UBSI

United Bankshares Inc. 10-Q Summary: Period Ended September 30, 2009

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2009, and the nine-month period then ended. United Bankshares, Inc. is a bank holding company headquartered in Charleston, West Virginia, operating primarily through its subsidiary banks. The company reported as a large accelerated filer with 43,423,111 shares of common stock outstanding as of October 31, 2009.

Key Financial Metrics

Material Changes vs. Prior Period

• Decline in Net Income: Net income decreased 38.4% in Q3 2009 compared to Q3 2008, and 29.2% for the nine-month period. This was driven by increased provisions for credit losses and other-than-temporary impairment (OTTI) charges on investment securities.
• Investment Impairments: The company recorded $10.96 million in OTTI charges in Q3 2009, including $8.00 million on a single-issue trust preferred security (First Bank of Oak Park) and $2.81 million on a TRUP CDO. For the nine months ended Sept 30, 2009, total OTTI charges were $12.19 million.
• Provision for Credit Losses: The provision for the nine months ended Sept 30, 2009, was $39.35 million, significantly higher than the $12.95 million in the prior year. This included a specific $17.55 million provision for loans with fraudulent collateral made to affiliated companies of a commercial customer.
• Asset Composition: Total loans decreased $224.7 million (3.74%) from year-end 2008, primarily due to a reduction in commercial loans ($209 million) and construction loans ($64 million). Conversely, cash and cash equivalents surged $364 million as the company placed excess funds in interest-bearing accounts at the Federal Reserve.
• Nonperforming Assets: Nonperforming assets increased to $117.64 million (1.46% of total assets) from $74.02 million at year-end 2008. This included a rise in Other Real Estate Owned (OREO) to $44.76 million.

Guidance, Outlook, and Risks

• Management Commentary: Management attributes the increase in credit loss provisions and nonperforming assets to the current economic environment, including high unemployment and recessionary conditions. The company noted that the allowance for loan losses coverage ratio decreased as nonperforming loans increased faster than the allowance.
• Interest Rate Risk: The company maintains a "well capitalized" status with risk-based capital ratios of 11.99%. Earnings sensitivity analysis indicates that a 100 basis point increase in interest rates would increase net interest income by 3.63%, while a 100 basis point decrease would increase it by 2.96%.
• Regulatory and Covenant Issues: As of September 30, 2009, the company was not in compliance with two financial covenants on a $60 million line of credit (ratios of allowance for loan losses to nonperforming assets and nonperforming assets to net loans). Management is in discussions with the lender regarding these covenants.
• Subsequent Event: Following the quarter-end, the FDIC seized the subsidiary banks of First Bank of Oak Park, confirming the impairment of the related trust preferred security held by United.

Investor Verification Checklist

• OTTI Valuation: Verify the methodology used to determine the $10.96 million impairment charge on trust preferred securities and the likelihood of recovery for remaining impaired assets.
• Fraudulent Collateral: Review the status of the $17.55 million provision related to the commercial customer with fraudulent collateral and any potential legal recourse.
• Covenant Compliance: Monitor the outcome of discussions with the lender regarding the two breached financial covenants on the $60 million credit line.
• Nonperforming Asset Trends: Track the growth of OREO and nonaccrual loans to assess the adequacy of the $68.1 million allowance for loan losses.
• Deposit Stability: Analyze the composition of the $374 million deposit increase, specifically the shift to time deposits over $100,000 driven by FDIC insurance changes, to assess funding stability.