8-K: United Bankshares Reports Solid First Quarter Earnings Despite Economic Headwinds

United Bankshares, Inc. announced first quarter 2024 earnings of $86.8 million, or $0.64 per diluted share, demonstrating solid performance amidst ongoing economic challenges.

Summary

• United Bankshares, Inc. reported a net income of $86.8 million for the first quarter of 2024, which translates to $0.64 per diluted share.
• This compares to a net income of $79.4 million, or $0.59 per diluted share, in the fourth quarter of 2023, and $98.3 million, or $0.73 per diluted share, in the first quarter of 2023.
• The company's annualized returns on average assets, average equity, and average tangible equity were 1.19%, 7.25%, and 11.98%, respectively, for the first quarter of 2024.
• Net interest income decreased by $7.2 million, or 3%, compared to the fourth quarter of 2023, primarily due to higher interest expenses from deposit rate repricing, a decrease in acquired loan accretion income, and a decrease in loan fees.
• Noninterest income also decreased by $1.5 million, or 4%, from the previous quarter, mainly due to a decrease in other noninterest income.
• Noninterest expense decreased by $11.5 million, or 8%, compared to the fourth quarter of 2023, driven by a decrease in FDIC insurance expense.
• The provision for credit losses was $5.7 million for the first quarter of 2024, compared to $6.9 million in the previous quarter.
• The net interest margin was 3.44% for the first quarter of 2024, a decrease of 11 basis points from the previous quarter.
• Non-performing loans increased to $74.4 million, or 0.35% of loans and leases, while total non-performing assets were $77.1 million, or 0.26% of total assets.
• The allowance for loan and lease losses was $262.9 million, or 1.22% of loans and leases.
• The company's estimated risk-based capital ratio is 15.6%, and the estimated Common Equity Tier 1 capital, Tier 1 capital, and leverage ratios are 13.2%, 13.2%, and 11.4%, respectively.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company shows solid performance and strong capital ratios, there are some concerning trends such as decreased net interest income and increased non-performing loans. The company is navigating a challenging economic environment, but its strong market position and expense control are positives.

Positives

• The company's earnings increased from $79.4 million in the fourth quarter of 2023 to $86.8 million in the first quarter of 2024.
• Noninterest expense decreased significantly by $11.5 million, or 8%, compared to the previous quarter.
• The company's asset quality remains sound, with non-performing assets at a low 0.26% of total assets.
• United Bankshares maintains a strong capital position, exceeding regulatory requirements.
• The company has a strong core deposit base with 26% of deposits in non-interest-bearing accounts.
• United has a long history of dividend increases, with 2023 marking the 50th consecutive year.
• The company has a strong liquidity position with ample additional sources for contingency purposes.

Negatives

• Net interest income decreased by $7.2 million, or 3%, compared to the fourth quarter of 2023.
• Noninterest income decreased by $1.5 million, or 4%, from the previous quarter.
• Earnings per share decreased from $0.73 in the first quarter of 2023 to $0.64 in the first quarter of 2024.
• The net interest margin decreased by 11 basis points from the previous quarter to 3.44%.
• Non-performing loans increased from $45.5 million at the end of 2023 to $74.4 million at the end of the first quarter of 2024.
• The increase in non-performing loans and assets was driven by one commercial and industrial loan relationship.

Risks

• The company faces uncertainty in U.S. fiscal and monetary policies, including the interest rate policies of the Federal Reserve Board.
• Volatility and disruptions in global capital and credit markets could impact the company's performance.
• Fluctuations in interest rates, securities markets, and monetary supply pose risks.
• Increasing rates of inflation and slower growth rates could negatively affect the company.
• Changes in legislation or regulatory requirements could impact the company's operations.
• The company is exposed to the impact of natural disasters, extreme weather events, military conflicts, terrorism, and other geopolitical events.
• The company's mortgage banking revenue is subject to industry trends.

Future Outlook

United Bankshares expects loan growth in the low to mid single digits, investment portfolio balances to decrease by approximately $500 million, and deposit growth in the low to mid single digits for the remainder of 2024. Net interest income is expected to be in the range of $900 million to $915 million, and the net interest margin is expected to remain relatively stable. Provision expense is estimated at $28 million for FY 2024. Non-interest income is expected to be in the range of $120 million to $128 million, and non-interest expense is expected to be in the range of $555 million to $565 million. The effective tax rate is estimated at approximately 19.8%. Stock buybacks will be market dependent.

Management Comments

• Richard M. Adams, Jr., United's Chief Executive Officer, stated that UBSI delivered solid performance in the first quarter of 2024.
• He also noted that while headwinds in the current economic environment persist, UBSI's operating metrics remain strong and the company is well-positioned for success going forward.

Industry Context

The report indicates that United Bankshares is navigating a challenging economic environment, which is consistent with the broader banking industry. The company's focus on expense control and maintaining a strong capital position aligns with industry best practices. The decrease in net interest income due to deposit rate repricing is a common challenge faced by banks in the current interest rate environment. The company's strong deposit market share in key regions positions it well compared to competitors.

Comparison to Industry Standards

• United Bankshares' return on average tangible equity of 11.98% is a solid result, but it is lower than the 14.97% reported in the first quarter of 2023, indicating some pressure on profitability.
• The net interest margin of 3.44% is within the range of many regional banks, but the decrease from 3.55% in the previous quarter suggests some challenges in maintaining profitability.
• The non-performing asset ratio of 0.26% is relatively low, indicating good asset quality compared to some peers, but the increase from 0.16% in the previous quarter is a point of concern.
• The company's capital ratios are well above regulatory requirements, which is a positive sign of financial strength.
• Compared to Truist, which is the largest bank in West Virginia, United is the second largest in the state with $6.0 billion in deposits.
• United is the #1 regional bank in the Washington D.C. MSA, with $9.9 billion in deposits, demonstrating a strong market position in that region.
• The company's deposit market share in its top 5 largest markets in West Virginia is either #1 or #2, indicating a strong local presence.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings per share and the potential for market-dependent stock buybacks.
• Employees may be affected by the company's focus on expense control and potential changes in compensation.
• Customers will benefit from the company's strong financial position and continued service offerings.
• Suppliers and creditors will be impacted by the company's financial performance and its ability to meet obligations.

Next Steps

• The company will continue to evaluate the impact of subsequent events on critical accounting assumptions and estimates made as of March 31, 2024.
• United will continue to monitor the economic environment and its impact on the company's performance.
• The company will focus on managing expenses and maintaining a strong capital position.
• United will continue to execute its strategic plan and build franchise value.

Key Dates

Keywords

earnings, net interest income, noninterest expense, asset quality, capital ratios, dividends, FDIC, loan growth, deposit growth, net interest margin