United Bankshares Inc. 10-Q Summary: Quarter Ended September 30, 2008
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2008, and the nine-month period ended on the same date. United Bankshares, Inc. is a West Virginia-based financial holding company operating primarily through its subsidiary banks in West Virginia, Virginia, Maryland, and Ohio. The reporting period reflects the ongoing impact of the 2007 acquisition of Premier Community Bankshares, Inc., which expanded the company's footprint into the Metro DC area.
Key Financial Metrics
| Metric | Q3 2008 | Q3 2007 | 9M 2008 | 9M 2007 |
|---|---|---|---|---|
| Net Income | $19.59 million | $25.80 million | $70.44 million | $74.72 million |
| Earnings Per Share (Diluted) | $0.45 | $0.60 | $1.62 | $1.79 |
| Net Interest Income | $64.14 million | $59.11 million | $189.57 million | $164.59 million |
| Provision for Credit Losses | $6.50 million | $1.55 million | $12.95 million | $2.75 million |
| Total Assets | $8.10 billion | $7.50 billion (approx) | $8.10 billion | $7.99 billion (Year-end 2007) |
| Total Deposits | $5.50 billion | $5.35 billion (Year-end 2007) | $5.50 billion | $5.35 billion (Year-end 2007) |
| Shareholders' Equity | $773.11 million | $735.90 million (approx) | $773.11 million | $761.20 million (Year-end 2007) |
| Cash and Cash Equivalents | $224.48 million | $230.65 million (Year-end 2007) | $224.48 million | $230.65 million (Year-end 2007) |
Operating Margins & Ratios:
- Net Interest Margin (9M 2008): 3.72% (vs. 3.78% in 9M 2007).
- Return on Average Assets (9M 2008): 1.18% (vs. 1.45% in 9M 2007).
- Return on Average Equity (9M 2008): 12.05% (vs. 14.81% in 9M 2007).
- Allowance for Credit Losses to Loans: 1.00% (vs. 1.01% at year-end 2007).
Material Changes vs. Prior Period
- Decline in Net Income: Net income for the third quarter decreased 24.1% year-over-year, and nine-month income decreased 5.7%. This was primarily driven by a $9.00 million noncash other-than-temporary impairment charge on a corporate debt holding recognized in Q3 2008.
- Increased Credit Costs: The provision for credit losses surged to $6.50 million in Q3 2008 from $1.55 million in Q3 2007. Net charge-offs for the nine months ended September 30, 2008, were $12.30 million, compared to $4.15 million in the prior year period.
- Asset Quality Deterioration: Nonperforming loans increased to $49.03 million (0.83% of loans) from $28.33 million at year-end 2007. Nonaccrual loans specifically rose 155.5% to $36.07 million. Impaired loans doubled to $61.16 million.
- Deposit Growth: Total deposits increased $154.72 million (2.89%) from year-end 2007, driven largely by a 20.96% increase in time deposits under $100,000, likely due to stock market volatility.
- Loan Portfolio Shifts: Commercial real estate loans grew 9.06% ($136.60 million), while installment loans decreased 6.35%.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the rise in credit losses and nonperforming assets to a "weakened credit environment" caused by deteriorating economic conditions, higher unemployment, increased energy prices, and declining real estate values. Despite these headwinds, the company maintains a "financially sound" capital position, categorized as "well capitalized" by regulators.
Recent Developments & Risks:
- Financial Crisis Impact: The filing notes the signing of the Emergency Economic Stabilization Act of 2008 (EESA) and the Troubled Asset Relief Program (TARP). The company is assessing the impact of these programs.
- Investment Portfolio: Gross unrealized losses on available-for-sale securities totaled $42.40 million. Management does not believe other individual securities are other-than-temporarily impaired, attributing declines to market liquidity and interest rates rather than credit quality.
- Interest Rate Risk: The company remains sensitive to interest rate changes. A 200 basis point downward shock in rates is estimated to decrease net interest income by 7.72% over one year.
- Legal Proceedings: The company is involved in various legal proceedings but believes they will have no material effect on its financial position.
Investor Verification Checklist
- Impairment Charge Details: Verify the specific nature of the $9.00 million corporate debt impairment and the remaining exposure to similar trust preferred securities.
- Nonperforming Asset Trends: Monitor the trajectory of nonaccrual loans, which increased by over 150% year-over-year, and the adequacy of the allowance for loan losses relative to this growth.
- Commercial Real Estate Exposure: Review the concentration of the 9.06% growth in commercial real estate loans and the specific risks associated with the $6.68 million in residential construction loans added to the impaired portfolio.
- Capital Ratios: Confirm that risk-based capital ratios (currently 10.99%) remain well above regulatory minimums despite the erosion in earnings.
- Deposit Composition: Assess the stability of the deposit base, noting the shift toward time deposits under $100,000 and the decline in money market accounts.