United Bankshares, Inc. — Q2 2022 Form 10-Q
Business context and period. This unaudited filing covers the quarter and six months ended June 30, 2022. United is a regional bank holding company operating community banking and mortgage banking businesses. Results include Community Bankers Trust, acquired in December 2021, so year-over-year comparisons also reflect the acquisition.
Financial performance and position
Amounts are in millions of dollars unless otherwise noted.
| Metric | Q2 2022 | Comparable period / change |
|---|---|---|
| Net interest income | $214.9 | Up 15.2% from Q2 2021 |
| Noninterest income | $43.6 | Down 30.6% from Q2 2021 |
| Net income | $95.6 | $94.8 in Q2 2021 |
| Diluted EPS | $0.71 | $0.73 in Q2 2021 |
| Net interest margin | 3.38% | 3.14% in Q2 2021; 2.99% in Q1 2022 |
- First half: Net income was $177.3 million and diluted EPS was $1.30, compared with $201.7 million and $1.56 in the first half of 2021. Net interest income rose 7.7% to $406.4 million; noninterest income fell 42.3% to $89.6 million.
- Drivers and margins: Higher net interest income reflected larger average earning assets, the acquisition, and rising rates; Q2 margin expansion also benefited from loan growth and asset mix. Mortgage banking income declined sharply as higher rates reduced originations, secondary-market sales, and margins.
- Expenses and credit costs: Q2 noninterest expense was $141.2 million, up 1.6% year over year. The provision for credit losses was a net benefit of $1.8 million in Q2 and $5.2 million in the first half; the comparable first-half 2021 benefit was $8.7 million.
- Assets and loans: Total assets were $28.78 billion, down 1.9% from year-end 2021. Portfolio loans, net of unearned income, grew 5.3% to $18.97 billion; construction and residential real estate loans grew 18.9% and 11.2%, respectively. Loans held for sale declined 56.3% to $220.7 million.
- Funding and debt: Deposits totaled $23.03 billion, down 1.4% from year-end; total borrowings were $925.2 million, down 2.2%. Cash and cash equivalents were $1.66 billion, versus $3.76 billion at year-end. The bank also reported approximately $7.68 billion of unused FHLB borrowing capacity, subject to collateral requirements, and $230 million of correspondent-bank lines.
- Cash flow: For the first six months, operating activities provided $490.0 million; investing activities used $2.08 billion, principally for securities purchases and loan growth; financing activities used $511.5 million. Cash and cash equivalents declined $2.10 billion.
- Capital and shareholder returns: Shareholders’ equity was $4.49 billion, down 4.9%, mainly due to accumulated other comprehensive loss from securities valuation changes. Regulatory ratios were 14.75% total risk-based capital, 12.65% CET1 and Tier 1, and 10.45% leverage. The company repurchased 2.26 million shares for $78.4 million in the first half and declared $0.72 per share of dividends.
- Credit quality: Nonperforming loans and leases were $70.3 million, or 0.37% of loans, versus $90.8 million, or 0.50%, at year-end. Nonperforming assets were $84.2 million, or 0.29% of assets. The allowance for loan and lease losses was $213.7 million, or 1.13% of loans; the combined allowance including lending-related commitments was $256.3 million.
Material changes, outlook and risks
- Available-for-sale securities increased to $4.81 billion, but their gross unrealized losses rose to $341.9 million and drove much of the $242.5 million first-half decline in accumulated other comprehensive income. Management attributed the losses primarily to rising interest rates, reported no expected credit losses, and said it intended and was able to hold the securities until recovery or maturity.
- Mortgage banking weakened materially: Q2 mortgage banking income was $12.4 million versus $36.9 million a year earlier; the segment reported a $1.2 million Q2 net loss versus $5.0 million net income. Management cited lower production and sales in the rising-rate environment.
- Management said it expects to meet obligations over the next 12 months and has no material capital expenditure commitments. No quantified earnings or margin guidance was provided. Interest-rate simulation estimated one-year net interest income sensitivity of +0.21% for a 100-basis-point rate increase, -0.91% for a 200-basis-point increase, -0.75% for a 100-basis-point decrease, and -6.92% for a 200-basis-point decrease. These are model estimates, not forecasts.
- Regulatory and legal: United Bank received a “Needs to Improve” overall CRA rating following a Fair Housing Act violation cited in the Washington, D.C. metro area; the matter is also under Department of Justice investigation. The rating restricts certain expansion, merger and branch activities until a higher rating is obtained. The next CRA examination was expected to commence in October 2022. Management reported other ordinary-course litigation and said it did not expect a material financial effect; potential regulatory remediation losses could not be estimated.
- Other risks: Management highlighted uncertainty from inflation, supply-chain disruption, higher rates, energy prices, the conflict in eastern Europe, and the ongoing COVID-19 pandemic. The LIBOR transition also presents operational, legal, compliance, market and customer risks; United identified SOFR and Prime as preferred alternatives, subject to change.
Key facts for investors to verify
- Whether higher rates sustain net interest margin gains or increase deposit costs, funding pressure, and securities valuation losses.
- Whether mortgage banking production, income and profitability stabilize as rates and housing activity evolve.
- Trends in loan growth, criticized credits, delinquencies, charge-offs, and the adequacy of credit-loss reserves under the company’s lower-growth and higher-unemployment assumptions.
- Progress and consequences of the CRA remediation, Federal Reserve follow-up examination, and Department of Justice investigation, including any limits on strategic expansion.
- Liquidity and capital resilience after deposit outflows, securities losses, loan growth, dividends and share repurchases; also verify collateral availability supporting FHLB borrowing capacity.