018-13
is effective for all entities for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019; early adoption is permitted for any eliminated or modified disclosure upon issuance of this ASU. ASUNo.
 2018-13
is not expected to have a material impact on the Company’s financial condition or results of operations.

In June 2018, the FASB issued Accounting Standards Update (ASU)No.

 2018-07 “Compensation-Stock
“Compensation-Stock Compensation (Topic 718):Improvements to Nonemployee Share-Based Payment Accounting.” This update has been issued as part of a simplification initiative which will expand the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from
non-employees
and expands the scope through the amendments to address and improve aspects of the accounting for
non-employee
share-based payment transactions. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASUNo.
 2018-07
is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018; early adoption is permitted. ASUNo.
 2018-07 is not expected to have a material impact
was adopted by United on the Company’s financial condition or results of operations.

In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU2018-03 clarifies that entities that use the measurement alternative for equity securities without readily determinable fair values can change its measurement approach to fair value. This election is irrevocable and will apply to all future purchases of identical or similar investments of the same issuer.January 1, 2019. The amended guidance also clarifies that adjustments made under the measurement alternative should reflect the fair value of the security as of the date that an observable transaction took place rather than the current reporting date. Entities will use the prospective transition approach only for securities they elect to measure using the measurement alternative. ASUNo. 2018-03 is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASUNo. 2018-03 did not have a material impact on the Company’s financial condition or results of operations.

In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” to help organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act (the “Tax Act”). This ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. United adopted ASUNo. 2018-02 in the first quarter of 2018 and reclassified $6,353 of stranded income tax effected amounts in AOCI to retained earnings.

In August 2017, the FASB issued ASUNo.
 2017-12, “Targeting
“Targeting Improvement to Accounting for Hedging Activities.” This ASU amends ASC 815 and its objectives are to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and reduce the complexity and simplify the application of hedge accounting by preparers. This ASU makes certain targeted improvements to simplify the application of the hedge accounting, including to derivative instruments as well as allow a
one-time
election to reclassify fixed-rate, prepayable debt securities from a held to maturity classification to an available for sale classification. ASU No.
 2017-12
is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. ASUNo. 2017-12 is not expectedUnited adopted the standard on January 1, 2019 using the modified retrospective approach. As part of this adoption, the Company made a
one-time
election to havetransfer eligible HTM securities to the AFS category. The Company transferred HTM securities with a material impact on the Company’s financial condition or resultscarrying amount of operations.

$11,544, which resulted in a decrease of $1,098 to AOCI.

In July 2017, the FASB issued ASUNo. 2017-11, “Part I, Accounting for Certain Financial Instruments with Down Round Features and Part II, Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling interests with a Scope Exception.” Part I of this ASU simplifies the accounting for financial instruments that include down round features while the amendments in Part II, which do not have an accounting effect, address the difficulty of navigating

the guidance in ASC 480, “Distinguishing Liabilities from Equity”, due to the existence of extensive pending content in the Codification. ASUNo. 2017-11 is effective for interim and annual reporting periods beginning after December 15, 2018. ASUNo. 2017-11 is not expected to have a material impact was adopted by United on the Company’s financial condition or results of operations.

January 1, 2019.

In MayMarch 2017, the FASB issued ASUNo. 2017-09, “Stock Compensation, Scope of Modification Accounting.2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU clarifies when changesupdate amends the amortization period for certain purchased callable debt securities held at a premium. FASB is shortening the amortization period for the premium to the terms of conditions of a share-based payment award must be accounted for as modifications. Companies will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes.earliest call date. The new guidance should reduce diversityamendments in practice and result in fewer changes to the terms of an award being accounted for as modifications, as the guidance will allow companies to make certainnon-substantive changes to awards without accounting for them as modifications. It does not change the accounting for modifications. ASUNo. 2017-09 isthis update became effective for interim and annual reporting periods beginning after December 15, 2017; early2018, including interim reporting periods within those annual reporting periods. ASU No. 2017-08 was adopted by United on January 1, 2019. The adoption is permitted. ASUNo. 2017-09 did not have a material impact on the Company’s financial condition or results of operations.

In March 2017, the FASB issued ASUNo. 2017-07, “Improving the Presentation


In January 2017, the FASB issued ASUNo.
 2017-04, “Intangibles
“Intangibles – Goodwill and Other (Topic 350).” ASUNo. 
2017-04
eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASUNo. 
2017-04
is effective for United on January 1, 2020, with early adoption permitted, and management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.

In January 2017, the FASB issued ASUNo. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASUNo. 2017-01 changes the definition of a business to assist entities with evaluation when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASUNo. 2017-01 was effective for United on January 1, 2018 and did not have a material impact on the Company’s financial condition or results of operations.

In August 2016, the FASB issued ASUNo. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” ASUNo. 2016-15 amends ASC Topic 230 to add and clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows as a result of diversity in practice and in certain circumstances, financial statement restatements. Entities should apply ASUNo. 2016-15 using a retrospective transition method to each period presented. ASUNo. 2016-15 was effective for United on January 1, 2018 and did not have a material impact on the Company’s financial condition or results of operations.

In June 2016, the FASB issued ASUNo. 2016-13, “Financial Instruments – Credit Losses.” ASUNo. 2016-13 changes the impairment model for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances foravailable-for-sale available for sale debt securities rather than reduce the carrying amount under the current other-than-temporary impairment (OTTI) model. ASUNo. 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASUIn May 2019, the FASB issued Accounting Standards Update (ASU) No. 2019-05 “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief.” ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost and are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU No. 2019-05 is effective for United on the same date as ASU No. 2016-13, which is January 1, 2020 for United, with early adoption permitted,permitted. United has completed an initial data gap assessment and managementloan segmentation procedures and is currently evaluating the various forecasting and modeling assumptions that will be used to estimate the initial current expected credit loss allowance. In addition, United is currently working through the implementation plan which includes documentation of methodologies, processes, data sources, internal controls and policies, as well as model development, documentation and validation. United has engaged a third-party service provider to assist with the implementation of the new accounting standard. Management is currently evaluating the possible impact this standard may have on the Company’s financial condition or results of operations.

In March 2016, the FASB issued ASUNo. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASUNo. 2016-09 will change certain aspects of accounting for share-based payments to employees. The new guidance will, amongst other things, require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The requirement to report those income tax effects in earnings was applied to settlements occurring on or after January 1, 2017 and the impact of applying that guidance reduced reporting income tax expense by $1,048 for the year of 2017. ASUNo. 2016-09 also allows an employer to repurchase more of an employee’s shares than it could previously for tax withholding purposes without triggering liability accounting and make a policy election to account for forfeitures as they occur. The Company will continue to estimate the number of awards expected to be forfeited and adjust the estimate when it is no longer probable that the employee will fulfill the service condition, as was previously required. ASUNo. 2016-09 also requires that all incometax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows. Previously, income tax benefits at settlement of an award were reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award’s vesting period. The adoption of ASUNo. 2016-09 did not have a material impact on the Company’s financial condition or results of operations.

In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842)”. ASUNo. 2016-02 includes a lessee accounting model that recognizes two types of leases, finance leases and operating leases, while lessor accounting will remain largely unchanged from the current GAAP. ASUNo. 2016-02 requires, amongst other things, that a lessee recognize on the balance sheet aright-of-use asset and a lease liability for leases which has not yet been quantified, with terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. In July 2018, the FASB issued ASUNo. 2018-11 “Leases (Topic 842), Targeted Improvements.” This update creates an additional transition method, and a lessor practical expedient to not separate lease andnon-lease components if specified criteria are met. The new transition method allows companies to use the effective date of the new leases standard as the date of initial application transition. Companies that elect this transition option will not adjust their comparative period financial information for the effect of ASC Topic 842, nor will they make the new required lease disclosure for periods before the effective date. In addition, these companies will carry forward their ASC Topic 840 disclosures for comparative periods. The practical expedient permits lessors to make an accounting policy election by class of underlying asset to not separate lease andnon-lease components if specified criteria are met. In July 2018, the FASB issued ASUNo. 2018-10 “Codification Improvements to ASC Topic 842, Leases.” This update includes narrow amendments to clarify how to apply certain aspects of the new leases standard. The amendments address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. ASU2018-10 does not make any substantive changes to the core provisions or principals of the new leases standard. The Company expects to adoptUnited adopted the new guidancestandard using the modified retrospective transition method on January 1, 2019 and use the effective date as the date of initial application.

2019. The Company is currently assessing the impact of the adoption of ASUNo. 2016-02 on the Company’s results of operations, financial position and cash flows. The Company has evaluated and plans to electelected the package of practical expedients, which would allowallows for existing leases to be accounted for consistent with current guidance, with the exception of the balance sheet recognition for lessees. AsThe Company has also elected the practical expedient on not separating lease and nonlease components and instead treating them as a lessee, United had $69,844 in total future minimumsingle lease payments for operating leases as


component. Adoption of the leases is currently under evaluation. To assist in determining this information as well as the additional requirements of the new standard the Company has evaluated and selected a third-party lease accounting software solution as part of its implementation strategy. All lease data necessary to apply the new standard has been accumulated and entered into the new leasing software program. The Company is currently in the process of validating the accuracy of such information. The Company is also finalizing documentation of the new lease accounting process and has drafted internal controls over financial reporting as part of the implementation process.

In January 2016, the FASB issued ASUNo. 2016-01, “Financial Instruments Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU2016-01 makes changes to the classification and measurement of investments in equity securities, the presentation of certain fair value changes for financial liabilities measured at fair value under the fair value option and disclosure of fair value of instruments. In addition, ASUNo. 2016-01 clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses onavailable-for-sale debt securities. ASUNo. 2016-01 was adopted by United on January 1, 2018 and did not have a significant impact on the Company’s financial condition or results of operations.

In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASUNo. 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance throughout the ASC. The amendments require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new revenue recognition standard sets forth a five-step principle-based approach for determining revenue recognition. For United, revenue is comprised of net interest income and noninterest income. As the standard does not apply to revenue associated with financial instruments, net interest income, gains and losses from securities, income from bank-owned life insurance (BOLI) and income from mortgage banking activities are not impacted by the standard. Based on a review and evaluation of a number of revenue contracts, United’s management determined that ASUNo. 2014-09 impacts certain recurring revenue streams related to noninterest income such as fees from trust and brokerage services. However, based on an assessment of these revenue streams under the standard, management concluded that ASUNo. 2014-09 does not have a material impact on the Company’s financial condition or results of operations. In addition, in the Company’s evaluation of the nature of its contracts with customers, United has determined that further disaggregation of revenue from contracts with customers into more granular categories beyond those presented in the Consolidated Statements of Income was not necessary. ASUNo. 2014-09 was adopted by United on January 1, 2018 using the modified-retrospective transition method. No cumulative effect adjustment was made to the opening balance of retained earnings because the amount was considered immaterial. The impact of ASUNo. 2014-09 for the first nine months of 2018 was also immaterial to United’s consolidated financial position, results of operations, shareholders’ equity, cash flows and disclosures.

Descriptions of our revenue-generating activities that are within the scope of ASC Topic 606, which are presented in our Consolidated Statements of Income as components of Other Income are discussed below. There are no significant judgements relating to the amount and timing of revenue recognition for those revenue streams under the scope of ASC Topic 606.

Fees from Trust Services

Revenue from trust services primarily is comprised of fees earned from the management and administration of trusts and other customer assets. Trust services include custody of assets, investment management, escrow services, and similar fiduciary activities. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon themonth-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts.

Fees from Brokerage Services

Revenue from brokerage services are recorded as the income is earned at the time the related service is performed. In return for such services, the Company charges a commission for the sales of various securities products primarily consisting of investment company shares, annuity products, and corporate debt and equity securities, for its selling and administrative efforts. For account supervision, advisory and administrative services, revenue is recognized over a period of time as earned based on customer account balances and activity.

Fees from Deposit Services

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, ATM activity fees, debit card fees, and other deposit account related fees. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (ATM or debit card activity).

Bankcard Fees and Merchant Discounts

Bankcard fees and merchant discounts are primarily comprised of credit card income and merchant services income. Credit card income is primarily comprised of interchange fees earned whenever the Company’s credit cards are processed through card payment networks such as Visa. Merchant services income mainly represents fees charged to merchants to process their credit card transactions. The Company’s performance obligation for bankcard fees and exchange are largely satisfied, and related revenue recognized at the time services are rendered. Payment is typically received immediately or in the following month.

2. MERGERS AND ACQUISITIONS

Cardinal Financial Corporation

On April 21, 2017 (Cardinal Acquisition Date), United acquired 100% of the outstanding common stock of Cardinal Financial Corporation (Cardinal), headquartered in Tysons Corner, Virginia. The acquisition of Cardinal expands United’s existing footprint in the Washington, D.C. Metropolitan Statistical Area. At consummation, Cardinal had assets of $4,136,008, loans of $3,313,033 and deposits of $3,344,740. Cardinal also operated George Mason Mortgage, LLC (George Mason), a residential mortgage lending company based in Fairfax, Virginia with offices located in Virginia, Maryland, North Carolina, South Carolina and the District of Columbia. As a result of the merger, George Mason became an indirectly-owned subsidiary of United.

The merger was accounted for under the acquisition method of accounting. The results of operations of Cardinal are included in the consolidated results of operations from the Cardinal Acquisition Date.

The aggregate purchase price was approximately $975,254, including common stock valued at $972,499, stock options assumed valued at $2,741, and cash paid for fractional shares of $14. The number of shares issued in the transaction was 23,690,589, which were valued based on the closing market price of $41.05 for United’s common shares on April 21, 2017. The purchase price has been allocated to the identifiable tangible and intangible assets

resulting in additions to goodwill, core deposit intangibles and the George Mason trade name intangible of $612,920, $28,724 and $1,080, respectively. The core deposit intangibles are being amortized over ten years. The George Mason trade name provides a source of market recognition to attract potential clients and retain existing relationships. United believes the George Mason 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 Cardinal acquisition is deductible for tax purposes. United used an independent third party to help determine the fair values of the assets and liabilities acquired from Cardinal. As a result of the merger, United recorded fair value discounts of $144,434 on the loans acquired, $2,281 on leases and $8,738 on trust preferred issuances, respectively, and premiums of $4,408 on land acquired, $5,072 on interest-bearing deposits and $10,740 on long-term FHLB advances, respectively. The remaining discount and premium amounts are being accreted or amortized on an accelerated or straight-line basis over each asset’s or liability’s estimated remaining life at the time of acquisition except for loans and land. The discount on loans will be accreted into income based on the effective yield method. The premium on land will not be amortized. At September 30, 2018, the discounts on leases and trust preferred issuances had an average estimated remaining life of 5.00 years and 15.97 years, respectively, and the premiums on the interest-bearing deposits and the FHLB advances each had an average estimated remaining life of 4.00 years and 3.81 years, respectively. United assumed approximately $1,825 of liabilities to provide severance benefits to terminated employees of Cardinal, which has no remaining balance as of September 30, 2018. The estimated fair values of the acquired assets and assumed liabilities, including identifiable intangible assets and goodwill are considered final as of April 21, 2018.

In many cases, determining the estimated fair value of the acquired assets and assumed liabilities required United to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations related to the fair value of acquired loans. The fair value of the acquired loans was based on the present value of the expected cash flows. Periodic principal and interest cash flows were adjusted for expected losses and prepayments, then discounted to determine the present value and summed to arrive at the estimated fair value. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry-over of Cardinal’s previously established allowance for loan losses.

The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC Topic310-30 (acquired impaired) and loans that do not meet this criteria, which are accounted for under ASC Topic310-20 (acquired performing). Acquired impaired loans have experienced a deterioration of credit quality from origination to acquisition for which it is probable that United will be unable to collect all contractually required payments receivable, including both principal and interest. Subsequent decreases in the expected cash flows require United to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows generally resultresulted in the recognition of additional interest income over the then remaining lives of the loans.

In conjunction with the Cardinal merger, the acquired loan portfolio was accounted for at fair value as follows:

   April 21,
2017
 

Contractually required principal and interest at acquisition

  $4,211,734 

Contractual cash flows not expected to be collected

   (56,176
  

 

 

 

Expected cash flows at acquisition

   4,155,558 

Interest component of expected cash flows

   (986,959
  

 

 

 

Basis in acquired loans at acquisition – estimated fair value

  $3,168,599 
  

 

 

 

Included in the above table is information related to acquired impaired loans. Specifically, contractually required principal and interest, cash flows expected to be collected and estimated fair value of acquired impaired loans were $132,837, $108,275, and $86,696, respectively.

The consideration paid for Cardinal’s common equity and the amounts of acquired identifiablenet lease assets and lease liabilities assumedof $

67,040
and $
70,692
, respectively, as of January 1, 2019. Of the Cardinal Acquisition Date weredifference between these two amounts, $
1,049
was recorded as follows:

Purchase price:

  

Value of common shares issued (23,690,589 shares)

  $972,499 

Fair value of stock options assumed

   2,741 

Cash for fractional shares

   14 
  

 

 

 

Total purchase price

   975,254 
  

 

 

 

Identifiable assets:

  

Cash and cash equivalents

   44,545 

Investment securities

   395,829 

Loans held for sale

   271,301 

Loans

   3,168,599 

Premises and equipment

   24,774 

Core deposit intangibles

   28,724 

George Mason trade name intangible

   1,080 

Other assets

   135,383 
  

 

 

 

Total identifiable assets

  $4,070,235 

Identifiable liabilities:

  

Deposits

  $3,349,812 

Short-term borrowings

   96,215 

Long-term borrowings

   220,119 

Unfavorable lease liability

   2,281 

Other liabilities

   39,474 
  

 

 

 

Total identifiable liabilities

   3,707,901 
  

 

 

 

Fair value of net assets acquired including identifiable intangible assets

   362,334 
  

 

 

 

Resulting goodwill

  $612,920 
  

 

 

 

The operating results of United for the nine months ended September 30, 2018 include operating results of acquired assets and assumed liabilities. The operations of United’s metropolitan Washington D.C. geographic area, which primarily includes the acquired operations of Cardinal, provided $519,747 in total revenues, which represents net interest income plus other income, and $270,914 in net income from the period from the Cardinal Acquisition Datean adjustment to September 30, 2018. These amounts are included in United’s consolidated financial statements as of and for the nine months ended September 30, 2018. Cardinal’s results of operations prior to the Cardinal Acquisition Date are not included in United’s consolidated financial statements.

retained earnings.

3.

2. INVESTMENT SECURITIES

Securities Available for Sale

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

   September 30, 2018 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair Value
   Cumulative
OTTI in
AOCI (1)
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $103,237   $0   $1,672   $101,565   $0 

State and political subdivisions

   258,656    440    6,850    252,246    0 

Residential mortgage-backed securities

          

Agency

   973,307    541    30,201    943,647    0 

Non-agency

   4,086    486    0    4,572    86 

Commercial mortgage-backed securities

          

Agency

   557,211    71    13,630    543,652    0 

Asset-backed securities

   223,350    638    386    223,602    0 

Trust preferred collateralized debt obligations

   6,176    253    275    6,154    2,586 

Single issue trust preferred securities

   8,748    127    771    8,104    0 

Other corporate securities

   96,113    51    1,139    95,025    0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $2,230,884   $2,607   $54,924   $2,178,567   $2,672 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   December 31, 2017 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair Value
   Cumulative
OTTI in
AOCI (1)
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $114,735   $385   $362   $114,758   $0 

State and political subdivisions

   303,101    3,197    2,429    303,869    0 

Residential mortgage-backed securities

          

Agency

   821,857    2,096    9,360    814,593    0 

Non-agency

   4,969    543    0    5,512    86 

Commercial mortgage-backed securities

          

Agency

   457,107    1,059    3,309    454,857    0 

Asset-backed securities

   109,829    148    7    109,970    0 

Trust preferred collateralized debt obligations

   37,856    542    4,129    34,269    20,770 

Single issue trust preferred securities

   13,417    368    1,225    12,560    0 

Other corporate securities

   28,101    407    18    28,490    0 

Marketable equity securities

   9,712    179    13    9,878    0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,900,684   $8,924   $20,852   $1,888,756   $20,856 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

                     
 
June 30, 2019
 
   
Gross
  
Gross
  
Estimated
  
Cumulative
 
 
Amortized
  
Unrealized
  
Unrealized
  
Fair
  
OTTI in
 
 
Cost
  
Gains
  
Losses
  
Value
  
AOCI
(1)
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
73,369
  $
1,116
  $
1
  $
74,484
  $
0
 
State and political subdivisions
  
178,833
   
2,968
   
542
   
181,259
   
0
 
Residential mortgage-backed securities
               
Agency
  
866,597
   
12,539
   
1,569
   
877,567
   
0
 
Non-agency
  
3,598
   
380
   
0
   
3,978
   
86
 
Commercial mortgage-backed securities
               
Agency
  
566,366
   
8,738
   
383
   
574,721
   
0
 
Asset-backed securities
  
272,423
   
0
   
3,569
   
268,854
   
0
 
Trust preferred collateralized debt obligations
  
6,136
   
0
   
723
   
5,413
   
398
 
Single issue trust preferred securities
  
18,180
   
175
   
1,511
   
16,844
   
0
 
Other corporate securities
  
338,784
   
3,900
   
13
   
342,671
   
0
 
                     
Total
 
2,324,286
  $
29,816
  $
8,311
  
2,345,791
  $
484
 
                     
                     
 
December 31, 2018
 
   
Gross
  
Gross
  
Estimated
  
Cumulative
 
 
Amortized
  
Unrealized
  
Unrealized
  
Fair
  
OTTI in
 
 
Cost
  
Gains
  
Losses
  
Value
  
AOCI
(1)
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
86,285
  $
35
  $
430
  $
85,890
  $
0
 
State and political subdivisions
  
212,670
   
439
   
4,121
   
208,988
   
0
 
Residential mortgage-backed securities
               
Agency
  
1,047,345
   
3,235
   
14,930
   
1,035,650
   
0
 
Non-agency
  
3,927
   
332
   
0
   
4,259
   
86
 
Commercial mortgage-backed securities
               
Agency
  
560,634
   
996
   
7,030
   
554,600
   
0
 
Asset-backed securities
  
272,459
   
450
   
939
   
271,970
   
0
 
Trust preferred collateralized debt obligations
  
6,176
   
91
   
350
   
5,917
   
2,586
 
Single issue trust preferred securities
  
8,754
   
169
   
561
   
8,362
   
0
 
Other corporate securities
  
162,634
   
118
   
1,349
   
161,403
   
0
 
                     
Total
 $
2,360,884
  $
5,865
  $
29,710
  $
2,337,039
  $
2,672
 
                     
(1)

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

14
The following is a summary of securitiesavailable-for-sale available for sale which were in an unrealized loss position at SeptemberJune 30, 20182019 and December 31, 2017.

   Less than 12 months   12 months or longer 

September 30, 2018

  Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $89,255   $1,233   $12,311   $439 

State and political subdivisions

   127,202    2,166    80,886    4,684 

Residential mortgage-backed securities

        

Agency

   612,343    15,591    300,669    14,610 

Non-agency

   0    0    0    0 

Commercial mortgage-backed securities

        

Agency

   318,487    7,693    209,241    5,937 

Asset-backed securities

   92,432    386    0    0 

Trust preferred collateralized debt obligations

   0    0    2,225    275 

Single issue trust preferred securities

   0    0    4,950    771 

Other corporate securities

   78,095    1,139    0    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,317,814   $28,208   $610,282   $26,716 
  

 

 

   

 

 

   

 

 

   

 

 

 

   Less than 12 months   12 months or longer 

December 31, 2017

  Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $36,678   $230   $22,920   $132 

State and political subdivisions

   82,896    566    59,432    1,863 

Residential mortgage-backed securities

        

Agency

   460,414    4,621    182,482    4,739 

Non-agency

   0    0    0    0 

Commercial mortgage-backed securities

        

Agency

   282,858    2,386    70,763    923 

Asset-backed securities

   27,931    7    0    0 

Trust preferred collateralized debt obligations

   0    0    28,629    4,129 

Single issue trust preferred securities

   0    0    4,485    1,225 

Other corporate securities

   6,975    18    0    0 

Marketable equity securities

   0    0    363    13 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $897,752   $7,828   $369,074   $13,024 
  

 

 

   

 

 

   

 

 

   

 

 

 

2018.

                 
 
Less than 12 months
  
12 months or longer
 
 
Fair
  
Unrealized
  
Fair
  
Unrealized
 
 
Value
  
Losses
  
Value
  
Losses
 
June 30, 2019
            
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
0
  $
0
  $
2,621
  $
1
 
State and political subdivisions
  
1,127
   
6
   
50,689
   
536
 
Residential mortgage-backed securities
            
Agency
  
9,460
   
9
   
180,352
   
1,560
 
Non-agency
  
0
   
0
   
0
   
0
 
Commercial mortgage-backed securities
            
Agency
  
42,489
   
47
   
110,943
   
336
 
Asset-backed securities
  
261,566
   
3,462
   
7,288
   
107
 
Trust preferred collateralized debt obligations
  
0
   
0
   
5,412
   
723
 
Single issue trust preferred securities
  
0
   
0
   
13,633
   
1,511
 
Other corporate securities
  
12,679
   
13
   
0
   
0
 
                 
Total
 $327,321  $3,537  $370,938  $4,774 
                 
                 
 
Less than 12 months
  
12 months or longer
 
 
Fair
  
Unrealized
  
Fair
  
Unrealized
 
 
Value
  
Losses
  
Value
  
Losses
 
December 31, 2018
            
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
66,072
  $
250
  $
7,374
  $
180
 
State and political subdivisions
  
53,421
   
544
   
94,337
   
3,577
 
Residential mortgage-backed securities
            
Agency
  
195,009
   
1,597
   
508,041
   
13,333
 
Non-agency
  
0
   
0
   
0
   
0
 
Commercial mortgage-backed securities
            
Agency
  
107,443
   
1,124
   
294,129
   
5,906
 
Asset-backed securities
  
151,427
   
939
   
0
   
0
 
Trust preferred collateralized debt obligations
  
0
   
0
   
2,150
   
350
 
Single issue trust preferred securities
  
0
   
0
   
5,163
   
561
 
Other corporate securities
  
129,709
   
1,233
   
6,879
   
116
 
                 
Total
 $
703,081
  $
5,687
  $
918,073
  $
24,023
 
                 
The following table shows the proceeds from maturities, sales and calls of available for sale securities and the gross realized gains and losses on sales and calls of those securities that have been included in earnings as a result of thoseany sales and calls. Gains or losses on sales and calls of available for sale securities were recognized by the specific identification method. The realized losses relate to sales of securities within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries.

   Three Months Ended
September 30
   Nine Months Ended
September 30
 
   2018   2017   2018   2017 

Proceeds from sales and calls

  $109,093   $64,257   $283,953   $631,561 

Gross realized gains

   93    1,781    1,314    2,840 

Gross realized losses

   207    1,314    1,604    1,396 

15
                 
 
Three Months Ended
June 30
  
Six Months Ended
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Proceeds from sales and calls
 $
188,432
  $
75,157
  $
384,763
  $
174,860
 
Gross realized gains
  
739
   
58
   
754
   
1,221
 
Gross realized losses
  
608
   
85
   
972
   
1,397
 
At SeptemberJune 30, 2018,2019, gross unrealized losses on available for sale securities were $54,924$8,311 on 733245 securities of a total portfolio of 865 791
available for sale securities. Securities in anwith the most significant gross unrealized loss positionlosses at SeptemberJune 30, 20182019 consisted primarily of state and political subdivisionasset-backed securities, agency residential mortgage-backed securities, and agency commercial and residential mortgage-backedsingle issue trust preferred securities. The stateasset-backed securities 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 political subdivisions securities relate to securities issued by various municipalities.subordination in excess of the government guaranteed portion. The agency commercial and residential mortgage-backed securities relate to commercial and residential properties and provide a guaranty of full and timely payments of principal and interest by the issuing agency.

The single issue trust preferred securities relate to securities of financial institutions.

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

State and political subdivisions

United’s state and political subdivisions portfolio relates to securities issued by various municipalities located throughout the United States. The total amortized cost of available for sale state and political subdivision securities was $258,656 million$178,833 at SeptemberJune 30, 2018.2019. As of SeptemberJune 30, 2018,2019, approximately 76%77% of the portfolio was supported by the general obligation of the issuing municipality, which allows for the securities to be repaid by any means available to
the municipality. The majority of the portfolio was rated AA or higher, and less than one percent of the portfolio was rated below investment grade as of SeptemberJune 30, 2018.2019. In addition to monitoring the credit ratings of these securities, management also evaluates the financial performance of the underlying issuers on an ongoing basis. Based upon management’s analysis and judgment, it was determined that none of the state and political subdivision securities were other-than-temporarily impaired at SeptemberJune 30, 2018.

2019.

Agency mortgage-backed securities

United’s agency mortgage-backed securities portfolio relates to securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. The total amortized cost of available for sale agency mortgage-backed securities was $1,530,518$1,432,963 at SeptemberJune 30, 2018.2019. Of the $1,530,518 $
1,432,963
amount, $557,211$566,366 was related to agency commercial mortgage-backed securities and $973,307$866,597 was related to agency residential mortgage-backed securities. Each of the agency mortgage-backed securities provides a guarantee of full and timely payments of principal and interest by the issuing agency. Based upon management’s analysis and judgment, it was determined that none of the agency mortgage-backed securities were other-than-temporarily impaired at SeptemberJune 30, 2018.

2019.

Non-agency
residential mortgage-backed securities

United’s
non-agency
residential mortgage-backed securities portfolio relates to securities of various private label issuers. The total amortized cost of available for sale
non-agency
residential mortgage-backed securities was $4,086$3,598 at SeptemberJune 30, 2018.2019. Of the $4,086$
3,598
 amount, $170$8 was rated above investment grade and $3,916$3,590 was rated below investment grade. The entire portfolio of the
non-agency
residential mortgage-backed securities areis either the senior or super-senior tranches of their respective structure. Based upon management’s analysis and judgment, it was determined that noneone of thenon-agency mortgage-backed securities werewas other-than-temporarily impaired at SeptemberJune 30, 2018.

2019. The total amount of OTTI recognized in earnings on this security during the second quarter of 2019 was $21.

16
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). Management reviews each issuer’s current and projected earnings trends, asset quality, capitalization levels, and other key factors. Upon completing the review for the third

quarter of 2018, it was determined that none of the single issue trust preferred securities were other-than-temporarily impaired. 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 SeptemberJune 30, 20182019 consisted of $3,028$4,036 in investment grade bonds, $5,935 in split rated bonds, $2,480 in below investment grade rated bonds, and $5,720$5,729 in unrated bonds. The investment grade bonds were ratedBBB-. AllManagement 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 2019, it was determined that none of the unrated bondssingle issue trust preferred securities were in an unrealized loss position for twelve months or longer as of September 30, 2018.

other-than-temporarily impaired.

Trust preferred collateralized debt obligations (Trup Cdos)

The total amortized cost balance of United’s Trup Cdo portfolio was $6,176$6,136 as of SeptemberJune 30, 2018.2019. For any securities in an unrealized loss position, the Company first assesses its intentions regarding any sale of securities as well as the likelihood that it would be required to sell prior to recovery of the amortized cost. As of SeptemberJune 30, 2018,2019, the Company has determined that it does not intend to sell any Trup Cdo and that it is not more likely than not that the Company will be required to sell such securities before recovery of their amortized cost.

To determine a net realizable value and assess whether other-than-temporary impairment existed, management performed detailed cash flow analysis to determine whether, in management’s judgment, it was more likely that United would not recover the entire amortized cost basis of the security. Except forBased on this review, management determined that one of the debtTrup Cdo securities that have already been deemed to bewas other-than-temporarily impaired management does not believe any other individual security with an unrealized loss as of SeptemberJune 30, 2018 is other-than-temporarily impaired.

2019. The total amount of OTTI recognized in earnings on this security during the second quarter of 2019 was $54.

Corporate securities

As of SeptemberJune 30, 2018,2019, United’s Corporate securities portfolio had a total amortized cost balance of $96,113.$338,784. The majority of the portfolio consisted of debt issuances of corporations representing a variety of industries, including financial institutions. Of the $96,113, 78%$338,784, 94% was investment grade rated and 22%6% was unrated. For corporate 
securities, management has evaluated the near-term prospects of the investment in relation to the severity and duration of any impairmentimpairment. Based upon management’s analysis and based on that evaluation, managementjudgment, it was determined that nonone of the other corporate securities were other-than-temporarily impaired at SeptemberJune 30, 2018.

2019.

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

   Three Months Ended
September 30
   Nine Months Ended
September 30
 
   2018   2017   2018   2017 

Balance of cumulative credit losses at beginning of period

  $3,199   $22,162   $18,060   $22,162 

Reductions for securities sold or paid off during the period

   0    (4,102   (14,861   (4,102
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance of cumulative credit losses at end of period

  $3,199   $18,060   $3,199   $18,060 
  

 

 

   

 

 

   

 

 

   

 

 

 

                 
 
Three Months Ended
June 30
  
Six Months Ended
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Balance of cumulative credit losses at beginning of period
 $
3,138
  $
3,199
  $
3,138
  $
18,060
 
Additional credit losses on securities for which OTTI was previously recognized  54   0   54   0 
Reductions for securities sold or paid off during the period
  
0
   
0
   
0
   
(14,861
)
                 
Balance of cumulative credit losses at end of period
 $
3,192
  $
3,199
  $
3,192
  $
3,199
 
                 
The amortized cost and estimated fair value of securities available for sale at SeptemberJune 30, 20182019 and December 31, 20172018 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.

