UNITED BANKSHARES INCWV

Overview

The following table sets forth certain consolidated income statement information of United:

Net income for the third quarter and first nine months of 2024 was $95.27 million and $278.59 million, respectively, as compared to earnings of $96.16 million and $286.92 million for the third quarter and first nine months of 2023. Earnings for the third quarter of 2024 as compared to the third quarter of 2023 decreased primarily due to higher provision for credit losses and lower noninterest income partially offset by a higher net interest income and a lower income tax expense. Earnings for the first nine months of 2024 as compared to the first nine months of 2023 decreased due mainly to lower net interest income, lower noninterest income and higher noninterest expense partially offset by lower provision for credit losses and income tax expense.

Diluted earnings per share were $0.70 for the third quarter of 2024 and $0.71 for the third quarter of 2023. Diluted earnings per share were $2.06 for the first nine months of 2024 as compared to $2.12 for the first nine months of 2023.

On a linked-quarter basis, net income for the second quarter of 2024 was $96.51 million or $0.71 per diluted share. Earnings for the third quarter of 2024 as compared to the second quarter of 2024 decreased primarily due to higher provision for credit losses and income tax expense partially offset by higher net interest income and noninterest income.

As previously mentioned, United announced during the second quarter of 2024 that it entered into a definitive merger agreement with Piedmont. Expenses of $332 thousand and $1.61 million related to the announced Piedmont acquisition were recorded in the third quarter and first nine months of 2024, respectively. During the third quarter and first nine months of 2024, United sold approximately $197 million and $299 million of AFS investment securities at a loss of $6.88 million and $13.69 million, respectively. Additionally, during the third quarter of 2024, United recognized a net gain of $7.09 million on the sale of its remaining mortgage rights (“MSRs”) associated with a loan portfolio of $1.12 billion. The second quarter of 2024 included a $6.85 million gain on a VISA share exchange.

For the third quarter of 2024, United’s annualized return on average assets was 1.28% and return on average shareholders’ equity was 7.72% as compared to 1.31% and 8.14% for the third quarter of 2023. United’s annualized return on average assets was 1.32% and return on average shareholders’ equity was 7.99% for the second quarter of 2024. United’s annualized return on average assets for the first nine months of 2024 was 1.26% and return on average shareholders’ equity was 7.65% as compared to 1.31% and 8.27% for the first nine months of 2023. For the third quarter and first nine months of 2024, United’s annualized return on average tangible equity, anon-GAAP measure, was 12.59% and 12.57%, respectively, as compared to 13.71% and 14.03% for the third quarter and first nine months of 2023, respectively. United’s annualized return on average tangible equity was 13.12% for the second quarter of 2024.

Net interest income for the third quarter of 2024 was $230.26 million, which was relatively flat from the third quarter of 2023, increasing $1.80 million or less than 1%. The slight increase of $1.80 million in net interest income occurred because total interest income increased $25.81 million while total interest expense increased $24.01 million from the third quarter of 2023. Net interest income for the first nine months of 2024 was $678.46 million, a decrease of $11.77 million or 1.71% from the first nine months of 2023. The decrease of $11.77 million in net interest income occurred because total interest income increased $93.94 million while total interest expense increased $105.72 million from the first nine months of 2023. On a linked quarter basis, net interest income for the third quarter of 2024 increased $4.54 million, or 2.01%, from the second quarter of 2024. Total interest income for the third quarter of 2024 increased $8.54 million while total interest expense increased $4.00 million from the second quarter of 2024.

The provision for credit losses was $6.94 million and $18.46 million for the third quarter and first nine months of 2024, respectively, while the provision for credit losses was $5.95 million and $24.28 million for the third quarter and first nine months of 2023. The provision for credit losses was $5.78 million for the second quarter of 2024.

For the third quarter of 2024, noninterest income was $31.94 million, which was a decrease of $1.72 million or 5.11% from the third quarter of 2023. This decrease in noninterest income for the third quarter of 2024 was due mainly to decreases of $6.53 million and $3.01 million, respectively, in net losses on investment securities transactions and in income from mortgage banking activities driven by lower mortgage loan sales volume partially offset by the gain on the sale of MSRs. Noninterest income for the first nine months of 2024 was $94.38 million which was a decrease of $7.21 million or 7.09% from the first nine months of 2023. This decrease in noninterest income for the first nine months of 2024 was due mainly to decreases of $8.10 million and $4.01 million, respectively, in income from mortgage banking activities driven by lower mortgage loan sales volume and mortgage loan servicing income due mainly to a decline in net gains on the sales of MSRs and a lower amount of loans serviced. Partially offsetting these decreases were increases in fees from brokerage services and income from bank-owned life insurance as well as lower net losses on investment securities transactions. On a linked quarter basis, noninterest income increased $1.72 million or 5.69% primarily due the previously mentioned gain on the sale of MSRs and increased income from mortgage banking activities partially offset by an increase in net losses on investment securities transactions.

