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 September 30, 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; 11,954,496 shares outstanding as of
October 31, 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)
September 30, 1994 and December 31, 1993 .....................6
Consolidated Statements of Income (Unaudited) for the
Three Months and Nine Months Ended September 30,
1994 and 1993.................................................7
Consolidated Statement of Changes in Shareholders'
Equity (Unaudited) for the Nine Months Ended
September 30, 1994 ...........................................8
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1994 and 1993 ........9
Notes to Consolidated Financial Statements ..................10
Information required by Item 303 of Regulation S-K.............16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K .....................Not Applicable
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 November 14, 1994 /s/ Richard M. Adams
--------------------- ---------------------------
Richard M. Adams, Chairman of
the Board and Chief Executive
Officer
Date November 14, 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 September 30, 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 and nine months ended September 30,
1994 and 1993, and the related consolidated statement of changes in
shareholders' equity for the nine months ended September 30, 1994, and the
related condensed consolidated statements of cash flows for the nine months
ended September 30, 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
September 30 December 31
1994 1993
------------- ------------
ASSETS
Cash and due from banks $75,842,000 $60,750,000
Federal funds sold 750,000
Interest-bearing deposits with other banks 100,000
------------- ------------
Total cash and cash equivalents 76,592,000 60,850,000
Securities available for sale (at market) 140,880,000
Investment securities (market value--
$243,446,000 at September 30, 1994,
and $438,223,000 at December 31, 1993) 251,043,000 430,427,000
Loans
Commercial, financial, and agricultural 196,655,000 218,559,000
Real Estate:
Single family residential 508,367,000 442,855,000
Commercial 298,015,000 267,936,000
Construction 15,388,000 12,687,000
Other 15,301,000 15,331,000
Installment 232,513,000 229,847,000
------------- -------------
1,266,239,000 1,187,215,000
Less: Unearned income (5,381,000) (6,428,000)
Allowance for loan losses (19,999,000) (19,015,000)
------------- -------------
Net loans 1,240,859,000 1,161,772,000
Bank premises and equipment 31,297,000 31,113,000
Interest receivable 11,133,000 10,542,000
Other assets 25,692,000 25,480,000
------------- --------------
TOTAL ASSETS $1,777,496,000 $1,720,184,000
============= ==============
LIABILITIES
Domestic deposits
Noninterest-bearing $238,090,000 $229,131,000
Interest-bearing 1,202,148,000 1,201,398,000
------------- --------------
TOTAL DEPOSITS 1,440,238,000 1,430,529,000
Short-term borrowings
Federal funds purchased 4,510,000 5,339,000
Securities sold under agreements to repurchase 69,604,000 67,271,000
Federal Home Loan Bank borrowings 68,043,000 32,203,000
Accrued expenses and other liabilities 16,885,000 13,870,000
------------- --------------
TOTAL LIABILITIES 1,599,280,000 1,549,212,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized--20,000,000 shares; issued
and outstanding--11,954,496 at September
30, 1994, and at December 31, 1993,
including 76,020 and 27,720 shares in
treasury at September 30, 1994, and
at December 31, 1993, respectively 29,886,000 29,886,000
Surplus 32,348,000 32,616,000
Retained earnings 118,358,000 109,020,000
Net unrealized loss on securities available
for sale (515,000)
Treasury stock (1,861,000) (550,000)
------------- --------------
TOTAL SHAREHOLDERS' EQUITY 178,216,000 170,972,000
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,777,496,000 $1,720,184,000
============= ==============
See notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- ------------------------
1994 1993 1994 1993
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $25,661,000 $22,772,000 $72,296,000 $67,865,000
Interest on federal funds sold 70,000 80,000 187,000 690,000
Interest and dividends on securities:
Taxable 4,656,000 5,540,000 14,141,000 15,211,000
Exempt from federal taxes 889,000 930,000 2,655,000 3,183,000
Other interest income 30,000 3,000 90,000 59,000
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 31,306,000 29,325,000 89,369,000 87,008,000
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 9,638,000 10,029,000 28,490,000 30,854,000
