Mergers and Acquisitions

6 Months Ended

Jun. 30, 2022

2. MERGERS AND ACQUISITIONS

On December 3, 2021 (the “Acquisition Date”), United completed its acquisition of Community Bankers Trust Corporation (“Community Bankers Trust”). Community Bankers Trust was merged with and into United (the “Merger”), pursuant to the terms of the Agreement and Plan of Reorganization, dated June 2, 2021, by and between United and Community Bankers Trust (the “Agreement”).

Under the terms of the Agreement, each outstanding share of common stock of Community Bankers Trust was converted into the right to receive 0.3173 shares of United common stock, par value $2.50 per share. Also, pursuant to the Agreement, at the effective time of the Merger, each outstanding Community Bankers Trust stock option granted under a Community Bankers Trust stock plan, whether vested or unvested as of the date of the Merger, vested as provided pursuant to the terms of such Community Bankers Trust stock plan and converted into an option to acquire United common stock adjusted based on the 0.3173 exchange ratio. Also, at the effective time of the Merger, each restricted stock unit granted under a Community Bankers Trust stock plan that was outstanding immediately prior to the effective time of the Merger vested in accordance with the formula and other terms of the Community Bankers Trust stock plan and converted into the right to receive shares of United common stock based on the 0.3173 exchange ratio.

Immediately following the Merger, Essex Bank, a wholly-owned subsidiary of Community Bankers Trust, merged with and into United Bank, a wholly-owned subsidiary of United (the “Bank Merger”) pursuant to an Agreement and Plan of Merger, dated June 2, 2021. United Bank survived the Bank Merger and continues to exist as a Virginia banking corporation.

The Merger was accounted for under the acquisition method of accounting. The results of operations of Community Bankers Trust are included in the consolidated results of operations from the Acquisition Date. The acquisition of Community Bankers Trust enhanced United’s existing presence in the DC Metro MSA and took United into new markets including Baltimore, Annapolis, Lynchburg, Richmond, and the Northern Neck of Virginia. It also strategically connected our

Mid-Atlantic

and Southeast footprints. As of the Acquisition Date, Community Bankers Trust had $1,788,013 in total assets, $1,282,997 in loans and leases, net of unearned income and $1,517,502 in deposits.

The aggregate purchase price was $260,304, including common stock valued at $252,321, stock options assumed valued at $7,958, and cash paid for fractional shares of $25. The number of shares issued in the transaction was 7,135,771, which were valued based on the closing market price of $35.36 for United’s common shares on December 3, 2021. The preliminary purchase price has been allocated to the identifiable tangible and intangible assets resulting in preliminary additions to goodwill and core deposit intangibles of $78,849 and $3,398, respectively. The goodwill recognized results from the expected synergies and potential earnings from the combination of United and Community Bankers Trust. The core deposit intangible is expected to be amortized on an accelerated basis over ten years.

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 Community Bankers Trust acquisition is expected to be deductible for tax purposes. United used an independent third party to help determine the fair values of the assets and liabilities acquired from Community Bankers Trust. As a result of the merger, United recorded preliminary fair value discounts of $7,744 on the loans and leases acquired, $230 on land acquired, $50 on OREO properties acquired and $415 on a trust preferred issuance, and premiums of $6,766 on investment securities acquired, $492 on buildings acquired, $2,741 on interest-bearing deposits, and $457 on long-term FHLB advances, respectively. United also recorded an allowance for credit losses, including a reserve for unfunded commitments, of $25,920 on the loans and commitments

acquired split between $12,788 for purchased credit deteriorated (“PCD”) loans which is part of the acquisition date fair value, and $13,132 for non-PCD loans recorded to the provision for credit losses. The discounts and premium amounts, except for discount on the land, OREO and FHLB advances acquired, are being accreted or amortized on an accelerated or straight-line basis, based on the type of asset or liability, over each asset’s or liability’s estimated remaining life at the time of acquisition. The FHLB advances acquired were subsequently repaid prior to year-end. At June 30, 2022, the discount on the trust preferred issuance had an estimated remaining life of 11.75 years and the premiums on the buildings, and interest-bearing deposits each had an average estimated remaining life of 30.75 years, and 4.75 years, respectively.

