SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1994
Commission File Number: 0-13322
United Bankshares, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 United Center
500 Virginia Street, East
Charleston, West Virginia 25301
------------------------- -----
(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number,
including Area Code: (304) 424-8761
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class-- Common Stock,$2.50 Par Value; 11,954,498 shares
outstanding as of April 30, 1994.
1
UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements
- - -----------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
March 31, 1994 and December 31, 1993 ..................... 6
Consolidated Statements of Income (Unaudited)
for the Three Months Ended March 31, 1994 and 1993 ........7
Consolidated Statement of Changes in Shareholders'
Equity (Unaudited) for the Three Months Ended
March 31, 1994 ............................................8
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1994 and 1993 ....... 9
Notes to Consolidated Financial Statements ...............10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Information required by Item 303 of Regulation S-K.............15
PART II. OTHER INFORMATION
- - ---------------------------
Item 1. Legal Proceedings..........................Not Applicable
- - -------------------------
Item 2. Changes in Securities......................Not Applicable
- - -----------------------------
Item 3. Defaults Upon Senior Securities ...........Not Applicable
- - ---------------------------------------
2
UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS--Continued
Item 4. Submission of Matters to a
Vote of Security Holders .................Not Applicable
_________________________________________________________________
Item 5. Other Information ........................Not Applicable
_________________________________________________________________
Item 6. Exhibits and Reports on Form 8-K
_________________________________________________________________
(a) Exhibits required by Item 601 of
Regulation S-K ..........................Not Applicable
(b) Reports on Form 8-K - On April 11, 1994, a Form 8-K was
filed to announce a common stock repurchase program.
(c) Exhibit 11 - Computation of Earnings Per Share.......25
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED BANKSHARES, INC.
-----------------------
(Registrant)
Date May 12, 1994 /s/ Richard M. Adams
-------------------- ---------------------------
Richard M. Adams, Chairman of
the Board and Chief Executive
Officer
Date May 12, 1994 /s/ Steven E. Wilson
-------------------- ---------------------------
Steven E. Wilson, Executive
Vice President, Treasurer and
Chief Financial Officer
4
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The March 31, 1994 and December 31, 1993, consolidated balance sheets of United
Bankshares, Inc. and Subsidiaries, and the related consolidated statements of
income for the three months ended March 31, 1994 and 1993, and the related
consolidated statement of changes in shareholders' equity for the three months
ended March 31, 1994, and the related condensed consolidated statements of cash
flows for the three months ended March 31, 1994 and 1993, and the notes to
consolidated financial statements appear on the following pages.
5
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
March 31 December 31
1994 1993
-------------- --------------
ASSETS
Cash and due from banks $ 69,721,000 $ 60,750,000
Federal funds sold 24,500,000
Interest-bearing deposits with other banks 100,000 100,000
Securities purchased under agreements to resell 20,000,000
-------------- -------------
Total cash and cash equivalents 114,321,000 60,850,000
Securities available for sale (at market) 162,478,000
Investment securities (market value--$ 245,233,000 at
March 31, 1994, and $ 438,223,000 at December 31, 1993) 244,983,000 430,427,000
Loans
Commercial, financial, and agricultural 213,174,000 218,559,000
Real Estate:
Single family residential 454,576,000 442,855,000
Commercial 281,697,000 267,936,000
Construction 12,826,000 12,687,000
Other 15,274,000 15,331,000
Installment 229,859,000 229,847,000
-------------- --------------
1,207,406,000 1,187,215,000
Less: Unearned income (6,167,000) (6,428,000)
Allowance for loan losses (19,286,000) (19,015,000)
-------------- --------------
Net loans 1,181,953,000 1,161,772,000
Bank premises and equipment 32,079,000 31,113,000
Interest receivable 10,487,000 10,542,000
Other assets 25,664,000 25,480,000
-------------- --------------
TOTAL ASSETS $1,771,965,000 $1,720,184,000
============== ==============
LIABILITIES
Domestic deposits
Noninterest-bearing $ 230,478,000 $ 229,131,000
Interest-bearing 1,204,773,000 1,201,398,000
-------------- --------------
TOTAL DEPOSITS 1,435,251,000 1,430,529,000
Short-term borrowings
Federal funds purchased 4,537,000 5,339,000
Securities sold under agreements to repurchase 103,486,000 67,271,000
Long-term borrowings 37,203,000 32,203,000
Accrued expenses and other liabilities 16,920,000 13,870,000
-------------- --------------
TOTAL LIABILITIES 1,597,397,000 1,549,212,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized--20,000,000 shares; issued and outstanding--
11,954,498 at March 31, 1994, and at December 31, 1993,
including 15,170 and 27,720 shares in treasury at March 31,
1994, and at December 31, 1993, respectively 29,886,000 29,886,000
Surplus 32,539,000 32,616,000
Retained earnings 112,019,000 109,020,000
Net unrealized gain on securities available for sale 425,000
