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, 1995
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; 11,954,453 shares outstanding as of April
30, 1995.
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, 1995 and December 31, 1994 .........................6
Consolidated Statements of Income (Unaudited) for the
Three Months Ended March 31, 1995 and 1994 ...................7
Consolidated Statement of Changes in Shareholders'
Equity (Unaudited) for the Three Months Ended
March 31, 1995 ...............................................8
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1995 and 1994 ...........9
Notes to Consolidated Financial Statements ..................10
Information required by Item 303 of Regulation S-K
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................18
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
Page
----
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.......27
(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 May 12, 1995 /s/ Richard M. Adams
--------------------- ---------------------------
Richard M. Adams, Chairman of
the Board and Chief Executive
Officer
Date May 12, 1995 /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, 1995 and December 31, 1994, consolidated balance sheets of United
Bankshares, Inc. and Subsidiaries, and the related consolidated statements of
income for the three months ended March 31, 1995 and 1994, and the related
consolidated statement of changes in shareholders' equity for the three months
ended March 31, 1995, and the related condensed consolidated statements of cash
flows for the three months ended March 31, 1995 and 1994, 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
1995 1994
--------------- ---------------
ASSETS
Cash and due from banks $ 75,162,000 $ 82,763,000
Federal funds sold 26,425,000
-------------- --------------
Total cash and cash equivalents 101 587,000 82,763,000
Securities available for sale(at market) 107,438,000 118,037,000
Investment securities(market value-$233,291,000
at March 31, 1995 and $231,461,000 at
December 31, 1994) 238,389,000 242,846,000
Loans
Commercial, financial, and agricultural 202,730,000 208,491,000
Real estate:
Single family residential 531,833,000 527,434,000
Commercial 305,019,000 300,679,000
Construction 14,065,000 16,919,000
Other 14,403,000 14,706,000
Installment 234,967,000 233,866,000
-------------- --------------
1,303,017,000 1,302,095,000
Less: Unearned income (4,679,000) (5,018,000)
Allowance for loan losses (20,158,000) (20,008,000)
-------------- --------------
Net loans 1,278,180,000 1,277,069,000
Bank premises and equipment 30,426,000 30,769,000
Interest receivable 11,413,000 10,943,000
Other assets 24,784,000 25,214,000
-------------- --------------
TOTAL ASSETS $1,792,217,000 $1,787,641,000
============== ==============
LIABILITIES
Domestic deposits
Noninterest-bearing $ 229,769,000 $ 244,591,000
Interest-bearing 1,244,308,000 1,190,261,000
-------------- --------------
TOTAL DEPOSITS 1,474,077,000 1,434,852,000
Short-term borrowings
Federal funds purchased 2,901,000 4,582,000
Securities sold under agreements to repurchase 66,159,000 67,227,000
Federal Home Loan Bank borrowings 43,900,000 83,972,000
Accrued expenses and other liabilities 21,841,000 17,262,000
-------------- --------------
TOTAL LIABILITIES 1,608,878,000 1,607,895,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized-20,000,000 shares; issued and
outstanding-11,954,453 at March 31, 1995 and
December 31, 1994, including 152,770 and 137,520
shares in treasury at March 31, 1995 and
December 31, 1994, respectively 29,886,000 29,886,000
Surplus 32,247,000 32,331,000
Retained earnings 124,788,000 121,318,000
Net unrealized holding gain (loss)
on securities available for sale 123,000 (443,000)
Treasury stock (3,705,000) (3,346,000)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 183,339,000 179,746,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,792,217,000 $1,787,641,000
============== ==============
See notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended
March 31
------------------------
1995 1994
----------- -----------
INTEREST INCOME
Interest and fees on loans $27,672,000 $22,750,000
Interest on federal funds sold 237,000 65,000
Interest and dividends on securities:
Taxable 4,595,000 4,795,000
Exempt from federal taxes 837,000 892,000
Other interest income 26,000 31,000
----------- -----------
TOTAL INTEREST INCOME 33,367,000 28,533,000
----------- -----------
INTEREST EXPENSE
Interest on deposits 11,123,000 9,432,000
