UBSI

United Bankshares Inc. Q1 2006 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2006, for United Bankshares, Inc. and its subsidiaries. The company operates as a bank holding company with principal executive offices in Charleston, West Virginia. As of April 30, 2006, there were 41,746,679 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income: Decreased slightly by $0.15 million compared to Q1 2005, primarily due to higher noninterest expenses and security losses, offset by gains on derivative terminations.
• Balance Sheet Repositioning: Management executed a strategy to sell low-yielding securities and repay higher-cost debt. This included selling approximately $86 million of impaired securities (recognizing a $2.93 million loss) and prepaying a $50 million FHLB advance (recognizing a $3.06 million gain on swap termination).
• Loan Portfolio: Total loans increased by $43.5 million (0.94%) from year-end 2005. Construction loans grew significantly by 19.86%, while commercial and installment loans declined.
• Deposits: Total deposits grew $85.8 million (1.86%). Interest-bearing deposits increased $138.4 million, driven by the launch of the "High Performance Checking" program, while noninterest-bearing deposits decreased $52.6 million.
• Expenses: Noninterest expenses increased $3.45 million (11.99%) year-over-year. This was driven by a $1.03 million increase in salaries/benefits and approximately $0.95 million in marketing costs for the new checking program.
• Credit Quality: Nonperforming loans decreased to $12.88 million (0.27% of loans). The provision for credit losses dropped significantly to $0.25 million from $1.11 million in the prior year.

Guidance, Outlook, and Risks

• Outlook: Management expects the balance sheet repositioning to improve net interest income, net interest margin, and return on assets in future periods. The company anticipates meeting obligations over the next 12 months with no material capital expenditure commitments.
• Dividends: A cash dividend of $0.27 per share was declared, marking the 33rd consecutive year of dividend increases.
• Stock Repurchases: The company repurchased 327,949 shares during the quarter under a plan approved in 2004. Approximately 301,700 shares remain available for purchase under this plan.
• Interest Rate Risk: The company remains sensitive to interest rate fluctuations. Simulations indicate that a 100 basis point increase in rates would increase net interest income by 1.60%, while a 100 basis point decrease would reduce it by 1.70%.
• Accounting Changes: The company adopted SFAS 123R (Share-Based Payment) on January 1, 2006. Due to accelerated vesting of prior options, no compensation cost was recognized in Q1 2006.
• Risks: Key risks include changes in economic conditions, interest rate movements, and competitive pressures. The company is categorized as "well capitalized" with risk-based capital ratios of 11.40%.

Investor Verification Checklist

• Verify the impact of the $2.93 million loss on impaired securities and the $3.06 million gain on swap termination on the core operating earnings.
• Confirm the sustainability of the "High Performance Checking" program's deposit growth and associated fee income.
• Review the composition of the $19.26 million in impaired loans, specifically the $1.92 million large commercial credit added during the quarter.
• Monitor the effectiveness of the balance sheet repositioning in reducing the cost of funds and improving the net interest margin in subsequent quarters.
• Check the status of the 2006 Stock Option Plan, which requires shareholder approval at the May 15, 2006 Annual Meeting.