For the third quarter and first nine months of 2024, noninterest expense was relatively flat from the third quarter and first nine months of 2023, increasing $109 thousand and $2.92 million, respectively. Both of these increases were less than 1%. For the third quarter of 2024 compared to the third quarter of 2023, several categories of noninterest expense increased which were largely offset by decreases in other categories. For the first nine months of 2024, the increase of $2.92 million in noninterest expense from the first nine months of 2023 was driven primarily by increases of $3.30 million in employee compensation and $2.10 million in FDIC insurance expense partially offset by decreases of $2.21 million in mortgage loan servicing expense and $1.42 million in other expense. The increase in employee compensation was driven by higher employee incentives, base salaries, and employee severance associated with the previously announced mortgage delivery channel consolidation partially offset by lower employee commissions related to mortgage banking production. The increase in FDIC insurance expense was driven by $1.81 million of expense recognized in the first quarter of 2024 for the FDIC special assessment. The decrease in mortgage loan servicing expense was driven by the sales of MSRs. The decrease in other noninterest expense was primarily due to a decrease in the expense for the reserve for unfunded loan commitments driven by a decrease in the outstanding balance of loan commitments. On a linked quarter basis, noninterest expense was relatively flat from the second quarter of 2024, increasing $565 thousand or less than 1%.

Income taxes for the third quarter of 2024 were $24.65 million as compared to $24.78 million for the third quarter of 2023. Income tax expense was $18.88 million for the second quarter of 2024. For the first nine months of 2024 and 2023, income tax expense was $64.93 million and $72.68 million, respectively. For the quarters ended September 30, 2024 and June 30, 2024, United’s effective tax rate was 20.56% and 16.36%, respectively. For the quarter ended September 30, 2023, United’s effective tax rate was 20.49%. The effective tax rate for the first nine months of 2024 and 2023 was 18.90% and 20.21%, respectively.

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

Net Interest Income

Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2024 and 2023, are presented below.

Net interest income for the third quarter of 2024 was $230.26 million, which was relatively flat from the third quarter of 2023, increasing $1.80 million less than 1%. The increase of $1.80 million in net interest income occurred because total interest income increased $25.81 million while total interest expense increased $24.01 million from the third quarter of 2023. Net interest income for the first nine months of 2024 was $678.46 million, a decrease of $11.77 million or 1.71% from the first nine months of 2023. The decrease of $11.77 million in net interest income occurred because total interest income increased $93.94 million while total interest expense increased $105.72 million from the first nine months of 2023. On a linked-quarter basis, net interest income for the third quarter of 2024 increased $4.54 million or 2.01% from the second quarter of 2024. The $4.54 million increase in net interest income occurred because total interest income increased $8.54 million while total interest expense increased $4.00 million from the second quarter of 2024.

For the purpose of this remaining discussion, net interest income is presented on atax-equivalent basis to provide a comparison among all types of interest earning assets. Thetax-equivalent basis adjusts for thetax-favored status of income from certain loans and investments. Although this is anon-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 andtax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.

Tax-equivalent net interest income for the third quarter of 2024 was flat from the third quarter of 2023, increasing $1.80 million, or less than 1%. The slight increase intax-equivalent net interest income was primarily due to a higher yield on average net loans and loans held for sale, a decrease in average long-term borrowings, organic loan growth, and an increase in average short-term investments. This increase intax-equivalent net interest income was partially offset by the impact of deposit rate repricing and an increase in average interest-bearing deposits. The yield on average earning assets increased 33 basis points from the third quarter of 2023 to 5.85% driven by an increase in the yield on average net loans and loans held for sale of 28 basis points. Average long-term borrowings decreased $842.16 million, or 52.94%, from the third quarter of 2023. Average earning assets for the third quarter of 2024 increased $363.70 million, or 1.41%, from the third quarter of 2023 due to a $610.37 million increase in average net loans and loans held for sale and a $535.24 million increase in average short-term investments partially offset by a $781.91 million decrease in average investment securities. The yield on average interest-bearing deposits increased 58 basis points from the third quarter of 2023. Average interest-bearing deposits increased $1.41 billion, or 8.79%, from the third quarter of 2023. The net interest margin for the third quarter of 2024 and 2023 was 3.52% and 3.54%, respectively.

