UBSI

United Bankshares Inc. 10-Q Summary: Quarter Ended September 30, 2002

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2002, and the nine-month period ended on that date. United Bankshares, Inc. operates primarily through its community banking and mortgage banking segments. The company is headquartered in Charleston, West Virginia, and includes the results of its acquisition of Century Bancshares, Inc., consummated in December 2001.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Growth: Net income increased 13.01% in Q3 2002 and 12.67% for the nine-month period compared to the prior year. This was driven by higher net interest income and reduced loan loss provisions.
• Net Interest Margin Expansion: The net interest margin improved to 4.26% in Q3 2002 from 4.14% in Q3 2001. This improvement is attributed to a significant decrease in the cost of interest-bearing funds (down 133 basis points for the quarter) and an increase in average earning assets.
• Asset Growth: Total assets grew 3.85% from year-end 2001 to $5.85 billion. Loans held for sale increased by $151.16 million (41.01%) due to strong origination volumes exceeding sales in the secondary market.
• Deposit Growth: Total deposits increased $194.47 million (5.13%) since year-end 2001, with noninterest-bearing deposits rising 20.48%.
• Expense Increases: Noninterest expenses rose 23.70% year-to-date, primarily due to increased salaries and benefits ($12.79 million increase) and occupancy costs resulting from the Century Bancshares acquisition.

Outlook, Risks, and Unusual Items

• Unusual Items:
  • Security Impairment: The company recognized impairment charges of $4.62 million in Q3 2002 related to other-than-temporary declines in the fair value of retained interests in securitized assets. Total impairment charges for the nine months were $5.40 million.
  • Letter of Credit Loss: A $1.0 million expense was recorded in Q3 2002 as a probable loss on a letter of credit securing a commercial development bond, as the underlying collateral was deemed insufficient.
  • Accounting Changes: The company adopted SFAS No. 142, discontinuing the amortization of goodwill. This resulted in a $10.28 million increase to shareholders' equity and goodwill during Q2 2002.
• Capital Resources: The company is categorized as "well capitalized" by regulators. The equity-to-assets ratio stands at 9.19%. The company continues a share repurchase program, having bought back 942,000 shares in the first nine months of 2002.
• Market Risk: Interest rate risk is the primary market risk. Simulations indicate that a 200 basis point increase in rates would increase net interest income by 7.02%, while a 200 basis point decrease would reduce it by 4.18%.
• Legal Proceedings: Management believes ongoing legal proceedings will not have a material effect on financial position.

Investor Verification Checklist

• Asset Quality: Verify the trend in nonperforming loans, which decreased to $12.93 million (0.36% of loans) from $17.59 million at year-end 2001.
• Allowance Adequacy: Confirm the allowance for loan losses remains adequate at $47.37 million (1.33% of loans), covering nonperforming loans at a ratio of 366.5%.
• Securitization Exposure: Review the $38 million in retained interests in securitized assets and the associated impairment charges due to prepayment and default risks.
• Acquisition Integration: Assess the impact of the Century Bancshares acquisition on operating expenses, specifically the 37.99% increase in salaries and benefits.
• Liquidity Position: Note the $50.34 million increase in cash and cash equivalents, supported by strong deposit growth and financing activities.