Treasury stock (301,000) (550,000)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 174,568,000 170,972,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,771,965,000 $1,720,184,000
============== ==============
See notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended
March 31
------------------------
1994 1993
----------- ----------
INTEREST INCOME
Interest and fees on loans $22,750,000 $22,815,000
Interest on federal funds sold 65,000 299,000
Interest and dividends on securities:
Taxable 4,795,000 4,668,000
Exempt from federal taxes 892,000 1,203,000
Other interest income 31,000 31,000
----------- ----------
TOTAL INTEREST INCOME 28,533,000 29,016,000
----------- ----------
INTEREST EXPENSE
Interest on deposits 9,432,000 10,544,000
Interest on short-term borrowings 515,000 544,000
Interest on long-term borrowings 437,000 428,000
----------- ----------
TOTAL INTEREST EXPENSE 10,384,000 11,516,000
----------- ----------
NET INTEREST INCOME 18,149,000 17,500,000
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 2,120,000
----------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 17,699,000 15,380,000
----------- ----------
OTHER INCOME
Trust department income 823,000 683,000
Other charges, commissions, and fees 2,074,000 1,901,000
Other income 216,000 256,000
Investment securities gains 107,000 142,000
----------- ----------
TOTAL OTHER INCOME 3,220,000 2,982,000
----------- ----------
OTHER EXPENSES
Salaries and employee benefits 5,591,000 5,741,000
Net occupancy expense 1,108,000 1,150,000
Other expense 4,968,000 5,808,000
----------- ----------
TOTAL OTHER EXPENSES 11,667,000 12,699,000
----------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 9,252,000 5,663,000
INCOME TAXES 3,158,000 1,765,000
----------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 6,094,000 3,898,000
CUMULATIVE EFFECT AS OF JANUARY 1, 1993 OF CHANGE
IN METHOD OF ACCOUNTING FOR INCOME TAXES 1,329,000
----------- ----------
NET INCOME $ 6,094,000 $ 5,227,000
=========== ==========
Earnings per common share:
Income before cumulative effect of accounting change $0.51 $0.33
Cumulative effect of accounting change $0.11
Net income $0.51 $0.44
Average outstanding shares 11,929,809 11,924,017
See notes to consolidated financial statements.
7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended March 31, 1994
---------------------------------------------------------------------------------------------------
Common Stock Net Unrealized
------------------------ Gain on Total
Par Retained Securities Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
---------- ----------- ----------- ------------ -------------------- ---------- ------------
Balance at January 1, 1994 11,954,498 $29,886,000 $32,616,000 $109,020,000 $0 ($550,000) $170,972,000
Change in accounting method
for securities 1,284,000 1,284,000
Net income 6,094,000 6,094,000
Cash dividends ($.26 per share) (3,095,000) (3,095,000)
Net change in unrealized gain on
securities available for sale (859,000) (859,000)
Common stock options exercised (77,000) 249,000 172,000
---------- ----------- ----------- ------------ -------- ---------- ------------
Balance at March 31, 1994 11,954,498 $29,886,000 $32,539,000 $112,019,000 $425,000 ($301,000) $174,568,000
========== =========== =========== ============ ======== ========= ============
See notes to consolidated financial statements
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended
March 31
--------------------------------
1994 1993
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $9,990,000 $ 11,615,000
INVESTING ACTIVITIES
Proceeds from sales of securities 238,000 289,000
Proceeds from maturities and calls of securities 40,169,000 60,445,000
Purchase of securities (16,889,000) (82,960,000)
Net purchase of bank premises and equipment (1,618,000) (361,000)
Changes in:
Loans (20,631,000) (7,133,000)
------------- -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,269,000 (29,720,000)
------------- -------------
FINANCING ACTIVITIES
Cash dividends paid (3,095,000) (2,603,000)
Repayment of long-term borrowings (68,000)
Net issuance (acquisition) of treasury stock 172,000 (169,000)
Isuuance of common stock 81,000
Proceeds from long-term borrowings 5,000,000
Changes in:
Deposits 4,722,000 (16,423,000)
Federal funds purchased and securities
sold under agreements to repurchase 35,413,000 24,858,000
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 42,212,000 5,676,000
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 53,471,000 (12,429,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60,850,000 129,473,000
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $114,321,000 $117,044,000
============= =============
See notes to consolidated financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
1. GENERAL
The accompanying unaudited consolidated interim financial statements of United
Bankshares, Inc. and Subsidiaries ("United") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the financial information does not contain all of the information
and footnotes required by generally accepted accounting principles. The
financial statements presented in this report have not been audited. The
accounting and reporting policies followed in the presentation of these
financial statements are consistent with those applied in the preparation of the
1993 annual report of United Bankshares, Inc. on Form 10-K. In the opinion of
management, adjustments necessary for a fair presentation of financial position
and results of operations for the interim periods have been made. Such
adjustments are of a normal and recurring nature.