   September 30, 2018   December 31, 2017 
   Amortized
Cost
   Estimated
Fair Value
   Amortized
Cost
   Estimated
Fair Value
 

Due in one year or less

  $76,698   $76,346   $50,311   $50,212 

Due after one year through five years

   500,052    490,797    386,039    384,585 

Due after five years through ten years

   466,155    451,981    400,129    398,208 

Due after ten years

   1,187,979    1,159,443    1,054,493    1,045,873 

Marketable equity securities

   0    0    9,712    9,878 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $2,230,884   $2,178,567   $1,900,684   $1,888,756 
  

 

 

   

 

 

   

 

 

   

 

 

 

 17
                 
 
June 30, 2019
  
December 31, 2018
 
   
Estimated
    
Estimated
 
 
Amortized
  
Fair
  
Amortized
  
Fair
 
 
Cost
  
Value
  
Cost
  
Value
 
Due in one year or less
 $
150,318
  $
150,304
  $
77,534
  $
77,266
 
Due after one year through five years
  
560,933
   
567,674
   
518,975
   
514,734
 
Due after five years through ten years
  
519,370
   
527,238
   
483,567
   
477,135
 
Due after ten years
  
1,093,665
   
1,100,575
   
1,280,808
   
1,267,904
 
                 
Total
 $
2,324,286
  $
2,345,791
  $
2,360,884
  $
2,337,039
 
                 
Securities Held to Maturity

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

   September 30, 2018 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $5,103   $132   $0   $5,235 

State and political subdivisions

   5,798    8    1    5,805 

Residential mortgage-backed securities

        

Agency

   21    2    0    23 

Single issue trust preferred securities

   9,409    0    873    8,536 

Other corporate securities

   20    0    0    20 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $20,351   $142   $874   $19,619 
  

 

 

   

 

 

   

 

 

   

 

 

 

   December 31, 2017 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $5,187   $308   $0   $5,495 

State and political subdivisions

   5,797    10    0    5,807 

Residential mortgage-backed securities

        

Agency

   23    3    0    26 

Single issue trust preferred securities

   9,401    0    731    8,670 

Other corporate securities

   20    0    0    20 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $20,428   $321   $731   $20,018 
  

 

 

   

 

 

   

 

 

   

 

 

 

                 
 
June 30, 2019
 
   
Gross
  
Gross
  
Estimated
 
 
Amortized
  
Unrealized
  
Unrealized
  
Fair
 
 
Cost
  
Gains
  
Losses
  
Value
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
5,015
  $
21
  $
0
  $
5,036
 
State and political subdivisions
  
1,426
   
1
   
0
   
1,427
 
Residential mortgage-backed securities
            
Agency
  
0
   
0
   
0
   
0
 
Single issue trust preferred securities
  
0
   
0
   
0
   
0
 
Other corporate securities
  
20
   
0
   
0
   
20
 
                 
Total
 $
6,461
  $
22
  $
0
  $
6,483
 
                 
                 
 
December 31, 2018
 
   
Gross
  
Gross
  
Estimated
 
 
Amortized
  
Unrealized
  
Unrealized
  
Fair
 
 
Cost
  
Gains
  
Losses
  
Value
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies $5,074  $90  $0  $5,164 
State and political subdivisions  5,473   7   1   5,479 
Residential mortgage-backed securities            
Agency  20   2   0   22 
Single issue trust preferred securities  9,412   0   1,442   7,970 
Other corporate securities  20   0   0   20 
                 
Total $19,999  $99  $1,443  $18,655 
                 
Even though the market value of theheld-to-maturity held to maturity investment portfolio is less than its cost, the unrealized loss has no impact on the net worth or regulatory capital requirements of United. As of September 30, 2018, the Company’s largestheld-to-maturity single-issue trust preferred exposure was to SunTrust Bank ($7,432). The twoheld-to-maturity single-issue trust preferred exposures with at least one rating below investment grade included SunTrust Bank ($7,432) and Royal Bank of Scotland ($977).

There were no gross realized gains or losses on calls and sales of held to maturity securities included in earnings for the thirdsecond quarter and first ninesix months of 20182019 and 2017.

2018.

The amortized cost and estimated fair value of debt securities held to maturity at SeptemberJune 30, 20182019 and December 31, 20172018 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.

   September 30, 2018   December 31, 2017 
   Amortized
Cost
   Estimated
Fair
Value
   Amortized
Cost
   Estimated
Fair
Value
 

Due in one year or less

  $7,103   $7,235   $0   $0 

Due after one year through five years

   2,158    2,163    9,344    9,660 

Due after five years through ten years

   8,093    7,610    5,663    5,343 

Due after ten years

   2,997    2,611    5,421    5,015 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $20,351   $19,619   $20,428   $20,018 
  

 

 

   

 

 

   

 

 

   

 

 

 

18
                 
 
June 30, 2019
  
December 31, 2018
 
   
Estimated
    
Estimated
 
 
Amortized
  
Fair
  
Amortized
  
Fair
 
 
Cost
  
Value
  
Cost
  
Value
 
Due in one year or less $5,225  $5,246  $7,913  $8,005 
Due after one year through five years  216   217   1,059   1,061 
Due after five years through ten years  0   0   8,030   7,134 
Due after ten years  1,020   1,020   2,997   2,455 
                 
Total $6,461  $6,483  $19,999  $18,655 
                 
Equity securities at fair value

Equity securities consist mainly of equity securities of financial institutions and mutual funds within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key officers of United and its subsidiaries. The fair value of United’s equity securities was $9,845$9,098 at SeptemberJune 30, 2019 and $9,734 at December 31, 2018. Prior to the adoption of ASUNo. 2016-01 on January 1, 2018, equity securities were included in available for sale securities.

   Three Months
Ended

September 30,
2018
   Nine Months
Ended

September 30,
2018
 

Net losses recognized during the period

  $(38  $(102

Net losses recognized during the period on equity securities sold

   (2   (4

Unrealized gains recognized during the period on equity securities still held at period end

   0    50 

Unrealized losses recognized during the period on equity securities still held at period end

   36    148 

                 
 
Three Months Ended
June 30
  
Six Months Ended
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Net gains (losses) recognized during the period $55  $(28) $244  $(64)
Net gains (losses) recognized during the period on equity securities sold  2   (4)  134   (2)
Unrealized gains recognized during the period on equity securities still held at period end  64   11   122   50 
Unrealized losses recognized during the period on equity securities still held at period end  11   35   12   112 
Other investment securities

During the thirdsecond quarter of 2018,2019, United evaluated all of its cost method investments to determine if certain events or changes in circumstances during the thirdsecond quarter of 20182019 had a significant adverse effect on the fair value of any of its cost method securities. United determined that there was no individual security that experienced an adverse event during the thirdsecond quarter. There were no other events or changes in circumstances during the thirdsecond 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 $1,999,152$1,588,440 and $1,403,565$1,887,176 at SeptemberJune 30, 20182019 and December 31, 2017,2018 respectively.

4.

19
3. LOANS

Major classes of loans are as follows:

   September 30,
2018
   December 31,
2017
 

Commercial, financial and agricultural:

    

Owner-occupied commercial real estate

  $1,336,434   $1,361,629 

Nonowner-occupied commercial real estate

   4,341,501    4,451,298 

Other commercial loans

   1,932,919    1,998,979 
  

 

 

   

 

 

 

Total commercial, financial & agricultural

   7,610,854    7,811,906 

Residential real estate

   3,387,268    2,996,171 

Construction & land development

   1,379,985    1,504,907 

Consumer:

    

Bankcard

   9,530    10,314 

Other consumer

   899,074    704,039 
  

 

 

   

 

 

 

Total gross loans

  $13,286,711   $13,027,337 
  

 

 

   

 

 

 

         
 
June 30,
2019
  
December 31,
2018
 
Commercial, financial and agricultural:      
Owner-occupied commercial real estate $1,239,954  $1,291,790 
Nonowner-occupied commercial real estate  4,194,064   4,303,613 
Other commercial loans  2,021,953   1,957,641 
         
Total commercial, financial & agricultural  7,455,971   7,553,044 
Residential real estate  3,674,005   3,501,393 
Construction & land development  1,464,064   1,410,468 
Consumer:      
Bankcard  9,380   10,203 
Other consumer  1,036,526   954,424 
         
Total gross loans $13,639,946  $13,429,532 
         
The table above does not include loans held for sale of $234,196$370,593 and $265,955$249,846 at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. Loans held for sale consist of single-family residential real estate loans originated for sale in the secondary market.

The outstanding balances in the table above include previously acquired impaired loans with a recorded investment of $155,526$111,611 or 1.17%0.82% of total gross loans at SeptemberJune 30, 20182019 and $210,521$149,737 or 1.62%1.12% of total gross loans at December 31, 2017.2018. The contractual principal in these acquired impaired loans was $205,034$144,127 and $285,964$195,706 at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. The balances above do not include future accretable net interest (i.e. the difference between the undiscounted expected cash flows and the recorded investment in the loan) on the acquired impaired loans.

Activity for the accretable yield for the first ninesix months of 20182019 follows:

Accretable yield at the beginning of the period

  $39,098 

Accretion (including cash recoveries)

   (8,371

Additions

   691 

Net reclassifications to accretable fromnon-accretable

   9,112 

Disposals (including maturities, foreclosures, and charge-offs)

   (3,323
  

 

 

 

Accretable yield at the end of the period

  $37,207 
  

 

 

 

     
Accretable yield at the beginning of the period $26,289 
Accretion (including cash recoveries)  (5,850)
Additions  0 
Net reclassifications to accretable from non-accretable  7,051 
Disposals (including maturities, foreclosures, and charge-offs)  (4,335)
     
Accretable yield at the end of the period $23,155 
     
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 $25,826$85,506 and $36,360$93,282 at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.

5.

4. CREDIT QUALITY

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

For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on nonaccrual status. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. However, regardless of delinquency status, if a loan is fully secured and in the process of collection and resolution of collection is expected in the near term (generally less than 90 days), then the loan will not be placed on nonaccrual status. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan
 20
losses. United’s method of income recognition for loans that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. Nonaccrual loans will not normally be returned to accrual status unless all past due principal and interest has been paid and the borrower has evidenced their ability to meet the contractual provisions of the note.

A loan is categorized as a troubled debt restructuring (TDR) if a concession is granted and there is deterioration in the financial condition of the borrower. TDRs can take the form of a reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary terms on the other loan, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, the reduction of accrued interest or any other concessionary type of renegotiated debt. As of SeptemberJune 30, 2018,2019, United had TDRs of $63,626$58,750 as compared to $50,129$59,425 as of December 31, 2017.2018. Of the $63,626$58,750 aggregate balance of TDRs at SeptemberJune 30, 2018, $50,9742019, $48,586 was on nonaccrual $85and $1,278 were 90 days or more past due and $1,778 were 30 to 8930-89 days past due. Of the $50,129$59,425 aggregate balance of TDRs at December 31, 2017, $30,868 was2018, $48,899 were on nonaccrual $95and $690 were 90 days or more past due and $1,254 were 30 to 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 SeptemberJune 30, 2018,2019, there were no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs. At SeptemberJune 30, 2018,2019, United had restructured loans in the amount of $1,646$1,801 that were modified by a reduction in the interest rate, $1,849$1,796 that were modified by a combination of a reduction in the interest rate and the principal and $60,131$55,153 that were modified by a change in terms.

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

The following table sets forth United’s troubled debt restructurings that have been restructured during the three months ended SeptemberJune 30, 2019 and 2018, segregated by class of loans. No loans were restructured during the three months ended September 30, 2017.

   Troubled Debt Restructurings
For the Three Months Ended
 
   September 30, 2018 
   Number
of
Contracts
   Pre-Modification
Outstanding
Recorded
Investment
   Post-
Modification
Outstanding
Recorded
Investment
 

Commercial real estate:

      

Owner-occupied

   0   $0   $0 

Nonowner-occupied

   0    0    0 

Other commercial

   5    7,420    7,364 

Residential real estate

   1    272    272 

Construction & land development

   0    0    0 

Consumer:

      

Bankcard

   0    0    0 

Other consumer

   0    0    0 
  

 

 

   

 

 

   

 

 

 

Total

   6   $7,692   $7,636 
  

 

 

   

 

 

   

 

 

 
loans:

                         
 
Troubled Debt Restructurings
For the Three Months Ended
 
 
June 30, 2019
  
June 30, 2018
 
 
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
  $
  150
  $
  150
   
0
  $
0
  $
0
 
Nonowner-occupied
  
0
   
0
   
0
   
0
   
0
   
0
 
Other commercial
  
1
   
559
   
559
   
4
   
9,571
   
9,571
 
Residential real estate
  
2
   
1,845
   
1,832
   
2
   
6,953
   
6,953
 
Construction & land
development
  
3
   
2,242
   
2,202
   
0
   
0
   
0
 
Consumer:
                  
Bankcard
  
0
   
0
   
0
   
0
   
0
   
0
 
Other consumer
  
0
   
0
   
0
   
0
   
0
   
0
 
                         
Total
  
7
  $
  4,796
  $
  4,743
   
6
  $
  16,524
  $
  16,524
 
                         


The following table sets forth United’s troubled debt restructurings that have been restructured during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, segregated by class of loans:

   Troubled Debt Restructurings
For the Nine Months Ended
 
   September 30, 2018   September 30, 2017 
   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    1   $5,333   $5,333 

Nonowner-occupied

   0    0    0    0    0    0 

Other commercial

   9    16,992    16,890    8    24,102    22,291 

Residential real estate

   3    7,225    7,225    0    0    0 

Construction & land development

   0    0    0    1    1,456    1,400 

Consumer:

            

Bankcard

   0    0    0    0    0    0 

Other consumer

   0    0    0    0    0    0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   12   $24,217   $24,115    10   $30,891   $29,024 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

                         
 
Troubled Debt Restructurings
For the Six Months Ended
 
 
June 30, 2019
  
June 30, 2018
 
 
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
  $
150
  $
150
   
0
  $
0
  $
0
 
Nonowner-occupied
  
0
   
0
   
0
   
0
   
0
   
0
 
Other commercial
  
2
   
824
   
811
   
4
   
9,571
   
9,571
 
Residential real estate
  
3
   
2,258
   
2,234
   
2
   
6,953
   
6,953
 
Construction & land
development
  
3
   
2,242
   
2,202
   
0
   
0
   
0
 
Consumer:
                  
Bankcard
  
0
   
0
   
0
   
0
   
0
   
0
 
Other consumer
  
0
   
0
   
0
   
0
   
0
   
0
 
                         
Total
  
9
  $
  5,474
  $
  5,397
   
6
  $
  16,524
  $
  16,524
 
                         
During the thirdsecond quarter and first nine months of 2018, $7,636 and $24,1152019, $4,743 of restructured loans were modified by a change in loanterms. For the first six months of 2019, $
251
 thousand of restructured loans were modified by an interest rate reduction and $5,146 of restructured loans were modified by a change in terms. During the second quarter and first ninesix months of 2017, $29,0242018, $16,524 of restructured loans were modified by a change in loan terms. In some instances, the post-modification balance on the restructured loans is larger than thepre-modification balance due to the advancement of monies for items such as delinquent taxes on real estate property. The loans were evaluated individually for allocation within United’s allowance for loan losses. The modifications had an immaterial impact on the financial condition and results of operations for United.

The following table presents troubled debt restructurings, by class of loan, that were restructured during the twelve-month period ended June 30, 2019 and had charge-offs during the three months and ninesix months ended SeptemberJune 30, 2018.

   Three Months Ended
September 30, 2018
   Nine Months Ended
September 30, 2018
 
(In thousands)  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

   1    622    1    622 

Residential real estate

   0    0    0    0 

Construction & land development

   0    0    0    0 

Consumer:

        

Bankcard

   0    0    0    0 

Other consumer

   0    0    0    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   1   $622    1   $622 
  

 

 

   

 

 

   

 

 

   

 

 

 

2019. No troubled debt restructurings had charge-offs during the second quarter of 2019.

         
 
Six Months Ended
June 30, 2019
 
(In thousands)
 
Number of
Contracts
  
Recorded
Investment
 
Troubled Debt Restructurings
      
Commercial real estate:
      
Owner-occupied
  
0
  $
  0
 
Nonowner-occupied
  
0
   
0
 
Other commercial
  
1
   
1,321
 
Residential real estate
  
0
   
0
 
Construction & land development
  
0
   
0
 
Consumer:
      
Bankcard
  
0
   
0
 
Other consumer
  
0
   
0
 
         
Total
  
1
  $
1,321
 
         
No loans restructured during the twelve-month period ended SeptemberJune 30, 20172018 subsequently defaulted, resulting in a principalcharge-off during the three monthssecond quarter and first ninesix months ended September 30, 2017.

of 2018.

 22
The following table sets forth United’s age analysis of its past due loans, segregated by class of loans:

Age Analysis of Past Due Loans

As of September 30, 2018

 
   30-89
Days
Past Due
   90 Days or
more Past
Due
   Total Past
Due
   Current &
Other (1)
   Total
Financing
Receivables
   Recorded
Investment
>90 Days &
Accruing
 

Commercial real estate:

            

Owner-occupied

  $11,089   $18,009   $29,098   $1,307,336   $1,336,434   $1,431 

Nonowner-occupied

   17,182    17,557    34,739    4,306,762    4,341,501    2,015 

Other commercial

   7,413    49,467    56,880    1,876,039    1,932,919    1,326 

Residential real estate

   35,646    30,519    66,165    3,321,103    3,387,268    9,941 

Construction & land development

   3,406    17,069    20,475    1,359,510    1,379,985    642 

Consumer:

            

Bankcard

   649    177    826    8,704    9,530    177 

Other consumer

   7,874    763    8,637    890,437    899,074    502 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $83,259   $133,561   $216,820   $13,069,891   $13,286,711   $16,034 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Age Analysis of Past Due Loans
As of June 30, 2019
                         
 
30-89
Days
Past 
Due
  
90 Days or
more Past
Due
  
Total Past
Due
  
Current &
Other (1)
  
Total
Financing
Receivables
  
Recorded
Investment
>90 Days
Accruing
 
Commercial real estate:
                  
Owner-occupied
 $
11,074
  $
17,603
  $
28,677
  $
1,211,277
  $
1,239,954
  $
1,136
 
Nonowner-occupied
  
7,572
   
19,678
   
27,250
   
4,166,814
   
4,194,064
   
2,713
 
Other commercial
  
10,075
   
44,843
   
54,918
   
1,967,035
   
2,021,953
   
745
 
Residential real estate
  
33,514
   
32,418
   
65,932
   
3,608,073
   
3,674,005
   
7,069
 
Construction & land
development
  
4,233
   
17,083
   
21,316
   
1,442,748
   
1,464,064
   
495
 
Consumer:
                  
Bankcard
  
450
   
129
   
579
   
8,801
   
9,380
   
129
 
Other consumer
  
8,011
   
684
   
8,695
   
1,027,831
   
1,036,526
   
442
 
                         
Total
 $
74,929
  $
132,438
  $
207,367
  $
13,432,579
  $
13,639,946
  $
12,729
 
                         
(1)

Other includes loans with a recorded investment of $155,526 $

111,611
acquired and accounted for under ASC Topic
310-30
“Loans and Debt Securities Acquired with Deteriorated Credit Quality”.
Age Analysis of Past Due Loans 
As of December 31, 2018
                         
 
30-89
Days
Past 
Due
  
90 Days or
more Past
Due
  
Total Past
Due
  
Current &
Other (1)
  
Total
Financing
Receivables
  
Recorded
Investment
>90 Days
 
Accruing
 
Commercial real estate:                  
Owner-occupied $9,224  $17,742  $26,966  $1,264,824  $1,291,790  $629 
Nonowner-occupied  16,108   18,092   34,200   4,269,413   4,303,613   1,171 
Other commercial  13,556   46,040   59,596   1,898,045   1,957,641   2,850 
Residential real estate  37,111   30,278   67,389   3,434,004   3,501,393   9,141 
Construction & land
development
  8,462   19,412   27,874   1,382,594   1,410,468   680 
Consumer:                  
Bankcard  657   177   834   9,369   10,203   177 
Other consumer  8,909   1,243   10,152   944,272   954,424   893 
                         
Total $94,027  $132,984  $227,011  $13,202,521  $13,429,532  $15,541 
                         
(1)Other includes loans with a recorded investment of $149,737 acquired and accounted for under ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.

Age Analysis of Past Due Loans 

As of December 31, 2017

 
(In thousands)  30-89
Days
Past Due
   90 Days or
more Past
Due
   Total Past
Due
   Current &
Other (1)
   Total
Financing
Receivables
   Recorded
Investment
>90
Days &
Accruing
 

Commercial real estate:

            

Owner-occupied

  $7,968   $13,663   $21,631   $1,339,998   $1,361,629   $458 

Nonowner-occupied

   10,398    20,448    30,846    4,420,452    4,451,298    634 

Other commercial

   11,533    68,476    80,009    1,918,970    1,998,979    940 

Residential real estate

   35,300    28,637    63,937    2,932,234    2,996,171    6,519 

Construction & land development

   1,615    17,190    18,805    1,486,102    1,504,907    385 

Consumer:

            

Bankcard

   449    186    635    9,679    10,314    186 

Other consumer

   9,288    968    10,256    693,783    704,039    775 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $76,551   $149,568   $226,119   $12,801,218   $13,027,337   $9,897 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Other includes loans with a recorded investment of $210,521 acquired and accounted for under ASC Topic310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality”.

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

Loans on Nonaccrual Status

 
   September 30,
2018
   December 31,
2017
 

Commercial real estate:

    

Owner-occupied

  $16,578   $13,205

Nonowner-occupied

   15,542    19,814

Other commercial

   48,141    67,536

Residential real estate

   20,578    22,118

Construction & land development

   16,427    16,805

Consumer:

    

Bankcard

   0    0

Other consumer

   261    193
  

 

 

   

 

 

 

Total

  $117,527   $139,671
  

 

 

   

 

 

 

Loans on Nonaccrual Status
         
 
June 30,
2019
  
December 31,
2018
 
Commercial real estate:      
Owner-occupied $16,467  $17,113 
Nonowner-occupied  16,965   16,921 
Other commercial  44,098   43,190 
Residential real estate  25,349   21,137 
Construction & land development  16,588   18,732 
Consumer:      
Bankcard  0   0 
Other consumer  242   350 
         
Total $119,709  $117,443 
         
 23
United assigns credit quality indicators of pass, special mention, substandard and doubtful to its loans. For United’s loans with a corporate credit exposure, United internally assigns a grade based on the creditworthiness of the borrower. For loans with a consumer credit exposure, United internally assigns a grade based upon an individual loan’s delinquency status. United reviews and updates, as necessary, these grades on a quarterly basis.

Special mention loans, with a corporate credit exposure, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company’s credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. For loans with a consumer credit exposure, loans that are past due30-89 days are generally considered special mention.

A substandard loan with a corporate credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard.

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


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

Credit Quality Indicators

Corporate Credit Exposure

As of September 30, 2018

 
   Commercial Real Estate         
   Owner-
occupied
   Nonowner-
occupied
   Other
Commercial
   Construction &
Land
Development
 

Grade:

        

Pass

  $1,266,769   $4,197,966   $1,827,465   $1,302,968 

Special mention

   15,221    60,293    13,528    4,715 

Substandard

   54,444    83,242    90,023    72,302 

Doubtful

   0    0    1,903    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,336,434   $4,341,501   $1,932,919   $1,379,985 
  

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2017

 
   Commercial Real Estate         
   Owner-
occupied
   Nonowner-
occupied
   Other
Commercial
   Construction &
Land
Development
 

Grade:

        

Pass

  $1,276,088   $4,312,985   $1,848,868   $1,413,706 

Special mention

   20,165    57,618    55,564    5,196 

Substandard

   65,376    80,695    90,625    86,005 

Doubtful

   0    0    3,922    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,361,629   $4,451,298   $1,998,979   $1,504,907 
  

 

 

   

 

 

   

 

 

   

 

 

 

As of June 30, 2019
 
 
Commercial Real Estate
  
Other
Commercial
  
Construction
& Land
Development
  
 
Owner-
occupied
  
Nonowner-
occupied
  
Grade:
            
Pass
 $
 1,146,018
  $
 4,080,814
  $
1,892,676
  $
1,377,072
 
Special mention
  
33,082
   
37,946
   
55,345
   
11,038
 
Substandard
  
60,854
   
75,304
   
73,497
   
75,954
 
Doubtful
  
0
   
0
   
435
   
0
 
                 
Total
 $
1,239,954
  $
4,194,064
  $
2,021,953
  $
1,464,064
 
                 
  
As of December 31, 2018
 
 
Commercial Real Estate
  
Other
Commercial
  
Construction
& Land
Development
  
 
Owner-
occupied
  
Nonowner-
occupied
  
Grade:
            
Pass
 $
1,201,387
  $
4,161,149
  $
1,858,821
  $
1,330,899
 
Special mention
  
34,487
   
46,442
   
14,424
   
28,629
 
Substandard
  
55,916
   
96,022
   
81,946
   
50,940
 
Doubtful
  
0
   
0
   
2,450
   
0
 
                 
Total
 $
1,291,790
  $
4,303,613
  $
1,957,641
  $
1,410,468
 
                 
Credit Quality Indicators

Consumer Credit Exposure

As of September 30, 2018

 
   Residential
Real Estate
   Bankcard   Other
Consumer
 

Grade:

      

Pass

  $3,322,863   $8,704   $890,411 

Special mention

   17,309    649    7,879 

Substandard

   47,096    177    784 

Doubtful

   0    0    0 
  

 

 

   

 

 

   

 

 

 

Total

  $3,387,268   $9,530   $899,074 
  

 

 

   

 

 

   

 

 

 

As of December 31, 2017

 
   Residential
Real Estate
   Bankcard   Other
Consumer
 

Grade:

      

Pass

  $2,945,266   $9,679   $693,727 

Special mention

   18,025    449    9,334 

Substandard

   32,880    186    978 

Doubtful

   0    0    0 
  

 

 

   

 

 

   

 

 

 

Total

  $2,996,171   $10,314   $704,039 
  

 

 

   

 

 

   

 

 

 

As of June 30, 2019
 
 
Residential
Real Estate
  
Bankcard
  
Other
Consumer
 
Grade:
         
Pass
 $
3,611,502
  $
8,801
  $
1,027,772
 
Special mention
  
15,833
   
450
   
8,015
 
Substandard
  
46,670
   
129
   
739
 
Doubtful
  
0
   
0
   
0
 
             
Total
 $
3,674,005
  $
9,380
  $
 
1,036,526
 
             
  
As of December 31, 2018
 
 
Residential
Real Estate
  
Bankcard
  
Other
Consumer
 
Grade:
         
Pass
 $
3,436,584
  $
9,369
  $
944,241
 
Special mention
  
19,051
   
657
   
8,914
 
Substandard
  
45,758
   
177
   
1,269
 
Doubtful
  
0
   
0
   
0
 
             
Total
 $
 
3,501,393
  $
 
10,203
  $
954,424
 
             
Loans are designated as impaired when, in the opinion of management, based on current informationinformation​​​​​​​ and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, United does not

consider loans for impairment unless a sustained period of delinquency (i.e. 90 days or more) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent

 25
Table of Contents
foreclosure proceedings, etc.). Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Consistent with United’s existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

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

   Impaired Loans 
   September 30, 2018   December 31, 2017 
   Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
 

With no related allowance recorded:

            

Commercial real estate:

            

Owner-occupied

  $58,367  $58,532  $0   $78,117  $78,419  $0 

Nonowner-occupied

   98,912   98,971   0    134,136   134,195   0 

Other commercial

   60,602   63,069   0    46,993   49,552   0 

Residential real estate

   33,190   34,041   0    26,751   28,202   0 

Construction & land development

   36,576   40,673   0    52,279   59,691   0 

Consumer:

            

Bankcard

   0   0   0    0   0   0 

Other consumer

   23   23   0    15   15   0 

With an allowance recorded:

            

Commercial real estate:

            

Owner-occupied

  $9,990   $9,990   $2,560   $9,132   $9,132  $2,251 

Nonowner-occupied

   14,468   14,468   2,683    7,797   7,797   1,592 

Other commercial

   50,454   59,052   16,500    60,512   70,396   16,721 

Residential real estate

   17,853   19,295   3,115    9,813   10,418   1,552

Construction & land development

   16,816   19,470   2,494    1,383   1,383   229

Consumer:

            

Bankcard

   0   0   0    0   0   0

Other consumer

   0   0   0    0   0   0

Total:

            

Commercial real estate:

            

Owner-occupied

  $68,357  $68,522  $2,560   $87,249  $87,551  $2,251 

Nonowner-occupied

   113,380   113,439   2,683    141,933   141,992   1,592 

Other commercial

   111,056   122,121   16,500    107,505   119,948   16,721 

Residential real estate

   51,043   53,336   3,115    36,564   38,620   1,552 

Construction & land development

   53,392   60,143   2,494    53,662   61,074   229 

Consumer:

            

Bankcard

   0   0   0    0   0   0 

Other consumer

   23   23   0    15    15    0 

 
Impaired Loans
 
 
June 30, 2019
  
December 31, 2018
 
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
 
With no related allowance recorded:
                  
Commercial real estate:
                  
Owner-occupied
 $
71,948
  $
73,267
  $
0
  $
63,633
  $
63,798
  $
0
 
Nonowner-occupied
  
50,228
   
50,294
   
0
   
98,845
   
98,904
   
0
 
Other commercial
  
63,121
   
68,326
   
0
   
40,291
   
50,459
   
0
 
Residential real estate
  
34,972
   
35,174
   
0
   
28,207
   
29,279
   
0
 
Construction & land development
  
36,868
   
43,318
   
0
   
37,174
   
40,459
   
0
 
Consumer:
                  
Bankcard
  
0
   
0
   
0
   
0
   
0
   
0
 
Other consumer
  
31
   
31
   
0
   
27
   
27
   
0
 
With an allowance recorded:
                  
Commercial real estate:
                  
Owner-occupied
 $
4,942
  $
4,942
  $
1,390
  $
10,004
  $
10,004
  $
2,542
 
Nonowner-occupied
  
10,371
   
10,371
   
1,524
   
15,720
   
15,720
   
2,715
 
Other commercial
  
35,166
   
37,403
   
7,805
   
61,266
   
62,812
   
17,581
 
Residential real estate
  
12,013
   
13,618
   
1,390
   
19,623
   
22,064
   
3,265
 
Construction & land development
  
14,085
   
16,135
   
1,954
   
14,742
   
19,446
   
2,254
 
Consumer:                        
Bankcard  0   0   0   0   0   0 
Other consumer  0   0   0   0   0   0 
Total:
                        
Commercial real estate:                        
Owner-occupied $
76,890
  $78,209  $1,390  $73,637  $73,802  $2,542 
Nonowner-occupied  
60,599
   60,665   1,524   114,565   114,624   2,715 
Other commercial  
98,287
   105,729   7,805   101,557   113,271   17,581 
Residential real estate  
46,985
   48,792   1,390   47,830   51,343   3,265 
Construction & land development  
50,953
   59,453   1,954   51,916   59,905   2,254 
Consumer:                        
Bankcard  0   0   0   0   0   0 
Other consumer  31   31   0   27   27   0 
   Impaired Loans 
   For the Three Months Ended 
   September 30, 2018   September 30, 2017 
   Average
Recorded
Investment
   Interest
Income
Recognized
   Average
Recorded
Investment
   Interest
Income
Recognized
 

With no related allowance recorded:

        

Commercial real estate:

        

Owner-occupied

  $65,625  $365  $74,111  $374

Nonowner-occupied

   99,005   311   148,753   178

Other commercial

   56,489   313   57,302   148

Residential real estate

   28,753   144   21,772   58

Construction & land development

   41,036   278   42,240   348

Consumer:

        

Bankcard

   0   0   0   0

Other consumer

   23    0    25    0 

With an allowance recorded:

        

Commercial real estate:

        

Owner-occupied

  $7,378   $6   $11,442  $78

Nonowner-occupied

   12,465   189   13,111   10

Other commercial

   47,563   305   71,886   42

Residential real estate

   14,975   57   15,276   16

Construction & land development

   9,408   20   1,602   21

Consumer:

        

Bankcard

   0   0   0   0

Other consumer

   0   0   0   0

Total:

        

Commercial real estate:

        

Owner-occupied

  $73,003  $371  $85,553  $452

Nonowner-occupied

   111,470   500   161,864   188

Other commercial

   104,052   618   129,188   190

Residential real estate

   43,728   201   37,048   74

Construction & land development

   50,444   298   43,842   369

Consumer:

        

Bankcard

   0   0   0   0

Other consumer

   23    0    25   0 

   Impaired Loans 
   For the Nine Months Ended 
   September 30, 2018   September 30, 2017 
   Average
Recorded
Investment
   Interest
Income
Recognized
   Average
Recorded
Investment
   Interest
Income
Recognized
 

With no related allowance recorded:

        

Commercial real estate:

        

Owner-occupied

  $69,009  $1,101  $70,477  $1,227

Nonowner-occupied

   105,199   928   121,811   551

Other commercial

   55,124   1,020   57,047   632

Residential real estate

   27,210   501   21,397   219

Construction & land development

   43,464   707   40,344   1,046

Consumer:

        

Bankcard

   0   0   0   0

Other consumer

   29    0    29   0

With an allowance recorded:

        

Commercial real estate:

        

Owner-occupied

  $6,876   $18   $12,141  $393

Nonowner-occupied

   11,158   251   13,492   108

Other commercial

   47,736   380   71,736   685

Residential real estate

   13,946   247   14,904   58 

Construction & land development

   6,944   60   2,195   63

Consumer:

        

Bankcard

   0   0   0   0

Other consumer

   0   0   0   0

Total:

        

Commercial real estate:

        

Owner-occupied

  $75,885  $1,119  $82,618  $1,620

Nonowner-occupied

   116,357   1,179   135,303   659

Other commercial

   102,860   1,400   128,783   1,317

Residential real estate

   41,156   748   36,301   277

Construction & land development

   50,408   767   42,539   1,109

Consumer:

        

Bankcard

   0   0   0   0

Other consumer

   29    0    29   0

                 
 
Impaired Loans
 
 
For the Three Months Ended
 
 
June 30, 2019
  
June 30, 2018
 
 
Average
Recorded
Investment
  
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Interest
Income
Recognized
 
With no related allowance recorded:
            
Commercial real estate:
            
Owner-occupied
 $
70,051
  $
467
  $
74,330
  $
354
 
Nonowner-occupied
  
68,371
   
354
   
108,343
   
159
 
Other commercial
  
52,659
   
327
   
52,384
   
246
 
Residential real estate
  
32,287
   
158
   
24,220
   
85
 
Construction & land development
  
36,654
   
199
   
46,909
   
98
 
Consumer:
            
Bankcard
  
0
   
0
   
0
   
0
 
Other consumer
  
29
   
0
   
32
   
0
 
26
 
 
Impaired Loans
 
 
 
For the Three Months Ended
 
 
 
June 30, 2019
 
 
June 30, 2018
 
 
 
 
Average Recorded Investment
 
 
Interest Income Recognized
 
 
Average Recorded Investment
 
 
Interest Income Recognized
 
With an allowance recorded:
            
Commercial real estate:
            
Owner-occupied
 $
5,212
  $
0
  $
5,319
  $
6
 
Nonowner-occupied
  
12,210
   
39
   
9,503
   
60
 
Other commercial
  
41,641
   
9
   
46,376
   
10
 
Residential real estate
  
14,451
   
48
   
11,992
   
11
 
Construction & land development
  
14,413
   
20
   
2,008
   
20
 
Consumer:
            
Bankcard
  
0
   
0
   
0
   
0
 
Other consumer
  
0
   
0
   
0
   
0
 
Total:
            
Commercial real estate:
            
Owner-occupied
 $
75,263
  $
467
  $
79,649
  $
360
 
Nonowner-occupied
  
80,581
   
393
   
117,846
   
219
 
Other commercial
  
94,300
   
336
   
98,760
   
256
 
Residential real estate
  
46,738
   
206
   
36,212
   
96
 
Construction & land development
  
51,067
   
219
   
48,917
   
118
 
Consumer:
            
Bankcard
  
0
   
0
   
0
   
0
 
Other consumer
  
29
   
0
   
32
   
0
 
                 
 
Impaired Loans
 
 
For the Six Months Ended
 
 
June 30, 2019
  
June 30, 2018
 
 
Average
Recorded
Investment
  
Interest
Income
Recognized
  
Average
Recorded
Investment
  
Interest
Income
Recognized
 
With no related allowance recorded:
            
Commercial real estate:
            
Owner-occupied
 $
67,911
  $
911
  $
75,592
  $
739
 
Nonowner-occupied
  
78,529
   
708
   
116,941
   
328
 
Other commercial
  
48,536
   
614
   
50,587
   
470
 
Residential real estate
  
30,927
   
342
   
25,064
   
180
 
Construction & land development
  
36,828
   
417
   
48,699
   
197
 
Consumer:
            
Bankcard
  
0
   
0
   
0
   
0
 
Other consumer
  
28
   
0
   
26
   
0
 
With an allowance recorded:
            
Commercial real estate:
            
Owner-occupied
 $
6,809
  $
0
  $
6,590
  $
31
 
Nonowner-occupied
  
13,380
   
84
   
8,934
   
119
 
Other commercial
  
48,183
   
49
   
51,088
   
28
 
Residential real estate
  
16,175
   
140
   
11,266
   
21
 
Construction & land development
  
14,522
   
40
   
1,800
   
40
 
Consumer:
            
Bankcard
  
0
   
0
   
0
   
0
 
Other consumer
  
0
   
0
   
0
   
0
 
Total:
            
Commercial real estate:
            
Owner-occupied
 $
74,720
  $
911
  $
82,182
  $
770
 
Nonowner-occupied
  
91,909
   
792
   
125,875
   
447
 
Other commercial
  
96,719
   
663
   
101,675
   
498
 
Residential real estate
  
47,102
   
482
   
36,330
   
201
 
Construction & land development
  
51,350
   
457
   
50,499
   
237
 
Consumer:
            
Bankcard
  
0
   
0
   
0
   
0
 
Other consumer
  
28
   
0
   
26
   
0
 
 27
At SeptemberJune 30, 20182019 and December 31, 2017,2018, other real estate owned (“OREO”) included in other assets in the Consolidated Balance Sheets was $18,786$14,469 and $24,348,$16,865, respectively. OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Any adjustment to the fair value at the date of transfer is charged against the allowance for loan losses. Any subsequent valuation adjustments as well as any costs relating to operating, holding or disposing of the property are recorded in other expense in the period incurred. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $569$288 and $873,$520, respectively.

