Business Context and Reporting Period
Company: United Bankshares, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: United is a West Virginia bank holding company operating two banking subsidiaries (United Bank WV and United Bank VA) providing commercial and retail banking services. As of year-end 2009, the company operated 113 full-service offices across West Virginia, Virginia, Maryland, and Ohio. The company reported total consolidated assets of approximately $7.8 billion and total shareholders' equity of approximately $762 million.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Assets | $7,805.1 million | $8,102.1 million |
| Total Loans (Net) | $5,669.0 million | $5,952.7 million |
| Total Deposits | $5,971.1 million | $5,648.0 million |
| Net Interest Income | $245.5 million | $252.8 million |
| Provision for Credit Losses | $46.1 million | $25.2 million |
| Net Income | $67.3 million | $87.0 million |
| Diluted EPS | $1.55 | $2.00 |
| Return on Average Assets (ROA) | 0.85% | 1.09% |
| Return on Average Equity (ROE) | 8.81% | 11.12% |
| Nonperforming Assets | $112.3 million (1.44% of assets) | $74.0 million |
| Allowance for Credit Losses | $70.0 million | $63.6 million |
Material Changes vs. Prior Period
- Asset Contraction: Total assets declined 3.67% ($297 million) primarily due to decreases in investment securities ($325 million) and portfolio loans ($277 million), partially offset by a $236 million increase in cash and cash equivalents.
- Loan Portfolio: Total loans decreased 4.61%. Commercial loans (not secured by real estate) dropped 13.1%, while consumer loans declined 5.2%. Loans secured by other real estate increased 12.3%.
- Deposit Growth: Total deposits increased 5.72% ($323 million). Noninterest-bearing deposits rose 22.30%, while time deposits over $100,000 increased 31.08% due to shifts in CDARS balances following FDIC insurance limit changes.
- Provision for Credit Losses: The provision increased 83% to $46.1 million. This included a specific $17.55 million provision for three loans with fraudulent collateral made to affiliated companies of a commercial customer.
- Investment Impairments: The company recognized $15.02 million in other-than-temporary impairment (OTTI) charges on investment securities, primarily trust preferred securities.
- FDIC Assessments: FDIC insurance expense surged 700% to $9.2 million, driven by a $3.63 million special assessment and higher premiums.
Guidance, Outlook, and Risks
Management Commentary: Management noted that economic conditions deteriorated throughout 2009, impacting loan performance and increasing credit losses. Despite these challenges, the company maintained a "well-capitalized" status with risk-based capital ratios significantly above regulatory minimums. The company recorded a significant income tax benefit of $11.51 million in the first quarter due to net operating loss carryforwards and a concluded tax examination, resulting in an effective tax rate of 14.0% for 2009.
Risks and Contingencies:
- Credit Risk: Deteriorating economic conditions and declining real estate values continue to impact loan performance. Nonperforming loans increased to $72.3 million (1.26% of loans).
- Investment Volatility: Significant unrealized losses exist in the investment portfolio, particularly in trust preferred securities. Future declines or impairments could materially affect earnings and regulatory capital.
- Regulatory Environment: The company faces increased FDIC assessments and potential changes in banking regulations. Dividend payments are restricted by regulatory capital requirements and the need to serve as a source of strength to subsidiaries.
- Interest Rate Risk: Earnings are sensitive to changes in interest rates. Management utilizes derivatives to manage this risk, but volatility remains a concern.
Investor Verification Checklist
- Fraudulent Collateral Provision: Verify the status and recovery potential of the $17.55 million provision related to the three loans with fraudulent collateral.
- Investment Portfolio Quality: Review the composition of the $15.0 million OTTI charges and the remaining unrealized losses on trust preferred securities to assess future impairment risks.
- Nonperforming Asset Trends: Monitor the coverage ratio of the allowance for loan losses to nonperforming loans, which decreased to 93.91% in 2009.
- FDIC Assessment Impact: Confirm the impact of the prepaid FDIC assessments ($36.4 million) on liquidity and future expense levels.
- Capital Adequacy: Verify that the company maintains "well-capitalized" status under regulatory guidelines despite the increase in credit losses.