UNITED BANKSHARES INCWV
For the period ended Mar 31, 2024. Filed May 10, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 10, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
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Item 2. RESULTS OF OPERATIONS
Overview
The following table sets forth certain consolidated income statement information of United:
| Three Months Ended | |||
|---|---|---|---|
| (Dollars in thousands) | March2024 | March2023 | December2023 |
| Income Statement Summary: | |||
| Interest income | $369,180 | $329,303 | $369,175 |
| Interest expense | 146,691 | 94,983 | 139,485 |
| Net interest income | 222,489 | 234,320 | 229,690 |
| Provision for credit losses | 5,740 | 6,890 | 6,875 |
| Other income | 32,212 | 32,744 | 33,675 |
| Other expense | 140,742 | 137,419 | 152,287 |
| Income before income taxes | 108,219 | 122,755 | 104,203 |
| Income taxes | 21,405 | 24,448 | 24,813 |
| Net income | $86,814 | $98,307 | $79,390 |
Net income for the first quarter of 2024 was $86.81 million as compared to earnings of $98.31 million for the first quarter of 2023. Earnings for the first quarter of 2024, as compared to the first quarter of 2023, decreased primarily due to lower net interest income as a result of the impact of higher market interest rates on interest-bearing liabilities. Diluted earnings per share were $0.64 for the first quarter of 2024 and $0.73 for the first quarter of 2023. On a linked-quarter basis, net income for the fourth quarter of 2023 was $79.39 million or $0.59 per diluted share. The fourth quarter of 2023 included $11.99 million of noninterest expense for the FDIC special assessment levied on banking organizations as compared to an additional $1.81 million of noninterest expense for the first quarter of 2024 related to the FDIC’s revised loss estimates to the Deposit Insurance Fund.
United’s annualized return on average assets for the first three months of 2024 was 1.19% and return on average shareholders’ equity was 7.25% as compared to 1.35% and 8.72%, respectively, for the first three months of 2023. On a linked-quarter basis, United’s annualized return on average assets for the fourth quarter of 2024 was 1.08% and return on average shareholders’ equity was 6.70%. For the first three months of 2024, United’s annualized return on average tangible equity, anon-GAAP measure, was 11.98%, as compared to 14.97% for the first three months of 2023. On a linked-quarter basis, United’s annualized return on average tangible equity was 11.27% for the fourth quarter of 2023.
| Three Months Ended | |||
|---|---|---|---|
| March 31,2024 | March 31,2023 | December 31,2023 | |
| Return on Average Tangible Equity: | |||
| (a) Net Income (GAAP) | $86,814 | $98,307 | $79,390 |
| (b) Number of Days | 91 | 90 | 92 |
| Average Total Shareholders’ Equity (GAAP) | $4,816,476 | $4,570,288 | $4,697,680 |
| Less: Average Total Intangibles | (1,901,074) | (1,907,331) | (1,903,458) |
| (c) Average Tangible Equity (non-GAAP) | $2,915,402 | $2,662,957 | $2,794,222 |
| Return on Average Tangible Equity (non-GAAP)\ [(a) / (b)] x 366 or 365 / (c)] | 11.98% | 14.97% | 11.27% |
Net interest income for the first quarter of 2024 decreased $11.83 million, or 5.05%, to $222.49 million from net interest income of $234.32 million for the first three months of 2023. The decrease of $11.83 million in net interest income occurred because total interest income increased $39.88 million while total interest expense increased $51.71 million from the first quarter of 2023. Net interest income for the first quarter of 2024 decreased $7.20 million, or 3.14%, from the fourth quarter of 2023. The decrease of $7.20 million in net interest income occurred because total interest income increased $5 thousand while total interest expense increased $7.21 million from the fourth quarter of 2023.
The provision for credit losses was $5.74 million for the first quarter of 2024 as compared to a provision for credit losses of $6.89 million for the first quarter of 2023. The decrease in the provision for credit losses was mainly due to a change in qualitative factors and the impact of reasonable and supportable forecasts of future macroeconomic conditions. On a linked-quarter basis, the provision for credit losses for the first quarter of 2024 declined $1.14 million from $6.88 million for the fourth quarter of 2023 due mainly to less portfolio loan growth as well as a change in the impact of reasonable and supportable forecasts of future macroeconomic conditions in the first quarter of 2024 as compared to the fourth quarter of 2023.