6.

5. ALLOWANCE FOR CREDIT LOSSES

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

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

For consumer loans,
closed-end
retail loans that are past due 120 cumulative days delinquent from the contractual due date and
open-end
loans 180 cumulative days delinquent from the contractual due date are
charged-off.
Any

consumer loan on which a principal or interest payment has not been made within 90 days is reviewed monthly for appropriate action. For a

one-to-four
family
open-end
or
closed-end
residential real estate loan, home equity loan, or
high-loan-to-value
loan that has reached 180 or more days past due, management evaluates the collateral position and
charges-off
any amount that exceeds the value of the collateral. On retail credits for which the borrower is in bankruptcy, all amounts deemed unrecoverable are charged off within 60 days of the receipt of the notification. On retail credits effected by fraud, a loan is
charged-off
within 90 days of the discovery of the fraud. In the event of the borrower’s death and if repayment within the required timeframe is uncertain, the loan is generally
charged-off
as soon as the amount of the loss is determined.

For loans acquired through the completion of a transfer, including loans acquired in a business combination, that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that United will
28
be unable to collect all contractually required paymentspayment receivable are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received). For the three and ninesix months ended SeptemberJune 30, 2018,2019, there-estimation amount of the expected cash flowsprovision for loan losses related to loans acquired that have evidence of deterioration of credit quality resulted in provision for loan losses expense of $924$1,631 and $3,004,$3,268, respectively, as compared to a reversal of provision for loan losses expense of $43$801 and $415,$2,080, respectively, for the three and ninesix months ended SeptemberJune 30, 2017.

2018.

United maintains an allowance for loan losses and a reserve for lending-related commitments such as unfunded loan commitments and letters of credit. The reserve for lending-related commitments of $1,144$1,752 and $679$1,389 at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, is separately classified on the balance sheet and is included in other liabilities. The combined allowance for loan losses and reserve for lending-related commitments are referred to as the allowance for credit losses.

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

Allowance for Loan Losses

For the Three Months Ended September 30, 2018

 
   Commercial Real
Estate
   Other
Commercial
   Residential
Real
Estate
   Construction &
Land
Development
   Consumer   Allowance
for
Estimated
Imprecision
  Total 
  Owner-
occupied
   Nonowner-
occupied
 

Allowance for Loan Losses:

               

Beginning balance

  $3,213  $6,183  $48,191  $10,380  $6,592  $2,419  $157 $77,135

Charge-offs

   1,478   0   4,432   365   110   659   0  7,044

Recoveries

   415    395    394    558    134    146    0  2,042

Provision

   2,391   22   291   1,067   480   575   (18  4,808
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Ending balance

  $4,541  $6,600  $44,444  $11,640  $7,096  $2,481  $139  $76,941
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Allowance for Loan Losses and Carrying Amount of Loans

For the Nine Months Ended September 30, 2018

 
   Commercial Real Estate  Other
Commercial
   Residential
Real
Estate
   Construction &
Land
Development
   Consumer   Allowance
for
Estimated
Imprecision
   Total 
   Owner-
occupied
   Nonowner-
occupied
 

Allowance for Loan Losses:

               

Beginning balance

  $5,401  $6,369 $45,189  $9,927  $7,187  $2,481  $73  $76,627

Charge-offs

   3,221   314  13,095   1,357   642   1,985   0   20,614

Recoveries

   1,160    548   1,484    916    145    485    0   4,738

Provision

   1,201   (3  10,866   2,154   406   1,500   66   16,190
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $4,541  $6,600 $44,444  $11,640  $7,096  $2,481  $139   $76,941
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
               

Ending Balance: individually evaluated for impairment

  $2,560  $2,683  $16,500   $3,116   $2,494   $0  $0  $27,353

Ending Balance: collectively evaluated for impairment

  $1,981  $3,917  $27,944   $8,524   $4,602   $2,481  $139  $49,588

Ending Balance: loans acquired with deteriorated credit quality

  $0  $0 $0  $0  $0  $0  $0  $0

Financing receivables:

               

Ending balance

  $1,336,434  $4,341,501  $1,932,919   $3,387,268   $1,379,985  $908,604  $0  $13,286,711

Ending Balance: individually evaluated for impairment

  $29,391  $22,768  $73,544   $19,994   $16,875  $0  $0  $162,572

Ending Balance: collectively evaluated for impairment

  $1,284,114  $4,250,305  $1,830,646   $3,351,837   $1,343,130  $908,581  $0  $12,968,613

Ending Balance: loans acquired with deteriorated credit quality

  $22,929  $68,428  $28,729   $15,437   $19,980  $23  $0  $155,526
Allowance for Loan Losses

Allowance for Loan Losses and Carrying Amount of Loans

For the Year Ended December 31, 2017

 
   Commercial Real Estate  Other
Commercial
   Residential
Real
Estate
  Construction &
Land
Development
  Consumer   Allowance
for
Estimated
Imprecision
  Total 
   Owner-
occupied
  Nonowner-
occupied
 

Allowance for Loan Losses:

           

Beginning balance

  $5,273 $6,883 $33,087  $13,770 $10,606 $2,805  $347 $72,771

Charge-offs

   2,246  296  21,189   2,973  3,337  2,822   0  32,863

Recoveries

   2,599  244  3,395   601  726  748   0  8,313

Provision

   (225  (462  29,896   (1,471  (808  1,750   (274  28,406
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Ending balance

  $5,401 $6,369 $45,189  $9,927 $7,187 $2,481  $73 $76,627
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Ending Balance: individually evaluated for impairment

  $2,251  $1,592  $16,721   $1,552  $229  $0   $0  $22,345 

Ending Balance: collectively evaluated for impairment

  $3,150 $4,777 $28,468  $8,375 $6,958 $2,481  $73  $54,282

Ending Balance: loans acquired with deteriorated credit quality

  $0 $0 $0  $0 $0 $0  $0 $0

Financing receivables:

           

Ending balance

  $1,361,629 $4,451,298 $1,998,979  $2,996,171 $1,504,907 $714,353  $0 $13,027,337 

Ending Balance: individually evaluated for impairment

  $36,721 $21,851 $78,715  $14,316 $16,921 $0  $0 $168,524 

Ending Balance: collectively evaluated for impairment

  $1,291,379 $4,320,997 $1,892,706  $2,967,666 $1,461,206 $714,338  $0 $12,648,292 

Ending Balance: loans acquired with deteriorated credit quality

  $33,529 $108,450 $27,558  $14,189 $26,780 $15  $0 $210,521 

7.

For the Three Months Ended June 30, 2019
                                 
 
Commercial Real Estate
      
Construction
    
Allowance
for
    
 
Owner-
occupied
  
Nonowner-
occupied
  
Other
Commercial
  
Residential
Real Estate
  
& Land
  Development  
  
 Consumer 
  
Estimated
Imprecision
  
Total
 
Allowance for Loan Losses:
                        
Beginning balance
 $
6,164
  $
6,718
  $
40,664
  $
13,022
  $
7,186
  $
2,748
  $
384
  $
76,886
 
Charge-offs
  
2,784
   
69
   
3,645
   
309
   
8
   
773
   
0
   
7,588
 
Recoveries
  
714
   
22
   
420
   
269
   
39
   
221
   
0
   
1,685
 
Provision
  
1,503
   
(630
)  
7,270
   
(2,810
)  
(292
)  
527
   
(151
)  
5,417
 
                                 
Ending balance
 $
5,597
  $
6,041
  $
44,709
  $
10,172
  $
6,925
  $
2,723
  $
233
  $
 76,400
 
                                 
Allowance for Loan Losses and Carrying Amount of Loans
For the Six Months Ended June 30, 2019
                                 
 
Commercial Real Estate
      
Construction
    
Allowance
for
    
 
Owner-
occupied
  
Nonowner-
occupied
  
Other
Commercial
  
Residential
Real Estate
  
& Land
Development
  
Consumer
  
Estimated
Imprecision
  
Total
 
Allowance for Loan Losses:
                       
Beginning balance
 $
5,063
  $
6,919
  $
41,341
  $
12,448
  $
7,992
  $
2,695
  $
245
  $
76,703
 
Charge-offs
  
6,521
   
69
   
4,579
   
750
   
573
   
1,510
   
0
   
14,002
 
Recoveries
  
1,618
   
41
   
717
   
354
   
152
   
404
   
0
   
3,286
 
Provision
  
5,437
   
(850
)  
7,230
   
(1,880
)  
(646
)  
1,134
   
(12
)  
10,413
 
                                 
Ending balance
 $
5,597
  $
6,041
  $
44,709
  $
10,172
  $  
6,925
  $
2,723
  $
233
  $
76,400
 
                                 
29

Allowance for Loan Losses and Carrying Amount of Loans
For the Six Months Ended June 30, 2019
  
Commercial Real Estate
        
Construction
     
Allowance
for
    
  
Owner-
occupied
 
 
Nonowner-
occupied
 
 
Other
Commercial
 
 
Residential
Real Estate
 
 
& Land
Development
 
 
Consumer
 
 
Estimated
Imprecision
 
 
Total
 
Ending Balance: individually evaluated for impairment
 $
1,390
  $
1,524
  $
7,805
  $
1,390
  $
1,954
  $
0
  $
0
  $
14,063
 
Ending Balance: collectively evaluated for impairment
 $
4,207
  $
4,517
  $
36,904
  $
8,782
  $
4,971
  $
2,723
  $
233
  $
62,337
 
Ending Balance: loans acquired with deteriorated credit quality
 $
0
  $
0
  $
0
  $
0
  $
0
  $
0
  $
0
  $
0
 
Financing receivables:
                        
Ending balance
 $
1,239,954
  $
4,194,064
  $
2,021,953
  $
3,674,005
  $
1,464,064
  $
1,045,906
  $
0
  $
13,639,946
 
Ending Balance: individually evaluated for impairment
 $
27,882
  $
29,559
  $
54,549
  $
20,267
  $
14,085
  $
0
  $
0
  $
146,342
 
Ending Balance: collectively evaluated for impairment
 $
1,185,613
  $
4,147,831
  $
1,930,570
  $
3,642,859
  $
1,429,245
  $
1,045,906
  $
0
  $
13,381,993
 
Ending Balance: loans acquired with deteriorated credit quality
 $
26,459
  $
16,674
  $
36,834
  $
10,879
  $
20,734
  $
31
  $
0
  $
111,611
 
Allowance for Loan Losses and Carrying Amount of Loans
For the Year Ended December 31, 2018
                                 
 
Commercial Real Estate
      
Construction
    
Allowance
for
    
 
Owner-
occupied
  
Nonowner-
occupied
  
Other
Commercial
  
Residential
Real Estate
  
& Land
Development
  
Consumer
  
Estimated
Imprecision
  
Total
 
Allowance for Loan Losses:
                        
Beginning balance
 $
5,401
  $
6,369
  $
45,189
  $
9,927
  $
7,187
  $
2,481
  $
73
  $
76,627
 
Charge-offs
  
3,225
   
314
   
16,424
   
3,162
   
2,731
   
2,750
   
0
   
28,606
 
Recoveries
  
1,189
   
563
   
2,944
   
1,114
   
197
   
662
   
0
   
6,669
 
Provision
  
1,698
   
301
   
9,632
   
4,569
   
3,339
   
2,302
   
172
   
22,013
 
                                 
Ending balance
 $
 
 
 
 
 
 
 
 
 
5,063
  $
 
 
 
 
 
 
 
6,919
  $
41,341
  $
12,448
  $
7,992
  $
2,695
  $
245
  $
76,703
 
                                 
Ending Balance: individually
evaluated for impairment
 $
2,543
  $
2,715
  $
17,581
  $
3,265
  $
2,254
  $
0
  $
0
  $
28,358
 
Ending Balance: collectively evaluated
for impairment
 $        
2,520
  $      
4,204
  $
      
23,760
  $
      
9,183
  $
         5,738
  $
     2,695
  $
245
  $          
48,345
 
30
Allowance for Loan Losses and Carrying Amount of Loans
For the Six Months Ended June 30, 2019 
  
Commercial Real Estate
        
Construction
     
Allowance 
for
    
  
Owner-
occupied
 
 
Nonowner-
occupied
 
 
Other
Commercial
 
 
Residential
Real Estate
 
 
& Land
Development
 
 
Consumer
 
 
Estimated
Imprecision
 
 
Total
 
Ending Balance: loans acquired with deteriorated credit quality
 $
0
  $
0
  $
0
  $
0
  $
0
  $
0
  $
0
  $
0
 
Financing receivables:
                        
Ending balance
 $
1,291,790
  $
4,303,613
  $
1,957,641
  $
3,501,393
  $
1,410,468
  $
964,627
  $
0
  $
13,429,532
 
Ending Balance: individually evaluated for impairment
 $
27,599
  $
25,231
  $
72,300
  $
21,998
  $
14,807
  $
0
  $
0
  $
161,935
 
Ending Balance: collectively evaluated for impairment
 $
1,234,919
  $
4,215,060
  $
1,860,085
  $
3,468,356
  $
1,374,840
  $
964,600
  $
0
  $
13,117,860
 
Ending Balance: loans acquired with deteriorated credit quality
 $
29,272
  $
63,322
  $
25,256
  $
11,039
  $
20,821
  $
27
  $
0
  $
149,737
 
6. INTANGIBLE ASSETS

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

   September 30, 2018 
   Community Banking  Mortgage Banking  Total 
   Gross
Carrying
Amount
   Accumulated
Amortization
  Gross
Carrying
Amount
   Accumulated
Amortization
  Gross
Carrying
Amount
   Accumulated
Amortization
 

Amortized intangible assets:

          

Core deposit intangible assets

  $98,359   ($60,482 $0   ($0 $98,359   ($60,482
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Non-amortized intangible assets:

          

George Mason trade name

  $0    $1,080    $1,080   
  

 

 

    

 

 

    

 

 

   

Goodwill not subject to amortization

  $1,472,699    $5,315    $1,478,014   
  

 

 

    

 

 

    

 

 

   

               ��         
 
June 30, 2019
 
 
Community Banking
  
Mortgage Banking
  
Total
 
 
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
 
Amortized intangible assets:
                  
Core deposit intangible assets
 $
98,359
  $
 ( 66,000
) $
0
  $
0
  $
98,359
  $
( 66,000
)
           
 
 
             
Non-amortized
intangible assets:
                  
George Mason trade name
 $
0
     $
1,080
     $
1,080
    
                         
Goodwill not subject to amortization
 $
1,472,699
     $
5,315
     $
1,478,014
    
                         
   December 31, 2017 
   Community Banking  Mortgage Banking   Total 
   Gross
Carrying
Amount
   Accumulated
Amortization
  Gross
Carrying
Amount
   Accumulated
Amortization
   Gross
Carrying
Amount
   Accumulated
Amortization
 

Amortized intangible assets:

           

Core deposit intangible assets

  $98,359   ($54,453 $0   $0   $98,359   ($54,453
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

Non-amortized intangible assets:

           

George Mason trade name

  $0    $1,080     $1,080   
  

 

 

    

 

 

     

 

 

   

Goodwill not subject to amortization

  $1,473,265    $5,115     $1,478,380   
  

 

 

    

 

 

     

 

 

   

31
 
December 31, 2018
 
 
Community Banking
  
Mortgage Banking
  
Total
 
 
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
 
Amortized intangible assets:
                  
Core deposit intangible assets
 $
98,359
  $
( 62,492
) $
0
  $
0
  $
98,359
  $
( 62,492
)
                         
Non-amortized
intangible assets:
                  
George Mason trade name
 $
0
     $
1,080
     $
1,080
    
                         
Goodwill not subject to amortization
 $
1,472,699
     $
5,315
     $
1,478,014
    
                         
The following table provides a reconciliation of goodwill:

   Community
Banking
   Mortgage
Banking
   Total 

Goodwill at December 31, 2017

  $1,473,265   $5,115   $1,478,380 

Addition to goodwill from Cardinal acquisition

   (566   200    (366
  

 

 

   

 

 

   

 

 

 

Goodwill at September 30, 2018

  $1,472,699   $5,315   $1,478,014 
  

 

 

   

 

 

   

 

 

 

             
 
Community
Banking
  
Mortgage
Banking
  
Total
 
Goodwill at December 31, 2018
 $
1,472,699
  $
5,315
  $
1,478,014
 
Additions to goodwill
  
0
   
0
   
0
 
             
Goodwill at June 30, 2019
 $
1,472,699
  $
5,315
  $
1,478,014
 
             
United incurred amortization expense on intangible assets of $2,009$1,754 and $6,029$3,508 for the quarter and ninesix months ended SeptemberJune 30, 2018,2019, respectively, and $2,240$2,010 and $5,381$4,020 for the quarter and ninesix months ended SeptemberJune 30, 2017,2018, respectively.

The following table sets forth the anticipated amortization expense for intangible assets for the years subsequent to 2017:

Year  Amount 

2018

  $8,039 

2019

   7,016 

2020

   6,309 

2021

   5,369 

2022 and thereafter

   17,173 
2018:

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

7. LEASES
United determines if an arrangement is a lease at inception. United and certain subsidiaries have entered into various noncancelable-operating leases for branch and loan production offices as well as operating facilities. Operating leases are included in operating lease
right-of-use
(“ROU”) assets and operating lease liabilities on the Consolidated Balance Sheets. Operating leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. Presently, United does not have any finance leases.
United’s operating leases are subject to renewal options under various terms. United’s operating leases have remaining terms of 1 to 14 years, some of which include options to extend leases generally for periods of 5 years. United rents or subleases certain real estate to third parties. Our sublease portfolio consists of operating leases to other organizations for former branch offices.
32
ROU assets represent United’s right to use an underlying asset for the lease term and lease liabilities represent United’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of United’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend the lease when it is reasonably certain that United will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
             
   
Three Months Ended
  
Six Months Ended
 
 
Classification
  
June 30, 2019
  
June 30, 2019
 
Operating lease cost
  
Net occupancy expense        
  $
4,886
  $
9,707
 
Sublease income
  
Net occupancy expense
   
(197
)  
(473
)
             
Net lease cost
    $
4,689
  $
9,234
 
             
Supplemental balance sheet information related to leases was as follows:
         
 
Classification
  
June 30, 2019
 
Operating lease
right-of-use
assets
  
Operating lease
 right-of-use
 assets         
         $
63,113
 
Operating lease liabilities
  
Operating lease liabilities
  $
66,821
 
Other information related to leases was as follows:
June 30, 2019
Weighted-average remaining lease term:
Operating leases
5.0 years
Weighted-average discount rate:
Operating leases
3.25
%
Supplemental cash flow information related to leases was as follows:
         
 
Three Months Ended
  
Six Months Ended
 
 
June 30, 2019
  
June 30, 2019
 
Cash paid for amounts in the measurement of lease liabilities:
      
Operating cash flows from operating leases
 $
4,931
  $
9,649
 
ROU assets obtained in the exchange for lease

liabilities
  
4,214
   
4,416
 
Maturities of lease liabilities by year and in the aggregate, under operating leases with initial or remaining terms of one year or more, for years subsequent to December 31, 2018, consists of the following as of June 30, 2019 and December 31, 2018:
         
 
Amount
 
Year
 
As of
June 30, 2019
  
As of
December 31, 2018
 
2019
 $
9,618
  $
18,590
 
2020
  
17,249
   
16,359
 
2021
  
14,672
   
13,850
 
2022
  
11,008
   
10,269
 
2023
  
8,231
   
7,600
 
Thereafter
  
11,966
   
10,640
 
         
Total lease payments
  
72,744
   
77,308
 
Less: imputed interest
  
(5,923
)  
(0
)
         
Total
 $
66,821
  $
77,308
 
         
33
8. SHORT-TERM BORROWINGS

Federal funds purchased and securities sold under agreements to repurchase are a significant source of funds for the Company. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $230,000. These lines of credit, which bear interest at prevailing market rates, permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions. At SeptemberJune 30, 2018,2019, United did
no
t have any federal funds purchased were $25,790 while total securities sold under agreements to repurchase (REPOs) were $153,718.$
122,159
. The securities sold under agreements to repurchase were accounted for as collateralized financial transactions. They were recorded at the amounts at which the securities were acquired or sold plus accrued interest.

United has a $20,000 line of credit with an unrelated financial institution to provide for general liquidity needs. The line is an unsecured, revolving line of credit. The line will be renewable on a
360-day
basis and will carry an indexed, floating-rate of interest. The line requires compliance with various financial and nonfinancial covenants. At SeptemberJune 30, 2018,2019, United had
no
outstanding balance under this line of credit.

9. LONG-TERM BORROWINGS

United’s subsidiary bank is a member of the Federal Home Loan Bank (“FHLB”). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a mix of single-family residential mortgage loans, commercial loans and investment securities. At SeptemberJune 30, 2018,2019, United had an unused borrowing amount of approximately $3,986,778$3,905,439 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 SeptemberJune 30, 2018, $1,284,7812019, $1,548,032 of FHLB advances with a weighted-average interest rate of 2.13%2.22% are scheduled to mature within the next sevensix years.

The scheduled maturities of these FHLB borrowings are as follows:

Year

  Amount 

2018

  $970,890 

2019

   187,224 

2020

   41,779 

2021

   52,667 

2022 and thereafter

   32,221 
  

 

 

 

Total

  $1,284,781 
  

 

 

 

Year
 
Amount
 
2019
 $
471,000
 
2020
  
442,000
 
2021
  
602,845
 
2022
  
21,000
 
2023 and thereafter
  
11,187
 
     
Total
 $
1,548,032
 
     
At SeptemberJune 30, 2018,2019, United had a total of fourteen statutory business trusts that were formed for the purpose of issuing or participating in pools of trust preferred capital securities (“Capital Securities”) with the proceeds invested in junior subordinated debt securities (“Debentures”) of United. The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of United, are the sole assets of the trusts and United’s payment under the Debentures is the sole source of revenue for the trusts. At SeptemberJune 30, 20182019 and December 31, 2017,2018, the outstanding balance of the Debentures was $234,590$235,535 and $242,446,$234,905, respectively, and was included in the category of long-term debt on the Consolidated Balance Sheets entitled “Other long-term borrowings.” The Capital Securities are not included as a component of shareholders’ equity in the Consolidated Balance Sheets. United fully and unconditionally guarantees each individual trust’s obligations under the Capital Securities.

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

For reporting periods prior to June 30, 2017,

34
In accordance with the Trust Preferred Securities qualified as Tier 1 regulatory capital under thefully-phased in “Basel III Capital Rules” as published by United’s primary federal regulator, the Federal Reserve, in July of 2013. The “Basel IIIUnited is unable to consider the Capital Rules” established a new comprehensive capital framework for U.S. banking organizations. Because United was less than $15 billion in total consolidated assets, the Basel III Capital Rules grandfathered United’s Trust Preferred Securities as Tier 1 capital, underbut rather the limitations for restricted capital elements in the general risk-based capital rules. As a result, beginning in 2015 (the adoption date), United’s Trust PreferredCapital Securities was subject to a limit of 25 percent of Tier 1 capital elements excluding anynon-qualifying capital instruments and after all regulatory capital deductions and adjustments applied to Tier 1 capital, which is substantially similar to the limit in the general risk-based capital rules. Trust preferred securities no longer included in United’s Tier 1 capital could beare included as a component of United’s Tier 2 capital. United can include the Capital Securities in its Tier 2 capital on a permanent basis withoutphase-out.

basis.

10. COMMITMENTS AND CONTINGENT LIABILITIES

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

United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for
on-balance
sheet instruments. Collateral may be obtained, if deemed necessary, based on management’s credit evaluation of the counterparty.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being
 drawn upon, the total commitment amounts do not necessarily, and historically do not, represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management’s credit evaluation of the counterparty. United had approximately $3,861,482$3,909,612 and $4,224,719$3,826,370 of loan commitments outstanding as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, the majorityapproximately half of which contractually expire within one year. Included in the SeptemberJune 30, 20182019 amount are commitments to extend credit of $433,931$354,996 related to George Mason’s mortgage loan funding commitments and are of a short-term nature.

Commercial and standby letters of credit are agreements used by United’s customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. A commercial letter of credit is issued specifically to facilitate trade or commerce. Typically, under the terms of a commercial letter of credit, a commitment is drawn upon when the underlying transaction is consummated as intended between the customer and a third party. As of SeptemberJune 30, 2018 and2019, United had $5,092 of commercial letters of credit outstanding. As of December 31, 2017,2018, United had
no
outstanding commercial letters of credit. A standby letter of credit is generally contingent upon the failure of a customer to perform according to the terms of an underlying contract with a third party. United has issued standby letters of credit of $132,735$133,930 and $147,017$141,032 as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. In accordance with the Contingencies Topic of the FASB Accounting Standards Codification, United has determined that substantially all of its letters of credit are renewed on an annual basis and the fees associated with these letters of credit are immaterial.

George Mason provides for its estimated exposure to repurchase loans previously sold to investors for which borrowers failed to provide full and accurate information on their loan application or for which appraisals have not been acceptable or where the loan was not underwritten in accordance with the loan program specified by the loan investor, and for other exposure to its investors related to loan sales activities. United evaluates the merits of each claim and estimates its reserve based on actual and expected claims received and considers the historical amounts paid to settle such claims. George Mason has a reserve of $516$946 as of SeptemberJune 30, 2018.

2019.

35
United has derivative counter-party risk that may arise from the possible inability of George Mason’s third party investors to meet the terms of their forward sales contracts. George Mason works with third-party investors that are generally well-capitalized, are investment grade and exhibit strong financial performance to mitigate this risk. United does not expect any third-party investor to fail to meet its obligation.

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

11. DERIVATIVE FINANCIAL INSTRUMENTS

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

United accounts for its derivative financial instruments in accordance with the Derivatives and Hedging topic of the FASB Accounting Standards Codification (ASCASC Topic 815). The Derivatives and Hedging topic require815 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.

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

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

United through George Mason enters into interest rate lock commitments to finance residential mortgage loans with its customers. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by United. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Market risk on interest rate lock commitments and
36
mortgage loans held for sale is managed using corresponding forward mortgage loan sales contracts. United is a party to these forward mortgage loan sales contracts to sell loans servicing released and short sales of mortgage-backed securities. When the interest rate is locked with the borrower, the rate lock commitment, forward sale agreement, and mortgage-backed security position are undesignated derivatives and marked to fair value through earnings. The fair value of the rate lock derivative includes the servicing premium and the interest spread for the difference between retail and wholesale mortgage rates. Income from mortgage banking activities includes the gain recognized for the period presented and associated elements of fair value.

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

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

The following tables disclose the derivative instruments’ location on the Company’s Consolidated Balance Sheets and the notional amountamount​​​​​​​ and fair value of those instruments at SeptemberJune 30, 20182019 and December 31, 2017.

   Asset Derivatives 
   September 30, 2018   December 31, 2017 
   Balance
Sheet
Location
   Notional
Amount
   Fair
Value
   Balance
Sheet
Location
   Notional
Amount
   Fair
Value
 

Derivatives designated as hedging instruments

            

Fair Value Hedges:

            

Interest rate swap contracts (hedging commercial loans)

   Other assets   $86,655   $4,042    Other assets   $71,831   $538 
    

 

 

   

 

 

     

 

 

   

 

 

 

Total derivatives designated as hedging instruments

    $86,655   $4,042     $71,831   $538 
    

 

 

   

 

 

     

 

 

   

 

 

 

Derivatives not designated as hedging instruments

            

Forward loan sales commitments

   Other assets   $0   $0    Other assets   $31,024   $2 

TBA mortgage-backed securities

   Other assets    223,500    1,161      0    0 

Interest rate lock commitments

   Other assets    135,069    3,991    Other assets    148,866    4,559 
    

 

 

   

 

 

     

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

    $358,569   $5,152     $179,890   $4,561 
    

 

 

   

 

 

     

 

 

   

 

 

 

Total asset derivatives

    $445,224   $9,194     $251,721   $5,099 
    

 

 

   

 

 

     

 

 

   

 

 

 
2018.

 
Asset Derivatives
 
 
June 30, 2019
  
December 31, 2018
 
 
Balance
Sheet
Location
  
Notional
Amount
  
Fair
Value
  
Balance
Sheet
Location
  
Notional
Amount
  
Fair
Value
 
Derivatives designated as hedging instruments Fair Value Hedges:
                  
Interest rate swap contracts (hedging commercial loans)
  
Other assets
  $
0
  $
0
   
Other assets
  $
85,623
  $
1,859
 
                         
Total derivatives designated as hedging instruments
    $
0
  $
0
     $
85,623
  $
1,859
 
                         
Derivatives not designated as hedging instruments
                  
Interest rate swap contracts
  
Other assets
  $
0
  $
0
   
Other assets
  $
0
  $
0
 
Forward loan sales commitments
  
Other assets
   
48,488
   
492
   
Other assets
   
21,604
   
542
 
Interest rate lock commitments
  
Other assets
   
250,487
   
8,127
   
Other assets
   
93,955
   
4,103
 
                         
Total derivatives not designated as hedging instruments
    $
298,975
  $
8,619
     $
115,559
  $
4,645
 
                         
Total asset derivatives
    $
298,975
  $
8,619
     $
201,182
  $
6,504
 
                         
    
   Liability Derivatives 
   September 30, 2018   December 31, 2017 
   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   $0   $0    Other liabilities   $18,795   $165 
    

 

 

   

 

 

     

 

 

   

 

 

 

Total derivatives designated as hedging instruments

    $0   $0     $18,795   $165 
    

 

 

   

 

 

     

 

 

   

 

 

 

Derivatives not designated as hedging instruments

            

Forward loan sales commitments

   Other liabilities   $22,521   $197    Other liabilities   $0   $0 

TBA mortgage-backed securities

   Other liabilities   $0   $0    Other liabilities    236,500    312 

Interest rate lock commitments

   Other liabilities    0    0    Other liabilities    0    0 
    

 

 

   

 

 

     

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

    $22,521   $197     $236,500   $312 
    

 

 

   

 

 

     

 

 

   

 

 

 

Total liability derivatives

    $22,521   $197     $255,295   $477 
    

 

 

   

 

 

     

 

 

   

 

 

 

37
 
Liability Derivatives
 
 
June 30, 2019
  
December 31, 2018
 
 
Balance
Sheet
Location
  
Notional
Amount
  
Fair
Value
  
Balance
Sheet
Location
  
Notional
Amount
  
Fair
Value
 
Derivatives designated as hedging instruments Fair Value Hedges:
               
Interest rate swap contracts (hedging commercial loans)
  
Other liabilities
  $
84,397
  $
2,146
   
Other liabilities
  $
0
  $
0
 
                         
Total derivatives designated as hedging instruments
    $
84,397
  $
2,146
     $
0
  $
0
 
                         
Derivatives not designated as hedging instruments
                  
Interest rate swap contracts
  
Other liabilities
  $
0
  $
0
   
Other liabilities
  $
0
  $
0
 
TBA mortgage-backed securities
  
Other liabilities
   
405,299
   
3,476
   
Other liabilities
   
200,281
   
3,002
 
Interest rate lock commitments
  
Other liabilities
   
0
   
0
   
Other liabilities
   
0
   
0
 
                         
Total derivatives not designated as hedging instruments
    $
405,299
  $
3,476
     $
200,281
  $
3,002
 
                         
Total liability derivatives
    $
489,696
  $
5,622
     $
200,281
  $
3,002
 
                         
The following table represents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value accounting relationship as of June 30, 2019.
                 