Tax-equivalent net interest income for the first nine months of 2024 decreased $12.36 million, or 1.78%, from the first nine months of 2023. The decrease intax-equivalent net interest income was primarily due to higher interest expense driven by deposit rate repricing, an increase in average interest-bearing deposits, and a decrease in acquired loan accretion income. These decreases were partially offset by a higher yield on average net loans and loans held for sale, organic loan growth, and a decrease in average long-term borrowings. The yield on average interest-bearing deposits increased 88 basis points from the first nine months of 2023. Average interest-bearing deposits increased $1.37 billion from the first nine months of 2023. Acquired loan accretion income for the first nine months of 2024 of $7.29 million was a decrease of $1.24 million from the first nine months of 2023. The yield on average earning assets increased 46 basis points from the first nine months of 2023 to 5.78% driven by an increase in the yield on average net loans and loans held for sale of 39 basis points. Average net loans and loans held for sale increased $773.33 million from the first nine months of 2023. Average long-term borrowings decreased $924.21 million from the first nine months of 2023. Additionally, average investment securities decreased $857.35 million, or 18.84%, from the first nine months of 2023 while the yield on average investment securities increased 36 basis points from the first nine months of 2023. The net interest margin for the first nine months of 2024 and 2023 was 3.49% and 3.56%, respectively.

On a linked-quarter basis, tax-equivalent net interest income for the third quarter of 2024 also increased $4.50 million, or 1.99%, from the second quarter of 2024. The increase intax-equivalent net interest income was driven by an increase in average short-term investments, a higher yield on average net loans and loans held for sale, and a decrease in average long-term borrowings partially offset by an increase in average interest-bearing deposits as well as a higher average rate paid on deposits. Average short-term investments increased $457.01 million, or 49.12%, from the second quarter of 2024 primarily driven by cash received from deposit growth. The yield on average net loans and loans held for sale increased 6 basis points to 6.20% for the third quarter of 2024. As previously disclosed, the second quarter of 2024 included a $654 thousand interest recovery from a commercial real estate nonaccrual loan payoff. Average long-term borrowings decreased $541.80 million, or 41.99%, from the second quarter of 2024. Average interest-bearing deposits increased $659.24 million, or 3.94%, from the second quarter of 2024. The yield on average interest-bearing deposits increased 10 basis points to 3.28% for the third quarter of 2024. The net interest margin of 3.52% for the third quarter of 2024 was an increase of 2 basis points from the net interest margin of 3.50% for the second quarter of 2024.

United’stax-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 totax-equivalent net interest income for the three months ended September 30, 2024, September 30, 2023 and June 30, 2024 and the nine months ended September 30, 2024 and September 30, 2023:

The following tables reconcile the difference between net interest income andtax-equivalent net interest income for the three months ended September 30, 2024, September 30, 2023 and June 30, 2024 and the nine months ended September 30, 2024 and September 30, 2023.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended September 30, 2024 and 2023, 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 atax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended September 30, 2024 and 2023. Interest income on all loans and investment securities was subject to state income taxes.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended September 30, 2024 and June 30, 2024, 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 atax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended September 30, 2024 and June 30, 2024. Interest income on all loans and investment securities was subject to state income taxes.

The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the nine-month periods ended September 30, 2024 and 2023, 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 atax-equivalent basis using the statutory federal income tax rate of 21% for the nine-month period ended September 30, 2024 and 2023. Interest income on all loans and investment securities was subject to state income taxes.

Provision for Credit Losses

The provision for credit losses was $6.94 million and $18.46 million for the third quarter and first nine months of 2024, respectively, as compared to a provision for credit losses of $5.95 million and $24.28 million for third quarter and first nine months of 2023, respectively. On a linked-quarter basis, the provision for credit losses for the second quarter of 2024 was $5.78 million. United’s provision for credit losses relates to its portfolio of loans and leases, held-to-maturity securities and interest receivable on loans which are discussed in more detail in the following paragraphs.