Effective January 1, 1994, United adopted the Financial Accounting Standards
Board, ("FASB"), Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," (SFAS No. 115") which was effective for fiscal years
beginning after December 15, 1993. Under the new rules, debt securities that
United has both the positive intent and ability to hold to maturity are carried
at amortized cost. Debt securities that United does not have the positive
intent and ability to hold to maturity and all marketable equity securities are
classified as available-for-sale and carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are carried as a
separate component of shareholders' equity. In accordance with SFAS No. 115,
prior period financial statements have not been restated for the change in
accounting principle. The cumulative effect of adoption of SFAS No. 115
resulted in an increase of $425,000 to shareholders' equity.
The Financial Accounting Standards Board has issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." The requirements of SFAS No. 114 are
effective for fiscal years beginning after December 15, 1994. SFAS No. 114
requires that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or fair value of the
collateral if the loan is collateral dependent. United has not yet completed
the complex analysis required to estimate the impact of these new rules and does
not expect to implement the new rules prior to the first quarter 1995 effective
date.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
2. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements include the accounts
of United and its wholly-owned subsidiaries, UBC Holding Company, Inc. and its
wholly-owned subsidiary, United National Bank ("UNB"), United National
Bank-South ("UNB-S"), UBF Holding Company, Inc. and its wholly-owned
subsidiary, Bank First, N.A., and United Venture Fund, Inc. ("UVF"). All
significant intercompany accounts and transactions have been eliminated.
Certain amounts in the prior year's financial statements have been reclassified
to conform with the 1994 presentation. The reclassifications had no effect on
net income.
3. SECURITIES
The following is a summary of the amortized cost of investment securities held
to maturity at March 31, 1994, and all securities at December 31, 1993:
March 31 December 31
1994 1993
-------------- -----------
(in thousands)
United States Treasury securities
and obligations of other United
States Government agencies and
corporations $ 71,590 $220,805
Obligations of states and political
subdivisions 51,570 55,209
Mortgage-backed securities 111,338 131,322
Marketable equity securities 2,182
Other 10,485 20,909
-------- --------
$244,983 $430,427
======== ========
The book and market value of securities available for sale at March 31, 1994
are as follows:
Book Market
Value Value
-------- --------
(in thousands)
Under 1 year $ 69,944 $ 70,531
1-5 years 85,727 85,783
6-10 years 1,684 1,729
Over 10 years 4,414 4,435
-------- --------
Total $161,769 $162,478
======== ========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
3. SECURITIES (continued)
The following is a summary of the amortized cost, unrealized gains and losses
and market value of securities available for sale at March 31, 1994:
March 31
1994
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $142,178,000 $ 934,000 $573,000 $142,539,000
State and political subdivisions
Mortgage-backed securities 9,409,000 170,000 22,000 9,557,000
Marketable equity securities 2,560,000 334,000 140,000 2,754,000
Other 7,622,000 6,000 7,628,000
------------ ---------- ---------- ------------
Total $161,769,000 $1,444,000 $735,000 $162,478,000
============ ========== ========== ============
4. NONPERFORMING LOANS
Nonperforming loans were as follows:
March 31 December 31
1994 1993
------------- ------------
(in thousands)
Loans past due 90 days or more
and still accruing interest $ 2,627 $ 2,476
Troubled debt restructurings 2,537 2,453
Nonaccrual loans 7,914 8,588
------------ ----------
$ 13,078 $ 13,517
============ ==========
For purposes of the above disclosure, the following definition has been
established by management:
Troubled Debt Restructurings--Loans for which original terms have been
modified in response to financial difficulties of the borrower. Each of
these loans is contractually current based on the revised terms and
management expects each to return to accruing status in 1994.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The adequacy of the allowance for possible loan losses is based on management's
evaluation of the relative risks inherent in the loan portfolio. A progression
of the allowance for possible loan losses for the periods presented is
summarized as follows:
Three Months Ended
March 31,
-----------------
1994 1993
------- -------
(in thousands)
Balance at beginning of period $19,015 $15,952
Provision charged to expense 450 2,120
------- -------
19,465 18,072
Loans charged-off (348) (397)
Less recoveries 169 204
------- -------
Net charge-offs (179) (193)
------- -------
Balance at end of period $19,286 $17,879
======= =======
6. COMMITMENTS AND CONTINGENT LIABILITIES
There are outstanding commitments which include, among other things, commitments
to extend credit and letters of credit undertaken in the normal course of
business. Outstanding standby letters of credit amounted to approximately
$18,893,000 and $21,030,000 at March 31, 1994, and December 31, 1993,
respectively.
United and its subsidiaries are currently involved, in the normal course of
business, in various legal proceedings. Management is vigorously pursuing all
of its legal and factual defenses and, after consultation with legal counsel,
believes that all such litigation will be resolved without material effect on
financial position or results of operations.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--Continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
7. EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table shows the daily average balance of major categories of
assets and liabilities for each of the three month periods ended March 31,
1994, and March 31, 1993, with the interest rate earned or paid on such
amount.
