United Bankshares, Inc. — Q1 2023 Form 10-Q
Business and period: United Bankshares is a bank holding company with community banking and mortgage banking segments. This unaudited report covers the three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. Dollars are in U.S. dollars.
Key financial results
| Metric | Q1 2023 | Comparable period / change |
|---|---|---|
| Net interest income | $234.3 million | Up 22.4% from Q1 2022; down 6.1% from Q4 2022 |
| Net interest margin | 3.63% | 2.99% in Q1 2022; 3.87% in Q4 2022 |
| Noninterest income | $32.7 million | Down 28.9% year over year |
| Noninterest expense | $137.4 million | Down 1.3% year over year |
| Provision for credit losses | $6.9 million expense | $3.4 million benefit in Q1 2022 |
| Net income / diluted EPS | $98.3 million / $0.73 | $81.7 million / $0.60 in Q1 2022 |
| Operating cash flow | $118.2 million provided | $283.6 million provided in Q1 2022 |
Financial position, liquidity and capital
- Assets were $30.18 billion, up 2.4% from year-end. Net loans were $20.37 billion; gross loans, net of unearned income, were $20.61 billion, up 0.3%.
- Deposits totaled $22.28 billion, nearly unchanged overall. Noninterest-bearing deposits fell 6.8% to $6.71 billion, while interest-bearing deposits increased. Time deposits over $100,000 rose 76.2% to $2.05 billion, including brokered CDs.
- Total borrowings increased 25.4% to $2.96 billion, largely reflecting a $600 million increase in FHLB advances. FHLB borrowings were $2.51 billion; $2.50 billion was scheduled to mature in 2023. The filing reports approximately $5.82 billion of unused FHLB capacity, subject to collateral requirements, plus $230 million of correspondent lines and a $20 million unsecured line.
- Cash and cash equivalents were $1.92 billion, up $742 million during the quarter. Management said liquidity was sufficient and expected the company to meet obligations over the next 12 months. United reported no first-quarter borrowing from the Federal Reserve Discount Window or Bank Term Funding Program.
- Shareholders’ equity was $4.61 billion. Regulatory capital ratios were 14.70% risk-based, 12.53% Common Equity Tier 1, 12.53% Tier 1, and 10.78% leverage; each exceeded the stated well-capitalized thresholds.
- The allowance for loan and lease losses was $240.5 million, or 1.17% of loans; the combined allowance for credit losses, including lending-related commitments, was $289.3 million. Net charge-offs were $1.15 million, and nonperforming assets were $46.5 million. The year-over-year or year-end comparison of nonperforming loans is affected by adoption of a new restructuring disclosure standard.
Material changes and management commentary
- Earnings improved year over year primarily on higher yields on earning assets, loan growth, and a shift toward higher-earning assets. These gains were partly offset by materially higher deposit and borrowing costs. Interest expense rose to $95.0 million from $11.3 million in Q1 2022.
- Mortgage banking income fell to $6.4 million from $19.2 million as higher rates reduced mortgage originations and loan sales; sales were $166.5 million versus $1.07 billion a year earlier. The mortgage banking segment recorded a $1.7 million net loss.
- Credit-loss provisioning increased as management raised qualitative adjustments and incorporated its economic outlook. The filing highlights greater potential loss risk in office real estate, amid hybrid and remote work, and in construction and development loans under weaker economic conditions. Management cited 2023 real GDP growth assumptions of 0.4% and 2024 growth of 1.2%.
- Available-for-sale securities had $411.2 million of gross unrealized losses at quarter-end, which management primarily attributed to higher interest rates. The company recorded no credit-loss allowance on these securities and said it intended and was able to hold them until recovery or maturity. AOCI loss improved to $294.1 million from $332.7 million at year-end.
- Interest-rate sensitivity modeling estimated that an immediate, sustained 100-basis-point rate increase would reduce one-year net interest income by 2.84%; a 200-basis-point increase would reduce it by 6.71%. A 200-basis-point decline was estimated to reduce year-two net interest income by 8.65%.
Outlook, risks and contingencies
- The filing provides no specific earnings or margin guidance. Management stated it anticipated meeting obligations over the following 12 months.
- Key risks include deposit repricing and funding costs, reliance on FHLB advances and their 2023 maturities, interest-rate exposure, securities valuation and extension risk, and potential credit deterioration in office and construction portfolios.
- United was completing its transition from LIBOR, which was scheduled to cease for remaining U.S. dollar settings after June 30, 2023. Management identified financial, operational, legal, compliance, market, and reputational risks if the transition were not managed appropriately.
- Management said ordinary-course litigation was not expected to have a material effect. It could not assess the likelihood or estimate potential losses from regulatory scrutiny of consumer products, fees, and charges.
- Management concluded disclosure controls were effective as of March 31, 2023 and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How deposit mix, brokered and large time deposits, and funding costs evolve, particularly given the increase in FHLB borrowing and scheduled 2023 maturities.
- Whether net interest margin stabilizes after its sequential decline, and how deposit repricing and interest-rate changes affect earnings.
- Whether office, construction, and other commercial real-estate credit quality weakens; track criticized loans, delinquencies, charge-offs, and allowance adequacy.
- Whether mortgage banking activity and fee income recover from the sharp decline in loan sales.
- How unrealized securities losses and liquidity capacity change, including any sales of securities or use of collateralized borrowing facilities.
- The filing does not provide a clear value for uninsured deposits; verify that figure and related deposit concentrations in subsequent disclosures.