Interest on short-term borrowings 848,000 515,000
Interest on long-term borrowings 970,000 437,000
----------- -----------
TOTAL INTEREST EXPENSE 12,941,000 10,384,000
----------- -----------
NET INTEREST INCOME 20,426,000 18,149,000
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 450,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 19,976,000 17,699,000
----------- -----------
OTHER INCOME
Trust department income 779,000 823,000
Other charges, commissions, and fees 2,197,000 2,074,000
Other income 163,000 216,000
Investment securities gains 107,000
----------- -----------
TOTAL OTHER INCOME 3,139,000 3,220,000
----------- -----------
OTHER EXPENSES
Salaries and employee benefits 5,590,000 5,591,000
Net occupancy expense 1,190,000 1,108,000
Other expense 5,856,000 4,968,000
----------- -----------
TOTAL OTHER EXPENSES 12,636,000 11,667,000
----------- -----------
INCOME BEFORE INCOME TAXES 10,479,000 9,252,000
INCOME TAXES 3,582,000 3,158,000
----------- -----------
NET INCOME $ 6,897,000 $ 6,094,000
=========== ===========
Earnings per common share $0.58 $0.51
Average outstanding shares 11,809,055 11,929,809
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, 1995
-----------------------------------------------------------------------------------------------
Net
Unrealized
Common Stock Gain on
------------------------ Securities Total
Par Retained Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
---------- ------------ ----------- ------------- ----------- ------------ --------------
Balance at
January 1, 1995 11,954,453 $29,886,000 $32,331,000 $121,318,000 ($443,000) ($3,346,000) $179,746,000
Net Income 6,897,000 6,897,000
Cash dividends
($.29 per share) (3,427,000) (3,427,000)
Net change in
unrealized gain/
(loss) on securities
available for sale 566,000 566,000
Purchase of treasury
stock (573,000) (573,000)
Common stock options
exercised (84,000) 214,000 130,000
---------- ----------- ----------- ------------ ---------- ----------- -------------
Balance at
March 31, 1995 11,954,453 $29,886,000 $32,247,000 $124,788,000 $ 123,000 ($3,705,000) $183,339,000
========== =========== =========== ============ ========== =========== =============
See notes to consolidated financial statements
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended
March 31
---------------------------
1995 1994
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 11,493,000 $ 9,990,000
INVESTING ACTIVITIES
Proceeds from maturities and calls of
investment securities 4,305,000 39,896,000
Purchases of investment securities (16,591,000)
Proceeds from sales of securities
available for sale 238,000
Proceeds from maturities and calls of
securities available for sale 16,973,000 273,000
Purchases of securities available for sale (5,011,000) (298,000)
Net purchase of bank premises and equipment (268,000) (1,618,000
Changes in:
Loans (1,202,000) (20,631,000)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 14,797,000 1,269,000
------------ ------------
FINANCING ACTIVITIES
Cash dividends paid (3,427,000) (3,095,000)
Acquisition of treasury stock (573,000)
Proceeds from exercise of stock options 130,000 172,000
Repayment of long-term borrowings (40,072,000)
Proceeds from long-term borrowings 5,000,000
Changes in:
Deposits 39,225,000 4,722,000
Federal funds purchased and securities
sold under agreements to repurchase (2,749,000) 35,413,000
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (7,466,000) 42,212,000
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 18,824,000 53,471,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 82,763,000 60,850,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $101,587,000 $114,321,000
============ ============
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
1994 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, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan, "(SFAS No.
114)" which was amended by Statement No. 118 and is effective for fiscal years
beginning after December 15, 1994. Under the new standard, the 1995 allowance
for credit losses related to loans that are identified for evaluation in
accordance with SFAS No. 114 is based on discounted cash flows using the loan's
initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Prior to 1995, the allowance for credit losses
related to these loans was based on undiscounted cash flows or the fair value of
the collateral for collateral dependent loans. The adoption of SFAS No. 114 did
not have a material impact on the allowance for loan losses.