Interest on short-term borrowings 740,000 528,000 1,810,000 1,584,000
Interest on long-term borrowings 712,000 583,000 1,710,000 1,451,000
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 11,090,000 11,140,000 32,010,000 33,889,000
----------- ----------- ----------- -----------
NET INTEREST INCOME 20,216,000 18,185,000 57,359,000 53,119,000
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 663,000 1,368,000 3,705,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 19,766,000 17,522,000 55,991,000 49,414,000
----------- ----------- ----------- -----------
OTHER INCOME
Trust department income 617,000 542,000 2,152,000 1,980,000
Other charges, commissions, and fees 2,157,000 2,218,000 6,314,000 6,564,000
Other income 108,000 213,000 458,000 578,000
Investment securities gains 0 5,000 152,000 479,000
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 2,882,000 2,978,000 9,076,000 9,601,000
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 5,635,000 5,342,000 16,753,000 16,612,000
Net occupancy expense 1,178,000 1,012,000 3,516,000 3,311,000
Other expense 5,915,000 5,720,000 16,014,000 16,908,000
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSES 12,728,000 12,074,000 36,283,000 36,831,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES 9,920,000 8,426,000 28,784,000 22,184,000
INCOME TAXES 3,478,000 2,660,000 10,038,000 6,937,000
----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 6,442,000 5,766,000 18,746,000 15,247,000
CUMULATIVE EFFECT AS OF JANUARY 1, 1993 OF CHANGE
IN METHOD OF ACCOUNTING FOR INCOME TAXES 1,329,000
----------- ----------- ----------- -----------
NET INCOME $6,442,000 $5,766,000 $18,746,000 $16,576,000
=========== =========== =========== ===========
Earnings per common share:
Income before cumulative effect of accounting
change $0.54 $0.48 $1.57 $1.28
Cumulative effect of accounting change $0.11
Net income $0.54 $0.48 $1.57 $1.39
Average outstanding shares 11,921,187 11,920,069 11,930,811 11,921,799
See notes to consolidated financial statements.
7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Nine Months Ended September 30, 1994
------------------------------------------------------------------------------------------------
Common Stock Net Unrealized
------------------------ Gain/(Loss) on Total
Par Retained Securities Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
---------- ------------ ------------ ---------- ------------------- ---------- ------------
Balance at January 1, 1994 11,954,496 $29,886,000 $32,616,000 $109,020,000 $0 ($550,000) $170,972,000
Change in method of accounting
for securities 1,284,000 1,284,000
Net income 18,746,000 18,746,000
Cash dividends ($.79 per share) (9,408,000) (9,408,000)
Net change in unrealized gain/(loss)
on securities available for sale (1,799,000) (1,799,000)
Purchase of treasury stock (2,015,000) (2,015,000)
Common stock options exercised (268,000) 704,000 436,000
---------- ------------ ------------ ------------ ------------ ---------- ------------
Balance at September 30, 1994 11,954,496 $29,886,000 $32,348,000 $118,358,000 ($515,000) ($1,861,000) $178,216,000
========== ============ ============ ============ ============ ========== ============
See notes to consolidated financial statements
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Nine Months Ended
September 30
----------------------------
1994 1993
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 25,193,000 $ 21,657,000
INVESTING ACTIVITIES
Proceeds from sales of securities 2,714,000 13,872,000
Proceeds from maturities and calls of securities 94,076,000 166,319,000
Purchase of securities (59,687,000) (225,022,000)
Net purchase of bank premises and equipment (2,165,000) (926,000)
Net cash of purchased banks 1,693,000
Changes in:
Loans (80,455,000) (20,936,000)
----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (45,517,000) (65,000,000)
----------- -----------
FINANCING ACTIVITIES
Cash dividends paid (9,408,000) (7,937,000)
Net acquisition of treasury stock (1,579,000) (188,000)
Pre-merger stock options exercised by pooled banks 120,000
Changes in:
Deposits 9,709,000 (29,809,000)
Federal funds purchased and securities
sold under agreements to repurchase 1,504,000 1,306,000
Proceeds from FHLB advances 35,840,000 29,716,000
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 36,066,000 (6,792,000)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,742,000 (50,135,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60,850,000 129,473,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $76,592,000 $79,338,000