For the quarter ended September 30, 2024, the provision for loan and lease losses was $6.94 million as compared to a provision for loan and lease losses of $5.95 million for the quarter ended September 30, 2023. The higher amount of provision expense for the third quarter of 2024 from the third quarter of 2023 was primarily due to a greater amount of charge-offs in the third quarter of 2024 compared to the third quarter of 2023. The provision for loan and lease losses for the first nine months of 2024 was $18.46 million as compared to a provision for loan and lease losses of $24.28 million for the first nine months of 2023. The lower amount of provision expense for the first nine months of 2024 compared to the first nine months of 2023 was mainly due to qualitative adjustment factors and reasonable and supportable forecast assumptions regarding future economic expectations. Net charge-offs were $3.60 million for the third quarter of 2024 as compared to net charge-offs of $1.78 million for the same quarter in 2023. Net charge-offs for the first nine months of 2024 were $6.93 million as compared to net charge-offs of $4.14 million for the first nine months of 2023. The higher amount of net charge-offs for 2024 as compared to 2023 was primarily due to increased charge-offs within the consumer loan portfolio. On a linked-quarter basis, the provision for loan and lease losses was $6.94 million for the third quarter of 2024 as compared to a provision for loan and lease losses of $5.78 million for the second quarter of 2024. The higher amount of provision expense on a linked-quarter basis was due mainly to increased charge-offs within the consumer loan portfolio. Net charge-offs were $1.26 million for the second quarter of 2024.

Annualized net charge-offs as a percentage of average loans and leases, net of unearned income for the third quarter and first nine months of 2024 were 0.07% and 0.04% as compared to annualized net charge-offs of 0.03% for both the third quarter and first nine months of 2023. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income for the second quarter of 2024 were 0.02%.

The following table shows a summary of United’s nonperforming assets including nonperforming loans and other real estate owned (“OREO”) at September 30, 2024 and December 31, 2023:

The increase of $21.53 million in nonaccrual loans from December 31, 2023 to September 30, 2024 was due mainly to the transfer to nonaccrual of one significant commercial lending relationship and one large residential real estate relationship.

United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses. At September 30, 2024, the allowance for credit losses was $308.74 million as compared to $303.94 million at December 31, 2023.

At September 30, 2024, the allowance for loan and lease losses was $270.77 million as compared to $259.24 million at December 31, 2023. The increase in the allowance for loan and lease losses was primarily driven by increased outstanding loan balances for the commercial real estatenon-owner occupied, real estate construction and development, and residential real estate portfolios as well as increased reasonable and supportable forecast adjustments for the commercial real estate nonowner-occupied office portfolio. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.25% at September 30, 2024 and 1.21% at December 31, 2023. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 415.03% and 569.78% at September 30, 2024 and December 31, 2023, respectively. The decrease in this ratio was due mainly to an increase in nonperforming loans.

United continues to evaluate risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then, any qualitative adjustments are applied to account for the Company’s view of current conditions, the future and other factors.

The third quarter of 2024 qualitative adjustments include analyses of the following:

United’s review of the allowance for loan and lease losses at September 30, 2024 produced increased reserves in three of the four loan categories as compared to December 31, 2023. The allowance related to the commercial, financial & agricultural loan pool, consisting of the owner andnon-owner occupied commercial real estate and other commercial loan segments, increased $6.33 million due to increased outstanding balances, increased allocations for individually assessed loans and increased reasonable and supportable forecast adjustments particularly as it pertains to office loans. The residential real estate segment reserve increased $5.61 million due primarily to increased outstanding balances while also impacted by a slight downgrade in the adjustment for past due, nonaccrual and graded loans. The real estate construction and development loan segment reserve increased $2.35 million due to increased outstanding balances. The consumer loan segment reserve decreased $2.76 million primarily due to a decrease in outstanding balances.

An allowance is established for estimated lifetime losses for loans that are individually assessed. Nonperforming commercial loans and leases are regularly reviewed to identify expected credit losses. A loan is individually assessed for expected credit losses when the loan does not share similar characteristics with other loans in the portfolio. Measuring expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Expected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate or the fair value of collateral if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an expected credit loss has occurred. The allowance for loans and leases that were individually assessed was $19.43 million at September 30, 2024 and $13.15 million at December 31, 2023. In comparison to the prior year-end, this element of the allowance increased $6.28 million due to the downgrade of a commercial real estatenon-owner occupied relationship secured by office collateral as well as an unsecured relationship with a governmental-type entity.

