UBSI

United Bankshares Inc. Q1 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009. United Bankshares, Inc. is a bank holding company headquartered in Charleston, West Virginia, operating primarily through its subsidiary banks. The company reported 43,394,144 shares of common stock outstanding as of April 30, 2009.

Key Financial Metrics

Liquidity and Capital: The company maintains a risk-based capital ratio of 11.26% and a Tier 1 capital ratio of 10.16%, both significantly above regulatory minimums. Net cash provided by operating activities was $23.9 million, while investing activities provided $99.8 million. Financing activities used $154.2 million, primarily due to the repayment of overnight borrowings.

Material Changes vs. Prior Period

• Profitability: Net income increased 15.3% year-over-year, driven largely by a significant income tax benefit of $11.51 million related to net operating loss carryforwards and a state tax examination settlement. Excluding this benefit, the effective tax rate would have been 31.51%.
• Credit Quality: The provision for credit losses increased 282% to $8.03 million due to a deteriorating economic environment. Net charge-offs rose to $6.95 million from $1.79 million in the prior year. Nonperforming assets increased 24.8% to $92.4 million, primarily driven by a $12.0 million increase in Other Real Estate Owned (OREO).
• Interest Income: Net interest income declined 2.2% year-over-year. The net interest margin decreased 16 basis points to 3.56% due to a 116 basis point decline in the average yield on earning assets, partially offset by a 111 basis point decline in the cost of funds.
• Noninterest Income: Decreased 17.3% year-over-year. Key drivers included a $1.41 million decline in Bank Owned Life Insurance (BOLI) income (turning into a loss of $0.1 million) and a $0.64 million drop in bankcard fees due to reduced consumer spending.

Outlook, Risks, and Contingencies

• Collateral Fraud Contingency: On May 1, 2009, the company discovered that three cash value life insurance policies pledged as collateral for commercial loans totaling approximately $17.9 million were invalid (never issued to the purported owner). The loans remain current, and no specific allowance has been assigned yet. The company is pursuing additional collateral and has notified law enforcement. A loss estimate cannot be reasonably determined at this time.
• Investment Portfolio: The company holds significant unrealized losses on available-for-sale securities ($84.9 million), primarily in corporate trust preferred securities. Management does not believe these are "other-than-temporarily impaired" (OTTI) and intends to hold them to recovery, citing positive intent and ability to hold.
• Interest Rate Risk: Management utilizes an earnings simulation model. A 100 basis point upward shock in rates is estimated to increase net interest income by 3.82% over one year. A 100 basis point downward shock is estimated to increase net interest income by 0.93%.
• Covenant Compliance: The company noted non-compliance with two financial covenants on a specific line of credit regarding allowance-to-nonperforming asset ratios but expects resolution by the end of Q2 2009.

Investor Verification Checklist

• Tax Benefit Sustainability: Verify the permanence of the $11.51 million tax benefit and its impact on future effective tax rates.
• Collateral Fraud Exposure: Monitor the status of the $17.9 million loan portfolio with invalid insurance collateral and any potential future charge-offs.
• Investment Valuation: Assess the risk of the $84.9 million in unrealized losses on available-for-sale securities becoming realized if market conditions worsen or liquidity needs arise.
• Credit Deterioration: Track the trend of nonperforming assets and net charge-offs, which are rising significantly compared to prior periods.
• Covenant Status: Confirm the resolution of the line of credit covenant breaches mentioned in the filing.