Three Months Ended Three Months Ended
March 31 March 31
1994 1993
-------------------------------- --------------------------------
(Dollars in Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
ASSETS
Earning assets:
Federal funds sold and securities
purchased under agreements to
resell and other short-term
investments $ 8,375 $65 3.15% $41,118 $330 3.25%
Investment Securities:
Taxable 353,498 4,795 5.43% 325,364 4,704 5.78%
Tax-exempt (1) 52,765 1,372 10.40% 66,358 1,796 10.83%
---------- ------- ------ ---------- ------- ------
Total Securities 406,263 6,167 6.07% 391,722 6,500 6.64%
Loans, net of unearned
income (1) (2) 1,192,447 23,053 7.84% 1,127,387 23,146 8.33%
Allowance for possible
loan losses (19,169) (16,395)
---------- ----------
Net loans 1,173,278 7.97% 1,110,992 8.45%
---------- ------- ------ ---------- ------- ------
Total earning assets 1,587,916 $29,285 7.46% 1,543,832 $29,976 7.85%
------- ------ ------- ------
Other assets 134,265 124,223
---------- ----------
TOTAL ASSETS $1,722,181 $1,668,055
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,200,662 $9,438 3.19% $1,179,661 $10,544 3.62%
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 71,156 516 2.94% 75,209 569 3.07%
FHLB advances 36,257 430 4.81% 28,067 403 5.82%
---------- ------- ------ ---------- ------- ------
Total Interest-Bearing Funds 1,308,075 10,384 3.22% 1,282,937 11,516 3.64%
------- -------
Demand deposits 224,270 206,453
Accrued expenses and
other liabilities 15,300 16,219
---------- ----------
TOTAL LIABILITIES 1,547,645 1,505,609
Shareholders' Equity 174,536 162,446
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,722,181 $1,668,055
========== ==========
NET INTEREST INCOME $18,901 $18,460
======= =======
INTEREST SPREAD 4.24% 4.21%
NET INTEREST MARGIN 4.81% 4.83%
(1) The interest income and the yields on nontaxable loans and
investment securities are presented on a tax-equivalent
basis using the statutory federal income tax rate of 35%.
(2) Nonaccruing loans are included in the daily average loan
amounts outstanding.
14
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
United Bankshares, Inc. ("United") is a multi-bank holding company. United's
wholly-owned banking subsidiaries include UBC Holding Company, Inc. and its
wholly-owned subsidiary, United National Bank ("UNB"), United National
Bank-South ("UNB-S") and UBF Holding Company, Inc. with its wholly-owned banking
subsidiary, Bank First, N.A.("Bank First"). United also owns all of the stock
of United Venture Fund, Inc. ("UVF"). UVF is a West Virginia Capital Company
formed to make loans and equity investments in qualified companies under the
West Virginia Capital Company Act and to promote economic welfare and
development in the State of West Virginia.
United is a registered bank holding company subject to the supervision of and
examination by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. Its present business is the operation of its wholly-owned
subsidiaries.
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and analysis should be read in
conjunction with the unaudited financial statements and accompanying notes
thereto which are included elsewhere in this document. All references to United
in this discussion and analysis are considered to refer to United and its
wholly-owned subsidiaries, unless otherwise indicated.
EARNINGS SUMMARY
Net income for the first quarter of 1994 was a record $6.09 million or $.51 per
share compared to $5.23 million or $.44 per share for the first quarter of
1993. This represents a 16.59% increase in net income and a 16.53% increase in
earnings per share. United's annualized return on average assets of 1.41% and
return on average shareholders' equity of 14.03% both compare very favorably
with regional and national peer groups.
Earnings for the first quarter of 1993 included certain nonrecurring income and
nonrecurring expense items which are not reported in the first quarter of 1994.
The nonrecurring income item, which is reported as a cumulative effect of change
in accounting of $1,329,000, is the result of United's adoption of SFAS No. 109,
"Accounting for Income Taxes," during the first quarter of 1993. The first
quarter 1993 nonrecurring expense items were primarily the result of
management's conservative review of certain credits which resulted in increases
to the other real estate owned reserve and the allowance for loan losses.
Additional other nonrecurring expenses were from mergers completed by United
during 1993.
15
United has strong core earnings with a net interest margin of 4.81% for the
first three months of 1994. Net interest income remained strong for the first
quarter of 1994 as compared to the same period for 1993. The provision for
possible loan losses decreased in the first quarter of 1994 when compared to
the first quarter of 1993, but was comparable to the provision made for the
fourth quarter of 1993. Noninterest income increased 7.98% compared to the first
quarter of 1993 with a 20.50% increase in trust department income. United's
emphasis on improving noninterest income is continuing to show positive results.