Management believes that the allowance for credit losses of $308.74 million at September 30, 2024 is adequate to provide for expected losses on existing loans and lending-related commitments based on information currently available. United’s loan administration policies are focused on the risk characteristics of the loan portfolio in terms of loan approval and credit quality. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses.

The provision for credit losses related to held to maturity securities for the third quarter and first nine months of 2024 and 2023 was immaterial. The allowance for credit losses related to held to maturity securities was $19 thousand and $17 thousand as of September 30, 2024 and December 31, 2023, respectively. There was no provision for credit losses recorded on available for sale investment securities for the third quarter and first nine months of 2024 and 2023 and no allowance for credit losses on available for sale investment securities as of September 30, 2024 and December 31, 2023.

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

Other Income

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

Noninterest income for the third quarter of 2024 was $31.94 million, a decrease of $1.72 million or 5.11% from the third quarter of 2023. This decrease was driven by net losses on the sale of investment securities and a decrease in mortgage banking income partially offset by increases in mortgage loan servicing income and fees from brokerage services. Noninterest income for the first nine months of 2024 was $94.38 million, a decrease of $7.21 million or 7.09% from the first nine months of 2023. This decrease was driven by decreases in mortgage loan servicing income and mortgage banking income partially offset by an increase in fees from brokerage services, higher income from bank-owned life insurance and lower net losses on investment securities transactions.

Income from mortgage banking activities totaled $4.54 million for the third quarter of 2024 compared to $7.56 million for the same period of 2023, a decline of $3.01 million or 39.86%. For the first nine months of 2024 and 2023, income from mortgage banking activities was $13.74 million and $21.85 million, respectively. The decreases for 2024 as compared to 2023 were due mainly to lower mortgage loan production. For the three months ended September 30, 2024 and 2023, mortgage loan sales were $171.32 million and $217.63 million, respectively. For the nine months ended September 30, 2024 and 2023, mortgage loan sales were $523.33 million and $632.85 million, respectively. Mortgage loans originated for sale were $151.33 million and $513.56 million for the third quarter and first nine months of 2024, respectively, as compared to $185.95 million and $635.58 million for the third quarter and first nine months of 2023, respectively.

Mortgage loan servicing income for the third quarter of 2024 increased $6.54 million or 772.93% from the third quarter of 2023. This increase was driven primarily by the aforementioned $7.09 million gain on the sale of MSRs in the third quarter of 2024. Mortgage loan servicing income for the first nine months of 2024 decreased $4.01 million or 30.90% from the first nine months of 2023. The first nine months of 2024 also included the $7.09 million net gain on the sale of MSRs in the third quarter of 2024 while the first nine months of 2023 included net gains on the sale of MSRs of $8.31 million. In addition, mortgage loan servicing income declined in the first nine months of 2024 due to lower mortgage balances serviced since the sale of the MSRs in 2023.

United recorded a net loss on investment securities of $6.72 million for the third quarter of 2024 as compared to a net loss on investment securities of $181 thousand for the third quarter of 2023. For the first nine months of 2024, net losses on investment securities were $7.03 million as compared to net losses on investment securities of $7.92 million for the first nine months of 2023. During the third quarter and first nine months of 2024, United sold approximately $197 million and $299 million of AFS investment securities at a loss of $6.88 million and $13.69 million, respectively. Additionally, during the first nine months of 2024, United recognized a $6.91 million gain on the VISA share exchange, of which $4.60 million was realized through the sale of eligible shares and the remainder of which related to shares held at fair value at the end of the second quarter which were eventually sold in the third quarter of 2024. In the second quarter of 2023, United sold approximately $187 million of AFS investment securities resulting in a net loss of $7.24 million.

Fees from brokerage services for the third quarter and first nine months of 2024 increased $640 thousand or 14.44% and $2.75 million or 21.89%, respectively, from the third quarter and first nine months of 2023. The increase was primarily due to higher volume.

Income from bank-owned life insurance for the first nine months of 2024 increased $1.52 million or 23.54% from the first nine months of 2023. This increase was due mainly to an increase in the cash surrender value of insurance policies as well as death proceeds of $690 thousand recognized in the third quarter of 2024.