Noninterest income was $32.21 million for the first three months of 2024, a decrease of $532 thousand or 1.62% from the first three months of 2023 due mainly to a decrease in mortgage loan servicing income of $1.49 million partially offset by increased fees of $1.07 million from brokerage services. On a linked-quarter basis, noninterest income for the first quarter of 2024 decreased $1.46 million, or 4.34%, from the fourth quarter of 2023. The fourth quarter of 2023 included a $2.66 million gain from the payoff of a fixed rate commercial loan that had an associated interest rate swap derivative. Partially offsetting the decrease in noninterest income was a $907 thousand increase in fees from brokerage services.
Noninterest expense for the first quarter of 2024 was $140.74 million, an increase of $3.32 million or 2.42% from the first quarter of 2023 primarily due to increases in employee compensation and FDIC insurance expense partially offset by a decrease in other noninterest expense. On a linked-quarter basis, noninterest expense for the first quarter of 2024 decreased $11.55 million or 7.58% from the fourth quarter of 2023. This decrease in noninterest expense was driven by decreases in FDIC insurance expense and other noninterest expense partially offset by an increase in employee benefits.
Income taxes decreased $3.04 million or 12.45% for the first three months of 2024 as compared to the first three months of 2023 primarily due to decreased earnings and a slightly lower effective tax rate. On a linked-quarter basis, income taxes decreased $3.41 million or 13.73% for the first quarter of 2024 as compared to the fourth quarter of 2023 due mainly to a lower effective tax rate partially offset by higher earnings. The effective tax rate was 19.78% and 19.92% and for the first quarter of 2024 and 2023, respectively. The effective tax rate was 23.81% for the fourth quarter of 2023.
The following discussion explains in more detail the consolidated results of operations by major category.
Net Interest Income
Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2024 and 2023, are presented below.
Net interest income for the first quarter of 2024 was $222.49 million, which was a decrease of $11.83 million or 5.05% from the first quarter of 2023. The $11.83 million decrease in net interest income occurred because total interest income increased $39.88 million while total interest expense increased $51.71 million from the first quarter of 2023. On a linked-quarter basis, net interest income for the first quarter of 2024 decreased $7.20 million, or 3.14%, from the fourth quarter of 2023. The $7.20 million decrease in net interest income occurred because total interest income increased $5 thousand while total interest expense increased $7.21 million from the fourth quarter of 2023.
For the purpose of this remaining discussion, net interest income is presented on atax-equivalent basis to provide a comparison among all types of interest earning assets. Thetax-equivalent basis adjusts for thetax-favored status of income from certain loans and investments. Although this is anon-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable andtax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition.
Tax-equivalent net interest income for the first quarter of 2024 was $223.36 million, which was a decrease of $12.09 million or 5.14% from the first quarter of 2023. The decrease in net interest income andtax-equivalent net interest income was primarily due to higher interest expense driven by deposit rate repricing, an increase in average interest-bearing deposits and a decrease in loan fees partially offset by the impact of rising market interest rates on earning assets, organic loan growth and a decrease in average long-term borrowings. The average cost of funds increased 104 basis points from the first quarter of 2023 to 3.21% driven by an increase in the yield on average interest-bearing deposits of 127 basis points. Average interest-bearing deposits increased $1.48 billion or 9.73% from the first quarter of 2023.
Acquired loan accretion income for the first quarter of 2024 decreased $613 thousand from the first quarter of 2023. Loan fees for the first quarter of 2024 decreased $351 thousand from the first quarter of 2023. The yield on average earning assets increased 60 basis points from the first quarter of 2023 to 5.70% driven by an increase in the yield on average net loans of 53 basis points. Average net loans increased $800.47 million, or 3.91%, from the first quarter of 2023. The net interest margin of 3.44% for the first quarter of 2024 was a decrease of 19 basis points from the net interest margin of 3.63% for the first quarter of 2023.
