United Bankshares, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results; dollar amounts below are in millions unless noted. United operates community banking and mortgage banking businesses.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $228.5 | $240.6 | $690.2 | $647.0 |
| Noninterest income | $33.7 | $32.7 | $101.6 | $122.4 |
| Provision for credit losses | $5.9 | $7.7 | $24.3 | $2.5 |
| Noninterest expense | $135.2 | $137.2 | $407.9 | $417.5 |
| Net income | $96.2 | $102.6 | $286.9 | $279.9 |
| Diluted EPS | $0.71 | $0.76 | $2.12 | $2.06 |
- Q3 net income fell about 6% year over year; nine-month net income rose about 3%. Q3 return on average assets was 1.31% and return on average equity was 8.14%; nine-month figures were 1.31% and 8.27%.
- Tax-equivalent net interest margin was 3.54% in Q3, down from 3.78% a year earlier but up from 3.51% in Q2. For nine months it was 3.56%, versus 3.38% in 2022. Management attributed quarterly margin pressure to funding costs rising faster than asset yields.
- Q3 average cost of funds was 2.87%, versus 0.56% a year earlier; average yield on earning assets was 5.52%, versus 4.14%. Average interest-bearing deposit cost reached 2.70%.
Financial position, cash flow and liquidity
- At September 30, 2023, total assets were $29.22 billion, net loans $20.84 billion, deposits $22.68 billion, total borrowings $1.58 billion and shareholders’ equity $4.65 billion. Compared with year-end 2022, loans grew 2.6%, deposits 1.7%, borrowings declined 33.1%, and equity rose 2.9%.
- Deposit mix shifted: noninterest-bearing deposits decreased 13.1% to $6.25 billion, while interest-bearing deposits increased 8.7% to $16.42 billion. Time deposits over $100,000 increased 93.9% to $2.26 billion, including $798.9 million in deposits of $250,000 or more.
- Cash and cash equivalents were $1.18 billion, little changed from year-end. For the first nine months, operating cash flow was $272.7 million, investing activities provided $288.6 million and financing activities used $553.9 million; cash increased $7.4 million.
- Management said liquidity was sufficient and expected the company to meet obligations over the next 12 months. Available capacity included approximately $7.30 billion of FHLB borrowing subject to collateral conditions, $3.17 billion without additional collateral, $230 million in correspondent lines, a $20 million unsecured line and $2.72 billion of FRB Discount Window capacity. No FRB or Bank Term Funding Program borrowings were outstanding during the first nine months.
- Regulatory capital ratios were 15.22% risk-based capital, 12.99% Common Equity Tier 1 and Tier 1 capital, and 11.32% leverage—above stated well-capitalized thresholds. Q3 dividend was $0.36 per share; nine-month dividends were $1.08 per share.
Material changes and credit quality
- Q3 net interest income decreased 5.1% year over year as interest expense rose $105.4 million, exceeding the $93.2 million increase in interest income. For nine months, net interest income increased 6.7% as asset yields and loan growth outweighed higher funding costs.
- Available-for-sale securities declined $792.6 million from year-end, reflecting sales, maturities and calls, as well as lower market values. Gross unrealized losses were $492.6 million; accumulated other comprehensive loss was $349.5 million. Management attributed securities losses mainly to interest rates and said it intended and had the ability to hold securities to recovery or maturity; no AFS credit-loss allowance was recorded.
- The allowance for loan and lease losses rose to $254.9 million from $234.7 million; the broader allowance for credit losses, including lending commitments, was $298.7 million. The loan-loss allowance was 1.21% of loans and leases. Management cited loan growth, collateral-value uncertainty and economic conditions, with increased reserves in nonowner-occupied commercial real estate, residential real estate, and construction and land development.
- Nonperforming loans were $42.7 million and nonperforming assets $45.9 million, compared with reported year-end nonperforming assets of $60.7 million. Comparability is affected by adoption of a 2023 accounting standard that changed the treatment and disclosure of certain restructured loans. Annualized net charge-offs were 0.03% of average loans for Q3 and the nine-month period.
Outlook, risks and unusual items
- No formal earnings or revenue guidance is provided. Management’s credit-loss forecasts assumed improved GDP and unemployment outlooks versus the prior quarter, but identified elevated potential losses in office real estate due to hybrid and remote work, and in commercial-other and construction portfolios under weaker economic conditions.
- Interest-rate simulation estimated that an immediate, sustained 100-basis-point increase would reduce one-year net interest income 2.87%; a 200-basis-point increase would reduce it 5.98%. Corresponding decreases in rates were estimated to increase net interest income 4.00% and 6.83%. Management cautioned that model assumptions are uncertain.
- The FDIC proposed a special assessment related to 2023 bank failures. Based on the proposal, United estimated a possible expense of approximately $11 million if recorded in one quarter; the proposal and accounting timing remained subject to change.
- Mortgage banking remained pressured by higher rates and reduced secondary-market loan sales. The segment reported a Q3 net loss of $0.5 million; nine-month net income was $2.9 million. United recorded an $8.3 million net gain on the sale of mortgage servicing rights during the first nine months and sold servicing rights on loans with about $2 billion unpaid principal balance.
- Management reported ordinary-course litigation and said it expected no material financial-statement effect. It also noted regulatory scrutiny of consumer products, fees and charges; potential enforcement or customer remediation losses could not be estimated. Management reported disclosure controls effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Deposit repricing, deposit mix and costs, and the resulting trajectory of net interest margin.
- Commercial real estate exposure—especially office—and subsequent changes in criticized loans, delinquencies, collateral values and credit-loss reserves.
- Unrealized securities losses, AOCI, liquidity needs and the company’s ability to hold securities rather than sell them at a loss.
- Actual FDIC special-assessment terms, timing and expense compared with the estimated $11 million scenario.
- Mortgage banking production, MSR balances and earnings after the servicing-rights sale; verify the sustainability of reported gains.
- Regulatory capital and available borrowing capacity, including collateral requirements and funding costs.