=========== ===========
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 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. At September 30, 1994, the cumulative unrealized net loss
on available-for-sale securities resulted in a decrease of $515,000 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 September 30, 1994, and all securities at December 31, 1993:
September 30 December 31
1994 1993
-------------- ------------
(in thousands)
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 86,153 $220,805
Obligations of state and political
subdivisions 55,474 55,209
Mortgage-backed securities 101,321 131,322
Marketable equity securities 2,182
Other 8,095 20,909
-------- --------
$251,043 $430,427
======== ========
The book and market value of securities available-for-sale at September 30, 1994
are as follows:
Book Market
Value Value
---------- ---------
(in thousands)
Under 1 year $ 88,523 $ 88,603
1-5 years 41,640 40,991
6-10 years 841 841
Over 10 years 10,669 10,445
-------- --------
Total $141,673 $140,880
======== ========
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:
September 30
1994
--------------------------------------------
(in thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $128,428 $321 $1,186 $127,563
Marketable equity
securities 1,536 341 49 1,828
Other 11,709 4 224 11,489
-------- ---- ------ --------
Total $141,673 $666 $1,459 $140,880
======== ==== ====== ========
4. NONPERFORMING LOANS
Nonperforming loans are summarized as follows:
September 30 December 31
1994 1993
------------ -----------
(in thousands)
Loans past due 90 days or more
and still accruing interest $1,539 $ 2,476
Troubled debt restructurings 899 2,453
Nonaccrual loans 6,728 8,588
------ -------
$9,166 $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 Nine Months Ended
September 30 September 30
---------------------- ----------------------
(in thousands)
1994 1993 1994 1993
------- ------- ------- -------
Balance at beginning of
period $19,424 $18,314 $19,015 $15,952
Balance of purchased
banks 504 504
Provision charged to
expense 450 663 1,368 3,705
------- ------- ------- -------
19,874 19,481 20,383 20,161
Loans charged-off (303) (995) (1,157) (2,176)
Less recoveries 428 203 773 704
------- ------- ------- -------
Net Charge-offs 125 (792) (384) (1,472)
------- ------- ------- -------
Balance at end of
period $19,999 $18,689 $19,999 $18,689
======= ======= ======= =======
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
$18,541,000 and $21,030,000 at September 30, 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 September
30, 1994, and September 30, 1993, with the interest rate earned or paid on
such amount.
Three Months Ended Three Months Ended
September 30 September 30
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 $5,909 $70 4.70% $10,991 $83 3.00%
Investment Securities:
Taxable 339,531 4,686 5.52% 388,579 5,540 5.70%
Tax-exempt (1) 54,112 1,388 10.26% 54,171 1,409 10.40%
---------- -------- -------- ---------- ------- ------
Total Securities 393,643 6,074 6.17% 442,750 6,949 6.28%
Loans, net of unearned
income (1) (2) 1,241,592 25,940 8.29% 1,112,357 22,782 8.13%
Allowance for possible loan
losses (19,774) (16,864)
---------- ----------
Net loans 1,221,818 8.42% 1,095,493 8.25%
---------- -------- -------- ---------- ------- ------
Total earning assets 1,621,370 $32,084 7.86% 1,549,234 $29,814 7.65%
-------- -------- ------- ------
Other assets 139,424 149,386
---------- ----------
TOTAL ASSETS $1,760,794 $1,698,620
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,196,340 $9,638 3.20% $1,168,013 $10,029 3.41%
Federal funds purchased,
repurchase agreements and
other short-term borrowings 82,805 740 3.55% 69,268 528 3.02%
FHLB advances 54,003 712 5.23% 57,805 583 4.00%
---------- -------- -------- ---------- ------- ------
Total Interest-Bearing Funds 1,333,148 11,090 3.30% 1,295,086 11,140 3.41%
------- ------- ------
Demand deposits 232,148 218,135
Accrued expenses and other
liabilities 15,860 16,667
---------- ----------
TOTAL LIABILITIES 1,581,156 1,529,888
Shareholders' Equity 179,638 168,732
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,760,794 $1,698,620
========== ==========
NET INTEREST INCOME $20,994 $18,674
======== =======
INTEREST SPREAD 4.56% 4.24%
NET INTEREST MARGIN 5.15% 4.80%
(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
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 nine month periods ended September
30, 1994, and September 30, 1993, with the interest rate earned or paid on
such amount.
