United Bankshares, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021. Financial statements are unaudited. United operates community banking and mortgage banking businesses.
Key financial results
| Metric | Q1 2022 | Comparable period / change |
|---|---|---|
| Total assets | $29.37 billion | Up $36.6 million from year-end 2021 |
| Net interest income | $191.5 million | Up 0.3% from Q1 2021 |
| Net interest margin | 2.99% | 3.30% in Q1 2021; 2.94% in Q4 2021 |
| Other income | $46.0 million | Down 50.3% from Q1 2021 |
| Income before taxes | $101.8 million | $134.5 million in Q1 2021 |
| Net income / diluted EPS | $81.7 million / $0.60 | $106.9 million / $0.83 in Q1 2021 |
| Net cash from operating activities | $283.6 million | $80.6 million in Q1 2021 |
- Net interest income after a $3.4 million credit-loss benefit was $194.9 million. The prior-year quarter had $0.1 million of provision expense.
- Portfolio loans, net of unearned income, were $18.39 billion, up 2.0% from year-end; deposits were $23.47 billion, up 0.5%.
- Cash and cash equivalents were $2.80 billion, down $955.1 million from year-end. Investing activities used $1.30 billion, mainly for securities purchases and loan growth; financing activities provided $64.9 million.
- Total borrowings were approximately $953.6 million. Shareholders’ equity was $4.60 billion, down 2.6% from year-end.
- Regulatory capital ratios were 15.13% total risk-based capital, 13.00% CET1 and Tier 1, and 10.42% leverage. Management stated the company was well-capitalized.
Material changes and notable items
- Net income declined 23.6% year over year, chiefly because mortgage banking activity fell as rising rates reduced mortgage originations and secondary-market sales. Mortgage banking income was $19.2 million, versus $65.4 million; mortgage banking segment net income was $0.2 million, versus $23.0 million.
- Noninterest expense fell 6.6% to $139.2 million, mainly from lower mortgage-production compensation and lower OREO expense. The quarter included approximately $0.5 million of merger-related expenses.
- Q1 2022 includes Community Bankers Trust, acquired December 3, 2021; its results were not included in Q1 2021. The acquisition added scale and markets, including Baltimore, Richmond and other Virginia locations. Management cited expected cost savings and synergies, which are not included in the disclosed pro forma figures.
- Available-for-sale securities increased to $4.76 billion, but their fair value was $191.0 million below amortized cost. Gross unrealized losses were $195.6 million, which management attributed primarily to rising interest rates and said were not credit-related. The after-tax securities valuation decline drove accumulated other comprehensive loss to $141.7 million from $4.9 million at year-end and contributed to negative comprehensive income of $55.1 million.
- Credit indicators improved: nonperforming loans and leases were $79.9 million, or 0.43% of loans, versus $90.8 million, or 0.50%, at year-end. The allowance for loan and lease losses was $214.6 million, or 1.17% of loans; coverage of nonperforming loans was 268.7%.
Outlook, risks and contingencies
- No specific earnings or financial guidance was provided. Management said it expects to meet obligations over the next 12 months and reported no material capital-expenditure commitments.
- Management’s allowance forecast assumed 2022 real GDP growth of 2.8%, revised down from 4.0% at year-end 2021. It highlighted inflation, supply-chain issues, labor shortages, the conflict in Eastern Europe, and elevated hotel and accommodations credit risk, with recovery potentially extending into late 2023 or 2024.
- Interest-rate simulations estimate that an immediate, sustained 100-basis-point increase would raise one-year net interest income 1.36%; a 200-basis-point increase would raise it 1.40%. A 100-basis-point decline would reduce it 1.59%, and a 200-basis-point decline would reduce it 6.88%. Management cautioned that these are model estimates and actual results may differ.
- United is transitioning LIBOR-linked contracts, with SOFR and Prime identified as preferred alternatives for now. The filing notes financial, operational, legal, compliance, market and reputational risks if the transition is not managed appropriately.
- Loan commitments were approximately $7.12 billion, excluding $714.6 million of short-term mortgage funding commitments. Management discussed ordinary-course litigation as not expected to materially affect financial position; it could not assess the likelihood or amount of potential losses from increased regulatory scrutiny of consumer products and fees.
Important facts for investors to verify
- Whether mortgage production and related revenue stabilize as rates change, and how much lower mortgage earnings affect total profitability.
- How the securities portfolio’s unrealized losses, interest-rate sensitivity and potential liquidity needs evolve; management’s intent and ability to hold securities are relevant to realization risk.
- Whether Community Bankers Trust integration delivers the anticipated efficiencies and synergies, and how final acquisition accounting or contingencies may change.
- Whether loan growth, credit quality, criticized credits and the allowance remain consistent with management’s economic assumptions, particularly for hotel and accommodations exposures.
- Progress and remaining exposure in the LIBOR transition, and any material developments in regulatory, legal or consumer-product contingencies.