Derivatives in Fair Value
Hedging Relationships
 
Location in the Statement
of Condition
  
June 30, 2019
 
Carrying Amount
of the Hedged
Assets/(Liabilities)
  
Cumulative Amount
of Fair Value
Hedging Adjustment
Included in the
Carrying Amount of
the Hedged
Assets/(Liabilities)
  
Cumulative Amount of
Fair Value Hedging
Adjustment Remaining
for any Hedged Assets/
(Liabilities) for which
Hedge Accounting has
been Discontinued
  
 
Interest rate swaps
  
Loans, net of unearned income
  $
83,527
  $
(2,146
) $
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.

38
The effect of United’s derivative financial instruments on its unaudited Consolidated Statements of Income for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 are presented as follows:

       Three Months Ended 
   Income Statement
Location
   September 30,
2018
   September 30,
2017
 

Derivatives in hedging relationships

      

Fair Value Hedges:

      

Interest rate swap contracts

   Interest income/(expense)   $(24  $(208
    

 

 

   

 

 

 

Total derivatives in hedging relationships

    $(24  $(208
    

 

 

   

 

 

 

Derivatives not designated as hedging instruments

      

Forward loan sales commitments

   
Income from Mortgage
Banking Activities
 
 
   (197   (257

TBA mortgage-backed securities

   
Income from Mortgage
Banking Activities
 
 
   2,583    123 

Interest rate lock commitments

   
Income from Mortgage
Banking Activities
 
 
   (3,262   (4,484
    

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

    $(876  $(4,618
    

 

 

   

 

 

 

Total derivatives

    $(900  $(4,826
    

 

 

   

 

 

 

      
      Nine Months Ended   
Three Months Ended
 
  Income Statement
Location
   September 30,
2018
   September 30,
2017
  
Income Statement
Location
 
June 30,
2019
  
June 30,
2018
 

Derivatives in fair value hedging relationships

      

Fair Value Hedges:

      
Derivatives in hedging relationships Fair Value Hedges:
       
Interest rate swap contracts
 
Interest income/(expense)
 $
(68
) $
24
 
        
Total derivatives in hedging relationships
  $
(68
) $
24
 
          
Derivatives not designated as hedging instruments
       
Forward loan sales commitments
 
Income from Mortgage Banking Activities
  
492
   
112
 
TBA mortgage-backed securities
 
Income from Mortgage Banking Activities
  
(962
)  
(660
)
Interest rate lock commitments
 
Income from Mortgage Banking Activities
  
3,833
   
2,888
 
        
Total derivatives not designated as hedging instruments
  $
3,363
  $
2,340
 
          
Total derivatives
  $
3,295
  $
2,364
 
          
   
  
Six Months Ended
 
 
Income Statement
Location
 
June 30,
2019
  
June 30,
2018
 
Derivatives in fair value hedging relationships Fair Value Hedges:
       

Interest rate swap contracts

   Interest income/(expense)   $(42  $(648 
Interest income/(expense)
 $
(98
) $
(18
)

Cash Flow Hedges:

             

Forward loan sales commitments

   Other income    0    0  
Other income
  
0
   
0
 
    

 

   

 

         

Total derivatives in hedging relationships

    $(42  $(648  $
(98
) $
(18
)
    

 

   

 

           

Derivatives not designated as hedging instruments

             

Forward loan sales commitments

   
Income from Mortgage
Banking Activities
 
 
   (12   (427 
Income from Mortgage Banking Activities
  
872
   
185
 

TBA mortgage-backed securities

   
Income from Mortgage
Banking Activities
 
 
   1,473    2,907  
Income from Mortgage Banking Activities
  
(474
)  
(1,110
)

Interest rate lock commitments

   
Income from Mortgage
Banking Activities
 
 
   (1,643   (3,465 
Income from Mortgage Banking Activities
  
5,870
   
1,619
 
    

 

   

 

         

Total derivatives not designated as hedging instruments

    $(182  $(985  $
6,268
  $
694
 
    

 

   

 

           

Total derivatives

    $(224  $(1,633  $
6,170
  $
676
 
    

 

   

 

           
12. FAIR VALUE MEASUREMENTS

M

EASUREMENTS
United determines the fair values of its financial instruments based on the fair value hierarchy established by ASC Topic 820, which also clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The Fair Value Measurements and Disclosures topicTopic 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   
Level 1
-
Valuation is based on quoted prices in active markets for identical assets and liabilities.

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

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

Securities available for sale and equity securities
: Securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Using a market approach valuation methodology, third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considersbased on observable market datainputs, 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’s review consists of comparing fair values assignedManagement also performs a quarterly price testing analysis at the individual security level which compares the pricing provided by the third party vendors to trades and offerings observed by management. The review requires some degreean independent pricing source’s valuation of judgment as to the number or percentage of securities to review on the part of management which could fluctuate based on results of past reviews and in comparison to current expectations. Exceptionssame 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 SeptemberJune 30, 2018,2019, management determined that the prices provided by its third party pricing source were reasonable and in line with management’s expectations for the market values of these securities. Therefore, prices obtained from third party vendors that did not reflect forced liquidation or distressed sales were not adjusted by management at September 
June 
30 2018.
,
2019
. Management utilizes a number of factors to determine if a market is inactive, all of which may require a significant level of judgment. Factors that management considers include: a significant widening
40
Table of Contents
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.

3
. Currently, United considers its valuation ofavailable-for-sale available for sale Trup Cdos as Level 3.
3
. Based upon management’s review of the market conditions for Trup Cdos, it was determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is the most representative measurement technique for these securities. The present value technique discounts expected future cash flows of a security to arrive at a present value. Management considers the following items when calculating the appropriate discount rate: the implied rate of return when the market was last active, changes in the implied rate of return as markets moved from very active to inactive, recent changes in credit ratings, and recent activity showing that the market has built in increased liquidity and credit premiums. Management’s internal credit review of each security was also factored in to determine the appropriate discount rate. The credit review considered each security’s collateral, subordination, excess spread, priority of claims, principal and interest.

Loans held for sale
: For residential mortgage loans sold in the mortgage banking segment, the loans closed are recorded at fair value usingas management has elected the fair value option which is measured using valuations from investors for loans with similar characteristics adjusted for the Company’s actual sales experience versus the investor’s indicated pricing. These valuations fall into the Level 3 category. The unobservable input is the Company’s historical sales prices. The range of historical sales prices increased the investor’s indicated pricing by a range of 0.12%0.16% to 0.49%0.71% with a weighted average increase of 0.28%0.33%.

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

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

The Company records its interest rate lock commitments and forward loan sales commitments at fair value determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business, George Mason enters into contractual interest rate lock commitments to extend credit to borrowers with fixed expiration dates. The commitments become effective when the borrowers“lock-in” “lock-in” a specified

interest rate within the timeframes established by the mortgage companies. All borrowers are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to the

investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, George Mason enters into either a forward sales contract to sell loans to investors when using best efforts or a TBA mortgage-backed security under mandatory delivery. As TBA mortgage-backed securities are actively traded in an open market, TBA mortgage-backed securities fall into a Level 12 category. The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. Under the Company’s best efforts model, the rate lock commitments to borrowers and the forward sales contracts to investors through to the date the loan closes are undesignated derivatives and accordingly, are marked to fair value through earnings. These valuations fall into a Level 2 category. For residential mortgage loans sold in the mortgage banking segment, the interest rate lock commitments are recorded at fair value which is measured using valuations from investors for loans with similar characteristics adjusted for the Company’s actual sales experience versus the investor’s indicated pricing. These valuations fall into the Level 3 category. The unobservable input is the Company’s historical sales prices. The range of historical sales prices increased the investor’s indicated pricing by a range of 0.12%0.16% to 0.49%0.71% with a weighted average increase of 0.28%0.33%.

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 SeptemberJune 30, 20182019 and December 31, 2017,2018, segregated by the level of the valuation inputs within the fair value hierarchy.

       Fair Value at September 30, 2018 Using 

Description

  Balance as of
September 30,
2018
   Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 

Assets

        

Available for sale securities:

        

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $101,565   $0   $101,565   $0 

State and political subdivisions

   252,246    0    252,246    0 

Residential mortgage-backed securities

        

Agency

   943,647    0    943,647    0 

Non-agency

   4,572    0    4,572    0 

Commercial mortgage-backed securities

        

Agency

   543,652    0    543,652    0 

Asset-backed securities

   223,602    0    223,602    0 

Trust preferred collateralized debt obligations

   6,154    0    0    6,154 

Single issue trust preferred securities

   8,104    0    8,104    0 

Other corporate securities

   95,025    6,879    88,146    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total available for sale securities

   2,178,567    6,879    2,165,534    6,154 

Equity securities:

        

Financial services industry

   173    173    0    0 

Equity mutual funds (1)

   5,073    5,073    0    0 

Other equity securities

   4,599    4,599    0    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

   9,845    9,845    0    0 

Loans held for sale

   231,310    0    0    231,310 

Derivative financial assets:

        

Interest rate swap contracts

   4,042    0    4,042    0 

Forward sales commitments

   0    0    0    0 

Interest rate lock commitments

   3,991    0    0    3,991 

TBA mortgage-backed securities

   1,161    0    1,161    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative financial assets

   9,194    0    5,203    3,991 

Liabilities

        

Derivative financial liabilities:

        

Forward sales commitments

   197    0    197    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative financial liabilities

   197    0    197    0 

                 
   
Fair Value at June 30, 2019 Using
 
Description
 
Balance as of
June 30,
2019
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets
            
Available for sale debt securities:
            
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
74,484
  $
0
  $
74,484
  $
0
 
State and political subdivisions
  
181,259
   
0
   
181,259
   
0
 
Residential mortgage-backed securities
            
Agency
  
877,567
   
0
   
877,567
   
0
 
Non-agency
  
3,978
   
0
   
3,978
   
0
 
Commercial mortgage-backed securities
            
Agency
  
574,721
   
0
   
574,721
   
0
 
Asset-backed securities
  
268,854
   
0
   
268,854
   
0
 
Trust preferred collateralized debt obligations
  
5,413
   
0
   
0
   
5,413
 
Single issue trust preferred securities
  
16,844
   
0
   
16,844
   
0
 
Other corporate securities
  
342,671
   
6,712
   
335,959
   
0
 
                 
Total available for sale securities
  
2,345,791
   
6,712
   
2,333,666
   
5,413
 
Equity securities:
            
Financial services industry
  
133
   
133
   
0
   
0
 
Equity mutual funds (1)
  
4,209
   
4,209
   
0
   
0
 
Other equity securities
  
4,756
   
4,756
   
0
   
0
 
                 
Total equity securities
  
9,098
   
9,098
   
0
   
0
 
42
     
Fair Value at June 30, 2019 Using
Description
 
Balance as of
June 30,
2019
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Loans held for sale
  
365,440
   
0
   
0
   
365,440
 
Derivative financial assets:
            
Interest rate swap contracts
  
0
   
0
   
0
   
0
 
Forward sales commitments
  
492
   
0
   
492
   
0
 
Interest rate lock commitments
  
8,127
   
0
 �� 
0
   
8,127
 
                 
Total derivative financial assets
  
8,619
   
0
   
492
   
8,127
 
Liabilities
            
Derivative financial liabilities:
            
Interest rate swap contracts
  
2,146
   
0
   
2,146
   
0
 
TBA mortgage-backed securities
  
3,476
   
0
   
3,476
   
0
 
                 
Total derivative financial liabilities
  
5,622
   
0
   
5,622
   
0
 
(1)

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

       Fair Value at December 31, 2017 Using 

Description

  Balance as of
December 31,
2017
   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

  $114,758   $0   $114,758   $0 

State and political subdivisions

   303,869    0    303,869    0 

Residential mortgage-backed securities

        

Agency

   814,593    0    814,593    0 

Non-agency

   5,512    0    5,512    0 

Commercial mortgage-backed securities

        

Agency

   454,857    0    454,857    0 

Asset-backed securities

   109,970    0    109,970    0 

Trust preferred collateralized debt obligations

   34,269    0    0    34,269 

Single issue trust preferred securities

   12,560    0    12,560    0 

Other corporate securities

   28,490    0    28,490    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total available for sale debt securities

   1,878,878    0    1,844,609    34,269 

Available for sale equity securities:

        

Financial services industry

   3,545    331    3,214    0 

Equity mutual funds (1)

   6,332    6,332    0    0 

Other equity securities

   1    1    0    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total available for sale equity securities

   9,878    6,664    3,214    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total available for sale securities

   1,888,756    6,664    1,847,823    34,269 

Loans held for sale

   263,308    0    0    263,308 

Derivative financial assets:

        

Interest rate swap contracts

   538    0    538    0 

Interest rate lock commitments

   4,561    0    2    4,559 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative financial assets

   5,099    0    540    4,559 

Liabilities

        

Derivative financial liabilities:

        

Interest rate swap contracts

   165    0    165    0 

TBA mortgage-backed securities

   312    0    312    0 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative financial liabilities

   477    0    477    0 

                 
   
Fair Value at December 31, 2018 Using
 
Description
 
Balance as of
December 31,
2018
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets            
Available for sale debt securities:            
U.S. Treasury securities and obligations of U.S. Government corporations and agencies $85,890  $0  $85,890  $0 
                 
State and political subdivisions
  
208,988
   
0
   
208,988
   
0
 
Residential mortgage-backed securities
            
Agency
  
1,035,650
   
0
   
1,035,650
   
0
 
Non-agency
  
4,259
   
0
   
4,259
   
0
 
Commercial mortgage-backed securities
            
Agency
  
554,600
   
0
   
554,600
   
0
 
Asset-backed securities
  
271,970
   
0
   
271,970
   
0
 
Trust preferred collateralized debt obligations
  
5,917
   
0
   
0
   
5,917
 
Single issue trust preferred securities
  
8,362
   
0
   
8,362
   
0
 
Other corporate securities
  
161,403
   
6,822
   
154,581
   
0
 
                 
Total available for sale securities
  
2,337,039
   
6,822
   
2,324,300
   
5,917
 
Equity securities:
            
Financial services industry
  
140
   
140
   
0
   
0
 
Equity mutual funds (1)
  
4,954
   
4,954
   
0
   
0
 
Other equity securities
  
4,640
   
4,640
   
0
   
0
 
                 
Total equity securities
  
9,734
   
9,734
   
0
   
0
 
Loans held for sale
  
247,104
   
0
   
0
   
247,104
 
Derivative financial assets:
            
Interest rate swap contracts
  
1,859
   
0
   
1,859
   
0
 
Forward sales commitments
  
542
   
0
   
542
   
0
 
Interest rate lock commitments
  
4,103
   
0
   
0
   
4,103
 
                 
Total derivative financial assets
  
6,504
   
0
   
2,401
   
4,103
 
43 
     
Fair Value at December 31, 2018 Using
Description
 
Balance as of
December 31,
2018
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Liabilities
            
Derivative financial liabilities:
            
TBA mortgage-backed securities
  
3,002
   
0
   
3,002
   
0
 
                 
Total derivative financial liabilities
  
3,002
   
0
   
3,002
   
0
 
(1)

The equity mutual funds are within a rabbi trust for the payment of benefits under a deferred compensation plan for certain key

officers of United and its subsidiaries.

officers of United and its subsidiaries.

There were
no
transfers between Level 1 and Level 2 for financial assets and liabilities measured at fair value on a recurring basis during the ninesix months ended SeptemberJune 30, 20182019 and the year ended December 31, 2017.

2018.

The following table presents additional information about financial assets and liabilities measured at fair value at SeptemberJune 30, 20182019 and December 31, 20172018 on a recurring basis and for which United has utilized Level 3 inputs to determine fair value:

   Available-for-sale
Securities
 
   Trust preferred
collateralized debt obligations
 
   September 30,
2018
   December 31,
2017
 

Balance, beginning of period

  $34,269   $33,552 

Total gains or losses (realized/unrealized):

    

Included in earnings (or changes in net assets)

   28    9 

Included in other comprehensive income

   1,157    8,757 

Purchases, issuances, and settlements

   0    0 

Sales

   (29,300   (8,049

Transfers in and/or out of Level 3

   0    0 
  

 

 

   

 

 

 

Balance, end of period

  $6,154   $34,269 
  

 

 

   

 

 

 

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

  $0   $0 

   Loans held for sale 
   September 30,
2018
   December 31,
2017
 

Balance, beginning of period

  $263,308   $0 

Acquired in Cardinal merger

   0    271,301 

Originations

   2,089,366    2,333,927 

Sales

   (2,148,777   (2,408,945

Total gains or losses during the period recognized in earnings

   54,829    58,132 

Transfers in and/or out of Level 3

   (27,416   8,893 
  

 

 

   

 

 

 

Balance, end of period

  $231,310   $263,308 
  

 

 

   

 

 

 

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
 
   September 30,
2018
   December 31,
2017
 

Balance, beginning of period

  $4,559   $0 

Acquired in Cardinal merger

   0    10,393 

Transfers other

   (568   (5,834
  

 

 

   

 

 

 

Balance, end of period

  $3,991   $4,559 
  

 

 

   

 

 

 

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 

         
 
Available for sale
Securities
 
 
Trust preferred
collateralized debt obligations
 
 
June 30,
2019
  
December 31,
2018
 
Balance, beginning of period $5,917  $34,269 
Total gains or losses (realized/unrealized):        
 Included in earnings (or changes in net assets)  (53)  28 
Included in other comprehensive income
  
(451
)  
920
 
Purchases, issuances, and settlements
  
0
   
0
 
Sales
  
0
   
(29,300
)
Transfers in and/or out of Level 3
  
0
   
0
 
Balance, end of period
 $
5,413
  $
5,917
 
         
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date
 $
0
  $
0
 
    
 
Loans held for sale
 
 
June 30,
2019
  
December 31,
2018
 
Balance, beginning of period
 $
247,104
  $
263,308
 
Originations
  
1,256,514
   
2,619,454
 
Sales
  
(1,177,754
)  
(2,676,797
)
Total gains or losses during the period recognized in earnings
  
39,576
   
68,555
 
Transfers in and/or out of Level 3
  
0
   
(27,416
)
Balance, end of period
 $
365,440
  $
247,104
 
         
44
         
 
Available for sale
Securities
 
 
Trust preferred
collateralized debt obligations
 
 
June 30,
2019
  
December 31,
2018
 
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,
2019
  
December 31,
2018
 
Balance, beginning of period $ 4,103  $ 4,559 
Transfers other  4,024   (456)
         
Balance, end of period $ 8,127  $ 4,103 
         
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at reporting date $ 0  $ 0 
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application oflower-of-cost-or-market accounting or write-downs of individual assets.

Fair Value Option

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

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

Description

  Three Months
Ended

September 30,
2018
   Three Months
Ended

September 30,
2017
 

Assets

    

Loans held for sale

    

Income from mortgage banking activities

  $(5,929  $(5,090

Description

  Nine Months
Ended

September 30,
2018
   Nine Months
Ended

September 30,
2017
 

Assets

    

Loans held for sale

    

Income from mortgage banking activities

  $(2,838  $(7,529

         
Description
 
Three Months Ended
June 30, 2019
  
Three Months Ended
June 30, 2018
 
Assets      
Loans held for sale      
Income from mortgage banking activities $ 4,578  $ 3,929 
       
Description
 
Six Months Ended
June 30, 2019
  
Six Months Ended
June 30, 2018
 
Assets      
Loans held for sale      
Income from mortgage banking activities $ 6,542  $ 3,092 
45
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:

   September 30, 2018   December 31, 2017 

Description

  Unpaid
Principal
Balance
   Fair
Value
   Fair Value
Over/(Under)
Unpaid
Principal
Balance
   Unpaid
Principal
Balance
   Fair
Value
   Fair Value
Over/(Under)
Unpaid
Principal
Balance
 

Assets

            

Loans held for sale

  $227,943   $231,310   $3,367   $257,674   $263,308   $5,634 

                         
 
June 30, 2019
  
December 31, 2018
 
Description
 
Unpaid
Principal
Balance
  
Fair Value
  
Fair Value
Over/(Under)
Unpaid
Principal
Balance
  
Unpaid
Principal
Balance
  
Fair Value
  
Fair Value
Over/(Under)
Unpaid
Principal
Balance
 
Assets
                  
Loans held for sale
 $  
357,112
  $  
365,440
  $
8,328
  $
241,293
  
247,104
  $
5,811
 
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

Loans held for sale
: Loans held for sale within the community banking segment that are delivered on a best efforts basis are carried at the lower of cost or fair value. The fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, United records any fair value adjustments for these loans held for sale on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the ninesix months ended SeptemberJune 30, 2018.2019. Gains and losses on sale of loans are recorded within income from mortgage banking activities on the Consolidated Statements of Income.

Impaired Loans
: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate and the loan’s observable market price or the fair value of collateral, if the loan is collateral dependent. Fair value is measured using a market approach based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory,

and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an appraisal conducted by an independent, licensed appraiser outside of the Company using comparable property sales (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). For impaired loans, a specific reserve is established through the Allowance for Loan Losses, if necessary, by estimating the fair value of the underlying collateral on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses expense on the Consolidated Statements of Income.

OREO
: OREO consists of real estate acquired in foreclosure or other settlement of loans. Such assets are carried on the balance sheet at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. Fair value is determined by one of two market approach methods depending on whether the property has been vacated and an appraisal can be conducted. If the property has yet to be vacated and thus an appraisal cannot be performed, a Brokers Price Opinion (i.e. BPO), is obtained. A BPO represents a best estimate valuation performed by a realtor based on knowledge of current property values and a visual examination of the exterior condition of the property. Once the property is subsequently vacated, a formal appraisal is obtained and the recorded asset value appropriately adjusted. On the other hand, if the OREO property has been vacated and an appraisal can be conducted, the fair value of the property is determined based upon the appraisal using a market approach. An authorized independent appraiser conducts appraisals for United. Appraisals for property other than ongoing construction are based on consideration of
46
comparable property sales (Level 2). In contrast, valuation of ongoing construction assets requires some degree of professional judgment. In conducting an appraisal for ongoing construction property, the appraiser develops two appraised amounts: an “as is” appraised value and a “completed” value. Based on professional judgment and their knowledge of the particular situation, management determines the appropriate fair value to be utilized for such property (Level 3). As a matter of policy, valuations are reviewed at least annually and appraisals are generally updated on a
bi-annual
basis with values lowered as necessary.

Intangible Assets:
For United, intangible assets consist of goodwill and core deposit intangibles. Goodwill is tested for impairment at least annually or sooner if indicators of impairment exist. Goodwill impairment would be defined as the difference between the recorded value of goodwill (i.e. book value) and the implied fair value of goodwill. In determining the implied fair value of goodwill for purposes of evaluating goodwill impairment, United determines the fair value of the reporting unit using a market approach and compares the fair value to its carrying value. If the carrying value exceeds the fair value, a step two test is performed whereby the implied fair value is computed by deducting the fair value of all tangible and intangible net assets from the fair value of the reporting unit. Core deposit intangibles relate to the estimated value of the deposit base of acquired institutions. Management reviews core deposit intangible assets on an annual basis, or sooner if indicators of impairment exist, and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. No other fair value measurement of intangible assets was made during the first ninesix months of 20182019 and 2017.

2018.

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
September 30,
2018
   Carrying value at September 30, 2018   YTD
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

  $2,886   $0   $2,886   $0   $0 

Impaired Loans

   109,582    0    98,171    11,411    4,177 

OREO

   18,786    0    18,786    0    796 

Description

  Balance as of
December 31,
2017
   Carrying value at December 31, 2017   YTD
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

  $2,647   $0   $2,647   $0   $14 

Impaired Loans

   88,637    0    70,950    17,687    12,291 

OREO

   24,348    0    24,151    197    4,200 

                     
   
Carrying value at June 30, 2019
    
Description
 
Balance as of
June 30, 
2019
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
YTD 
Gains
(Losses)
 
Assets
               
Loans held for sale
 $
5,153
  $
0
  $
5,153
  $
0
  $
(4
)
Impaired Loans
  
76,577
   
0
   
65,604
   
10,973
   
4,781
 
OREO
  
14,469
   
0
   
14,391
   
78
   
(340
)
                     
   
Carrying value at December 31, 2018
    
Description
 
Balance as of
December 31, 
2018
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
YTD 
Gains
(Losses)
 
Assets
               
Loans held for sale
 $
2,742
  $
0
  $
2,742
  $
0
  $
(3
)
Impaired Loans
  
121,355
   
0
   
108,899
   
12,456
   
(12,301
)
OREO
  
16,865
   
0
   
16,865
   
0
   
(910
)
Fair Value of Other Financial Instruments

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

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

47
Securities held to maturity and other securities
: The estimated fair values of securities held to maturity are based on quoted market prices, where available. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data. Any securities held to maturity, not valued based upon the methods above, are valued based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Other securities consist mainly of shares of Federal Home Loan Bank and Federal Reserve Bank stock that do not have readily determinable fair values and are carried at cost.

Loans: For September 30, 2018, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. This is not comparable with the fair values disclosed for December 31, 2017, which were based on an entrance price basis. For that date, the

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

Deposits:

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

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

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

Summary of Fair Values for All Financial Instruments

The estimated fair values of United’s financial instruments, including those measured at amortized cost on the balance sheet, 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)
 

September 30, 2018

          

Cash and cash equivalents

  $1,254,686   $1,254,686   $0   $1,254,686   $0 

Securities available for sale

   2,178,567    2,178,567    6,879    2,165,534    6,154 

Securities held to maturity

   20,351    19,619    0    16,599    3,020 

Equity securities

   9,845    9,845    9,845    0    0 

Other securities

   166,749    166,749    0    0    166,749 

Loans held for sale

   234,196    234,196    0    2,886    231,310 

Loans

   13,199,799    12,488,175    0    0    12,488,175 

Derivative financial assets

   9,194    9,194    0    5,203    3,991 

Deposits

   14,091,172    14,052,668    0    14,052,668    0 

Short-term borrowings

   379,508    379,508    0    379,508    0 

Long-term borrowings

   1,319,371    1,293,611    0    1,293,611    0 

Derivative financial liabilities

   197    197    0    197    0 

December 31, 2017

          

Cash and cash equivalents

  $1,666,167   $1,666,167   $0   $1,666,167   $0 

Securities available for sale

   1,888,756    1,888,756    6,664    1,847,823    34,269 

Securities held to maturity

   20,428    20,018    0    16,998    3,020 

Other securities

   162,461    154,338    0    0    154,338 

Loans held for sale

   265,955    265,955    0    2,647    263,308 

Loans

   12,934,794    12,437,797    0    0    12,437,797 

Derivative financial assets

   5,099    5,099    0    540    4,559 

Deposits

   13,830,591    14,024,720    0    14,024,720    0 

Short-term borrowings

   477,587    477,587    0    477,587    0 

Long-term borrowings

   1,363,977    1,338,754    0    1,338,754    0 

Derivative financial liabilities

   477    477    0    477    0 

                     
     
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, 2019
               
Cash and cash equivalents
 $
1,253,573
  $
1,253,573
  $
0
  $
1,253,573
  $
0
 
Securities available for sale
  
2,345,791
   
2,345,791
   
6,712
   
2,333,666
   
5,413
 
Securities held to maturity
  
6,461
   
6,483
   
0
   
5,463
   
1,020
 
Equity securities
  
9,098
   
9,098
   
9,098
   
0
   
0
 
Other securities
  
201,912
   
200,367
   
0
   
0
   
200,367
 
Loans held for sale
  
370,593
   
370,593
   
0
   
5,153
   
365,440
 
Loans
  
13,558,866
   
13,076,745
   
0
   
0
   
13,076,745
 

48
                     
     
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)
 
Derivative financial assets
  
8,619
   
8,619
   
0
   
492
   
8,127
 
Deposits
  
14,404,085
   
14,372,448
   
0
   
14,372,448
   
0
 
Short-term borrowings
  
122,159
   
122,159
   
0
   
122,159
   
0
 
Long-term borrowings
  
1,783,567
   
1,762,173
   
0
   
1,762,173
   
0
 
Derivative financial liabilities
  
5,622
   
5,622
   
0
   
5,622
   
0
 
December 31, 2018
               
Cash and cash equivalents
 $
1,020,396
  $
1,020,396
  $
0
  $
1,020,396
  $
0
 
Securities available for sale
  
2,337,039
   
2,337,039
   
6,822
   
2,324,300
   
5,917
 
Securities held to maturity
  
19,999
   
18,655
   
0
   
15,635
   
3,020
 
Equity securities
  
9,734
   
9,734
   
9,734
   
0
   
0
 
Other securities
  
176,955
   
168,107
   
0
   
0
   
168,107
 
Loans held for sale
  
249,846
   
249,846
   
0
   
2,742
   
247,104
 
Loans
  
13,422,222
   
12,657,073
   
0
   
0
   
12,657,073
 
Derivative financial assets
  
6,504
   
6,504
   
0
   
2,401
   
4,103
 
Deposits
  
13,994,749
   
13,954,574
   
0
   
13,954,574
   
0
 
Short-term borrowings
  
351,327
   
351,327
   
0
   
351,327
   
0
 
Long-term borrowings
  
1,499,103
   
1,475,237
   
0
   
1,475,237
   
0
 
Derivative financial liabilities
  
3,002
   
3,002
   
0
   
3,002
   
0
 
13. STOCK BASED COMPENSATION

On May 18, 2016, United’s shareholders approved the 2016 Long-Term Incentive Plan (2016 LTI Plan). The 2016 LTI Plan became effective as of May 18, 2016. An award granted under the 2016 LTI Plan may consist of any
non-qualified
stock options or incentive stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, performance units or other-stock-based award. These awards all relate to the common stock of United. The maximum number of shares of United common stock which may be issued under the 2016 LTI Plan is 1,700,000. The 2016 LTI Plan will be administered by a board committee appointed by United’s Board of Directors (the Board). 
Unless otherwise determined by the Board, the Compensation Committee of the Board (the Committee) shall administer the
2016
LTI Plan. Any and all shares may be issued in respect of any of the types of Awards, provided that
(1)
 the aggregate number of shares that may be issued in respect of restricted stock awards, and restricted stock unit awards which are settled in shares is
500,000
, and
(2)
 the aggregate number of shares that may be issued pursuant to stock options is 1,200,000.
1,200,000
. The shares to be offered under the
2016
LTI Plan may be authorized and unissued shares or treasury shares. The maximum number of options and SARs, in the aggregate, which may be awarded to any individual key employee during any calendar year is 100,000.
100,000
. The maximum number of stock options and SARs, in the aggregate, which may be awarded to any
non-employee
director during any calendar year is 10,000.
10,000
. The maximum number of shares of restricted stock or shares subject to a restricted stock units award that may be granted during any calendar year is
50,000
shares to any individual key employee and
5,000
shares to any individual
non-employee
director. Subject to certain change in control provisions, the
2016
LTI Plan provides that awards of restricted stock and restricted stock units will vest as the Committee determines in the award agreement, provided that no awards will vest sooner than
1/3 per year
over the first three anniversaries of the award. Awards granted to executive officers of United typically will have performance based vesting conditions. A Form
S-8
was filed on July 
29
,
2016
with the Securities and Exchange Commission to register all the shares which were available for the
2016
LTI Plan. During the first nine months
49
Compensation expense of $1,024 $
1,198
and $3,016 $
2,311
related to the nonvested awards under United’s Long-Term Incentive Plans was incurred for the thirdsecond quarter and first ninesix months of 2018,
2019
, respectively, as compared to the compensation expense of $909 $
1,024
and $2,589 $
1,992
related to the nonvested awards under United’s Long-Term Incentive Plans incurred for the thirdsecond quarter and first ninesix months of 2017,
2018
, respectively. Compensation expense was included in employee compensation in the unaudited Consolidated Statements of Income.

Stock Options

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

A summary of activity under United’s stock option plans as of SeptemberJune 30, 2018,2019, and the changes during the first ninesix months of 20182019 are presented below:

   Nine Months Ended September 30, 2018 
   Shares   Aggregate
Intrinsic
Value
   Weighted Average 
   Remaining
Contractual
Term (Yrs.)
   Exercise
Price
 
 
 

Outstanding at January 1, 2018

   1,558,438       $31.09 

Granted

   276,192        37.60 

Exercised

   (60,161       23.03 

Forfeited or expired

   (24,007       32.66 
  

 

 

       

 

 

 

Outstanding at September 30, 2018

   1,750,462   $9,624,912    5.8   $32.36 
  

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable at September 30, 2018

   1,169,402   $9,508,502    4.4   $28.78 
  

 

 

   

 

 

   

 

 

   

 

 

 

                 
 
Six Months Ended June 30, 2019
 
     
Weighted Average
 
 
Shares
  
Aggregate
Intrinsic
Value
  
Remaining
Contractual
Term (Yrs.)
  