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.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
3. SECURITIES AVAILABLE FOR SALE
The book and estimated fair value of securities available for sale at March 31,
1995, by contractual maturity are as follows:
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 53,828,000 $ 53,859,000
Due after one year through five years 42,523,000 42,588,000
Due after five years through ten years 899,000 902,000
Due after ten years 8,320,000 8,073,000
Marketable equity securities 1,679,000 2,016,000
------------ ------------
Total $107,249,000 $107,438,000
============ ============
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
March 31, 1995
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- -------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 96,210,000 $358,000 $261,000 $ 96,307,000
Marketable equity
securities 1,679,000 398,000 61,000 2,016,000
Other 9,360,000 3,000 248,000 9,115,000
------------ -------- -------- ------------
Total $107,249,000 $759,000 $570,000 $107,438,000
============ ======== ======== ============
At March 31, 1995, the cumulative net unrealized holding gain on available for
sale securities resulted in an increase of $123,000 to shareholders' equity.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
3. SECURITIES AVAILABLE FOR SALE - continued
The book and estimated fair value of securities available for sale at December
31, 1994, by contractual maturity are as follows:
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 57,934,000 $ 57,655,000
Due after one year through five years 45,408,000 44,991,000
Due after five years through ten years 1,040,000 1,043,000
Due after ten years 12,808,000 12,551,000
Marketable equity securities 1,529,000 1,797,000
------------ ------------
Total $118,719,000 $118,037,000
============ ============
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
December 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 $103,292,000 $127,000 $ 774,000 $102,645,000
Marketable equity
securities 1,529,000 293,000 25,000 1,797,000
Other 13,898,000 2,000 305,000 13,595,000
------------ -------- ---------- ------------
Total $118,719,000 $422,000 $1,104,000 $118,037,000
============ ======== ========== ============
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities are
summarized as follows:
March 31, 1995
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- ------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 85,483,000 $ 248,000 $2,135,000 $ 83,596,000
State and political
subdivisions 51,310,000 1,457,000 209,000 52,558,000
Mortgage-backed
securities 94,571,000 50,000 4,483,000 90,138,000
Other 7,025,000 26,000 6,999,000
------------ ---------- ---------- ------------
Total $238,389,000 $1,755,000 $6,853,000 $233,291,000
============ ========== ========== ============
The amortized cost and estimated fair values of investment securities are
summarized as follows:
December 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 $ 84,843,000 $ 66,000 $ 3,438,000 $ 81,471,000
State and political
subdivisions 53,297,000 971,000 1,076,000 53,192,000
Mortgage-backed
securities 97,644,000 7,805,000 89,839,000
Other 7,062,000 103,000 6,959,000
------------ ---------- ----------- ------------
Total $242,846,000 $1,037,000 $12,422,000 $231,461,000
============ ========== =========== ============
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
4. INVESTMENT SECURITIES - continued
The amortized cost and estimated fair value of debt securities at March 31,
1995, and December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
March 31, 1995
-----------------------------
Estimated
Book Fair
Value Value
------------- -------------
Due in one year or less $ 16,958,000 $ 17,024,000
Due after one year through
five years 133,736,000 131,921,000
Due after five years
through ten years 35,497,000 34,446,000
Due after ten years 52,198,000 49,900,000
------------ ------------
Total $238,389,000 $233,291,000
============ ============
The table above includes $94,571,000 of mortgage-backed securities with an
estimated market value of $90,138,000. Maturities of the mortgage-backed
securities are based upon the estimated average life.
December 31, 1994
----------------------------
Estimated
Book Fair
Value Value
------------- -------------
Due in one year or less $ 11,317,000 $ 11,406,000
Due after one year through
five years 140,685,000 136,281,000
Due after five years
through ten years 36,565,000 33,994,000
Due after ten years 54,279,000 49,780,000
------------ ------------
Total $242,846,000 $231,461,000
============ ============
The table above includes $97,644,000 of mortgage-backed securities with an
estimated market value of $89,839,000. Maturities of the mortgage-backed
securities are based upon the estimated average life.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
5. NONPERFORMING LOANS
Nonperforming loans are summarized as follows:
March 31 December 31
1995 1994
-------- -----------
(in thousands)
Loans past due 90 days or more
and still accruing interest $2,569 $2,303
Troubled debt restructurings - -
Nonaccrual loans 3,935 3,733
------ --------
$6,504 $6,036
====== ========
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. There
were no troubled debt restructured loans at March 31, 1995 or
December 31, 1994.
