Business Context and Reporting Period
Company: United Bankshares, Inc. (UBSI)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2024
Business Overview: United operates as a community banking entity offering a full range of banking products, including deposits, commercial and consumer loans, and trust/brokerage services. In Q1 2024, the company consolidated its mortgage delivery channels, resulting in a single reportable segment: community banking.
Key Financial Metrics
| Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Net Income | $96.5 million | $92.5 million | $183.3 million | $190.8 million |
| Diluted EPS | $0.71 | $0.68 | $1.35 | $1.41 |
| Net Interest Income | $225.7 million | $227.5 million | $448.2 million | $461.8 million |
| Noninterest Income | $30.2 million | $35.2 million | $62.4 million | $67.9 million |
| Noninterest Expense | $134.8 million | $135.3 million | $275.5 million | $272.7 million |
| Provision for Credit Losses | $5.8 million | $11.4 million | $11.5 million | $18.3 million |
| Total Assets | $29.96 billion | $29.44 billion | As of June 30, 2024 | |
| Total Loans (Net) | $21.33 billion | $21.10 billion | As of June 30, 2024 | |
| Total Deposits | $23.07 billion | $22.82 billion | As of June 30, 2024 | |
| Shareholders' Equity | $4.86 billion | $4.77 billion | As of June 30, 2024 |
Material Changes vs. Prior Period
- Net Income: Q2 2024 net income increased 4.4% year-over-year, driven by a lower provision for credit losses and reduced income tax expense. YTD 2024 net income decreased 3.9% due to lower net interest income and higher noninterest expenses.
- Net Interest Income (NII): NII was relatively flat in Q2 2024 (-0.8% YoY) but declined 2.9% YTD. The decline is attributed to higher interest expense from deposit rate repricing and increased average interest-bearing deposits, partially offset by higher yields on earning assets.
- Noninterest Income: Decreased 14.1% in Q2 and 8.1% YTD. Significant drivers include a $9.1 million drop in mortgage loan servicing income (due to MSR sales in 2023) and a $4.0 million decline in mortgage banking income due to lower origination volumes. These were partially offset by a $6.9 million gain on Visa share exchanges and reduced net losses on investment securities.
- Provision for Credit Losses: Decreased significantly to $5.8 million in Q2 (from $11.4 million in Q2 2023) and $11.5 million YTD (from $18.3 million in YTD 2023), reflecting a more substantial increase in reserves in the prior year.
- Balance Sheet: Total assets increased slightly ($31 million) from year-end 2023. Cash and cash equivalents rose 16.3% to $1.86 billion. Investment securities decreased 11.5% to $3.32 billion. Loans grew 1.1% to $21.6 billion, while deposits increased 1.1% to $23.1 billion.
Guidance, Outlook, Risks, and Unusual Items
- Pending Acquisition: On May 9, 2024, United entered into a definitive merger agreement to acquire Piedmont Bancorp, Inc. (Piedmont), a Georgia-based bank with approximately $2.1 billion in assets. The transaction is expected to close in late Q4 2024 or early Q1 2025. Merger-related expenses of $1.27 million were recorded in Q2 2024.
- Unusual Items:
- Visa Gain: Recognized a $6.87 million gain on a Visa share exchange in Q2 2024 ($4.65 million realized, remainder unrealized).
- Investment Securities Loss: Sold approximately $103 million of Available-for-Sale (AFS) securities in Q2 2024 at a loss of $6.81 million.
- FDIC Assessment: Q1 2024 included $1.81 million in FDIC special assessment expense.
- Risks and Outlook:
- Interest Rate Risk: Management monitors interest rate risk via earnings simulation models. As of June 30, 2024, a 100 basis point upward shock is estimated to increase net interest income by 1.00% over one year.
- Credit Quality: Nonaccrual loans increased to $52.9 million (from $30.9 million at year-end 2023), primarily due to one significant commercial lending relationship. The allowance for loan losses increased to $267.4 million (1.24% of loans), driven by higher reserves for non-owner occupied commercial real estate (office loans) and residential real estate.
- Office Portfolio Risk: Management noted greater risk of loss in the office portfolio due to hybrid work trends and higher interest rates, leading to increased loss multiples in the allowance calculation.
Key Facts for Investor Verification
- Merger Status: Verify the progress of the Piedmont Bancorp merger, including regulatory approvals and expected closing timeline (Q4 2024/Q1 2025).
- Office Loan Exposure: Review the specific concentration and performance of the non-owner occupied commercial real estate (office) portfolio, which drove the increase in the allowance for credit losses.
- Nonperforming Assets: Monitor the trend of nonaccrual loans, which rose significantly ($22 million increase) in the first half of 2024.
- Deposit Mix: Analyze the shift in deposit composition, specifically the 3.5% decrease in noninterest-bearing deposits and the 2.8% increase in interest-bearing deposits, and its impact on future net interest margins.
- Investment Portfolio: Assess the impact of unrealized losses on the AFS securities portfolio ($364 million gross unrealized losses) and the potential for future realized losses if liquidity needs arise.