Exercise
Price
 
Outstanding at January 1, 2019
  
1,730,389
        $
32.43
 
Granted
  
240,205
         
38.49
 
Exercised
  
(47,960
)        
21.92
 
Forfeited or expired
  
(12,548
)        
35.27
 
                 
Outstanding at June 30, 2019
  
1,910,086
  $
9,445,566
   
5.7
  $
33.43
 
                 
Exercisable at June 30, 2019
  
1,314,149
  $
9,355,396
   
4.3
  $
30.76
 
                 
The following table summarizes the status of United’s nonvested stock option awards during the first ninesix months of 2018:

   Shares   Weighted-Average
Grant Date Fair
Value Per Share
 

Nonvested at January 1, 2018

   507,871   $7.89 

Granted

   276,192    7.56 

Vested

   (187,815   7.53 

Forfeited or expired

   (15,188   7.67 
  

 

 

   

 

 

 

Nonvested at September 30, 2018

   581,060   $7.86 
  

 

 

   

 

 

 

2019:

         
 
Shares
  
Weighted-Average
Grant Date Fair Value
Per Share
 
Nonvested at January 1, 2019
  
575,672
  $
7.86
 
Granted
  
240,205
   
7.16
 
Vested
  
(210,876
)  
7.74
 
Forfeited or expired
  
(9,064
)  
7.65
 
         
Nonvested at June 30, 2019
  
595,937
  $
7.62
 
         
During the ninesix months ended SeptemberJune 30, 2019 and 2018, 47,960 and 2017, 60,161 and 163,56242,089 shares, respectively, were issued in connection with stock option exercises. All shares issued in connection with stock option exercises for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 were issued from authorized and unissued stock. The total intrinsic value of options exercised under the Plans during the ninesix months ended SeptemberJune 30, 2019 and 2018 was $713 and 2017 was $851 and $3,078$630 respectively.

Restricted Stock

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

50 
The following summarizes the changes to United’s restricted common shares for the period ended SeptemberJune 30, 2018:

   Number
of Shares
   Weighted-Average
Grant Date Fair
Value Per Share
 

Outstanding at January 1, 2018

   170,496   $40.05 

Granted

   97,004    37.60 

Vested

   (62,411   37.59 

Forfeited

   (4,253   38.42 
  

 

 

   

 

 

 

Outstanding at September 30, 2018

   200,836   $39.67 
  

 

 

   

 

 

 
2019:  

         
 
Number of
Shares
  
Weighted-Average
Grant Date Fair Value
Per Share
 
Outstanding at January 1, 2019
  
199,303
  $
39.67
 
Granted
  
126,427
   
38.49
 
Vested
  
(73,535
)  
39.28
 
Forfeited
  
(2,539
)  
39.49
 
         
Outstanding at June 30, 2019
  
249,656
  $
39.19
 
         

14. EMPLOYEE BENEFIT PLANS

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

first half of 2019.

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

Included in accumulated other comprehensive income at December 31, 20172018 are unrecognized actuarial losses of $56,222 ($35,420 $
55,535
($
42,595
net of tax) that have not yet been recognized in net periodic pension cost. The amortization of this item expected to be recognized in net periodic pension cost during the fiscal year ended December 31, 20182019 is $4,653 ($2,932 $
4,744
($
3,639
net of tax).

Net periodic pension cost for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 included the following components:

   Three Months Ended
September 30
  Nine Months Ended
September 30
 
   2018  2017  2018  2017 

Service cost

  $673  $574  $1,997  $1,705 

Interest cost

   1,324   1,293   3,927   3,837 

Expected return on plan assets

   (2,578  (2,072  (7,651  (6,148

Recognized net actuarial loss

   1,174   1,111   3,485   3,298 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net periodic pension (benefit) cost

  $593  $906  $1,758  $2,692 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted-Average Assumptions:

     

Discount rate

   3.83  4.49  3.83  4.49

Expected return on assets

   7.00  7.00  7.00  7.00

Rate of compensation increase (prior to age 45)

   3.50  3.50  3.50  3.50

Rate of compensation increase

   3.00  3.00  3.00  3.00

                 
 
Three Months Ended
June 30
  
Six Months Ended
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Service cost
 $
561
  $
666
  $
1,116
  $
1,324
 
Interest cost
  
1,459
   
1,308
   
2,901
   
2,603
 
Expected return on plan assets
  
(2,356
)  
(2,551
)  
(4,686
)  
(5,073
)
Recognized net actuarial loss
  
1,184
   
1,162
   
2,355
   
2,311
 
                 
Net periodic pension (benefit) cost
 $
848
  $
585
  $
1,686
  $
1,165
 
                 
Weighted-Average Assumptions:
            
Discount rate
  
4.52
%  
3.83
%  
4.52
%  
3.83
%
Expected return on assets
  
7.00
%  
7.00
%  
7.00
%  
7.00
%
Rate of compensation increase (prior to age 45)
  3.50%  
3.50
%  
3.50
%  
3.50
%
Rate of compensation increase
  3.00%  
3.00
%  
3.00
%  
3.00
%
15. INCOME TAXES

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

51
As of SeptemberJune 30, 20182019 and 2017,2018, the total amount of accrued interest related to uncertain tax positions was $649 $
726
and $548,$
721
, respectively. United accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.

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

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act lowered the Federal corporate tax rate from 35% to 21% effective January 1, 2018 and made numerous other tax law changes. U.S. generally accepted accounting principles (GAAP) requires companies to recognize the effect of tax law changes in the period of enactment. As a result of the Tax Act, United was required to remeasure deferred tax assets and liabilities at the new tax rate and as a result, recorded deferred tax expense of $37,732 in the fourth quarter of 2017. Reasonable estimates were made based on the Company’s analysis of the Tax Act. This provisional amount may be adjusted in future periods during 2018 when additional information is obtained as provided for under Staff Accounting Bulletin 118 (“SAB 118”). Additional information that may affect our provisional amount would include further clarification and guidance on how the IRS will implement tax reform, further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Company’s state income tax returns, completion of United’s 2017 tax return filings, and the potential for additional guidance from the SEC or the FASB related to the Tax Act. Management continues to evaluate other potential impacts of the Tax Act. The Company did not identify items for which the income tax effects of the Tax Act have not been completed and a reasonable estimate could not be determined as of September 30, 2018.

United’s effective tax rate was 21.77%
20.69
% and 22.25%
21.04
% for the thirdsecond quarter and first ninesix months of 20182019 and 32.91%
22.50
% and 33.68%
22.49
% for the thirdsecond quarter and first ninesix months of 2017. The lower effective tax rate for the third quarter and first nine months of 2018 was due mainly to the Tax Act.

2018.

16. COMPREHENSIVE INCOME

The components of total comprehensive income for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 are as follows:

   Three Months Ended  Nine Months Ended 
   September 30  September 30 
   2018  2017  2018  2017 

Net Income

  $64,412  $56,738  $192,392  $132,606 

Available for sale (“AFS”) securities:

     

AFS securities with OTTI charges during the period

   0   0   0   (60

Related income tax effect

   0   0   0   22 

Less: OTTI charges recognized in net income

   0   0   0   60 

Related income tax benefit

   0   0   0   (22

Reclassification of previous noncredit OTTI to credit OTTI

   0   0   0   0 

Related income tax benefit

   0   0   0   0 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net unrealized (losses) gains on AFS securities with OTTI

   0   0   0   0 

AFS securities – all other:

     

Change in net unrealized gain on AFS securities arising during the period

   (9,995  3,584   (42,696  14,846 

Related income tax effect

   2,329   (1,326  11,621   (5,493

Net reclassification adjustment for (gains) losses included in net income

   114   (467  290   (1,444

Related income tax expense (benefit)

   (27  173   (68  534 
  

 

 

  

 

 

  

 

 

  

 

 

 
   (7,579  1,964   (30,853  8,443 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net effect of AFS securities on other comprehensive income

   (7,579  1,964   (30,853  8,443 

Held to maturity (“HTM”) securities:

     

Accretion on the unrealized loss for securities transferred from AFS to the HTM investment portfolio prior to call or maturity

   2   2   6   6 

Related income tax expense

   (0  (0  (2  (2
  

 

 

  

 

 

  

 

 

  

 

 

 

Net effect of HTM securities on other comprehensive income

   2   2   4   4 

Pension plan:

     

Recognized net actuarial loss

   1,174   1,111   3,485   3,298 

Related income tax benefit

   (256  (394  (782  (1,191
  

 

 

  

 

 

  

 

 

  

 

 

 

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

   918   717   2,703   2,107 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total change in other comprehensive income

   (6,659  2,683   (28,146  10,554 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Comprehensive Income

  $57,753  $59,421  $164,246  $143,160 
  

 

 

  

 

 

  

 

 

  

 

 

 

                 
 
 
Three Months Ended
  
Six Months Ended
 
 
 
June 30
  
June 30
 
 
 
2019
  
2018
  
2019
  
2018
 
Net Income
 $
 67,207
  $
 66,274
  $
 130,849
  $
 127,980
 
Available for sale (“AFS”) securities:                
AFS securities with OTTI charges during the period  (75)  0   (75)  0 
Related income tax effect  17   0   17   0 
Less: OTTI charges recognized in net income  75   0   75   0 
Related income tax benefit  (17)  0   (17)  0 
Reclassification of previous noncredit OTTI to credit OTTI  2,188   0   2,188   0 
Related income tax benefit  (510)  0   (510)  0 
                 
Net unrealized (losses) gains on AFS securities with OTTI  1,678   0   1,678   0 
AFS securities – all other:                
Change in net unrealized gain on AFS securities arising during the period  21,141   (10,684)  43,379   (32,701)
Related income tax effect  (4,925)  4,162   (10,107)  9,292 
Net reclassification adjustment for (gains) losses included in net income  130   27   (218)  176 
Related income tax expense (benefit)  (30)  (6)  51   (41)
                 
   16,316   (6,501)  33,105   (23,274)
                 
Net effect of AFS securities on other comprehensive income
  
17,994
   
(6,501
)  
34,783
   
(23,274
)
Held to maturity (“HTM”) securities:                
Accretion on the unrealized loss for securities transferred from AFS to the HTM investment portfolio prior to call or maturity  0   2   0   4 
Related income tax expense  (0)  (1)  (0)  (2)
                 
Net effect of HTM securities on other comprehensive income
  
0
   
1
   
0
   
2
 
Pension plan:                
Recognized net actuarial loss  1,184   1,162   2,355   2,311 
Related income tax benefit  (275)  (110)  (536)  (526)
                 
Net effect of change in pension plan asset on other comprehensive income
  
909
   
1,052
   
1,819
   
1,785
 
                 
Total change in other comprehensive income
  
18,903
   
(5,448
)  
36,602
   
(21,487
)
                 
Total Comprehensive Income
 $
 86,110
  $
 60,826
  $
 167,451
  $
 106,493
 
                 
52
The components of accumulated other comprehensive income for the ninesix months ended SeptemberJune 30, 20182019 are as follows:

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

For the Nine Months Ended September 30, 2018

 
   Unrealized
Gains/
Losses on
AFS
Securities
  Accretion
on the
unrealized
loss for
securities
transferred
from AFS
to the
HTM
  Defined
Benefit
Pension

Items
  Total 

Balance at January 1, 2018

  ($6,204 ($46 ($35,775 ($42,025

Cumulative effect of adopting Accounting Standard Update2016-01

   (136  0   0   (136

Reclass due to adopting Accounting Standard Update2018-02

   (1,632  0   (4,721  (6,353

Other comprehensive income before reclassification

   (31,075  4   0   (31,071

Amounts reclassified from accumulated other comprehensive income

   222   0   2,703   2,925 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income, net of tax

   (30,853  4   2,703   (28,146
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at September 30, 2018

  ($38,825 ($42 ($37,793 ($76,660
  

 

 

  

 

 

  

 

 

  

 

 

 

Changes in Accumulated Other Comprehensive Income (AOCI) by Component
(a)
For the Six Months Ended June 30, 2019
 
Unrealized
Gains/Losses
on AFS
Securities
  
Accretion on
the unrealized
loss for
securities
transferred
from AFS to
the HTM
  
Defined
Benefit
Pension
Items
  
Total
 
Balance at January 1, 2019
 ($
18,289
) ($
50
) ($
36,680
) ($
57,019
)
Reclass due to adopting Accounting Standard Update
2017-12
  
0
   
50
   
0
   
50
 
Other comprehensive income before reclassification
  
33,272
   
0
   
0
   
33,272
 
Amounts reclassified from accumulated other comprehensive income
  
1,511
   
0
   
1,819
   
3,330
 
                 
Net current-period other comprehensive income, net of tax
  
34,783
   
0
   
1,819
   
36,602
 
                 
Balance at June 30, 2019
 $
16,494
  $
0
  ($
36,861
) ($
20,367
)
                 
(a)

All amounts arenet-of-tax.

Reclassifications out of Accumulated Other Comprehensive Income (AOCI)

For the Nine Months Ended September 30, 2018

Details about AOCI Components

  Amount
Reclassified
from AOCI
  

Affected Line Item in the Statement Where

Net Income is Presented

Available for sale (“AFS”) securities:

   

Reclassification of previous noncredit OTTI to credit OTTI

  $0  Net investment securities (losses) gains

Net reclassification adjustment for losses (gains) included in net income

   290  Net investment securities (losses) gains
  

 

 

  
   290  Total before tax

Related income tax effect

   (68 Tax expense
  

 

 

  
   222  Net of tax

Pension plan:

   

Recognized net actuarial loss

   3,485(a)  
  

 

 

  
   3,485  Total before tax

Related income tax effect

   (782 Tax expense
  

 

 

  
   2,703  Net of tax
  

 

 

  

Total reclassifications for the period

  $2,925  
  

 

 

  

Reclassifications out of Accumulated Other Comprehensive Income (AOCI)
For the Six Months Ended​​​​​​​ June 30, 2019
Details about AOCI Components
 
Amount
Reclassified
from AOCI
  
Affected Line Item in the Statement Where
Net Income is Presented
Available for sale (“AFS”) securities:
    
Reclassification of previous noncredit OTTI to credit OTTI
 $
2,188
  
Net investment securities (losses) gains
Net reclassification adjustment for losses (gains) included in net income
  
(218
) 
Net investment securities (losses) gains
       
  
1,970
  
Total before tax
Related income tax effect
  
(459
) 
Tax expense
       
  
1,511
  
Net of tax
Pension plan:
    
Recognized net actuarial loss
  
2,355
(a) 
       
  
2,355
  
Total before tax
Related income tax effect
  
(536
) 
Tax expense
       
  
1,819
  
Net of tax
       
Total reclassifications for the period
 $
3,330
  
       
(a)

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

53
17. EARNINGS PER SHARE

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

   Three Months Ended   Nine Months Ended 
   September 30   September 30 
   2018   2017   2018   2017 

Distributed earnings allocated to common stock

  $35,234   $34,587   $106,429   $95,871 

Undistributed earnings allocated to common stock

   29,060    22,065    85,617    36,518 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings allocated to common shareholders

  $64,294   $56,652   $192,046   $132,389 
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares outstanding

   103,617,590    104,760,153    104,382,094    95,040,664 

Equivalents from stock options

   316,369    307,969    297,782    409,962 
  

 

 

   

 

 

   

 

 

   

 

 

 

Average diluted shares outstanding

   103,933,959    105,068,122    104,679,876    95,450,626 
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per basic common share

  $0.62   $0.54   $1.84   $1.39 

Earnings per diluted common share

  $0.62   $0.54   $1.83   $1.39 

 
Three Months Ended
  
Six Months Ended
 
 
June 30
  
June 30
 
 
2019
  
2018
  
2019
  
2018
 
Distributed earnings allocated to common stock
 $
34,604
  $
35,516
  $
69,276
  $
71,195
 
Undistributed earnings allocated to common stock
  
32,446
   
30,637
   
61,276
   
56,557
 
                 
Net earnings allocated to common shareholders
 $
67,050
  $
66,153
  $
130,552
  $
127,752
 
                 
Average common shares outstanding
  
101,773,643
   
104,682,910
   
101,833,880
   
104,770,681
 
Equivalents from stock options
  
274,202
   
269,878
   
265,929
   
287,333
 
                 
Average diluted shares outstanding
  
102,047,845
   
104,952,788
   
102,099,809
   
105,058,014
 
                 
Earnings per basic common share
 $
0.66
  $
0.63
  $
1.28
  $
1.22
 
Earnings per diluted common share
 $
0.66
  $
0.63
  $
1.28
  $
1.22
 
18. VARIABLE INTEREST ENTITIES

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

United currently sponsors
fourteen
statutory business trusts that were created for the purpose of raising funds that originally qualified for Tier I regulatory capital. As previously discussed, with the acquisition of Cardinal, 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%
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.

54
Information related to United’s statutory trusts is presented in the table below:

Description

  Issuance Date  Amount of
Capital
Securities Issued
   

Interest Rate

  

Maturity Date

United Statutory Trust III

  December 17, 2003  $20,000   3-month LIBOR + 2.85%  December 17, 2033

United Statutory Trust IV

  December 19, 2003  $25,000   3-month LIBOR + 2.85%  January 23, 2034

United Statutory Trust V

  July 12, 2007  $50,000   3-month LIBOR + 1.55%  October 1, 2037

United Statutory Trust VI

  September 20, 2007  $30,000   3-month LIBOR + 1.30%  December 15, 2037

Premier Statutory Trust II

  September 25, 2003  $6,000   3-month LIBOR + 3.10%  October 8, 2033

Premier Statutory Trust III

  May 16, 2005  $8,000   3-month LIBOR + 1.74%  June 15, 2035

Premier Statutory Trust IV

  June 20, 2006  $14,000   3-month LIBOR + 1.55%  September 23, 2036

Premier Statutory Trust V

  December 14, 2006  $10,000   3-month LIBOR + 1.61%  March 1, 2037

Centra Statutory Trust I

  September 20, 2004  $10,000   3-month LIBOR + 2.29%  September 20, 2034

Centra Statutory Trust II

  June 15, 2006  $10,000   3-month LIBOR + 1.65%  July 7, 2036

Virginia Commerce Trust II

  December 19, 2002  $15,000   6-month LIBOR + 3.30%  December 19, 2032

Virginia Commerce Trust III

  December 20, 2005  $25,000   3-month LIBOR + 1.42%  February 23, 2036

Cardinal Statutory Trust I

  July 27, 2004  $20,000   3-month LIBOR + 2.40%  September 15, 2034

UFBC Capital Trust I

  December 30, 2004  $5,000   3-month LIBOR + 2.10%  March 15, 2035

             
Description
 
Issuance Date
 
Amount of
Capital
Securities Issued
  
Interest Rate
 
 
Maturity Date
 
United Statutory Trust III
 
December 17, 2003
 $
20,000
  
3-month LIBOR + 2.85%
  
December 17, 2033
 
United Statutory Trust IV
 
December 19, 2003
 $
25,000
  
3-month LIBOR + 2.85%
  
January 23, 2034
 
United Statutory Trust V
 
July 12, 2007
 $
50,000
  
3-month LIBOR + 1.55%
  
October 1, 2037
 
United Statutory Trust VI
 
September 20, 2007
 $
30,000
  
3-month LIBOR + 1.30%
  
December 15, 2037
 
Premier Statutory Trust II
 
September 25, 2003
 $
6,000
  
3-month LIBOR + 3.10%
  
October 8, 2033
 
Premier Statutory Trust III
 
May 16, 2005
 $
8,000
  
3-month LIBOR + 1.74%
  
June 15, 2035
 
Premier Statutory Trust IV
 
June 20, 2006
 $
14,000
  
3-month LIBOR + 1.55%
  
September 23, 2036
 
Premier Statutory Trust V
 
December 14, 2006
 $
10,000
  
3-month LIBOR + 1.61%
  
March 1, 2037
 
Centra Statutory Trust I
 
September 20, 2004
 $
10,000
  
3-month LIBOR + 2.29%
  
September 20, 2034
 
Centra Statutory Trust II
 
June 15, 2006
 $
10,000
  
3-month LIBOR + 1.65%
  
July 7, 2036
 
Virginia Commerce Trust II
 
December 19, 2002
 $
15,000
  
6-month LIBOR + 3.30%
  
December 19, 2032
 
Virginia Commerce Trust III
 
December 20, 2005
 $
25,000
  
3-month LIBOR + 1.42%
  
February 23, 2036
 
Cardinal Statutory Trust I
 
July 27, 2004
 $
20,000
  
3-month LIBOR + 2.40%
  
September 15, 2034
 
UFBC Capital Trust I
 
December 30, 2004
 $
5,000
  
3-month LIBOR + 2.10%
  
March 15, 2035
 
United, through its banking subsidiary, also makes limited partner equity investments in various low income housing and community development partnerships sponsored by independent third-parties. United invests in these partnerships to either realize tax credits on its consolidated federal income tax return or for purposes of earning a return on its investment. These partnerships are considered VIEs as the limited partners lack a controlling financial interest in the entities through their inability to make decisions that have a significant effect on the operations and success of the partnerships. United’s limited partner interests in these entities is immaterial, however; these partnerships are not consolidated as United is not deemed to be the primary beneficiary.

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

   As of September 30, 2018   As of December 31, 2017 
   Aggregate
Assets
   Aggregate
Liabilities
   Risk Of
Loss(1)
   Aggregate
Assets
   Aggregate
Liabilities
   Risk Of
Loss(1)
 

Trust preferred securities

  $257,873   $248,921   $8,952   $266,669   $257,674   $8,995 

                         
 
As of June 30, 2019
  
As of December 31, 2018
 
 
Aggregate
Assets
  
Aggregate
Liabilities
  
Risk Of
Loss
(1)
  
Aggregate
Assets
  
Aggregate
Liabilities
  
Risk Of
Loss
(1)
 
Trust preferred securities
 $
257,888
  $
248,746
  $
9,142
  $
257,754
  $
248,741
  $
9,013
 
(1)Represents investment in VIEs.
19. SEGMENT INFORMATION

As a result of the Cardinal acquisition in April 2017,

United now operates in two business segments: community banking and mortgage banking. Prior to the Cardinal acquisition, United’s business activities were confined to just one reportable segment of community banking.

Through its community banking segment, United offers a full range of products and services through various delivery channels. In particular, the community banking segment includes both commercial and consumer lending and provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. In addition, this segment provides customers with several choices of deposit products including demand deposit accounts, savings accounts and certificates of deposit as well as investment and financial advisory services to businesses and individuals, including financial planning, retirement/estate planning, and investment management. The mortgage banking segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market though George Mason.

The community banking segment provides the mortgage banking segment (George Mason) with short-term funds to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on athe 30-day LIBOR rate. In addition, the mortgage banking segment (George Mason) originates mortgage loans which are sold to the community banking segment for its loan portfolio. These intersegment transactions are eliminated in the consolidation process.

55
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 ninesix months ended SeptemberJune 30, 20182019 and 20172018 is as follows:

   At and For the Three Months Ended September 30, 2018 
   Community
Banking
   Mortgage
Banking
  Other  Intersegment
Eliminations
  Consolidated 

Net interest income

  $149,770   $388  $(3,168 $1,785  $148,775 

Provision for loans losses

   4,808    0   0   0   4,808 

Other income

   18,717    16,478   58   (3,567  31,686 

Other expense

   75,255    17,957   1,885   (1,782  93,315 

Income taxes

   19,296    (246  (1,124  0   17,926 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $69,128   $(845 $(3,871 $0  $64,412 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total assets (liabilities)

  $19,080,734   $288,638  $12,545  $(194,274 $19,187,643 

Average assets (liabilities)

   18,982,530    303,556   5,468   (243,867  19,047,689 
   At and For the Three Months Ended September 30, 2017 
   Community
Banking
   Mortgage
Banking
  Other  Intersegment
Eliminations
  Consolidated 

Net interest income

  $152,886   $(36 $(2,574 $0  $150,276 

Provision for loans losses

   7,279    0   0   0   7,279 

Other income

   18,373    19,936   (80  0   38,229 

Other expense

   74,553    24,036   (1,937  0   96,652 

Income taxes

   29,490    (1,332  (322  0   27,836 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $59,937   $(2,804 $(395 $0  $56,738 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total assets (liabilities)

  $19,083,318   $350,483  $(900 $(302,923 $19,129,978 

Average assets (liabilities)

   18,889,710    321,744   (13,994  (269,675  18,927,785 
   At and For the Nine Months Ended September 30, 2018 
   Community
Banking
   Mortgage
Banking
  Other  Intersegment
Eliminations
  Consolidated 

Net interest income

  $444,840   $1,028  $(8,794 $4,866  $441,940 

Provision for loans losses

   16,190    0   0   0   16,190 

Other income

   53,952    54,829   (696  (9,200  98,885 

Other expense

   224,240    57,566   (295  (4,334  277,177 

Income taxes

   57,519    (385  (2,068  0   55,066 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $200,843   $(1,324 $(7,127 $0  $192,392 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total assets (liabilities)

  $19,080,734   $288,638  $12,545  $(194,274 $19,187,643 

Average assets (liabilities)

   18,718,295    284,100   8,043   (240,505  18,769,934 

                     
 
At and For the Three Months Ended June 30, 2019
 
 
Community
Banking
  
Mortgage
Banking
  
Other
  
Intersegment
Eliminations
  
Consolidated
 
Net interest income
 $
152,517
  $
111
  $
(3,209
) $
1,134
  $
150,553
 
Provision for loans losses
  
5,417
   
0
   
0
   
0
   
5,417
 
Other income
  
18,398
   
23,501
   
53
   
(2,157
)  
39,795
 
Other expense
  
82,304
   
18,771
   
143
   
(1,023
)  
100,195
 
Income taxes
  
17,207
   
1,004
   
(682
)  
0
   
17,529
 
                     
Net income (loss)
 $
65,987
  $
3,837
  $
(2,617
) $
0
  $
67,207
 
                     
Total assets (liabilities)
 $
19,735,901
  $
442,188
  $
16,729
  $
(312,279
) $
19,882,539
 
Average assets (liabilities)
  
19,447,629
   
326,525
   
5,387
   
(263,687
)  
19,515,854
 
    
 
At and For the Three Months Ended June 30, 2018
 
 
Community
Banking
  
Mortgage
Banking
  
Other
  
Intersegment
Eliminations
  
Consolidated
 
Net interest income
 $
149,448
  $
264
  $
(3,032
) $
2,442
  $
149,122
 
Provision for loans losses
  
6,204
   
0
   
0
   
0
   
6,204
 
Other income
  
17,465
   
23,468
   
68
   
(4,994
)  
36,007
 
Other expense
  
76,495
   
21,225
   
(1,758
)  
(2,552
)  
93,410
 
Income taxes
  
18,948
   
564
   
(271
)  
0
   
19,241
 
                     
Net income (loss)
 $
65,266
  $
1,943
  $
(935
) $
0
  $
66,274
 
                     
Total assets (liabilities)
 $
19,112,133
  $
388,292
  $
 
10,895
  $
(303,717
) $
19,207,603
 
Average assets (liabilities)
  
18,658,168
   
335,781
   
6,776
   
(288,341
)  
18,712,384
 
   At and For the Nine Months Ended September 30, 2017 
   Community
Banking
   Mortgage
Banking
  Other  Intersegment
Eliminations
  Consolidated 

Net interest income

  $401,044   $54  $(6,957 $0  $394,141 

Provision for loans losses

   21,429    0   0   0   21,429 

Other income

   53,409    42,329   3,143   0   98,881 

Other expense

   215,935    42,744   12,952   0   271,631 

Income taxes

   73,214    (39  (5,819  0   67,356 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $143,875   $(322 $(10,947 $0  $132,606 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total assets (liabilities)

  $19,083,318   $350,483  $(900 $(302,923 $19,129,978 

Average assets (liabilities)

   17,180,219    187,118   (20,402  (159,291  17,187,644 

                     
 
At and For the Six Months Ended June 30, 2019
 
 
Community
Banking
  
Mortgage
Banking
  
Other
  
Intersegment
Eliminations
  
Consolidated
 
Net interest income
 $
298,407
  $
166
  $
(6,532
) $
2,680
  $
294,721
 
Provision for loans losses
  
10,413
   
0
   
0
   
0
   
10,413
 
Other income
  
36,050
   
39,607
   
255
   
(4,894
)  
71,018
 
Other expense
  
158,298
   
33,613
   
(77
)  
(2,214
)  
189,620
 
Income taxes
  
34,873
   
1,286
   
(1,302
)  
0
   
34,857
 
                     
Net income (loss)
 $
130,873
  $
4,874
  $
(4,898
) $
0
  $
130,849
 
                     
Total assets (liabilities)
 $19,735,901  $
 
442,188  $
 
16,729  $(312,279) $19,882,539 
Average assets (liabilities)
  
19,324,956
   
296,008
   
1,824
   
(239,281
)  
19,383,507
 
56
Table of Contents
 
At and For the Six Months Ended June 30, 2018
 
 
Community
Banking
  
Mortgage
Banking
  
Other
  
Intersegment
Eliminations
  
Consolidated
 
Net interest income
 $
295,070
  $
640
  $
(5,626
) $
3,081
  $
293,165
 
Provision for loans losses
  
11,382
   
0
   
0
   
0
   
11,382
 
Other income
  
35,235
   
38,351
   
(754
)  
(5,633
)  
67,199
 
Other expense
  
148,986
   
39,609
   
(2,181
)  
(2,552
)  
183,862
 
Income taxes
  
38,224
   
(139
)  
(945
)  
0
   
37,140
 
                     
Net income (loss)
 $
131,713
  $
(479
) $
(3,254
) $
0
  $
127,980
 
                     
Total assets (liabilities)
 $
19,112,133
  $
 
388,292
  $
 
10,895
  $
(303,717
) $
19,207,603
 
Average assets (liabilities)
  
18,583,975
   
274,211
   
9,231
   
(238,796
)  
18,628,621
 
Item 2.

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

FORWARD-LOOKING STATEMENTS

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

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

ACQUISITIONS

On April 21, 2017, United acquired 100% of the outstanding common stock of Cardinal Financial Corporation (“Cardinal”), headquartered in Tysons Corner, Virginia. The acquisition of Cardinal expands United’s existing footprint in the Washington, D.C. Metropolitan Statistical Area (“MSA”). Cardinal also operated George Mason Mortgage, LLC (“George Mason”), a residential mortgage lending company based in Fairfax, Virginia with offices located in Virginia, Maryland, North Carolina, South Carolina and the District of Columbia. As a result of the merger, George Mason became an indirectly-owned subsidiary of United. The Cardinal merger was accounted for under the acquisition method of accounting. At consummation, Cardinal had assets of $4.14 billion, portfolio loans of $3.31 billion and deposits of $3.34 billion.

The results of operations of Cardinal are included in the consolidated results of operations from their respective dates of acquisition. As a result of the Cardinal acquisition, the first nine months of 2018 was impacted by increased levels of average balances, income, and expense as compared to the first nine months of 2017. In addition, the first nine months of 2017 included $24.99 million of merger-related expenses from the Cardinal acquisition.

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 SeptemberJune 30, 2018,2019, but prior to the date these financial statements were issued, for potential recognition or disclosure required in these financial statements.

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

RECENT DEVELOPMENTS
United adopted the new accounting standard for leases effective January 1, 2019. Therefore, beginning in fiscal year 2019, our financial results reflect the adoption of this standard. This new standard impacted our Consolidated Balance Sheet as of June 30, 2019 by increasing total assets by $63.11 million and total liabilities by $66.82 million. Prior periods were not restated. See Note 1, Summary of Significant Accounting Policies of the unaudited Notes to Consolidated Financial Statements for a further discussion.
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Table of Contents
USE OF
NON-GAAP
FINANCIAL MEASURES

This discussion and analysis contains a certain financial measure that is not recognized under GAAP. Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each
“non-GAAP”
financial measure, certain additional information, including a reconciliation of the
non-GAAP
financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the
non-GAAP
financial measure.

Generally, United has presented this
non-GAAP
financial measure because it believes that this measure provides meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of this
non-GAAP
financial measure is consistent with how United’s management evaluates its performance internally and this
non-GAAP
financial measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry. Specifically, this discussion contains certain references to a financial measuremeasures identified as
tax-equivalent
(FTE) net interest income.income and return on average tangible equity. Management believes thisthese
non-GAAP
financial measure, if significant,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 materially differ from thesethose estimates. TheseUnited’s critical accounting policies along withinvolving the disclosures presentedsignificant judgments and assumptions used in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determinationpreparation of the allowance for credit losses, the valuation of investment securities and the related other-than-temporary impairment analysis, the accounting for acquired loans and the calculation of the income tax provision to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

Allowance for Credit Losses

As explained in Note 6, Allowance for Credit Losses to the unaudited Consolidated Financial Statements as of June 30, 2019 were unchanged from the allowance policies disclosed in United’s Annual Report on Form

10-K
for loan losses represents management’s estimate of the probable credit losses inherent inyear ended December 31, 2018 within the lending portfolio. Determining the allowance for loan losses requires management to make estimates of losses that are highly uncertain and require a high degree of judgment. At September 30, 2018, the allowance for loan losses was $76.94 million and is subject to periodic adjustment based on management’s assessment of current probable losses in the loan portfolio. Such adjustment from period to period can have a significant impact on United’s consolidated financial statements. To illustrate the potential effect on the financial statements of our estimates of the allowance for loan losses, a 10% increase in the allowance for loan losses would have required $7.69 million in additional allowance (funded by additional provision for credit losses), which would have negatively impacted the third quarter of 2018 net income by approximately $6.02 million,after-tax or $0.06 diluted per common share. Management’s evaluation of the adequacy of the allowance for loan losses and the appropriate provision for loan losses is based upon a quarterly evaluation of the loan portfolio. This evaluation is inherently subjective and requires significant estimates, including estimates related to the amounts and timing of future cash flows, value of collateral, losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. The allowance allocated to specific credits and loan pools grouped by similar risk characteristics is reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. In determining the components of the allowance for loan losses, management considers the risk arising in part from, but not limited to,charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. The methodology used to determine the allowance for loan losses is described in Note 6. A discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the Provision for Credit Losses section of this Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Additional information relating to United’s loans is included in Note 4, Loans to the unaudited Consolidated Financial Statements.

Investment Securities

Accounting estimates are used in the presentationOperations.”

58
Table of the investment portfolio and these estimates impact the presentation of United’s financial condition and results of operations. United classifies its investments in debt as either held to maturity or available for sale and its equity securities as available for sale. Securities held to maturity are accounted for using historical costs, adjusted for amortization of premiums and accretion of discounts. Securities available for sale are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of shareholders’ equity. When available, fair values of securities are based on quoted prices or prices obtained from third party vendors. 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. Prices obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management. Where prices reflect forced liquidation or distressed sales, as is the case with United’s portfolio of trust preferred securities (Trup Cdos), management estimates fair value based on a discounted cash flow methodology using appropriately adjusted discount rates reflecting nonperformance and liquidity risks. Due to the subjective nature of this valuation process, it is possible that the actual fair values of these securities could differ from the estimated amounts, thereby affecting United’s financial position, results of operations and cash flows. The potential impact to United’s financial position, results of operations or cash flows for changes in the valuation process cannot be reasonably estimated.