6. 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,
---------------------
1995 1994
-------- ---------
(in thousands)
Balance at beginning of
period $20,008 $19,015
Provision charged to expense 450 450
------- -------
20,458 19,465
Loans charged-off (439) (348)
Less recoveries 139 169
------- -------
Net Charge-offs (300) (179)
------- -------
Balance at end of period $20,158 $19,286
======= =======
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Effective January 1, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan," (SFAS No.
114). As a result of applying the new rules prescribed by SFAS No. 114, certain
loans are being reported at the present value of expected future cash flows
using the loan's effective interest rate, or as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. At the time of adoption of SFAS No. 114, United had
approximately $8,000,000 of loans which were considered impaired in accordance
with the guidelines as prescribed by SFAS No. 114. Under SFAS No. 114, a loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due (contractual
interest and principal) according to the contractual terms of the loan
agreement. The adoption of SFAS No. 114 did not have a material impact on the
allowance for loan losses.
At March 31, 1995, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $7,929,000 (of which $3,449,000 were on a
nonaccrual basis). Included in this amount is $5,889,000 of impaired loans for
which the related allowance for credit losses is $3,044,000 and $2,040,000 of
impaired loans that do not have an allowance for credit losses due to
management's estimate that the fair value of the underlying collateral of these
loans is sufficient for full repayment of the loan and interest. The average
recorded investment in impaired loans during the quarter ended March 31, 1995
was approximately $7,533,000. For the three months ended March 31, 1995, United
recognized interest income on those impaired loans of approximately $111,000,
substantially all of which was recognized using the accrual method of income
recognition.
7. 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
$23,839,000 and $15,022,000 at March 31, 1995 and December 31, 1994,
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.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--Continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
8. 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,
1995, and March 31, 1994, with the interest rate earned or paid on such
amount.
Three Months Ended Three Months Ended
March 31 March 31
1995 1994
----------------------------- ------------------------------
(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 $ 15,418 $ 237 6.23% $ 8,375 $ 65 3.15%
Investment Securities:
Taxable 302,681 4,621 6.11% 353,498 4,795 5.43%
Tax-exempt (1) 52,183 1,288 9.87% 52,765 1,372 10.40%
---------- ------- ---- ---------- -------- -----
Total Securities 354,864 5,909 6.66% 406,263 6,167 6.07%
Loans, net of unearned
income (1) (2) 1,295,547 27,967 8.75% 1,192,447 23,053 7.84%
Allowance for possible loan
losses (20,149) (19,169)
---------- ----------
Net loans 1,275,398 8.89% 1,173,278 7.97%
---------- ----------
Total earning assets 1,645,680 $34,113 8.39% 1,587,916 $29,285 7.46%
------- ---- -------- -----
Other assets 135,934 134,265
---------- ----------
TOTAL ASSETS $1,781,614 $1,722,181
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,215,174 $11,123 3.71% $1,200,662 $ 9,438 3.19%
Federal funds purchased,
repurchase agreements and
other short-term borrowings 76,139 854 4.55% 71,156 516 2.94%
FHLB advances 62,651 964 6.24% 36,257 430 4.81%
---------- ------- ---- ---------- -------- -----
Total Interest-Bearing Funds 1,353,964 12,941 3.88% 1,308,075 10,384 3.22%
------- ---- -------- -----
Demand deposits 224,920 224,270
Accrued expenses and other
liabilities 19,747 15,300
---------- ----------
TOTAL LIABILITIES 1,598,631 1,547,645
Shareholders' Equity 182,983 174,536
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,781,614 $1,722,181
========== ==========
NET INTEREST INCOME $21,172 $18,901
======= ========
INTEREST SPREAD 4.51% 4.24%
NET INTEREST MARGIN 5.20% 4.81%
(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.