Nine Months Ended Nine Months Ended
September 30 September 30
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 $6,492 $187 3.85% $33,222 $749 3.01%
Investment Securities:
Taxable 349,564 14,231 5.43% 357,353 15,211 5.68%
Tax-exempt (1) 53,140 4,103 10.29% 59,400 4,823 10.83%
---------- -------- ------- ---------- -------- -------
Total Securities 402,704 18,334 6.07% 416,753 20,033 6.41%
Loans, net of unearned
income (1) (2) 1,217,003 73,171 8.04% 1,111,711 68,044 8.18%
Allowance for possible loan
losses (19,431) (16,163)
---------- ----------
Net loans 1,197,572 8.17% 1,095,548 8.30%
---------- -------- ------- ---------- -------- -------
Total earning assets 1,606,768 $91,692 7.63% 1,545,523 $88,826 7.68%
-------- ------- -------- -------
Other assets 137,607 135,435
---------- ----------
TOTAL ASSETS $1,744,375 $1,680,958
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,198,957 $28,490 3.18% $1,185,143 $30,854 3.48%
Federal funds purchased,
repurchase agreements and
other short-term borrowings 78,969 1,810 3.06% 70,013 1,584 3.02%
FHLB advances 44,577 1,710 5.13% 37,378 1,451 5.19%
---------- -------- ------- ---------- -------- -------
Total Interest-Bearing Funds 1,322,503 32,010 3.24% 1,292,534 33,889 3.51%
-------- --------
Demand deposits 228,996 208,120
Accrued expenses and other
liabilities 15,586 14,799
---------- ----------
TOTAL LIABILITIES 1,567,085 1,515,453
Shareholders' Equity 177,290 165,505
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,744,375 $1,680,958
========== ==========
NET INTEREST INCOME $59,682 $54,937
======== ========
INTEREST SPREAD 4.39% 4.17%
NET INTEREST MARGIN 4.96% 4.75%
(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.
15
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 present 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 third quarter of 1994 was a record $6.42 million or $.54 per
share compared to $5.77 million or $.48 per share for the third quarter of 1993.
This represents an 11.71% increase in both net income and earnings per share.
Net income per share for the first nine months of 1994 was $1.57, or a 13.01%
increase over $1.39 for the first nine months of 1993. Net income for the first
nine months of 1994 was a record $18.75 million, which is a 13.09% increase over
the $16.58 million earned in the same period of 1993. United's annualized return
on average assets of 1.44% and return on average shareholders' equity of 14.14%
both compare excellently with regional and national peer groups.
16
United has strong core earnings with a net interest margin of 4.96% for the
first nine months of 1994 and 5.15% for the third quarter of 1994. Net interest
income increased 7.98% and remained strong and showed improvement for the first
nine months of 1994 as compared to the same period for 1993. The provision for
possible loan losses decreased in the first nine months of 1994 when compared to
the first nine months of 1993 primarily due to excellent asset quality and very
low charge-offs. Noninterest income decreased 3.22% and 5.47% for the third
quarter and first nine months of 1994, respectively, when compared to the
comparable periods of 1993. This overall decrease in noninterest income is
primarily attributed to a significant decrease in gains on security transactions
and a decrease in fee income from reduced activity in customer accounts for
which a fee is charged. However, trust income showed improvement over both the
third quarter and first nine months of 1993 as it increased 13.84% and 8.69%,
respectively. Noninterest expenses increased 5.42% for the third quarter, but
decreased 1.49% for the first nine months of 1994, as management's cost
containment efforts have continued to be successful in controlling noninterest
expenses. Income taxes were higher for the third quarter and first nine months
of 1994 than for the same periods of 1993, with effective tax rates of 35.1% and
34.9% for the third quarter and first nine months of 1994, respectively, as
compared to 31.6% for third quarter of 1993 and 31.3% for the first nine months
of 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 strengthened and improved in the third quarter and first
nine months of 1994, when compared to the same periods of 1993. Net interest
income before the provision for possible loan losses increased $2,031,000 or
11.17% and $4,240,000 or 7.98% for the third quarter and first nine months of
1994 as compared to the third quarter and first nine months of 1993,
respectively. The increase is largely due to strong loan growth, lead by
mortgage loans, and the repricing of variable rate loans at higher interest
rates. United's tax-equivalent net interest margin rose from 4.80% in the third
quarter of 1993 to 5.15% in the third quarter of 1994. Additionally, there was
an increase from the first nine months of 1993 in which the margin improved from
4.75% to 4.96% in the same period of 1994. Additionally, 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,
increased loan volumes and moderate increases in rates on interest-bearing
deposits compared to both the first nine months of 1993 and the entire year of
1993 have helped United generate a stronger interest margin.
17
PROVISION FOR POSSIBLE LOAN LOSSES
For the quarters ended September 30, 1994 and 1993, the provision for possible
loan losses was $450,000 and $663,000, respectively, while the first nine months
total provisions were $1,368,000 for 1994 as compared to $3,705,000 for 1993.