Noninterest expenses decreased 8.13% for the first quarter of 1994 as compared
to the same period for 1993 as the result of nonrecurring expenses included in
the first quarter of 1993, but not in the first quarter of 1994. Additionally,
management's cost containment efforts have been successful in controlling
noninterest expenses. Income taxes were higher for the first quarter of 1994
than for the same period of 1993 with an affective tax rate of 34.1% for 1994
and 31.2% for 1993.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
NET INTEREST INCOME
Net interest income remained strong in the first three months of 1994, when
compared to the same period of 1993. Net interest income before the provision
for possible loan losses increased $649,000 or 3.71% for the first quarter of
1994 as compared to the first quarter of 1993. The increase is largely due to
the strong loan growth lead by mortgage loans and the decline in the cost of
funds. United's tax-equivalent net interest margin dropped from 4.83% in the
first three months of 1993 to 4.81% in the first quarter of 1994. However, the
tax-equivalent net interest margin showed an improvement over that achieved for
the year ended December 31, 1993 of 4.75%. The combination of an improved net
interest spread with increased loan volumes and smaller increases in interest-
bearing deposits as compared to the year ended December 31, 1993, and the first
quarter of 1993, have helped United maintain a strong interest margin.
PROVISION FOR POSSIBLE LOAN LOSSES
In order to maintain a balance in the allowance for possible loan losses which
is sufficient to absorb potential loan losses, a charge to expense is made.
This charge is known as the provision for possible loan losses. For the
quarters ended March 31, 1994 and 1993, the provision for possible loan losses
was $450,000 and $2,120,000, respectively. The allowance for possible loan
losses as a percentage of loans, net of unearned income, remained constant at
1.61%, as compared to December 31, 1993, and increased over the 1.60% at March
31, 1993. In addition, the "coverage ratio" of both nonperforming loans and
nonperforming assets improved. (See the discussion below.)
16
United's continued improvement in credit quality is evidenced by the low level
of charge-offs in the first quarter of 1994. Net charge-offs during the first
three months of 1994 and 1993 were $179,000 and $193,000, respectively. Note 5
to the accompanying unaudited consolidated financial statements provides a
progression of the allowance for possible loan losses. Loans, net of unearned
income, increased $20,452,000 during the first quarter of 1994 from year end
1993. Even with strong loan growth in the first quarter of 1994, management
only slightly increased the allowance for loan losses in response to: (i) the
continued improvement of credit quality; (ii) the increased coverage ratio of
both nonperforming loans and nonperforming assets; and (iii) the building of the
allowance as a percentage of loans closer to national peer group levels.
Nonperforming loans and troubled debt restructurings were $13,078,000 at March
31, 1994 and $13,517,000 at year-end 1993. Nonperforming loans and troubled
debt restructurings declined from 1.14% to 1.09% as a percentage of loans, net
of unearned income, when comparing these two respective periods. The components
of nonperforming loans include nonaccrual loans and loans which are
contractually past due 90 days or more as to interest or principal, but have not
been put on a nonaccrual basis. Loans past due 90 days or more increased
$151,000 or 6.10% during the first three months of 1994 while troubled debt
restructurings increased $84,000 or 3.42% since year-end 1993. Offsetting these
increases were a decrease in nonaccrual loans of $674,000 or 7.85% and a
decrease in other real estate owned of almost $350,000, which resulted in an
overall decrease in nonperforming assets.
As of March 31, 1994, the ratio of the allowance for loan losses to
nonperforming loans was 147.5% as compared to 140.7% as of December 31, 1993.
Accordingly, management believes that the allowance for loan losses of
$19,286,000 as of March 31, 1994, is adequate to provide for potential losses on
existing loans based on information currently available.
United evaluates the adequacy of the allowance for possible loan losses on a
quarterly basis. The provision for loan losses charged to operations is based
on management's evaluation of individual credits, the past loan loss experience,
and other factors which, in management's judgment, deserve recognition in
estimating possible loan losses. Such other factors considered by management,
among other things, include growth and composition of the loan portfolio,
known deterioration in certain classes of loans or collateral, trends in
delinquencies, and current economic conditions. United's loan administration
policies are focused upon the risk characteristics of the loan portfolio,
both in terms of loan approval and credit quality.
17
OTHER INCOME
Other income consists of all revenues which are not included in interest
and fee income related to earning assets. Total other income, including
gains on securities transactions, was $3,220,000 in the first quarter of
1994 or a 8.0% increase as compared to $2,982,000 in the first quarter of
1993. This overall increase in noninterest income is primarily attributed
to an increase of $140,000 or 20.5% in trust department income and an
increase of $173,000 or 9.1% in fee income from increased activity in
customer accounts for which a fee is charged. Management's emphasis on
improving noninterest income is showing positive results. As evidenced by
the Unaudited Condensed Consolidated Statement of Cash Flows included
elsewhere herein, the volume of securities sold was insignificant in both
periods. The $107,000 of gains on sales reported in the period ended March 31,
1994 relate entirely to marketable equity securities which were
reclassified to available for sale at January 1, 1994.
OTHER EXPENSES
Other expenses include all items of expense other than interest expense,
the provision for possible loan losses, and income taxes. Other expenses
decreased $1,032,000 or 8.13% to $11,667,000 for the first quarter of 1994
as compared to $12,699,000 for the first quarter of 1993. This decrease is
a result of certain nonrecurring expenses being incurred in the first
quarter of 1993, but not in the first quarter of 1994.