On a linked-quarter basis, tax-equivalent net interest income for the first quarter of 2024 decreased $7.20 million, or 3.12%, from the fourth quarter of 2023. The decrease in net interest income andtax-equivalent net interest income was primarily due to higher interest expense driven by the impact of deposit rate repricing and a decrease in loan fees. The yield on average interest-bearing deposits increased 15 basis points to 3.10% for the first quarter of 2024. Overall, the average cost of funds for the first quarter of 2024 increased 14 basis points from the fourth quarter of 2023. In comparison, the yield on average earning assets for the first quarter of 2024 increased 2 basis points from the fourth quarter of 2023. Loan fees for the first quarter of 2024 decreased $677 thousand from the fourth quarter of 2023. Acquired loan accretion income for the first quarter of 2024 decreased $521 thousand from the fourth quarter of 2023. Average earning assets for the first quarter of 2024 were relatively flat from the fourth quarter of 2023, increasing $211.65 million or less than 1%. Average net loans increased $224.86 million or 1.07% and average short-term investments increased $63.23 million or 7.72% while average investments decreased $76.44 million or 1.90%. The net interest margin of 3.44% for the first quarter of 2024 was a decrease of 11 basis points from the net interest margin of 3.55% for the fourth quarter of 2023.
United’stax-equivalent net interest income also includes the impact of acquisition accounting fair value adjustments. The following table provides the discount/premium and net accretion impact totax-equivalent net interest income for the three months ended March 31, 2024, March 31, 2023 and December 31, 2023:
| Three Months Ended | |||
|---|---|---|---|
| (Dollars in thousands) | March 312024 | March 312023 | December 312023 |
| Loan accretion | $2,506 | $3,119 | $3,027 |
| Certificates of deposit | 171 | 356 | 201 |
| Long-term borrowings | (331) | (353) | (333) |
| Total | $2,346 | $3,122 | $2,895 |
The following tables reconcile the difference between net interest income andtax-equivalent net interest income for the three months ended March 31, 2024, March 31, 2023 and December 31, 2023.
| Three Months Ended | |||
|---|---|---|---|
| (Dollars in thousands) | March 312024 | March 312023 | December 312023 |
| Net interest income, GAAP basis | $222,489 | $234,320 | $229,690 |
| Tax-equivalent adjustment (1) | 872 | 1,135 | 866 |
| Tax-equivalent net interest income | $223,361 | $235,455 | $230,556 |
| (1) | The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 21% for the three months ended March 31, 2024 and 2023 and December 31, 2023. All interest income on loans and investment securities was subject to state income taxes. |
The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2024 and 2023, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on atax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended March 31, 2024 and 2023. Interest income on all loans and investment securities was subject to state income taxes.
| Three Months Ended · Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| March 31, 2024 | March 31, 2023 | |||||
| (Dollars in thousands) | AverageBalance | Interest(1) | Avg. Rate(1) | AverageBalance | Interest(1) | Avg. Rate(1) |
| ASSETS | ||||||
| Earning Assets: | ||||||
| Federal funds sold and securities purchased under agreements to resell and other short-term investments | $882,656 | $12,303 | 5.61% | $936,394 | $10,983 | 4.76% |
| Investment Securities: | ||||||
| Taxable | 3,743,157 | 34,722 | 3.71% | 4,404,864 | 36,259 | 3.29% |
| Tax-exempt | 212,375 | 1,474 | 2.78% | 387,671 | 2,740 | 2.83% |
| Total Securities | 3,955,532 | 36,196 | 3.66% | 4,792,535 | 38,999 | 3.26% |
| Loans, net of unearned income (2)(3) | 21,508,611 | 321,553 | 6.01% | 20,683,610 | 280,456 | 5.49% |
| Allowance for loan losses | (259,341) | (234,809) | ||||
| Net loans (2)(3) | 21,249,270 | 6.08% | 20,448,801 | 5.55% | ||
| Total earning assets | 26,087,458 | $370,052 | 5.70% | 26,177,730 | $330,438 | 5.10% |
| Other assets | 3,344,925 | 3,334,559 | ||||
| TOTAL ASSETS | $29,432,383 | $29,512,289 | ||||
| LIABILITIES | ||||||
| Interest-Bearing Funds: | ||||||
| Interest-bearing deposits | $16,663,765 | $128,377 | 3.10% | $15,186,632 | $68,592 | 1.83% |