On a linked-quarter basis, noninterest income for the third quarter of 2024 increased of $1.72 million, or 5.69%, from the second quarter of 2024 due mainly to the previously mentioned gain on the sale of MSRs and increased income from mortgage banking activities partially offset by an increase in net losses on investment securities transactions. Income from mortgage banking activities increased $643 thousand primarily due to higher mortgage loan sale volume and a higher quarter-end valuation of mortgage loans held for sale. Additionally, in comparison to the second quarter of 2024, an increase in mortgage loan servicing income was mostly offset by higher net losses on investment securities. Mortgage loan servicing income was $7.39 million for the third quarter of 2024, an increase of $6.60 million from the second quarter of 2024. During the third quarter of 2024, as previously mentioned, United sold its remaining MSRs with an aggregate unpaid principal balance of approximately $1.1 billion at a gain of $7.09 million. Net losses on investment securities were $6.72 million for the third quarter of 2024 due primarily to a net loss of $6.88 million on approximately $197 million of AFS investment securities sold in the third quarter of 2024 compared to net losses of $218 thousand for the second quarter of 2024.

Other Expenses

Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for credit losses, and income taxes. Noninterest expense for the third quarter of 2024 was $135.34 million, which was relatively flat from the third quarter of 2023, increasing $109 thousand or less than 1%. For the first nine months of 2024, noninterest expense was $410.86 million, which was also relatively flat from the first nine months of 2023, increasing $2.92 million or less than 1%.

Employee compensation for the first nine months of 2024 increased $3.30 million or 1.90% from the first nine months of 2023. The increase in employee compensation was driven by higher employee incentives, base salaries and employee severance related to the consolidation of the mortgage delivery channels. Partially offsetting these increases was a decrease in commissions related to lower mortgage banking production.

Employee benefits expense for the first nine months of 2024 increased $1.31 million or 3.38% as compared to the first nine months of 2023. This increase was primarily due to higher amounts of expense for postretirement benefits partially offset by lower health insurance costs.

OREO expense for the first nine months of 2024 decreased $636 thousand or 54.50% as compared to the first nine months of 2023. This decrease was primarily due to fewer declines in the fair value of OREO properties.

Equipment expense for the third quarter of 2024 increased $641 thousand or 8.94% as compared to the third quarter of 2023. This increase was primarily due to an increase in maintenance expense partially offset by lower depreciation expense.

Mortgage loan servicing expense and impairment expense for the third quarter and first nine months of 2024 decreased $648 thousand or 61.66% and $2.21 million or 47.58%, respectively, from the third quarter and first nine months of 2023. The decreases in 2024 were due primarily to a lower amount of mortgage loans serviced as a result of the sale of MSRs in the third quarters of 2024 and 2023.

FDIC insurance expense for the first nine months of 2024 increased $2.10 million or 15.24% from the first nine months of 2023. The increase in FDIC insurance expense was driven by $1.81 million of expense recognized in the first quarter of 2024 for the FDIC special assessment.

Other expense for the third quarter of 2024 increased $1.08 million or 3.52% from the third quarter of 2023. This increase was driven by higher amounts of certain general operating expenses mostly offset by smaller decreases in several other categories of noninterest expense. Other expense for the first nine months of 2024 decreased $1.42 million or 1.48% from the first nine months of 2023. Within other expenses, the most significant decrease was $4.31 million in the expense for the reserve for unfunded loan commitments. In addition, advertising expense decreased $1.54 million and amortization of intangibles declined $1.11 million. Partially offsetting these decreases were increases in the amortization of investment tax credits of $2.23 million and merger expenses of $1.61 million as well as higher amounts of certain other general operating expenses.

On a linked-quarter basis, noninterest expense for the third quarter of 2024 was relatively flat from the second quarter of 2024, increasing $565 thousand, or less than 1%. The slight increase in noninterest expense was primarily driven by increases in employee benefits of $937 thousand and other noninterest expense of $847 thousand. The increase in employee benefits was primarily driven by higher postretirement benefit costs. The increase in other noninterest expense from the second quarter of 2024 was driven by higher amounts of certain general operating expenses mostly offset by smaller decreases in several other categories of noninterest expense. Within other noninterest expense, merger-related expenses for the third quarter of 2024 were $332 thousand compared to $1.27 million for the second quarter of 2024. Partially offsetting the increases in noninterest expense were decreases of $720 thousand in FDIC insurance expense due mainly to an adjustment for the special assessment in the second quarter of 2024 as well as a lower assessment rate and $608 thousand in mortgage loan servicing expense and impairment due to a lower amount of loans serviced.