The allowance for possible loan losses as a percentage of loans, net of unearned
income, held at 1.6% at September 30, 1994, as compared to December 31, 1993,
and September 30, 1993. In addition, the "coverage ratio" of both nonperforming
loans and nonperforming assets improved. (See the discussion below.)
United's continued improvement in credit quality is evidenced by the low level
of nonperforming assets at the end of the third quarter of 1994. Recoveries
exceeded charge-offs during the third quarter of 1994 resulting in net
recoveries of $125,000 while net charge-offs for the third quarter of 1993 were
$792,000. Net charge-offs during the first nine months of 1994 and 1993 were
$384,000 and $1,472,000, 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 $27,650,000
during the third quarter of 1994 and have increased $80,071,000 since year end
1993. Even with strong loan growth in the first nine months of 1994, management
modestly increased the allowance for loan losses due 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 to a strong level and closer to national peer
group levels.
Nonperforming loans and troubled debt restructurings were $9,166,000 at
September 30, 1994 and $13,517,000 at year-end 1993. Nonperforming loans and
troubled debt restructurings, as a percentage of loans, net of unearned income,
declined from 1.14% to 0.73% 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 decreased
$937,000 or 37.84% during the first nine months of 1994; while troubled debt
restructurings decreased $1,554,000 or 63.35% and nonaccrual loans decreased
$1,860,000 or 21.66% since year-end 1993. Nonperforming loans continue to
decline and represented less than 0.60% of total assets at the end of the third
quarter, which is approximately one-half of the national peer levels.
As of September 30, 1994, the ratio of the allowance for loan losses to
nonperforming loans rose to 218.2% as compared to 140.7% as of December 31,
1993. Accordingly, management believes that the allowance for loan losses of
$19,999,000 as of September 30, 1994, is adequate to provide for potential
losses on existing loans based on information currently available.
18
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.
OTHER INCOME
Other income consists of all revenues which are not included in interest and fee
income related to earning assets. Management's emphasis on improving
noninterest income continues. While decreases were realized in total
noninterest income for both the third quarter and first nine months of 1994, the
impact was relatively insignificant in both periods. 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
$152,000 of gains on sales reported in the nine month period ended September 30,
1994 relates almost entirely to marketable equity securities which were
reclassified to available-for-sale securities 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. Even with the added
expenses of a purchase accounting acquisition included in the first nine months
of 1994, but not in the first nine months of 1993, total other expenses
decreased. Other expenses increased $654,000 or 5.42% to $12,728,000 in the
third quarter of 1994 as compared to $12,074,000 for the third quarter of 1993.
Other expenses were $36,283,000 for the first nine months of 1994, this is a
1.49% decrease from the $36,831,000 recorded for the first nine months of 1993.
The slight increase for the third quarter resulted primarily from nonrecurring
items. The decrease for the first nine months of 1994 resulted from
management's effective cost control efforts.
Total salaries and benefits increased $293,000 or 5.48% for the third quarter
and were virtually unchanged for the first nine months of 1994 when compared to
the same periods of 1993. In addition, net occupancy expense increased $166,000
or 16.40% when compared to the third quarter of 1993, and $205,000 or 6.19% as
compared to the first nine months of 1993.
19
Other expenses increased $195,000 or 3.41% for the third quarter, but decreased
$894,000 or 5.29% for the first nine months of 1994 as compared to the same
period of 1993. The decrease in other expenses for the nine month period
relates primarily to nonrecurring expenses which included certain merger
expenses for the two acquisitions consummated by United during 1993. A lower
provision for other real estate owned was also a factor contributing to the
decrease in other expenses. In addition, further economies from recent mergers
were realized.
INCOME TAXES
Income tax expense for the three months ended September 30, 1994 and 1993 was
$3,478,000 and $2,660,000, respectively. Income tax expense for the first nine
months of 1994 was $10,038,000 as compared to $6,937,000 for 1993. These
increases of 30.75% for the quarter and 44.70% for the first nine months are 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 35.1% for the third quarter of 1994 when compared to 31.6% for the
third quarter of 1993. The effective tax rate for the first nine months of 1994
was 34.9% as compared to 31.3% for the first nine months 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 managing 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 22 and 23 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,
20
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 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 $129,240,000
or 7.82% 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 relatively low risk 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 September 30, 1994, the
total notional amount of interest rate swaps in effect was only $50 million.