| Short-term borrowings | 203,570 | 2,082 | 4.11% | 166,614 | 1,157 | 2.82% |
| Long-term borrowings | 1,500,237 | 16,232 | 4.35% | 2,417,999 | 25,234 | 4.23% |
| Total Interest-Bearing Funds | 18,367,572 | 146,691 | 3.21% | 17,771,245 | 94,983 | 2.17% |
| Noninterest-bearing deposits | 5,941,866 | 6,897,030 | ||||
| Accrued expenses and other liabilities | 306,469 | 273,726 | ||||
| TOTAL LIABILITIES | 24,615,907 | 24,942,001 | ||||
| SHAREHOLDERS’ EQUITY | 4,816,476 | 4,570,288 | ||||
| TOTAL LIABILITIES AND | ||||||
| SHAREHOLDERS’ EQUITY | $29,432,383 | $29,512,289 | ||||
| NET INTEREST INCOME | $223,361 | $235,455 | ||||
| INTEREST SPREAD | 2.49% | 2.93% | ||||
| NET INTEREST MARGIN | 3.44% | 3.63% | ||||
| (1) | The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. |
| (2) | Nonaccruing loans are included in the daily average loan amounts outstanding. |
| (3) | Loans held for sale and leases are included in the daily average loan amounts outstanding. |
The following table shows the unaudited consolidated daily average balance of major categories of assets and liabilities for the three-month periods ended March 31, 2024 and December 31, 2023, respectively, with the interest and rate earned or paid on such amount. The interest income and yields on federally nontaxable loans and investment securities are presented on atax-equivalent basis using the statutory federal income tax rate of 21% for the three-month period ended March 31, 2024 and December 31, 2023. Interest income on all loans and investment securities was subject to state income taxes.
| Three Months EndedMarch 31, 2024 | Three Months EndedDecember 31, 2023 | |||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) | AverageBalance | Interest(1) | Avg. Rate(1) | AverageBalance | Interest(1) | Avg. Rate(1) |
| ASSETS | ||||||
| Earning Assets: | ||||||
| Federal funds sold and securities purchased under agreements to resell and other short-term investments | $882,656 | $12,303 | 5.61% | $819,431 | $11,570 | 5.60% |
| Investment Securities: | ||||||
| Taxable | 3,743,157 | 34,722 | 3.71% | 3,836,498 | 35,710 | 3.72% |
| Tax-exempt | 212,375 | 1,474 | 2.78% | 195,471 | 1,471 | 3.01% |
| Total Securities | 3,955,532 | 36,196 | 3.66% | 4,031,969 | 37,181 | 3.69% |
| Loans, net of unearned income (2)(3) | 21,508,611 | 321,553 | 6.01% | 21,279,444 | 321,290 | 6.00% |
| Allowance for loan losses | (259,341) | (255,032) | ||||
| Net loans (2)(3) | 21,249,270 | 6.08% | 21,024,412 | 6.07% | ||
| Total earning assets | 26,087,458 | $370,052 | 5.70% | 25,875,812 | $370,041 | 5.68% |
| Other assets | 3,344,925 | 3,288,334 | ||||
| TOTAL ASSETS | $29,432,383 | $29,164,146 | ||||
| LIABILITIES | ||||||
| Interest-Bearing Funds: | ||||||
| Interest-bearing deposits | $16,663,765 | $128,377 | 3.10% | $16,414,152 | $122,132 | 2.95% |
| Short-term borrowings | 203,570 | 2,082 | 4.11% | 198,453 | 1,998 | 3.99% |
| Long-term borrowings | 1,500,237 | 16,232 | 4.35% | 1,394,361 | 15,355 | 4.37% |
| Total Interest-Bearing Funds | 18,367,572 | 146,691 | 3.21% | 18,006,966 | 139,485 | 3.07% |
| Noninterest-bearing deposits | 5,941,866 | 6,175,309 | ||||
| Accrued expenses and other liabilities | 306,469 | 284,191 | ||||
| TOTAL LIABILITIES | 24,615,907 | 24,466,466 | ||||
| SHAREHOLDERS’ EQUITY | 4,816,476 | 4,697,680 | ||||
| TOTAL LIABILITIES AND | ||||||
| SHAREHOLDERS’ EQUITY | $29,432,383 | $29,164,146 | ||||
| NET INTEREST INCOME | $223,361 | $230,556 | ||||
| INTEREST SPREAD | 2.49% | 2.61% | ||||
| NET INTEREST MARGIN | 3.44% | 3.55% | ||||
| (1) | The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 21%. |
| (2) | Nonaccruing loans are included in the daily average loan amounts outstanding. |
| (3) | Loans held for sale and leases are included in the daily average loan amounts outstanding. |
Provision for Credit Losses
The provision for credit losses was $5.74 million for the first quarter of 2024 as compared to a provision for credit losses of $6.89 million for the first quarter of 2023. On a linked-quarter basis, the provision for credit losses for the fourth quarter of 2023 was $6.88 million. United’s provision for credit losses relates to its portfolio of loans and leases, held-to-maturity securities and interest receivable on loans which are discussed in more detail in the following paragraphs.