Income Taxes

Income tax expense for the third quarter of 2024 was flat from the third quarter of 2023, decreasing $130 thousand, or less than 1%, primarily due to slightly lowerpre-tax earnings partially offset by a slightly higher effective tax rate. On a linked-quarter basis, income tax expense increased $5.77 million from the second quarter of 2024. This increase was driven by higherpre-tax earnings and the impact of discrete tax benefits recognized in the second quarter of 2024. For the first nine months of 2024, income tax expense was $64.93 million as compared to $72.68 million in the first nine months of 2023. This decrease was primarily due to lowerpre-tax earnings and the impact of discrete tax benefits recognized in the second quarter of 2024. United’s effective tax rate was 20.56% for the third quarter of 2024, 20.49% for the third quarter of 2023 and 16.36% for the second quarter of 2024. For the first nine months of 2024 and 2023, United’s effective tax rate was 18.90% and 20.21%, respectively.

Liquidity and Capital Resources

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

Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet theday-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’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.

During the first nine months of 2024, United increased its interest-bearing deposit balance at the FRB by $330.04 million to $1.57 billion. The change in the balance at the FRB was mostly the result of a $1.01 billion increase in total deposits and $640.84 million of net sales, maturities, and paydowns in the available for sale debt securities portfolio partially offset by a $1.25 billion decrease in FHLB advances.

For the nine months ended September 30, 2024, cash of $309.17 million was provided by operating activities due mainly to net income of $278.59 million. Net cash of $405.57 million was provided by investing activities which was primarily due to $661.41 million of net proceeds from the sales of investment securities over purchases partially offset by portfolio loan growth of $262.65 million. During the first nine months of 2024, net cash of $404.86 million was used in financing activities due primarily to a net repayment of $1.25 billion in FHLB advances and cash dividends paid of $150.54 million partially offset by growth in deposits of $1.01 billion. The net effect of the cash flow activities was an increase in cash and cash equivalents of $309.89 million for the first nine months of 2024.

At September 30, 2024, United had an unused borrowing amount at the FHLB of approximately $8.19 billion subject to delivery of collateral after certain trigger points, $4.03 billion without the delivery of additional collateral. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $280 million, all of which was available at September 30, 2024. United also has a $20 million unsecured, revolving line of credit with an unrelated financial institution to provide for general liquidity needs, all of which was available at September 30, 2024. At September 30, 2024, United’s borrowing capacity for the FRB Discount Window was $4.59 billion. United did not have any borrowings from the FRB’s Discount Window, or its new Bank Term Funding Program, during the first nine months of 2024.

United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. United also has lines of credit available. See Notes 10 and 11 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under lines of credit.

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

United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 16.18% at September 30, 2024 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.80%, 13.80% and 11.73%, respectively. The September 30, 2024 ratios reflects United’s election of a five-year transition provision, allowed by the Federal Reserve Board and other federal banking agencies in response to the COVID-19 pandemic, to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.

Total shareholders’ equity was $4.97 billion at September 30, 2024, which was an increase of $196.58 million or 4.12% from December 31, 2023. This increase is primarily due to an increase of $127.96 million in retained earnings (net income less dividends declared).

United’s equity to assets ratio was 16.64% at September 30, 2024 as compared to 15.94% at December 31, 2023. The primary capital ratio, capital and reserves to total assets and reserves, was 17.49% at September 30, 2024 as compared to 16.79% at December 31, 2023. United’s average equity to average asset ratio was 16.64% for the third quarter of 2024 as compared to 16.12% the third quarter of 2023. United’s average equity to average asset ratio was 16.52% for the first nine months of 2024 as compared to 15.81% for the first nine months of 2023. All of these financial measurements reflect a financially sound position.

During the third quarter of 2024, United’s Board of Directors declared a cash dividend of $0.37 per share. Cash dividends were $1.11 per common share for the first nine months of 2024. Total cash dividends declared were $50.21 million for the third quarter of 2024 and $150.63 million for the first nine months of 2024 as compared to $48.71 million for the third quarter of 2023 and $146.05 million for the first nine months of 2023, respectively.