United Bankshares, Inc. — 2021 Form 10-K
Business context and reporting period. United Bankshares is a West Virginia financial holding company focused on community and mortgage banking across the Mid-Atlantic and Southeast. This audited filing covers the fiscal year ended December 31, 2021, with comparisons primarily to 2020. On December 3, 2021, United acquired Community Bankers Trust; results include that company only from the acquisition date. The 2020 comparison includes Carolina Financial from its May 2020 acquisition date. Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets at year-end | $29.33 billion | $26.18 billion |
| Net income | $367.7 million | $289.0 million |
| Diluted earnings per share | $2.83 | $2.40 |
| Net interest income | $742.7 million | $689.8 million |
| Net interest margin | 3.09% | 3.24% |
| Noninterest income | $278.1 million | $354.7 million |
| Noninterest expense | $581.9 million | $578.2 million |
| Operating cash flow | $609.5 million | $140.4 million |
| Deposits at year-end | $23.35 billion | $20.59 billion |
| Borrowings at year-end | $946.2 million | $1.01 billion |
- Profitability: Net income rose 27.2%; return on average assets was 1.35% and return on average equity was 8.30%, compared with 1.20% and 7.30% in 2020. The effective tax rate was 20.6%, up from 19.7%.
- Revenue and margins: Net interest income increased 7.7%, chiefly as funding costs fell; total interest income was nearly flat. Average earning assets grew 13.2%, but margin declined 15 basis points as asset yields fell more than funding costs. Noninterest income fell 21.6%, primarily due to lower mortgage banking income.
- Credit and loans: Loans and leases, net of unearned income, were $18.02 billion, up 2.5% year over year; growth was supported by the acquisition and commercial real estate lending, while non-real-estate commercial and residential mortgage balances declined. Nonperforming loans were $90.8 million, or 0.50% of loans, versus $132.2 million, or 0.75%, in 2020. Net charge-offs were $8.7 million, or 0.05% of average loans, versus $23.6 million, or 0.14%.
- Credit provision and reserves: The provision for credit losses was a $24.0 million benefit, versus a $106.6 million expense in 2020. The allowance for loan losses was $216.0 million, or 1.20% of loans, and the combined allowance for loans and lending commitments was $247.5 million. Management attributed the lower provision to improved loan performance and economic forecasts; the estimate remains sensitive to assumptions and forecasts.
- Cash flow and liquidity: Cash and cash equivalents rose 70.1% to $3.76 billion, largely from excess funds placed with the Federal Reserve. Financing activities provided $923.9 million, mainly from deposit growth; investing activities provided $15.7 million. Management said liquidity was sufficient for depositor and customer needs and expected to meet obligations over the next 12 months.
- Debt, capital and shareholder returns: Borrowings declined 6.0% to $946.2 million. United reported a 15.43% total risk-based capital ratio, 13.39% CET1 ratio and 10.95% leverage ratio; United Bank was classified as well capitalized. The 2021 dividend was $1.41 per share, up from $1.40. The company repurchased 306,204 shares during the year.
Material changes versus the prior comparable period
- Net income increased primarily because the credit-loss provision swung from a large expense to a benefit, alongside higher net interest income and acquisition effects.
- Mortgage banking income declined to $171.7 million from $266.1 million. Management cited a smaller locked pipeline, lower sale margins and lower mortgage production; the mortgage banking segment’s net income fell to $43.9 million from $116.7 million.
- Community banking segment net income rose to $327.1 million from $190.3 million, mainly reflecting lower credit costs and higher net interest income.
- Deposits rose 13.4%, reflecting the acquisition and $1.24 billion of organic growth. Average deposit cost fell to 0.19% from 0.43%.
- Available-for-sale securities increased to $4.04 billion. Gross unrealized losses were $34.4 million at year-end, compared with $6.2 million a year earlier; management attributed these losses to market rates, spreads and liquidity rather than credit deterioration.
- Acquisition-related expenses were $21.4 million in 2021, versus $54.2 million related to the Carolina Financial acquisition in 2020. Community Bankers Trust added approximately $1.79 billion in assets and $1.52 billion in deposits and generated preliminary goodwill of $76.5 million.
Outlook, management commentary, risks and unusual items
- The filing provides no formal company earnings or revenue guidance. Management described improving loan performance and economic forecasts but emphasized that COVID-19, variants and the durability of the recovery remained uncertain. It also cited inflation, labor shortages, supply-chain disruption and potential recession as risks.
- Credit exposure is concentrated in real estate and construction: approximately $8.7 billion, or 48.2% of loans, was in these categories. Hotels and other traveler accommodations represented about $1.0 billion, or 5.66% of loans; management noted elevated forecasted risk for this portfolio.
- Interest-rate risk is material. The company’s model estimated one-year net interest income would rise 2.70% under an immediate, sustained 100-basis-point increase and fall 0.98% under a 100-basis-point decrease. Actual results may differ because model assumptions and customer behavior are uncertain.
- United stopped originating new LIBOR-based contracts after December 31, 2021 and identified SOFR and Prime as preferred alternatives. Existing instruments and transition execution create financial, operational, legal and customer risks.
- PPP balances were approximately $302.3 million across 2,959 loans at year-end; the company recognized $33.2 million of net PPP fees in 2021, with $10.4 million of fees remaining to be recognized. The filing identifies potential SBA guarantee, forgiveness, compliance and litigation risks.
- There were 188 COVID-related loan modifications totaling $18.0 million at year-end, down from 1,002 modifications totaling $399.9 million in 2020. Management cautioned that future losses on deferred loans cannot be predicted.
- United reported routine legal proceedings and said management expected no material effect on financial position. It also disclosed potential consumer-product regulatory actions or customer remediation; the probability and amount of any loss could not be assessed. The allowance for loan losses was identified by the auditor as a critical audit matter because of judgment involved in economic forecast adjustments.
Important facts for investors to verify
- Whether mortgage banking income and segment earnings stabilize after the 2021 decline, and how production, margins and pipeline trends develop.
- Whether credit quality and the $247.5 million combined credit-loss allowance remain adequate under changing economic conditions, particularly for commercial real estate, construction and hospitality exposures.
- How Community Bankers Trust integration, preliminary purchase accounting and expected synergies affect expenses, goodwill and returns.
- Whether deposit growth is sustainable and excess cash can be deployed without further pressure on net interest margin; assess sensitivity to changing rates and deposit pricing.
- How unrealized securities losses, mortgage-security extension risk and the LIBOR transition affect capital, earnings and liquidity.