17
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 first quarter of 1995 was a record $6.90 million or $.58 per
share compared to $6.09 million or $.51 per share for the first quarter of 1994.
This represents a 13.18% increase in net income and a 13.73% increase in
earnings per share. United's annualized return on average assets of 1.55% and
return on average shareholders' equity of 15.29% both compare excellently with
regional and national peer groups.
United has strong core earnings driven by a net interest margin of 5.20% for the
first three months of 1995. Net interest income increased 12.55% and remained
strong and showed improvement for the first three months of 1995 as compared to
the same period for 1994. The provision for possible loan losses remained level
when comparing the first three months of 1995 to the first three months of 1994
due to excellent asset quality and very low charge-offs.
18
Noninterest income decreased 2.52% for the first quarter of 1995 when compared
to the first three months of 1994. This overall decrease in noninterest income
is primarily attributed to a decrease in gains on security transactions. Other
income before security transactions was flat when compared to the first quarter
of 1994. Noninterest expenses increased 8.31% for the first quarter. This
increase was due to merger and reengineering expenses. Management's cost
containment efforts have continued to be successful in controlling core
noninterest expenses. Income taxes were higher for the first quarter than for
the same periods of 1994, with an effective tax rates of 34.2% as compared to
34.1% for first quarter of 1994.
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 first quarter of 1995, when
compared to the same period of 1994. The net interest margin is the main factor
in United's profitability momentum. Net interest income before the provision
for possible loan losses increased $2,277,000 or 12.55% the first quarter of
1995 as compared to the first quarter of 1994. The increase is largely due to
the repricing of variable rate loans at higher interest rates. United's tax-
equivalent net interest margin rose from 4.81% in the first quarter of 1994 to
5.20% in the first quarter of 1995. Additionally, the tax-equivalent net
interest margin showed an improvement over that achieved for the year ended
December 31, 1994 of 4.97%. The combination of an improved net interest spread
and moderate increases in rates on interest-bearing deposits compared to the
first three months of 1994 have helped United generate a stronger interest
margin.
PROVISION FOR POSSIBLE LOAN LOSSES
For both of the quarters ended March 31, 1995 and 1994, the provision for
possible loan losses was $450,000. The allowance for possible loan losses as a
percentage of loans, net of unearned income, held at 1.6% at March 31, 1995, as
compared to December 31, 1994, and March 31, 1994.
Credit quality is another major factor in United's excellent profitability.
United's continued improvement in credit quality is evidenced by the low level
of nonperforming assets at the end of the first quarter of 1995. Charge-offs
exceeded recoveries during the first quarter of 1995 resulting in net charge-
offs of $300,000 while net charge-offs for the first quarter of 1994 were
$179,000. Note 6 to the accompanying unaudited consolidated financial
19
statements provides a progression of the allowance for possible loan losses.
Loans, net of unearned income, remained flat during the first quarter of 1995
since year end 1994. In the first three months of 1995, 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 were $6,504,000 at March 31, 1995 and $6,036,000 at year-end
1994. Nonperforming loans, as a percentage of loans, net of unearned income,
increased from 0.47% to 0.50% 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
$266,000 or 11.55% during the first quarter of 1995; while nonaccrual loans
increased $202,000 or 5.41% since year-end 1994. Even with the slight increase,
in nonperforming loans, total nonperforming assets represented less than 0.43%
of total assets at the end of the first quarter, which is approximately one-half
of the national peer levels.
As of March 31, 1995, the ratio of the allowance for loan losses to
nonperforming loans was 309.9% as compared to 331.5% as of December 31, 1994.
Accordingly, management believes that the allowance for loan losses of
$20,158,000 as of March 31, 1995, 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.
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. The decrease
20
realized in total noninterest income for the first quarter of 1995, was
insignificant. Other income, excluding securities gains, increased slightly
over the first quarter of 1994. 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 slight decrease in noninterest income was in the areas of trust income and
fees from customer accounts for which a fee is charged. Trust income declined
from the first quarter of 1994 by 5.35%.
