8-K: United Bankshares Inc. Reports Strong Second Quarter Earnings and Announces Piedmont Bancorp Acquisition

United Bankshares, Inc. announced solid second quarter 2024 earnings, highlighted by increased profitability and the strategic acquisition of Piedmont Bancorp, Inc.

Summary

• United Bankshares, Inc. reported second quarter 2024 earnings of $96.5 million, or $0.71 per diluted share, an increase from $92.5 million, or $0.68 per diluted share, in the second quarter of 2023.
• The company's annualized returns on average assets, average equity, and average tangible equity were 1.32%, 7.99%, and 13.12%, respectively.
• Net interest income increased by $3.2 million, or 1%, compared to the first quarter of 2024, driven by higher loan yields and organic loan growth.
• Noninterest income decreased by $2.0 million, or 6%, from the first quarter of 2024, primarily due to lower mortgage banking income.
• Noninterest expense decreased by $6.0 million, or 4%, from the first quarter of 2024, due to lower employee benefits and FDIC insurance expenses.
• The company recognized a $6.9 million gain on the VISA share exchange and sold $102.7 million of available-for-sale investment securities at a loss of $6.8 million.
• United announced a definitive merger agreement with Piedmont Bancorp, Inc., expected to close late in the fourth quarter of 2024 or early in the first quarter of 2025, creating a combined organization with over $32 billion in assets.
• The company's net interest margin increased to 3.50% in the second quarter of 2024, up from 3.44% in the first quarter of 2024.
• Non-performing assets decreased to $67.5 million, or 0.23% of total assets, at June 30, 2024.
• The allowance for loan and lease losses was $267.4 million, or 1.24% of loans and leases, net of unearned income, as of June 30, 2024.
• United's estimated risk-based capital ratio is 15.8% at June 30, 2024, with Common Equity Tier 1, Tier 1, and leverage ratios at 13.5%, 13.5%, and 11.6%, respectively.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, a strategic acquisition, and a commitment to shareholder value. The company is performing well and is positioned for future growth. There are some risks mentioned, but the overall tone is optimistic.

Positives

• Earnings per share increased to $0.71 in the second quarter of 2024, up from $0.68 in the second quarter of 2023.
• The company saw increases in profitability, capital, loans, and deposits.
• Expenses and non-performing assets decreased in the second quarter of 2024.
• The net interest margin increased to 3.50% in the second quarter of 2024.
• The company's capital ratios remain significantly above regulatory well-capitalized levels.
• The company has a strong core deposit base with 26% of deposits in non-interest-bearing accounts.
• The company has a strong liquidity position with ample additional liquidity sources.
• The company has a demonstrated history of successful acquisitions.
• The Piedmont merger is expected to be accretive to earnings in 2025 and 2026.

Negatives

• Noninterest income decreased by $2.0 million, or 6%, from the first quarter of 2024.
• Mortgage loan servicing income decreased by $9.1 million from the second quarter of 2023.
• Net interest income slightly decreased by $1.7 million, or less than 1%, from the second quarter of 2023.
• The company sold $102.7 million of available-for-sale investment securities at a loss of $6.8 million.
• The company incurred $1.3 million in merger-related expenses in the second quarter of 2024.
• The company's effective tax rate was 16.4% for the second quarter of 2024, down from 20.2% in the second quarter of 2023.

Risks

• The merger with Piedmont Bancorp, Inc. may not be completed successfully or may take longer than expected.
• The expected growth opportunities or cost savings from the Piedmont merger may not be fully realized.
• Deposit attrition, operating costs, customer losses, and business disruption following the Piedmont merger may be greater than expected.
• Regulatory approvals for the Piedmont merger may not be obtained on the proposed terms or schedule.
• Legislative or regulatory changes may adversely affect the business.
• Increased scrutiny by governmental authorities may result from the merger.
• Competitive pressures on product pricing and services may impact results.
• Changes in interest rates and capital markets may affect the company's performance.
• The company is subject to risks related to inflation and economic conditions.
• The company is subject to risks related to natural disasters, extreme weather events, military conflict, terrorism or other geopolitical events.

Future Outlook

United expects loan growth in the low to mid-single digits for the remainder of 2024, investment portfolio balances to decrease by approximately $250 million, and deposit growth in the low to mid-single digits. Net interest income is expected to be in the range of $900 million to $915 million for 2024, and the net interest margin is expected to remain relatively stable. Provision expense is estimated at $24 million for FY 2024. Non-interest income is expected to be in the range of $120 million to $125 million, and non-interest expense is expected to be in the range of $550 million to $560 million, excluding merger-related expenses. The effective tax rate is estimated at approximately 20.2% for the remainder of 2024.

Management Comments

• Richard M. Adams, Jr., United's Chief Executive Officer, stated that UBSI continues to consistently deliver exceptional results.
• He also noted that in the second quarter, the company saw increases in profitability, capital, loans, and deposits, as well as decreases in expenses and non-performing assets.
• Management anticipates continued success in the second half of the year and is excited about the recent acquisition announcement of Piedmont Bancorp, Inc.

Industry Context

This announcement reflects a trend of consolidation in the banking industry, with United Bankshares strategically expanding its footprint through the acquisition of Piedmont Bancorp. The results also highlight the challenges banks face in managing interest rate risk and deposit costs in the current economic environment. The focus on maintaining strong capital ratios and asset quality is consistent with regulatory expectations and industry best practices.

Comparison to Industry Standards

• United's return on average assets of 1.32% is generally in line with or slightly above the average for well-performing regional banks.
• The return on average tangible equity of 13.12% is a strong result, indicating efficient use of capital.
• The net interest margin of 3.50% is within the typical range for regional banks, but the company is actively managing this metric in a changing interest rate environment.
• The non-performing asset ratio of 0.23% is very low, indicating strong asset quality compared to many peers.
• The capital ratios are well above regulatory requirements, suggesting a conservative approach to risk management.
• Compared to peers such as Truist, which is the largest bank in West Virginia, United is a strong competitor in the region.
• The Piedmont acquisition is similar to other recent bank mergers, such as the merger of First Citizens BancShares and CIT Group, which aimed to expand market presence and achieve cost synergies.

Stakeholder Impact

• Shareholders will benefit from the increased earnings, dividend payments, and potential for future growth.
• Employees may experience changes due to the merger with Piedmont Bancorp, Inc., but the company is committed to its employees.
• Customers will have access to a larger network of branches and services following the merger.
• Suppliers and creditors will continue to have a relationship with a financially stable and well-managed company.

Next Steps

• The company will continue to evaluate the impact of subsequent events on critical accounting assumptions and estimates made as of June 30, 2024.
• The company will work towards closing the merger with Piedmont Bancorp, Inc. late in the fourth quarter of 2024 or early in the first quarter of 2025.
• The company will continue to monitor and manage its loan portfolio, deposit base, and capital position.
• The company will continue to execute its business strategies and pursue growth opportunities.

Key Dates

Keywords

earnings, merger, acquisition, net interest income, noninterest income, noninterest expense, capital ratios, asset quality, Piedmont Bancorp, bank, financial results