Total salaries and benefits decreased $150,000 or 2.6% for the first three
months of 1994 while net occupancy expense decreased $42,000 or 3.7% when
compared to the first quarter of 1993.
Other expenses decreased $840,000 or 14.5% for the quarter as compared to
the same period of 1993. The decrease in other expenses relates primarily
to nonrecurring expenses which included certain merger expenses for the two
acquisitions consummated by United during 1993 and provisions to the other
real estate owned reserve.
Various bank affiliates provide certain health care and life insurance
benefits for retired employees. The cost of retiree health care and life
insurance benefits is recognized as expense when paid. The Company does
not anticipate providing post-retirement benefits to its currently active
employees after retirement except on a fully contributory basis.
Accordingly, postretirement benefits are immaterial with annual costs which
approximate $50,000.
The Financial Accounting Standards Board has issued Statement No. 112,
(SFAS No. 112), "Employers' Accounting for Postemployment Benefits," which
is effective for fiscal years beginning after December 15, 1993. The
provisions of SFAS No. 112 require
18
employers to recognize the obligation to provide postemployment benefits to
former employees if the obligation is attributable to the employees' services
previously rendered, the employees' rights to those benefits vest or accumulate,
the payment of the benefit is probable, and the amount can be reasonably
estimated. United recognizes the cost of postemployment benefits as expense
when paid. United's analysis indicates that accounting for such costs when paid
does not produce results materially different from the method of recognizing
such costs as prescribed by SFAS No. 112.
INCOME TAXES
Income tax expense for the three months ended March 31, 1994 and 1993 was
$3,158,000 and $1,765,000, respectively. This increase of 78.9% for the quarter
is the result of increased pre-tax income, decreased tax-exempt income and
increased statutory federal tax rates. United's effective tax rate was
significantly higher at 34.1% for the first quarter of 1994 when compared to
31.2% for the first quarter of 1993.
INTEREST RATE SENSITIVITY
Interest sensitive assets and liabilities are defined as those assets or
liabilities that mature or are repriced within a designated timeframe. The
principal function of asset and liability management is to maintain an
appropriate relationship between those assets and liabilities that are sensitive
to changing market interest rates. This relationship has become very important,
given the volatility in interest rates over the last several years, due to the
potential impact on earnings. United closely monitors the sensitivity of its
assets and liabilities on an on-going basis and projects the effect of various
interest rate changes on its net interest margin.
The difference between rate sensitive assets and rate sensitive liabilities for
specified periods of time is known as the "gap".
A primary objective of Asset/Liability Management is controlling interest rate
risk. At United, interest rate risk is managed to minimize the impact of
fluctuating interest rates on earnings. As shown in the interest rate
sensitivity gap table on pages 20 and 21 of this report, United was liability
sensitive (excess of liabilities over assets) in the one year horizon. United,
however, has not experienced the kind of earnings volatility indicated from the
cumulative gap. This is because a significant portion of United's retail
deposit base does not reprice on a contractual basis. Management has estimated,
based upon historical analyses, that savings deposits are less sensitive to
interest rate changes than are other forms of deposits. The GAP table presented
herein has been adapted to show the estimated differences in interest rate
sensitivity which result when the retail deposit base is assumed to
19
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Interest Rate Sensitivity Gap
(In Thousands)
March 31, 1994
-----------------------------------------------------------------------------
ASSETS Days
------------------------------- Total 1-5 Over 5
0-90 91-180 181-365 One Year Years Years Total
-------- -------- -------- ---------- -------- -------- ----------
Interest-Earning Assets
- - -----------------------
Federal funds sold and securities
purchased under agreements to
resell and other short-term
investments $44,500 $ 100 $ 44,600 $ 44,600
Investment and marketable
equity securities:
Taxable 49,158 $ 11,688 $51,615 112,461 $164,944 $ 78,485 355,890
Tax-exempt 2,070 2,643 3,341 8,054 26,692 16,824 51,570
Loans, net of unearned
income 520,499 82,895 156,828 760,222 337,666 103,351 1,201,239
-------- -------- -------- ---------- -------- -------- ----------
Total Interest-Earning Assets $616,227 $ 97,226 $211,884 $ 925,337 $529,302 $198,660 $1,653,299
======== ======== ======== ========== ======== ======== ==========
LIABILITIES
Interest-Bearing Funds
- - ----------------------
Savings and NOW accounts $675,864 $ 675,864 $ 675,864