For the quarter ended March 31, 2024, the provision for loan and lease losses was a $5.74 million as compared to a provision for loan and lease losses of $6.89 million for the quarter ended March 31, 2023. The lower amount of provision expense for the first quarter of 2024 compared to the first quarter of 2023 was mainly due to less credit deterioration expected within the portfolios for 2024 as compared to 2023. Net charge-offs were $2.07 million for the first quarter of 2024 compared to net charge-offs were $1.14 million for the first quarter of 2023. The higher amount of net charge-offs for 2024 as compared to 2023 was primarily due to increased charge-offs within the consumer portfolio. On a linked-quarter basis, the provision for loan and lease losses for the fourth quarter of 2023 was $6.88 million. The decline of $1.14 million for the first quarter of 2024 from the fourth quarter of 2023 was due mainly to a greater amount of recoveries in the first quarter of 2024 compared to fourth quarter of 2023, primarily in the commercial real estate owner-occupied portfolio and other commercial portfolio. Net charge-offs were $2.53 million for the fourth quarter of 2023. Annualized net charge-offs as a percentage of average loans and leases, net of unearned income for the first quarter of 2024 were 0.04% as compared to annualized net charge-offs of 0.02% for the first quarter of 2023 and annualized net charge-offs of 0.05% for the fourth quarter of 2023.
The following table shows a summary of United’s nonperforming assets including nonperforming loans and other real estate owned (“OREO”) at March 31, 2024 and December 31, 2023:
| (In thousands) | March 312024 | December 312023 |
|---|---|---|
| Nonaccrual loans | $63,053 | $30,919 |
| Loans past due 90 days of more | 11,329 | 14,579 |
| Total nonperforming loans | $74,382 | $45,498 |
| Other real estate owned | 2,670 | 2,615 |
| Total nonperforming assets | $77,052 | $48,113 |
The increase of $32.13 million in nonaccrual loans from December 31, 2023 to March 31, 2024 was due mainly to the transfer to nonaccrual of one significant commercial lending relationship.
United maintains an allowance for loan and lease losses and a reserve for lending-related commitments. The combined allowance for loan losses and reserve for lending-related commitments is considered the allowance for credit losses. At March 31, 2024, the allowance for credit losses was $305.82 million as compared to $303.94 million at December 31, 2023.
At March 31, 2024, the allowance for loan and lease losses was $262.91 million as compared to $259.24 million at December 31, 2023. The slight increase in the allowance for loan and lease losses was primarily driven by increases in the reserves for the commercial real estate, both owner andnon-owner occupied, the residential real estate and the other commercial loans segments due to increased outstanding loan balances and increased adjustments resulting from the reasonable and supportable forecast. As a percentage of loans and leases, net of unearned income, the allowance for loan losses was 1.22% at March 31, 2024 and 1.21% at December 31, 2023. The ratio of the allowance for loan and lease losses to nonperforming loans and leases or coverage ratio was 353.45% and 569.78% at March 31, 2024 and December 31, 2023, respectively. The increase in this ratio was due mainly to an increase in nonperforming loans.
United continues to evaluate risks which may impact its loan and lease portfolios. Reserves are initially determined based on losses identified from the PD/LGD and Cohort models which utilize the Company’s historical information. Then, any qualitative adjustments are applied to account for the Company’s view of current conditions, the future and other factors.