Portfolio

loans and leases acquired from Community Bankers Trust were recorded at their fair value at the Acquisition Date based on a discounted cash flow methodology. The estimated fair value incorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and other market factors such as liquidity from the perspective of a market participant. Also, acquired portfolio loans and leases were evaluated upon acquisition and classified as either PCD, which indicates that the loan has experienced a more-than-insignificant deterioration in credit quality since origination, or

non-PCD.

United considered a variety of factors in evaluating the acquired loans and leases for a more-than-insignificant deterioration in credit quality, including but not limited to risk grades, delinquency, nonperforming status, current or previous troubled debt restructurings or bankruptcies, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination. For PCD loans and leases, an initial allowance is determined based on the same methodology as other portfolio loans and leases. This initial allowance for credit losses is allocated to individual PCD loans and leases and added to the acquisition date fair values to establish the initial amortized cost basis for the PCD loans and leases. The difference between the unpaid principal balance (“UPB”), or par value, of PCD loans and leases and the amortized cost basis is considered to relate to noncredit factors and resulted in a discount of $

3,559

at the Acquisition Date. This discount will be recognized through interest income on a level-yield method over the life of the loans which is estimated to be a weighted-average of

5.5

years. For

non-PCD

acquired loans and leases, the differences between the initial fair value and the UPB, or par value, are recognized as interest income on a level-yield basis over the lives of the related loans and leases which is estimated to be a weighted-average of

5.6

years. The total fair value mark on the

non-PCD

loans and leases at the Acquisition Date was $

4,186

. At the Acquisition Date, an initial allowance for expected credit losses of $

12,288

was recorded with a corresponding charge to the provision for credit losses in the Consolidated Statements of Income. Subsequent changes in the allowance for credit losses related to PCD and

non-PCD

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

The following table provides a reconciliation of the difference between the purchase price and the par value of portfolio PCD loans and leases acquired from Community Bankers Trust as of the Acquisition Date:


Purchase price of PCD loans and leases at acquisition	$	360,638
Allowance for credit losses at acquisition		12,629
Non-credit discount at acquisition		3,559

Par value (UPB) of acquired PCD loans and leases at acquisition	$	376,826

The consideration paid for Community Bankers Trust’s common equity and the preliminary amounts of acquired identifiable assets and liabilities assumed as of the Acquisition Date were as follows:


Purchase price:
Value of common shares issued (7,135,771 shares)	$	252,321
Fair value of stock options assumed		7,958
Cash for fractional shares		25

Total purchase price		260,304

Identifiable assets:
Cash and cash equivalents		39,445
Investment securities		395,249
Net loans and leases		1,280,016
Premises and equipment		25,857
Operating lease right-of-use asset		8,127
Core deposit intangible		3,398
Other assets		50,851

Total identifiable assets	$	1,802,943

Identifiable liabilities :
Deposits	$	1,520,243
Short-term borrowings		26,755
Long-term borrowings		51,500
Operating lease liability		8,127
Other liabilities		14,863

Total identifiable liabilities		1,621,488

Preliminary fair value of net assets acquired including identifiable intangible assets		181,455

Preliminary resulting goodwill	$	78,849

The following table presents certain unaudited pro forma information for the results of operations for the first six months of 2021, as if the Merger had occurred on January 1, 2021. These results combine the historical results of Community Bankers Trust into United’s consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of Community Bankers Trust’s provision for credit losses for the first six months of 2021 that may not have been necessary had the acquired loans and leases been recorded at fair value as of the beginning of 2021. Additionally, United expects to achieve operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts.


	Proforma Six Months Ended June 30, 2021
Total Revenues (1)	$	569,847
Net Income		217,723

(1)	Represents net interest income plus other income