United Bankshares, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. United is a community banking company operating through United Bank. Unless stated otherwise, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $369.2 million | $329.3 million in Q1 2023 |
| Interest expense | $146.7 million | $95.0 million in Q1 2023 |
| Net interest income | $222.5 million; tax-equivalent net interest margin was 3.44% | $234.3 million and 3.63% in Q1 2023 |
| Provision for credit losses | $5.7 million | $6.9 million in Q1 2023 |
| Other income / expense | $32.2 million / $140.7 million | $32.7 million / $137.4 million in Q1 2023 |
| Net income; diluted EPS | $86.8 million; $0.64 | $98.3 million; $0.73 in Q1 2023 |
| Returns | ROAA 1.19%; ROAE 7.25%; return on average tangible equity 11.98% (non-GAAP) | ROAA 1.35%; ROAE 8.72%; tangible-equity return 14.97% in Q1 2023 |
| Assets; loans; deposits | $30.03 billion; net loans $21.26 billion; deposits $22.92 billion | Assets $29.93 billion; net loans $21.10 billion; deposits $22.82 billion at year-end 2023 |
| Cash and cash equivalents | $1.73 billion | $1.60 billion at year-end 2023 |
| Borrowings | $1.95 billion total; includes $1.46 billion of FHLB advances and $279.0 million of other long-term borrowings | $1.99 billion total at year-end 2023 |
| Shareholders’ equity | $4.81 billion | $4.77 billion at year-end 2023 |
Operating cash flow was $124.4 million, investing activities used $2.4 million, and financing activities provided $11.8 million. Cash and cash equivalents increased $133.7 million during the quarter. The board declared a $0.37-per-share cash dividend.
Material changes versus comparable periods
- Net income fell 11.7% and diluted EPS declined from $0.73 to $0.64 year over year. Net interest income fell 5.1%: interest income increased, but interest expense rose more, primarily as deposit costs repriced higher.
- Tax-equivalent net interest margin decreased 19 basis points year over year and 11 basis points from Q4 2023. The average cost of funds rose to 3.21% from 2.17% in Q1 2023; the average yield on earning assets rose to 5.70% from 5.10%.
- Loans grew 0.75% from year-end, led by nonowner-occupied commercial real estate, while construction and land development and consumer loans declined. Deposits increased 0.44%; interest-bearing deposits grew while noninterest-bearing deposits declined.
- Nonperforming loans rose to $74.4 million from $45.5 million at year-end, mainly because one significant commercial lending relationship moved to nonaccrual. Net charge-offs were $2.1 million versus $1.1 million in Q1 2023.
- Available-for-sale securities declined to $3.61 billion from $3.79 billion. Gross unrealized losses were $366.8 million, which management attributed primarily to higher interest rates; the company reported no related allowance for credit losses.
- Noninterest expense increased 2.4% year over year, including higher compensation and FDIC insurance costs. Q1 2024 included $1.81 million of additional FDIC special-assessment expense; Q4 2023 included $11.99 million of special-assessment expense.
Outlook, risks, contingencies and unusual items
- Management outlook: No specific earnings or margin guidance is provided in the supplied filing text. Management expects to meet obligations over the next 12 months, reports no material capital-expenditure commitments, and considers liquidity and capital sound.
- Liquidity and capital: Available capacity included approximately $7.00 billion of FHLB borrowing capacity subject to collateral requirements, $280 million of correspondent lines, a $20 million unsecured line, and $2.53 billion of Federal Reserve Discount Window capacity. No Discount Window or Bank Term Funding Program borrowings were outstanding in Q1. Regulatory capital ratios were 15.55% risk-based, 13.22% CET1, 13.22% Tier 1, and 11.41% leverage.
- Credit and concentration risk: Management identified greater potential loss risk in office real estate, citing hybrid and remote work, economic conditions, and higher interest and capitalization rates. The allowance for loan and lease losses was $262.9 million, or 1.22% of loans; the allowance-to-nonperforming-loans coverage ratio was 353.45%, down from 569.78% at year-end.
- Interest-rate and securities risk: The securities portfolio remains exposed to rate-related fair-value changes and mortgage extension risk. A modeled immediate, sustained 200-basis-point rate increase was estimated to reduce one-year net interest income by 0.62%; the filing cautions that model results depend on assumptions and actual outcomes may differ.
- Business changes and acquisition: United consolidated George Mason Mortgage and Crescent mortgage origination and sales into United Bank during Q1, after exiting third-party originations in Q4 2023. On May 9, 2024, it agreed to acquire Piedmont Bancorp, a Georgia bank holding company with approximately $2.1 billion of assets. The proposed stock transaction remains subject to regulatory and shareholder approvals and other closing conditions.
- Other items: Management expects ordinary-course litigation to have no material effect, but notes increased regulatory scrutiny of consumer, mortgage and deposit products; potential outcomes cannot currently be assessed or estimated. The filing also identifies estimates for credit losses, taxes and fair values as areas requiring significant judgment.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize enough to support net interest income and margin.
- Developments in the significant commercial relationship moved to nonaccrual, broader nonperforming loans, and office and other commercial real-estate exposures.
- The size, duration and potential effects of unrealized securities losses, including sensitivity to interest rates and liquidity needs.
- Liquidity and capital after planned funding activity, dividends, and any completion of the Piedmont acquisition.
- Merger approvals, consideration, integration costs and expected financial impact; the filing text does not provide quantified acquisition synergies or pro forma results.