OTHER EXPENSES
Other expenses include all items of expense other than interest expense, the
provision for possible loan losses, and income taxes. Other expenses increased
$969,000 or 8.31% to $12,636,000 in the first quarter of 1995 as compared to
$11,667,000 for the first quarter of 1994. The increase for the first quarter
resulted primarily from merger expenses related to the recently announced
acquisition and expenses related to a reengineering study.
Total salaries and benefits remained identical for the first quarter of 1995
when compared to the same periods of 1994. In addition, net occupancy expense
increased only $81,000 or 7.33% when compared to the first quarter of 1994.
Other expenses increased $888,000 or 17.87% for the first quarter of 1995 as
compared to the same period of 1994. The increase in other expenses for the
three month period relates primarily to nonrecurring expenses.
INCOME TAXES
Income tax expense for the three months ended March 31, 1995 and 1994 was
$3,582,000 and $3,158,000, respectively. This increases of 13.41% for the
quarter is the result of increased pretax income, decreased tax-exempt income
and increased statutory federal tax rates. United's effective tax rate was
34.2% for the first quarter of 1995 compared to 34.1% for the first quarter of
1994.
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
21
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 contained herein, 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 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
$140,964,000 or 8.44% 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 uses 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, 1995, the total
notional amount of interest rate swaps in effect was only $50 million. The
current maturity of the swap portfolio is one year and ten months. During the
first quarter of 1995, interest rate swaps reduced net interest income by
$196,000 as compared to an increase of $101,000 for the same period in 1994.
22
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.
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.
23
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of March 31,
1995:
Interest Rate Sensitivity Gap
Days
------------------------------ Total 1 - 5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
--------- ---------- --------- ---------- -------- ---------- --------
(In Thousands)
ASSETS
Interest-Earning Assets:
Federal funds sold and
securities purchased under
agreements to resell and
other short-term
investments $ 26,425 $ 26,425 $ 26,425
Investment and Marketable
Equity Securities:
Taxable 20,859 $ 6,110 $ 49,574 76,543 $ 155,571 $ 61,725 293,839
Tax-exempt 2,956 4,767 3,899 11,622 19,267 21,099 51,988
Loans, net of unearned
income 542,875 74,161 123,733 740,769 329,909 227,660 1,298,338
--------- ---------- --------- ---------- --------- ---------- ----------
Total Interest-Earning
Assets $ 593,115 $ 85,038 $ 177,206 $ 855,359 $ 504,747 $ 310,484 $1,670,590
========= ========== ========= ========== ========= ========== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 647,784 $ 647,784 $ 647,784
Time deposits of
$100,000 & over 26,728 $ 9,520 $ 19,500 55,748 $ 23,481 79,229
Other time deposits 110,006 114,636 103,433 328,075 187,303 $ 1,917 517,295
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 69,060 69,060 69,060
FHLB advances 43,900 43,900 43,900
--------- ---------- --------- ---------- --------- ---------- ----------
Total Interest-Bearing
Funds $ 897,478 $ 124,156 $ 122,933 $1,144,567 $ 210,784 $ 1,917 $1,357,268
========= ========== ========= ========== ========= ========== ==========
Interest Sensitivity
Gap $(304,363) $ (39,118) $ 54,273 $ (289,208) $ 293,963 $ 308,567 $ 313,322
========= ========== ========= ========== ========= ========== ==========
Cumulative Gap $(304,363) $ (343,481) $(289,208) $ (289,208) $ 4,755 $ 313,322 $ 313,322
========= ========== ========= ========== ========= ========== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -18.22% -20.56% -17.31% - 17.31% 0.28% 18.76% 18.76%
Management
Adjustments 600,215 (40,015) (80,028) 480,172 (480,172) 0
Off-Balance
Sheet Activities (50,000) (50,000) (50,000)
--------- ---------- --------- ---------- --------- ---------- ----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 245,852 $ 166,719 $ 140,964 $ 140,964 $ (45,245) $ 263,322 $ 263,322
