8-K: United Bankshares Inc. Reports Fourth Quarter and Full Year 2023 Earnings

United Bankshares, Inc. announced its financial results for the fourth quarter and year of 2023, with earnings of $79.4 million for the quarter and $366.3 million for the year.

Summary

• United Bankshares, Inc. reported fourth-quarter earnings of $79.4 million, or $0.59 per diluted share, and full-year earnings of $366.3 million, or $2.71 per diluted share.
• The fourth quarter results included a $12.0 million noninterest expense for the FDIC special assessment.
• The company saw loan growth, deposit growth, and margin expansion during the quarter.
• Net interest income for the fourth quarter increased by $1.2 million, or 1%, compared to the third quarter of 2023.
• Average net loans and loans held for sale increased by $313.9 million, or 6% on an annualized basis, from the third quarter of 2023.
• The net interest margin for the fourth quarter of 2023 was 3.55%, a slight increase of 1 basis point from the previous quarter.
• Noninterest expense for the fourth quarter of 2023 increased by $17.1 million, or 13%, from the third quarter of 2023, primarily due to the FDIC special assessment.
• Non-performing loans were $45.5 million, or 0.21% of loans and leases, at the end of 2023.
• The allowance for loan and lease losses was $259.2 million, or 1.21% of loans and leases, at the end of 2023.
• The company's estimated risk-based capital ratio is 15.4% at December 31, 2023.
• United's estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.1%, 13.1% and 11.4%, respectively.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the company's strong capital position, dividend increase, and deposit growth, but is tempered by the decrease in earnings compared to the previous year and the impact of the FDIC special assessment.

Positives

• United Bankshares achieved a net income of $366.3 million for the year of 2023.
• The company's return on average assets for the year was 1.25%.
• The return on average equity for the year was 7.87%.
• The return on average tangible equity for the year was 13.33%.
• The company increased dividends to shareholders for the 50th consecutive year.
• The net interest margin increased from 3.50% to 3.56% for the year.
• Asset quality remains sound with non-performing assets at 0.16% of total assets.
• The company has strong expense control with an efficiency ratio of 53.09%.
• The capital position remains robust and liquidity is sound.
• Loan growth continues to be led by the North Carolina & South Carolina markets, with loan balances up 10.5% annualized in 4Q23, and up 13.3% YTD in 2023.
• The company has a strong core deposit base with 27% of deposits in non-interest-bearing accounts.
• The company has an attractive deposit market share position in key markets.

Negatives

• Fourth quarter earnings decreased to $79.4 million, or $0.59 per diluted share, compared to $99.8 million, or $0.74 per diluted share, in the fourth quarter of 2022.
• Net interest income decreased by $19.7 million, or 8%, from the fourth quarter of 2022.
• Noninterest expense for the fourth quarter of 2023 increased by $14.7 million, or 11%, from the fourth quarter of 2022.
• The provision for credit losses was $6.9 million for the fourth quarter of 2023, compared to $16.4 million for the fourth quarter of 2022.
• Net charge-offs were $6.7 million for the year of 2023 compared to $101 thousand for the year of 2022.
• Income from mortgage banking activities decreased $16.1 million from the year of 2022.
• Net losses on investment securities were $7.6 million for the year of 2023.
• The company exited the third-party origination (TPO) business during 4Q23.

Risks

• The company faces uncertainty related to the duration, scope, and impacts of the COVID-19 pandemic.
• Changes in U.S. fiscal and monetary policies, including interest rate policies of the Federal Reserve Board, could impact the company.
• Volatility and disruptions in global capital and credit markets pose a risk.
• Fluctuations in interest rates, securities markets, and monetary supply could affect the company's performance.
• Increasing rates of inflation and slower growth rates could impact the company.
• Governmental actions, examinations, reviews, reforms, regulations, and interpretations could pose a risk.
• Changes in the level of checking or savings account deposits could affect the company's funding costs and net interest margin.
• Future provisions for credit losses on loans and debt securities could impact the company.
• Changes in nonperforming assets could affect the company's performance.
• Competition in the banking industry poses a risk.
• Changes in legislation or regulatory requirements could impact the company.
• Natural disasters, extreme weather events, military conflicts, terrorism, or other geopolitical events could affect the company.

Future Outlook

United expects loan growth in the mid-single digits, a decrease of approximately $500 million in the investment portfolio, and deposit growth in the mid-single digits for 2024. Net interest income is expected to be in the range of $910 million to $930 million, with a relatively stable net interest margin. Provision expense is estimated at $36 million, non-interest income is expected to be between $120 million and $130 million, and non-interest expense is expected to be between $555 million and $565 million. The effective tax rate is estimated at approximately 20.5%.

Management Comments

• We closed the year with another excellent quarter, stated Richard M. Adams, Jr., Uniteds Chief Executive Officer.
• We saw loan growth, deposit growth, margin expansion, and strong asset quality metrics and capital levels.
• Im proud of what we accomplished in the quarter and for the full year of 2023.

Industry Context

The results reflect the challenges and opportunities in the banking sector, including the impact of interest rate changes, deposit repricing, and regulatory assessments. The company's focus on loan growth, deposit growth, and asset quality is consistent with industry trends. The consolidation of mortgage delivery channels is a strategic move to streamline operations and enhance customer experience, which is a common theme in the current banking environment.

Comparison to Industry Standards

• United's return on average tangible equity of 13.33% for the year of 2023 is comparable to other well-performing regional banks, such as Truist Financial Corporation which reported a return on average tangible common shareholders' equity of 13.1% for the full year of 2023.
• The company's net interest margin of 3.56% for the year of 2023 is within the range of other regional banks, although some may have higher or lower margins depending on their asset mix and funding strategies. For example, PNC Financial Services reported a net interest margin of 3.07% for the full year of 2023.
• United's non-performing assets to total assets ratio of 0.16% is considered low and indicates strong asset quality compared to the industry average. For example, KeyCorp reported a non-performing loan ratio of 0.77% at the end of 2023.
• The company's capital ratios are well above regulatory requirements, indicating a strong capital position. This is consistent with the trend of banks maintaining strong capital buffers in the current economic environment. For example, M&T Bank Corporation reported a Common Equity Tier 1 capital ratio of 10.9% at the end of 2023.

Stakeholder Impact

• Shareholders will benefit from the 50th consecutive year of dividend increases.
• Employees may be affected by the consolidation of mortgage delivery channels.
• Customers will experience a streamlined mortgage process due to the consolidation.
• The company's strong financial position and asset quality provide stability for creditors and suppliers.

Next Steps

• United plans to complete a consolidation of its mortgage delivery channels during the early part of 2024.
• The company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2023.
• The company will adjust amounts preliminarily reported, if necessary.

Key Dates

Keywords

earnings, financial results, net interest income, loan growth, deposit growth, FDIC assessment, asset quality, capital ratios, mortgage banking, noninterest expense, credit losses, dividends