United Bankshares, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited. Unless noted, dollar figures below are in millions.
Business context
United operates community banking and mortgage banking businesses. The prior-year comparison includes Carolina Financial only from its May 1, 2020 acquisition date, making year-over-year comparisons less comparable. United had also agreed to acquire Community Bankers Trust; regulatory approvals were received and closing was expected in Q4 2021, subject to customary conditions including target shareholder approval.
Financial performance and position
- Q3 earnings: Net income was $92.2 million, or $0.71 per diluted share, versus $103.8 million, or $0.80, a year earlier. Q3 net interest income was $181.6 million versus $185.7 million; other income was $68.6 million versus $135.5 million, chiefly reflecting weaker mortgage banking income.
- Nine-month earnings: Net income was $293.9 million, or $2.27 per diluted share, versus $196.7 million, or $1.68. Net interest income increased to $559.1 million from $497.8 million. The improvement was substantially supported by lower credit-loss provision, including a $16.6 million net benefit in 2021 versus $89.8 million of expense in 2020.
- Margins and returns: Tax-equivalent net interest margin was 2.98% in Q3 versus 3.18% a year earlier, and 3.14% for the first nine months versus 3.21%. Q3 return on average assets/equity was 1.33%/8.23%; nine-month figures were 1.46%/8.95%.
- Balance sheet: Assets were $27.51 billion at September 30, up 5.1% from year-end 2020. Net portfolio loans were $16.74 billion, down 4.8%; available-for-sale securities were $3.41 billion, up 15.5%. Cash and cash equivalents rose to $4.03 billion from $2.21 billion.
- Funding and debt: Deposits increased 6.0% to $21.82 billion, including growth in noninterest-bearing deposits. Borrowings fell 6.9% to $936.9 million. The bank reported about $7.06 billion of available FHLB borrowing capacity, subject to collateral requirements.
- Cash flow and capital: Nine-month operating, investing, and financing cash flows were $553.2 million, $249.4 million, and $1.02 billion provided, respectively. Regulatory capital ratios exceeded well-capitalized thresholds: risk-based capital 15.74%, CET1 13.53%, Tier 1 13.53%, and leverage 10.36%. The company declared a $0.35 per-share Q3 dividend.
- Credit quality: Nonperforming assets were $107.0 million, or 0.39% of assets, down from $154.8 million, or 0.59%, at year-end 2020. Nonperforming loans and leases were $90.3 million, or 0.54% of loans. The allowance for loan and lease losses was $210.9 million, 1.26% of loans, and the allowance plus lending-commitment reserve was $236.1 million.
Material changes, outlook, and risks
- Mortgage banking income fell to $42.0 million in Q3 from $109.5 million a year earlier; management cited lower mortgage production and sales and the mark-to-market effect of a declining locked loan pipeline. Mortgage loan sales were $1.45 billion versus $1.95 billion.
- Management attributed lower credit-loss reserves to improving portfolio performance and improved macroeconomic assumptions. Its forecast anticipated weaker conditions for the remainder of 2021, followed by a rebound in 2022–2023; it identified heightened hotel and accommodation exposure and a recovery potentially extending into late 2023 or 2024.
- COVID-19-related deferrals had declined to 146 loans totaling $51.9 million from 1,002 loans totaling $399.9 million at year-end 2020. PPP balances were $411.6 million across 4,024 loans; forgiveness and remaining fees affect reported income.
- Management said it expected to meet obligations over the next 12 months and reported no material capital expenditure commitments. No specific earnings guidance was provided. It cautioned that pandemic effects, credit losses, low interest rates, deposit outflows, and funding costs could affect results and liquidity.
- The company was preparing for the LIBOR transition, with related contract, operational, legal, market, and customer risks. Legal proceedings were described as ordinary-course matters expected to have no material financial effect; potential regulatory scrutiny of consumer products and fees could lead to enforcement or customer remediation, but loss could not be estimated.
- Available-for-sale securities had $19.8 million of gross unrealized losses and no credit-loss allowance; management attributed the losses mainly to market rates, spreads, and liquidity and said it intended and was able to hold the securities until recovery or maturity. Goodwill impairment testing identified no impairment, though future economic or market changes could prompt reassessment.
Important facts for investors to verify
- Whether the Community Bankers Trust acquisition closed as expected, and its eventual integration costs, consideration, and contribution.
- Whether credit quality and reserve levels remain sound as COVID-19 support fades, including hotel exposure, deferred loans, PPP forgiveness, and unfunded commitments.
- Whether mortgage banking income stabilizes after the sharp Q3 decline and how pipeline valuation affects future results.
- How deposit growth, excess liquidity, securities values, and interest-rate sensitivity affect net interest margin and earnings.
- Progress on LIBOR replacement and any material effects from regulatory matters, contingencies, or goodwill valuation.