If the estimated value of investments is less than the cost or amortized cost, the investment is considered impaired and management evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred, management must exercise judgment to determine the nature of the potential impairment (i.e., temporary or other-than-temporary) in order to apply the appropriate accounting treatment. If United intends to sell, or is more likely than not they will be

Contents

required to sell an impaired debt security before recovery of its amortized cost basis less any current period credit loss, other-than-temporary impairment is recognized in earnings. The amount recognized in earnings is equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. If United does not intend to sell, and is not more likely than not they will be required to sell the impaired debt security prior to recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is separated into the following: 1) the amount representing the credit loss, which is recognized in earnings, and 2) the amount related to all other factors, which is recognized in other comprehensive income. For additional information on management’s consideration of investment valuation and other-than-temporary impairment, see Note 3, Investment Securities, and Note 12, Fair Value Measurements, to the unaudited consolidated financial statements.

Accounting for Acquired Loans

Loans acquired are initially recorded at their acquisition date fair values. The fair value of the acquired loans is based on the present value of the expected cash flows, including principal, interest and prepayments. Periodic principal and interest cash flows are adjusted for expected losses and prepayments, then discounted to determine the present value and summed to arrive at the estimated fair value. Fair value estimates involve assumptions and judgments as to credit risk, interest rate risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired loans are divided into loans with evidence of credit quality deterioration, which are accounted for under ASC Topic310-30 (acquired impaired) and loans that do not meet this criteria, which are accounted for under ASC Topic310-20 (acquired performing). Acquired impaired loans have experienced a deterioration of credit quality from origination to acquisition for which it is probable that United will be unable to collect all contractually required payments receivable, including both principal and interest. In the assessment of credit quality, numerous assumptions, interpretations and judgments must be made, based on internal and third-party credit quality information and ultimately the determination as to the probability that all contractual cash flows will not be able to be collected. This is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved.

Subsequent to the acquisition date, United continues to estimate the amount and timing of cash flows expected to be collected on acquired impaired loans. Increases in expected cash flows will generally result in a recovery of any previously recorded allowance for loan losses, to the extent applicable, and/or a reclassification from the nonaccretable difference to accretable yield, which will be recognized prospectively. The present value of any decreases in expected cash flows after the acquisition date will generally result in an impairment charge recorded as a provision for loan losses, resulting in an increase to the allowance for loan losses.

For acquired performing loans, the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the fair value adjustment. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to interest income over the loan’s remaining life using the level yield method. Subsequent to the acquisition date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans.

See Note 2, Merger and Acquisitions, and Note 4, Loans, to the unaudited Consolidated Financial Statements for information regarding United’s acquired loans disclosures.

Income Taxes

United’s calculation of income tax provision is inherently complex due to the various different tax laws and jurisdictions in which we operate and requires management’s use of estimates and judgments in its determination. The current income tax liability also includes income tax expense related to our uncertain tax positions as required

in ASC Topic 740, “Income Taxes.” Changes to the estimated accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of issues with taxing authorities and recently enacted statutory, judicial and regulatory guidance. These changes can be material to the Company’s operating results for any particular reporting period. The analysis of the income tax provision requires the assessments of the relative risks and merits of the appropriate tax treatment of transactions, filing positions, filing methods and taxable income calculations after considering statutes, regulations, judicial precedent and other information. United strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense. United is also subject to audit by federal and state authorities. Because the application of tax laws is subject to varying interpretations, results of these audits may produce indicated liabilities which differ from United’s estimates and provisions. United continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances. The potential impact to United’s operating results for any of the changes cannot be reasonably estimated. See Note 15, Income Taxes, to the unaudited Consolidated Financial Statements for information regarding United’s ASC Topic 740 disclosures.

Use of Fair Value Measurements

United determines the fair value of its financial instruments based on the fair value hierarchy established in ASC Topic 820, whereby the 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 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable. Observable inputs reflect market-based information obtained from independent sources (Level 1 or Level 2), while unobservable inputs reflect management’s estimate of market data (Level 3). For assets and liabilities that are actively traded and have quoted prices or observable market data, a minimal amount of subjectivity concerning fair value is needed. Prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management. When quoted prices or observable market data are not available, management’s judgment is necessary to estimate fair value.

At September 30, 2018, approximately 13.34% of total assets, or $2.56 billion, consisted of financial instruments recorded at fair value. Of this total, approximately 90.12% or $2.31 billion of these financial instruments used valuation methodologies involving observable market data, collectively Level 1 and Level 2 measurements, to determine fair value. Approximately $252.87 million or 9.88% of these financial instruments were valued using unobservable market information or Level 3 measurements. Most of these financial instruments valued using unobservable market information were pooled trust preferred investment securities classified asavailable-for-sale. At September 30, 2018, only $197 thousand or less than 1% of total liabilities were recorded at fair value. This entire amount was valued using methodologies involving observable market data. United does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on United’s results of operations, liquidity, or capital resources. See Note 12, Fair Value Measurements, to the unaudited Consolidated Financial Statements for additional information regarding ASC Topic 820 and its impact on United’s financial statements.

Any material effect on the financial statements related to these critical accounting areas are further discussed in this MD&A.

FINANCIAL CONDITION

United’s total assets as of SeptemberJune 30, 20182019 were $19.19$19.88 billion, which was relatively flatan increase of $632.04 million or 3.28% from December 31, 2017, increasing $128.68 million or less than 1% from December 31, 2017.2018. The slight increase was mainly due to an increase of $265.32$233.18 million or 2.04%22.85% in cash and cash equivalents, an increase of $213.04 million or 1.59% in portfolio loans.loans, and an increase of $120.75 million or 48.33% in loans held for sale. Investment securities increased $303.87 million

or 14.67%. Loans held for sale decreased $31.76 million or 11.94%. Cash and cash equivalents decreased $411.48 million or 24.70%. Other assets were relatively flat, increasing $1.32$19.54 million or less than 1%. In addition, United adopted the new accounting standard for leases effective January 1, 2019, as previously mentioned, resulting in a $63.11 million operating lease

right-of-use
asset as of June 30, 2019. Partially offsetting these increases in total assets was a $17.52 million or 3.83% decrease in other assets. Total liabilities were relatively flat, increasing $118.09increased $549.81 million or less than 1%3.44% from
year-end 2017.
2018. Deposits increased $260.58$409.34 million or 1.88%2.92%. Borrowings decreased $142.69increased $55.30 million or 7.75%2.99% while accrued expenses and other liabilities remained flat, decreasing $275 thousandincreased $17.99 million or less than 1%11.81%. As a result of the adoption of the leases accounting standard, United also recorded a $66.82 million operating lease liability as of June 30, 2019. Shareholders’ equity was relatively flat from December 31, 2017, increasing $10.60increased $82.23 million or less than 1%2.53%.

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

Cash and Cash Equivalents

Cash and cash equivalents at SeptemberJune 30, 2018 decreased $411.482019 increased $233.18 million or 24.70%22.85% from
year-end 2017.
2018. Of this total decrease,increase, cash and due from banks decreased $4.93increased $10.29 million or 2.51%5.47% while interest-bearing deposits with other banks decreased $406.56increased $222.88 million or 27.68%26.80% as United usedplaced excess cash to mainly invest in securities and grow loans.an interest-bearing account with the Federal Reserve. Federal funds sold increased $10 thousand or 1.27%1.25%. During the first ninesix months of 2018,2019, net cash of $218.77$31.79 million wasand $378.75 million were provided by operating and financing activities, respectively, while $592.24net cash of $177.36 million and $38.02 million werewas used in investing activities and financing activities, respectively.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 ninesix months of 20182019 and 2017.

2018.

Securities

Total investment securities at SeptemberJune 30, 2018 increased $303.872019 were flat, increasing $19.54 million or 14.67%less than 1% from
year-end 2017.
2018. Securities available for sale increased $289.81were flat, increasing $8.75 million or 15.34%less than 1%. This slight change in securities available for sale reflects $287.46$384.98 million in sales, maturities and calls of securities, $629.76$338.98 million in purchases, and a decreasean increase of $40.39$43.16 million in market value. The majority of the purchase activity was related to corporate securities which were all issued by investment grade rated, single-name issuers, and have maturity dates of less than five years. Securities held to maturity declined $13.54 million or 67.69% from
year-end
2018 due to the transfer of $11.54 million of investment securities to available for sale securities upon the adoption of ASU No.
 2017-12.
Equity securities were flat, declining $77$9.10 million at June 30, 2019, a decrease of $636 thousand or less than 1% fromyear-end 20176.53% due mainly to calls and maturities of securities. Equity securities, now carried at fair value, were $9.85 million at September 30, 2018.net sales. Other investment securities increased $4.29$24.96 million or 2.64%14.10% from
year-end 2017
2018 due mainly to the purchasepurchases of Federal Home Loan Bank (FHLB)an equity security without a readily determinable fair value, investment tax credits, and FHLB stock.

59
Table of Contents
The following table summarizes the changes in the available for sale securities since
year-end 2017:

(Dollars in thousands)

  September 30
2018
   December 31
2017
   $ Change   % Change 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $101,565   $114,758   $(13,193   (11.50%) 

State and political subdivisions

   252,246    303,869    (51,623   (16.99%) 

Mortgage-backed securities

   1,491,871    1,274,962    216,909    17.01

Asset-backed securities

   223,602    109,970    113,632    103.33

Market equity securities

   0    9,878    (9,878   (100.00%) 

Trust preferred collateralized debt obligations

   6,154    34,269    (28,115   (82.04%) 

Single issue trust preferred securities

   8,104    12,560    (4,456   (35.48%) 

Corporate securities

   95,025    28,490    66,535    233.54
  

 

 

   

 

 

   

 

 

   

 

 

 

Total available for sale securities, at fair value

  $2,178,567   $1,888,756   $289,811    15.34
  

 

 

   

 

 

   

 

 

   

 

 

 

2018:
                 
 
June 30
  
December 31
     
(Dollars
 in
 thousands)
 
2019
  
2018
  
$ Change
  
% Change
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
 74,484
  $
 85,890
  $
 (11,406
)  
(13.28
%)
State and political subdivisions
  
181,259
   
208,988
   
(27,729
)  
(13.27
%)
Mortgage-backed securities
  
1,456,266
   
1,594,509
   
(138,243
)  
(8.67
%)
Asset-backed securities
  
268,854
   
271,970
   
(3,116
)  
(1.15
%)
Trust preferred collateralized debt obligations
  
5,413
   
5,917
   
(504
)  
(8.52
%)
Single issue trust preferred securities
  
16,844
   
8,362
   
8,482
   
101.44
%
Corporate securities
  
342,671
   
161,403
   
181,268
   
112.31
%
                 
Total available for sale securities, at fair value
 $
 2,345,791
  $
 2,337,039
  $
 8,752
   
0.37
%
                 
  
The following table summarizes the changes in the held to maturity securities since
year-end
2018:
 
             
 
June 30
  
December 31
     
(Dollars in thousands)
 
2019
  
2018
  
$ Change
  
% Change
 
U.S. Treasury securities and obligations of U.S. Government corporations and agencies
 $
 5,015
  $
 5,074
  $
 (59
)  
(1.16
%)
State and political subdivisions
  
1,426
   
5,473
   
(4,047
)  
(73.94
%)
Mortgage-backed securities
  
0
   
20
   
(20
)  
(100.00
%)
Single issue trust preferred securities
  
0
   
9,412
   
(9,412
)  
(100.00
%)
Other corporate securities
  
20
   
20
   
0
   
0.00
%
                 
Total held to maturity securities, at amortized cost
 $
 6,461
  $
 19,999
  $
 (13,538
)  
(67.69
%)
                 

The following table summarizes the changes in the held to maturity securities sinceyear-end 2017:

(Dollars in thousands)

  September 30
2018
   December 31
2017
   $ Change   % Change 

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

  $5,103   $5,187   $(84   (1.62%) 

State and political subdivisions

   5,798    5,797    1    0.02

Mortgage-backed securities

   21    23    (2   (8.70%) 

Single issue trust preferred securities

   9,409    9,401    8    0.09

Other corporate securities

   20    20    0    0.00
  

 

 

   

 

 

   

 

 

   

 

 

 

Total held to maturity securities, at amortized cost

  $20,351   $20,428   $(77   (0.38%) 
  

 

 

   

 

 

   

 

 

   

 

 

 

At SeptemberJune 30, 2018,2019, gross unrealized losses on available for sale securities were $54.92$8.31 million. Securities in anwith the most significant gross unrealized loss positionlosses at SeptemberJune 30, 20182019 consisted primarily of state and political subdivisionasset-backed securities, agency residential mortgage-backed securities, and agency commercial and residential mortgage-backedsingle issue trust preferred securities. The stateasset-backed securities are backed by FFELP student loan collateral which includes a minimum of a 97% government repayment guaranty, as well as additional credit support and political subdivisions securities relate to securities issued by various municipalities.subordination in excess of the government guaranteed portion. The agency commercial and residential mortgage-backed securities relate to commercial and residential properties and provide a guaranty of full and timely payments of principal and interest by the issuing agency.

The single issue trust preferred securities relate to securities of financial institutions.

As of SeptemberJune 30, 2018,2019, United’s mortgage-backed securities had an amortized cost of $1.53$1.44 billion, with an estimated fair value of $1.49$1.46 billion. The portfolio consisted primarily of $973.33$866.60 million in agency residential mortgage-backed securities with a fair value of $943.67$877.57 million, $4.09$3.60 million in
non-agency
residential mortgage-backed securities with an estimated fair value of $4.57$3.98 million, and $557.21$566.37 million in commercial agency mortgage-backed securities with an estimated fair value of $543.65$574.72 million.

As of SeptemberJune 30, 2018,2019, United’s corporate securities had an amortized cost of $247.68$635.54 million, with an estimated fair value of $246.40$633.80 million. The portfolio consisted primarily of $6.18$6.14 million in Trup Cdos with a fair value of $6.15$5.41 million and $18.16$18.18 million in single issue trust preferred securities with an estimated fair value of $16.64$16.84 million. In addition to the trust preferred securities, the Company held positions in various other corporate securities, including asset-backed securities with an amortized cost of $223.35$272.42 million and a fair value of $223.60$268.85 million and other corporate securities, with an amortized cost of $96.13$338.80 million and a fair value of $95.05$342.69 million.

The Trup Cdos consisted of pools of trust preferred securities issued by trusts related to financial institutions. During the first quarter of 2018, seven Trup Cdos were sold and one Trup Cdo was redeemed at par. During the second quarter of 2018, one additional Trup Cdo was redeemed at par. United’s Trup Cdos had a fair value of $6.15$5.41 million as of SeptemberJune 30, 2018.2019. As of SeptemberJune 30, 2018,2019, all of the Trup Cdos were rated
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below investment grade. United’s single issue trust preferred securities had a fair value of $16.64$16.84 million as of SeptemberJune 30, 2018.2019. Of the $16.64$16.84 million, $3.93$3.92 million or 23.59%23.28% were investment grade; $5.47$5.40 million or 32.90%32.07% were split rated; $2.29$2.28 million or 13.77%13.54% were below investment grade; and $4.95$5.24 million or 29.74%31.11% were unrated. The two largest exposures accounted for 71.48%71.97% of the $16.64$16.84 million. These included SunTrust Bank at $6.95$6.88 million and Emigrant Bank at $4.95$5.24 million. All single-issue trust preferred securities are currently receiving full scheduled principal and interest payments.

The following is a summary of available for sale single-issue trust preferred securities as of SeptemberJune 30, 2018:

Security

  Moodys   S&P   Fitch   Amortized
Cost
   Fair
Value
   Unrealized
Loss/
(Gain)
 
               (Dollars in thousands) 

Emigrant Bank

   NR    NR    WD   $5,720   $4,950   $770 

M&T Bank

   NR    BBB-    BBB-    3,028    3,155    (127
        

 

 

   

 

 

   

 

 

 
        $8,748   $8,105   $643 
        

 

 

   

 

 

   

 

 

 

Additionally, the Company owns two single-issue trust preferred securities that are classified asheld-to-maturity and include at least one rating below investment grade. These securities include SunTrust Bank (amortized cost balance of $7.43 million) and Royal Bank of Scotland (amortized cost balance of $977 thousand).

2019:

                         
Security
 
Moodys
  
S&P
  
Fitch
  
Amortized Cost
  
Fair Value
  
Unrealized
Loss/
(Gain)
 
       
(Dollars in thousands)
 
Emigrant Bank
  
NR
   
NR
   
WD
  $
 5,729
  $
 5,240
  $
 489
 
SunTrust Bank
  
Baa2
   
NR
   
BB+
   
4,958
   
4,600
   
358
 
M&T Bank
  
NR
   
BBB-
   
BBB-
   
3,036
   
3,211
   
(175
)
SunTrust Bank
  
NR
   
BB+
   
BB+
   
2,480
   
2,282
   
198
 
HSBC
  
Baa2
   
BBB+
   
NR
   
1,000
   
710
   
290
 
Royal Bank of Scotland
  
Baa3
   
BB+
   
BBB
   
977
   
801
   
176
 
                         
          $
 18,180
  $
 16,844
  $
 1,336
 
                         

During the thirdsecond quarter of 2018,2019, United did not recognize anyrecognized other-than-temporary impairment totaling $75 thousand on any of itstwo investment securities. ManagementWith the exception of these two securities, management does not believe that any other individual security with an unrealized loss as of SeptemberJune 30, 20182019 is other-than-temporarily impaired. United believes the decline in value resulted from changes in market interest rates, credit spreads and liquidity, not an adverse change in the expected contractual cash flows. Based on a review of each of the securities in the investment portfolio, management concluded that it was not probable that it would be unable to realize the cost basis investment and appropriate interest payments on such securities. United has the intent and the ability to hold these securities until such time as the value recovers or the securities mature. However, United acknowledges that any impaired securities may be sold in future periods in response to significant, unanticipated changes in asset/liability management decisions, unanticipated future market movements or business plan changes.

Further information regarding the amortized cost and estimated fair value of investment securities, including remaining maturities as well as a more detailed discussion of management’s other-than-temporary impairment analysis, is presented in Note 32 to the unaudited Notes to Consolidated Financial Statements.

Loans held for sale

Loans held for sale decreased $31.76increased $120.75 million or 11.94% fromyear-end 2017 mainly due to a $27.42 million transfer from loans held for sale to portfolio loans.48.33%. Loan originations in the secondary market exceeded sales during the first half of 2019. Loan originations for the first nine monthshalf of 20182019 were $1.58$1.06 billion while loans sales were also $1.58 billion.$934.88 million. Loans held for sale were $234.20$370.59 million at SeptemberJune 30, 20182019 as compared to $265.96$249.85 million at
year-end 2017.

2018.
Portfolio Loans

Loans, net of unearned income, increased $265.32$213.04 million or 2.04% from1.59%. Since
year-end 2017. Sinceyear-end 2017, residential real estate loans increased $391.10 million or 13.05% and consumer loans increased $194.25 million or 27.19%, due mainly to an increase in automobile loans. Partially offsetting these increases was a decrease in
2018, commercial, financial and agricultural loans of $201.05decreased $97.07 million or 2.57%1.29% as commercial real estate loans decreased $134.99$161.39 million or 2.32% and2.88% which was partially offset by a $64.31 million or 3.29% increase in commercial loans (not secured by real estate) decreased $66.06. In addition, residential real estate loans increased $172.61 million or 3.30%. In addition,4.93%, consumer loans increased $81.28 million or 8.43% and construction and land development loans decreased $124.92increased $53.60 million or 8.30%3.80%.

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The following table summarizes the changes in the major loan classes since
year-end 2017:

(Dollars in thousands)  September 30
2018
   December 31
2017
   $ Change   % Change 

Loans held for sale

  $234,196   $265,955   $(31,759   (11.94%) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Commercial, financial, and agricultural:

        

Owner-occupied commercial real estate

  $1,336,434   $1,361,629   $(25,195   (1.85%) 

Nonowner-occupied commercial real estate

   4,341,501    4,451,298    (109,797   (2.47%) 

Other commercial loans

   1,932,919    1,998,979    (66,060   (3.30%) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial, financial, and agricultural

  $7,610,854   $7,811,906   $(201,052   (2.57%) 

Residential real estate

   3,387,268    2,996,171    391,097    13.05

Construction & land development

   1,379,985    1,504,907    (124,922   (8.30%) 

Consumer:

        

Bankcard

   9,530    10,314    (784   (7.60%) 

Other consumer

   899,074    704,039    195,035    27.70
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross loans

  $13,286,711   $13,027,337   $259,374    1.99

Less: Unearned income

   (9,971   (15,916   5,945    (37.35%) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans, net of unearned income

  $13,276,740   $13,011,421   $265,319    2.04
  

 

 

   

 

 

   

 

 

   

 

 

 

2018:
                 
 
June 30
  
December 31
     
(Dollars in thousands)
 
2019
  
2018
  
$ Change
  
% Change
 
Loans held for sale
 $
 370,593
  $
 249,846
  $
 120,747
   
48.33
%
                 
Commercial, financial, and agricultural:
            
Owner-occupied commercial real estate
 $
 1,239,954
  $
 1,291,790
  $
 (51,836
)  
(4.01
%)
Nonowner-occupied commercial real estate
  
4,194,064
   
4,303,613
   
(109,549
)  
(2.55
%)
Other commercial loans
  
2,021,953
   
1,957,641
   
64,312
   
3.29
%
                 
Total commercial, financial, and agricultural
 $
 7,455,971
  $
 7,553,044
  $
 (97,073
)  
(1.29
%)
Residential real estate
  
3,674,005
   
3,501,393
   
172,612
   
4.93
%
Construction & land development
  
1,464,064
   
1,410,468
   
53,596
   
3.80
%
Consumer:
            
Bankcard
  
9,380
   
10,203
   
(823
)  
(8.07
%)
Other consumer
  
1,036,526
   
954,424
   
82,102
   
8.60
%
                 
Total gross loans
 $
 13,639,946
  $
 13,429,532
  $
 210,414
   
1.57
%
Less: Unearned income
  
(4,680
)  
(7,310
)  
2,630
   
(35.98
%)
                 
Total Loans, net of unearned income
 $
 13,635,266
  $
 13,422,222
  $
 213,044
   
1.59
%
                 

The following table summarizes the outstanding balances of portfolio loans originated and acquired, by type, as of SeptemberJune 30, 20182019 and December 31, 2017:

   September 30, 2018 
(In thousands)  Commercial,
financial and
agricultural
   Residential
real estate
   Construction &
land
development
   Consumer   Total 

Originated

   4,780,708   $2,511,741   $1,098,457   $903,085   $9,293,991 

Acquired

   2,830,146    875,527    281,528    5,519    3,992,720 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total gross loans

  $7,610,854   $3,387,268   $1,379,985   $908,604   $13,286,711 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   December 31, 2017 
(In thousands)  Commercial,
financial and
agricultural
   Residential
real estate
   Construction &
land
development
   Consumer   Total 

Originated

  $4,647,745   $1,974,804   $1,032,629   $707,661   $8,362,839 

Acquired

   3,164,161    1,021,367    472,278    6,692    4,664,498 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total gross loans

  $7,811,906   $2,996,171   $1,504,907   $714,353   $13,027,337 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2018:

                     
 
June 30, 2019
 
(In thousands)
 
Commercial,
financial and
agricultural
  
Residential
real estate
  
Construction &
land development
  
Consumer
  
Total
 
 
Originated
 $
 5,101,650
  $
 2,944,711
  $
 1,273,243
  $
 1,041,262
  $
 10,360,866
 
Acquired
  
2,354,321
   
729,294
   
190,821
   
4,644
   
3,279,080
 
                     
Total gross loans
 $
 7,455,971
  $
 3,674,005
  $
 1,464,064
  $
 1,045,906
  $
 13,639,946
 
                     
    
 
December 31, 2018
 
(In thousands)
 
Commercial,
financial and
agricultural
  
Residential
real estate
  
Construction &
land development
  
Consumer
  
Total
 
 
Originated
 $
 4,887,688
  $
 2,686,817
  $
 1,179,676
  $
 959,392
  $
 9,713,573
 
Acquired
  
2,665,356
   
814,576
   
230,792
   
5,235
   
3,715,959
 
                     
Total gross loans
 $
 7,553,044
  $
 3,501,393
  $
 1,410,468
  $
 964,627
  $
 13,429,532
 
                     
For a further discussion of loans see Note 4 to the unaudited Notes to Consolidated Financial Statements.

Other Assets

Other assets were relatively flat fromyear-end 2017, increasing $1.32decreased $17.52 million or less than 1%3.83% from
year-end 2017. Deferred taxes increased $4.60
2018, mainly due to deferred tax assets decreasing $15.77 million. In addition, derivative assets and bank owned life insurance policies increased $4.19 million and $4.00 million, respectively, due to a change in fair value and dealer reserve increased $4.75core deposit intangibles decreased $3.51 million due to an increase in automobile loans. Partially offsetting these increases were decreases in core deposit intangibles of $6.03 million due to amortization income taxes receivable of $3.52 million and other real estate owned of $5.56(OREO) decreased $2.40 million due to a combination of sales and declineswrite-downs of fair value. Partially offsetting these decreases were increases of $2.17 million in fair value.

derivative assets, $1.77 million in prepaid assets and $2.34 million in accounts receivables for the first half of 2019.

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Table of Contents
Deposits

Deposits represent United’s primary source of funding. Total deposits at SeptemberJune 30, 20182019 increased $260.58$409.34 million or 1.88%2.92%. In terms of composition, interest-bearing deposits were relatively flat, increasing $84.45increased $495.49 million or less than 1%5.17% while noninterest-bearing deposits increased $176.13decreased $86.15 million or 4.10%1.95% from December 31, 2017.

2018.

Noninterest-bearing deposits consists of demand deposit and noninterest bearing money market (MMDA) account balances. The $176.13$86.15 million increasedecrease in noninterest-bearing deposits was due mainly to increasesa decrease in commercial noninterest-bearing deposits of $144.73$51.61 million or 4.35%. Personal2.29% while personal noninterest-bearing deposits were flat, increasing $2.28 millionand public funds noninterest-bearing deposits decreased $350 thousand or less than 1%. Partially offsetting these increases was a decrease of $4.07 and $4.32 million or 3.18% in public funds noninterest-bearing deposits.

3.91%, respectively.

Interest-bearing deposits consists of interest-bearing checking (NOW), regular savings, interest-bearing MMDA, and time deposit account balances. Interest-bearing MMDAs increased $2.14 billion$101.67 million or 1.71 % while NOW accounts decreased $1.80 billion$7.38 million or 1.97% since

year-end 2017 due mainly to
2018. In particular, interest-bearing MMDAs increased $101.67 million as commercial MMDAs increased $180.48 million and personal MMDAs increased $26.47 million. These increases were partially offset by decreases in public funds MMDAs and brokered MMDAs of $49.10 million and $56.17 million, respectively. Excluding sweep activity of $1.67 billion from NOW accounts to interest-bearing MMDAs to reduce United’s reserve requirement at its Federal Reserve Bank. Otherwise, interest-bearing MMDAs increased $464.76 million or 12.37% as brokered MMDAs, commercial MMDAs, and personal MMDAs were up $219.72 million, $110.56 million, and $68.56 million, respectively. In addition, public funds MMDAs increased $65.92 million. Excluding the sweep activity,Bank, NOW accounts decreased $125.63$155.25 million or 5.82%7.84% mainly due to a decrease of $180.28$141.70 million in personal NOW accounts and a $24.25$39.33 million decrease in commercialpublic funds NOW accounts. Partially offsetting these decreases was an increase of $78.90$25.78 million in public fundscommercial NOW accounts.

Regular savings decreased $36.49increased $11.60 million or 3.53%1.21% from
year-end 2017
2018 mainly due to a $50.08$60.10 million decreaseincrease in personalpublic funds savings accounts, which was partially offset by a $12.98decreases of $42.32 million increaseand $6.12 million in personal and commercial savings accounts.

accounts, respectively.

Time deposits under $100,000 decreased $65.4increased $9.07 million or 8.23%1.27% from
year-end 2017.
2018. This decreaseincrease in time deposits under $100,000 is the result of decreases of $17.72a $4.26 million and $29.34 millionincrease in fixed rate certificates of deposits (CDs) and Certificate of Deposit Account Registry Service (CDARS) balances respectively. In addition, variable rateand a $4.14 million increase in fixed CDs decreased $20.80 million.

under $100,000.

Since
year-end 2017,
2018, time deposits over $100,000 decreased $152.79increased $380.53 million or 8.52%24.04% as brokered certificates of deposits (CDs) increased $242.39 million and CDARS balances decreased $335.16 million, which wasincreased $103.82 million. In addition, fixed rate CDs increased $103.18 million. These increases in time deposits over $100,000 were partially offset by a $95.26$68.86 million increase in brokered deposits, a $24.14 million increase in fixed rate CDs over $100,000, and a $70.52 million increasedecrease in public funds CDs over $100,000.

The following table summarizes the changes in the deposit categories since
year-end 2017:

(Dollars in thousands)  September 30
2018
   December 31
2017
   $ Change   % Change 

Demand deposits

  $1,900,015   $4,294,687   $(2,394,672   (55.76%) 

Interest-bearing checking

   357,477    2,156,974    (1,799,497   (83.43%) 

Regular savings

   997,610    1,034,100    (36,490   (3.53%) 

Money market accounts

   8,465,689    3,756,259    4,709,430    125.38

Time deposits under $100,000

   729,737    795,137    (65,400   (8.23%) 

Time deposits over $100,000 (1)

   1,640,644    1,793,434    (152,790   (8.52%) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits

  $14,091,172   $13,830,591   $260,581    1.88
  

 

 

   

 

 

   

 

 

   

 

 

 

2018:
                 
 
June 30
  
December 31
     
(Dollars in thousands)
 
2019
  
2018
  
$ Change
  
% Change
 
Demand deposits
 $
 3,123,634
  $
 3,212,878
  $
 (89,244
)  
(2.78
%)
Interest-bearing checking
  
367,115
   
374,495
   
(7,380
)  
(1.97
%)
Regular savings
  
966,559
   
954,961
   
11,598
   
1.21
%
Money market accounts
  
7,261,789
   
7,157,028
   
104,761
   
1.46
%
Time deposits under $100,000
  
721,387
   
712,313
   
9,074
   
1.27
%
Time deposits over $100,000
(1)
  
1,963,601
   
1,583,074
   
380,527
   
24.04
%
                 
Total deposits
 $
 14,404,085
  $
 13,994,749
  $
 409,336
   
2.92
%
                 
(1)

Includes time deposits of $250,000 or more of $979,015$1,213,987 and $790,703$979,707 at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.

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Table of Contents
Borrowings

Total borrowings at September 30, 2018 decreased $142.69June 30,2019 increased $55.30 million or 7.75% from2.99% since
year-end 2017.
2018. During the first nine monthshalf of 2018,2019, short-term borrowings decreased $98.08$229.17 million or 20.54%65.23% due to a $107.63$175.00 million decrease in short-term FHLB advances, a $30.77 million decrease in short-term securities sold under agreements to repurchase. Federalrepurchase and a $23.40 million decrease in federal funds purchased decreased $9.56purchased. Long-term borrowings increased $284.46 million or 58.85%. Long-term borrowings decreased $44.61 million or 3.27%18.98% from
year-end 2017
2018 due to a $283.83 million increase in long-term FHLB
advances as new borrowings exceeded repayments for the redemptionfirst six months of a trust preferred issuance (Century Trust) and the repayment of a wholesale security sold under an agreement to repurchase.

2019.

The table below summarizes the change in the borrowing categories since
year-end 2017:

(Dollars in thousands)  September 30
2018
   December 31
2017
   $ Change   % Change 

Federal funds purchased

  $25,790   $16,235   $9,555    58.85

Short-term securities sold under agreements to repurchase

   153,718    261,352    (107,634   (41.18%) 

Long-term securities sold under agreements to repurchase

   0    50,000    (50,000   (100.00%) 

Short-term FHLB advances

   200,000    200,000    0    0.00

Long-term FHLB advances

   1,084,781    1,071,531    13,250    1.24

Issuances of trust preferred capital securities

   234,590    242,446    (7,856   (3.24%) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total borrowings

  $1,698,879   $1,841,564   $142,685    (7.75%) 
  

 

 

   

 

 

   

 

 

   

 

 

 

2018:
                 
 
June 30
  
December 31
     
(Dollars in thousands)
 
2019
  
2018
  
$ Change
  
% Change
 
Federal funds purchased
 $
 0
  $
 23,400
  $
 (23,400
)  
(100.00
%)
Short-term securities sold under agreements to repurchase
  
122,159
   
152,927
   
(30,768
)  
(20.12
%)
Short-term FHLB advances
  
0
   
175,000
   
(175,000
)  
(100.00
%)
Long-term FHLB advances
  
1,548,032
   
1,264,198
   
283,834
   
22.45
%
Issuances of trust preferred capital securities
  
235,535
   
234,905
   
630
   
0.27
%
                 
Total borrowings
 $
 1,905,726
  $
 1,850,430
  $
 55,296
   
2.99
%
                 

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

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at SeptemberJune 30, 2018 was flat, decreasing $275 thousand2019 increased $17.99 million or less than 1%11.81% from
year-end 2017.
2018. In particular, the pension liability declined $8.71 million due to a discretionary contribution of $7.00 million to the Company’s pension plan during the first quarter, business franchise taxes decreased $1.97 million, incentive payables declined $1.40 million due to payments, and income taxes payable decreased $1.21 million due to a timing difference. Partially offsetting these decreases were increases of $9.18 million in the accounts payable associated with George Mason and $4.07increased $19.68 million, foraccrued mortgage escrow liabilities.

liabilities increased $4.86 million and derivative liabilities increased $2.62 million. Partially offsetting these increases was a decrease of $4.43 million in business franchise taxes payable and a $3.70 million decrease in accrued employee expenses due to decreases of $2.67 million and $2.03 million in deferred compensation and incentives payable, respectively.

Shareholders’ Equity

Shareholders’ equity at SeptemberJune 30, 20182019 was relatively flat from December 31, 2017, increasing $10.60$3.33 billion, which was an increase of $82.23 million or less than 1%.