The current maturity of the swap portfolio is two years and four months. During
the third quarter of 1994, interest rate swaps reduced net interest income by
$99,000, but contributed $60,000 to net interest income for the first nine
months of 1994. 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.
21
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Interest Rate Sensitivity Gap
(In Thousands)
September 30, 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 $750 $750 $750
Investment and Marketable
Equity Securities:
Taxable 43,495 $16,801 45,279 105,575 $165,811 $65,063 336,449
Tax-exempt 1,736 1,440 6,843 10,019 22,612 22,843 55,474
Loans, net of unearned
income 508,376 78,779 146,674 733,829 386,891 140,138 1,260,858
--------- --------- ---------- ---------- -------- -------- ----------
Total Interest-Earning Assets $554,357 $97,020 $198,796 $850,173 $575,314 $228,044 $1,653,531
========= ========= ========== ========== ======== ======== ==========
LIABILITIES
Interest-Bearing Funds:
- - -----------------------
Savings and NOW accounts $673,405 $673,405 $673,405
Time deposits of $100,000 & over 25,599 $10,112 $13,822 49,533 $27,145 76,678
Other time deposits 122,692 102,789 83,907 309,388 142,677 452,065
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 74,114 74,114 74,114
FHLB advances 52,971 5,072 10,000 68,043 68,043
--------- --------- ---------- ---------- -------- -------- ----------
Total Interest-Bearing Funds $948,781 $117,973 $107,729 $1,174,483 $169,822 $1,344,305
========= ========= ========== ========== ======== ======== ==========
Interest Sensitivity Gap ($394,424) ($20,953) $91,067 ($324,310) $405,492 $228,044 $309,226
========= ========= ========== ========== ======== ======== ==========
Cumulative Gap ($394,424) ($415,377) ($324,310) ($324,310) $81,182 $309,226 $309,226
========= ========= ========== ========== ======== ======== ==========
Cumulative Gap as a Percentage
of Total Earning Assets -23.85% -25.12% -19.61% -19.61% 4.91% 18.70% 18.70%
Management Adjustments 629,438 (41,963) (83,925) 503,550 (503,550) 0
Off-Balance Sheet Activities (50,000) (50,000) (50,000)
--------- --------- ---------- ---------- -------- -------- ----------
Cumulative Management Adjusted
Gap and Off-Balance Sheet Activities $185,014 $122,098 $129,240 $129,240 $31,182 $259,226 $259,226
========= ========= ========== ========== ======== ======== ==========
Cumulative Management Adjusted Gap
and Off-Balance Sheet Activities as a
Percentage of Earning Assets 11.19% 7.38% 7.82% 7.82% 1.89% 15.68% 15.68%
22
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
========= ========= ========== ========== ======== ======== ==========
LIABILITIES
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%
23
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 nine months ended September 30, 1994, United generated $25,193,000 of
cash from operations, which is indicative of solid earnings performance. During
the same period, net cash of $45,517,000 was used by investing activities which
was primarily due to increased lending activity. Additional sources of cash and
cash equivalents during the first nine months were provided by financing
activities totaling $36,066,000, which were largely comprised of increases in
FHLB advances and deposits. The net effect of this activity was an increase in
cash and cash equivalents of $15,742,000 for the first nine months 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.
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 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.
24
Total shareholders' equity increased to $178,216,000 which is an increase of
4.24% from December 31, 1993. United's equity to assets ratio was 10.03% at
September 30, 1994 and 9.94% at December 31, 1993. Capital and reserves to
total assets increased from 11.04% at December 31, 1993, to 11.15% at September
30, 1994.
The third quarter dividend was $.27 per common share and dividends totaled $.79
per common share for the nine month period ended September 30, 1994. These
represent an increase of 12.50% over the third quarter of 1993 and an increase
of 12.86% over the first nine months of 1993. Total cash dividends paid were
$3,212,000 for the third quarter and $9,408,000 for the first nine months of
1994, an increase of 12.27% and 18.53% over the comparable periods in 1993.
United's risk-based capital ratios of 15.65% at September 30, 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 September 30, 1994 and December 31, 1993
of $182,042,000 and $172,648,000, respectively, exceeded the regulatory minimum
requirement by $89,001,000 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 September 30, 1994, amounted to 76,020
shares at a cost of $1,861,000. 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.
25