Time deposits of S100,000 & over 24,945 $ 15,681 $ 11,788 52,414 $ 17,075 69,489
Other time deposits 153,316 121,915 80,385 355,616 103,569 $ 235 459,420
Federal funds purchased
repurchase agreements
and other short-term
borrowings 107,993 107,993 107,993
FHLB advances 21,980 80 5,143 27,203 10,000 37,203
-------- -------- -------- ---------- -------- -------- ----------
Total Interest-Bearing Funds $984,098 $137,676 $ 97,316 $1,219,090 $130,644 $ 235 $1,349,969
======== ======== ======== ========== ======== ======== ==========
Interest Sensitivity Gap ($367,871) ($40,450) $114,568 ($ 293,753) $398,658 $198,425 $ 303,330
======== ======== ======== ========== ======== ======== ==========
Cumulative Gap ($367,871) ($408,321) ($293,753) ($ 293,753) $104,905 $303,330 $ 303,330
======== ======== ======== ========== ======== ======== ==========
Cumulative Gap as a Percentage
of Total Earning Assets -22.25% -24.70% -17.77% -17.77% 6.35% 18.35% 18.35%
Management Adjustments 639,300 (42,620) (85,240) 511,440 (511,440) 0
Off-Balance Sheet Activities (50,000) (50,000) (50,000)
Cumulative Management Adjusted
Gap and Off-Balance Sheet Activities $221,429 $138,359 $167,687 $167,687 $54,905 $253,330 $ 253,330
======== ======== ======== ========== ======== ======== ==========
Cumulative Management Adjusted Gap
and Off-Balance Sheet Activities as a
Percentage of Earning Assets 13.39% 8.37% 10.14% 10.14% 3.32% 15.32% 15.32%
20
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Interest Rate Sensitivity Gap
(In Thousands)
December 31, 1993
-----------------------------------------------------------------------------
ASSETS Days
----------------------------- Total 1-5 Over 5
0-90 91-180 181-365 One Year Years Years Total
-------- -------- -------- ---------- -------- -------- ----------
Interest-Earning Assets:
- - ------------------------
Federal funds sold and securities
purchased under agreements to
resell and other short-term
Investments $ 100 $ 100 $ 100
Investment and Marketable
equity securities:
Taxable 64,573 $ 30,302 $ 51,343 146,218 $190,354 $ 38,548 375,120
Tax-exempt 3,514 2,083 4,469 10,066 27,987 17,155 55,208
Loans, net of unearned
income 493,448 82,423 132,494 708,365 362,188 101,680 1,172,233
-------- -------- -------- ---------- -------- -------- ----------
Total Interest-Earning Assets $561,635 $114,808 $188,306 $ 864,749 $580,529 $157,383 $1,602,661
======== ======== ======== ========== ======== ======== ==========
LIABILITES
Interest-Bearing Funds:
- - -----------------------
Savings and NOW accounts $670,000 $ 670,000 $ 670,000
Time deposits of $100,000 & over 31,493 $ 19,795 $ 17,062 68,350 $ 4,610 72,960
Other time deposits 142,942 112,131 95,957 351,030 106,805 $ 603 458,438
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 72,610 72,610 72,610
FHLB advances 11,900 80 5,152 17,132 15,071 32,203
-------- -------- -------- ---------- -------- -------- ----------
Total Interest-Bearing Funds $928,945 $132,006 $118,171 $1,179,122 $126,486 $ 603 $1,306,211
======== ======== ======== ========== ======== ======== ==========
Interest Sensitivity Gap ($367,310) ($ 17,198) $ 70,135 ($ 314,373) $454,043 $156,780 $ 296,450
======== ======== ======== ========== ======== ======== ==========
Cumulative Gap ($367,310) ($384,508) ($314,373) ($ 314,373) ($139,670) $296,450 $ 296,450
======== ======== ======== ========== ======== ======== ==========
Cumulative Gap as a Percentage
of Total Earning Assets -22.92% -23.99% -19.62% -19.62% 8.71% 18.50% 18.50%
Management Adjustments 616,828 (41,121) (82,244) 493,463 (493,463) 0
Off-Balance Sheet Activities
Cumulative Management Adjusted
Gap and Off-Balance Sheet Activities $249,518 $191,199 $179,090 $179,090 $139,670 $296,450 $ 296,450
======== ======== ======== ========== ======== ======== ==========
Cumulative Management Adjusted Gap
and Off-Balance Sheet Activities as a
Percentage of Earning Assets 15.57% 11.93% 11.17% 11.17% 8.71% 18.50% 18.50%
21
reprice in a manner consistent with historical trends. (See Management
Adjustments in the GAP table.) Using these estimates, United was asset
sensitive in the one year horizon in the amount of $167,687,000 or a 10.14%
ratio of the cumulative gap to related earning assets. The primary method of
measuring the sensitivity of earnings to changing market interest rates is to
simulate expected cash flows using varying assumed interest rates while also
adjusting the timing and magnitude of non-contractual deposit repricing to more
accurately reflect anticipated pricing behavior.
These simulations include adjustments for the lag in prime loan repricing and
the spread and volume elasticity of interest-bearing deposit accounts, regular
savings and money market deposit accounts. To aid in interest rate management,
United's lead bank, UNB, is a member of the Federal Home Loan Bank of Pittsburgh
(FHLB). The use of FHLB advances provides United with a low cost means to match
maturities of earning assets and interest-bearing funds to achieve a desired
interest rate spread over the life of the earning assets.