2.53% from

year-end
2018.
Retained earnings increased $92.25$60.35 million or 10.34%5.96% from
year-end 2017.
2018. Earnings net of dividends for the first ninesix months of 20182019 were $85.76$61.40 million. Amounts reclassed toAmount recognized in retained earnings from AOCI for the adoption of ASU No. 2016-01 and ASU No. 2018-02 totaled $6.49 million for the first nine months of 2018.

Sinceyear-end 2017, accumulated

 2016-02
was $1.05 million.
Accumulated other comprehensive income decreased $34.64increased $36.65 million or 82.42%64.28% from
year-end
2018 due mainly to a decreasean increase of $38.07$34.78 million in the
after-tax
fair value of United’s available for sale investment portfolio, net of deferred income taxes partially offset by the reclass to retained earnings of $6.49 million and the reversal of $7.22 million in noncredit OTTI for securities sold in the first nine months of 2018.adjustment on AFS securities. The
after-tax
accretion of pension costs was $2.70$1.82 million for the first nine monthshalf of 2018.

2019.

During the second quarter of 2018, United began repurchasing its common stock on the open market under a plan announcedrepurchase plans approved by the Company in AugustUnited’s Board of 2017 to repurchase up to 2 million shares of its common stock.Directors. United repurchased 1,376,900520,600 shares byin the endfirst half of the third quarter of 20182019 at a cost of $50.92$17.65 million or an average price per share of $36.98.

$33.91.

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RESULTS OF OPERATIONS

Overview

Net income for the thirdsecond quarter of 20182019 was $64.41$67.21 million or $0.62$0.66 per diluted share, as compared to $56.74$66.27 million or $0.54$0.63 per diluted share for the prior year thirdsecond quarter. Net income for the first ninesix months of 20182019 was $192.39$130.85 million or $1.83$1.28 per diluted share compared to $132.61$127.98 million or $1.39$1.22 per share for the first ninesix months of 2017.

2018.

As previously mentioned, United completed its acquisition of Cardinal on April 21, 2017. The financial results of Cardinal are included in United’s results from the acquisition date. As a result of the acquisition, the first nine months of 2018 were impacted for increased levels of average balances, income, and expense as compared to the first nine months of 2017. In addition, the first nine months of 2017 included merger-related expenses of $24.99 million due to the Cardinal acquisition.

For the thirdsecond quarter of 2018,2019, United’s annualized return on average assets was 1.34%1.38% and return on average shareholders’ equity was 7.83%8.12% as compared to 1.19 %1.42% and 6.89%8.11% for the thirdsecond quarter of 2017.2018. United’s annualized return on average assets for the first ninesix months of 20182019 was 1.37%1.36% and return on average shareholders’ equity was 7.86%8.00% as compared to 1.03%1.39% and 6.22%7.88% for the first ninesix months of 2017.

2018. United’s Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported average return on assets and average return on equity were 1.21% and 9.96%, respectively, for the first three months of 2019. For the second quarter and first half of 2019, United’s annualized return on average tangible equity was 14.90% and 14.78%, respectively, as compared to 15.14% and 14.72% for the second quarter and first half of 2018, respectively.

                 
 
Three Months Ended
  
Six Months Ended
 
(Dollars in thousands)
 
June 30, 2019
  
June 30, 2018
  
June 30, 2019
  
June 30, 2018
 
Return on Average Tangible Equity:
            
(a) Net Income (GAAP)
 $
 67,207
  $
 66,274
  $
 130,849
  $
 127,980
 
(b) Number of days
  
91
   
91
   
181
   
181
 
Average Total Shareholders’ Equity (GAAP)
 $
 3,220,987
  $
 3,276,099
  $
 3,299,061
  $
 3,274,639
 
Less: Average Total Intangibles
  
(1,512,400
)  
(1,520,253
)  
(1,513,279
)  
(1,521,323
)
                 
(c) Average Tangible Equity
(non-GAAP)
 $
 1,808,587
  $
 1,755,846
  $
 1,785,782
  $
 1,753,316
 
Return on Tangible Equity
(non-GAAP)
[(a) / (b)] x 365 / (c)
  
14.90
%  
15.14
%  
14.78
%  
14.72
%
Net interest income for the thirdsecond quarter of 2019 was $150.55 million which was relatively flat from the second quarter of 2018, was $148.78 million, which was a decrease of $1.5increasing $1.43 million or less than 1% from the third quarter of 2017.. The decrease in net interest income occurred because total interest income increased $13.45 million while total interest expense increased $14.95 million from the third quarter of 2017. Net interest income for the first nine months of 2018 was $441.94 million, an increase of $47.80 million or 12.13% from the prior year’s first nine months. Theslight increase in net interest income occurred because total interest income increased $82.93$21.25 million while total interest expense only increased $35.13$19.81 million from the second quarter of 2018. Net interest income for the first half of 2019 was $294.72 million which was relatively flat from the prior year’s first six months, increasing $1.56 million or less than 1%. The slight increase in net interest income occurred because total interest income increased $43.16 million while total interest expense only increased $41.60 million from the first ninesix months of 2017.

2018.

The provision for loancredit losses was $4.81$5.42 million and $16.19$10.41 million for the thirdsecond quarter and first ninesix months of 2018,2019, respectively, as compared to $7.28$6.20 million and $21.43$11.38 million for the thirdsecond quarter and first ninesix months of 2017,2018, respectively. For the thirdsecond quarter of 2018,2019, noninterest income was $31.69$39.80 million, which was a decreasean increase of $6.54$3.79 million or 17.12%10.52% from the thirdsecond quarter of 2017.2018. Noninterest income for the first ninesix months of 20182019 was $98.89$71.02 million which was flatan increase of $3.82 million or 5.68% from the first ninesix months of 2017, increasing $4 thousand or less than 1%.2018. These increases from 2018 were mainly due to additional income from mortgage banking activities. For the thirdsecond quarter of 2018,2019, noninterest expense decreased $3.34increased $6.79 million or 3.45%7.26% from the thirdsecond quarter of 2017.2018. For the first ninesix months of 2018,2019, noninterest expense increased $5.55$5.76 million or 2.04%3.13% from the first ninesix months of 2017.

2018. These increases were due mainly to penalties incurred during the second quarter of 2019 on the prepayment of FHLB advances.

Income taxes for the thirdsecond quarter of 20182019 were $17.93$17.53 million as compared to $27.84$19.24 million for the thirdsecond quarter of 2017.2018. For the first ninesix months of 20182019 and 2017,2018, income tax expense was $55.07$34.86 million and $67.36$37.14 million, respectively. For the quarters ended SeptemberJune 30, 20182019 and 2017,2018, United’s effective tax rate was 21.77%20.69% and 32.91%22.50%, respectively. The effective tax rate for the first ninesix months of 2019 and 2018 was 21.04% and 2017 was 22.25% and 33.68%22.49%, respectively.

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

Business Segments

As a result of the Cardinal acquisition,

United now operates in two business segments: community banking and mortgage banking. Prior to the Cardinal acquisition, United’s business activities were confined to just one reportable segment of community banking.

Community Banking

Net income attributable to the community banking segment for the thirdsecond quarter of 20182019 was $69.13$65.99 million compared to net income of $59.94$65.27 million for the thirdsecond quarter of 2017.

2018.

Net interest income decreased $3.12increased $3.07 million to $149.77$152.52 million for the thirdsecond quarter of 2018,2019, compared to $152.89$149.45 million for the same period of 2017.2018. Net interest income for the second quarter of 2019 increased from the second quarter of 2018 due mainly to an increase in average earning assets and additional accretion on acquired loans. Provision for loan losses was $4.81$5.42 million for the three months ended SeptemberJune 30, 20182019 compared to a provision of $7.28$6.20 million for the same period of 2017.2018. Noninterest income increased $344$933 thousand for the thirdsecond quarter of 20182019 to $18.72$18.40 million as compared to $18.37$17.47 million for the third

second quarter of 2017.2018. The increase was due mainly due to an increase inincreased fees from brokeragetrust and trustbrokerage services. Noninterest expense was $75.26$82.30 million for the thirdsecond quarter of 2018,2019, compared to $74.55$76.50 million for the same period of 2017.2018. The increase of $702 thousand$5.81 million in noninterest expense was primarily attributable to an increase in Federal Deposit Insurance Corporation (FDIC) insurance expense as United Bank is now considered a large institution and subject to increased assessment rates.

penalties on the prepayment of FHLB advances.

Net income attributable to the community banking segment for the first nine monthshalf of 20182019 was $200.84$130.87 million compared to net income of $143.88$131.71 million for the first nine monthshalf of 2017. 2018.
Net interest income increased $43.80$3.34 million to $444.84$298.41 million for the first ninehalf of 2018,2019, compared to $401.04$295.07 million for the same period of 2017. Generally, net2018. Net interest income for the first ninesix months of 20182019 increased from the first ninesix months of 2017 because2018 due to a higher level of the earning assets added from the Cardinal acquisition.assets. Provision for loan losses was $16.19$10.41 million for the ninesix months ended SeptemberJune 30, 20182019 compared to a provision of $21.43$11.38 million for the same period of 2017.2018. Noninterest income was relatively flat fromfor the first nine monthshalf of 2018, increasing $5432019 increased $815 thousand to $53.95$36.05 million for the first nine monthshalf of 20182019 as compared to $53.41$35.24 million for the first nine monthshalf of 2017.2018. The increase was due mainly to increased fees from trust and brokerage services and higher income from bank-owned life insurance due to death benefits received in the first quarter of 2019. Noninterest expense was $224.24$158.30 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $215.94$148.99 million for the same period of 2017.2018. The increase of $8.31$9.31 million in noninterest expense was primarily attributable to increases in branches, staffingpenalties on the prepayment of FHLB advances and merger-related expenses from the Cardinal acquisition.

higher FDIC insurance premiums due to United Bank now being considered a large institution and subject to increased assessment rates.

Mortgage Banking

The mortgage banking segment reported net income of $3.84 million and $4.87 million for the second quarter and the first half of 2019, respectively, as compared to net income of $1.94 million for the second quarter and a net loss of $846 thousand and $1.33 million for the third quarter and the first nine months of 2018, respectively, as compared to a net loss of $2.80 million and $322$479 thousand for the third quarter and first nine monthshalf of 2017, respectively.2018. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $16.48$23.50 million and $54.83$39.61 million for the thirdsecond quarter and first ninehalf of 20182019 as compared to $19.94$23.47 million and $42.33$38.35 million for the thirdsecond quarter and first nine monthshalf of 2017.2018. Noninterest expense was $17.96$18.77 million and $57.57$33.61 million for the thirdsecond quarter and first nine monthshalf of 20182019 as compared $24.04$21.23 million and $42.74$39.61 million for the thirdsecond quarter and first nine monthshalf of 2017.2018. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage segment employees.

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

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Table of Contents
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 20182019 and 2017,2018, are presented below.

Net interest income for the thirdsecond quarter of 2019 was $150.55 million, which was relatively flat from the second quarter of 2018, was $148.78 million, which was a decrease of $1.50increasing $1.43 million or 1.00% from the third quarter of 2017.less than 1%. The decrease in net interest income occurred because total interest income only increased $13.45$1.43 million while total interest expense increased $14.95 million from the third quarter of 2017. Net interest income for the first nine months of 2018 was $441.94 million, an increase of $47.80 million or 12.13% from the prior year’s first nine months. The increase in net interest income occurred because total interest income increased $82.93$21.25 million while total interest expense only increased $35.13$19.81 million from the second quarter of 2018. Net interest income for the first half of 2019 was $294.72 million, which was relatively flat from the first half of 2018, increasing $1.56 million or less than 1%. The $1.56 million increase in net interest income occurred because total interest income increased $43.16 million while total interest expense increased $41.60 million from the first nine monthshalf of 2017.2018. On a linked-quarter basis, net interest income for the third quarter of 2018 was relatively flat from the second quarter of 2018, decreasing $347 thousand2019 increased $6.39 million or less than 1%.4.43% from the first quarter of 2019. The $347 thousand decrease$6.39 million increase in net interest income occurred because total interest income only increased $7.03$10.15 million while total interest expense only increased $7.38$3.76 million from the secondfirst quarter of 2018.

2019.

Generally, interest income for the first nine monthshalf of 20182019 increased from the first nine monthshalf of 2017 because2018 due to a higher level of the earning assets added from the Cardinal acquisition.assets. The higher amount ofincrease in interest expense for the first nine monthshalf of 20182019 from the first nine monthshalf of 20172018 was due mainly to the interest-bearing liabilities added from the Cardinal acquisition and higher market interest rates. In addition, loan accretion on acquired loans for the first nine months of 2018 increased from the same time period last year. 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, which adjusts for the
tax-favored
status of income from certain loans and investments, for the second quarter of 2019 was $151.53 million, which was relatively flat from the second quarter of 2018, increasing $1.29 million or less than 1% due mainly to an increase in average earning assets mostly offset by an increase in the average cost of funds. Average earning assets for the second quarter of 2019 increased $785.76 million or 4.79% from the second quarter of 2018 due mainly to increases of $341.44 million or 2.54% in average net loans, $323.0 million or 14.09% in average investment securities and $121.34 million or 18.68% in average short-term investments. In addition, the average yield on earning assets for the second quarter of 2019 increased 30 basis points from the second quarter of 2018 due to an increase of $2.39 million in loan accretion on acquired loans and higher market rates. Loan accretion on acquired loans was $14.45 million and $12.06 million for the second quarter of 2019 and 2018, respectively. Mostly offsetting these increases to
tax-equivalent
net interest income for the thirdsecond quarter of 20182019 was $149.82 million, a decrease of $2.54 million or 1.67% from the third quarter of 2017 due mainly to an increase of 5461 basis points in the average cost of funds as compared to the thirdsecond quarter of 2017 due to higher market interest rates. In addition, loan accretion on acquired loans was $11.56 million and $12.81 million for the third quarter of 2018 and 2017, respectively, decreasing $1.25 million or 9.73%. Partially offsetting these decreases totax-equivalent net interest income for the third quarter of 2018 was an increase of 26 basis points in the average yield on earning assets as compared to the third quarter of 2017 due to higher market interest rates. In addition, average earning assets for the third quarter of 2018 increased $172.50 million or 1.04% from the third quarter of 2017 due mainly to an increase of $491.90 million or 27.44% in average investment securities. Partially offsetting this increase was a decrease in average short-term investments of $335.33 million or 26.90%. Average net loans remained flat for the third quarter, increasing $15.97 million or less than 1% from the third quarter of 2017. The net interest margin of 3.56% for the third quarter of 2018 was a decrease of 9 basis points from the net interest margin of 3.65% for the third quarter of 2017.

Tax-equivalent net interest income for the first nine months of 2018 was $445.21 million, an increase of $44.90 million or 11.22% from the first nine months of 2017. This increase intax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Cardinal acquisition. Average earning assets increased $1.26 billion or 8.31% from the first nine months of 2017 as average net loans increased $1.09 billion or 8.85% for the first nine months of 2018. Average investment securities increased $613.07 million or 37.40% while short-term investments decreased $436.05 million or 34.00%. The first nine months of 2018 average yield on earning assets increased 34 basis points from the first nine months of 2017 due to higher market interest rates and additional loan accretion of $9.99 million on acquired loans. Loan accretion was $34.38 million and $24.40 million for the first nine months of 2018 and 2017, respectively. Partially offsetting the increases totax-equivalent net interest income for the first nine months of 2018 was an increase of 39 basis points in the average cost of funds as compared to the first nine months of 2017 due to higher market interest rates. The net interest margin of 3.61%3.53% for the first nine months of 2018 was an increase of 9 basis points from the net interest margin of 3.52% for the first nine months of 2017.

On a linked-quarter basis,tax-equivalent net interest income for the third quarter of 2018 was relatively flat from the second quarter of 2018, decreasing $413 thousand or less than 1% due to a combination of a $265.94 million or 2.40% increase in interest bearing funds and an increase of 22 basis points in the average cost of funds as a result of higher market interest rates. In addition, loan accretion on acquired loans decreased $497 thousand. Partially offsetting these decreases totax-equivalent net interest income for the third quarter of 20182019 was a $334.54 million or 2.04% increase in the average earning assets and a 5 basis points increase in the yield on average earning assets. Specifically, average short-term investments increased $262.13 million or 40.37%. Average net loans and average investment securities were relatively flat for the third quarterdecrease of 2018, increasing $80.23 million and decreasing $7.82 million, respectively from the second quarter of 2018. The net interest margin of 3.56% for the third quarter of 2018 decreased 1114 basis points from the net interest margin of 3.67% for the second quarter of 2018.

Tax-equivalent
net interest income, which adjusts for the
tax-favored
status of income from certain loans and investments, for the first half of 2019 was $296.69 million, which was relatively flat from the first half of 2018, increasing $1.31 million or less than 1% due mainly to an increase in average earning assets mostly offset by an increase in the average cost of funds. Average earning assets for the first half of 2019 increased $726.82 million or 4.45% from the first half of 2018 due mainly to increases of $439.39 million or 3.31% in average net loans and $346.12 million or 15.48% in average investment securities. Average short-term investments decreased $58.70 million or 7.21%. In addition, the average yield on earning assets for the first half of 2019 increased 32 basis points from the first half of 2018 due to higher market rates. Mostly offsetting these increases to
tax-equivalent
net interest income for
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the first half of 2019 was an increase of 67 basis points in the average cost of funds as compared to the first half of 2018 due to higher market interest rates. Loan accretion on acquired loans was $23.00 million and $22.82 million for the first half of 2019 and 2018, respectively, increasing $173 thousand or less than 1%. The net interest margin of 3.50% for the first half of 2019 was a decrease of 14 basis points from the net interest margin of 3.64% for the first half of 2018.
On a linked-quarter basis, United’s
tax-equivalent
net interest income for the second quarter of 2019 increased $6.37 million or 4.43% from the first quarter of 2019 due to an increase in the yield on average earning assets. The average yield on earning assets for the second quarter of 2019 increased 13 basis points from the first quarter of 2019 due to an increase of $5.91 million in loan accretion on acquired loans due mainly to the repayment of two large acquired loans under a single customer relationship. Loan accretion on acquired loans was $14.45 million and $8.54 million for the second quarter and first quarter of 2019, respectively. In addition, average earning assets for the second quarter of 2019 increased $274.68 million or 1.62% as compared to the first quarter of 2019 as average net loans increased $176.52 million or 1.30%, average investment securities increased $66.47 million or 2.61% and average short-term investments increased $31.70 million or 4.29% for the linked quarter. Partially offsetting the increases to
tax-equivalent
net interest income for the second quarter of 2019 was an increase of 8 basis points in the average cost of funds as compared to the first quarter of 2019 due to higher market interest rates. The net interest margin of 3.53% for the second quarter of 2019 increased 7 basis points from the net interest margin of 3.46% for the first quarter of 2019.
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 SeptemberJune 30, 2018, September 30, 2017 and2019, June 30, 2018 and March 31, 2019 and the ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 2017:

   Three Months Ended 
(Dollars in thousands)  September 30
2018
   September 30
2017
   June 30
2018
 

Loan accretion

  $11,559   $12,805   $12,056 

Certificates of deposit

   311    817    311 

Long-term borrowings

   269    268    268 
  

 

 

   

 

 

   

 

 

 

Total

  $12,139   $13,890   $12,635 
  

 

 

   

 

 

   

 

 

 

   Nine Months Ended 

(Dollars in thousands)

  September 30
2018
   September 30
2017
 

Loan accretion

  $34,381   $24,395 

Certificates of deposit

   948    1,640 

Long-term borrowings

   806    348 
  

 

 

   

 

 

 

Tax-equivalent net interest income

  $36,135   $26,383 
  

 

 

   

 

 

 

2018:

             
 
Three Months Ended
 
 
June 30
  
June 30
  
March 31
 
(Dollars in thousands)
 
2019
  
2018
  
2019
 
Loan accretion
 $
 14,451
  $
 12,056
  $
 8,544
 
Certificates of deposit
  
197
   
311
   
198
 
Long-term borrowings
  
269
   
268
   
268
 
             
Total
 $
   14,917
  $
   12,635
  $
     9,010
 
             
         
 
Six Months Ended
 
 
June 30
  
June 30
 
(Dollars in thousands)
 
2019
  
2018
 
Loan accretion
 $
 22,995
  $
 22,822
 
Certificates of deposit
  
395
   
637
 
Long-term borrowings
  
537
   
537
 
         
Tax-equivalent
net interest income
 $
 23,927
  $
 23,996
 
         
The following tables reconcile the difference between net interest income and
tax-equivalent
net interest income for the three months ended SeptemberJune 30, 2018, September 30, 2017 and2019, June 30, 2018 and March 31, 2019 and the ninesix months ended SeptemberJune 30, 20182019 and SeptemberJune 30, 2017.

   Three Months Ended 

(Dollars in thousands)

  September 30
2018
   September 30
2017
   June 30
2018
 

Net interest income, GAAP basis

  $148,775   $150,276   $149,122 

Tax-equivalent adjustment (1)

   1,049    2,092    1,115 
  

 

 

   

 

 

   

 

 

 

Tax-equivalent net interest income

  $149,824   $152,368   $150,237 
  

 

 

   

 

 

   

 

 

 

   Nine Months Ended 

(Dollars in thousands)

  September 30
2018
   September 30
2017
 

Net interest income, GAAP basis

  $441,940   $394,141 

Tax-equivalent adjustment (1)

   3,268    6,168 
  

 

 

   

 

 

 

Tax-equivalent net interest income

  $445,208   $400,309 
  

 

 

   

 

 

 

2018.
             
 
Three Months Ended
 
 
June 30
  
June 30
  
March 31
 
(Dollars in thousands)
 
2019
  
2018
  
2019
 
Net interest income, GAAP basis
 $
 150,553
  $
 149,122
  $
 144,168
 
Tax-equivalent
adjustment (1)
  
977
   
1,115
   
993
 
             
Tax-equivalent
net interest income
 $
 151,530
  $
 150,237
  $
 145,161
 
             
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Six Months Ended
 
 
June 30
  
June 30
 
(Dollars in thousands)
 
2019
  
2018
 
Net interest income, GAAP basis
 $
 294,721
  $
 293,165
 
Tax-equivalent
adjustment (1)
  
1,970
   
2,219
 
         
Tax-equivalent
net interest income
 $
 296,691
  $
 295,384
 
         
(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 ninesix months ended SeptemberJune 30, 2019 and 2018 and the three months ended June 30, 2018 and 35% for the three months and nine months ended September 30, 2017.March 31, 2019. 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 nine-month
six-month
periods ended SeptemberJune 30, 20182019 and 2017,2018, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on a
tax-equivalent
basis using the statutory federal income tax rate of 21% for the three-month and nine-month periods
six-month
period ended SeptemberJune 30, 20182019 and 35% for the three-month and nine-month periods ended September 30, 2017.2018. Interest income on all loans and investment securities was subject to state income taxes.

   Three Months Ended
September 30, 2018
  Three Months Ended
September 30, 2017
 
(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

  $911,414  $5,485    2.39 $1,246,742  $4,874    1.55

Investment Securities:

         

Taxable

   2,064,332   13,994    2.71  1,533,444   9,406    2.45

Tax-exempt

   220,197   1,673    3.04  259,189   2,284    3.52
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Total Securities

   2,284,529   15,667    2.74  1,792,633   11,690    2.61

Loans, net of unearned income (2)

   13,627,932   164,927    4.81  13,607,933   157,111    4.59

Allowance for loan losses

   (77,103     (73,031   
  

 

 

     

 

 

    

Net loans

   13,550,829     4.83  13,534,902     4.61
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Total earning assets

   16,746,772  $186,079    4.42  16,574,277  $173,675    4.16
   

 

 

   

 

 

   

 

 

   

 

 

 

Other assets

   2,300,917      2,353,508    
  

 

 

     

 

 

    

TOTAL ASSETS

  $19,047,689     $18,927,785    
  

 

 

     

 

 

    

LIABILITIES

         

Interest-Bearing Funds:

         

Interest-bearing deposits

  $9,588,327  $26,368    1.09 $9,837,967  $14,227    0.57

Short-term borrowings

   212,566   618    1.15  325,631   430    0.52

Long-term borrowings

   1,543,004   9,269    2.38  1,364,417   6,650    1.93
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Total Interest-Bearing Funds

   11,343,897   36,255    1.27  11,528,015   21,307    0.73
   

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest-bearing deposits

   4,338,309      4,036,653    

Accrued expenses and other liabilities

   102,534      97,575    
  

 

 

     

 

 

    

TOTAL LIABILITIES

   15,784,740      15,662,243    

SHAREHOLDERS’ EQUITY

   3,262,949      3,265,542    
  

 

 

     

 

 

    

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $19,047,689     $18,927,785    
  

 

 

     

 

 

    

NET INTEREST INCOME

   $149,824     $152,368   
   

 

 

     

 

 

   

INTEREST SPREAD

      3.15     3.43

NET INTEREST MARGIN

      3.56     3.65

                         
 
Three Months Ended
  
Three Months Ended
 
 
June 30, 2019
  
June 30, 2018
 
(Dollars in thousands)
 
Average
Balance
  
Interest
(1)
  
Avg. Rate
(1)
  
Average
Balance
  
Interest
(1)
  
Avg. Rate
(1)
 
ASSETS
                  
Earning Assets:
                  
Federal funds sold and securities purchased under agreements to resell and other short-term investments
 $
 770,625
  $
 5,405
   
2.81
% $
 649,282
  $
 3,465
   
2.14
%
Investment Securities:
                  
Taxable
  
2,455,549
   
17,748
   
2.89
%  
2,049,301
   
13,810
   
2.70
%
Tax-exempt
  
159,781
   
1,218
   
3.05
%  
243,048
   
1,811
   
2.98
%
                         
Total Securities
  
2,615,330
   
18,966
   
2.90
%  
2,292,349
   
15,621
   
2.73
%
Loans, net of unearned income (2)
  
13,888,716
   
175,851
   
5.08
%  
13,547,371
   
160,029
   
4.74
%
Allowance for loan losses
  
(76,682
)        
(76,773
)      
                         
Net loans
  
13,812,034
      
5.10
%  
13,470,598
      
4.76
%
                         
Total earning assets
  
17,197,989
  $
 200,222
   
4.67
%  
16,412,229
  $
 179,115
   
4.37
%
                         
Other assets
  
2,317,865
         
2,300,155
       
                         
TOTAL ASSETS
 $
19,515,854
        $
18,712,384
       
                         
LIABILITIES
                  
Interest-Bearing Funds:
                  
Interest-bearing deposits
 $
 9,753,724
  $
 35,455
   
1.46
% $
 9,210,282
  $
 19,076
   
0.83
%
Short-term borrowings
  
136,230
   
608
   
1.79
%  
208,058
   
464
   
0.89
%
Long-term borrowings
  
1,879,154
   
12,629
   
2.70
%  
1,659,613
   
9,338
   
2.26
%
                         
Total Interest-Bearing Funds
  
11,769,108
   
48,692
   
1.66
%  
11,077,953
   
28,878
   
1.05
%
                         
Noninterest-bearing deposits
  
4,240,050
         
4,255,840
       
Accrued expenses and other liabilities
  
185,709
         
102,492
       
                         
TOTAL LIABILITIES
  
16,194,867
         
15,436,285
       
SHAREHOLDERS’ EQUITY
  
3,320,987
         
3,276,099
       
                         
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $
19,515,854
        $
18,712,384
       
                         
NET INTEREST INCOME
    $
 151,530
        $
 150,237
    
                         
INTEREST SPREAD
        
3.01
%        
3.32
%
NET INTEREST MARGIN
        
3.53
%        
3.67
%
(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% for 2018 and 35% for 2017.

.
(2)

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

   Nine Months Ended
September 30, 2018
  Nine Months Ended
September 30, 2017
 
(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

  $846,537  $13,867    2.19 $1,282,589  $11,345    1.18

Investment Securities:

         

Taxable

   2,012,841   39,679    2.63  1,412,221   26,226    2.48

Tax-exempt

   239,617   5,339    2.97  227,171   6,242    3.66
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Total Securities

   2,252,458   45,018    2.66  1,639,392   32,468    2.64

Loans, net of unearned income (2)

   13,451,316   474,598    4.72  12,360,252   409,643    4.43

Allowance for loan losses

   (76,819     (72,904   
  

 

 

     

 

 

    

Net loans

   13,374,497     4.74  12,287,348     4.46
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Total earning assets

   16,473,492  $533,483    4.33  15,209,329  $453,456    3.99
   

 

 

   

 

 

   

 

 

   

 

 

 

Other assets

   2,296,442      1,978,315    
  

 

 

     

 

 

    

TOTAL ASSETS

  $18,769,934     $17,187,644    
  

 

 

     

 

 

    

LIABILITIES

         

Interest-Bearing Funds:

         

Interest-bearing deposits

  $9,384,890  $61,101    0.87 $9,024,232  $35,281    0.52

Short-term borrowings

   235,388   1,503    0.85  298,213   1,149    0.52

Long-term borrowings

   1,518,997   25,671    2.26  1,286,583   16,717    1.74
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Total Interest-Bearing Funds

   11,139,275   88,275    1.06  10,609,028   53,147    0.67
   

 

 

   

 

 

   

 

 

   

 

 

 

Non-interest bearing deposits

   4,256,707      3,639,507    

Accrued expenses and other liabilities

   103,163      90,112    
  

 

 

     

 

 

    

TOTAL LIABILITIES

   15,499,145      14,338,647    

SHAREHOLDERS’ EQUITY

   3,270,789      2,848,997    
  

 

 

     

 

 

    

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $18,769,934     $17,187,644    
  

 

 

     

 

 

    

NET INTEREST INCOME

   $445,208     $400,309   
   

 

 

     

 

 

   

INTEREST SPREAD

      3.27     3.32

NET INTEREST MARGIN

      3.61     3.52


Table of Contents
                         
 
Six Months Ended
  
Six Months Ended
 
 
June 30, 2019
  
June 30, 2018
 
(Dollars in thousands)
 
Average
Balance
  
Interest
(1)
  
Avg. Rate
(1)
  
Average
Balance
  
Interest
(1)
  
Avg. Rate
(1)
 
ASSETS
                  
Earning Assets:
                  
Federal funds sold and securities repurchased under agreements to resell and other short-term investments
 $
 754,865
  $
 11,242
   
3.00
% $
 813,562
  $
 8,382
   
2.08
%
Investment Securities:
                  
Taxable
  
2,419,202
   
35,111
   
2.90
%  
1,986,668
   
25,685
   
2.59
%
Tax-exempt
  
163,077
   
2,516
   
3.09
%  
249,488
   
3,666
   
2.94
%
                         
Total Securities
  
2,582,279
   
37,627
   
2.91
%  
2,236,156
   
29,351
   
2.63
%
Loans, net of unearned income (2)
  
13,800,985
   
341,443
   
4.98
%  
13,361,545
   
309,671
   
4.67
%
Allowance for loan losses
  
(76,722
)        
(76,675
)      
                         
Net loans
  
13,724,263
      
5.01
%  
13,284,870
      
4.70
%
                         
Total earning assets
  
17,061,407
  $
 390,312
   
4.60
%  
16,334,588
  $
 347,404
   
4.28
%
                         
Other assets
  
2,322,100
         
2,294,033
       
                         
TOTAL ASSETS
 $
19,383,507
        $
18,628,621
       
                         
LIABILITIES
                  
Interest-Bearing Funds:
                  
Interest-bearing deposits
 $
 9,724,379
  $
 68,093
   
1.41
% $
 9,281,485
  $
 34,733
   
0.75
%
Short-term borrowings
  
154,811
   
1,299
   
1.69
%  
246,988
   
885
   
0.72
%
Long-term borrowings
  
1,788,790
   
24,229
   
2.73
%  
1,506,795
   
16,402
   
2.20
%
                         
Total Interest-Bearing Funds
  
11,667,980
   
93,621
   
1.62
%  
11,035,268
   
52,020
   
0.95
%
                         
Non-interest
bearing deposits
  
4,230,598
         
4,215,230
       
Accrued expenses and other liabilities
  
185,868
         
103,484
       
                      ��  
TOTAL LIABILITIES
  
16,084,446
         
15,353,982
       
SHAREHOLDERS’ EQUITY
  
3,299,061
         
3,274,639
       
                         
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $
19,383,507
        $
18,628,621
       
                         
NET INTEREST INCOME
    $
 296,691
        $
 295,384
    
                         
INTEREST SPREAD
        
2.98
%        
3.33
%
NET INTEREST MARGIN
        
3.50
%        
3.64
%
(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% for 2018 and 35% for 2017.

.
(2)

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

Provision for Loan Losses

For the quarters ended SeptemberJune 30, 20182019 and 2017,2018, the provision for loan losses was $4.81$5.42 million and $7.28$6.20 million, respectively. The provision for loan losses for the first ninesix months of 2019 and 2018 and 2017 was $16.19$10.41 million and $21.43$11.38 million, respectively. Net charge-offs were $5.00$5.90 million for the thirdsecond quarter of 20182019 as compared to net charge-offs of $5.34$5.72 million for the same quarter in 2017.2018. Net charge-offs for the first ninesix months of 20182019 were $15.88$10.72 million as compared to $19.27$10.87 million for the first ninesix months of 2017. These lower amounts of provision expense and net charge-offs in 2018 compared to the same periods in 2017 were due to the recognition of losses on

several large commercial relationships in 2017. On a linked-quarter basis, the provision for loan losses decreased $1.40 million and net charge-offs decreased $720 thousand from the second quarter of 2018. These lower amounts of provision expense and net charge-offs for the third quarterfirst half of 20182019 compared to the second quarterfirst half of 2018 were due to a reduction in nonperforming loans requiring

charge-off.
On a linked-quarter basis, the recognitionprovision for loan losses increased $421 thousand while net
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charge-offs decreased $1.09 million from the first quarter of 2019. The increase in the provision for loan losses on two large commercial relationships andwas due to loan growth requiring the need to provide for additional allocations within the commercial portfolio during the second quarter of 2018.reserves. Annualized net charge-offs as a percentage of average loans were 0.15%was 0.17% and 0.16% for the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively.

At SeptemberJune 30, 2018,2019, nonperforming loans were $146.13$142.60 million or 1.10%1.05% of loans, net of unearned income compared to nonperforming loans of $168.74$142.82 million or 1.30%1.06% of loans, net of unearned income at December 31, 2017.2018. The components of nonperforming loans include: 1) nonaccrual loans, 2) loans which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis and 3) loans whose terms have been restructured for economic or legal reasons due to financial difficulties of the borrowers.

