UBSI

United Bankshares Inc. 10-Q Summary: Q1 2010

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for United Bankshares, Inc., a West Virginia-based bank holding company, for the period ended March 31, 2010. The company operates primarily through its subsidiary banks in West Virginia, Virginia, Maryland, and the District of Columbia. As of April 30, 2010, there were 43,517,086 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: Net income decreased 41% year-over-year to $17.42 million. This decline is largely attributed to a one-time income tax benefit of $11.51 million recorded in Q1 2009 related to net operating loss carryforwards and a concluded tax examination, which did not recur in 2010.
• Asset Reduction: Total assets decreased $189.86 million (2.43%) from year-end 2009, driven by reductions in investment securities ($52.92 million) and portfolio loans ($135.05 million).
• Deposit Outflow: Total deposits declined $179.20 million (3.00%) from year-end 2009. Significant decreases occurred in time deposits over $100,000 ($148.77 million) and under $100,000 ($93.99 million), partially offset by growth in money market accounts ($119.89 million).
• Expense Increase: Noninterest expense rose 4.63% year-over-year, primarily due to a $1.81 million increase in FDIC insurance expense (310% increase) and higher equipment expenses related to Other Real Estate Owned (OREO).
• Asset Quality: Nonperforming loans increased slightly to $72.41 million (1.29% of loans), while nonaccrual loans rose 22.80% to $62.45 million. However, loans past due 90 days or more decreased significantly by 50.97%.

Outlook, Risks, and Unusual Items

• Unusual Items: Q1 2010 results included a net gain of $1.24 million on the sale of a corporate bond and a noncash, before-tax other-than-temporary impairment (OTTI) charge of $1.49 million on certain investment securities (specifically Trust Preferred CDOs).
• Investment Portfolio Risks: The company holds significant unrealized losses in its available-for-sale securities portfolio ($92.03 million), primarily in Trust Preferred CDOs and non-agency mortgage-backed securities. Management determined that certain TRUP CDOs were other-than-temporarily impaired, while others remain in unrealized loss positions but are not deemed impaired.
• Interest Rate Risk: Management utilizes an earnings simulation model to monitor interest rate risk. As of March 31, 2010, a 100 basis point upward shock to the yield curve is estimated to increase net interest income by 2.06% over one year.
• Capital Position: The company remains "well capitalized" with a risk-based capital ratio of 12.63% and a Tier 1 capital ratio of 11.32%, both significantly above regulatory minimums.
• Liquidity: Liquidity is considered sufficient, supported by cash equivalents, unused short-term borrowing lines ($285 million), and FHLB borrowing capacity ($1.5 billion).

Investor Verification Checklist

• Tax Benefit Impact: Verify the sustainability of earnings by excluding the one-time $11.51 million tax benefit from Q1 2009 when comparing year-over-year performance.
• OTTI Assessment: Review the specific criteria used to determine other-than-temporary impairment for the Trust Preferred CDO portfolio, given the significant unrealized losses ($92 million) and the $1.49 million charge taken in Q1.
• Deposit Composition: Analyze the shift in deposit mix, specifically the heavy outflow of time deposits versus the inflow of money market accounts, and its impact on future funding costs.
• Nonperforming Assets: Monitor the trend of nonaccrual loans, which increased by $11.59 million, and the specific exposure to the failed residential development in Virginia and the West Virginia resort community mentioned in the filing.
• FDIC Expense: Confirm the trajectory of FDIC insurance expenses, which surged 310% year-over-year, and its potential impact on future noninterest expenses.