The first quarter of 2024 qualitative adjustments include analyses of the following:
| • | Current conditions – United considered the impact of inflation, interest rates, the banking regulatory environment and geopolitical conflict when making determinations related to factor adjustments for the external environment. United also considered portfolio trends related to economic and business conditions, collateral values for dependent loans; past due, nonaccrual and graded loans and leases; and concentrations of credit. |
| • | Reasonable and supportable forecasts – The forecast is determined on a portfolio-by-portfolio basis by relating the correlation of real GDP and the unemployment rate to loss rates to forecasts of those variables. The reasonable and supportable forecast selection is subjective in nature and requires more judgment compared to the other components of the allowance. Assumptions for the economic variables were the following: |
| • | The forecast for real GDP in 2024 increased in the first quarter, from a projection of 1.40% for 2024 at the end of 2023 to 2.10% for 2024 with a slightly smaller increase for 2025, from a projection of 1.80% for 2025 at the end of 2023 to 2.00% for 2025. The unemployment rate remained fairly consistent to the end of 2023 with a steady trend expected throughout 2024 and 2025. |
| • | Greater risk of loss is probable in the office portfolio due to continued hybrid and remote work that may be exacerbated by future economic conditions as well as higher interest rates and cap rates. |
| • | Reversion to historical loss data occurs via a straight-line method during the year following the one-year reasonable and supportable forecast period. |
United’s review of the allowance for loan and lease losses at March 31, 2024 produced increased reserves in two of the four loan categories as compared to December 31, 2023. The allowance related to the commercial, financial & agricultural loan pool, consisting of the owner andnon-owner occupied commercial real estate and other commercial loan segments, increased $3.99 million due to increased outstanding balances and increased reasonable and supportable forecast adjustments particularly as it pertains to office loans. The residential real estate segment reserve increased $4.79 million due primarily to increased outstanding balances. The real estate construction and development loan segment reserve decreased $4.39 million due to decreased outstanding balances. The consumer loan segment reserve decreased $728 thousand primarily due to a decrease in outstanding balances.
An allowance is established for estimated lifetime losses for loans that are individually assessed. Nonperforming commercial loans and leases are regularly reviewed to identify expected credit losses. A loan is individually assessed for expected credit losses when the loan does not share similar characteristics with other loans in the portfolio. Measuring expected credit losses of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Expected credit losses are measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate or the fair value of collateral if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an expected credit loss has occurred. The allowance for loans and leases that were individually assessed was $18.02 million at March 31, 2024 and $13.15 million at December 31, 2023. In comparison to the prior year-end, this element of the allowance increased $4.87 million due to the downgrade of a commercial real estatenon-owner occupied loan.
Management believes that the allowance for credit losses of $305.82 million at March 31, 2024 is adequate to provide for expected losses on existing loans and lending-related commitments based on information currently available. United’s loan administration policies are focused on the risk characteristics of the loan portfolio in terms of loan approval and credit quality. The commercial loan portfolio is monitored for possible concentrations of credit in one or more industries. Management has lending limits as a percentage of capital per type of credit concentration in an effort to ensure adequate diversification within the portfolio. Most of United’s commercial loans are secured by real estate located in West Virginia, southeastern Ohio, Pennsylvania, Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia. It is the opinion of management that these commercial loans do not pose any unusual risks and that adequate consideration has been given to these loans in establishing the allowance for credit losses.
The provision for credit losses related to held to maturity securities for the first quarter of 2024 and 2023 was immaterial. The allowance for credit losses related to held to maturity securities was $19 thousand and $17 thousand as of March 31, 2024 and December 31, 2023, respectively. There was no provision for credit losses recorded on available for sale investment securities for the first quarter of 2024 and 2023 and no allowance for credit losses on available for sale investment securities as of March 31, 2024 and December 31, 2023.
Management is not aware of any potential problem loans or leases, trends or uncertainties, which it reasonably expects, will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits, which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules.
Other Income
Other income consists of all revenues, which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United’s profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced.
Noninterest income for the first quarter of 2024 was $32.21 million, a decrease of $532 thousand or 1.62% from the first quarter of 2023 driven by decreases in mortgage loan servicing income and mortgage banking income partially offset by an increase in fees from brokerage services and lower net losses on investment securities transactions.