Additionally, United has begun using certain off-balance-sheet instruments known
as interest rate swaps, to further aid in interest rate risk management. The
use of interest rate swaps is a cost effective means of synthetically altering
the repricing structure of balance sheet items. At March 31, 1994, the total
notional amount of interest rate swaps in effect was $50 million. The current
average maturity of the swap portfolio is two years and ten months. During the
first quarter of 1994, interest rate swaps contributed $101,000 to net interest
income. United did not have interest rate swaps during 1993.
LIQUIDITY AND CAPITAL RESOURCES
United maintains, in the opinion of management, liquidity which is sufficient to
satisfy its depositors' requirements and the credit needs of its customers.
Like all banks, United depends upon its ability to renew maturing deposits and
other liabilities on a daily basis and to acquire new funds in a variety of
markets. A significant source of funds available to United are "core
deposits." Core deposits include certain demand deposits, statement and special
savings and NOW accounts. These deposits are relatively stable and they are the
lowest cost source of funds available to United. Short-term borrowings have
also been a significant source of funds. These include federal funds purchased
and securities sold under agreements to repurchase. Repurchase agreements
represent funds which are obtained as the result of a competitive bidding
process.
22
Liquid assets are cash and those items readily convertible to cash. All banks
must maintain sufficient balances of cash and near-cash items to meet the
day-to-day demands of customers. Other than cash and due from banks, the
available-for-sale securities portfolio and maturing loans and investments are
the primary sources of liquidity.
The goal of liquidity management is to ensure the ability to access funding
which enables United to efficiently satisfy the cash flow requirements of
depositors and borrowers and meet United's cash needs. Liquidity is managed by
monitoring funds availability from a number of primary sources. Substantial
funding is available from cash and cash equivalents, unused short-term
borrowings and a geographically dispersed network of subsidiary banks providing
access to a diversified and substantial retail deposit market.
Short-term needs can be met through a wide array of sources such as
correspondent and downstream correspondent federal funds and utilization of
Federal Home Loan Bank advances.
Other sources of liquidity available to United to provide long-term as well as
short-term funding alternatives, in addition to FHLB advances, are long-term
certificates of deposit, lines of credit, and borrowings secured by bank
premises or stock of United's subsidiaries. United has no intention at this
time to utilize any long-term funding sources other than FHLB advances and
long-term certificate of deposits.
For the three months ended March 31, 1994, United generated $9,990,000 of cash
from operations, which is indicative of solid earnings performance. During the
same period, net cash of $1,269,000 was provided by investing activities such as
maturities and calls of securities and other short-term investments in order to
fund purchases of securities of $16,782,000 and net loan originations of
$20,631,000. Additional sources of cash and cash equivalents during the first
quarter were provided by financing activities totaling $42,212,000, which were
largely comprised of the increase in federal funds purchased from downstream
correspondents and securities sold under agreements to repurchase. The net
effect of this activity is an increase in cash and cash equivalents of
$53,471,000 for the first quarter of 1994.
United anticipates no difficulty in meeting its obligations over the next 12
months and has no material commitments for capital expenditures. There are no
known trends, demands, commitments, or events that will result in or that are
reasonably likely to result in United's liquidity increasing or decreasing in
any material way. United also has significant lines of credit available to it.
23
The asset and liability committee monitors liquidity to ascertain that a strong
liquidity position is maintained. In addition, variable rate loans are a
priority. These policies should help to protect net interest income against
fluctuations in interest rates. No changes are anticipated in the policies of
United's asset and liability committee.
Total shareholders' equity increased to $174,568,000 which is an increase of
2.1% from December 31, 1993. United's equity to assets ratio was approximately
9.9% at both March 31, 1994 and December 31, 1993. Capital and reserves to
total assets equaled approximately 11% at March 31, 1994 and December 31, 1993.
The first quarter dividend of $.26 per common share represents an increase of
13.04% over the first quarter of 1993. Total cash dividends paid were
$3,095,000 for the first quarter of 1994, an increase of 27.5% over the
comparable period in 1993.
United's risk-based capital ratio of 15.24% at March 31, 1994, and 15.28% at
December 31, 1993, are both considerably in excess of the current requirement of
8.00%. Total risk-based capital at March 31, 1994 and December 31, 1993 of
$177,595,000 and $172,648,000, respectively, exceeded the regulatory minimum
requirement by $84,368,000 and $82,240,000, respectively. United's Tier I
capital ratios are comparable to its total risk-based capital ratios and are
well above regulatory minimum requirements.
As a bank holding company, United is permitted by Regulation Y of the Federal
Reserve Board, under certain circumstances, to purchase up to 10% of its common
stock as treasury stock without obtaining prior approval of the Federal Reserve
Board. Total treasury shares as of March 31, 1994, amount to 15,170 shares at a
cost of $301,000. It is management's intention to purchase treasury stock
whenever it is beneficial to United based on such factors as cash dividends,
timing and stock availability.
In March 1994, United approved a plan to repurchase up to $10 million of its
common stock on the open market. The timing, price, and quantity of any such
purchases may be made at the discretion of United and the program may be
discontinued or suspended at any time.
24