United Bankshares, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. United is a bank holding company with community banking and mortgage banking segments. Financial statements are unaudited; amounts below are in millions except per-share data and ratios.
Financial performance and position
| Metric | Q2 / June 30, 2023 | Comparison |
|---|---|---|
| Net income | $92.5; diluted EPS $0.68 | Q2 2022: $95.6; $0.71 per diluted share |
| Six-month net income | $190.8; diluted EPS $1.41 | First half 2022: $177.3; $1.30 per diluted share |
| Net interest income | $227.5 | Up 5.8% year over year; down 2.9% from Q1 2023 |
| Tax-equivalent net interest margin | 3.51% | 3.38% in Q2 2022; 3.63% in Q1 2023 |
| Noninterest income / expense | $35.2 / $135.3 | Income down 19.3%; expense down 4.2% year over year |
| Credit-loss provision | $11.4 | Compared with a $1.8 benefit in Q2 2022 |
| Total assets / shareholders’ equity | $29.7 billion / $4.64 billion | Assets up less than 1% and equity up 2.7% from year-end 2022 |
| Deposits / total borrowings | $22.37 billion / $2.37 billion | Deposits up 0.3%; borrowings up 0.3% from year-end 2022 |
| Cash and cash equivalents | $1.69 billion | Up $515.7 million from year-end 2022 |
| Loans, net of unearned income | $20.76 billion | Up 1.0% from year-end 2022 |
- Profitability and drivers: First-half net income rose 7.6% year over year as higher net interest income outweighed lower noninterest income. Q2 net income declined year over year. Rising rates lifted asset yields, but higher deposit and borrowing costs squeezed the margin sequentially.
- Cash flow: For the first six months, operating activities provided $183.1 million, investing activities provided $356.6 million, and financing activities used $24.0 million. Cash increased $515.7 million.
- Credit quality and reserves: Nonperforming assets were $45.3 million, versus $60.7 million at year-end 2022. Nonaccrual loans were $26.5 million; loans 90 or more days past due were $15.0 million. The loan-loss allowance was $250.7 million, or 1.21% of loans; the allowance-to-nonperforming-loan ratio was 603%. Total allowance for credit losses, including lending-related commitments, was $297.5 million. The company increased reserves based on qualitative factors and its economic forecast.
- Liquidity and capital: Management stated liquidity was sufficient and expected obligations to be met over the next 12 months. Available sources included approximately $6.65 billion of FHLB capacity subject to collateral delivery after trigger points, $2.39 billion without additional collateral, $2.86 billion of Federal Reserve Discount Window capacity, and $230 million in correspondent-bank lines; the $20 million unsecured line was also unused. Regulatory capital ratios were 15.06% risk-based, 12.83% Common Equity Tier 1, 12.83% Tier 1, and 10.99% leverage—above the stated well-capitalized thresholds.
Material changes and notable items
- Interest expense rose sharply year over year as deposit interest expense increased to $91.6 million in Q2 from $9.8 million, and long-term borrowing expense rose to $25.4 million from $2.9 million. Average cost of funds was 2.64%, up from 0.31% a year earlier.
- Noninterest income fell, mainly reflecting lower mortgage production and margins, reduced deposit-service fees and BOLI income, and a $7.3 million net loss on securities sales. Q2 mortgage loan sales were $248.7 million, versus $674.1 million a year earlier.
- United sold mortgage servicing rights covering about $2 billion of unpaid principal for an $8.15 million net gain. Mortgage servicing rights on the balance sheet declined to $4.6 million from $21.0 million at year-end.
- Available-for-sale securities were $4.01 billion at fair value, down 11.8% from year-end. Gross unrealized losses were $437.8 million, which management primarily attributed to rising interest rates; the company recorded no related credit-loss allowance and stated it intended and was able to hold securities until recovery or maturity. It also cautioned securities could be sold in response to future circumstances.
- Deposit balances were nearly flat, but funding mix shifted: noninterest-bearing deposits fell 10.4% while interest-bearing deposits rose 5.4%. Time deposits above $100,000 increased 83.4%, including growth in brokered certificates of deposit.
- Nonowner-occupied commercial real estate loans increased 4.5% from year-end to $6.57 billion. Management identified heightened potential loss risk in office lending, citing hybrid and remote work, and also noted risks in other commercial and construction lending.
Outlook, risks, and contingencies
- The filing provides no formal earnings or revenue guidance. Management’s credit-loss forecast assumed 2023 real GDP growth of 1.0% and unemployment of 4.1%, with greater loss risk noted for office, other commercial, and construction exposures.
- Net interest income is sensitive to rates: the company estimated a one-year decrease of 1.56% under an immediate, sustained +100-basis-point shock and 3.89% under +200 basis points; downward shocks were modeled to increase one-year net interest income by 1.53% for either -100 or -200 basis points. These are model estimates, not forecasts.
- The FDIC proposed a special assessment to recover losses related to the Silicon Valley Bank and Signature Bank resolutions. Based on the proposal, United estimated a possible expense of approximately $11 million if recognized in a single quarter; the proposal and accounting timing were not final.
- United described routine legal proceedings and said management expected no material financial-statement effect. It also noted increased regulatory scrutiny of consumer products and fees; potential penalties or customer remediation could not be reasonably estimated.
- LIBOR transition risks remain for legacy instruments, including operational, compliance, legal, market, and customer-reputation risks. United said it had stopped originating new LIBOR contracts after 2021 and was prioritizing SOFR and Prime as alternatives.
Key facts for investors to verify
- Whether deposit repricing, growth in time and brokered deposits, and funding costs continue to pressure net interest margin.
- Credit trends in office and other commercial real estate, construction, and consumer portfolios, and whether the allowance remains adequate as forecasts and delinquency data evolve.
- The duration and potential realization of the $437.8 million in gross unrealized securities losses, including whether liquidity or balance-sheet decisions require sales.
- The final FDIC special-assessment terms, timing, and expense compared with the company’s approximately $11 million estimate.
- The effect of lower mortgage origination and servicing balances on mortgage banking results following the MSR sale.
- The maturity and refinancing implications of $1.91 billion of FHLB advances scheduled to mature in 2023, alongside the company’s stated available liquidity sources.