Loans past due 90 days or more were $15.95$12.73 million at SeptemberJune 30, 2018, an increase of $6.15 million or 62.70% from $9.80 million atyear-end 2017. This increase was primarily due to an increase in delinquencies of loans that have matured. At September 30, 2018, nonaccrual loans were $66.55 million,2019, a decrease of $42.25$2.12 million or 38.83%14.29% from $108.80$14.85 million at
year-end 2017.
2018. This decrease was primarily due to the restructuretransfer of twoa large nonperforming relationship to nonaccrual relationships such that they are now reported asstatus. At June 30, 2019, nonaccrual loans were $71.12 million, an increase of $2.58 million or 3.76% from $68.54 million at
year-end
2018. This increase was due to the transfer to nonaccrual status of a restructured loans as well as losses recognized on several large commercial nonaccrual relationships.nonperforming relationship while the borrower awaits settlement of a lawsuit. Restructured loans were $63.63$58.75 million at SeptemberJune 30, 2018, an increase2019, a decrease of $13.50$675 thousand or 1.14% from $59.43 million or 26.92% from $50.13 million at
year-end 2017. Twelve loans totaling $24.12 million were restructured during the first nine months of
2018. Nine of the restructured loans totaling $16.89 million were associated with two oil, gas and coal industry-related relationships. The remaining differencedecline was mainly due to repayments. The loss potential on these loans has been properly evaluated and allocated within the Company’s allowance for loan losses.

Nonperforming assets include nonperforming loans and real estate acquired in foreclosure or other settlement of loans (OREO). Total nonperforming assets of $164.92$157.07 million, including OREO of $18.79$14.47 million at SeptemberJune 30, 2018,2019, represented 0.86%0.79% of total assets.

The following table summarizes nonperforming assets for the indicated periods.

   September 30,
2018
   December 31, 
(In thousands)  2017   2016   2015   2014   2013 

Nonaccrual loans (1)

            

Originated

  $55,147   $97,971   $77,111   $83,146   $64,312   $58,121 

Acquired

   11,407    10,832    6,414    8,043    10,739    3,807 

Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest

            

Originated

   10,478    7,288    7,763    11,462    10,868    10,015 

Acquired

   5,471    2,515    823    166    807    1,029 

Restructured loans (1)

            

Originated

   62,278    48,709    21,115    23,890    22,234    8,157 

Acquired

   1,348    1,420    37    0    0    0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming loans

  $146,129   $168,735   $113,263   $126,707   $108,960   $81,129 

Other real estate owned

   18,786    24,348    31,510    32,228    38,778    38,182 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL NONPERFORMING ASSETS

  $164,915   $193,083   $144,773   $158,935   $147,738   $119,311 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

                         
 
June 30,
  
December 31,
 
(In thousands)
 
2019
  
2018
  
2017
  
2016
  
2015
  
2014
 
Nonaccrual loans 
(1)
                  
Originated
 $
 60,731
  $
 57,258
  $
 97,971
  $
 77,111
  $
 83,146
  $
 64,312
 
Acquired
  
10,392
   
11,286
   
10,832
   
6,414
   
8,043
   
10,739
 
Loans which are contractually past due 90 days or more as to interest or principal and are still accruing interest 
(1)
                  
Originated
  
9,485
   
11,945
   
7,288
   
7,763
   
11,462
   
10,868
 
Acquired
  
3,244
   
2,906
   
2,515
   
823
   
166
   
807
 
Restructured loans 
(1)
                  
Originated
  
55,155
   
58,101
   
48,709
   
21,115
   
23,890
   
22,234
 
Acquired
  
3,595
   
1,324
   
1,420
   
37
   
0
   
0
 
                         
Total nonperforming loans
 $
 142,602
  $
 142,820
  $
 168,835
  $
 113,263
  $
126,707
  $
108,960
 
Other real estate owned
  
14,469
   
16,865
   
24,348
   
31,510
   
32,228
   
38,778
 
                         
TOTAL NONPERFORMING ASSETS
 $
 157,071
  $
 159,685
  $
 193,083
  $
 144,773
  $
158,935
  $
147,738
 
                         
(1)

Restructured loans that were contractually past due 90 days or moreas to interest or principal and are still accruing interest or on nonaccrual status for the indicated periods are included in “Restructured loans” and not “Loans which are contractually past due 90 days or moreas to interest or principal and are still accruing interest” or “Nonaccrual loans” (see Note 54 to the unaudited Consolidated Financial Statements for further information).

Loans are designated as impaired when, in the opinion of management, the collection of principal and interest in accordance with the loan contract is doubtful. At SeptemberJune 30, 2018,2019, impaired loans were $397.25$333.74 million, which was a decrease of $29.68$55.79 million or 6.95%14.32% from the $426.93$389.53 million in impaired loans at December 31, 2017.2018. This
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Table of Contents
decrease was due mainly to the payoff of a reduction inlarge acquired impaired loans.loan relationship. Acquired impaired loans are accounted for under ASC Subtopic
310-30.
The recorded investment balance and the contractual principal balance of the acquired impaired loans were $155.53$111.61 million and $205.03$144.13 million at SeptemberJune 30, 2018,2019, respectively, as compared to $210.52$149.74 million and $285.96$195.71 million, respectively, at December 31, 2017.2018. For the acquired impaired loans accounted for under ASC
310-30,
the difference between the contractually required payments due and the cash flows expected to be collected, considering the impact of prepayments, is referred to as the
non-accretable
difference (the credit mark). The credit mark is not recognized in income. The remaining credit mark was $43.62$30.60 million and $60.15$38.53 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. For further details regarding impaired loans, see Note 54 to the unaudited Notes to Consolidated Financial Statements.

United maintains an allowance for loan losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments are referred to as the allowance for credit losses. At SeptemberJune 30, 2018,2019, the allowance for credit losses was $78.09$78.15 million as compared to $77.31$78.09 million at December 31, 2017.

2018.

At SeptemberJune 30, 2018,2019, the allowance for loan losses was $76.94$76.40 million as compared to $76.63$76.70 million at December 31, 2017.2018. As a percentage of loans, net of unearned income, the allowance for loan losses was 0.58%0.56% at SeptemberJune 30, 20182019 and 0.59%0.57% at December 31, 2017.2018. The ratio of the allowance for loan losses to nonperforming loans or coverage ratio was 52.65%53.58% and 45.41%53.71% at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. The Company’s detailed methodology and analysis indicated a minimal increase in the allowance for loan losses primarily because of the offsetting factors of increasedchanges within historical loss rates and reduced loss allocations on impaired loans, shortened loss emergence periods and changes within historical loss rates.

loans.

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

United’s company-wide review of the allowance for loan losses at SeptemberJune 30, 20182019 produced increased allocations in onetwo of the four loan categories. The residential real estate allocation related to the commercial, financial and agricultural loan pool increased $1.71$3.02 million primarily due to an increase in allocations historical loss rates as a result of a significant
charge-off
recognized for impaired loans.in the first half of 2019 as well as downgrade of a $39 million loan from a pass-rating to a special mention-rating with a higher loss rate. The consumer loan pool experienced a minimal increase of $27 thousand due to an increase in outstanding loan balances. Offsetting these increases was a decrease in the commercial, financial & agriculturalresidential real estate loan pool allocation of $1.37$2.28 million primarily due to a decrease in historical loss rates and shortened loss emergence periods.as well as reduction in specific allocations associated with improved collateral position on a large relationship. The allocation related to the real estate construction and development loan pool allocation decreased $91 thousand$1.07 million primarily due to improvement in the historical loss rate applied to the pool. The consumer loan pool also experienced a minimal decrease of $1 thousand due to an improvement in historical loss rates. In summary, the overall level of the allowance for loan losses was relatively stable in comparison to
year-end 2017
2018 as a result of offsetting factors within the portfolio as described above.

An allowance is established for probable credit losses on impaired loans via specific allocations. Nonperforming commercial loans and leases are regularly reviewed to identify impairment. A loan or lease is impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts

contractually due. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment is measured based upon the present value of expected future cash flows from the loan

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discounted at the loan’s effective rate, the loan’s observable market price or the fair value of collateral if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an impairment has occurred. The allowance for impaired loans was $27.35$14.06 million at SeptemberJune 30, 20182019 and $22.35$28.36 million at December 31, 2017.2018. In comparison to the prior
year-end,
this element of the allowance increaseddecreased by $5.00$14.30 million primarily due to increaseddecreased specific allocations for real estate construction and development loans as well as residential real estatecommercial, financial & agricultural loans.

Management believes that the allowance for credit losses of $78.09$78.15 million at SeptemberJune 30, 20182019 is adequate to provide for probable losses on existing loans and lending-related commitments based on information currently available. Note 6 to the accompanying unaudited Notes to Consolidated Financial Statements provides a progression of the allowance for loan losses by portfolio segment.

United’s loan administration policies are focused on the risk characteristics of the loan portfolio in terms of loan approval and credit quality. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses.

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

Other Income

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

Noninterest income for the thirdsecond quarter of 20182019 was $31.69$39.80 million, a decreasean increase of $6.54$3.79 million or 17.12%10.52% from the thirdsecond quarter of 2017.2018. Noninterest income for the first nine monthshalf of 20182019 was $98.89$71.02 million, which was flatan increase of $3.82 million or 5.68% from the first nine monthshalf of 2017, increasing $4 thousand or less than 1%.

2018.

Income from mortgage banking activities totaled $13.28$21.70 million for the thirdsecond quarter of 20182019 compared to $20.39$18.69 million for the same period of 2017.2018. For the first nine monthshalf of 20182019 and 2017,2018, income from mortgage banking activities was $46.54$35.39 million and $43.60$33.26 million, respectively. The decreaseincrease for the thirdsecond quarter of 20182019 was due to decreasedincreased production and sales of mortgage loans in the secondary market by United’s mortgage banking subsidiary, George Mason.Mason Mortgage, LLC (George Mason). The increase for the first half of 2019 was due mainly to an increase of $2.12 million in income from mortgage banking activities due mainly to a change in fair value of $4.25 million on George Mason’s interest rate lock commitments due to a higher locked pipeline. For the three months ended SeptemberJune 30, 20182019 and 2017, George Mason’s2018, mortgage loan sales were $692.27$585.40 million and $887.71$484.79 million, respectively. The increaseFor the six months ended June 30, 2019 and 2018, mortgage loan sales were $934.88 million and $1.05 billion, respectively.
Fees from brokerage services for the second quarter and first half of 2019 increased $813 thousand and $1.11 million from the second quarter and first half of 2018, respectively, due to increased volume.
Fees from trust services for the first nine monthshalf of 2019 increased $507 thousand from the first half of 2018 was mainly due to includingan increase in managed assets.
Bankcard fees for the first half of 2019 decreased $577 thousand from the first half of 2018 due to decreased volume.

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On a linked-quarter basis, noninterest income for the second quarter of 2019 increased $8.57 million or 27.45% from the first quarter of 2019 due mainly to an increase of $8.02 million in income from mortgage banking activities. The increase was due mainly to increased production and sales of mortgage loans in the secondary market by George Mason for nine months in 2018 as compared to slightly over five months in 2017. For the nine months ended September 30, 2018 and 2017, George Mason’s mortgage loan sales were $2.09 billion and $1.60 billion, respectively.

For the third quarter of 2018, net gains and losses on investment securities’ activity declined $619 thousand from the third quarter of 2017. A net loss on investment securities of $152 thousand was recorded for the third quarter

of 2018 as compared to a net gain on investment securities of $467 thousand for the third quarter of 2017. The net loss and gain were mainly due to sales of investment securities. For the first nine months of 2018, United recorded a net loss of $692 thousand on investment securities’ activity as compared to a net gain of $5.15 million for the first nine months of 2017. A net gain of $3.77 million on the redemption of an investment security was recorded during the first quarter of 2017.

Fees from brokerage services for the third quarter and first nine months of 2018 increased $707 thousand and $1.15 million, respectively, from the third quarter and first nine months of 2017 due to increased volume.

FeesMason. In addition, fees from deposit services for the first nine months of 2018 increased $345$411 thousand from the first nine months of 2017. The increase was mainly due to higherincreased income from debit card and automated teller machine (ATM)overdraft fees. Fees from deposits services were flat forPartially offsetting the third quarter of 2018 compared to the third quarter of 2017, decreasing $71 thousand or less than 1%.

Bankcard fees for the third quarter and first nine months of 2018 increased $217 thousand and $952 thousand, respectively, from the third quarter and first nine months of 2017 due to increased volume.

On a linked-quarter basis, noninterest income for the third quarter of 2018 decreased $4.32 million or 12.00% from the second quarter of 2018 due mainly toincreases was a decrease of $5.42 million$501 thousand in income from mortgage banking activities. The decrease was due mainly to a change in fair value of $6.15 million on George Mason’s interest rate lock commitments. In addition, net gains and losses on investment securities’ activity decreased $97 thousand. Partially offsetting these decreases in noninterest income was a $834 thousand increase in fees from brokerage services as well as a $253 thousand increase in fees from deposit services and a $246 thousand increase in fees from trust services mainlybank-owned life insurance resulting due to increased volume.

the recognition of proceeds from death benefits in the first quarter of 2019.

Other Expenses

Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for loan losses, and income taxes. Noninterest expense decreased $3.34increased $6.79 million or 3.45%7.26% for the thirdsecond quarter of 20182019 compared to the same period in 2017.2018. For the first ninesix months of 2018,2019, noninterest expense increased $5.55$5.76 million or 2.04%3.13% from the first ninesix months of 2017.

2018. These increases were due mainly to the recognition of $5.11 million in penalties to prepay FHLB advances during the second quarter of 2019.

Employee compensation for the thirdsecond quarter of 2018 decreased $3.572019 increased $1.18 million or 7.95%2.74% from the thirdsecond quarter of 2017 as a result of a $3.23 million decrease2018. The increase in commissions expense and fewer employees related to a decrease in production and sales of mortgage loans at George Mason. Employeeemployee compensation only increased $323 thousand or less than 1% for the first nine monthssecond quarter of 2018 when compared to the first nine months of 2017. Merger severance charges of $12.78 million from the Cardinal acquisition were included in the first nine months of 2017. Otherwise, base salaries for the first nine months of 2018 increased $10.14 million or 12.73% from the same time period in 20172019 was due mainly to additional employees from the Cardinal acquisition. In addition,higher employee incentives increased $1.29 million and commissions expense increased $3.25 million mainly related to the mortgage banking production of George Mason.

incentives.

Employee benefits expense for the second quarter and first ninesix months of 2018 increased $1.852019 decreased $720 thousand or 7.74% and $860 thousand or 4.56%, respectively, from the same time periods in 2018. The decreases were due primarily to a decline in pension expense.
Net occupancy expense decreased $409 thousand or 4.51% and $1.09 million or 7.20%5.86% for the second quarter and first six months of 2019, respectively, as compared to the same periods in the prior year. The decrease was due mainly to a decline in building rental expense due to fewer offices since the first half of 2018.
Data processing expense decreased $938 thousand or 8.04% for the first half of 2019 as compared to the first nine months of 2017. The increase for the first nine monthshalf of 2018 was due in large part to additional 401K expense of $1.24 million, Federal Insurance Contributions Act (FICA) expense of $751 thousand, and health insurance expense of $932 thousand resulting from the additional employees from the Cardinal acquisition. Pension expense declined $588 thousand.

Net occupancy expense decreased $2.86 million or 7.60% for first nine months of 2018 as compared to the same period in the prior year. Included in net occupancy expense for the first nine months of 2017 were charges of $5.93 million for the termination of leases and the reduction in the value of leasehold improvements for closed offices in the Cardinal acquisition. Net occupancy was flat for the third quarter of 2018, decreasing only $91 thousand or less than 1% from the third quarter of 2017.

Data processing expense increased $2.76 million or 18.46% for the first nine months of 2018 as compared to the same period in the prior year due to additional processing aslower fees from a result of the Cardinal acquisition.

new contract.

Federal Deposit Insurance Corporation (FDIC) insurance expense for the thirdsecond quarter and first nine monthshalf of 20182019 increased $1.99 million$458 thousand and $3.16$1.91 million, respectively, from the same periods in 20172018 as United Bank is now considered a large institution and subject to increased assessment rates.

Other real estate owned (OREO) expense for the first half of 2019 increased $547 thousand or 36.42% from the first half of 2018 due to combination of higher net losses on sales of OREO properties, more declines in the values of OREO properties and increased maintenance costs.
Equipment expense for the first half of 2019 increased $554 thousand or 8.61% from the first half of 2018 due to increased maintenance costs.
Other expense for the thirdsecond quarter and first half of 2019 increased $979 thousand or 5.17% and $1.25 million or 3.35% from the second quarter and first half of 2018, decreased $857 thousand or 4.28% fromrespectively due mainly to the third quarter
write-off
of 2017. Included in other expense for the third quarter of 2017 were merger-related expenses of $434 thousand. The remainder of the decrease from prior year is due to a decline of $511 thousand in business franchise taxes.

income tax credits.

On a linked-quarter basis, noninterest expense for the third quarter of 2018 was flat from the second quarter of 2018, decreasing $95 thousand2019 increased $10.77 million or less than 1%.12.04% from the first quarter of 2019 due in large part to the previously mentioned prepayment penalties on FHLB advances of $5.11 million. In particular,addition, employee compensation and employee benefits decreased $1.81increased $5.35 million and $653 thousand, respectively, as a result of lowerhigher commissions expense and fewer employees related to a decreasean increase in production and sales of mortgage loans at George Mason. MostlyMason and other expense increased $1.30 million due primarily to increased consulting and legal expenses. Partially offsetting these increases were decreases of $853 thousand in noninterestemployee benefits due mainly to a decline in pension expense was an increaseand $783 thousand in FDIC insuranceother real estate owned (OREO) expense of $688 thousand due to United Bank now being considered a large institution as previously mentioned. In addition, equipment expense increased $613 thousand, data processing expense increased $251 thousand,fewer declines in the values of OREO expense increased $365 thousand, and net occupancy expense increased $197 thousand.

properties.

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Income Taxes

For the thirdsecond quarter and first nine monthshalf of 2018,2019, income tax expense was $17.93$17.53 million and $55.07$34.86 million, respectively, as compared to $27.84$19.24 million and $67.36$37.14 million, respectively, in the thirdsecond quarter and first nine monthshalf of 2017.2018. The decreases in 20182019 were mainly due to a decline in the effective tax rate as a result ofdue in large part to the Tax Cuts and Jobs Act of 2017 (the Tax Act) partially offset by an increase in earnings.previously mentioned income tax credits. On a linked-quarter basis, income tax expense for the third quarter of 2018 decreased $1.32 million from the second quarter of 20182019 increased $201 thousand from the first quarter of 2019 mainly due to lowerhigher earnings. United’s effective tax rate was 21.77% and20.69% for the second quarter of 2019, 22.50% for the third quarter and second quarter of 2018 respectively and 32.91%21.40% for the thirdfirst quarter of 2017.2019. For the first nine monthshalf of 20182019 and 2017,2018, United’s effective tax rate was 22.25%21.04% and 33.68%22.49%, respectively. The lower effective tax rate for the time periods in 2018 was due to the impact of the Tax Act. For further details related to income taxes, see Note 15 of the unaudited Notes to Consolidated Financial Statements contained within this document.

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

United has various financial obligations, including contractual obligations and commitments, that may require future cash payments. Please refer to United’s Annual Report on Form
10-K
for the year ended December 31, 20172018 for disclosures with respect to United’s fixed and determinable contractual obligations. There have been no material changes outside the ordinary course of business since
year-end 2017
2018 in the specified contractual obligations disclosed in United’s Annual Report on Form
10-K.

United also enters into derivative contracts, mainly to protect against adverse interest rate movements on the value of certain assets or liabilities, under which it is required to either pay cash to or receive cash from counterparties

depending on changes in interest rates. Derivative contracts are carried at fair value and not notional value on the consolidated balance sheet. Because the derivative contracts recorded on the balance sheet at SeptemberJune 30, 20182019 do not present the amounts that may ultimately be paid under these contracts, they are excluded from the contractual obligations table in the 20172018 Form

10-K
report. Further discussion of derivative instruments is presented in Note 11 to the unaudited Notes to Consolidated Financial Statements.

United is a party to financial instruments with
off-balance-sheet
risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for
on-balance
sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Further discussion of
off-balance
sheet commitments is included in Note 10 to the unaudited Notes to Consolidated Financial Statements.

Liquidity

In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable, and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds which are obtained as the result of a competitive bidding process.

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Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the
day-to-day
demands of customers and United’s cash needs. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity.

The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market.

Short-term needs can be met through a wide array of outside sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances.

Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, borrowings that are secured by bank premises or stock of United’sUnited���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 ninesix months ended SeptemberJune 30, 2018,2019, cash of $218.77$31.79 million was provided by operating activities due mainly to net income of $192.39$130.85 million for the first nine monthssix months. Partially offsetting net income were net originations of 2018. In addition, proceeds from the sales of$120.75 million in mortgage loans in the secondary market exceeded originations by $50.88 million.held for sale. Net cash of $592.24$177.36 million was used in investing activities which was primarily due to $248.62net loan growth of $203.90 million partially offset by $23.70 million of loan growth and $341.36 million of net

purchases proceeds on sales of investments over proceeds from sales.purchases. During the first ninesix months of 2018,2019, net cash of $38.02$378.75 million was used inprovided by financing activities due primarily to repaymentsnet growth of $148.08$409.73 million in deposits and net advances of $285.00 million in long-term FHLB advances. These funding activities were partially offset by a net repayment of $229.17 million in short-term borrowings and cash dividends paid of $107.05 million and the repurchase of treasury stock for $51.32$69.73 million for the first ninesix months of 2018. Partially offsetting is a growth in deposits of $261.53 million and a net repayment long-term FHLB advances of $15.00 million.

2019. The net effect of the cash flow activities was a decreasean increase in cash and cash equivalents of $411.48$233.18 million for the first ninesix months of 2018.

2019.

United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United’s liquidity increasing or decreasing in any material way. United also has lines of credit available. See Notes 8 and 9 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under lines of credit.

The Asset Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset Liability Committee.

Capital Resources

United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 14.64%14.32% at SeptemberJune 30, 20182019 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 12.40%12.17%, 12.40%12.17% and 10.26%10.18%, respectively. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.

Total shareholders’ equity was $3.25$3.33 billion at SeptemberJune 30, 2018,2019, which was relatively flatan increase of $82.23 million or 2.53% from December 31, 2017, increasing $10.60 million or less than 1%.2018. This slight increase was primarily due to the retention of earnings.

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United’s equity to assets ratio was 16.94%16.77% at SeptemberJune 30, 20182019 as compared to 17.00%16.89% at December 31, 2017.2018. The primary capital ratio, capital and reserves to total assets and reserves, was 17.28%17.09% at SeptemberJune 30, 20182019 as compared to 17.34%17.23% at December 31, 2017.2018. United’s average equity to average asset ratio was 17.13%17.02% for the thirdsecond quarter of 20182019 as compared to 17.25%17.51% the thirdsecond quarter of 2017.2018. United’s average equity to average asset ratio was 17.43%also 17.02% for the first nine monthshalf of 20182019 as compared to 16.58%17.58% for the first nine monthshalf of 2017.2018. All of these financial measurements reflect a financially sound position.

During the thirdsecond quarter of 2018,2019, United’s Board of Directors declared a cash dividend of $0.34 per share. Cash dividends were $1.02$0.68 per common share for the first ninesix months of 2018.2019. Total cash dividends declared were $35.30$34.69 million for the thirdsecond quarter of 2019 and $69.45 million for the first six months of 2019 as compared to $35.58 million for the second quarter of 2018 and $106.64$71.33 million for the first ninesix months of 2018 as compared to $34.64 million for the third quarter of 2017 and $96.04 million for the first nine months of 2017.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

2018.

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The objective of United’s Asset Liability Management function is to maintain consistent growth in net interest income within United’s policy guidelines. This objective is accomplished through the management of balance sheet liquidity and interest rate risk exposures due to changes in economic conditions, interest rate levels and customer preferences.

Interest Rate Risk

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

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

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

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

The following table shows United’s estimated earnings sensitivity profile as of SeptemberJune 30, 20182019 and December 31, 2017:

Change in Interest Rates

(basis points)

  Percentage Change in Net Interest Income 
  September 30, 2018  December 31, 2017 

+200

   (1.89%)   (1.22%) 

+100

   (0.90%)   (0.48%) 

-100

   1.60  (0.18%) 

-200

   (0.26%)   —   

2018:

         
Change in Interest Rates (basis points)
 
Percentage Change in Net Interest Income
 
June 30, 
2019
  
December 31, 
2018
 
+200
  
(1.97
%)  
(2.71
%)
+100
  
(0.70
%)  
(1.29
%)
-100
  
0.44
%  
0.97
%
-200
  
(1.80
%)  
(0.97
%)
At SeptemberJune 30, 2018,2019, given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to decrease by 0.90%0.70% over one year as compared to a decrease of 0.48%1.29% at December 31, 2017.2018. A 200 basis point immediate, sustained upward shock in the yield curve

would decrease net interest income by an estimated 1.89%1.97% over one year as of SeptemberJune 30, 2018,2019, as compared to a decrease of 1.22%2.71% as of December 31, 2017.2018. A 100 basis point immediate, sustained downward shock in the yield curve would increase net interest income by an estimated 1.60%0.44% over one year as of SeptemberJune 30, 2018 as compared to a decreasean increase of 0.18%0.97%, over one year as of December 31, 2017.2018. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 0.26%1.80% over one year as of SeptemberJune 30, 2018. With the federal funds rate at 1.50% at2019 as compared to a decrease of 0.97% over one year as of December 31, 2017, management believed a 200 basis point immediate, sustained decline in rates was highly unlikely.

2018.

In addition to the one year earnings sensitivity analysis, a
two-year
analysis is also performed. Compared to the one year analysis, United is projected to show improved performance in year two within the upward rate shock scenarios. Given an immediate, sustained 100 basis point upward shock to the yield curve used in the simulation model, net interest income for United is estimated to increase by 0.85%1.78% in year two as of SeptemberJune 30, 2018.2019. A 200 basis point immediate, sustained upward shock in the yield curve would increase net interest income by an estimated 1.48%2.83% in year two as of SeptemberJune 30, 2018.2019. A 100 basis point immediate, sustained downward shock in the yield curve would increasedecrease net interest income by an estimated 0.05%2.85% in year two as of SeptemberJune 30, 2018.2019. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 4.20%8.15% in year two as of SeptemberJune 30, 2018.

2019.

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

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

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

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Extension Risk

A key feature of most mortgage loans is the ability of the borrower to repay principal earlier than scheduled. This is called a prepayment. Prepayments arise primarily due to sale of the underlying property, refinancing, or foreclosure. In general, declining interest rates tend to increase prepayments, and rising interest rates tend to slow prepayments. Like other fixed-income securities, when interest rates rise, the value of mortgage- related securities generally declines. The rate of prepayments on underlying mortgages will affect the price and volatility of mortgage-related securities and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase. If interest rates rise, United’s holdings of mortgage-related securities may experience reduced returns if the borrowers of the underlying mortgages pay off their mortgages later than anticipated. This is generally referred to as extension risk.
At SeptemberJune 30, 2018,2019, United’s mortgage related securities portfolio had an amortized cost of $1.5$1.4 billion, of which approximately $961 million$1 billion or 63%73% 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 4.33.4 years and a weighted average yield of 2.67%2.75%, under current projected prepayment assumptions. These securities are expected to have very little extension risk in a rising rate environment. Current models show that in rates upan immediate, sustained upward shock of 300 basis points, the average life of these securities would only extend to 4.84.1 years. The projected price decline of the fixed rate CMO portfolio in rates up 300 basis points would be 11.7%9.8%, or less than the price decline of a5-
4-
year treasury note. By comparison, the price decline of a
30-year
current coupon mortgage backed security (MBS) in rates higher bygiven an immediate, sustained upward shock of 300 basis points would be approximately 19.4%15.1%.

United had approximately $261$182 million in balloon and other securities with a projected yield of 2.30%2.41% and a projected average life of 3.84.1 years on SeptemberJune 30, 2018.2019. This portfolio consisted primarily of Fannie Mae Delegated Underwriting and Servicing (DUS) mortgage backed securities (MBS) with a weighted average loan age (WALA) of 4.54.6 years and a weighted average maturity (WAM) of 4.24.4 years.

United had approximately $119$23 million in
15-year
mortgage backed securities with a projected yield of 2.56%3.00% and a projected average life of 3.83.2 years as of SeptemberJune 30, 2018.2019. This portfolio consisted of seasoned
15-year
mortgage paper with a weighted average loan age (WALA) of 5.17.1 years and a weighted average maturity (WAM) of 10 years.

United had approximately $86$47 million in
20-year
mortgage backed securities with a projected yield of 2.80%2.71% and a projected average life of 5.44.5 years on SeptemberJune 30, 2018.2019. This portfolio consisted of seasoned
20-year
mortgage paper with a weighted average loan age (WALA) of 5.55.8 years and a weighted average maturity (WAM) of 14.113.7 years.

United had approximately $67$57 million in
30-year
mortgage backed securities with a projected yield of 3.02%2.90% and a projected average life of 7.95.4 years on SeptemberJune 30, 2018.2019. This portfolio consisted of seasoned
30-year
mortgage paper and Home Equity Conversion Mortgages with a weighted average loan age (WALA) of 2.42.8 years and a weighted average maturity (WAM) of 2827.4 years.

The remaining 3%6% of the mortgage related securities portfolio at SeptemberJune 30, 2018,2019, included adjustable rate securities (ARMs),
10-year
mortgage backed pass-through securities and other fixed rate mortgage backed securities.

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Table of ContentsItem 4. CONTROLS AND PROCEDURES

Item 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of SeptemberJune 30, 2018,2019, an evaluation was performed under the supervision of and with the participation of United’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of United’s disclosure controls and procedures. Based on that evaluation, United’s management, including the CEO and CFO, concluded that United’s disclosure controls and procedures as of SeptemberJune 30, 20182019 were effective in ensuring that information required to be disclosed in the Quarterly Report on Form
10-Q
was recorded, processed, summarized and reported within the time period required by the Securities and Exchange Commission’s rules and forms.
Limitations on the Effectiveness of Controls
United’s management, including the CEO and CFO, does not expect that United’s disclosure controls and internal controls will prevent all errors and fraud. While United’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.
Changes in Internal Controls
There have been no changes in United’s internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 2018,2019, 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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Table of Contents
PART II—II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

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, 20172018 for disclosures with respect to United’s risk factors which could materially affect United’s business, financial condition or future results. The risks described in the Annual Report on Form
10-K
are not the only risks facing United. Additional risks and uncertainties not currently known to United or that United currently deems to be immaterial also may materially adversely affect United’s business, financial condition and/or operating results. There are no material changes from the risk factors disclosed in United’s Annual Report on Form
10-K
for the year ended December 31, 2017.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

2018.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There have been no United equity securities sales during the quarter ended SeptemberJune 30, 20182019 that were not registered. The table below includes certain information regarding United’s purchase of its common shares during the quarter ended SeptemberJune 30, 2018:

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)
 

7/01 – 7/31/2018

   389,400   $37.02    389,400    648,100 

8/01 – 8/31/2018

   4   $38.01    0    648,100 

9/01 – 9/30/2018

   25,000   $36.83    25,000    623,100 
  

 

 

   

 

 

   

 

 

   

Total

   414,404   $37.01    414,400   
  

 

 

   

 

 

   

 

 

   

2019:
                 
Period
 
Total Number
of Shares
Purchased
(1) (2)
  
Average Price 
Paid
per Share
  
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans (3)
  
Maximum Number
of Shares that May
Yet be Purchased
Under the Plans (3)
 
4/01 – 4/30/2019
  
31,500
  $
36.19
   
31,500
   
2,096,500
 
5/01 – 5/31/2019
  
15,004
  $
36.50
   
15,000
   
2,081,500
 
6/01 – 6/30/2019
  
120,100
  $
36.17
   
120,100
   
1,961,400
 
                 
Total
  
166,604
  $
36.20
   
166,600
    
                 
(1)

Includes shares exchanged in connection with the exercise of stock options and the vesting of restricted shares under United’s long-term incentive plans. Shares are purchased or vested pursuant to the terms of the applicable plan and not pursuant to a publicly announced stock repurchase plan. No shares were exchanged by participants in United’s long-term incentive plans for the quarter ended SeptemberJune 30, 2018.

2019.
(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 SeptemberJune 30, 2018,2019, the following shares were purchased for the deferred compensation plan: August 2018May 2019 – 4 shares at an average price of $38.01.

$37.49.
(3)

In AugustNovember of 2017,2018, United’s Board of Directors approved a repurchase plan to repurchase up to 2 million3,352,000 shares of United’s common stock on the open market (the 20172018 Plan). The timing, price and quantity of purchases under the planplans are at the discretion of management and the plan may be discontinued, suspended or restarted at any time depending on the facts and circumstances.

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Table of ContentsItem 3. DEFAULTS UPON SENIOR SECURITIES

Item 3.DEFAULTS UPON SENIOR SECURITIES
None.

Item 4. MINE SAFETY DISCLOSURES

Item 4.MINE SAFETY DISCLOSURES
None.

Item 5. OTHER INFORMATION

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

Exhibit

No.
Description
 2.1 
  2.1
 3.1 
  3.1
 3.2 
  3.2
 31.1 
31.1
 31.2 
31.2
 32.1 
32.1
 32.2 
32.2
101 
101
Interactive data file (XBRL)(Inline XBRL) (filed herewith)

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Table of Contents
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: November 8, 2018/s/ Richard M. Adams
   Richard M. Adams, Chairman of the Board and Chief Executive Officer
Date:November 8, 2018/s/ W. Mark Tatterson
UNITED BANKSHARES, INC.
   
(Registrant)
 
Date:
August 9, 2019
/s/ Richard M. Adams
Richard M. Adams, Chairman of the Board and Chief
Executive Officer
Date:
August 9, 2019
/s/ W. Mark Tatterson
W. Mark Tatterson, Executive Vice President and Chief
Financial Officer

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