Mortgage loan servicing income for the first quarter of 2024 decreased $1.49 million or 65.33% from the first quarter of 2023. The decrease in mortgage loan servicing income was due to lower mortgage servicing rights (“MSRs”) balances after the sale of MSRs during the second quarter of 2023.
Income from mortgage banking activities totaled $5.30 million for the first quarter of 2024 compared to $6.38 million for the first quarter of 2023. The decrease of $1.09 million or 17.01% for the first quarter of 2024 was mainly due to a decrease in the fair value of loans held for sale. Mortgage loan sales were $188.74 million in the first quarter of 2024 as compared to $166.51 million in the first quarter of 2023. Mortgage loans originated for sale were $176.91 million for the first quarter of 2024 as compared to $177.81 million for the first quarter of 2023.
Fees from brokerage services for the first quarter of 2024 increased $1.07 million or 25.40% from the first quarter of 2023. The increase was primarily due to higher volume.
United recorded a net loss on investment securities of $99 thousand for the first quarter of 2024 as compared to a net loss on investment securities of $405 thousand for the first quarter of 2023 driven primarily by a net loss of $420 thousand on the sale of AFS securities in last year’s first quarter.
On a linked-quarter basis, noninterest income for the first quarter of 2024 decreased $1.46 million, or 4.34%, from the fourth quarter of 2023 driven by a decrease of $3.00 million in other noninterest income. The fourth quarter of 2023 included a $2.66 million gain from the payoff of a fixed rate commercial loan that had an associated interest rate swap derivative. Partially offsetting the decrease in noninterest income was a $907 thousand increase in fees from brokerage services primarily due to higher volume.
Other Expenses
Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for credit losses, and income taxes. Noninterest expense for the first quarter of 2024 was $140.74 million, which was an increase of $3.32 million or 2.42% from the first quarter of 2023.
Employee compensation for the first quarter of 2024 increased $3.88 million or 7.00% when compared to the first quarter of 2023. The increase in employee compensation was driven by higher employee incentives, commissions, base salaries and employee severance.
Employee benefits expense for the first quarter of 2024 increased $1.24 million or 9.20% from the first quarter of 2023. This increase was primarily due to higher amounts of expense for postretirement benefits.
Mortgage servicing and impairment expense decreased $869 thousand or 46.13% due to a lower amount of loans serviced.
FDIC expense increased $1.87 million or 40.72% from the first quarter of 2023 due to an additional special assessment accrual of $1.81 million resulting from the FDIC’s revised loss estimates to the Deposit Insurance Fund.
Other expense for the first quarter of 2024 decreased $2.69 million or 7.77% from the first quarter of 2023. Within other expenses, the most significant decrease was the expense for the reserve for unfunded commitments of $4.39 million due to lower amount of outstanding loan commitments. Partially offsetting this decrease was an increase in the amortization of investment tax credits of $950 thousand.
On a linked-quarter basis, noninterest expense for the first quarter of 2024 decreased $11.55 million, or 7.58%, from the fourth quarter of 2023. This decrease in noninterest expense was driven by decreases in FDIC insurance expense of $10.17 million and other noninterest expense of $8.02 million partially offset by an increase in employee benefits of $4.90 million and employee compensation of $1.46 million. The fourth quarter of 2023 included $11.99 million of expense for the FDIC special assessment. The first quarter of 2024 included an additional expense of $1.81 million related to the FDIC special assessment stemming from the FDIC’s revised loss estimates. The decrease of $8.02 million in other noninterest expense was driven primarily by decreases of $2.73 million in the expense for the reserve for unfunded commitments, $1.23 million of expense related to community development lending programs and $1.22 million of amortization for investment tax credits. Additionally, other noninterest expense for the fourth quarter of 2023 included $1.28 million related to trade name intangible impairments. The decrease in the expense for the reserve for unfunded loan commitments was driven by a decrease in the outstanding balance of loan commitments. The increase in employee benefits was primarily driven by higher postretirement benefit costs and higher Federal Insurance Contributions Act (“FICA”) costs. Employee compensation for the first quarter of 2024 increased due mainly to higher amount of base salaries and approximately $240 thousand of severance expense associated with the mortgage delivery channel consolidation.