========= ========== ========= ========== ========= ========== ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 14.72% 9.98% 8.44% 8.44% -2.71% 15.76% 15.76%
24
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of
December 31, 1994:
Interest Rate Sensitivity Gap
Days
--------------------------------- Total 1 - 5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
--------- ---------- --------- ---------- --------- ---------- ---------
(In Thousands)
ASSETS
Interest-Earning Assets:
Investment and Marketable
Equity Securities:
Taxable $ 25,472 $ 10,673 $ 45,222 $ 81,367 $ 162,115 $ 64,782 $ 308,264
Tax-exempt 1,440 2,953 5,883 10,276 21,379 20,964 52,619
Loans, net of unearned
income 527,711 81,089 129,862 738,662 409,341 149,074 1,297,077
--------- ---------- --------- ---------- --------- ---------- ----------
Total Interest-Earning
Assets $ 554,623 $ 94,715 $ 180,967 $ 830,305 $ 592,835 $ 234,820 $1,657,960
========= ========== ========= ========== ========= ========== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 658,187 $ 658,187 $ 658,187
Time deposits of
$100,000 & over 22,654 $ 13,875 $ 11,504 48,033 $ 27,565 75,598
Other time deposits 114,102 91,208 81,641 286,951 169,525 456,476
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 71,809 71,809 71,809
FHLB advances 73,972 10,000 83,972 83,972
--------- ---------- --------- ---------- --------- ---------- ----------
Total Interest-Bearing
Funds $ 940,724 $ 115,083 $ 93,145 $1,148,952 $ 197,090 $1,346,042
========= ========== ========= ========== ========= ========= ==========
Interest Sensitivity
Gap $(386,101) $ (20,368) $ 87,822 $ (318,647) $ 395,745 $ 234,820 $ 311,918
========= ========== ========= ========== ========= ========== ==========
Cumulative Gap $(386,101) $ (406,469) $(318,647) $ (318,647) $ 77,098 $ 311,918 $ 311,918
========= ========== ========= ========== ========= ========== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -23.29% -24.52% 19.22% - 19.22% 4.65% 18.81% 18.81%
Management
Adjustments 616,828 (41,121) (82,244) 493,463 (493,463) 0
Off-Balance
Sheet Activities (50,000) (50,000) (50,000)
--------- ---------- --------- ---------- --------- ---------- ----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 180,727 $ 119,238 $ 124,816 $ 124,816 $ 27,098 $ 261,918 $ 261,918
========= ========== ========= ========== ========= ========== ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 10.90% 7.19% 7.53% 7.53% 1.63% 15.80% 15.80%
25
For the three months ended March 31, 1995, United generated $11,493,000 of cash
from operations, which is indicative of solid earnings performance. During the
same period, net cash of $14,797,000 was provided by investing activities which
was primarily due to the proceeds from maturities and calls of securities not
being reinvested into the investment portfolio. Uses of cash and cash
equivalents during the first three months were used by financing activities
totaling $7,466,000, which were largely comprised of repayments of $40,072,000
of FHLB advances which were partially offset by increases in deposits. The net
effect of this activity was an increase in cash and cash equivalents of
$18,824,000 for the first three months of 1995.
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.
Total shareholders' equity increased to $183,339,000 which is an increase of
2.00% from December 31, 1994. United's equity to assets ratio was 10.23% at
March 31, 1995 and 10.05% at December 31, 1994. Capital and reserves to total
assets increased from 11.17% at December 31, 1994, to 11.35% at March 31, 1995.
The first quarter dividend of $.29 per common share represents an increase of
11.5% over the first quarter of 1994. Total cash dividends paid were $3,427,000
for the first quarter of 1995, an increase of 10.69% over the comparable period
in 1994.
United's risk-based capital ratios of 15.74% at March 31, 1995 and 15.52% at
December 31, 1994, are both considerably in excess of the current requirement of
8.00%. Total risk-based capital at March 31, 1995 and December 31, 1994 of
$188,193,000 and $184,595,000, respectively, exceeded the regulatory minimum
requirement by $92,527,000 and $89,470,000, 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, 1995, amounted to 152,770 shares
at a cost of $3,705,000. 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.
26