Income Taxes
For the first quarter of 2024, income tax expense was $21.41 million as compared to $24.45 million for the first quarter of 2023. The decrease of $3.04 million was primarily due to decreased earnings and lower effective tax rate. On a linked-quarter basis, income tax expense decreased $3.41 million primarily due to a lower effective tax rate partially offset by higher earnings. United’s effective tax rate was 19.78% for the first quarter of 2024, 19.92% for the first quarter of 2023 and 23.81% for the fourth quarter of 2023.
Liquidity and Capital Resources
In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable, and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds which are obtained as the result of a competitive bidding process.
Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet theday-to-day demands of customers and United’s cash needs. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity.
The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market.
Short-term needs can be met through a wide array of outside sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances.
Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, borrowings that are secured by bank premises or stock of United’s subsidiaries and issuances of trust preferred securities. In the normal course of business, United through its Asset Liability Committee evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs.
During the first quarter of 2024, United increased its interest-bearing deposit balance at the FRB by $135.62 million to $1.38 billion. The change in the balance at the FRB was mostly the result of a $100.43 million increase in total deposits and $168.36 million of net sales, maturities, and paydowns in the available for sale debt securities portfolio partially offset by a $50.07 million decrease in FHLB advances.
For the three months ended March 31, 2024, cash of $124.37 million was provided by operating activities due mainly to net income of $86.81 million. In addition, proceeds from the sale of mortgage loans in the secondary market exceeded originations by $17.14 million. Net cash of $2.43 million was used in investing activities which was primarily due to loan growth of $160.68 million and net purchases of $4.71 million in bank premises and equipment over sales proceeds mostly offset by $162.81 million of net proceeds from sales of investment securities over purchases. During the first three months of 2024, net cash of $11.77 million was provided by financing activities due primarily to growth of $100.60 million in deposits partially offset by cash dividends paid of $50.14 million and the net repayment of $50.00 million in FHLB borrowings during the quarter. The net effect of the cash flow activities was an increase in cash and cash equivalents of $133.70 million for the first three months of 2024.
At March 31, 2024, United had an unused borrowing amount at the FHLB of approximately $7.00 billion subject to delivery of collateral after certain trigger points, $2.86 billion without the delivery of additional collateral. United has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $280 million, all of which was available at March 31, 2024. United also has a $20 million unsecured, revolving line of credit with an unrelated financial institution to provide for general liquidity needs, all of which was available at March 31, 2024. At March 31, 2024, United’s borrowing capacity for the FRB Discount Window was $2.53 billion. United did not have any borrowings from the FRB’s Discount Window, or its new Bank Term Funding Program, during the first quarter of 2024.
United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. United also has lines of credit available. See Notes 9 and 10 to the accompanying unaudited Notes to Consolidated Financial Statements for more details regarding the amounts available to United under lines of credit.
The Asset Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset Liability Committee.
United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. United is well-capitalized based upon regulatory guidelines. United’s risk-based capital ratio is 15.55% at March 31, 2024 while its Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 13.22%, 13.22% and 11.41%, respectively. The March 31, 2024 ratios reflects United’s election of a five-year transition provision, allowed by the Federal Reserve Board and other federal banking agencies in response to the COVID-19 pandemic, to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.
Total shareholders’ equity was $4.81 billion at March 31, 2024, which was relatively flat from December 31, 2023, increasing $36.20 million or less than 1%. This increase is primarily due to increases of $36.60 million in retained earnings (net income less dividends declared).
United’s equity to assets ratio was 16.01% at March 31, 2024 as compared to 15.94% at December 31, 2023. The primary capital ratio, capital and reserves to total assets and reserves, was 16.86% at March 31, 2024 as compared to 16.79% at December 31, 2023. United’s average equity to average asset ratio was 16.36% for the first quarter of 2024 as compared to 15.49% the first quarter of 2023. All of these financial measurements reflect a financially sound position.
During the first quarter of 2024, United’s Board of Directors declared a cash dividend of $0.37 per share. Total cash dividends declared were $50.21 million for the first quarter of 2024 which was an increase of $1.49 million or 3.07% from dividends declared of $48.72 million for the first quarter of 2023.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.